A mid-sized industrial group with operations across three Brazilian states approached Ferraz & Whitmore after its primary lender accelerated a secured facility. Two additional creditor groups – a syndicate of trade suppliers and a foreign bondholder – had each filed competing claims. The window to propose a viable restructuring plan was narrowing, and each creditor group was advancing its own enforcement strategy independently.
Brazilian insolvency proceedings offer a court-supervised reorganisation mechanism under the country's insolvency legislation, allowing a debtor company to propose a restructuring plan to creditors within a defined timetable. The plan must secure approval at a creditors meeting, where creditor classes vote separately. An administrator appointed by the court oversees asset preservation and monitors compliance throughout the process.
This case study examines how the legal strategy was built, the complications encountered along the way, and the transferable lessons for international businesses managing multi-creditor situations in Brazil.
Client profile and the challenge ahead
The client was a family-controlled manufacturing group. Its debt obligations spanned Brazilian real-denominated bank facilities, trade payables to domestic suppliers, and USD-denominated bonds held by a European investment vehicle. Each creditor class had distinct enforcement rights under Brazilian insolvency legislation.
The immediate risk was fragmentation. Without a coordinated approach, any one creditor could move to attach assets or trigger liquidation proceedings before a restructuring plan could be tabled. The bondholder, in particular, faced its own pressures from investors and had a shorter timeline for action than the domestic creditors.
For our team, the priority was clear: stabilise the creditor environment and create the procedural conditions for a plan to be proposed. Delay in filing for court-supervised reorganisation – known in Brazilian legal practice as recuperação judicial (judicial recovery) – would have forfeited the automatic stay that insolvency legislation provides once proceedings are initiated. That stay protects the debtor's assets from individual enforcement actions during the insolvency proceedings.
Legal strategy: sequencing the approach
The strategy rested on three sequential steps. First, the filing for recuperação judicial had to be prepared carefully. Brazilian insolvency legislation sets out specific documentary requirements for the petition. Deficiencies in the proof of debt documentation or in the list of creditors are a common reason courts reject or delay the opening of proceedings. We worked with the client's finance team to reconstruct creditor records and prepare a complete creditor schedule.
Second, once the court opened proceedings and appointed an administrator – the administrador judicial – we focused on managing information flow to creditors. A creditors meeting held early in the process can either build or destroy confidence in a plan. We structured pre-meeting communications to each creditor class separately, addressing their specific concerns rather than issuing uniform updates.
Third, the restructuring plan itself was designed to offer differentiated treatment by class. Brazilian insolvency legislation permits this. The plan distinguished secured claims, labour-related claims – which carry statutory priority – and unsecured trade claims. The foreign bondholder's claim required particular care. Cross-border bond debt sits in a legally ambiguous position under Brazilian insolvency legislation. Its treatment in the plan had to be carefully drafted to avoid triggering a challenge at the creditors meeting.
For a broader view of how insolvency proceedings in Brazil operate across different creditor categories, our detailed service overview on bankruptcy and restructuring in Brazil sets out the procedural steps and creditor rights in full.
Key milestones and complications encountered
The court accepted the filing within three weeks. The automatic stay came into effect immediately. This halted two asset attachment proceedings that domestic trade creditors had already initiated.
The administrator's initial assessment raised one significant complication. Several intercompany loans appeared on the debtor's balance sheet. The administrator questioned whether these should be treated as subordinated claims or excluded from the creditor schedule altogether. This dispute delayed the finalisation of the proof of debt process by approximately six weeks.
A second complication arose at the creditors meeting. One class – the trade supplier group – initially voted against the plan as presented. Under Brazilian insolvency legislation, a rejected plan does not automatically terminate proceedings. The court retains discretion to impose the plan on dissenting classes in defined circumstances. The legal team prepared submissions addressing the conditions for that judicial override, which created sufficient pressure for the supplier group to re-enter negotiations. A modified payment schedule for that class resolved the impasse.
The foreign bondholder's vote presented a jurisdictional question. Its claim was governed by New York law. The question of whether that claim was correctly admitted and valued under Brazilian insolvency legislation required coordination between Brazilian insolvency counsel and the client's international advisers. The administrator ultimately admitted the claim at a value consistent with the Brazilian-law analysis. The bondholder accepted the plan's treatment of its class after receiving a written legal opinion on the admission methodology.
Matters involving parallel corporate disputes during insolvency proceedings often intersect in practice. Our work on corporate disputes in Brazil addresses the procedural mechanisms available when shareholder or governance conflicts arise alongside a restructuring.
Transferable lessons for cross-border restructurings in Brazil
Lesson one: file early and file correctly. The automatic stay under Brazilian insolvency legislation is one of the most valuable tools available to a debtor. It stops individual creditor enforcement and creates the space needed to negotiate. Businesses that delay filing – often hoping to resolve matters bilaterally – frequently discover that one creditor's enforcement action collapses the negotiating environment entirely. The opportunity to restructure on reasonable terms is lost once assets are attached or a liquidator is appointed.
Lesson two: treat creditor class management as a distinct workstream. Multi-creditor situations in Brazil require separate engagement strategies for each class. A creditors meeting is not simply a voting event. It is the outcome of weeks of bilateral work with each group. International creditors – particularly bondholders governed by foreign law – need dedicated legal analysis on how their claims will be admitted and treated. Providing that analysis proactively prevents last-minute challenges that can derail a plan.
Lesson three: anticipate the administrator's scrutiny of intercompany balances. In almost every restructuring involving a group of companies, intercompany loans become a contested issue. Administrators in Brazil examine these closely. A company entering insolvency proceedings should conduct its own analysis of intercompany positions before filing. Presenting a clear, well-documented position to the administrator at the outset reduces delay and prevents those balances from becoming leverage for dissenting creditors.
For those evaluating how a comparable multi-creditor restructuring was managed in a common law setting, our case study on corporate restructuring in the United States provides a useful comparative perspective.
To discuss how these principles apply to your own restructuring situation in Brazil, contact us at info@ferrazwhitmore.com.
About Ferraz & Whitmore
Ferraz & Whitmore is an international law firm based in Lisbon, advising business clients across 46 jurisdictions. Our insolvency and restructuring practice supports clients through corporate reorganisation, multi-creditor workouts, and cross-border insolvency proceedings in Brazil and across Latin America. As a law firm in Brazil-facing matters, we combine civil law expertise with common law transactional experience to deliver practical results for international businesses. Our team has advised on restructuring plan negotiations, creditors meeting procedures, and administrator-related disputes across both civil law and common law systems. Engaging a lawyer in Brazil-connected restructurings through Ferraz & Whitmore means access to coordinated advice spanning the full creditor lifecycle – from proof of debt admission through to plan confirmation. To explore how we can support your restructuring strategy, contact us at info@ferrazwhitmore.com.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.