Brazil finally adopts UNCITRAL Model Law on Cross-Border Insolvency

  • 27/01/2021

On 24 December 2020, the President of Brazil signed Law No. 14,112/2020, which modifies several provisions of Law No. 11,101/2005 (Brazilian Bankruptcy Law) concerning judicial reorganization and bankruptcy (liquidation) proceedings. The new legislation came into effect in Brazil as of 23 January 2021.

The new legislation largely incorporates the provisions relating to cross-border insolvency set forth in the UNCITRAL Model Law, including the recognition of foreign insolvency proceedings in Brazil and the cooperation with foreign authorities.


Who can apply for recognition in Brazil?

A foreign representative is entitled to apply for the recognition of a foreign insolvency proceeding to the Brazilian Courts. As a rule, the application must be made to the Court with jurisdiction over the main establishment of the debtor in Brazil.

“Foreign proceedings” are collective judicial or administrative proceedings in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign authority, for the purpose of reorganization or liquidation.

“Foreign representative” means a person or body, including one appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor’s assets or affairs or to act as a representative of the foreign proceeding.


Does the application subject the foreign representative or the bankruptcy estate to the jurisdiction of the Brazilian Courts?

The new legislation provides that an application made to the Brazilian judge does not subject the foreign representative or the debtor, their assets and activities to the Brazilian jurisdiction, except with respect to the strict limits of the application.

The Brazilian judge may authorize the foreign representative to distribute the assets of the debtor that are in Brazil, as long as the creditors domiciled in Brazil are duly protected.

The consequences of recognition in Brazil may vary from case to case, and must be thoroughly discussed with legal counsel.


What are the benefits of obtaining recognition in Brazil?

Upon recognition of a foreign proceeding:

  • all execution proceedings against the debtor or property of the debtor are automatically stayed, subject to the provisions of the Bankruptcy Law;
  • any transfer, encumbrance or disposal of any non-current assets of the debtor shall be considered “ineffective” if made without the court’s authorization; and
  • all time-limitations in connection with all judicial executions against the debtor are suspended, subject to the provisions of the Bankruptcy Law.

Furthermore, where necessary to protect the assets of the debtor or the interests of the creditors, the Brazilian court may, at the request of the foreign representative, grant any appropriate relief, including:

  • avoidance of any act of disposal of the debtor’s non-current assets made without court approval.
  • the examination of witnesses, the production of evidence or the delivery of information concerning the debtor’s assets, affairs, rights, obligations or liabilities.
  • entrusting the administration or realization of all or part of the debtor’s assets located in Brazil to the foreign representative.
  • granting any additional relief that may be necessary under the laws of Brazil.

Recognition further allows the foreign representative to avoid fraudulent transactions by bringing the legal actions referred to in articles 129 and 130 of the Brazilian Bankruptcy Law.


Cooperation between courts

Upon recognition of a foreign proceeding, the Brazilian Court shall cooperate to the maximum extent possible with foreign courts or foreign representatives. The Brazilian Court is entitled to communicate directly with, or to request information or assistance directly from, foreign courts or foreign representatives.