Precatory Requests in Brazil

Introduction

Precatory requests (precatórios) are the constitutional mechanism for payment of judicial debts owed by the federal, state, or municipal government. When a final judgment requires the government to pay a sum of money, the payment is made through the precatório system, which provides for budgetary inclusion and sequential payment. The Small Value Request (Requisição de Pequeno Valor, RPV) is an expedited mechanism for smaller debts. The system is governed by Article 100 of the Constitution and by Law 10.259/2001 (RPVs).

Constitutional Framework

Article 100

Article 100 of the Constitution provides that: (i) payments due by the federal, state, or municipal government by court order are made through precatórios; (ii) precatory requests are submitted to the relevant court and included in the government’s budget; (iii) payments are made in chronological order; and (iv) the amounts are updated for monetary correction.

Constitutional Amendments

The precatory system has been significantly modified by amendments:

• Constitutional Amendment 62/2009: Introduced a special regime for precatory payment, including the possibility of installment payments and auctions
• Constitutional Amendment 94/2016: Established the Special Payment Regime (Regime Especial de Pagamento), providing for prioritized payment of certain debts
• Constitutional Amendment 99/2017: Modified the payment rules for states and municipalities in financial difficulty

Precatório Procedure

Submission

After a final judgment, the creditor files the precatory request with the court. The court determines the amount, and the request is registered in the Precatório System.

Budget Inclusion

The precatory request must be included in the government’s annual budget. The Constitution requires the government to allocate sufficient funds to pay all precatory requests in the order they were registered.

Payment Order

Payments are made in chronological order of registration, regardless of the type of case. Exceptions for priority include: (i) debts of persons over 60 or with serious illnesses; (ii) RPVs are paid separately.

Default

If the government fails to include the precatory request in the budget, the creditor may request the sequestration (seqüestro) of public funds, subjecting the government to enforcement.

Small Value Requests (RPVs)

Concept

RPVs (Requisições de Pequeno Valor) are expedited payment orders for debts below a statutory threshold. The threshold is: (i) for the Union: 60 minimum wages (approximately R$80,000); (ii) for states and municipalities: defined by each entity, generally between 10 and 40 minimum wages.

Procedure

RPVs are processed more quickly than precatory requests: (i) they do not require budget inclusion; (ii) the court issues an order directly to the government; (iii) payment must be made within 60 days; and (iv) failure to pay results in sequestration.

Priority Payments

Super-Priority

Article 100, §2 provides super-priority for debts of persons aged 60 or over, persons with serious illness, and persons with disabilities. These debts are paid first within each classification.

Sequential Exceptions

Priority payments may be made up to three times the RPV threshold for each priority creditor.

Special Payment Regime

For States and Municipalities

Constitutional Amendment 94/2016 established a Special Payment Regime for states and municipalities unable to pay their precatory debts within normal timelines. The regime: (i) allows extended payment periods; (ii) provides for installment payments; (iii) requires a percentage of revenue to be allocated to precatory payments; and (iv) permits offset and settlement mechanisms.

For the Union

The Union has generally complied with precatory payment obligations, though delays have occurred. The Union’s Precatório System is administered by the Federal Justice Council.

Settlement Mechanisms

Precatory Auctions

The Special Payment Regime introduced auctions of precatory requests, allowing creditors to sell their precatory rights to third parties at a discount. This mechanism provides liquidity for creditors who cannot wait for payment.

Offset

Creditors who owe taxes or other debts to the government may offset these debts against their precatory rights, with the government’s consent.

Criticism and Reform

Due Process Concerns

The precatory system has been criticized for: (i) delay in payment, sometimes years or decades; (ii) uncertainty due to budgetary constraints; (iii) discounts on sale of precatory rights; and (iv) inequality between creditors who can wait and those who need immediate payment.

Reform Proposals

Reform proposals include: (i) strengthening RPV mechanisms; (ii) improving budget enforcement; (iii) reducing the priority period for debts; and (iv) creating alternative dispute resolution mechanisms for governmental debts.

Conclusion

The precatory system is a distinctive feature of Brazilian law, ensuring that state debts are paid in an orderly manner through the budget process. The system balances the creditor’s right to payment with the government’s fiscal constraints. The evolution of the system through constitutional amendments has sought to address the chronic problem of payment delays while maintaining fiscal discipline.