Can Tax Debt Prevent Judicial Reorganization? Understand the new scenario.

When a financial crisis hits complex operations in our economy—such as agribusiness, freight transport, and manufacturing, for example—it is extremely common for tax liabilities to accumulate simultaneously with debts to suppliers and banks. Faced with cash flow problems, many business owners come to our office with the same question: “"My company owes a lot of taxes, does that prevent me from filing for judicial reorganization?"”.

Until recently, the response focused almost exclusively on civil and labor-related debts. However, the legal landscape has changed.

On August 21, 2026, the Brazilian Supreme Federal Court (STF) concluded the judgment of Direct Action of Unconstitutionality (ADI) 7943, proposed by the Federal Council of the Brazilian Bar Association (OAB). Unanimously, the Court validated the rule provided for in the new Taxpayer Defense Code (LC nº 225/2026), which prohibits the so-called "habitual debtor" from proposing or continuing with a judicial reorganization process. If the process is already underway, the law even authorizes the conversion of the reorganization into bankruptcy, upon request of the Public Treasury.

Does having tax debt mean I will lose the right to judicial reorganization?

The answer is maybe. Having a tax liability, in itself, does not prevent a company from seeking to reorganize its activities.

The Brazilian Supreme Court, following the vote of Justice Flávio Dino, clarified the difference between a company facing a genuine financial crisis and one that uses systematic tax evasion as a business model to gain an unfair competitive advantage over its competitors. The principle of preserving the company is geared towards those that operate in good faith and with fiscal loyalty.

For a company to be classified as a "habitual debtor," simply being late on a tax payment is not enough. The law requires the fulfillment of a series of rigorous requirements and the initiation of a prior administrative process, guaranteeing the right to a fair hearing and full defense. At the federal level, the criteria for default include:

• Irregular tax credits, whether or not registered as outstanding debt, with an amount equal to or greater than R$ 15 million.
• Debt exceeding 100% of the taxpayer's known assets.
• The irregularity must persist for at least four consecutive assessment periods, or six alternating periods, within a 12-month period.
• Absence of objective reasons justifying the default.

This is a highly targeted measure. According to data from the Attorney General's Office (AGU) presented in the case, this group of habitual debtors represents only about 0.081% of the total number of debtors registered as delinquent taxpayers. The Supreme Federal Court (STF) concluded that the measure does not constitute an arbitrary "political sanction," but rather a proportional and legitimate regulatory intervention by the State.

What does this change in your company's strategy?

The Supreme Court's decision underscores the importance of tax compliance for business risk management. Tax liabilities can no longer be ignored or analyzed in isolation when planning the recovery of a business in crisis. Maintaining debts amounting to millions without a regularization strategy—such as payment plans, tax settlements, or legal disputes—can transform the path to judicial reorganization into a dangerous direct route to bankruptcy.

Prior legal planning has never been more essential. Before filing for judicial reorganization, it is necessary to meticulously map the origin, value, and status of all tax liabilities, assessing whether there is a risk of falling under the criteria for default.

If your company is facing a delicate financial situation and accumulating debt, the first safe step is to seek a thorough technical analysis.

Schedule a technical consultation with our team of experts in Business Law and Debt Restructuring.

Article written by: Vitor Ferrari, Samar Majzoub and Alex Santos.