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Brazilian Superior Court (STJ) clarifies treatment of enforcement procedures against guarantors of a debtor under judicial restructuring
In a recent decision the Brazilian Superior Court (STJ) issued a ruling clarifying the treatment of enforcement procedures against third-party guarantors during the judicial restructuring (RJ) of the main obligor.
STJ clarified that, in cases where the creditor voted in favor of a plan that includes the exoneration of third-party guarantees, enforcement procedures against the guarantors should be suspended until the end of the RJ plan supervision period (supposed to last for up to 2 years), because the novation under the RJ plan is conditional during that period.
If during the supervision period there is a plan default and the RJ is converted into a bankruptcy liquidation, claims are reinstated to their original terms and creditors may resume enforcement procedures against the guarantors.
On the other hand, if the supervision period lapses without a conversion to bankruptcy liquidation, then the novation becomes final and enforcement procedures against guarantors should be dismissed.
This new STJ decision does not affect the treatment of enforcement procedures against guarantors where the creditor abstained from voting or voted against the plan (these third-party releases are only enforceable against creditors who supported the plan), in which case enforcement procedures may continue regardless of the plan approval or compliance.
Finally, as it concerns the main obligor, enforcement procedures are suspended upon the RJ filing and dismissed upon plan approval no matter how the creditor voted, as the conditional novation will only be rescinded upon a conversion into bankruptcy liquidation, in which case the claim will be handled in the bankruptcy.
Although this STJ decision is not binding, it is an important step towards better clarification of the playing field vis-a-vis guarantors and a relevant precedent that should provide guidance across Brazil.
Lefosse’s Restructuring and Insolvency Team closely monitors the changes that impact the Brazilian Market. For further clarification on this matter, or others that may be of interest to you, contact our professionals.
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