BRAZIL Law and Practice Contributed by: Roberto Panucci, Tiago Severo, Diogo Nebias and Guilherme Teles, Panucci, Severo e Nebias Advogados
• unsecured creditors; • fines and penalties; and • subordinated claims, such as shareholder loans or contractually subordinated debt. 7.3 Length of Insolvency Process and Recoveries The length of insolvency proceedings in Brazil can be considerable and recoveries vary but are often limited, especially for unsecured creditors. A court reorganisation may last two to three years on average until approval and substantial implementation of the recovery plan – although complex cases often extend further. Bankruptcy liquidations may take longer, depending on the complexity of asset sales and litigation. Recovery levels for unsecured creditors are generally low, whereas secured creditors with properly perfect- ed collateral – particularly fiduciary transfers – often achieve significantly higher recoveries and more pre- dictable enforcement. DIP financing allows companies under judicial reor- ganisation to obtain new money with court approval while continuing to manage their assets. DIP loans are treated as priority claims and may be secured by liens on non-encumbered assets or, with adequate pro- tection, even on previously encumbered assets. This mechanism has improved restructuring outcomes by providing critical liquidity and maintaining business continuity – although overall creditor recovery still depends heavily on the quality of collateral and the debtor’s co-operation. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency Beyond formal court reorganisation, Brazilian law pro- vides for out-of-court reorganisation. This is a pre- packaged procedure in which the debtor negotiates a restructuring plan with most creditors in one or more classes and seeks court homologation. This tool is faster and less disruptive than court reor- ganisation, as it does not trigger an automatic stay for all creditors. Creditors outside the consenting classes are not bound.
Out-of-court reorganisations remain common, par- ticularly with bank lenders, where standstill agree- ments and consensual restructuring are used to avoid judicial proceedings. 7.5 Risk Areas for Lenders In Brazilian insolvency, the key risks for lenders are: • the automatic stay in judicial reorganisation, which freezes most enforcement for at least 180 days and slows collateral foreclosure; • temporary limits on enforcing even fiduciary security if the court deems the asset essential to operations; • claw-back exposure on acts within the suspect period (typically 90 days before insolvency, but up to two years for related parties’ transactions), as these can unwind last-minute collateral or repay- ments; • statutory priorities that dilute unsecured recover- ies (labour claims, certain accident-related claims, secured creditors, and tax claims rank ahead); • timeline risk, as court reorganisation and bankrupt- cy cases can run for years, eroding value; and • sectoral/regulatory constraints for concessionaires and regulated entities, where licences or conces- sions may be restricted or terminated, depressing collateral value. Together, stay periods, claw-backs, priority rules, pro- cedural delay and regulatory overlays form the core risk set for lenders when a borrower, guarantor or col- lateral provider becomes insolvent. Project finance remains active in Brazil, especially in sectors linked to infrastructure expansion and natural resources. Power generation and transmission contin- ue to dominate volumes, with wind and solar projects in the northeast region standing out. These projects are typically backed by long-term power purchase agreements (PPAs), which provide stable revenue streams, and by transmission concessions that offer predictable regulated tariffs. In the oil and gas sector, midstream assets such as floating production, storage 8. Project Finance 8.1 Recent Project Finance Activity
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