Since the entry into force of Law 11,101/05 (LRF), which regulates in-court and out-of-court reorganizations and bankruptcies, the scope of its article 49, paragraph 3, has generated intense debate.

The provision excluded from the effects of judicial reorganization creditors with a credit secured by security interest in assets, establishing that "the rights over the property and the contractual conditions shall control."

The rule is part of an effort by the legislator to encourage reduction of the cost of credit in Brazil, but it raises questions. Although some issues have already been overcome by case law, such as the non-subjection of credits guaranteed by security interest in receivables,[1] on which the Superior Court of Appeals (STJ) has established a consensus, other issues continue to be the subject of controversy.

Does the bankruptcy-exempt receivable persist when the assets subject to security interest belong to a third party?

This new issue in the courts involves classification and value of claims with a security interest. The question is whether these claims should be considered, first of all, bankruptcy-exempt claims in relation to the debtors in possession that are not the holders of the assets and, if so, whether they should be entirely bankruptcy-exempt or listed as bankruptcy-exempt up to the limit of the value of the asset pledged as security interest on the date of the judicial reorganization, as is the case with bankruptcy claims with a security interest.

The first point we have already had the opportunity to discuss in an article in this portal. The second issue was recently addressed by the São Paulo State Court of Appeals (TJSP)[2] during review of appeals filed in the context of the judicial reorganization of the Atvos Group, one of the largest sugar and ethanol groups in Brazil.

Two appellate decisions by the 1st Reserved Chamber of Business Law of the TJSP have established that the assets must be appraised, for the purposes of defining the limit of the bankruptcy-exempt extent of the claim guaranteed by security interest, at the time of execution of the security interest.

The debtors argued that the classification of the claim should be based on the value of the security interest at the date of the filing for judicial reorganization, to avoid distortions in the list of creditors.

For the creditors, on the other hand, the claim should be fully classified as non-business claim, since the value of the asset given as guarantee should only be ascertained at the time of its execution. Should there be any remaining balance, it would be qualified later in a delayed registration.

In the judgment, with Appellate Judge Alexandre Lazzarini serving as reporting judge, the creditors' theory was accepted by the panel. It was defined that "only after the execution of the asset that was subject to security interest will any remaining balance be ascertained for later registration in the reorganization as an unsecured claim."

For the adjudicatory chamber, any devaluation of the security interest does not change the nature of the claim. The panel pointed out that the LRF does not make any reservations in this regard. Therefore, even if there is a reduction in the value of the secured asset at a certain point in time, the difference does not automatically become a non-exempt claim.

The court also pointed out that, if the theory of the debtors in possession were accepted, there would be a weakening of the system of security interests, which would create legal uncertainty and increase the risk in the granting of loans, which would reflect on the interest charged by financial institutions and cause losses to all stakeholders.

The debtors' theory would encounter yet another obstacle to its approval. According to the court, it would "completely change the scenario outlined by the parties when they entered into the financing agreement," going against the principle of pacta sunt servanda, which establishes that contracts are binding, and that of good faith, especially since the security interest would have been essential for the granting of the financing and judicial reorganization does not exempt companies in crisis from fulfilling their contractual obligations.

The decision of the TJSP in the in-court reorganization of the Atvos Group seems appropriate to us, since the asset that is subject to security interest, regardless of its value at the time of the in-court reorganization, secures the debt, and the amount obtained in its execution should be fully used in the amortization of the claim.

To find otherwise would mean to authorize the creation of an undue limitation on the security interest originally contracted, which would benefit, without any legal grounds, the debtor/guarantor of the security interest, in addition to opposing the provisions of article 49, paragraph 3, of the LRF.

The TJSP's position is in line with the STJ's understanding that the remaining balance found after the consolidation of the ownership of the asset given as security and its sale must be qualified in the judicial reorganization.[3]

For the national credit market, these decisions are important, because they reinforce the institutes of fiduciary assignment and security interest, which are widely used as guarantees for financing, especially because they reduce the risks for lenders in the event of debtor default.


[1] STJ, Special Appeal 1629470/MS, Second Section, opinion drafted by Justice Maria Isabel Gallotti, decided on November 30, 2021; STJ, Internal Interlocutory Appeal in Conflict of Jurisdiction 145.379/SP, Second Section, opinion drafted by Justice Moura Ribeiro, decided on December 13, 2017.

[2] Interlocutory Appeals 2174315-41.2021.8.26.0000 and 2281729-35.2020.8.26.0000 

[3] STJ, Conflict of Jurisdiction 128.194/GO, Second Section, opinion drafted by Justice Raúl ARAÚJO, decided on June 28, 2017.