Buying property at a bankruptcy auction in Brazil

In bankruptcy the seller is the court-appointed trustee (administrador judicial), paying creditors, and the debtor has no interest in any surplus: the law orders a sale within 180 days, accepts any amount in the third call and delivers the asset free of the bankrupt company's debts. In return, the buyer takes on risks that do not exist in other auctions. This guide walks through the law, the process, the risks, the cost and what to check before bidding.

A bankruptcy-estate auction (leilão de massa falida) is the court-supervised sale of the assets of a company whose bankruptcy (falência) has been declared. The seller is the court-appointed trustee (administrador judicial), named by the judge, and the money goes to creditors in the order set by law. For a buyer, this procedure has two sides. The price drops fast, because the debtor has no interest in any surplus and the law orders a quick sale. And the asset is delivered free of the bankrupt company's debts. The counterpart is a set of risks that exist only here, which this guide walks through in the order they appear.

The four regimes a buyer meets

The auction notice (edital) can come from four similar situations with different rules. In bankruptcy (falência), the company has failed and the trustee sells its assets under Lei 11.101/2005, as reformed by Lei 14.112/2020. In judicial reorganization (recuperação judicial), the company is still operating and sells assets to carry out the plan approved by its creditors, with the judge's authorization. In extrajudicial liquidation (liquidação extrajudicial), banks, consortium administrators and credit cooperatives are wound up by a liquidator appointed by the Central Bank (Lei 6.024/1974), and insurers under Decreto-Lei 73/1966 by Susep, without going through the bankruptcy judge. In civil insolvency (insolvência civil), an individual or a non-business entity that owes more than it owns follows arts. 748 to 786-A of the 1973 Code of Civil Procedure (CPC), kept in force by art. 1.052 of the 2015 CPC. This guide covers bankruptcy and points out, at each step, what changes in judicial reorganization. The other two regimes are not covered in depth here.

The law in five articles

The sale of assets in bankruptcy is governed by arts. 139 to 148 of Lei 11.101. Five articles decide the outcome for a buyer.

Art. 142 says how assets are sold: by electronic, in-person or hybrid auction; by an organized competitive process run by a specialized agent; or by any other method approved as provided by law. Paragraph 2-A explains the low prices: the sale happens even in an unfavorable market, does not wait for the creditors' list, may use auctioneers and brokers, must take place within 180 days of the seizure record (auto de arrecadação) and is not subject to the concept of vile price (preço vil). Paragraph 3-A sets the auction in three calls: the first at the appraisal value, as a minimum; the second, within 15 days, for at least 50% of the appraisal; the third, within 15 days, for any price. Paragraph 7 requires electronic notice to the Public Prosecutor's Office (Ministério Público) and the Treasury authorities, under penalty of nullity. Paragraph 8 says every sale under the law is a judicial sale. Text of art. 142.

Art. 141 says what comes with the asset: nothing. Item II declares the object free of any encumbrance and with no succession of the buyer to the debtor's obligations, including tax, labor and work-accident obligations; mortgages and attachments are cleared and creditors are subrogated to the sale price (item I). Paragraph 1 removes the protection when the buyer is a partner of the bankrupt company or a company controlled by the bankrupt; a relative, in a direct line or collateral up to the 4th degree, by blood or marriage, of the bankrupt or of a partner of the bankrupt company; or an agent of the bankrupt acting to defraud succession. Paragraph 2 says employees hired by the buyer start with a new contract. Text of art. 141.

Art. 143 opens a 48-hour window, counted from the winning bid, for creditors, the debtor and the Public Prosecutor's Office to challenge the sale. The judge decides within 5 days. A challenge on price is accepted only with a firm higher offer and a 10% deposit, and the person who offers is bound as the buyer. An unfounded challenge is an act against the dignity of justice. Text of art. 143.

Art. 144 allows the judge to authorize a sale method different from those in art. 142 when there is a justified reason, and art. 142, V, admits any other method approved under the law. This is where the direct sale and the sealed bid that some notices include come from. Art. 145 covers another case: creditors may take the assets in payment or acquire them through a company, fund or investment vehicle.

In judicial reorganization, art. 60 orders the sale of a branch or isolated productive unit foreseen in the plan under art. 142, with no succession of any kind, including environmental and regulatory (sole paragraph). Art. 66 requires the judge's authorization to sell an asset outside the plan, and paragraph 3 extends the same protection against succession to that sale when made under art. 142 and with art. 141, §1º respected. Text of art. 60.

What changes compared with an ordinary judicial auction

Anyone who knows the CPC auction has to unlearn three things. First, the price floor. Under the CPC, a bid is vile, and therefore refused, if it is below the minimum set by the judge or, if none was set, below 50% of the appraisal (art. 891, sole paragraph). In bankruptcy the concept does not exist (art. 142, §2º-A, V), and the third call accepts any amount. Second, price defense. In an ordinary enforcement, the debtor wants the asset to sell high, because the surplus is theirs. In bankruptcy the proceeds go to the creditors' concurrence and the trustee has a deadline to sell. Third, succession. In both procedures, earlier tax debt is subrogated to the sale price (art. 130, sole paragraph, of the National Tax Code; STJ, Tema 1.134), and in bankruptcy art. 141, II, also removes succession to all of the debtor's obligations. The point that depends on the notice and on case law, in both procedures, is unpaid condominium fees, a propter rem obligation (one that follows the property): there are decisions in both directions, and the notice usually provides for it.

There is also a point of jurisdiction. The bankruptcy court is indivisible and attracts lawsuits over the bankrupt's assets, except labor and tax cases and those not governed by the law in which the bankrupt is the plaintiff (art. 76), and acts of seizure and sale go through it. If the same property is being auctioned in another court, a sale outside the bankruptcy court may be ineffective. Before bidding, the buyer checks that the auction is the bankruptcy court's and that attachments from other courts on the title record (matrícula) will be handled there.

The process, from the declaration to the keys

The bankruptcy judgment appoints the trustee, sets the legal term (termo legal) and orders the bankruptcy to be reported to the registries and public bodies (art. 99); the annotation on property title records comes from this notice. In the seizure (arrecadação, art. 108), the trustee collects the assets and draws up the record, which lists and describes each one; it is the first proof that a property belongs to the estate. Then come the appraisal, which becomes the reference for the first call, and the asset realization plan, submitted to the judge within 60 days of the appointment (art. 99, §3º), where it is decided whether the property is sold alone or in a block with the factory. The decision authorizing the sale sets the method and conditions, after hearing the trustee, the Public Prosecutor's Office and the creditors' committee, if any. It is the document that gives the buyer security.

The auction notice (edital) gives the lot description, the dates of the calls, the floors, the commission, the payment terms and the clause on debts. The CPC, applied through §3º of art. 142, requires publication at least 5 days ahead (art. 887), and estate notices usually give more. The three calls take place in about a month from the first. After the winning-bid record the 48 hours of art. 143 run; with no challenge, the judge ratifies the sale and the buyer completes payment within the notice's deadline. The sale certificate (carta de arrematação) is issued, the buyer pays the transfer tax (ITBI) and registers the certificate on the title record, and finally asks the bankruptcy judge for the possession order. In a case with no incident, from auction to keys takes three to six months. With a restitution claim, a challenge or an appeal against the declaration, it can exceed a year. The bid money should not be money you need in the short term.

The risks that exist only here

The restitution claim (pedido de restituição, art. 85) is the most characteristic risk. A third party may ask for the return of an asset that was in the bankrupt company's hands but was not theirs: a property under fiduciary lien, a leased asset, a partner's asset seized by mistake. If the claim is upheld after the auction, the rule is repayment in money to the third party (art. 86, I), but if there is a defect in the sale the winning bid can be disputed, and the buyer is left for months without the asset and without the money. Look in the case file for restitution proceedings on the lot and ask the trustee in writing.

An asset under fiduciary lien (alienação fiduciária) belongs to the bank until the debt is paid. In bankruptcy the fiduciary creditor takes it out through restitution; in judicial reorganization the credit stays outside the effects of the proceeding (art. 49, §3º). The property may appear in a notice by mistake, or the lot may be only the bankrupt company's right over it, in which case you buy a right, not the property. The updated title record shows the registration of the fiduciary lien and whether it was cleared.

Environmental liability calls for care because the law and case law do not say the same thing. In bankruptcy, the non-succession of art. 141 reaches the company's obligations; for contamination of the property itself, Súmula 623 of the STJ treats the duty to repair as propter rem, following the asset. In judicial reorganization, art. 60, sole paragraph, and art. 66, §3º, remove succession of any kind, including environmental, and the relation between those provisions and the Súmula is not yet settled. In a chemical, metalworking or fuel plant or a tannery, treat the liability as yours and ask for the environmental history before bidding.

Occupation of the headquarters is usually by former employees who stayed as custodians, by a former partner or by squatters; non-succession does not resolve possession, and vacating is your cost and time. A tenant is a separate case: the landlord's bankruptcy does not end the lease (art. 119, VII), and the buyer may terminate the contract, with 90 days to vacate, except for a fixed-term lease with a term clause annotated on the title record (art. 8 of Lei 8.245/1991). A lot with machinery and inventory may be another lot, belonging to the estate or to a third party; storing and returning someone else's equipment is your cost. The units of a bankrupt developer may have a buyer under a registered promise-to-purchase contract, and where the development has a segregated estate (patrimônio de afetação), land and units stay outside the estate (art. 119, IX). Finally, an appeal against the declaration of bankruptcy can undo the basis of a sale not yet completed, and the trustee may ask to suspend the auction at any time.

The five first-timer mistakes

Thinking that "no succession" resolves occupation. Betting on the third call without reading the trustee's monthly report and recent decisions, which show whether the sale has been contested. Counting on installments or financing, when the notice requires full payment within a few days and the bank does not finance well without a registered certificate. Not visiting because "it is just a warehouse", when the roof, installations and industrial floor of a building abandoned for years are expensive. And ignoring the title record and the seizure record, which prove that the asset belongs to the estate and has no fiduciary lien.

The full calculation

Besides the bid, there are the auctioneer's commission, set by the judge and usually 5%, paid on the spot; the ITBI, 2% to 3% in most cities, whose base the STJ sets at the declared transaction value (Tema 1.113) and, in a judicial sale, at the winning bid, although many city halls charge on the assessed value; registry fees for the certificate and court costs, between 1% and 2%; the debts the notice assigns to the buyer; vacating the property, with costs, bailiff and sometimes an exit agreement; regularization of occupancy permit and area; decontamination in a risk activity; and, for those who resell, income tax on the capital gain, 15% to 22.5% for an individual, with commission, ITBI, registration and documented renovations added to the acquisition cost. Our guide on costs of buying at auction in Brazil adds up a typical case.

What kind of property shows up

A bankruptcy inventory has fewer apartments and houses and more business property: warehouses and industrial plants, for neighboring industry, logistics operators and income investors; corporate headquarters, for companies that want their own seat; developer land, for builders and subdividers; farms and rural property, for regional producers and agricultural funds; hotels, gas stations and shopping centers, for sector operators; the stock of apartments of a bankrupt builder, the case where individuals come in; and properties of a bank or consortium in liquidation, usually branches and headquarters. Each type has its own care: machinery and environmental issues in the warehouse, occupation and condominium fees in the headquarters, registered promises and segregated estate in the land, rural registry (CCIR) and tenant farmer in the farm, permits and underground tank in the gas station, buyer under promise and unfinished construction in the apartment.

How to investigate a lot

Almost everything is written in the case file. The bankruptcy case is public on the court's website, by the number in the notice: look for the bankruptcy judgment, the decision that authorized the sale, restitution claims and pending appeals. The trustee's website keeps, by legal duty (art. 22, I, k), a page per case with notices, reports and notices to creditors. The monthly report tells the state of the liquidation and the sales made. The appraisal report is the basis of the first call; check its date. The general creditors' list shows who may have an interest in challenging. The auction notice is the law of the auction. The updated title record shows the bankruptcy annotation, fiduciary lien, attachments from other courts and registered promises.

Before bidding, ten questions with an answer: Is the property in the seizure record and does it have the bankruptcy annotated on the title record? Is there a judge's decision authorizing the sale in this method and with these conditions? Is there a restitution claim or fiduciary lien on the lot? Is there a pending appeal against the bankruptcy judgment? Does the notice say who pays prior IPTU and condominium fees? Who occupies the property and on what basis? Is the lot only the property or does it include machinery, inventory and third-party improvements? Could the prior activity have left environmental liability? Do you, your partners or relatives have a tie to the bankrupt that removes non-succession? Is the money for the bid, commission, ITBI and vacating available upfront? A question without an answer becomes a written question to the trustee, through the channel in the notice. See also how to read the auction notice and title record and the risks of buying at auction in Brazil.

Judicial reorganization: what changes

In judicial reorganization the seller is the debtor itself, supervised by the trustee and authorized by the judge. The isolated productive unit foreseen in the plan is sold with no succession of any kind (art. 60), and an asset outside the plan, sold with court authorization under art. 142, receives the same protection (art. 66, §3º). Large reorganizations sell through an organized competitive process, often with an anchor bidder that sets the floor and may top the best offer; anyone entering the contest reads that procedure, because the auction is not the CPC one. The specific risk is conversion into bankruptcy (art. 73): a completed and paid sale made with court authorization cannot be annulled (art. 66-A) and sale acts are presumed valid (art. 74), but a sale in progress tends to be resumed by the trustee under bankruptcy rules, as the court decides.

This guide is decision support material, not legal advice. For a specific lot, read the notice, the title record and the case file, and consult a lawyer experienced in bankruptcy law. The terms used here are in the Brazilian bankruptcy glossary; properties for sale are listed on the auctions page.

Frequently asked questions

Do I need to be a creditor to buy at a bankruptcy-estate auction?

No. Any individual or company can register with the auctioneer and bid. Those with the ties in art. 141, §1º, of Lei 11.101/2005 (partner, relative up to the 4th degree, agent of the bankrupt) can win the auction, but lose the protection against succession to the debts.

What happens to the mortgage on the title record?

It is cleared: the asset is delivered free of encumbrances and the mortgage creditor is subrogated to the price, in the order of art. 83 (art. 141, I and II). The clearing is done with the sale certificate (carta de arrematação).

Can I buy the whole factory, with property and machinery?

Yes, when the asset realization plan provides for a sale in a block or as an isolated productive unit (art. 140). In that case the lot is the whole set and non-succession covers everything in it.