Brazil: What is the Out-of-Court Restructuring Used by Raízen to Tackle the Crisis?

Brazil is grappling with an unprecedented corporate crisis, marked by 8.9 million companies in default and the Selic interest rate at 15% annually, its highest in nearly two decades. When industry giants like the Pão de Açúcar Group (GPA) and energy company Raízen resort to a little-known legal instrument to restructure and avert a worse situation, it signals that the economic scenario has reached a critical point. Since the beginning of the year, out-of-court restructuring (Recuperação Extrajudicial, or RE) has become a survival strategy for various companies. Unlike judicial restructuring (Recuperação Judicial, or RJ), which operates under intense judicial supervision from the outset, out-of-court restructuring functions as a direct negotiation between the company and its creditors. In this model, the company negotiates directly with creditors before resorting to the courts. According to attorney Fernando Canuto, a partner at Godke Advogados, this model allows struggling companies to negotiate with specific groups of creditors, without the need to include all of them in the agreement. While both processes are governed by legislation from 2005, updated in 2020, and aim to prevent bankruptcy, their routes are distinct. The primary advantage of out-of-court restructuring is its agility. Whereas a judicial restructuring can drag on for years in procedural debates, an out-of-court process tends to be resolved in months. For both GPA and Raízen, the RE protocol has secured a temporary 90-day suspension of payments, a period during which the companies expect to finalize formalities and reach agreements.