Brazil-based biofuels company Raízen recently commenced an extrajudicial recovery proceeding alongside a standstill-backed prepackaged plan, with effective debt restructuring measures to be detailed in an amended proposal that is expected to include a debt-for-equity swap. Against this backdrop, Debtwire’s legal analyst team examines how debt equitization operates in Brazilian in-court restructurings, with a focus on potential arguments dissenting creditors could raise in plan objections.

Bankruptcy filing to overcome liquidity crisis via debt equitization

On 11 March 2026, Raízen commenced an extrajudicial recovery proceeding in the Third Court of Bankruptcies in São Paulo, reporting roughly BRL 65.14bn (USD 12.62bn) in unsecured financial claims to be restructured. The prepackaged plan attached to Raizen’s bankruptcy petition provided for the issuance of new debt and an equity capitalization, but did not specify the size of the new issuance or the amount of equity contribution. Essentially, the company presented a standstill agreement with creditors and said it would present an updated plan in the future.

Judge Guilherme Cavalcanti Lamêgo admitted the bankruptcy protection request on 12 March 2026 via a decision that also awarded a 180-day stay period protection in favor of the company. A few days later, sources close to the matter told Debtwire that the updated plan would involve a conversion of 40%-45% of its debt into equity, under certain conditions that had already been disclosed to a portion of prepetition creditors with whom the company has been negotiating since the beginning of the case.[1]

Debt equitization – statutory guidance following law reform

A major reform of Brazilian bankruptcy law that became valid in early 2021 introduced express statutory guidance governing debt-for-equity transactions in bankruptcy cases. Notably, the reform added “debt equitization” to the list of restructuring measures set forth in Section 50 that debtors may propose in their plans. In addition, Section 56, § 7 of the law provides that alternative creditor-proposed plans may include debt-for-equity transactions, even if they result in changes in the control of the company.

When it comes to liquidation proceedings, the bankruptcy law reform reshaped Section 145 to clarify that creditors of a bankrupt estate may acquire a debtor’s assets by converting their debt into equity, provided that this measure is approved by the majority of creditors. Additionally, the fourth paragraph of the same section provides for creditors’ rights to sell the equity received as payment of their claims.

Applicability of debt equitization provisions to extrajudicial recovery cases could be source of litigation

At first glance, the rules governing debt equitization in judicial recovery and liquidation proceedings could be read as also applying to extrajudicial recoveries. However, Sections 50 and 56 are located in the chapter of the bankruptcy law specifically governing judicial recovery, while section 145 appears in the chapter addressing liquidation proceedings.

Moreover, the chapter of the law dedicated to extrajudicial recovery contains no reference to debt equitization, neither expressly authorizing nor prohibiting it. Nor does it provide for the application of the judicial recovery or liquidation rules on this matter to extrajudicial proceedings.

Debt equitization has already been implemented in prior extrajudicial recovery cases, albeit always on a consensual basis among the affected creditors. In those cases, therefore, the proposed equitization did not give rise to disputes regarding its enforceability. By contrast, to the extent that one or more of Raízen’s creditors do not consent to swap their debt for equity, Raízen may become the first proceeding to squarely address the permissibility of debt equitization within an extrajudicial recovery case absent creditor consent.

In this context, although the new rules appear to have enhanced legal certainty and increased the predictability of Brazil’s insolvency framework, gaps remain to be addressed through case law – particularly with respect to whether the provisions regarding debt equitization, originally designed for judicial recovery and liquidation proceedings, should also apply to extrajudicial recovery cases.

In the Raízen case, if expectations regarding a restructuring plan centered around debt equitization materialize, the uncertainty pointed out above could fuel objections from dissenting creditors faced with a mandatory conversion of their claims into equity. These creditors could object to the plan under the argument that, unlike a haircut or a long-term rescheduling of payment terms, debt equitization alters the very nature of the credit relationship, replacing a fixed claim with an equity stake subject to business risk and governance constraints.

In other words, this sort of restructuring measure makes it more difficult for creditors to determine when and how much they will recover. This uncertainty arguably would be particularly present at the time of the plan confirmation if recoveries include equity, considering that recoveries would depend on the company’s post-restructuring performance. Under these circumstances, dissenting creditors could contend that forced equitization of their debt would exceed the permissible scope of claim modification in an extrajudicial plan and should bind only consenting creditors. In short, they could argue that Raízen’s debt-for-equity plan cannot not be imposed on them absent their consent.

Related links:

Bankruptcy petition
Debt restructuring plan
Case profile: Raízen SA
Debtwire Dockets: Raízen SA (Chapter 15)
Debtwire Restructuring Database: Raízen SA
Shareholder Profile: Ometto family (Cosan)

Arthur Almeida is a former restructuring attorney. Prior to joining Debtwire as a Legal Analyst, he practiced with Passos & Sticca Advogados Associados, and worked in the legal department of Banco Fibra S.A. Arthur’s experience includes participating in major civil litigation on credit recovery, representing creditors such as banks and financial institutions in high-profile restructurings. He obtained his Master’s in Commercial Law from Universidade de Sao Paulo (at which he is also a researcher in the Insolvency Law Study Group – GEDEC), and his LL.M in Financial and Capital Markets Law from Insper Instituto de Ensino e Pesquisa.

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Endnote:

[1] The standstill-driven prepackaged plan was supported by banks such as Itaú Unibanco, BNP Paribas, Santander Brasil, Bradesco and Banco do Brasil, as well as a portion of an ad hoc group of bondholders which includes AllianceBernstein, MFS Investment Management and T. Rowe Price.