Restructuring & Insolvency Newsletter: August and September 2025 updates

Brazil’s Superior Court of Justice and Federal Supreme Court differ on whether a contract can be renewed during judicial reorganization

The Superior Court of Justice ruled, by majority, that the court overseeing a judicial reorganization can order the mandatory renewal of contracts essential for the continuity of the company’s activities under judicial reorganization. However, this is only acceptable in exceptional and specific circumstances, based on the principles of the social function of the contract and the preservation of the company. Rapporteur Justice Humberto Martins noted that the concept of “essential assets” should be updated to include contractual relationships indispensable for economic growth, as in the case being reviewed, where the contract accounted for over 70% of the debtor’s revenue. However, Justice Luís Roberto Barroso of the Federal Supreme Court suspended the Superior Court of Justice decision, finding that the measure violated free enterprise, created legal uncertainty, and ignored the limits of the Brazilian Bankruptcy Law. The full bench of the Federal Supreme Court should later endorse the decision, and the matter is suspended until the final judgment by the Superior Court of Justice.

Superior Court of Justice approves the auction of real estate for 2% of the appraisal value in bankruptcy liquidation

The Superior Court of Justice granted an appeal that sought the validity of a property sale at auction for 2% of its appraised value in a bankruptcy liquidation proceeding. The São Paulo Court of Appeals found that selling the property for only 2% of its valuation would harm creditors and would go against the principle of maximizing bankruptcy assets. However, the Superior Court of Justice reversed this decision, reasoning that the concept of low price does not apply in bankruptcy liquidation proceedings as long as all legal formalities are followed. In this case, the property was only sold in the third auction, and without a more advantageous bid, which the Superior Court of Justice considered to meet the requirement of conducting a competitive process under Brazilian Bankruptcy Law.

Federal Supreme Court reaffirms the bankruptcy court’s exclusive authority to decide on whether to pierce the corporate veil of a company under bankruptcy liquidation

Justice Gilmar Mendes reaffirmed the Supreme Federal Court’s understanding that piercing the corporate veil of companies in bankruptcy liquidation is the exclusive responsibility of the bankruptcy court, as established by the Brazilian Bankruptcy Law. The Supreme Court overturned a decision by the Labor Court, which had authorized the redirection of enforcement against shareholders and companies within the same economic group after disregarding the debtor’s legal personality. The decision highlighted that, although the Labor Court is responsible for managing, calculating, and settling labor claims, the authority to decide on piercing the corporate veil and enforcing claims against companies under bankruptcy liquidation belongs to the bankruptcy court. This is to prevent compromising equal treatment among creditors (principle of par condition creditorum) and to ensure the centralization of the enforcement acts in the context of bankruptcy liquidation.

São Paulo Court recognizes that a creditor is not considered a related party of a company undergoing reorganization for having exercised an option to sell its shares before the request for judicial reorganization

A São Paulo bankruptcy court rejected a request to prevent a creditor from voting at a creditors’ meeting, citing allegations of being a related party of the companies under reorganization. The creditor in question held an equity stake in one of the companies within the economic group and had an option to sell these shares to the group’s holding company, both of which are currently under judicial reorganization. The court found no dispute regarding the fact that the creditor exercised the put option before the request for judicial reorganization, which led to a claim against the holding company listed in the reorganization. Therefore, the court determined that the creditor was not a related party and, as a result, retained the right to vote at the creditors’ meeting.

São Paulo Federal Court equates out-of-court reorganization to judicial reorganization and approves tax settlement

The São Paulo Federal Court granted an injunction in a writ of mandamus allowing a tax transaction for a company undergoing extrajudicial reorganization. The decision was issued after the Attorney General’s Office denied the request for such a tax transaction. The court determined that the company met the specific requirements of the relevant tax regulation, which states that a credit is considered irrecoverable if the debtor is in intervention or extrajudicial liquidation. Since the debtor company was in out-of-court reorganization, the credit was deemed irrecoverable and therefore eligible for a tax transaction.

State of Paraná Court of Appeals recognizes the essential role of corn and prevents seizure during the stay period

Amidst the disagreement among state courts regarding the classification of agricultural products as essential capital goods and thus protected from seizure during the stay period (the period of suspension of asset constriction acts against the company under reorganization), the State of Paraná Court of Appeals recognized the essential nature of the corn crop produced by a company under judicial reorganization. The decision ordered the suspension of the seizure because it views corn as an input directly connected to the producer’s operational activity and, therefore, essential for maintaining operations and supporting the companies under judicial reorganization.

Number of companies that went bankrupt after reorganization proceedings sets a record for the second quarter

According to data from the RGF Monitor by RGF & Associados Consulting, approximately 30% of judicial reorganizations in the first half of 2025 were converted into bankruptcy liquidation, marking a record since the start of the statistical survey in April 2023. Along with the rise in bankruptcies, the number of judicial reorganizations in the second quarter grew by 17.5% compared to the same period of the previous year. According to the consultancy, the main reason for the intensification of judicial reorganizations and bankruptcies is the high interest rate.

Judicial reorganizations in agribusiness increased 60% in the second quarter

The RGF Monitor of RGF & Associados Consulting reported that the number of companies in the agricultural sector under judicial reorganization increased by 60% in the second quarter of 2025 compared to the same period the previous year. The growth continues the trend already observed in the first quarter, totaling 388 companies under judicial reorganization in 2025.

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