Turning Rights into Reality: Trends and Initiatives to Increase the Efficiency of Enforcement Proceedings in Brazil

Introduction

Collecting debts in Brazilian courts through the enforcement proceedings available in the Brazilian Code of Civil Procedure ("CPC") has historically been difficult. So much so that over the last five years, the Judicial Review Board ("CNJ") has identified that, on average, the enforcement phase of proceedings lasts three times longer than the time it takes for the case to be decided by trial and in the appellate courts ("Justice in Numbers" report, Judicial Review Board, 2017, 2019, and 2022). In addition, as of July of 2022, Brazilian courts have accrued 59,665,415 pending cases, of which 8,954,564 are enforcement proceedings – approximately 15% of the grand total.

In this context, the Brazilian judiciary and legislative branch are engaged in constant efforts to increase the efficiency of enforcement suits (to collect debts stated in extrajudicially enforceable instruments) and the enforcement phase of proceedings (aiming to enforce court orders and arbitration awards) through measures and proposals to enhance the use of technology and/or to take away from the courts the bureaucratic search and seizure of debtors’ assets.

In parallel, the courts are strengthening their precedents to boost economic incentives for debtors to pay their debts, as well as to provide judges with clearer thresholds to apply legal provisions allowing the use of atypical measures to compel debtors to appear in court and/or comply with payment orders.

This brief article aims to explore these initiatives and raise awareness of technological advancements, case law, and institutional changes, as well as proposals and alterations to the legal background, aiming to expedite enforcement proceedings in Brazil.

Relevant Superior Court of Appeal precedents aimed at expediting enforcement proceedings

Among the efforts to increase the effectiveness of enforcement proceedings are the recent rulings by the Superior Court of Justice ("STJ", the highest court in Brazil for non-constitutional matters) and upholding legal penalties applied to debtors who do not appear in court to voluntarily pay judicially asserted debts.

Section 523, head paragraph and paragraph 1, of the CPC sets a period of 15 business days for voluntary payment by debtors of the amount established by a creditor in the petition initiating the enforcement of a court order for payment. The penalty for not paying within this deadline is a fine of 10% and attorneys’ fees for loss of suit at the same percentage of 10% over the amount of the principal obligation.

Recent rulings from the STJ regarding the best interpretation of the concept of payment contained in this Section have asserted that judicial deposits made for the purpose of guaranteeing a judgment (and avoiding the seizure of other debtor’s assets) do not avoid application of the 10% fine provided for in Section 523, paragraph 1, of the CPC. In the same sense, if the debtor challenges the enforcement by opposing immediate withdrawal of the amount by the creditor – such that the creditor must litigate to access such funds – there is cause for the application of 10% as attorneys’ fees in favour of the creditor’s attorneys.

Added to these precedents is the fact that, on 19 October 2022, the STJ also reviewed the case law until then predominant in relation to the effect of judicial deposits of the amount executed, to eliminate the legal burdens of arrears.

In 2014, the STJ had ruled, in a judgment on a special appeal representing controversy No 1.348.640/RS – Precedent 677 to the effect that "in the enforcement phase, a judicial deposit of the amount (in whole or in part) of the judgment extinguishes the debtor’s obligation, within the limits of the amount deposited". At the time, the position adopted by the STJ and crystallised in Precedent 677 was that, after the deposit of the amounts, responsibility for the adjustment of the amount deposited would be transferred from the debtor to the depository financial institution.

Precedent 677 was put under review alongside the judgment of the Question of Order raised in the judgment of Special Appeal No 1.820.963/SP, aiming to alter case law and define that the debtor remains liable for payment of adjustment for inflation and interest, as provided by the judicial or extrajudicially enforceable instrument. The judgement of the Question of Order overruled Precedent 677 to determine that the judicial deposit of the debt will not exempt the debtor from paying the difference between the adjustment criteria of the judicial deposit and the adjustment criteria of the judicially or extrajudicially enforceable instrument – which are generally higher. The new rule is immediately applicable to pending cases and its effect on lawsuits with or without judicial deposits to secure the enforcement phase – eg, a request for supplementary payments from the creditors, as well as spontaneous compliance by the debtors – will probably still be observed in the beginning of 2023.

By creating economic incentives for debtors to voluntarily comply with their obligation, the STJ seeks to induce debtors to evaluate the cost/benefit of challenging the enforcement of a certain judgment or extrajudicially enforceable instrument. The objective is to try to limit discussions at this stage to cases where debtors believe they have a good enough claim to justify taking the financial risks associated with their resistance to complying with the judgment – namely, the risk of seeing their debt automatically increased by 20% or remaining liable for the burden of the arrears (adjustment for inflation and interest).

Such financial incentives are legitimate and aligned with other measures to expedite the enforcement proceedings, including other financial incentives provided in the CPC for debtors to meet their obligations in a timely manner, to accelerate the judicial recovery of the debt – such as mechanisms for discounts on attorneys’ fees (Section 827, paragraph 1, of the CPC) and instalment payment of the debt (Section 916 of the CPC).

Technological features to enhance the effectiveness of asset tracking and seizure by the courts

Although the CPC provides for a general duty of co-operation by the debtor in the enforcement proceedings (Section 774 of the CPC), it is the creditor that conducts the measures to locate and seize the debtor’s assets to secure the enforcement proceeding and/or to effectively pay the debt. According to Section 835 of the CPC, the creditor will preferably seize money and investments, followed by securities, then vehicles, real estate and so on. The tools available to the creditor to fulfil this troublesome task are increasingly elaborate and accessible, with or without a court’s mediation.

Some of the best examples of technological solutions applied to enforcement proceedings are those developed by the Judicial Review Board ("CNJ") alongside the Brazilian Central Bank ("BACEN"). Through access to the Financial System Customer Registration ("CCS") – a system that catalogues all the relations between clients and financial institutions registered with BACEN, such as all active accounts and investments – the courts may, at the creditor’s request, issue an electronic order to search and seize any amount deposited in a debtor’s account with financial institutions registered in the CCS.

This longstanding and quite successful system, used by the courts to search and seize money and investments – initially called "BACENJUD" (2006) – recently had an update. In September 2020, the CNJ released "SISBAJUD", a new version of this system, which allows the court to issue a continuous seizure order that will automatically repeat itself every 48 hours, until satisfaction of the debt or 30 days have passed – whichever comes first. According to the CNJ, this new feature (colloquially referred to as "Teimosinha") has led to an increase of circa 21% in court seizures of assets and judicial deposits made through the system during 2021.

The use of SISBAJUD and other tools, aimed at locating and seizing money and investments from debtors, has become increasingly popular. The STJ recently decided that, at a court’s request, the CCS system of BACEN may be used to gather information on a debtor’s financial history (closed bank accounts, date of termination and opening of bank accounts), helping the creditor to "follow the money" in its search for the debtor’s assets (Special Appeal No 1.938.665).

In the same sense, a new feature allowing the court and creditor to access a debtor’s financial and banking data was made available in the SISBAJUD system by the CNJ and BACEN. Through this feature, it is possible to access bank statements, credit card invoices, foreign exchange agreements, and issued checks.

Of note also are the efforts to make it easier for creditors to retrieve funds seized in enforcement proceedings – either through voluntary payments or by using the aforementioned tools. One example of such measures is bill no 1987/2021, which seeks to allow payment of judicial deposits to creditors through "PIX" – a new modality of instant and free-of-charge bank transfer very widespread in Brazil. There is a sandbox with such initiative already in place at the Brasilia State Court of Appeals.

Apart from court-mediated tools, such as those described above, it is relevant to mention the constant improvement in search tools for data from various Brazilian registers of deeds, allowing creditors to locate real estate in a debtor’s name and, after obtaining a seizure order for such asset from a court, to register this attachment in the real estate documents – preventing fraudulent sales. These improvements go hand in hand with the growing digitalisation of real estate data – which is still ongoing and far from complete. The more registers of deeds that have a full digital database, the greater the efficiency of the system to locate and seize real estate.

Atypical enforcement measures: tailor-made solutions for different kinds of problems

With the latest major reform of the Brazilian Procedural System, in 2015, one of the provisions that generated a great stir among legal scholars was Section 139, IV, of the CPC. This sets forth a judge’s power to determine "all inductive, coercive, mandatory, or subrogatory measures necessary to ensure compliance with a judicial order, including in actions that have as their purpose a monetary payment".

The aim of this is to select and apply measures that, in the specific case, have the highest chance of compelling the debtor to comply with the court order or some obligation. With this goal in mind, the judge would be legally allowed to adopt techniques of indirect enforcement to ensure the recovery of a debt with the restrictions of intangible assets, although these techniques are not expressly stated in law. These are the so-called "atypical measures".

This provision gives room for creativity on the part of the parties and judges. At first, a series of very original remedies could be identified: suspension of social network accounts and blocking of instant messaging applications, blocking of credit cards, prohibition of access to condominium leisure areas by defaulters, prohibition of taking out new loans, sealing of commercial establishments or part of commercial activity, among others. But the most popular atypical measures are, by far, suspension or seizure of a debtor’s Brazilian driver’s licence ("CNH") and/or passport – which account for over two thirds of all atypical measures in the São Paulo State Court of Appeals.

The controversy regarding the application of this legal provision was such that a direct action for the declaration of unconstitutionality of Section 139, IV, of the CPC was filed before the Supreme Court ("STF", the highest court in Brazil for constitutional matters) claiming the legal provision grants permission to restrict individual rights secured by the federal constitution (ADI No 5.941 – Federal Supreme Court). In 2021 and 2022 various attempts were made to include the case for judgment by the STF en banc – and it is expected that the judgment will continue into 2023.

Nevertheless, in parallel with the discussion before the STF, case law has begun to outline specific standards in order to counterbalance the claim for enforcement by a creditor and to uphold the rights – in particular, the fundamental rights – of debtors. These standards were defined considering the principles of reasonableness and proportionality and the use of atypical measures as the last option. The following guidelines have already been consolidated in case law: evaluation of the possibility of hidden assets held by the debtor that may be used to pay the debt; that typical measures – such as attachment of money and investments, of vehicles or real estate – have been exhausted; and observance of reasonableness and proportionality.

In accordance with these principles, Brazilian courts are using atypical measures to ensure the effectiveness of enforcement actions, as a suppletory instrument – and the STJ is upholding this use even in cases where the right to leave Brazil or freely circulate is, somehow, reduced.

In this sense, the STJ has already considered apprehension of a debtor’s passport (Habeas Corpus No 597.069/SC) as valid, which was granted in view of the possibility that the debtor might leave Brazil and the claim that the debtor had hidden assets. Another example was prohibition of the debtor’s travel abroad, which was seen as incompatible with the debtor’s claim of lack of resources to proceed with payment of the debt (Habeas Corpus No 558.313/SP).

Although the application of atypical enforcement measures brings with it the challenge of weighing and balancing the interests of creditors and debtors – going beyond the sphere of assets and entering into the sphere of fundamental rights – respecting the parameters that have been consolidated by STJ case law, particularly in cases where the typical measures were exhausted and/or there was clear indication of fraud, is a legitimate and valuable tool to increase efficiency in enforcement proceedings.

Moving away from the courts: changes and proposals to take the enforcement proceeding away from judiciary 

It is no news that one of the most pervasive problems faced by Brazilian courts is the massive case load. Most procedural innovations and legislative trends revolve around arrangements to provide courts with the proper tools to manage an enormous number of lawsuits – and this is no different when it comes to enforcement proceedings. As of 31 June 2022, there were 2,647,328 new enforcement proceedings registered in Brazil ("Justice in Numbers" report, CNJ, 2022).

In view of this, it is only natural to seek out solutions that move away from the court system, especially for parts of the proceeding or specific measures that do not require a judge’s decision-making power. Some recent legislative initiatives move exactly in this direction.

Legal framework to handle the over-indebtedness of consumers

According to Serasa Experian – a Brazilian company that provides data analysis and information for credit decisions and business support – in June 2022, over 66.8 million citizens in Brazil were in default, with debts totalling  BRL278.3 million. One of the legislative attempts to address this critical scenario was Law No 14,181/21 – enacted in 2021 and fully regulated by Decree No 11,150/22 – providing measures to prevent and treat the so-called over-indebtedness of consumers.

This legal framework establishes consumer protection guidelines, in addition to creating conciliation and mediation centres that encourage out-of-court negotiation of debts between creditors and debtors, in order to prevent these claims from reaching the judiciary.

From a practical perspective, a debtor may request a unified renegotiation of debts by scheduling a meeting with all its creditors, in which the debtor presents a payment plan that can last up to five years. The over-indebtedness law ensures repayment to creditors of the original amount of the debt and, at least, adjustment for inflation accrued on this amount until its full repayment. On the other hand, the payment plan cannot compromise a debtor’s income to the point of making it unfeasible for the debtor to pay for basic needs and expenses ("existential minimum"). Decree 11,150/22 fixed such amount at 25% of the minimum wage in force on the publication date of the decree (circa BRL303 per month).

Bearing in mind that the conciliation phase is also a competence of the public bodies that are part of the Brazilian Consumer Protection System, such as the Department for Consumer Protection and Defence ("Procon"), this extrajudicial alternative created by the over-indebtedness law aims to grant effectiveness and agility to the negotiations, especially considering the limited structure of the Brazilian judiciary to promote conciliation sessions and the high number of lawsuits, which would extend the time taken to process the negotiations.

This legal framework has the potential to partially address the concerns of mass litigation of consumer protection claims and enhance extrajudicial solutions in debt recovery proceedings. As the over-indebtedness law was only recently regulated, its practical application by the courts and by other bodies of the Brazilian Consumer Protection System remains to be seen.

Draft bill establishing extrajudicial civil enforcement in Brazil

Another innovation in the extrajudicial field is Bill No 6,204/2019, which proposes changes in the civil enforcement of court orders and extrajudicially enforceable instruments, shifting the competence to conduct the process of execution to Notaries of Protest.

These notaries are classified by the bill as "enforcement agents", with responsibilities to access the enforceability of the instrument; provide a database query to identify a debtor’s assets; serve process on the debtor and summon them for payment; assess constrained assets, carrying out expropriation and payment actions; and terminate the execution process, among other competencies. Currently, these activities are all bound to court orders and require judicial decisions – although most of them are primarily bureaucratic and operational.

As such decisions usually take a long time to be rendered – due to the courts’ overloaded dockets – shifting them to extrajudicial bodies, such as "enforcement agents", may speed up satisfaction of debts. Therefore, the prospect is that the alternative provided by the bill will offer more effectiveness in civil enforcement, simplifying proceedings and relieving the judiciary of most enforcement activities.

However, it is relevant to keep in mind that, in cases where the debtor wishes to resist payment of the debt, the administrative acts of the Notaries of Protest will still always be subject to the final control of legality by the courts, as per the constitutional provision of Section 5, XXXV, LIV and LV, of the Brazilian constitution. This possibility can raise questions as to whether the measures suggested by the bill will be effective or will only add a layer of complexity, cost and time to the enforcement proceedings.

Conclusion

To endow the legal system of a given country with a set of laws, precedents and the technical means to provide an expedited and accurate enforcement of contracts, extrajudicially enforceable instruments, and court orders – yet remain mindful of debtors’ rights – sounds like a fairly utopian goal.

The initiatives conducted by the Brazilian courts and supported by the legislature, as well as by legal scholars, are very welcome, but still far from this ultimate goal. They are trying to reduce the most acute disparities between Brazil and other countries – according to which, Brazil is currently in 59th position among 190 economies in the enforcement of contracts metrics (considering time, cost, and the quality of the judicial proceeding – "Doing Business Report", World Bank Group, 2022).

This is a relevant concern to be addressed in the litigation field, which is included in a broad agenda to keep the Brazilian legal framework at the same level as other thriving countries and economies around the world.