Restructuring and insolvency newsletter: October and November 2025 updates

Brazil’s higher courts: labor claims arguing succession must be reviewed by bankruptcy courts

Brazil’s Federal Supreme Court and Superior Court of Justice have established a consolidated view that bankruptcy courts must centralize analysis of labor claims arguing succession of assets sold during the judicial reorganization process. The position of the courts, therefore, rules out companies constituted from acquisitions of Isolated Production Units (UPIs – a mechanism that permits the sale of assets in the judicial reorganization without the debtor’s obligations being transferred to the acquirer) from being included as defendants in labor lawsuits. The courts based their decisions on Articles 60 and 141 of the Brazilian Bankruptcy Law (Law No. 11,101/2005), which together establish the inexistence of succession when assets are acquired in judicial organization proceedings – including in regard to labor obligations. In the Federal Supreme Court, Justice Dias Toffoli established that the labor courts cannot interfere in the actions of the bankruptcy courts without violating legal certainty. Similarly, in a judgment concerning a conflict of jurisdiction, Justice Rapporteur Marcos Buzzi of the Superior Court of Justice emphasized that the bankruptcy court is responsible for examining controversies that impact the assets of the company subject to reorganization and the execution of the judicial reorganization plan.

Federal Supreme Court decides that judicial reorganization and bankruptcy do not apply to state-owned companies

The Federal Supreme Court has established a general repercussion thesis (Topic No. 1,101), confirming that the judicial reorganization and bankruptcy do not apply to state-owned companies, even if they engage in activities that compete with the private sector. Justice Rapporteur Flávio Dino took the view that a provision in the Brazilian Bankruptcy Law that determines the law does not apply to public companies and mixed-capital companies is constitutional. Furthermore, he held that excluding state-owned companies from the bankruptcy regime avoids the potential interpretation that the State itself is insolvent. To safeguard the public interest, a state-owned company can only be dissolved via a specific law, not a declaration of bankruptcy.

Superior Court of Justice denies judicial reorganization to non-profit entities

The Superior Court of Justice has unanimously decided that associations and other non-profit entities lack standing to file for judicial reorganization. The interpretation is based on Article 2, Item II of the Brazilian Bankruptcy Law (Law No. 11,101/2005), which limits access to individual entrepreneurs and business corporations. In casting his vote, Justice Rapporteur Raul Araújo pointed out that allowing the inclusion of non-profit entities – subject to the civil regime and benefiting from tax incentives precisely because of their non-business nature – could lead to competitive advantages, structural risks to the market and legal uncertainty.

Superior Court of Justice: credit arising from Rural Credit Notes is not subject to judicial reorganization

The Superior Court of Justice has unanimously held that Rural Product Notes (CPRs) with physical settlement are not subject to the effects of judicial reorganization. The court explained that, even if the goods are unavailable when performance is due, and the creditor therefore demands payment, the claim remains bankruptcy remote. It noted that the amendment to the Brazilian Bankruptcy Law (Law No. 11,101/2005) expressly excluded claims and security interests tied to physically settled CPRs from the effects of judicial reorganization, except in cases of fortuitous event or force majeure. According to Justice Rapporteur Minister Ricardo Villas Bôas Cueva, default does not alter that nature, otherwise the debtor would be able to decide whether the claim is subject to the judicial reorganization.

Mortgage creditors cannot prevent real estate from being taken into custody in bankruptcy proceedings

The Superior Court of Justice dismissed a special appeal filed by a mortgage creditor in the context of bankruptcy proceedings in which the creditor sought to prevent judicial administrators from taking real estate into custody as a result of third-party motions. The court ultimately decided that third-party motions would only be applicable if the property owner interferes with possession or rights linked to the property. Justice Rapporteur Ricardo Villas Bôas Cueva took the view that the creditor should proceed to submit their claim to bankruptcy proceedings, and the judicial administrator should take custody of the real estate in question.

Superior Court of Justice determines extrajudicial auction notices must reflect the property’s current situation

The Superior Court of Justice has unanimously decided that extrajudicial auction notices must reflect the current situation of the property they are linked to, even if the description of the property differs from the one in the fiduciary property agreement. In the specific case the court analyzed, the notice merely mentioned a piece of land; however, property was already built on the site. The failure to update the property description in the public notice led to the property being auctioned at a low price, corresponding to only 23% of its appraisal value. The ruling highlighted that, given the contract and public notice are autonomous acts, they are not required to have identical descriptions – rather, it is enough for the public notice to contain the necessary elements for identifying the asset. According to Justice Rapporteur Nancy Andrighi, the public notice must reflect the appreciation of the property to ensure effective execution and a fair valuation of the property, as well as to avoid the bidder’s unfair enrichment or the debtor’s excessive burden.

House committee approves bill determining whether guarantors’ credits are subject to judicial reorganization or not

The House of Representatives Committee on Industry, Commerce and Services recently approved a bill (Bill No. 3,742/2025) to amend Article 49 of the Brazilian Bankruptcy Law (Law No. 11,101/2005) seeking to classify that the credit of a guarantor who honors a guarantee during the judicial reorganization would have the same nature as the original credit, regardless of the date that the guarantee was honored and the original credit was therefore paid. In other words, if the underlying credit was subject to the judicial reorganization, the guarantor, after honoring its guarantee, will also be subject to the judicial reorganization, even if the guarantor honored the guarantee after the beginning of the judicial reorganization. This initiative seeks to standardize Superior Court of Justice case law, which has switched between classifying guarantors’ credits as bankruptcy remote into creditors subject to the proceeding, considering that the guarantor subrogates to the existing credit. The bill will now be reviewed by the House’s Constitution, Justice and Citizenship Committee, before potentially being sent to the Brazilian Senate.

For more information on these topics, please contact Mattos Filho’s Restructuring & Insolvency practice area.