Rural judicial reorganisation should be the final stage of the restructuring process, not the first, on pain of bankruptcy and exposure of the producer’s personal assets.
Rural judicial reorganisation has become a recurring topic among producers under pressure from working capital and investment debts. However, filing prematurely may produce the opposite effect to the one intended. Instead of protecting the business, it may lead the producer into bankruptcy and expose personal assets. It is therefore worth understanding when the judicial route makes sense and what negotiated alternatives exist before resorting to it.
Who is affected by rural judicial reorganisation
As a rule, the rural producer operates as a sole trader. In other words, there is no clear separation between the assets of the business and the assets of the family. An unsuccessful judicial reorganisation may therefore end in bankruptcy declared by the court. In that scenario, collective enforcement may reach the producer’s personal assets directly.
Moreover, the impact is not confined to the proceedings. Agribusiness today depends, to a large extent, on private credit. Such credit requires governance, regular accounting records and documentary organisation. Unnecessary litigation drives away long-standing partners, such as input suppliers, trading companies and financial institutions.
In practice, the market reacts by pulling back. Suppliers shorten payment terms, demand additional security or simply stop doing business with the producer. Consequently, financing for subsequent harvests becomes more expensive or even unfeasible. In serious cases, the producer may be forced to leave the sector for good.
Accordingly, creditors, cooperative members, lessees and workers connected to the property also suffer indirect effects. The decision to take the crisis to court affects the entire chain revolving around the farm.
What to do now before filing for the rural producer’s judicial reorganisation
First, the producer must map out the liabilities accurately. This includes bank debts, cédulas de produto rural (rural product notes, a credit instrument secured by future agricultural output), supplier contracts and lease instalments. Without such a diagnosis, any restructuring strategy is compromised.
Next, it is advisable to attempt bilateral agreements with the main creditors. Many institutions prefer to renegotiate rather than face lengthy and uncertain collective proceedings. Likewise, suppliers with a long-standing relationship tend to accept extended payment terms when they perceive good faith and transparency.
There are also intermediate tools that are often overlooked by those in a hurry to litigate. Two of them deserve particular mention:
- the standstill, an agreement whereby creditors suspend collection and enforcement measures for a set period while the parties negotiate;
- the interim mediation injunction, a measure seeking from the courts the temporary suspension of collection measures in order to enable structured negotiations with creditors.
These measures preserve the commercial relationship and avoid the public exposure of a reorganisation filing. In addition, they allow time to organise the accounting records and present a credible plan. Judicial reorganisation, by contrast, requires approval by creditors at a general meeting. If the plan is not persuasive, the risk of rejection is real.
In short, judicial reorganisation should be the final stage, not the first. It makes sense where direct negotiations have failed and the liabilities are extensive and widely dispersed. Even then, the filing must be accompanied by a solid proposal and by documentation in good order.
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