Dispute Resolution | Default in Lease Agreement Authorizes Eviction of Lessee in Brazil, Even of Company is Under Judicial Recovery

In pro-creditor decisions, the Brazilian Superior Court of Justice (STJ) reaffirmed the position that judicial recovery cannot be a maneuver to shield companies’ assets.

In case of default on rent by the company undergoing judicial recovery, the property owner has the right to regain possession.

In the defaulting companies’ standpoint, eviction could make the company’s recovery and the effectiveness of the recovery procedure unfeasible. On the other hand, STJ’s recent decisions are based on guaranteeing the right to property – that is, non-compliance with the lease contract allows the landlord to take action.

In the view of the STJ, no matter how much the intention is to preserve the company under recovery, it is not acceptable to impose the burden of restructuring only on creditors. This position can be seen in relevant cases in the current Brazilian scenario, such as eviction orders involving large retail groups.

Although the position is favorable to creditors (property landlords), it may affect creditors who intend to grant credit to companies under recovery, as in the DIP financing modality. The eviction of commercial locations can negatively impact the company’s recovery and, consequently, the credit recovery.

Therefore, it is important that the DIP financing contains clauses that protect financing creditors and guarantee effective ways of satisfying the credit, even in the event of a conversion of the judicial recovery into bankruptcy.


Share on facebook
Share on linkedin

Subscribe to
our Newsletter:

* Mandatory fields