The recent scenario of judicial recovery in Brazil and the negotiations for new regulation

Bankruptcy law has its historical roots in Ancient Rome, when, in 428 BC, the Lex Papiria was enacted, whose legislative innovation provided that the debtor's assets (rather than his person) should serve as collateral for his creditors. The first milestone of the principle of patrimonial autonomy was established. Despite the great advance, the repressive and punitive bias against the debtor remained throughout the centuries.

It was only with the emergence of large industries and the intensification of the globalization process that there was a transition in focus: the priority became the maintenance of a healthy socio-economic state at the expense of punishing the debtor. Thus, the socio-economic repercussions of the entrepreneur's default (who is no longer just an individual merchant) became a primary issue in legal dynamics.

In this way, modern bankruptcy law, which focuses on the relevance of economic activities for societal progress, underwent significant changes, notably in Brazil, with the enactment of Law number 11.101/2005, whose central point is precisely the concept of Judicial Recovery, aiming primarily at preserving the company, jobs, tax payment, and everything related to business activities.

In this sense, the Judicial Recovery institution aims to enable the continuity of business activities by providing a judicial channel for debt negotiation and the establishment of a planned schedule for the company to remain in the market.

For this, it is necessary to formulate a judicial recovery plan, which is a significant agreement between the company and its creditors so that, once approved at a meeting, it can take effect and enable both the continuity of business activities and the payment of its debts, an undoubtedly better outcome than bankruptcy and liquidation of the company.

In the judicial recovery plan, it is common for discounts to be approved on credits, discounts that in many cases are vital for the fulfillment of the plan. Similarly, sustainable debt installment is essential for the success of the institution.

Recently, in Brazil, in the year 2023, there was an increase in the number of judicial requests for company recovery, a percentage increase of 68.7% compared to the year 2022. An exponential growth that triggers the alarm button.

Certainly, both the COVID-19 pandemic and the rise in interest rates, which jumped from 9.25% in January 2022 to 13.75% in September of that year, remaining at this level until June 2023, impacted the described scenario. This repercussion arises precisely from the increase in the cost of companies' debts. Similarly, it is expected that the decrease in interest rates, currently at 10.75%, will impact a slight decrease in requests for judicial recovery.

We can highlight here large companies such as Oi (OIBR3), a telecommunications company, Americanas (AMER3), in the retail sector, companies listed on the Brazilian stock exchange, and even having resources from the open capital market, opted for the assistance of Law nº 11.101/2005.

An  industry worthy of attention is agribusiness, which moves billions for the Brazilian economy, corresponding to about 23.8% of the country's GDP (gross domestic product), and is still of great importance to the world's subsistence. The data indicate that there was an explosion in the number of judicial recovery requests in this sector by 535%, compared to the previous year. In fact, it is worth remembering that this is one of the sectors most affected by the rise in national and global interest rates.

Not only did the number of recovery requests explode, but there was also an increase of 79.8% in the values of judicial recovery actions filed in 2023, compared to the previous year, which monetarily corresponds to a difference of R$27.8 billion reais, or US$5.38 billion current dollars.

In Pará, a state located in northern Brazil, in the Amazon, the CNJ (National Council of Justice) registered about 814 new judicial recovery requests last year, representing about 44.33% of the requests for new cases in the northern region of the country.

These values and percentages demonstrate the importance and necessity that companies have in using state power to sustain themselves and remain in the market during times of crisis.

Unfortunately, there are few cases that successfully facilitate the recovery of the company and manage to reintegrate it into the market. This is a bad scenario not only for the entrepreneur but also for the creditors of that business who in many cases may not fully receive their values, causing direct losses to the parties involved in that process, and indirectly to the entire society.

Bringing this into numbers, only about 25% of judicial recovery requests effectively achieve the expected results and manage to reposition the requesting companies in the market. In other words, only 1 out of 4 companies succeeds in the judicial recovery process.

This scenario is alarming since it brings to light the inefficiency of this judicial tool, which denotes the need for an adaptation of the law to achieve its purpose. This is one of the arguments that has brought back the discussion of changes to the recovery and bankruptcy law.

It is in this current context the project of bill nº 3/2024 is being debated, which amends and updates several provisions of the current law. Already approved by the chamber of deputies, the text of the law goes to debate and approval in the senate.

With the intention of bringing speed to the judicial recovery process, the new law also proposes greater protection for the company, better discounts on tax debts, and the sale of the company's assets to creditors themselves.

The main current question is: Will the new law improve the rates of companies that effectively achieve judicial recovery in Brazil?

The scenario is still one of heated debate, and the new law may undergo significant changes, so it would be premature to say whether the bill is assertive or not. However, it is welcome that its analysis is progressing rapidly, as shown here, this topic is becoming increasingly prevalent in Brazilian courts, indicating its essentiality in its use and the need to preserve Brazilian companies in the face of the obstacles that arise on the entrepreneur's journey.