Requests for judicial recovery could exceed 7,000 by 2020; see care

Given the effects of the pandemic of the new coronavirus, the financial difficulties faced by companies, especially small and medium-sized companies, should only grow. As a president, the number of applications for judicial recovery could exceed 7,000 this year, according to experts heard by EXAME. They warn of the care that must be taken by entrepreneurs in this challenging environment.
The average number of requests for judicial recovery in Brazil has been approximately 1,400 per year, however, after coronavirus, the expectation is that this volume will increase considerably.
To try to mitigate the devastating effects of the pandemic on the economy, it was approved last May 21 bill no. 1397/2020 in the House of Representatives, which now goes to the Senate. The PL creates rules to prevent the insolvency of companies in the pandemic.
The proposal suspends for 30 days lawsuits for collection of debts due after March 20 of this year. Bankruptcy decree and the incidence of fines will also be suspended.
After this period, entrepreneurs who show a drop in revenues above 30% over the same period last year will be able to file a preventive negotiation procedure: for 60 days, the charges are frozen, by agreement between the parties.
"If the project is approved, the company will be shielded for a period, allowing it to get the breath to plan and pay its debts," said Antônio Frange Júnior, managing partner of Frange Advogados and an expert in judicial recovery.
Roberto Carlos Keppler, partner at Keppler Advogados Associados and an expert in the area, says that if the new law is passed, the environment will be safer for negotiations, mainly because there will be a period of suspension of charges. "The entrepreneur will be more comfortable to negotiate with his creditors. The law needs to be passed urgently."
The expert says that, although the PL has broad approval from the legal community, the text is resisted mainly by banks. "By bringing a set of exceptional measures to the state of calamity in which we are, there is resistance from the financial system."
While PL 1397 is not approved, companies that are unable to settle their accounts may need to resort, to judicial recovery, as stated in law 11.101, 2005.
Kepler cautiously sees the feature. "The environment of judicial recovery is very complex, requires drastic measures and not all small companies are able to hire specialized advice to meet the requirements of the plan," says the expert. "Entrepreneurs must first exhaust all possibilities of negotiations with creditors before proceeding to a request for judicial recovery."
Frange points out, however, that if entrepreneurs had knowledge and advice about the process, the number of requests for judicial recovery could be even higher.
"Using this mechanism is a stigma in Brazil, a cultural problem that is a failure. Often, filing the application can avoid bankruptcy, if carried out at the right time, with expert advice."
Kepler points out that exhausting the options before leaving for a judicial recovery process also contributes to not further emppleting the judiciary, which already has difficulties to deal with the volume of cases in Brazil. "We have to avoid a pandemic also in the judiciary."