Restructuring and Insolvency Newsletter: February 2025 updates

São Paulo State Court decides that credits secured by a fiduciary lien over assets of third parties who are not co-obligors, guarantors, or liable by recourse are subject to judicial reorganization

In the judicial reorganization of the Intercement Group, the 1^st Bankruptcy and Judicial Reorganization Court of São Paulo decided that credits secured by a fiduciary lien provided by a third party who is not a co-obligor, guarantor, or liable by recourse will be subject to the judicial reorganization. Also, based on a Ruling of the Group of Chambers of Corporate Law (Ruling VI of the Group of Chambers of Corporate Law), the 1^st Bankruptcy and Judicial Reorganization Court of São Paulo further decided that it would not be possible to enforce the fiduciary lien through the consolidation of the fiduciary property of CCR’s shares in favor of the creditor. The reason is that the fiduciary lien held by the creditor falls on assets owned by Sucea andSincro, companies of the Intercement Group that are also under judicial reorganization but deemed third parties in relation to the main debt because they are not guarantors of the debt and the judicial reorganization of the Intercement Group is not being processed in substantive consolidation and, therefore, the assets and liabilities of each debtor remain segregated from the assets and liabilities of the other debtors of the group.

São Paulo Court of Justice annuls auction held with stalking horse in judicial reorganization

The 2^nd Chamber of Corporate Law of the São Paulo State Court of Justice (TJSP) annulled the auction held in the judicial reorganization of the Oswaldo Cruz Educational Group using a ‘stalking horse’ provision. The judges decided that the use of this mechanism, which favors the first bidder, would not be the most advantageous for the company as it does not assure the best valuation of the asset, especially given the interest of other potential buyers. The Reporting Judge, Ricardo Negrão, pointed out that, in the case of the sale of a property, the stalking horse mechanism would not be the most appropriate as an open auction, without prior binding bids, would allow for better pricing of the asset, optimizing the company’s resources and increasing the financial return for compliance with the judicial reorganization plan.

Judicial reorganization requests in the agribusiness sector are expected to continue rising in 2025

The Brazilian agribusiness sector begins 2025 in line with the trend of a surge in judicial reorganizations seen in 2024, especially in the soybean, livestock, and sugarcane segments. The fall in the prices of agricultural commodities and cattle in 2024, as well as the tightening of credit, are factors that still weigh on the sector.

For the Brazilian Superior Court of Justice, credit from Real Estate Credit Bills is unsecured in bankruptcy proceedings

The 4^th Panel of the Brazilian Superior Court of Justice (STJ) determined that the Real Estate Credit Bill (LCI) cannot be classified as a secured credit in a bankruptcy proceeding of the financial institution, but rather as unsecured credit, without privilege in the waterfall of payments. The LCI is a type of fixed-income investment to finance the real estate sector, through which the investor lends money to the financial institution and, on the maturity date, receives the amount granted plus interest. However, as the financial institution subsequently lends the amount as real estate financing secured by mortgages or fiduciary liens, the Reporting Justice, Antônio Carlos Ferreira, established that the beneficiary creditor of the secured obligations is the financial institution that granted the financing directly to the real estate sector, and not the holder of the LCI.

Brazilian Superior Court of Justice decides on haircut to labor creditors in judicial reorganization plan

The 4^th Panel of the Superior Court of Justice has begun its ruling on Concreserv’s judicial reorganization plan, which proposes the creation of subclasses for labor creditors with differentiated treatment, establishing a 90% haircut for credits exceeding 25 minimum wages. The Reporting Justice, Antonio Carlos Ferreira, upheld the decision of the São Paulo Court of Justice to consider the clause illegal, pointing out that the creation of subclasses is only valid with objective and homogeneous criteria, which did not occur. Justice João Otávio de Noronha led the dissent, arguing that the segmentation of creditors based on the value of the credit is justifiable with objective criteria, voting to grant the interlocutory appeal and maintain the validity of the clause. The trial was adjourned after a request for review by Justice Raul Araújo.

Seizure of assets of a shareholder of the debtor in an offshore company is used to pay creditors

The 4^th Panel of the Superior Court of Justice upheld the decision of the State Court of Justice of Rio de Janeiro without initiating an ancillary proceeding to pierce the corporate veil, authorizing the collection of assets held in an offshore company owned by its shareholder to pay the creditors of Sam Indústrias. The Justices understood that the shares of the offshore company, already belonging to the shareholder when the bankruptcy liquidation was ordered and which were concealed, should have been made available to the bankrupt estate. Since the effects of the bankruptcy order were extended to the shareholder, there was no need to initiate an ancillary proceeding to pierce the corporate veil.

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