The protection granted to companies undergoing judicial reorganization is not absolute. In a recent decision rendered in AgInt no AREsp 1.302.059/SP, Justice Maria Isabel Gallotti reaffirmed an important understanding of the Brazilian Superior Court of Justice (STJ) regarding the limits of the reorganization court’s jurisdiction and the preservation of the rights of creditors holding fiduciary security interests.
The ruling reinforces that claims secured by fiduciary transfer of ownership (alienação fiduciária) remain subject to the legal regime established by Article 49, Paragraph 3, of Brazilian Bankruptcy and Reorganization Law (Law No. 11,101/2005) and are therefore not subject to the effects of judicial reorganization. More importantly, the STJ made clear that allegations that assets are essential to the debtor’s business cannot serve as a permanent shield against enforcement measures once the stay period has expired.
In this context, we highlight 5 key lessons for financial institutions and secured creditors.
1. Fiduciary claims remain outside the reorganization proceeding: The STJ reaffirmed that claims secured by fiduciary ownership arrangements are not subject to the judicial reorganization plan. These claims retain their extraconcursal status and remain governed by the legal framework applicable to fiduciary ownership, preserving the effectiveness of the security package agreed upon by the parties.
2. Essentiality does not create permanent protection: During the stay period, Brazilian law temporarily restricts the removal of capital assets deemed essential to the debtor’s business activities. However, such protection is exceptional and temporary. The decision reinforces that the principle of preserving the company cannot indefinitely override property rights and validly constituted security interests.
3. Once the stay period ends, creditors regain full enforcement rights: According to the STJ, after expiration of the statutory stay period, secured creditors may resume repossession actions, foreclosure proceedings, and other enforcement measures related to the collateral. This remains true even where the assets had previously been recognized as essential to the debtor’s operations.
4. The jurisdiction of the reorganization court has objective limits: The decision confirms that the judicial reorganization court’s jurisdiction to interfere with enforcement actions involving extraconcursal claims is limited to situations expressly provided by law and applies only during the stay period. Once that period expires, the reorganization court may no longer prevent the exercise of rights arising from fiduciary security arrangements.
5. The ruling strengthens legal certainty in credit transactions: By reaffirming the effectiveness of fiduciary ownership as a security mechanism, the STJ preserves one of the most important risk-mitigation tools used in the Brazilian credit market. The decision enhances contractual predictability, reduces uncertainty regarding collateral enforcement, and reinforces the legal certainty necessary to extend credit in distressed scenarios.
The ruling represents an important reminder that judicial reorganization cannot be transformed into a mechanism for unlimited asset protection. While preserving viable businesses remains a cornerstone of Brazil’s restructuring framework, this objective must coexist with the protection of secured creditors’ rights and the enforcement of validly constituted guarantees. For financial institutions, investment funds, and other secured creditors, the decision reinforces the strategic importance of fiduciary ownership structures as effective tools for risk mitigation and credit recovery.
