On December 24, 2020 Brazilian Bankruptcy Law was amended by Law 14.112, to make the process of bankruptcy and judicial recuperation (Brazilian equivalent to US Chapter 11) more efficient, in view of the final distress triggered by the COVID-19 pandemia.
The declaration of bankruptcy or the granting of judicial recuperation automatically stays certain types of lawsuits, such as execution lawsuits, for a period of 180 days, renewable on an exceptional basis for additional 180 days. However, the amendment to the Brazilian Bankruptcy Law made clear that the declaration of bankruptcy or the granting of judicial recuperation does not suspend arbitral proceedings, nor justifies the party bankrupt or under recuperation to deny enforceability of the arbitration clause (art. 6, paragraph 9, of Brazilian Bankruptcy Law).
This provision is in line with the Brazilian case law, which used to deny requests to suspend or avoid arbitral proceedings against parties bankrupt or under recuperation (eg, please see the decision of the Superior Court of Justice in REsp 1.355.831 – SP, 3rd Chamber, reporting justice Minª. Nancy Andrighi, judge on March 19, 2013). Nonetheless, the existence of express legal provision in this sense is welcome, since it grants more legal security, especially considering that the insolvent debtor sometimes claims its impecuniosity trying to bypass arbitral proceedings.
One of the most relevant points of the amendment to the Brazilian Bankruptcy Law is that it acknowledged the possibility to recognize in Brazil the effects of an insolvency proceedings which is taking place abroad. The recognition of such proceeding however will not curb the creditor’s right to file an arbitration in Brazil against the debtor to acknowledge or sentence the debtor to pay a certain credit (art. 167-M, § 2nd, of the Brazilian Bankruptcy Law). This is another provision which grants legal security to arbitration, especially in cross-border transactions.