With the persistence of a challenging economic environment, the increase in judicial reorganization filings and greater regulatory sensitivity on issues such as financing companies in distress and protecting collateral, creditors need to act in an increasingly strategic way within Brazilian judicial reorganization (RJ) proceedings.
It is no longer enough to simply “monitor” the case: in each situation, it is necessary to design exit routes that preserve value, reduce the risk of future litigation and maximize recovery prospects.
Below are 4 strategies that can be combined and adapted to the reality of each claim and each debtor
1. DIP Financing: using financing in RJ as a credit‑protection tool. DIP financing remains a relevant tool for creditors willing to inject liquidity into companies under judicial reorganization in exchange for priority in repayment and differentiated conditions. By providing new money, the creditor can negotiate priority treatment in the plan, through claims with superpriority or extra‑estate status, as well as impose operational and financial covenants, strengthen collateral and put in place closer monitoring mechanisms. This type of operation, however, is not a one‑size‑fits‑all solution: it requires in‑depth due diligence of the debtor’s financial situation, a realistic assessment of the feasibility of the plan and a careful evaluation of the risk of non‑payment. In many scenarios, DIP only makes sense when it is tied to concrete restructuring measures, such as meaningful asset disposals, cost‑cutting, sale of non‑core businesses and a clear exit path for the creditor. Even so, when well structured, it can operate as a lever for credit protection while at the same time increasing the chances of the company’s successful turnaround.
2. Expropriation of non‑essential assets and assignment of receivables. Even with the legal protection afforded to assets essential to the continuity of the debtor’s business, it is possible, within a judicial reorganization, to structure transactions involving the expropriation of non‑essential assets and the assignment of present and future receivables. In practical terms, this may include the sale of isolated production units, the disposal of equity interests, divestment of idle real estate and the creation of security interests over receivables that are not directly tied to the core business. These transactions can be arranged within the reorganization plan itself or through specific agreements, provided they are submitted to the RJ court’s scrutiny and, when necessary, aligned with the wider creditor body. For an individual creditor, taking an active role in these negotiations makes it possible to convert part of the claim into more liquid or less risky assets, reduce exposure to the distressed company and create payment structures that do not depend exclusively on the debtor’s operating cash flow. The critical point in this type of strategy is to ensure that the measures are structured in a way that does not breach the par conditio creditorum and that they can withstand future challenges by other creditors or the Public Prosecutor’s Office.
3. Structured transactions (securitization and portfolio disposals). Structured transactions such as securitization of receivables, assignment of portfolios of credits under judicial reorganization and sale of specific positions to funds specialized in distressed assets offer creditors an alternative way to deal with hard‑to‑recover claims. Instead of focusing all efforts on a complex and lengthy court process, the creditor can turn these claims into tradable financial assets, bringing forward part of their value and transferring the risk to third parties. Among the benefits of this strategy are the anticipation of cash flows, reduced exposure to prolonged litigation, lower need for loss provisions and a more efficient balance sheet, with capital freed up for new transactions. As the secondary market for stressed credits matures and special situations funds grow, a broader range of tailored solutions becomes available, allowing the creditor to choose between fully exiting the position, sharing the risk with specialized investors or using hybrid structures that combine upfront cash with participation in any future upside.
4. Active governance in judicial reorganization: creditor committees, strategic voting and litigation management. The outcome of a judicial reorganization depends, to a large extent, on coordinated creditor action. Active governance is therefore an essential strategy and includes effective participation in creditor committees, formation of voting blocs by class, submission of amendments to the plan and targeted use of court measures. Organized creditors are able to influence the structure of the plan, insert covenants and objective performance triggers, set divestment milestones, protect collateral and limit excessive term extensions or disproportionate haircuts. Creditors who act in a fragmented and reactive way, on the other hand, tend to accept more aggressive plans, with heavy value dilution and low payment predictability. Litigation management is also part of this governance: challenges to other claims, carefully chosen appeals and well‑calibrated objections can correct significant distortions without turning the process into a judicial war that destroys even more value. In short, the way the creditor positions itself politically within the RJ process is today as relevant as the legal quality of the claim itself.
In a scenario of continuous growth in judicial reorganization filings in Brazil, adopting effective credit‑recovery strategies has become crucial. By combining structured financing, negotiation of assets and collateral, structured transactions and coordinated participation in process governance, creditors significantly increase their chances of preserving value and recovering a meaningful portion of their exposures in an economic environment that remains unstable.
