Heloisa Nogueira and Thamara Belinatti
Foundations are non-profit entities established to promote activities of public interest, such as education, health, culture, and social welfare. They are formed through the endowment of assets dedicated to a specific purpose and are governed by statutes and applicable legislation, which ensure transparency and accountability in their management.
Although they do not aim for profit, foundations can face financial difficulties due to factors such as mismanagement, a drop in donations, or rising expenses. In this context, a discussion has arisen regarding the possibility of these entities filing for judicial reorganization—a mechanism provided for by Brazil's Bankruptcy Law aimed at restructuring the debts of struggling companies and maintaining their operations.
During the pandemic, we witnessed an exponential increase in requests for judicial reorganization from football clubs, associations, and foundations—entities that, in theory, would not be covered by Law 11.101/05, which is categorical in its first article regarding its applicability to individual entrepreneurs and business entities.
As this topic has been a major source of controversy, the 3rd Panel of the Superior Court of Justice (STJ) recently ruled on the matter. Taking into account Articles 1 and 2 of the Judicial Reorganization and Bankruptcy Law—which define to whom the rule applies and who is expressly excluded—the Court determined that foundations cannot file for judicial reorganization.
However, the discussion extends far beyond the provisions of the Code and the aforementioned Federal Law. After all, the positivist legal system is insufficient to address the conflicts of modern society. Consequently, questioning whether foundations may utilize this legal instrument is neither simple nor easily understood.
This is because the Judicial Reorganization Law aims to maintain the debtor's operations in order to preserve its social function—which, in the case at hand, extends well beyond the "partners" or "members" and truly impacts the community at large. Conversely, as Justice Ricardo Villas Bôas Cuevas reflects: “granting reorganization proceedings to non-profit entities that already enjoy tax immunity could be viewed as imposing a new burden on Brazilian society, without due analysis of the competitive and economic impacts.”
Therefore, will the heated debate regarding foundations—even following the Superior Court of Justice’s ruling—come to an end? Or will the legal system need to devise an insolvency solution for these entities in the coming years?
