Amidst the current euphoria surrounding the ongoing 2014 World Cup, economists covering the Brazilian economy have reported a number of statistics that point to an increase in the Brazilian corporate default rate over the next 12 to 18 months. Among other things, the host country’s economic growth has slowed to an estimated 1.62 percent and its central bank has raised interest rates for the ninth straight time to address an inflation rate approaching 6.5 percent.1 In light of these statistics, and several pending high-profile Brazilian bankruptcy proceedings commenced in 2013 and 2014, we thought it would be helpful to provide an overview of the Brazilian bankruptcy system and highlight the key differences between the Brazilian system and the U.S. Bankruptcy Code. Additionally, in the second half of the article, Brazilian restructuring lawyer Marcos Leite de Castro2 addresses a number of questions likely on the minds of international investors holding Brazilian distressed debt.
Brazilian Bankruptcy Statutes
In 2005, Brazil implemented a new bankruptcy law (No. 11101/05) (BBL) modeled largely after the U.S. Bankruptcy Code.3 This new system provides three alternatives for insolvent entities: (i) judicial reorganization (recuperação judicial—a court-supervised reorganization proceeding similar to a chapter 11 case under the U.S. Code; (ii) extrajudicial reorganization (recuperação extrajudicial)—an out-of-court reorganization proceeding similar to a pre-packaged chapter 11 case; and (iii) bankruptcy (falência)—a court-supervised liquidation proceeding similar to a chapter 7 case under the U.S. Code.
