A Q&A guide to restructuring and insolvency law in Brazil.
The Q&A gives a high level overview of the most common forms of security granted over immovable and movable property; creditors' and shareholders' ranking on a company's insolvency; mechanisms to secure unpaid debts; mandatory set-off of mutual debts on insolvency; state support for distressed businesses; rescue and insolvency procedures; stakeholders' roles; liability for an insolvent company's debts; setting aside an insolvent company's pre-insolvency transactions; carrying on business during insolvency; additional finance; multinational cases; and proposals for reform.
To compare answers across multiple jurisdictions, visit the Restructuring and insolvency Country Q&A tool.
This Q&A is part of the PLC multi-jurisdictional guide to restructuring and insolvency law. For a full list of jurisdictional Q&As visit www.practicallaw.com/restructure-mjg.
Common forms of security. One of the most common forms of security granted over immovable property is a mortgage. This creates a lien over immovable property and its accessories, including:
Everything incorporated into the soil, such as trees, fountains and plants.
Everything the owner intentionally maintains on the property for:
industrial exploitation, such as machines and equipment;
comfort or improvement.
These goods fall within the definition of immovable assets (that is assets that cannot be moved from the property without prejudice to their original structure).
Formalities. The procedures for creating a mortgage depend on the value of the immovable property being mortgaged. For example, if the value of the property is:
Lower than 30 times the lawful minimum wage (about US$10,500) (as at 1 March 2012, US$1 was about EUR0.7) the mortgage can be documented by private act (that is, an agreement that is not executed before a Public Authority).
Higher than 30 times the lawful minimum wage, the mortgage must be:
documented by a public deed (that is, an act that is executed and only enforceable before a Public Authority); and
certified by a notary.
The mortgage deed or private act must be all of the following:
registered before the local Real Estate Registry Office (Cartório de Registro de Imóveis);
executed in the Portuguese language;
governed by Brazilian law.
In a judicial reorganisation, the priority of repayment is subject to the terms and conditions of the reorganisation plan. In bankruptcy proceedings, the claim secured by a mortgage is classified as a secured claim and is prioritised as such (see Question 2).
See also below, Fiduciary transfer, (Alienação fiduciária).
Effects of non-compliance. Non-compliance with the above formalities may prevent or encumber the existence of the pledge.
Common forms of security. One of the most common forms of security granted over movable property is a pledge. This creates a lien over movable assets. There are different types of pledge, depending on the type of asset that is pledged, including:
Rural pledge.
Industrial or commercial pledge.
Pledge of rights or securities.
Vehicles pledge.
Legal pledge.
Formalities. The procedures for creating a pledge depend on the type of asset that is pledged. In any case, the pledge agreement may be executed by private act or public deed, and must be registered before the relevant Registry of Deeds and Documents or Real Estate Registry Office, depending on the specific case.
The priority of pledges for bankruptcy or judicial reorganisation proceedings is the same as for mortgages (see above, Immovable property).
See also below, Fiduciary transfer, (Alienação fiduciária).
Effects of non-compliance. Non-compliance with the above formalities may prevent or encumber the existence of the pledge.
Ownership of a movable or immovable asset is transferred by the debtor to its creditor for a certain period of time, as a guarantee for the debt. Once the debtor's obligations to the creditor are paid in full, ownership of the asset is restored to the debtor. Although a fiduciary transfer requires the transfer of legal ownership, it is not necessary to physically transfer the asset to the debtor.
It is very common for the debtor to remain in possession of the asset, usually in real estate financing situations. In this case, the debtor holds the property as trustee for the creditor and is liable for any damages that may be caused to the asset. As ownership is transferred to the creditor, the asset used as security is not subject to the debtor's insolvency proceedings.
The fiduciary transfer is governed by either:
Private act.
Public deed.
Depending on the type of asset, the private act or public deed must be registered with either the:
Real Estate Registry (for immovable property).
Registry of Title and Deeds (Registro de Títulos e Documentos) (for movable property).
These formalities are necessary for the transfer of the ownership of the asset. If the debtor retains the physical possession of the asset and becomes insolvent, the creditor can:
Initiate specific proceedings to take possession of the asset, such as search and seizure (for movable assets).
Take the necessary measures to initiate the sale of the asset (for immovable assets).
For Bankruptcy proceedings, Law No. 11.101/2005 (Bankruptcy Law) establishes the following order for payment:
Payment of the judicial administrator and its assistants, and labour debts arising from services performed by the debtor's employees after the bankruptcy decree.
Funds provided by creditors to the bankruptcy estate.
Expenses from the collection, administration and sale of the bankruptcy estate assets, as well as from the distribution of the sale proceeds and costs incurred in connection with liquidation proceedings.
Court fees relating to legal and enforcement proceedings in which the bankruptcy estate has not prevailed.
Obligations arising from juridical acts practised during judicial reorganisation proceedings, or after the bankruptcy decree, and taxes relating to taxable events which have taken place after the bankruptcy decree.
Labour debts limited to a maximum of 150 times the Brazilian minimum wage per creditor. These claims include:
employees wages;
claims related to employment-related accidents;
other amounts owed to employees as a result of services performed prior to the bankruptcy decree;
indemnification due by the employer to the employee; and
commission and indemnification owed to mercantile agents.
Secured claims (that is, creditors with a guarantee in rem, such as a mortgage or pledge) up to the value of the pledged asset.
Tax claims (regardless of their nature and length of constitution). This does not include tax-related fines.
Claims with special privileges.
Claims with general privileges.
Unsecured debts.
Contractual penalties and fines for breach of criminal or administrative laws, including tax-related fines.
Subordinated debts, including amounts due to shareholders or managers without an employment relationship.
During bankruptcy proceedings, the first six creditors listed above take priority over secured creditors. The proceeds from the sale of the debtor's assets or collateral are used, initially, to pay these creditors.
Any remaining proceeds are used to pay secured creditors. Secured creditors are paid from the sale proceeds of the relevant assets. If this is not enough to pay the entirely of the secured claims, the balance due is considered an unsecured debt. If the sale proceeds exceed the amount of secured claims, the balance will be used to pay the other creditors, in the priority order listed above.
A trade creditor can require the debtor to secure obligations by executing surety bonds (seguro garantia). The insurance company provides these to the creditor. When using a surety bond, the insurer contracts with the debtor to agree the amount of risk that the insurer will cover in the event of default by the debtor, up to a specified limit. The amount of risk to be covered is based on the criteria set out in the:
Insurance policy.
Rules issued by the relevant regulatory agency.
Only an insurer authorised by the relevant Brazilian regulatory agency can issue a surety bond policy, provided the policy meets certain requirements set by the applicable law.
An unpaid creditor can attempt to recover an outstanding debt in the following ways:
Protest of bill. A creditor who holds a credit bill proving the net amount of an unpaid debt can register the debtor's default with a Protest Registry (Registro de Protesto). The debtor is notified and must pay the outstanding debt before the Protest Registry. If the debtor does not pay the outstanding debt before the Protest Registry, the creditor cannot collect its credit outside of court proceedings.
Collection proceedings. A creditor can file proceeding to seek a judgment which forces the debtor to recognise its obligation to pay the debt. The success of these proceedings depends on the available evidence of the debt.
Foreclosure proceedings. These proceedings are based on a debt instrument and are faster than collection proceedings. Foreclosure proceedings enable the creditor to immediately seize the debtor's assets to secure the debt.
Set-off is a mechanism to discharge mutual obligations between reciprocal creditors and debtors, and occurs by operation of law.
To qualify for discharge by setting-off, mutual debts must be all of the following:
Certain (that is, their nature, quality and quantity must be clearly expressed and determined).
Matured.
Comparable (that is, of the same nature).
The set-off does not need to be regulated by a specific provision in the agreement. However, the parties can expressly agree that the set-off will not apply to their relationship and have discretion to waive the right to set-off debts.
In a bankruptcy, the set-off of debts due before the bankruptcy decree takes priority over all other creditors. In reorganisation proceedings, the set-off of mutual debts is expressly provided for in the reorganisation plan. This is to prevent other creditors from rejecting the set-off and alleging that it provides a more advantageous treatment to creditors whose claims are subject to reorganisation proceedings.
In the case of a cross-border debt recovery, the following rules apply:
Judgement debts. The Superior Tribunal de Justiça must confirm the judgement.
Debt instruments. As a general rule, the debt instrument must comply with the law of the place in which it was executed, and Brazil must be appointed as the place of payment.
The state generally provides:
Credit support and finance for developing businesses.
Tax benefits, creating more convenient payment conditions for outstanding tax debts.
However, these support programmes are not available to distressed businesses facing bankruptcy proceedings.
Article 68 of the Bankruptcy Law provides that tax authorities can provide companies facing judicial reorganisation proceedings with more favourable treatment through special programmes governed by specific laws. However, the tax authorities have not yet developed these programmes.
Objective. The objectives of bankruptcy proceedings are to:
Liquidate all the company's assets and rights.
Pay the creditors according to the priority order set by law (see Question 2).
Initiation. Proceedings are initiated when a creditor makes a petition to a Brazilian Bankruptcy Court (Court) for a bankruptcy decree (decretação da falência). The Court must approve the creditor's petition for a bankruptcy decree. In addition, the creditors can hold a meeting to:
Decide whether to form a committee of creditors.
Liquidate the debtor's assets through mechanisms not expressly provided by law.
Discuss any other subject that may affect creditors' interests.
Under the Bankruptcy Law, a debtor undergoing an economic and financial crisis with no conditions to meet the requirements for judicial reorganisation is legally required to initiate bankruptcy proceedings.
Substantive tests. The creditor who initiates the bankruptcy proceedings must prove one of the following:
The debtor's default in performing obligations equivalent to at least 40 times the minimum Brazilian wage (about US$14,000). Two or more creditors can initiate the proceedings jointly to reach the required amount.
The debtor's default in foreclosure proceedings in relation to:
the payment of an outstanding debt;
the deposit in court of an outstanding debt; or
an asset used to secure the amount of the outstanding debt.
That the debtor has performed actions that, under Brazilian law, indicate that it is insolvent, such as:
the transfer of an asset without the consent of all its creditors;
the sale of all its assets.
Supervision and control. The debtor's assets, business and rights are transferred to the bankruptcy estate, under the control of the judicial administrator. The judicial administrator is appointed by the Court.
Protection from creditors. As a general rule, the bankruptcy decree suspends the following in relation to the bankrupt debtor:
Legal proceedings.
Foreclosure proceedings.
Length of procedure. There is no time limit for the conclusion of liquidation proceedings. Typically, proceedings can last for at least five years.
Conclusion. The bankruptcy decree has the following effects:
The statute of limitation in relation to rights held against the debtor is suspended.
All legal proceedings and collection proceedings against the defendant are suspended.
Any existing debts against the debtor and its fully and jointly liable shareholders mature early.
Once the debtor's assets are sold and the proceeds distributed among the creditors, the judicial administrator must draw up and present the financial statements of the bankruptcy proceedings to the Court within 30 days. The financial statements must be approved by the Court. A final report must then be issued by the judicial administrator within a further ten days, comprising the company's remaining obligations and liabilities.
Bankruptcy proceedings are concluded with the liquidation of the company's assets and payment of the creditors. After this, the judicial administrator will relinquish the account related to the proceedings. The company is then usually dissolved.
The Bankruptcy Law does not state whether a company can continue its business activities after the conclusion of proceedings (unlike the old Brazilian bankruptcy law). However, if a bankrupt company continues its business activities during proceedings, and is still economically and financially viable, there is no reason it must be dissolved.
Objective. The objectives of judicial reorganisation proceedings are to enable the debtor to overcome its financial difficulties while continuing its regular business activities.
Initiation. The debtor must file an application before the Court, evidencing that it has:
Regularly performed its regular business activities for at least two years before the application.
Not faced liquidation proceedings before (or if it has, has had all its obligations and liabilities judicially extinguished).
Not been granted a judicial reorganisation in the past five years (or eight years if the insolvent company was classified as a small enterprise at the time of the first judicial reorganisation).
Not been found guilty, or had any of its managers or shareholders found guilty of bankruptcy crimes.
Judicial reorganisation proceedings can be converted into bankruptcy proceedings in any of the following situations:
The debtor does not present the reorganisation plan.
The reorganisation plan is rejected by the majority of the creditors at a creditors' meeting.
Once the reorganisation plan is approved by the creditors and ratified by the Court, the debtor fails to comply with the obligations established in the reorganisation plan during the next two years (see below, Length of procedure).
If the necessary legal requirements are met, the debtor is granted the opportunity to judicially reorganise itself.
Once the Court decides that reorganisation proceedings should be commenced, the debtor must file a reorganisation plan within 60 days. The reorganisation plan must:
Demonstrate the feasibility of the debtor's reorganisation.
Describe the mechanisms for reorganisation.
Comprise an appraisal report of the debtor's assets.
A creditors' meeting must be convened for the purpose of deliberating and voting on the terms of the reorganisation plan. For the reorganisation plan to be approved at the meeting, both:
In the case of secured and unsecured creditors, the approval of more than 50% of the total present at the meeting and by simple majority of those present must be obtained.
In the case of creditors resulting from labour claims, the approval of a simple majority of those present at the meeting must be obtained, regardless of the size of their claim against the debtor.
The Bankruptcy Law enables the debtor to force the plan on opposing creditors, if the plan is approved by all of the following:
Two-thirds of the classes of creditors.
Creditors representing at least 50% in the value of the total claims against the debtor present at the creditors' meeting.
One-third of the creditors in the rejecting class.
The decision of the creditors will take priority and the Court can only confirm (ratify) it. If the reorganisation plan is approved, it is effective from the date the Court's decision to ratify the plan is published in the Official Gazette.
Since this procedure is not mandatory (but rather an alternative means of overcoming an economic and financial crisis) there is no obligation for the company to cease trading.
Substantive tests. There are no specific substantive tests. However, the Bankruptcy Law is very specific about the documents that are required. Under these rules, the debtor must:
Provide the reasons for the debtor's financial difficulties.
Provide the company's financial statements from the last three financial years and one specifically drawn up to the date of filing the judicial reorganisation request.
List all creditors, with specifications regarding the:
nature of the debt;
classification of the debts pursuant to the priority order set by the law (see Question 2); and
updated amount of the claims.
List all employees, with details of:
their activities;
remuneration;
amount of due indemnification.
Provide a certificate of good standing, issued by the Board of Trade and Articles of Incorporation (Junta Comercial e Atos Constitutivos da Empresa).
Supervision and control. The judicial administrator is appointed by the Court to supervise the activities performed by the debtor and its management team. However, the debtor remains in the control of its business. The removal of management is quite unusual and is only made in extreme circumstances, such as the:
Termination of business activities.
The debtor's lack of transparency when carrying on its business.
Protection from creditors. The court order commencing the reorganisation suspends the following in relation to the debtor for 180 days:
Legal proceedings.
Collection proceedings.
Length of procedure. The reorganisation procedure continues during the two years following the ratification of the reorganisation plan by the Court. If any obligation stated in the reorganisation plan is breached during this two-year period, the reorganisation procedure can be converted into bankruptcy proceedings at the request of any creditor. If any obligation established in the reorganisation plan is breached after the two-year period, any creditor subject to the reorganisation plan can enforce the plan or request the debtor be declared bankrupt.
Conclusion. The proceedings bind all claims existing before filing the judicial reorganisation proceedings (even if the debt is not yet due and payable) except for:
Tax and social security claims.
Claims related to forward foreign exchange agreements (that is, an agreement to advance the receivables resulting from exports).
Claims arising from:
financial leases;
fiduciary ownership or transfer of property;
the owner or committed seller of immovable property which the respective agreements include a irrevocability and or irreversibility clause; and
purchase agreements with title retention.
The Bankruptcy Law also provides debtors with a statutory 180-day stay period, during which all legal proceedings filed against it are stayed and new ones cannot be commenced (see above, Protection from creditors).
If the debtor fulfils its obligations, proceedings are terminated two years from the ratification of the approved reorganisation plan. Any breach of the reorganisation plan during the two-year period results in judicial reorganisation proceedings being converted into bankruptcy proceedings.
At the end of the two year-period, the Court will give a final decision to conclude the procedure. After this is given, the reorganisation plan may continue to be in force, and must still be complied with by the company. The company maintains its activities and does not cease to exist.
Objective. The objective of extra-judicial reorganisation proceedings is to enable the debtor to overcome financial difficulties through an agreement with its creditors (non-judicial reorganisation plan).
Initiation. The debtor must file an application with its creditors. An extra-judicial reorganisation is initiated when the debtor and its creditors agree on the terms and conditions of the non-judicial reorganisation plan. The debtor must:
Directly negotiate the terms and conditions of the non-judicial reorganisation plan with its creditors.
Seek judicial confirmation for the reorganisation plan.
The reorganisation plan is only effective once judicial confirmation has been obtained. If approval has been given by creditors representing 60% of each class of creditor subject to the plan, the debtor can seek judicial confirmation to bind all creditors, including those who have not approved it.
Since this procedure is not mandatory (but rather an alternative means of overcoming an economic and financial crisis) there is no obligation for the company to cease trading.
Substantive tests. The debtor can only negotiate repayment conditions with its creditors if it has:
Performed its regular business activities for at least two years prior to the application.
Not faced liquidation proceedings before (or if it has, has had all its obligations and liabilities judicially extinguished).
Not been granted with a judicial reorganisation in the past five years (or eight years if the insolvent company was classified as a small enterprise at the time of the first judicial reorganisation).
Not been found guilty, nor had any of its managers or shareholders found guilty of bankruptcy crimes.
Supervision and control. During the procedure, the debtor resumes control of the company's management and business activities. The Court must verify whether the debtor has complied with the legal requirements of the extra-judicial reorganisation.
Protection from creditors. The effects of a non-judicial reorganisation are limited only to the creditors provided for in the agreement and do not suspend the rights of creditors who are not party to the agreement. Other creditors, therefore, are still entitled to enforce their claims and can still initiate bankruptcy or liquidation proceedings.
Length of procedure. There is no time limit for the conclusion of non-judicial reorganisation proceedings. The length of the procedure solely depends on the length of time that has been agreed between the debtor and its creditors in the non-judicial reorganisation plan.
Conclusion. The request for the Court's approval suspends all but of the following:
All rights against the debtor.
Legal proceedings.
Collection proceedings
The right to seek a bankruptcy decree against the debtor.
However, this is only in relation to the creditors that consented to the plan. If the Court approves the plan, the plan binds all creditors.
The debtor carries on its business activities during a non-judicial reorganisation. Proceedings are concluded when the mutual agreement between the debtor and its creditors is settled in full. On conclusion, the Court will confirm the extra-judicial plan and the debtor will resume its business activities.
Creditors with claims that are not subject to reorganisation or bankruptcy proceedings typically have the most significant role. This is because the creditors in an extra-judicial reorganisation can enforce their claims outside of the Court, which can jeopardise the successful outcome of reorganisation or bankruptcy proceedings. As a result, in most cases the debtor must negotiate with the creditors who are not subject to reorganisation or bankruptcy proceedings to secure a successful outcome.
In addition, secured creditors play an important role in the outcome of proceedings. This is because the secured creditors':
Security interests are maintained during proceedings.
Priority rank puts them in a privileged position.
Generally, the following persons are not liable for the debts of the company:
Directors and officers of a limited liability company.
Partners of a limited liability company.
Shareholders of a corporation.
Controlling shareholders of a corporation.
However, their actions may be investigated and challenged through specific proceedings initiated before the Court, if they perform:
Illicit actions.
Actions that violate the law.
Actions considered detrimental to the company in a bankruptcy scenario.
If there is evidence to prove a violation of duties arising from the articles of incorporation of the limited liability company or corporation, Brazilian Civil Code or the Brazilian Corporate Act, the above persons may be liable for company debts and/or losses, depending on the case. These proceedings can only be filed two years after bankruptcy proceedings are concluded, and are not contingent on the debtor having insufficient assets to pay its creditors.
Under the Bankruptcy Law, certain transactions can be set aside if they occur within a prescribed period before the Court's decision to liquidate the insolvent company. The prescribed period is known as the suspect period (período suspeito). During the suspect period, there is a legal presumption that the debtor may have carried out fraudulent acts with a view to either:
Protecting its shareholders.
Benefiting certain creditors.
The legal term is set by the Court in the bankruptcy decree and must not exceed 90 days from either the date:
A creditor makes a petition for bankruptcy.
The debtor makes a request for judicial reorganisation.
The first protest of a bill by a creditor is made (see Question 4, Recovery procedures).
Transactions performed by the debtor during the suspect period are closely scrutinised by the Court.
Article 129 of the Bankruptcy Law provides the transactions that are void per se. These transactions are void, irrespective of whether the:
Insolvent company sought to defraud creditors (and cause them loss).
Contracting party knew the insolvent company was in financial difficulty.
Article 129 contains an exhaustive list of actions that will be voided by the Court, either:
By its own initiative.
When prompted to do so by any interested party, such as:
a creditor;
the judicial administrator; or
a Public Prosecutor.
The following transactions are per se void:
The payment of an unmatured debt by the debtor by any means capable of extinguishing the credit right, including the discount of such bond/note, within the suspect period.
The payment of a matured and outstanding debt in a manner that is not provided for in the relevant agreement, within the suspect period.
The creation of a security interest, within the legal term, on the assets of the insolvent company for the purpose of securing a debt incurred prior to the commencement of the suspect period.
The sale or transfer of the company's goodwill without the express consent or payment of all creditors, if the remaining assets are not sufficient to pay all the existing creditors that exist at the time of the transaction. Goodwill can include the company's:
premises;
store;
office;
warehouse.
There is no specific reference in the Bankruptcy Law as to when a transfer is considered ineffective against the creditors. However, it is likely that a transfer made during the suspect period will be per se void.
A gratuitous transaction, such as a transfer of property or assumption of obligations, within the two years prior to the bankruptcy decree.
The surrender of an inheritance or legacy right, within the two years prior to the bankruptcy decree.
The registration, after the bankruptcy decree, of a right in rem and transfer of ownership, whether the relevant transaction was free of charge or for payment.
The Bankruptcy Law provides that the first four actions listed above will not be set aside if they have been undertaken in the context of a reorganisation plan that has been ratified by the Court (Article 131) (see Question 6, Judicial reorganisation).
Under Article 130 of the Bankruptcy Law, certain transactions performed by the insolvent company will be null and void if both:
They were performed with the intention to defraud the creditors.
Proof of the harmful intent and of the harm suffered by the bankruptcy estate is provided.
This means that although Article 130 could be applicable in any situation where creditors have been harmed, in practice it is only used in limited and specific circumstances, such as where the insolvent company:
Creates a new company and transfers all of its assets to the new company.
Sells an asset to a third party for an amount that is well below its fair market value.
Article 130 can be enforced by the Court on a motion by:
The judicial administrator.
Any creditor.
The Public Attorney's Office.
Third parties acting in good faith have the right to:
Seek restitution of the assets and/or amounts paid to the debtor.
File proceedings seeking indemnification for losses and damages.
During judicial or extra-judicial reorganisation proceedings, the company continues its normal business activities. The debtor retains possession of its assets and maintains responsibility for appointing the management of the company.
In a judicial reorganisation, the debtor's actions are supervised by the:
Judicial administrator, appointed by the Court.
Committee of creditors (if applicable).
If there is evidence of illegal action or wilful misconduct, the debtor must surrender control of the company to a judicial manager appointed by the creditors at a creditors' meeting.
Bankruptcy proceedings aim to wind the company up and sell its assets. Control of the bankrupt company is transferred to the bankruptcy estate under the supervision of the judicial administrator. The company must cease trading and stop all day-to-day business activities, unless the Court allows otherwise.
In judicial or extra-judicial reorganisation proceedings there are no implications relating to existing intellectual property because in these procedures the company resumes its normal business activities. However, in bankruptcy proceedings, all assets will be collected, including any intellectual property.
A company facing insolvency proceedings can obtain additional finance.
Since the additional financing is a post-bankruptcy claim, the amount is not subject to the repayment conditions provided for in the insolvency proceedings. Therefore, any amount financed after the commencement of insolvency proceedings will take priority over the claims that existed before the petition for insolvency, under the priority rank established by law (see Question 2).
In a judicial reorganisation, the reorganisation plan may specifically provide a mechanism for enabling the debtor to obtain additional finance that is material to the satisfactory outcome of proceedings.
The court in which the debtor's headquarters (centre of business) is located has jurisdiction over insolvency proceedings (Bankruptcy Law).
However, there are no regulations specifically concerning:
Cross-border insolvency matters.
The effect of foreign insolvency proceedings involving a holding/subsidiary company over the Brazilian subsidiary/holding company (or vice versa).
These issues are therefore decided on a case-by-case basis. It is possible for foreign insolvency proceedings to be confirmed by the Brazilian Superior Court of Justice, but certain legal restrictions may be an obstacle. For example, Brazilian courts have exclusive jurisdiction over all cases involving immovable property within Brazil.
Creditors usually prefer to initiate insolvency proceedings before Brazilian courts, even if there are prior proceedings abroad. This is due to the possible restrictions when confirming foreign insolvency proceedings (see above).
There are no specific regulations concerning co-operation during concurrent insolvency proceedings. Therefore, the proceedings are conducted on a case-by-case basis. However, there are cases where Brazilian courts have worked with foreign courts. The most relevant cases are the insolvency proceedings of the:
Italian company Parmalat.
Brazilian airline company Varig.
Brazil is not party to any international treaty in relation to insolvency matters.
In reorganisation or insolvency proceedings, foreign creditors must submit the debts owed to them in the same way as local creditors.
The Bankruptcy Law provides a method for calculating any claims derived from debts in foreign currencies:
Bankruptcy proceedings. Foreign currency debts must be converted into Brazilian currency, based on the exchange rate at the date of the Court's decision.
Judicial reorganisation proceedings. The exchange rate determinates the amount of the foreign debt, unless another method is chosen by the creditor at the creditors' meeting. To take part at the creditors' meeting, the foreign creditor must convert the debt into Brazilian currency, based on the exchange rate as at the day before the creditors' meeting.
Extra-judicial reorganisation proceedings. The debt must be converted into Brazilian currency on the day before the non-judicial reorganisation plan is executed. This is to enable:
confirmation that the requisite quantity of creditors in value in each class has approved the plan;
confirmation from the Court.
Proposals for amending the Bankruptcy Law have been discussed by legal scholars and practitioners since its introduction in 2005. However, the Brazilian government has not made any proposals to amend the law.
T +55 11 3147 7600
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E munhoz@mattosfilho.com.br
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Qualified. Brazil, 1994
Areas of practice. Corporate; commercial; litigation; arbitration; restructuring.
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