BRAZIL Law and Practice Contributed by: Roberto Panucci, Tiago Severo, Diogo Nebias and Guilherme Teles, Panucci, Severo e Nebias Advogados
6.4 A Foreign Lender’s Ability to Enforce Its Rights Foreign judgments will have no effect in Brazil if they breach national sovereignty, public order, or good morals. However, this is not an issue in most cases.
The main concerns relating to the enforcement of loans, guarantees and typical security interests are timeline and bureaucracy. Judicial enforcement has historically been slow, owing to procedural manoeu- vres by debtors (appeals, objections, requests to stay
auction citing low price for auction, etc). 6.2 Foreign Law and Jurisdiction
7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes
Brazilian law generally recognises the parties’ free- dom to choose foreign law and jurisdiction in con- tracts with an international element, provided that the matter does not fall within areas of exclusive Brazilian jurisdiction – for example, real estate rights located in Brazil, Brazilian insolvency proceedings, or corporate governance of Brazilian entities. Submission to foreign jurisdiction and waiver of immu- nity are enforceable in respect of commercial acts, including for state-owned enterprises. Assets consid- ered essential to public service remain immune from attachment, however. Loan agreements governed by New York or English law are common in cross-border finance. Brazilian courts generally uphold the parties’ choice of foreign law in contracts with an international element, pro- vided it does not contravene public policy or concern matters reserved to Brazilian law, such as security over local assets or insolvency proceedings. In prac- tice, financings are often documented under New York or English law, whereas Brazilian law governs the security package. Foreign judgments must be recognised by the Superior Court of Justice ( Supe- rior Tribunal de Justiça , or STJ) prior to enforcement, whereas foreign arbitral awards benefit from expedit- ed recognition under the Convention on the Recogni- tion and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”). 6.3 Foreign Court Judgments A foreign court judgment or arbitral award is not self- executing in Brazil and must be recognised by the STJ. The STJ does not re-examine the facts or mer- its – it is largely a formality check. Therefore, without retrial on merits, a foreign judgment or arbitral award is enforceable but requires the recognition steps.
The commencement of insolvency proceedings in Brazil significantly affects a lender’s enforcement rights. In court reorganisations, once the petition is accepted, an automatic stay period is imposed for 180 days, suspending virtually all enforcement actions and lawsuits against the debtor. Secured creditors cannot foreclose collateral during this stay period, except for creditors holding fiduciary title (such as fiduciary transfer of assets or receiva- bles). Even fiduciary creditors, however, may face a temporary suspension if the asset is deemed essential to the debtor’s operations. In bankruptcy, all individual enforcement is consoli- dated into the collective proceeding, and secured creditors must enforce within the court-supervised liquidation process. Guarantees by third parties that benefit the insolvent debtor remain enforceable outside the court reorgani- sations. Recent reforms clarified that guarantors’ obli- gations are not automatically discharged. 7.2 Waterfall of Payments In bankruptcy liquidation, distributions follow a statu- tory order of priority. First, claims/costs not subject to court reorganisation/bankruptcy(such as court costs, expenses of the administrator and obligations related to the bankruptcy proceedings) must be paid. There- after, proceeds are applied to: • labour claims up to 150 minimum wages per credi- tor and occupational accident claims; • secured creditors, up to the value of their collateral; • tax claims; • creditors holding special or general privileges as defined by law;
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