Judicial recoveries jump 70% in 2023, worst year since the pandemic

Judicial recoveries increased by almost 70% last year, reaching 1,405 requests, the highest number since 2020 and the fourth in Serasa Experian’s historical series, which began in 2005.

The main culprit was a “perfect storm” that formed in 2020, with the Covid-19 pandemic, which resulted in companies having cash problems. Even with the availability of credit, companies were impacted by the rise in inflation in 2021 and 2022 and, subsequently, interest rates, precisely at the time when they had to renegotiate the debt or pay larger installments of the debt contracted.

The scenario led to strong growth in defaults, which peaked in the second half of last year. More than 72 million individuals and 6.5 million companies had credit restrictions, according to data from Serasa Experian.

This acted as a driver for the strong growth in judicial recoveries. “Last year was marked by a record number of people and companies with credit restrictions, contributing significantly to the problem”, says Luiz Rabi, economist at Serasa Experian.

First high inflation, then interest rates

The roots of the problem are post-pandemic, with the global rise in inflation. In Brazil, the accumulated figure in 12 months reached 12.13% in April 2022, according to the Brazilian Institute of Geography and Statistics (IBGE). To combat rising prices, the Central Bank was forced to increase the basic interest rate. The Selic remained at a ceiling of 13.75% per year between August 2022 and 2023.

Rabi explains that, initially, inflation hit consumers: “With their income compromised, many stopped paying their bills. Less money entered the companies’ cash flow. And with the Central Bank’s subsequent decision to increase the Selic rate, many companies found it difficult to roll over their credit lines, becoming delinquent and, subsequently, insolvent.”

Another factor that weighed in was the high demand for credit in the months that followed the worst moments of the pandemic, in 2020 and 2021. Rodrigo Gallegos, partner at the consultancy RGF Associados, remembers that at that time companies faced cash problems with the abrupt reduction in income, but there was low interest available.

Credit lines, many of them post-fixed, were released by the government to meet the needs of companies. “Companies took on debt to try to overcome the crisis”, he highlights.

One of those implemented was the National Support Program for Micro and Small Businesses (Pronampe), created in 2020 to help businesspeople deal with the economic consequences of the Covid-19 pandemic.

At the time of the first loans, in July 2020, Pronampe had one of the lowest rates on the market: Selic plus 1.25% per year, which was around 3.5% per year. A year later, when the program was reissued, the financing cost rose to Selic (then at 3.5% per year) plus 6% per year, which totaled 9.71% per year. “This scenario ended up strangling a lot of companies,” says Gallegos.

Data from Serasa Experian show that between the reissue of Pronampe, in June 2021, and October last year, the number of micro and small companies in default grew 8.8%, reaching 5.9 million. Two out of every three companies that filed for judicial recovery last year are of this size.

Change of government also affected the scenario of judicial recoveries

The change of government in January last year also weighed heavily. The consultancy partner says that, in a scenario of fearful companies, banks restricted credit. The situation worsened with Americanas entering into judicial recovery due to a billion-dollar debt and with debts of R$48 billion.

“The Americanas issue was the icing on the cake. The cup overflowed and the release of credit dried up, further complicating the scenario”, says Gallegos.

The problem was widespread. Faced with the high financial cost, many companies were unable to develop their projects. The impacts were even felt in the companies’ working capital, used to fund day-to-day operations.

Requests for judicial recovery also increased among large companies. They went from 91, in 2022, to 135, in 2023. The increase was 48.4%. In addition to Americanas, another emblematic was 123 Milhas, also involved in a scandal.

Proportion of companies in judicial recovery grows

A survey carried out by the consultancy RGF Associados shows that at the end of last year there were 4,045 active small, medium and large companies in recovery, equivalent to 1.85 out of every thousand active companies. At the end of the third quarter this proportion was lower: 1.79 per thousand.

The increase occurred in almost all regions of the country. The exception was the Central-West, where the index fell from 3.04 to 2.88 companies in judicial recovery for every thousand active ones. Even so, the region continues to have the highest rate in the country.

The segments with the highest proportional number of companies undergoing judicial recovery, in the 4th quarter of last year, were sugarcane cultivation (29.8 per thousand); construction of highways and railways (15.3); dairy manufacturing (14.6); collective road transport of passengers, with fixed itinerary, municipal (13.9) and manufacture of machinery and equipment for agriculture and livestock, except irrigation (11.6).

RGF data indicate that the federation units with the highest proportional number of companies undergoing judicial recovery are Goiás (4.99 per thousand); Alagoas (4.56); Pernambuco (4.04); Sergipe (3.46) and Rio Grande do Norte (3.40).

Judicial recovery scenario remains complex in 2024

The scenario for 2024 will remain complex, especially in the first half, point out the experts interviewed by People’s Gazette. “We will continue to have high numbers, due to the problems of non-payment that have increased in the last two years. Defaults go up in the elevator and down the stairs”, says Rabi, from Serasa Experian.

One factor that can contribute to alleviating the problem is the resumption of negotiations between financial institutions and companies. “There is a resumption of conversations, but they tend to take a long time, taking two to three months”, highlights Gallegos.

The expectation is that the effects of the resumption of talks to renegotiate debts, the reduction of interest rates and inflation will be felt in the financial situation of companies in the second half of the year.

So far, the main request for judicial recovery from a Brazilian company in 2024 has been that of Gol, the country’s second largest airline by market share.

The company, which in the third quarter had liabilities of R$33.3 billion and a net worth (difference between what it has and what it owes) of R$17 billion, made the request in the United States and not in Brazil. It was approved by the American Court and now the airline is negotiating its debts, including those with aircraft lessors (lessors).