Judicial reorganization plan: how it works
The judicial reorganization plan is the central document of the proceeding that seeks to restructure companies in crisis. Understanding its logic helps clarify how negotiation with creditors usually takes place.
What the reorganization plan is
The judicial reorganization plan is the proposal presented by the company in crisis to restructure its debts and keep operating. In general, it describes the means of overcoming the situation and the conditions offered to creditors.
When the plan is presented
After the reorganization proceeding is granted for processing, the company usually has a period, set out in the Reorganization Law, to present the plan. Failure to meet this deadline may have consequences, depending on the case.
What the plan usually provides for
- Payment methods and any grace periods
- Discounts or restructuring of the amounts owed
- Disposal of assets or corporate reorganization
- Operational measures to resume activity
The role of creditors
Creditors play a central part. The plan is usually submitted for their deliberation, which may take place at a general meeting. Approval follows rules on classes and quorums set out in the legislation, and the outcome depends on the specific case.
Confirmation and compliance
Once approved, the plan undergoes judicial confirmation and the company is bound to comply with it. Monitoring compliance is relevant, since non-compliance may have effects provided for in the law.
Frequently asked questions
Do all creditors need to approve the plan?
Not necessarily. Approval follows the rules on classes and quorums set out in the Reorganization Law. In certain circumstances, the plan may be approved even without unanimity, depending on the case.
What happens if the plan is not complied with?
Non-compliance with the plan may have consequences provided for in the legislation, which vary according to the stage and the circumstances. That is why monitoring compliance is usually important.
Need guidance on this topic?
This article is informational. For guidance on your specific case, talk to our team.