Brazil: Advancements On Foreign Exchange Contracts Are Excluded From The Effects Of The Judicial Recovery In Brazil

Last Updated: 18 March 2013
Article by Walter Stuber

The Third Chamber of the Brazilian Superior Court of Justice (Superior Tribunal de Justiça – STJ) decided, by majority of votes, that the execution of advancements on foreign exchange contracts (Adiantamentos sobre Contratos de Câmbio - ACCs) is not subject to the effects of the judicial recovery plan of a Brazilian company by force of law1. This is the first time that STJ analyzes this matter after the enactment of Law No. 11101, of February 9, 2005 (the Brazilian Corporate Recovery Law) and it is a very favorable court precedent for the banking community.

A foreign exchange contract (contrato de câmbio) is a specific instrument executed between the seller and the buyer of foreign exchange, where the characteristics and conditions of the foreign exchange transaction are determined. An ACC is a partial or total advance on account on the price, in domestic currency (Real), of the foreign currency bought for future delivery, and may be granted at any time, at the discretion of the parties. In summary, in the case of an ACC, a financial institution (the bank) grants a loan in Brazilian currency to a Brazilian company (the exporter, trading company or cooperative) as a result of a future export based on the relevant foreign exchange contract.

The controversy discussed in this judicial decision relates to the interpretation of two provisions of the Brazilian Corporate Recovery Law, namely article 47 and paragraph 4 of article 49. Article 47 establishes the company´s preservation principle, a general principle that governs the judicial recovery2 under the Brazilian Corporate Recovery Law. However, this general principle cannot prevail when there is a specific and clear rule about a certain matter3. Paragraph 4 of article 49 contains a specific and clear rule about the treatment to be given to the ACC, which is out of the judicial recovery.

These two provisions read as follows:

"Article 47. - The object of judicial recovery is to make it possible for the debtor to overcome his economic and financial crisis in order to be able to maintain the production source, employment of workers and interests of the creditors, thus contributing to preserve the company and its social function and to foster economic activity."

"Article 49. - All claims existing on the date of the petition are subject to judicial recovery, even if not yet due.


Paragraph 4. - The amount referred to in article 86, II, hereof shall not be subject to the effects of the judicial recovery."

To better understand the meaning of article 86, II in this discussion, it is also necessary to examine the content of article 85 of the Brazilian Corporate Recovery Law, that establishes the procedure to be followed for restitution of certain assets in the bankruptcy proceeding. The owner of an asset scheduled in the bankruptcy proceeding or that is in the debtor's possession on the date of decree of bankruptcy may petition for its restitution. The sole paragraph of article 85 determines that the return of an item sold on credit and delivered to the debtor during the 15 days prior to the petition for his bankruptcy may also be requested, if not yet disposed of.

Pursuant to the provisions of article 86, item II, of the Brazilian Corporate Recovery Law, restitution in cash shall be made of the amount delivered to the debtor, in domestic currency, resulting from an advance on an export exchange contract, pursuant to article 75, paragraphs 3 and 4, of Law No. 4728 of July 14, 1965 (Law 4728/1965), provided the full term of the transaction, including any extensions, does not exceed the term established in the specific rules of the proper authority. The proper authority in this case is the Central Bank of Brazil (Banco Central do Brasil – Bacen).

In accordance with article 75 of Law 4728/19654, an exchange contract, provided it is protested by an official with authority to protest bills, is a sufficient instrument to file execution action. By this procedure the creditor is entitled to the difference between the exchange rate in the contract and that prevailing on the date when the payment is made, according to the quotation furnished by Bacen, plus default interest (paragraph 1 of article 75). The same procedure applies for actions to collect advances made by financial institutions to exporters on account of the value of the exchange contract, provided the corresponding amounts have been annotated in the contract, with the seller´s consent (paragraph 2 of article 75). In the event of bankruptcy or judicial recovery5, the creditor may apply for a refund of the sum advanced, as mentioned in the previous paragraph (paragraph 3 of article 75).

Therefore, the execution of ACCs is not subject to the effects the judicial recovery plan of a Brazilian company by force of paragraph 4 of article 49 of the Brazilian Corporate Recovery Law6.


1. Special Appeal (Recurso Especial) No. 1279525, having HSBC Bank Brasil S/A Banco Múltiplo. as Appelant (Recorrente) and Siderúrgica Ibérica S/A as Respondent (Recorrido), and as a Reporting Judge (Ministro Relator) Ricardo Villas Bôas Cueva. The decision has been issued on March 7, 2013 and is available at the STJ website.

2. The judicial recovery is a court-approved rehabilitation procedure, whose main purpose is to preserve the company.

3. In claris cessat interpretativo.

4. According to the exchange regulations currently in force, in the case of export, the value of the advance shall be included in the foreign exchange contract itself, by the following annotation: "For the legal purposes and effects of Article 75 (and respective paragraphs) of Law No. 4728, of July 14, 1965, the amount of R$ _______ is hereby annotated on account of this foreign exchange contract". This annotation may be supplemented by the following expression: "Operation linked to the use of the credit obtained with (indicate the name of the banker abroad, country and city)."

5. Article 75 of Law 4728/1965 refers to concordata, which is a court-approved composition with creditors admitted under the former bankruptcy law that no longer exists and has been replaced by the judicial recovery under the current Brazilian Corporate Recovery Law.

6.The docket contains the following statement: "Without the declaration of unconstitutionality, the rules of the Brazilian Corporate Recovery Law on which there are no doubts as to their application cannot be removed on the pretext of preserving the company". The constitutionality of paragraph 4 of article 49 of the Brazilian Corporate Recovery Law was never questioned and consequently this rule must be applied.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Walter Stuber
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