Debtor financing in Brazilian judicial reorganization

Law 14,112/2020 endowed Brazilian judicial reorganization with a proper regime for financing the debtor, inspired by foreign experience and enacted in arts. 69-A to 69-F of Law 11,101/2005. The purpose is clear. Without new money, a company in crisis rarely preserves the activity, the jobs and the productive source that art. 47 of the statute establishes as the goal of the proceeding.

Judicial authorization and security

Under art. 69-A, the court may authorize the debtor to enter into financing agreements secured by liens or by the fiduciary transfer of assets and rights, including non current assets, to fund the restructuring and the expenses of preserving asset value. Art. 69-C allows the creation of subordinated security over one or more assets of the debtor, dispensing with the consent of the holder of the original security, whose priority is preserved.

The protection of the lender

Two provisions supply the legal certainty indispensable to attracting capital. Art. 69-B establishes that the modification on appeal of the authorizing decision does not alter the priority or the security created in favor of the good faith lender as to amounts already disbursed. Art. 69-D provides that, if the reorganization is converted into liquidation before the full release of the funds, the agreement is terminated by operation of law and the claim corresponding to the disbursed amounts enjoys the qualified superpriority of art. 84, I-B, of the same statute, ranking ahead of the generality of ordinary claims.

Who may lend

Art. 69-E allows any person to provide the financing, including creditors subject or not to the reorganization, shareholders of the debtor and members of its group, without such circumstance resulting in disqualification or subordination of the claim. This statutory openness turned the institute into a strategic instrument both for investors specialized in distressed situations and for creditors who, by lending, protect their own exposure and influence the course of the restructuring.

For the debtor, well structured financing is frequently the difference between a feasible plan and conversion into liquidation. For the lender, the combination of security interests, statutory priority and protection against appellate reversal forms a protection regime without parallel in ordinary credit, whose effectiveness depends, in each case, on the technical rigor of the agreement and of the authorizing decision.

This article is for general information only and does not constitute legal advice. For guidance on specific situations, please contact our team at contato@gotlibrocha.com.br.