Important decision issued by the State Court of São Paulo on enforcement of guarantees granted on behalf of companies under judicial reorganization

The State Court of Appeals of São Paulo has recently decided that creditors cannot try to collect amounts  from the guarantors of a company that is under judicial reorganization. Until then, that Court understood that guarantees could not be reduced or released based on the filing of judicial reorganization lawsuits, unless the creditor who held the guarantee expressly agreed with that.

According to Judge Roberto Mac Cracken (judge in charge of the case in the State Court of Appeals of São Paulo), the creditor cannot file a collection lawsuit against the guarantor of a company that is under judicial reorganization, if the reorganization plan sets forth the suspension of guarantees while the debtor is complying with the plan and if this plan was duly approved in the creditors’ meeting and was ratified by the judge.

Although this decision (appeal No. 1053517-30.2019.8.26.0100) was not issued by the Specialized Chambers in Bankruptcy and Judicial Reorganization procedures of the State Court of Appeals of São Paulo, it may be a trend on how the Court will rule this matter going forward. In fact, the Brazilian Superior Court of Justice had already ruled similar situations at least four times (Special Appeals No. 1,532,943-MT, 1,523,943-MT, 1,700,487-MT and 1,863,842-RS, all for majority of votes), and there is leading case pending to be ruled by this Court (REsp 1,885,536-MT).

Considering the procedure of this pending case, the decision issued on it will serve as a guide for the State Courts and lower court judges. We are following up this matter in Courts very closely, with a highly specialized team, and we remain available to assist clients either in Court or with out of Court advisory.