Takeaway: Brazil’s Superior Court of Justice (STJ) annulled an arbitral award that authorized credit setoff by a company in judicial reorganization, ruling that only the reorganization court has jurisdiction to decide such issues to ensure equal treatment of creditors.

On April 1, 2025, the Third Panel of the STJ annulled part of an arbitral award that had authorized the setoff of credits in an arbitration involving a company undergoing judicial reorganization.

The STJ considered whether an arbitral tribunal has the authority to authorize the setoff of credits between companies after one of the parties has had its judicial reorganization plan approved by the court.

The Justices held that the right to set off credits is no longer freely exercisable when it involves a company under judicial reorganization. In such cases, the matter must be decided exclusively by the reorganization court. According to the STJ, allowing arbitration to rule on setoff disrupts the collective framework established by Brazil’s Reorganization Law and jeopardizes the principle of equal treatment among creditors.

For companies holding claims against debtors in judicial reorganization, the decision imposes a significant restriction: even where legitimate credit exists and may be subject to setoff, that issue cannot be resolved in arbitration. Instead, it must be submitted to the jurisdiction of the reorganization court, which may lead to delays and increased uncertainty regarding recovery.

For companies undergoing judicial reorganization, the decision reinforces the authority of the reorganization court and upholds the collective nature of the insolvency process

To read the decision, click here.