Document Type

Article

Disciplines

International Law

Abstract

Brazilian insolvency proceedings are governed by Federal Decree-Law Number 7.661 of 1945,' as amended 2 -which provides for two distinct legal proceedings known as concordata and fal~ncia. Concordata proceedings rehabilitate the debtor through a process of debt restructuring while falncia is a forced judicial liquidation of the debtor's estate.3 Each of these proceedings may significantly impact the recovery rights of domestic or foreign creditors, notwithstanding whether the original credit transaction was negotiated outside of Brazilian jurisdiction.

For an international creditor who is deciding whether or not to lend, and under what financial terms, a fair calculation of recovery risk' will depend on the substantive provisions governing Brazil's insolvency law. Weaknesses in the current insolvency system, including the absence of a legal mechanism for the successful or adequate reorganization of the corporate structure, cause foreign lenders to adjust the terms of their loans in proportion to assumed recovery risk. Effectively, the current insolvency system is a major deterrent to the development of an efficient domestic credit market. This article examines the current Brazilian insolvency system as well as the proposed legislation for insolvency reform.

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