Brazil’s Full Business Sale: Why the Section 363 Model Did Not Translate

Over the past two decades, Section 363 of the U.S. Bankruptcy Code has become one of the most important tools in modern Chapter 11 practice. By allowing a debtor to sell substantially all its assets 'free and clear' of liens, claims, and encumbrances, the mechanism enables the rapid transfer of a distressed business to a new owner while preserving its going-concern value.

Inspired by the U.S. model, Brazilian Law No. 14,112/2020 introduced the venda integral da empresa, referred to here as the 'Full Business Sale', as an alternative restructuring mechanism within judicial reorganization proceedings. Nearly six years after its enactment, however, the mechanism has produced no meaningful precedent in Brazil. The reason is not a lack of interest in distressed M&A, nor a merely procedural deficiency. It is a structural incompatibility between the proposed sale mechanism and the broad universe of creditors that remain outside Brazilian judicial reorganization proceedings.

A Section 363 Sale is effective because it separates two questions that do not necessarily need to be resolved at the same time: the transactional question of how much the business is worth and the distributional question of how the sale proceeds should be allocated among creditors. The bankruptcy court may authorize the sale of the business to a good-faith purchaser, generally through a competitive process, while disputes among creditors over the proceeds remain within the Chapter 11 case. The purchaser receives the assets with substantial protection against pre-existing liabilities, which increases legal certainty and encourages competitive bids.

This transactional efficiency depends on a fundamental feature of U.S. bankruptcy law: virtually all pre-petition claims, including secured, priority, tax, and unsecured claims, are subject to the collective proceeding. Although these claims receive different treatments and levels of priority, they are addressed within the same framework. Consequently, the debtor may sell the business and distribute the proceeds through the bankruptcy process without having to reserve operating assets or conduct parallel negotiations with major creditor groups outside the proceeding.

The Brazilian Full Business Sale was designed to achieve a similar result. It contemplates the transfer of substantially all the debtor’s operating assets on a going-concern basis, without succession of the debtor’s pre-existing liabilities, followed by the distribution of the sale proceeds pursuant to the reorganization plan. In theory, this would preserve enterprise value, avoid a piecemeal liquidation, and provide investors with the legal certainty necessary to acquire a distressed business.

In practice, however, the Brazilian system operates on a fundamentally different premise. A significant portion of the debtor’s most economically relevant creditors is not subject to judicial reorganization. Tax claims remain outside the proceeding, as do claims secured by fiduciary liens over real estate, receivables, or other assets. Certain financial claims, including advances under export agreements, are also excluded. In many large Brazilian restructurings, these categories represent a substantial portion — and sometimes the majority — of the debtor’s liabilities.

At the same time, the Full Business Sale must preserve the rights of these non-subject creditors, including the recovery they would obtain in a hypothetical liquidation. Although this 'liquidation baseline' is intended to prevent the reorganization from transferring value away from creditors who are not bound by the proceeding, it creates a nearly insurmountable operational burden when applied to the sale of the entire business.

To demonstrate compliance with this requirement, the debtor must effectively reconstruct, in advance, the economic outcome of hypothetical bankruptcy liquidation. This requires estimating the liquidation value of the debtor’s assets, the amount and priority of tax claims, the value of collateral held by fiduciary creditors, administrative costs, and the recoveries of other preferred creditor categories. These calculations must be made while tax liabilities may remain disputed in multiple proceedings and the value of fiduciary collateral may be uncertain or subject to enforcement outside the reorganization.

The result is a circular problem. The purpose of the Full Business Sale is to avoid the loss of value associated with liquidation. Yet, before authorizing the sale, the debtor and the court must determine what each non-subject creditor would receive in precisely that liquidation scenario. This is not merely a valuation exercise. It may require the parties to resolve, or at least estimate, disputes that would ordinarily take years to mature.

The position of fiduciary creditors creates additional difficulty. Because their claims are not subject to the reorganization proceeding, these creditors may retain enforcement rights over assets that are essential to the business being sold. A purchaser cannot be expected to acquire the business without certainty that those assets will remain available. At the same time, the court cannot simply transfer the assets free of the fiduciary creditors’ rights without ensuring that the legal and economic value of their collateral is preserved. The transaction therefore depends on individual negotiations with creditors who have little incentive to participate in the collective solution.

This explains why the Full Business Sale remains largely theoretical. Investors are asked to accept legal uncertainty regarding the perimeter of the assets, potential enforcement measures by non-subject creditors, and the protection against succession. Debtors, meanwhile, must coordinate negotiations both inside and outside the judicial reorganization. In many cases, the transaction becomes more complex than a conventional liquidation, the very outcome the mechanism was intended to prevent.

A structural solution would require Brazil to reconsider the broad exclusion of tax and fiduciary claims from judicial reorganization. Tax claims could be included under a specific priority and mandatory payment regime, while fiduciary creditors could receive protections tied to the value of their collateral. This would not require equal treatment of all creditors, but it would bring the debtor’s principal stakeholders into the same collective framework.

Recognizing the political and constitutional difficulties of such reform, more incremental measures could be adopted in the interim. The law could establish a specific procedure for the Full Business Sale, define how non-subject creditors must be notified and heard, and create objective presumptions for determining whether their liquidation baseline has been preserved. Courts could also be authorized to conduct a simplified waterfall analysis instead of requiring a complete reconstruction of a hypothetical bankruptcy.

The U.S. experience demonstrates that a going-concern sale cannot be imported in isolation from the collective structure that makes it work. Brazil adopted the transactional form of the Section 363 Sale without adopting its central premise: the ability to address substantially all creditors within a single proceeding. Unless this structural inconsistency is resolved — or at least mitigated through clearer and more workable safeguards — the Full Business Sale will remain a promising mechanism on paper, but not a genuine restructuring alternative.

Arthur Lourenço Gaspar is an associate in the Restructuring and Insolvency practice at Demarest Advogados.

Fernanda Drugowich is a partner at Galdino, Takemi, Ayoub, Salgueiro, Rezende de Almeida, Costa, Faria Advogados.