BRAZIL Law and Practice Contributed by: Thiago Fernandes Chebatt and Luiz Eugênio Araújo Müller Filho, Müller Chebatt Advogados
7.6 Transactions Voidable Upon Insolvency Transactions that can be challenged include prefer - ential payments and transfers that disadvantage the creditor body, transfers at undervalue and the granting of security for pre-existing obligations under circum - stances that courts may view as abusive or prefer - ential. Related-party transactions receive particular scrutiny, especially where timing suggests an attempt to shift value away from the estate. The analysis is fact-intensive and depends on consideration, tim - ing, relationship and effect. Private credit providers mitigate by ensuring contemporaneous value, docu - menting consideration and pricing, maintaining clean corporate approvals and avoiding structures that are hard to defend on a business-rationale basis. From an execution standpoint, incremental security packages should be implemented with an eye to “hardening” risk and to how the transaction would be explained in Set-off is generally recognised in Brazil, but its effec - tiveness in insolvency depends on the nature, timing and mutuality of the obligations and on insolvency- specific constraints. Set-off becomes contentious where parties attempt to manufacture set-off posi - tions close to a filing or where obligations are disputed or contingent. From a private credit perspective, the more material issue is often competing rights created by cash management and account arrangements, including bank set-off rights that can dilute expect - ed recoveries. Lenders manage these risks through account structures, restrictions on cash pooling, cov - enants on intercompany movements and cash-trap mechanisms that redirect flows upon trigger events. The goal is to avoid reliance on post-filing set-off as a recovery tool and instead preserve controllable cash pathways pre-insolvency. 7.8 Out-of-Court v In-Court Enforcement A typical out-of-court private credit restructuring begins with stabilisation: enhanced reporting, liquidity controls and a standstill while stakeholders converge on a term sheet. Solutions commonly include maturity extensions, pricing adjustments, collateral upgrades and, where value preservation requires it, new money tranches with enhanced protections and governance undertakings. If consensus cannot be achieved, judi - a restructuring forum. 7.7 Set-Off Rights
and operational disruption can reduce enterprise value during the process. Outcomes improve when stake - holders stabilise operations early, implement transpar - ent reporting and execute asset sales or operational solutions through a disciplined process. For private credit, this means that monitoring and early interven - tion are as important as coupon economics, because they can determine whether value is preserved long enough to be realised. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency Out-of-court restructurings are common when the creditor base is concentrated and value can be stabi - lised without the protection of a statutory stay. They typically involve standstills, maturity extensions, cov - enant resets, collateral enhancements and, where needed, new money tranches with stronger protec - tions. Recuperação extrajudicial can be used to bind affected creditors within its scope after court homolo - gation, but it is usually more targeted than a full judi - cial reorganisation. When stakeholder alignment is not achievable or when value leakage risk is high, judicial reorganisation becomes the primary tool because it centralises disputes and can bind dissenters through class voting. Private credit providers choose the route by weighing creditor mapping, operational stability and the likelihood that contractual controls alone will When a borrower or a key guarantor enters insolvency, private credit providers face several recurring risks: the stay and the centralisation of disputes, litigation over claim classification, and challenges to guaran - tees and security based on corporate authority or corporate interest. Operational deterioration is often as important as legal risk, because receivables can underperform, collections can leak and collateral val - ue can decline while litigation proceeds. Avoidance or ineffectiveness challenges can also arise, particularly for security granted close to distress or for transac - tions that look preferential or at undervalue. Plan terms may reshape economics through extensions, haircuts or changes to collateral dynamics. Mitigation is pri - marily front-loaded: disciplined perfection, defensible approvals, conservative leverage and structures that control cash flow and provide early-warning triggers. be sufficient to preserve value. 7.5 Risk Areas for Lenders
27 CHAMBERS.COM
Powered by FlippingBook