For creditors, the distinction between out-of-court reorganization (RE) and judicial reorganization (RJ) is not merely procedural: it directly affects the scope of the plan, the degree of court intervention, veto power, the timing of recovery and the overall legal risk.
Based on the Brazilian Reorganization and Bankruptcy Law (Law No. 11,101/2005) and recent market practice, it is possible to identify some key elements that help creditors calibrate their strategy in each scenario. Below are three key points to consider, from a creditor-focused perspective, that truly differentiate RE from RJ.
1. Who is in the game: scope of creditors, non-subject claims and veto power.
In an out-of-court reorganization, the debtor may target only a specific group of creditors of the same nature and subject only those claims to the plan, under the terms negotiated. Creditors not included in the plan are not affected and may continue to pursue collection through judicial or extrajudicial means. In addition, certain claims are simply not subject to RE: labor and occupational claims, tax claims, strictly personal obligations (such as alimony) and, in a way that is particularly relevant to the market, claims secured by fiduciary transfer of title, leasing and ACCs (export prepayment instruments), which cannot be compulsorily impaired.
For creditors, this means that, in many cases, they are only “brought into” an RE if they voluntarily adhere to it: without signing, they are not bound. In RJ, the logic is the opposite: as a rule, all claims existing on the filing date are brought into the process, subject to the statutory exceptions (tax claims, fiduciary-secured claims, leasing as regards repossession of the asset, ACCs in specific cases, obligations to return third-party assets, and post-petition/extraconcursal claims). A creditor, even if opposed, is effectively pulled into the RJ, which reinforces the importance of acting early in the credit verification stage, in the classification of claims by class and in building voting power in the creditors’ meeting. In terms of veto power, RE is more “contractual” (in principle, whoever does not sign is not bound); RJ is more “collective” (the will of the majority, by class, can impose the plan on the minority, with a cram-down in certain circumstances).
2. How the process is structured: formalities, quorums and degree of court intervention.
In RE, the procedure is more streamlined and focused: negotiations occur essentially between debtor and creditors, and the court steps in to review legality, confirm quorum and either ratify or reject the plan. For ratification with erga omnes effect within the covered class, the law requires consent from creditors representing more than half of the claims subject to the plan. There is also the possibility of the debtor filing for RE with the prior consent of one third of the claims in that class, committing to reach, within a non-extendable 90-day period, the majority threshold through additional accessions – a structure that has been used in more sophisticated deals, as it signals to the market an initial critical mass of support.
In RJ, the procedure is more complex and ongoing: acceptance of the filing, a general 180-day stay period, filing of the plan, credit verification, creditors’ meeting, oversight by the court-appointed administrator and the public prosecutor’s office, and, finally, the confirmation and closing decisions. Voting quorums are checked by class of creditors, combining voting by amount and, in some cases, by headcount, with the possibility of cram-down if statutory requirements are met. Here, the Judiciary is present end-to-end, albeit in theory with limited scrutiny over the economic merits. For creditors, this means more formal opportunities to intervene, but also higher monitoring costs and greater litigation risk.
3. Credit protection: stay period, the position of tax and fiduciary-secured claims, and risks/opportunities in each route.
In both RE and RJ, the legislation provides for a 180-day stay of actions and enforcement measures with respect to subject claims. The key difference is that, in RJ, the stay is broad, reaching virtually all actions and executions against the debtor (except tax enforcement), whereas in RE it is limited to the claims covered by the plan.
For creditors, this distinction is material: those outside an RE can, in principle, continue enforcement; those inside an RJ must, as a rule, respect the stay. In both regimes, tax claims are neither subject to the plan nor to the stay and require standalone solutions (installment programs, tax settlements, etc.). Claims secured by fiduciary transfer of title, fiduciary assignments, leasing and sale with retention of title receive additional protection: they cannot be compulsorily impaired in RE and, in RJ, the general rule is that the underlying asset may be repossessed, subject to legal limits. In practice, creditors holding fiduciary collateral sit in a differentiated position in these negotiations and must assess, case by case, whether joining an RE makes economic sense or whether it is preferable to preserve individual enforcement of the collateral.
RE tends to work better as a targeted restructuring tool, aimed at specific creditor groups and allowing greater contractual flexibility; RJ is a “mass procedure”, with more intense court involvement and systemic impact across the entire creditor base. For creditors, the central point of attention is to map early on whether their claim is or is not subject to the plan, how they rank in terms of collateral and class, and what degree of influence they can realistically exert on the approval quorum. That initial assessment often makes the difference between merely reacting to a restructuring proposal and actually shaping the outcome in a way that preserves the value of the credit.
