Brazilian Special Judicial Recovery
How are you doing?
I'll try my best to translate a few of my posts to other languages so they can reach a broader public. My English is a little rusty, but I hope my audience will indulge me.
Well, it's a well know fact now that Brazil is facing the most severe political and economic crisis of its history, and, to my knowledge, there's no sector that has been spared of its consequences.
The effects of such problems are more ubiquitous among micro and small companies, mainly because they are more vulnerable and less prepared to deal with a recession scenery.
Although not as popular as the ordinary judicial recovery (our version of the US Chapter 11), we do have a simpler and cheaper remedy for them: the special judicial recovery.
There's no spoon... I mean, crisis!
It may sound a little strange to... well... to anyone with a heartbeat, but the Brazilian official stance on the issue was, until the late 2015, that all was ok! Nothing to see...
Well, data extracted from the Court of Justice of Federal District and Territories showed that the number of bankruptcies (our equivalent of US Chapter 7) and judicial recoveries rose in a crescendo in the past few years.
In 2014, there were filed 45 new bankruptcies and only 6 new judicial recoveries. But, in 2015, those numbers grew to 55 new bankruptcies and 26 new judicial recoveries, a spike of 22.2% and 333.33%, respectively. And, although the data are updated up to February, this years numbers are showing an even grimmer scenery: 10 bankruptcies have already been filed.
The ordinary judicial recovery is not unknown to the public. We had some very famous cases of judicial recoveries in the past, such as the cases of Bombril, Parmalat, and Varig. They were all around on the headlines as the "trial balloons" of the, then, new Bankruptcy Law. Recently, though, mainly because of their alleged involvement with a series of political scandals, huge names like Odebrecht and Schahin have filed their own judicial recoveries.
As with its American sibling, our judicial recovery involve a series of ancillary obligations, such as the crafting of a appealing judicial recovery plan that shows the creditors that the company is still viable, regardless of the motives that lead it to a financial crisis.
Plus, the Judge shall nominate a trustee, who will oversee the execution of the plan, whose fees may amount up to 5% of the amount payable to the creditors. The judge may decide to upfront 60% of those fees to the trustee.
It's not just that. If the debtor doesn't present it's judicial recovery plan in 60 days, or if the creditors reject the plan, or if the debtor fails to comply with any aspect of the plan, the judge will convert the judicial recovery to the bankruptcy of the debtor. This is why is so important to hire specialized and properly trained professionals to assist the debtor on the matter.
Nevertheless, this is not a very accessible procedure to most of the companies, mainly because they are, frequently, already struggling.
What about the little ones?
In this scenery, how can the micro and small companies, which lacks the financial robustness, protect themselves against financial ruin, if they are already decapitalized? Enter the special judicial recovery . Yeah, I concede that, regarding names, our legislators lacks creativity...
Nevertheless, the special judicial recovery is cheaper and simpler than its sister. For instance, the trustee's fees are way lower: they can't exceed 2% of the total amount of credits. Furthermore, there's no general meetings of creditors whatsoever: Judge will publish an public notice, detailing the judicial recovery plan, which the creditors may, or not, object by a simple petition. In addition, the special judicial recovery plan parameters are limited by Law, leaving almost no space to the debtors creativity.
It's important to notice that this special form of judicial recovery has it's own risks: if the majority (50% plus one) of the creditors presents a valid objection to the plan, there will be no opportunity to discuss it any further: the judge will dismiss the recovery and decree the debtor's bankruptcy.
In any case, the entrepreneur, regardless of its size, should seek the aid of a specialized lawyer and accountant before the financial demise is irreversible. Judicial recovery, whether ordinary or special, can only be successful if the company is, indeed, still viable.
Nevertheless, it's important that the micro and small companies know about the existence of a simplified and less expensive version of the ordinary judicial recovery, that could help them in this difficult times.
Quem disse que o Direito não pode ser Legal?