I OVERVIEW OF RESTRUCTURING AND INSOLVENCY ACTIVITY

In Brazil, Federal Law 11,101/2005, known as the Brazilian Bankruptcy and Restructuring Law (BRL), came into effect on 9 June 2005, bringing significant changes to the legal treatment of Brazilian companies that are insolvent or facing financial difficulties.

Throughout its 12 years of effectiveness, several periods of judicial restructuring trends can be identified, directly related to the economic and financial crisis in Brazil and the rest of the world, as well as the evolution of the proceedings and case law. These are as follows:

      • a first period: airline companies, such as Vasp, Varig and BRA;
      • b second period: meatpacking and agribusiness industries, such as Arantes, Independencia, Quatro Marcos and Nilza;
      • c third period: electric power companies, such as Celpa and Grupo Rede;
      • d fourth period: oil, gas and mining companies, such as OGX, OSX and Eneva; and
      • e fifth period: infrastructure, construction, engineering and communication companies, such as OAS, Galvão Engenharia, Schahin, Sete Brasil, Oi, Viver, PDG and Abengoa.

In terms of the proceeding itself, smaller companies tend to be more successful in restructurings, since the smaller company's structure and its number (and size) of creditors tend to facilitate the process. However, for both small and large companies, the financial conditions in which the company entered the restructuring proceedings is the decisive factor for a possible recovery.

Over the past three years, the Brazilian investigation known as Operation Car Wash has led the country to an unprecedented political and economic crisis, leading construction companies and companies in the infrastructure sector, whether involved or not in the investigation, to request its judicial restructuring.

A consequence of such crisis was that, according to Serasa Experian, 2016 had a record number of judicial restructuring requests since the BRL came into effect, with an increase of 44.8 per cent compared with 2015. In the first quarter of 2017, however, the number of reorganisation proceedings in Brazil fell by more than 30 per cent compared with the first quarter of 2016.

II GENERAL INTRODUCTION TO THE RESTRUCTURING AND INSOLVENCY LEGAL FRAMEWORK

i Brief description of the proceedings

The BRL applies to entrepreneurs and business companies in general. It is not applied to state-owned companies, mixed-capital companies, financial institutions, insurance companies and some other entities expressly excluded by the law, which are subject to specific insolvency proceedings.

The BRL establishes three major mechanisms that may apply to companies in difficulty: (1) judicial restructuring; (2) out-of-court restructuring; and (3) forced liquidation. As one of its main features, the BRL offers the debtor company flexibility and, in most situations, continuity of management and an opportunity for rehabilitation.

The mechanisms of judicial restructuring and out-of-court restructuring, which replaced the old concordata (a court-relief system for debtors), are used when a particular business can be maintained in operation, even with the change of corporate subject or reduced operation, and may overcome its financial crisis.

The forced liquidation proceeding shall apply when a particular business is no longer viable. In this case, as a rule, the debtor (either an individual businessman or a company) is removed from its activities and the existing assets are attached and sold by a judicial administrator (that may continue the debtor activities if it is understood by the Bankruptcy Court to be beneficial for the creditors). Any proceeds derived from the sale of assets are distributed among different creditors according to a preference order established by law.

Judicial restructuring proceeding

Any debtor that meets certain conditions specified in the BRL may apply for judicial restructuring proceeding. The application must be accompanied by several documents and information, including explanations about the financial difficulties faced by the debtor, financial statements, a list of creditors and a list of employees.

If the application is in proper form, the court will authorise the initiation of judicial restructuring proceeding. A public notice will then be included in the official gazette containing, among others: a summary of the request made by the debtor; a list of creditors; and a warning about the applicable term for any challenges to the list of creditors, including requests for adjustments and inclusions.

In relation to the judicial restructuring proceeding, the BRL establishes that:

  • a only the debtor may file a court application for restructuring;
  • b there is a non-automatic 180-day stay period for credits subject to the proceeding, applied when the court authorises the proceeding;
  • c tax and few other types of debts are not subject to the proceeding and creditors holding such debt may initiate or proceed with collection lawsuits against the debtor;
  • d the BRL does not provide for a specific status such as ‘debtor in possession' as in the Chapter 11 of the US Bankruptcy Code. As a general rule, the existing management of the debtor continues to operate the business and regular business acts are allowed, except that any sale of ‘permanent' assets is only allowed if authorised by the Bankruptcy Court or permitted in the reorganisation plan approved by the creditors;
  • e the appointment of a creditors' committee is optional and has more of a supervisory than decision-making role;
  • f while a judicial administrator nominated by the Court monitors the activities performed by the debtor, he or she mainly manages the judicial procedure acts, instead of replacing the management of the debtor company in operating the business;
  • g a judicial manager is only appointed when the debtor's existing management has been removed from their positions. This may occur in exceptional legal cases, such as when:

• there are indicia of bankruptcy crimes;

• some acts were performed with wilful misconduct or engaged in fraudulent schemes against creditors;

• the managers have been making personal expenditures that are not compatible with their income; or

• the management removal is specified in the reorganisation plan; and

  • h the general meeting of creditors is essential to the process, since it has the power to approve or reject the reorganisation plan.

The debtor company shall submit a reorganisation plan within 60 days from the publication of the court order authorising the initiation of the proceeding. If the plan is not submitted in due time, the debtor shall be declared bankrupt (as forced liquidation). The reorganisation plan must contain: a detailed description of restructuring mechanisms to be used, which may include debt rescheduling, corporate reorganisation, transfer of corporate control, partial sale of assets, leasing of going-concerns, and a series of other measures; demonstration of the economic feasibility of the debtor's business; and a report on the debtor's assets prepared by an expert appraiser or company. The plan cannot provide that overdue labour credits and credits deriving from accidents at work will be paid in a term longer than one year from the ratification of the approved plan by the Bankruptcy Court.

Creditors will be informed about the reorganisation plan and the applicable term to challenge it through a public notice. If any objection to the proposed plan is submitted by any creditor, the court shall call a general meeting of creditors. In the meeting, creditors may: (1) approve the plan as originally proposed; (2) approve a modified version of the plan; as long as there is no opposition from the debtor and no harm to absent creditors; or (3) reject the plan, in which case the debtor should be declared bankrupt (as forced liquidation).

Any reorganisation plan must be approved by the following four categories of creditors in a general meeting of creditors: (1) labour creditors and creditors from accidents at work; (2) secured creditors; (3) unsecured creditors, creditors with special or general preference, and subordinated creditors; and (4) small business creditors (companies that have a yearly revenue up to a specific amount provided by law).

The plan must be approved by all four categories. In the first and fourth classes of creditors, approval is achieved with the favourable vote of the majority of creditors present at the meeting (by head), regardless of the amount of their credits. In the other two classes, approval is achieved with the favourable vote of both the majority of creditors present at the meeting (by head) and the majority of creditors representing more than half of the credit amounts represented at the meeting (by amount).

If certain vote combinations specified in the BRL are obtained in the general meeting of creditors, the court may grant the judicial restructuring, even when the plan was not approved pursuant to the quorum requirements explained above, if some requirements are fulfilled (cramdown).

The reorganisation plan may provide for a judicial sale of branches or individual going-concerns belonging to the debtor. The judicial sale may take the form of an auction, be effected through proposals submitted in sealed envelopes, or be a combination of the former two options.

Once the judicial sale is effected, the relevant branch or going-concern will, in principle, be free and clear of any liens and encumbrances, and the purchaser will not succeed the debtor with respect to any indebtedness. As a consequence, creditors from a debtor that is subject to judicial restructuring will not be able to claim any amount from the purchasers of branches or going-concerns, and the corresponding assets will not be attached to satisfy their credits. Therefore, creditors will simply retain their original claims against the debtor.

Judicial restructuring proceedings shall remain in place until all obligations maturing within two years that are specified in the plan are fully complied with by the debtor. If the debtor fails to comply with any obligation within such period, its forced liquidation shall be declared. Any obligation unfulfilled after the two-year period entitles creditors to initiate collection proceedings or request the declaration of the debtors' forced liquidation.

Verifying that all obligations matured within two years after the approval of the plan were fulfilled, the Court shall order the termination of judicial restructuring proceeding. It should be noted that, although no longer subject to court proceedings, the debtor remains liable for all obligations specified in the plan that are still outstanding.

Out-of-court restructuring proceeding

Any debtor that meets certain conditions specified in the BRL may propose and negotiate with its creditors an expedited reorganisation plan, also called out-of-court reorganisation plan, and request its judicial ratification, with the possibility of enforceability towards creditors whose credits are treated in the plan and who did not adhere to it, if a certain quorum of adherence is obtained.

In other words, despite being deemed ‘out-of-court', the plan must be ratified by a Bankruptcy Court to bind creditors who did not even adhere to the plan. This does not mean that the plan will be conducted within the context of court proceedings. It just needs to be ratified.

To produce effects with respect to all creditors contemplated in the plan, including those that have not expressly adhered to the settlement, the BRL provides that the ratified plan must have been approved by creditors representing more than three-fifths of credits in each species of creditors contemplated by the plan.

Once the debtor requests the ratification of the plan, the creditors will have the opportunity to challenge such ratification. Nevertheless, any challenges may be based solely on an alleged illegality or a failure by the debtor to comply with all necessary legal requisites or formalities and not on the economic feasibility of the plan.

If the challenges are not accepted by the Court, the out-of-court reorganisation plan will be ratified and bind all creditors contemplated in the plan. The plan's provisions and obligations are judicially enforceable after the ratification decision.

Bankruptcy or forced liquidation

According to the BRL, debtors that are facing a financial crisis and do not meet the conditions to benefit from judicial restructuring or out-of-court restructuring proceedings should request the declaration of their own forced liquidation. The prerequisite of a forced liquidation request is related to the company's financial and economic situation. In other words, the main condition that shall be analysed by the Court in terms of the forced liquidation declaration is the self-management ability of the company as well as its financial and economic viability.

In this case, the debtor has the duty to explain the reasons why the company cannot continue with its economic activities. Further, the debtor must present to the Court several related documents, which are listed in the BRL.

In addition, any creditor may request the forced liquidation of a debtor in certain circumstances, including the following:

  • a failure by the debtor to comply with payment obligations in excess of 40 times the prevailing Brazilian minimum wage, provided that a protest with a public registry has been lodged with respect to the corresponding indebtedness. To reach the above threshold, two or more creditors can combine their credits;
  • b the existence of debt collection proceedings against the debtor where no assets have been attached or no money has been deposited to secure payment of the relevant obligations;
  • c the debtor has engaged in actions such as unjustified sales of assets or fraudulent schemes against the interests of creditors; and
  • d the debtor has failed to comply with obligations under a judicial reorganisation plan.

The forced liquidation proceeding is conducted by the Bankruptcy Court, the public prosecutor, the judicial administrator and creditors. The Bankruptcy Court will appoint the judicial administrator that will manage the bankruptcy estate, attach and sell all the company's assets, so there is no need for the company to appoint a liquidator or administrator (and no due diligence required).

According to the BRL, the payment to creditors in a forced liquidation proceeding is made after all restitutions and payments of non concurrent credits and should observe the list of creditors produced by the Court according to the order of preference under the BRL.

The order of preference for payments to creditors in the forced liquidation proceeding established in the BRL is as follows:

  • a labour claims of up to 150 times the prevailing minimum wage for each creditor, and claims deriving from accidents at work;
  • b secured credits up to the value of the relevant collateral;
  • c tax debts;
  • d credits with special privileges;
  • e credits with general privileges;
  • f unsecured credits;
  • g contractual penalties, tax penalties and fines deriving from violations of legal provisions; and
  • h subordinated credits (as considered by law or agreement, and shareholders' and certain managers' credits).

Some credits should be honoured and paid before all of those mentioned above, in the order set forth below:

  • a the compensation payable to the judicial administrator and his or her assistants, and labour-related claims or occupational accident claims referring to services rendered after the decree of the forced liquidation;
  • b sums provided to the bankruptcy estate by the creditors;
  • c expenses with schedules, management, asset sale and distribution of the proceeds, as well as court costs of the forced liquidation proceedings;
  • d court costs with respect to actions and enforcement suits found against the bankruptcy estate; and
  • e obligations resulting from valid legal acts performed and contracts agreed during the judicial restructuring proceeding, such as loans and continuity of supply, or after the decree of the forced liquidation, and taxes relating to triggering events postdating the decree of the forced liquidation.

In addition, if the debtor is in possession of assets (including money) that belong to third parties at the time the forced liquidation is decreed (by a leasing or fiduciary sale agreement or advance of foreign exchange currency agreement, for example), rightful owners may request restitution of their assets before the payment of any creditor, which may be understood also as a priority over the order of preference of the BRL. This is the case because such assets (which may include money) are understood by law and case law to not belong to the debtor, and, therefore, cannot be included as part of the bankruptcy estate.

In those situations where assets to be repossessed no longer exist, the owner will be entitled to receive an equivalent amount in cash. The same will occur when a bank has disbursed funds to the debtor pursuant to an advance of foreign exchange agreement. In such cases, any restitution in cash will have priority and will only be subject to the previous payment of labour claims that have matured three months before the declaration of forced liquidation, up to a limit of five times the prevailing minimum wage per employee.

After the forced liquidation is judicially decreed, the debtor company will be liquidated so that its assets can be attached and sold by the judicial administrator, and the amount obtained will pay the creditors. Only after the extinguishment of all obligations may the shareholders request the rehabilitation of the company, in order to explore its activity once again.

All the debtor company's obligations will be considered extinguished if it is able to pay all of its debts, if it is able to pay up to 50 per cent of its unsecured debts, after five years of the end of the proceeding, or after 10 years of the end of the proceeding if there was any conviction for a bankruptcy crime.

The forced liquidation proceeding is a case of total judicial dissolution of the company. If, after the selling of all assets and the payment of creditors, there is any amount left - which is very difficult to identify - this amount will be given to the shareholders in proportion to their participation in the company's equity.

ii Taking and enforcement of security

In Brazil, there are several types of security over assets. The main ones are: mortgage (over real state assets), pledge (over moveable assets) and fiduciary transfer of assets (real estate and moveable).

In judicial restructuring proceedings, credits secured by mortgage and pledge and existing at the date of the filing will comprise the secured creditors category, to the extent of the security it holds. Any disposal of collateral by the debtor should be previously approved by the relevant secured creditor. All the categories of creditors are paid according to what is established in the reorganisation plan. Therefore, the secured creditors subjected to the proceeding do not have alternative recourse to seek remedies for protection of their collateral, other than negotiating the payment of the respective credit under the reorganisation plan. If the secured credit is not subject to the proceeding because of time limitation (credits constituted after the filing), it can be enforced.

Some creditors are not subjected to the judicial restructuring proceeding because of the security they hold: creditors secured by fiduciary transfers of assets, lessors, sellers in irrevocable real estate purchase agreements with instalment payments, and sellers of goods with title retention. This is because in such situations, the creditor is indeed the actual owner of the assets, even when the assets are being used by the debtor. Thus, the original contractual arrangements and corresponding debts remain in place, and the guarantee can be enforced in case of default. The only restriction is that for a period of 180 days from the authorisation of the judicial restructuring proceeding by the Bankruptcy Court, the sale or removal of assets that are essential to the activities carried out by the debtor is prohibited.

In forced liquidation proceedings, credits secured with mortgage and pledge (limited to the value of the collateral) are ranked behind labour credits (limited to 150 times the prevailing minimum wage) and credits deriving from accidents at work, but ahead of tax credits and unsecured credits. Also, credits with fiduciary transfer of assets are not subject to the legal preference order of payment in the forced liquidation proceeding and the respective creditor may request the restitution of their assets before the payment of any creditor.

For credits secured by mortgage or pledge that are not subject to the proceeding, the creditor may, if all requirements are fulfilled, file an enforcement proceeding against the debtor company by means of enforcement of the security and the credit, pursuant to the Brazilian Code of Civil Procedure. In such an enforcement proceeding, the creditor is able to seize and attach the guarantees granted by the debtor company and other assets, up to the full amount of the debt if necessary. The judicial enforcement proceeding may take a couple of years to be concluded, especially if there is a judicial restructuring in course, if enough assets are duly seized, attached and sold. If not, and the creditor has difficulty finding assets of the debtor company, it may take several years.

For enforcement of fiduciary transfer of real estate assets, when the debtor is not under forced liquidation, the mechanism applicable in case of default is provided by Law 9.514/97. The debtor shall be notified by the real estate registry office, upon request of the creditor, to pay the total debt and solve the arrears within 15 days. The payment has to be made to the real estate registry office, to be delivered within three days to the creditor, discounted the costs for collection and summons.

If the debtor does not make the payment, the real estate registry office shall certify this fact and register the consolidation of the asset ownership in the name of the creditor, after the payment of the correspondent transfer tax. The creditor will then have 30 days to promote public auction for the forced sale of the property.

In a first auction, the property can only be sold for an amount equal to or higher than the value of the asset stated in the agreement. If the asset is not sold in a first auction, another auction will be held within 15 days. In the second auction, the property can only be sold for an amount equal to or higher than the amount of the debt and related charges and expenses.

If the selling of the asset in a public auction occurs, the creditor will give the debtor the amount left after debt settlement and related charges and expenses are solved. If the property is not sold in the second auction, the claim or credit will be extinguished and the ownership of the real estate asset, which had been consolidated in the name of the creditor, will remain with him or her.

Also, Law 9.514/97 provides the possibility for the debtor to offer the creditor its right to the property of the asset, after the default and proceedings for the early maturity of the whole debt amount, making the proceeding of public auction dispensable. According to the referred legal proceeding, there is a risk that after the sale of the real estate asset in public auction and with the payment of the price, it could be considered a full discharge of all secured obligations and debt amounts, even if the outstanding debt is higher than the proceeds obtained, considering what is provided in Law 9.514/97. Recent case law defends that the full discharge only applies to housing finance.

For operations of fiduciary transfer of moveable assets by financial companies, the applicable proceeding is the one provided in Law 911/69, being the adequate proceeding to obtain the possession of the asset a lawsuit for search and apprehension of the assets. For operations of fiduciary transfer of moveable assets by non-financial companies, the applicable law is the Brazilian Civil Code. It provides that, if the debt is not paid in due time, the creditor shall sell, judicially or not, the assets to third parties, use the price obtained to pay the debt plus charges and expenses, and deliver the balance to the debtor, if any. In this case, the Civil Code provides that, if the price obtained with the selling of the assets is not enough to pay the debt, the debtor remains obligated to pay the remaining amount of the debt.

iii Duties of shareholders and directors of companies in financial difficulties

In forced liquidation proceedings, shareholders, controlling shareholders, directors and executive officers may be considered liable for debts and acts if the Court understands that some requirements have been fulfilled.

Regarding this topic, the BRL provides that the Bankruptcy Court may investigate and determine the shareholders' and managers' liability if it verifies that they performed any act or omission that contravenes Brazilian law - for example, corporate laws, tax laws and labour laws - regardless of the collection of the assets and impossibility to pay all the creditors of the company.

As an example, the Brazilian Corporate Law sets forth the definition and the rules of conduct that shall be observed by the controlling shareholder, and provides the liability rule applicable to the controlling shareholder. Also, the BRL provides the duties of the company's directors and executive officers, and in case of violation of such duties or illegal acts in conducting the businesses, managers shall be deemed liable for their acts.

In principle, if the company's shareholders or managers have contravened one of the legal provisions mentioned above, the Court may deem them liable for certain obligations or acts.

The BRL predicts that in those cases, a responsibility lawsuit will begin in the Bankruptcy Court, and in this lawsuit, the defendant's assets can be blocked in compatible amount to the damage caused, until the final judgment. The term for the filing of a responsibility lawsuit ends two years after the decision that ends the forced liquidation proceeding becomes unappealable.

According to the Civil Code, the Court may disregard the company's corporate veil if it considers that there was an abuse of its legal personality (in case of equity confusion and misuse of purpose). In this case, the shareholders would be considered liable for all of the company's debts.

In limited liability companies, the shareholder's liability is initially limited to the price of the stocks emission or to the full payment of the company's capital (stock). As a rule, the company's estate cannot be confused with the shareholder's estate, and the company is the only one that responds for their obligation.

The possibility of piercing the corporate veil was created as an exception to the limited liability of the shareholders, and once decreed by the judge, the shareholders shall respond with their own assets for a specific obligation. This possibility is foreseen in the Civil Code, and can also be applied to a company that is bankrupted.

The essential requirements are: abuse of the corporate veil, with deviation of the company's purpose or estate confusion between company and shareholders. In each concrete case, the judge will analyse the presence of such requirements - these requirements are more objective than just ‘fraud' or ‘abuse', but the decision by the Court remains very subjective.

Finally, if the public prosecutor understands that the shareholders, officers or directors committed a bankruptcy crime, he or she may file a criminal action. The BRL sets out several criminal offences related to bankruptcy, whose penalties can vary from one to six years of imprisonment, plus a fine.

iv Clawback actions

In case of forced liquidation, the BRL contains a list of actions that shall produce no effects with respect to the bankruptcy estate, regardless of whether the parties were aware of the financial difficulties facing the debtor or whether there was any fraudulent intent. Such actions are deemed incompatible with the reasoning underlying the BRL. Accordingly, they may be disregarded automatically by the court or at the request of any interested party.

Actions considered ineffective include, for instance: payment of unmatured debts during the suspect period; payment of overdue debts effected during the suspect period in a manner that is different from what was established in the original agreement; the creation of security interests during the suspect period to secure payment of preexisting indebtedness; and donations and other equivalent actions effected within the period of two years preceding the forced liquidation.

In addition to those actions deemed automatically ineffective, any action aimed at intentionally defrauding creditors may be revoked. In this case, however, the party seeking the revocation must prove, in a separate lawsuit, that there was a fraudulent scheme arranged between the debtor and a third party, and that the bankruptcy estate actually suffered damages as a result of such scheme.

The bankruptcy legal term, also known as the ‘suspect period' or ‘look-back period', shall be set by the court upon the declaration of forced liquidation. It may apply retroactively until 90 days before: the forced liquidation request; the application for judicial restructuring later converted into forced liquidation; or the first protest for non-payment lodged against the debtor.

III RECENT LEGAL DEVELOPMENTS

The BRL has been in effect for 12 years. In this time, it has only seen a few amendments and complements. The main ones are:

  • a Complementary Law No. 147/2014, which amended the BRL in relation to ‘small businesses' (which are categorised as such by Brazilian law based on yearly revenues). Small businesses are now a specific class of creditors and are classified as credits with special privileges, and now have specific provisions when companies are debtors in insolvency proceedings;
  • b Federal Law No. 13.043/2014, which provides for a specific federal tax relief system for companies under judicial restructuring proceeding (REFIS). To be able to benefit from this relief system, some specific requirements must be fulfilled (such as not judicially discussing the tax debt to be renegotiated), and if the request is approved by the federal tax authorities, the debtor company will be able to pay its tax debts in up to 84 instalments. The first 12 instalments must correspond to 0.666 per cent of the debt; from the 13th to the 24th, the instalments must correspond to 1 per cent of the debt; from the 25th to the 83rd instalments, each shall correspond to 1.333 per cent of the debt; and the last instalment must correspond to the remaining amount of the debt. Also, the debtor company can only request this benefit once in each judicial restructuring proceeding, and it must refer to all of its federal tax debts.
  • c Federal Law No. 12.767/2012, which determined that the proceeding of judicial and out-of-court restructuring are not applicable to public electricity service concessionaires, due to the negative effects of the judicial restructuring of Celpa. This is likely to occur in the future with other types of concessionaires.

IV SIGNIFICANT TRANSACTIONS, KEY DEVELOPMENTS AND MOST ACTIVE INDUSTRIES

As mentioned above, Operation Car Wash, among other factors, led Brazil to a severe political and economic crisis, and several important infrastructure companies in Brazil requesting judicial restructuring proceedings. The most significant restructuring in 2016/2017 was Oi judicial restructuring proceeding, in which the debts exceeded 65 billion reais. It is so far the largest restructuring in Latin American history and will most likely be considered one of the most innovative judicial restructuring, since it will set new parameters and standards for such proceedings in Brazil, including changes in case law, that has evolved in the past years, and develop the proceeding itself, since adjustments have been made to be able to adapt to such a large restructuring.

The judicial restructuring of Abengoa is also a very significant judicial restructuring of the past year, along with PDG and Viver judicial restructurings, from the construction sector.

V INTERNATIONAL

The Brazilian Bankruptcy or Restructuring Law does not contain any specific rules dealing with extraterritorial bankruptcy or insolvency proceedings or provisions regarding the recognition of other countries insolvency proceedings, unlike Chapter 15 of the US Bankruptcy Code, for example.

In fact, bankruptcy and restructuring proceedings involving Brazilian companies, with its centre of main interest in Brazil, or subsidiaries of foreign companies in Brazil, must necessarily be administered by a Brazilian court. The cases in which foreign companies (with no subsidiaries in Brazil) have had insolvency proceedings accepted by Brazilian bankruptcy courts are specifically related to companies that are part of Brazilian economic groups, established in other countries just for investment purposes, with no operation abroad.

Brazil has not adopted the UNCITRAL Model Law or any other treaty related to cross-border or multijurisdictional insolvency proceedings. As a result, any effects and consequences in Brazil of possible ancillary or parallel proceedings taking place in foreign jurisdictions must be dealt with on a case-by-case basis, subject to applicable conflicts of law provisions in cross-border matters.

There are, however, provisions in Brazil that allow recognition and enforcement of foreign decisions (interlocutory or final) by the Superior Court of Justice, once legal requirements are fulfilled, but not recognition of processes themselves. The decision must be in compliance with the Brazilian public policy, sovereignty and principles of morality, such as human dignity, and some formalities must be observed, such as sworn translation of the decision and notarisation or consularisation of signatures. Also, there must be an identified counter party, that has the right to present a defence.

VI FUTURE DEVELOPMENTS

The current economic and political crisis in Brazil, the volatility in the global market and the rise in corporate restructurings have had no impact on Brazil's insolvency regime so far - only in the increase of the requests for judicial and out-of-court restructurings, due to the financial crisis the companies are going through.

However, these events have had a significant impact on the analysis made by the courts when judging appeals related to insolvency proceedings, with stricter control over the companies and higher interference in the commercial relations of the debtor companies.

There are several legislative bills and studies in course for major alterations of the LRF, to adjust its provisions to the current - and future - Brazilian political and economic scenario. The main one is being coordinated by the Ministry of Treasury and seeks to bring more protection for investing creditors. Also, the government is considering enacting a provisional measure or starting a legislative bill to allow intervention of the government in public telecom service concessionaries under judicial restructuring - motivated by the judicial restructuring of Oi.

1 Luciana Faria Nogueira is a partner and Gabriela Martines Gonçalves is an associate at TozziniFreire Advogados.