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Position of creditors

Forms of security

What are the main forms of security over moveable and immoveable property and how are they given legal effect?

In Brazil, the most common forms of security and liens are:

  • penhor – a collateral over moveable property;
  • hipoteca – a collateral over immoveable property; and
  • alienação fiduciária – a kind of security interest that can be used on both moveable and immoveable properties.

The main difference is that while in penhor or hipoteca agreements title to the property remains with the debtor, in alienação fiduciária agreements, title is transferred to the creditor until the debt is fully paid, which allows the creditor to have better treatment in insolvency procedures.

The perfection of such guarantees or security interests depends not only on the execution of agreements or public deed, but also on its registration on the competent public register.

In addition, in relation to properties located inside the Brazilian territory, the security must be governed by Brazilian law.

Ranking of creditors

How are creditors’ claims ranked in insolvency proceedings?

In bankruptcy liquidation, creditors will be ranked and paid under Sections 83 and 84 of the Bankruptcy Law.

According to Section 84, the liabilities incurred by the bankruptcy estate and the debtor-in-possession (DIP) financing granted during an in-court restructuring procedure have super priority over the rest of the creditors. Such creditors will be paid in the following order:

  • liquidator’s fees and expenses relating to the performance of its duties, as well as labour-related credits with triggering events that occur after bankruptcy has been declared;
  • loans made by creditors to the bankruptcy estate;
  • expenses relating to the bankruptcy procedure;
  • court fees relating to any judicial procedure in which the bankruptcy estate must pay; and
  • DIP financing granted to the debtor during the in-court restructuring procedure preceding the bankruptcy and tax liabilities relating to triggering events that occur after bankruptcy has been declared.        

If, after all of the super priority creditors listed above are fully paid, there are still funds remaining, the creditors listed in Section 83 will be paid in the following order:

  • labour-related credits (including those derived from court decision) up to a cap of 150 times the Brazilian minimum wage (approximately $40,000) per employee (the amounts that exceed such cap will be considered unsecured credits for payment purposes);
  • secured credits, up to the limit of the value of the guaranty (the unpaid balance will be considered unsecured credit);
  • tax liabilities (except fines);
  • creditors with special privilege and amounts due to small companies;
  • creditors with general privilege;
  • unsecured creditors;
  • fines relating to any credit (including tax fines); and
  • subordinate credits and amounts due to shareholders and managers.

In-court reorganisations have no rankings for payment purposes. However, creditors are divided into four different classes:

  • labour-related creditors;
  • secured creditors;
  • unsecured creditors;
  • unsecured creditors classified as ‘small companies’ under Brazilian Law.

The restructuring plan will provide the payment terms for each class. The only restriction with regard to payment terms is that labour-related creditors will be paid for no longer than 12 months; this is counted from the date on which the plan was approved, with no discount.

Can this ranking be amended in any way?


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