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

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...