Brazilian law defines that the concession of the legal institution of Recuperação Judicial (Judicial Recovery) can only be granted by magistrates if the company which is going through financial crisis submits a CND (Negative Certificate of Tax Debts) or a CPEN (Positive Certificate with Negative Effect) — as provides the Law 11.101/05 in its 57th article.

Therefore, it means that companies could only seize the benefits of Judicial Recovery if their tax situation is up to date. Otherwise, bankruptcy must be decreted.

It turns out that the Superior Tribunal de Justiça (Superior Court of Justice), in recent precedents, has understood that this legal requirement was going against the spirit of the law (which is preserve productive sources), once that, in 90% of the cases, companies are classified as insolvents when they have high tax debts with the Estate.

The superior Courts understands that the prevalence of public credits must not jeopardize the preservation of the economical activities of business who find themselves in crises, once it would harm the workers. The purpose of Judicial Recovery is to sustain economical order, assuring the maintenance of work contracts, of supplier’s payments and of the socioeconomical circle of where the company is situated.

The current case law’s positioning is enabling many companies to enter with the request for judicial recovery in order to remedy their debts and restore their financial health – adopting one or more means of recovery arranged in Law 11.101/05.