Judicial recovery requests skyrocket in Brazil in 2023

The number of requests for judicial recovery in Brazil grew 55.8% in the first seven months of 2023 compared to the same period of 2022, according to data from Serasa Experian. Until the month of July, there were 695 requests, of which 550 were granted, most of them from micro and small companies.

Judicial recovery is a way that companies seek to avoid bankruptcy in the midst of a financial crisis, not only for the benefit of partners and shareholders, but also for employees, suppliers and customers. If the request is accepted by the Court, the company obtains permission to suspend and renegotiate debts with its creditors, avoiding the closure of its activities and preserving jobs.

In July alone, 102 requests were registered, an increase of 82.1% compared to the same month last year. Still according to the survey, the total number of bankruptcies filed also rose, by 36.4%, in the accumulated result for the first seven months of the year.

Bankruptcy and judicial recovery indicators until July 2023

Source: Serasa Experian

Judicial recoveries

bankruptcies

The indicators are the result of a “perfect storm”, which includes high interest rates, inflationary pressure and low cash flow in companies due to the recent period of economic crisis, explains Luciano Velasque Rocha, partner at Madrona Fialho Advogados.

“The pandemic bill has arrived”, says the lawyer. “The company that tries to seek credit in the market now will find a price that is very different from what it found in 2020 and 2021, when we reached 2% of the Selic rate”, he says. “In that context, there was a lot of renegotiation, a lot of debt reprofiling, but there comes a time when the grace period ends, the previous conditions return and it is simply not possible to continue obtaining financing at those levels.”

“The requests for judicial reorganizations are a result of the number of companies that have accumulated a significant amount of overdue debts, reaching the brink of insolvency”, says Luiz Rabi, economist at Serasa Experian. “For those CNPJs who need to avoid this situation, it is important to try as soon as possible the financial restructuring, based on negotiating debts with creditors and ways to generate more revenue to meet financial commitments”, he says.

As there is a kind of damming up of requests for judicial recovery, the tendency is for the scenario to remain in the second half. “In the short term there will hardly be a big change, because the judicial reorganizations that are coming in now are the result of crisis situations at the beginning of the year, at the end of last year”, says Velasque Rocha.

Among the companies that filed for bankruptcy this year are well-known names such as Lojas Americanas, Grupo Petrópolis, Light, Oi, Raiola, Nexpre and Avibras. According to figures from Serasa Experian, however, the main sector affected is the services sector, which recorded the highest indicators of bankruptcy and judicial recovery in every month of the year so far.

One more of them was made public this Tuesday (29). Travel agency 123milhas filed for judicial recovery, in the midst of the crisis following the suspension of promotional airfare packages. The request was filed at the Court of Justice of Minas Gerais and the value of the case is more than R$ 2 billion.

Judicial recovery requests until July 2023 by sector

Source: Serasa Experian

• Trade: 206
• Industry: 134
• Services: 302
• Primary: 53
• Total: 695

“The increase in requests for judicial recovery has reached not only large companies, but also corporations of all sizes in the most varied segments and branches of activity”, says Filipe Denki, partner at the Lara Martins office and specialized in business law and judicial recovery .

For Velasque Rocha, there is a tendency for the scenario to improve in the medium term, if the Monetary Policy Council (Copom) of the Central Bank maintains the downward bias in the basic interest rate in the next meetings. “There are many companies that don’t operate if they don’t have credit”, he emphasizes.

In the long term, he considers that there are important signs for an improvement in the scenario, such as increased market confidence in the local economy and the progress of legislative changes, such as tax reform and the new fiscal rule.

“When financial institutions see the market with less aversion to risk, credit becomes more plentiful and consequently cheaper”, he says. “All of these are good signs, but if they don’t go ahead, they will just remain as signs.”