Restructuring and bankruptcy in Brazil

01

Start with the deadline the business actually faces

Separate the day cash runs short from the day a creditor can act. A cash forecast might show payroll due in a week while a lender is seeking seizure of a production line tomorrow. Ask who owns that line, which entity owes the lender, whether an order has already been made and what running the plant without that asset would cost. Those answers can change both the legal request and the funding required to keep operating.

Use the same assumptions to compare a deal with selected creditors, a broader collective procedure and an orderly sale or wind-down. For each, identify the first payment the company would still have to make. A longer debt maturity helps only if the business can finance the days between buying materials and collecting from customers.

• Which missed payment or enforcement act could stop operations first?
• Whose consent would remove that threat, and can that person obtain approval before the deadline?
• How much cash would each route need before any material relief takes effect?

Explore the choices through a fictional factory’s story

02

Try a private workout when the necessary parties can agree

A private workout might ask a lender to pause enforcement, a landlord to defer rent and a supplier to keep delivering on cash terms. The agreement governs the parties it binds. Map other creditors, cross-defaults, cash controls and guarantees before treating those signatures as a solution. Even a supportive lender may need a credit committee decision before a relationship manager can commit the bank.

Give the standstill a duration, decision-maker and funding commitment. A borrower can offer reporting and sale milestones. Test what happens if another creditor takes action.

03

Ask what an interim order would buy time to do

Article 20-B allows a business that meets the requirements for judicial restructuring to seek urgent interim relief for pre-filing debt talks already underway in the competent court’s conciliation centre (CEJUSC) or a specialised mediation chamber. The court can suspend enforcement actions within the scope of the order for up to 60 days. Identify the covered entities and actions, and use the start and end dates in the order. Mediation itself generally leaves statutory deadlines running unless the parties agree otherwise or the court directs otherwise.

Article 20-B requires the time used to be deducted from the applicable suspension period under Article 6 if the debtor subsequently requests judicial or out-of-court restructuring, subject to the statutory criteria. Article 6, paragraph 12, separately allows the court to bring forward some or all effects of opening judicial restructuring when the civil procedure requirements for urgent relief are met. The two mechanisms answer different questions. Check the legal basis and the terms of the ruling before assuming that an enforcement step has been paused.

Use the time to agree on a standstill and new funding, assemble the signatures for an out-of-court plan or prepare a judicial restructuring filing. A mediation slot alone gives the payroll team little certainty. Tie each milestone to the people who can sign and the cash needed if they miss it.

Sources for this section: Law No. 11,101/2005, Articles 6(12) and 20-A–20-C · Code of Civil Procedure, Articles 300 and 305 onward

04

Use out-of-court restructuring when a defined debt perimeter is workable recuperação extrajudicial (RE)

An eligible debtor can ask a court to approve an agreed plan for its signatories under Article 162. Once approved, an Article 163 plan can bind dissenters in the eligible categories it covers. It can cover entire eligible claim categories or a group of creditors with claims of the same nature and similar payment terms. The final threshold is more than half the claim value in each covered category, excluding claims held by related persons identified in Article 43. The debtor can file with at least one-third of the claim value in each category and has a non-extendable 90 days from filing to reach the final threshold through express adhesions.

For the Article 163 procedure, the statutory suspension applies from filing only to the categories covered, and the judge ratifies it only if the initial threshold is shown. Tax claims and specified excluded claims sit outside the plan, and including labour or occupational accident claims requires collective bargaining with the relevant union.

A creditor has 30 calendar days from publication of the electronic notice to challenge the plan, with proof of its claim. Article 164 limits the grounds to a shortfall in the required Article 163 support, specified acts under Articles 94(III) and 130, or another failure to meet a legal requirement. Within the notice period, the debtor must show it sent letters to covered creditors domiciled or based in Brazil with the filing details, plan terms and objection deadline.

Article 163 allows the debtor to ask to convert the procedure to judicial restructuring. If approval is refused, Article 164 also permits a new out-of-court plan application that meets the formal requirements. If negotiations miss the target, read the docket for the debtor’s next request and the court’s ruling before assuming that any new stay or process is in place.

Sources for this section: Law No. 11,101/2005, Articles 43, 161–165 and 189

05

Read a judicial restructuring case in separate acts recuperação judicial (RJ)

The petition asks the court to open a case. Eligibility under Articles 2 and 48 depends in part on the debtor’s sector, operating history and any earlier restructuring or bankruptcy. The order admitting it for processing normally appoints the judicial administrator and starts the Article 6 stay for covered enforcement. The debtor’s plan is due within a non-extendable 60 days from publication of that opening order.

The Article 6 stay normally runs for 180 days from the order admitting the case for processing. The statute allows an exceptional extension for an equal period once if the debtor did not cause the delay. Claims outside the plan, including specified fiduciary-title claims and tax enforcement, follow separate rules.

If that stay expires before creditors have deliberated on the debtor’s plan, creditors have 30 days from expiry to file an alternative plan. If the assembly rejects the debtor’s plan, it can vote to allow a 30-day filing period under Article 56. A timely creditor plan under the applicable rules keeps the stay in place for 180 days measured from the end of the Article 6(4) stay or from the assembly, as applicable. This continuation under Article 6(4-A) is separate from the exceptional extension.

The later grant of RJ requires proof of tax compliance under Article 57, through tax clearance certificates or certificates with equivalent legal effect. For state and municipal taxes, check whether the relevant jurisdiction has enacted the specific instalment legislation required by the applicable case law. Even after a favourable creditor vote, missing required certificates can delay the grant and lead to suspension of the proceedings. Conversion to bankruptcy requires a separate statutory ground. Include current taxes and any proposed tax instalments or settlement payments in the cash forecast supporting the plan.

Sources for this section: Law No. 11,101/2005, Articles 2, 6, 20-B, 48–49, 52–53, 56–58, 68, 73 and 189 · STJ, REsp 2.127.647/SP, tax compliance at the grant of judicial restructuring · STJ, REsp 1.955.325/PE, consequences of missing tax clearance certificates

06

Work out who can say yes, who can wait and who keeps the doors open

A large claim can be decisive where the vote is weighted by value, and its holder still has to account for the other approval tests. The ordinary RJ plan vote uses value and headcount in Classes II and III and headcount in Classes I and IV, based on eligible creditors present. Class III includes unsecured, privileged and subordinated claims. A creditor with security over property generally votes in Class II up to the collateral value and in Class III for the remainder. Check the schedule used for voting and the special rules for granting a plan over class dissent or considering a creditor plan.

Influence also comes from outside the vote. A specialist supplier can be critical to tomorrow’s shipments despite holding a small historic claim. A bank may have different rights as a secured creditor, holder of an excluded claim or beneficiary of a personal guarantee. A creditor’s commercial willingness to finance new business can differ from its position on old debt. Build separate conversations around the vote, the enforcement right and the future commercial relationship.

A proposed payment holiday should be tied to a change in the business. A creditor can ask whether collections, margins or inventory will improve enough for the company to afford the first payment. If the proposal depends on shutting a plant or raising new funds, test whether the cash forecast can absorb a delay.

Where a proposal depends on changes to the operating business, Ritus Partners ↗ (opens in a new tab), a PreservaCred restructuring partner, can be a point of contact for financial restructuring, working-capital planning and testing the assumptions behind creditor proposals.

Sources for this section: Law No. 11,101/2005, Articles 39, 41, 43, 45, 49, 56 and 58

07

Identify what can lead to bankruptcy and what the judgment changes falência

A creditor’s bankruptcy petition must rely on a statutory ground. Article 94 covers specified protested unpaid obligations, unsuccessful enforcement in the circumstances set out in the law, and specified acts of bankruptcy. The debtor can also seek its own bankruptcy. In an RJ case, Article 73 provides grounds for conversion, including failure to file the plan on time and certain plan failures during court supervision. A rejected debtor plan can lead to consideration of a creditor plan or to a court decision under the applicable rules. Read the procedural record and the actual judgment.

A bankruptcy judgment changes who controls estate assets. The court appoints a judicial administrator and addresses whether operations continue provisionally under the administrator or the establishments are sealed. The business can stop trading before the judgment, continue provisionally or resume under a buyer.

A sale and the closing of the case are separate milestones. In the ordinary course, after realisation of assets, distributions and accounting, look for the judicial administrator’s final report and the judgment closing the bankruptcy, then check for appeals. Article 114-A provides a separate route for an estate with no assets or assets insufficient to cover procedural expenses. Closure can be a statutory ground for extinguishing the debtor’s obligations under Article 158(VI). Check for the separate Article 159 judgment and its scope. Review third-party guarantees separately.

Sources for this section: Law No. 11,101/2005, Articles 56–62, 73–75, 83–86, 94–99, 103, 105, 114-A, 140–142, 149 and 154–159

08

Make the decision reversible where the facts allow

Set an internal decision date early enough to move if the preferred route stalls. For an out-of-court plan, the trigger could be a missed signature milestone. For a judicial plan, it could be a shortfall against the funding forecast or a ruling changing the treatment of a critical asset. Assign responsibility for reading the operative order and updating the cash forecast.

End the decision memo with the action authorised today, the evidence that would change it and the person who can call the next decision. Date the evidence so the team can revisit it after a new order or a delayed closing.

• Identify the route and the next document or decision that changes the available options.
• Budget for a realistic delay and a missed funding milestone.
• Name the decision-maker and define when the preferred route must be reconsidered.