Record number of Brazilian companies seek bankruptcy protection

RIO DE JANEIRO (CN) — Casas Bahia, a retailer that has symbolized access to consumer goods for working-class Brazilians for more than seven decades, entered August with stores in roughly 1 in 10 Brazilian municipalities. The chain built its business by selling furniture and appliances on installment plans to low-income families, many of whom lacked access to banks.That month, the company closed nearly 300 stores, laid off about 3,000 employees and filed for judicial reorganization, Brazil’s closest equivalent to Chapter 11. The filing made Casas Bahia one of the highest-profile companies to seek protection from creditors in a recent wave of cases. Through the proceedings, the company aims to restructure 17.3 billion reais ($3.46 billion) in debt and protect more than 20,000 jobs.Days after the filing, a São Paulo judge granted Casas Bahia a 180-day stay after accepting the company’s argument that a creditor run threatened its recovery. Creditors had already obtained court orders freezing about 9 million reais ($1.8 million) in its accounts.Brazilian companies filed 1,756 petitions for judicial reorganization in 2025, the highest number since the data series began in 2005 and above the previous record of 1,688 in 2019.At the end of June, the RGF-BIZDOC Monitor, which combines data from Brazil’s Federal Revenue Service and the National Council of Justice, counted 6,341 companies undergoing judicial reorganization, up 21.2% from a year earlier.Sheila Neder Cerezetti, a commercial law professor at the University of São Paulo, said judicial reorganization allows financially distressed but viable companies to suspend most collection efforts for at least 180 days while negotiating a plan with creditors.Unlike the United States, Brazil does not follow an absolute priority rule. Shareholders do not form a separate class of creditors and often retain their stakes in the company. Some categories of debt remain outside the proceedings, which can limit the scope of a restructuring.A judge appoints an administrator to oversee the proceedings, and creditors vote on the plan. Rejection of the plan generally leads to bankruptcy. The creditors’ vote does not eliminate the judge’s authority to review the plan’s legality and declare the company bankrupt.Marcelo Guedes Nunes, a commercial law professor at the Pontifical Catholic University of São Paulo and coordinator of the Insolvency Observatory, said those decisions turn judges into economic actors whose rulings affect jobs, creditors and local economies. Refusing to open reorganization proceedings or declaring a company with 1,000 employees bankrupt can be an economically difficult decision, he said.“A judge who believes he is helping save one company may fail to see that the decision creates incentives across the system for many others to seek the same protection,” Nunes said.Cerezetti said there is no single explanation for the increase in filings, particularly because Brazil is not experiencing a broad economic downturn.“Interest rates in Brazil have remained very high for a long time, making credit more expensive, squeezing businesses, hindering investment and increasing debt among companies and consumers,” she said.In retail, those pressures have been compounded by changes in consumer behavior and competition from e-commerce platforms, Cerezetti said. Brazil’s benchmark interest rate reached 15% in June 2025 and remained there until March 2026. In September, the rate fell to 13.75%.Nunes said the retail slump and cash-flow problems in agribusiness have contributed to the increase, but economic conditions alone do not explain it. Filings have also risen during periods of broader growth, he said.“What we see is steady growth that cannot be explained by a contraction in gross domestic product,” Nunes said.Nunes attributed part of the increase to companies using judicial reorganization as a business strategy. Some have begun using the process as a “renegotiation tool or a way to gain a competitive advantage,” he said. Reorganization can allow companies to transfer assets without successor liability and continue operating at lower costs than their competitors.In 2020, Congress overhauled Brazil’s 2005 bankruptcy and judicial reorganization law, setting rules for new financing and expanding out-of-court agreements.“These reforms ended up tilting the system too far in favor of debtors,” Nunes said.Cerezetti said the overhaul also strengthened some creditors and could have made reorganization less attractive to debtors, making the subsequent rise in filings more notable.Nunes said the alternative — bankruptcy — offers creditors little. In São Paulo state, creditors recover an average of 6 centavos for every real they are owed, excluding costs incurred outside the proceedings. Faced with that prospect, many accept plans that cut debts by as much as 85%, provide yearslong grace periods and stretch payments over two decades, he said.Cerezetti said success should not be measured solely by whether a company survives. A proceeding can fulfill its purpose by bringing creditors, workers and other stakeholders into a single forum, giving them information about the company’s condition and taking their interests into account when deciding its future, she said.Claudio Damasceno, a corporate restructuring specialist and the partner overseeing the RGF-BIZDOC Monitor, said lengthy proceedings also drive up the number of companies undergoing reorganization.About 4,000 companies have entered the system since 2023, Damasceno said. Among those already undergoing reorganization at the beginning of that year, 65% remained in the process more than three years later. Companies that emerge from reorganization spend an average of 4.2 years in the process.“Both factors work together, but lengthy proceedings are what turn a high volume of new filings into a record backlog,” Damasceno said.The share of cases converted to bankruptcy within the first year rose from 0.9% among 2020 filings to 27.7% among 2025 filings, Damasceno said.Damasceno said the total is likely to continue rising through the end of the year, though at a slower pace.Lower interest rates take 12 to 18 months to provide relief, while about 2,700 companies that entered reorganization in 2024 and 2025 are reaching the critical stage of implementing their plans. In agribusiness, the main risk lies in financing for the 2026-2027 crop season, Damasceno said.“Real relief will come at the end of 2026 and, above all, in 2027,” Damasceno said.Courthouse News reporter Marília Marasciulo is based in Brazil.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads