In August, the Supreme Federal Court closed the door to judicial reorganization for habitual debtors.

Credits: Conjur

The rule is in Complementary Law 225 of 2026. “Habitual debtor” is the term the law uses for a company that makes non-payment of taxes a habit and a business strategy. The Federal Revenue Service already publishes the national list of these debtors, with 26 companies in the version from the end of August, and it includes at least one company in judicial reorganization. For 20 years, the central question of the process was whether the company in crisis was viable and deserved a second chance. Now there is a prior question, which could end the conversation before the plan is even read: Does this company deserve to be here?

The answer begins with a clarification, because the word “habitual” is more frightening than it should be. Being indebted to the tax authorities is not a crime. Being indebted to the tax authorities as a strategy is another matter, and the law has precisely defined where that line lies. At the federal level, three requirements must be met simultaneously. The first is the size: irregular debt exceeding R$ 15 million and greater than all assets declared in the last balance sheet. The second is repetition, with delays maintained for four consecutive months or six alternating months within a year. The third is the lack of justification: no objective reason explaining the non-payment, such as a public calamity, losses in two consecutive fiscal years, or the absence of acts that the law considers indicative of fraud. Installments paid on time, secured debts, debts suspended by court order, and debts under discussion in relevant legal cases are excluded from the calculation. It’s a deliberately narrow filter. According to the National Treasury Attorney’s Office’s calculations presented to the Supreme Court, the rule affects approximately 0.08% of debtors registered as delinquent taxpayers.
Classification as a habitual debtor

Even those who pass through this filter don’t get on the list without being heard. Once the three requirements are met, inclusion isn’t automatic. The company is notified, given 30 days to pay, arrange payment in installments, demonstrate sufficient assets, or present a defense, and the defense suspends the procedure. Only after this process, regulated by the Federal Revenue Service and the National Treasury Attorney’s Office in March, is completed does the name go on the public list. The list is dynamic, and names enter and leave as the company negotiates, secures, or obtains a stay of execution. It was precisely these guarantees that led the Supreme Court to reject Direct Action of Unconstitutionality No. 7,943, filed by the Brazilian Bar Association against the new rule. According to the rapporteur, Minister Flávio Dino, this is not about punishing and forcing tax payments, a practice the Court has always rejected, but about protecting the market against those who use systematic non-compliance as an advantage over competitors who pay.

The preservation of the company, he said, is only valid for those who act in good faith and with fiscal loyalty. In the rapporteur’s words, without the ethics of legality, there is no true freedom. The ruling, published on September 4th, established the principle that the impediment is constitutional as long as the administrative process and judicial control are ensured. And this is not an isolated decision. Since 2009, in ADI 173, the Supreme Court has stated that the prohibition of political sanctions does not excuse the deliberate disregard for tax law. In April of this year, in ADI 7.513, it validated the special ICMS regime in São Paulo for habitual tax evaders. The August decision concludes this sequence.
End of judicial reorganization for the habitual debtor.

With the discussion about the validity of the rule now closed, the question remains what it does to those who end up on the list. It does two things, and the second is what interests the creditor. The company included cannot file for judicial reorganization. And, if it is already in reorganization, the Treasury can ask the judge to convert the process into bankruptcy. It is this second effect that changes the lives of banks, funds, suppliers, and investors, because it affects ongoing processes, in which many of them have been stuck for years. Those who were waiting for the assembly have gained an exit before it.

To understand the value of this approach, it’s necessary to look at what it combats. Professional tax evasion follows a well-known script, and it repeats itself in sectors like fuels and tobacco, which concentrate the top lists of tax authorities and accumulate debts exceeding R$ 55 billion. The company fails to pay taxes for years and uses this money as working capital, selling cheaper than its honest competitor. When the pressure mounts, the assets have already changed hands. Real estate has gone to family holding companies, partners have received dividends and loans, the operation has migrated to a new CNPJ (Brazilian tax ID) with a different name, and the old company, now empty, files for bankruptcy protection. The request suspends collections from private creditors for six months or more, the plan is approved with a high discount and a long term, and the factory or distributor continues operating under a different corporate name, often at the same address and with the same clients. The name on the door changes. The owner doesn’t.

The law interpreted this script and transformed it into a composite sketch. By defining the cases in which even the defense cannot suspend the prosecution, the legislator drew a portrait of the debtor it pursues. It is the company created solely to commit fraud. It is the company run by front men, while the true owners remain hidden. It is the company that does not actually exist at the address it declares, the one that issues invoices for sales that never happened, the one that trades in contraband goods, and the one whose owners hide their own assets. The law also closes the most common loophole in this script, which is changing the CNPJ (Brazilian tax ID). Anyone linked to a company that has been closed or declared inactive in the last five years, with an irregular debt of R$ 15 million, is prosecuted along with it. Leaving the debt behind and continuing the operation under another name, which until now was only an indication of fraud to be proven in each case, has become a legal criterion.
Bankruptcy petition in São Paulo

The scenario has already involved a case worth R$ 15.7 billion. In July, the National Treasury Attorney’s Office and the São Paulo State Attorney’s Office requested the bankruptcy of a traditional São Paulo-based beverage manufacturer due to a debt of this magnitude, accumulated over more than 25 years. The attorney’s offices allege asset shielding, that is, the transfer of assets beyond the reach of creditors, and the creation of new structures to protect them. The group had been in judicial reorganization for eight years and abandoned the process in May, when it had to prove that it was up-to-date with its tax obligations. The request is based on a February decision by the Superior Court of Justice, which recognized the Treasury’s right to request bankruptcy when judicial collection fails to locate assets, and on a regulation of the Attorney’s Office that reserves this measure for debts exceeding R$ 15 million. The tax authorities have ceased to be just another collector in line and have begun to act as a creditor that triggers the outcome.

If the tax authorities have changed their stance, private creditors also need to change, and the first step is to change where they look. Those who grant credit and only look at the plan are looking in the wrong place. Credit analysis doesn’t end with the list of creditors, and the oversight of the recovery process cannot wait for the shareholders’ meeting. Before granting credit, it’s worth consulting the tax authority’s list and the Cadin (National Registry of Defaulting Taxpayers), requesting the registered balance sheet and certificates, and comparing the tax debt with the real assets. During this process, it’s important to monitor warning signs, such as dividends and loans to partners during periods of tax arrears, capital reduction, sale of real estate to companies within the same group, changes in the CNPJ (Brazilian taxpayer identification number) during the operation, and accounting that doesn’t match the revenue. In recovery, it’s crucial to investigate the debtor’s assets and companies linked to them early on. What the law calls an unjustified reason is what an asset due diligence process reveals: how the debt arose, what funds were diverted from taxes, and where did that money go?
Conducting the process in the Judiciary

The same precautions apply to those conducting the process, starting with the judge, who is not obligated to believe the company’s story. Before accepting the request, the judge can order verification of whether the company is actually operating and whether its accounting records match this narrative. This verification, stipulated in the Bankruptcy Law since 2020, must include the tax situation and consultation with the tax authorities’ list, not just the existence of activity. In business groups, the Superior Court of Justice ruled in April that each company must prove on its own that it meets the requirements, and that merging assets is only permitted when it is truly impossible to separate what belongs to each one. This closes a common loophole: using the healthy company within the group to dilute the one that makes non-payment its model.

The judge, however, does not perform this screening alone. Alongside him are the judicial administrator and the Public Prosecutor’s Office, and each has a role to play. The judicial administrator, who oversees the company on behalf of the court, must verify the list of creditors, because invented or inflated creditors are used to control the voting on the plan, and must examine the movement of assets in the two years prior to the request, a period in which the law allows for the reversal of suspicious transfers. The Public Prosecutor’s Office, which monitors the process, must be informed of any indications, as misappropriation of assets, fraud against creditors, and favoritism towards creditors are crimes stipulated in the Bankruptcy Law itself.

The courts have reinforced this division of tasks. In July, the São Paulo Court of Justice ruled that suspicions of fraud do not immediately terminate the recovery process, but must be investigated by the judicial administrator throughout the process, with possible civil and criminal liability for the partners. In May, the Superior Court of Justice established that holding partners liable for company debts requires concrete proof of abuse, and that the mere lack of assets is not enough. Both decisions say the same thing. The system neither presumes fraud nor rules it out; it requires someone to prove it. In practice, that someone is the investigating creditor.

Investigating, however, is one thing. Requesting bankruptcy for that reason is another, and the creditor cannot do that. The request falls to the tax authorities. The correct course of action is to document the evidence, present it to the judicial administrator and the judge, and send a written communication to the tax office or the National Treasury Attorney’s Office, along with the documents supporting the suspicion, so that they can initiate the procedure. The creditor does not become a party to the case nor access confidential data, but they can prompt those who have that power. And there are parallel paths that already existed before the new law. Without a tax clearance certificate, the recovery plan is not approved, and the process is stalled until the company regularizes its situation. The judge can also deny the recovery request from the outset when they realize that the process is being used for a purpose other than that stipulated by law.
This is not about threatening indebted companies.

All of this may sound like a threat to any indebted company. It isn’t. The honest company has gained an unexpected ally in this law, which is the proof itself. What exposes fraud is what protects the viable company. Showing that there was an external shock, real losses, no withdrawals in favor of the partners, and consistency between the books and the history of the crisis removes the label of habitual debtor. The company that negotiates the debt has the procedure suspended, and the one that guarantees or demonstrates sufficient assets has the procedure closed. It’s not about presuming bad faith based on the size of the debt, but rather about requiring that the explanation be verifiable. Those who enter the process with their accounting up-to-date and without strange transfers have nothing to fear from the new law.

What this company doesn’t yet know, and nobody else does, is how the courts will apply the rule in situations not foreseen by the law. What to do when the classification occurs mid-process, how to handle groups where only one company is a habitual debtor, and to what extent the judge is bound by the tax authority’s administrative decision are questions that will be decided on a case-by-case basis. Regarding the latter, the ruling itself provides a clue. The established legal precedent guarantees judicial control over the classification, and the Supreme Court noted that conversion to bankruptcy depends on a request from the tax authority and a judge’s decision; it is never automatic. Regarding groups, the law already requires that the administrative procedure examine each company separately, in line with the Superior Court of Justice (STJ). The remaining issues will not be resolved in the abstract. They will be resolved in processes where creditors present organized evidence to the judge.

That’s why everything depends on how the filter is used. A good filter is one that doesn’t err in either direction, and that’s what the new law demands of the system. Bankruptcy destroys value when it liquidates a company that could reorganize. Recovery destroys trust when it protects a company that has made default its financing model. What separates the two cases is a well-conducted process, with technical evidence, the right to defense, and judicial oversight. With Complementary Law 225, hiding the company’s true situation has become costly. Debtors acting in good faith will have to enter the process with a verifiable financial history. Creditors who investigate early will prevent the suspension of collections from benefiting those who shouldn’t be there. Judicial recovery continues to be a second chance. It’s no longer a hiding place.

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Sources

Complementary Law 225/2026, arts. 11 to 15.

STF ADI 7.943/DF, rapporteur Justice Flávio Dino, judgment of August 24, 2026, decision published on September 4, 2026.

STJ, REsp 2.218.122/RS (3rd Panel, 14.4.2026) and Repetitive Theme 1.210 (7.5.2026).

Brazilian Federal Revenue Service, List of Habitual Debtors (August 31, 2026).

PGFN/MF Ordinance 903/2026.

Albadilo Carvalho

He is a lawyer and partner at the law firm Correa de Castro & Associados.

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