Judicial reorganization requests drop in 2021 to its lowest since 2014 in Brazil

RIO DE JANEIRO, BRAZIL – The number of judicial reorganization requests for companies in the second year of the novel coronavirus pandemic fell by 24.4% nationwide compared to 2020, the first year of the disease and when there was a 15% drop from the previous year, according to data from SERASA Experian.

In all, the courts recorded 891 requests last year, compared to 1,179 in 2020. “The year 2021 closed with the lowest number of requests since 2014,” report Guilherme Macêdo and Uri Wainberg, partners at Marcello Macêdo Advogados, a law firm specializing in corporate reorganization.

Services were the most affected sector, which has the greatest weight in the Brazilian economy – approximately 2/3 of the Gross Domestic Product (GDP).

Of the total of 891 requests in 2021, service companies accounted for 460 judicial reorganization requests, against 589 in the whole of 2020. The trade and industry sectors recorded 199 and 142 requests, respectively.

Macêdo and Wainberg explain that, despite the pandemic, business owners resorted less to the Judiciary in 2021 because, among other factors, debts were renegotiated, out-of-court settlements were reached, and new credit lines were provided.

In addition, labor laws became more flexible, emergency aid helped sustain consumption, and the introduction of Law No. 14,112/20 (new law for judicial reorganization and bankruptcy), which came into force in January 2021 and amended Law No. 11,101/05, also contributed to the drop in requests. The new legislation creates a certain degree of uncertainty among agents as to how it will be applied.

“These numbers do not represent an economic recovery in the country, but rather a temporary relief due to the factors mentioned. The current scenario of galloping inflation and interest rates is still extremely challenging,” Macêdo says.

He also recalls that 2022 is an election year, “which tends to worsen the uncertainty picture, usually implying more expensive credit, which, in turn, tends to discourage consumption and further strangle companies’ cash flow, particularly micro and small entrepreneurs,” he added.

According to the lawyers, some entrepreneurs decided to close their companies, without filing for bankruptcy or attempting to reorganize. In other words, companies probably went directly into liquidation.

For Wainberg, last year’s figures do not represent an economic recovery, but rather an artificial improvement in the business environment driven by specific public policies.

The specialist points out that these public policies were taken in extraordinary times, and will probably “take their toll at some point.”

“In 2022, election year, we will have an even more complex scenario. The question that remains is whether, when the real bill of the pandemic comes, we will have the appropriate structure and mechanisms to revive economic activity, or whether we will go into even more debt,” Wainberg added.