Brazilian Bankruptcy Lawyers Are Busy These Days

The fact that Brazil is having economic issues doesn’t hit home until the statistics start to surface. One of those statistics is the number of corporate defaults that are occurring all over Brazil because of the business climate. According to attorney Ricardo Tosto, the number of corporate bankruptcies is increasing at an alarming rate. Mr. Tosto is with the law firm,Leite, Tosto e Barros Advogados and he specializes in corporate bankruptcy among other things. Tosto says Brazil’s central bank has raised interest rates nine times over the last 24 months to stop inflation. Inflation is on its way to 10 percent in Brazil.
In 2005, Brazil put a new bankruptcy law in place, and it was fashioned after the United States bankruptcy code. Tosto said the new code provides three alternatives for people and corporations that are facing insolvency. The first alternative is a judicial restructuring or reorganization that is similar to the Chapter 11 filing in the United States, according to Tosto. The second alternative is an out-of-court reorganization, and that amounts to a pre-packaged Chapter 11 filing, and the last alternative is a court-supervised liquidation. The court liquidation resembles the Chapter 7 filing used by American corporations facing bankruptcy in the United States, according to Tosto.
Most Brazilian corporations used the judicial reorganization under the guidance of a Brazilian bankruptcy lawyer. Tosto says that alternative is the most popular one because it provides a limited stay against creditors, so the corporation can attempt to restructure its debt with creditors. Once the restricting plan is in place, the corporation can emerge as an ongoing business.
But once a corporation files a new plan, creditors have the right to propose modifications to the plan, but they cannot file their own plan or an amendment to the corporate plan. The only leverage a creditor has in a chapter 11 filing is to object to the approval of the plan, according to Tosto.
The timetable is shorter in Brazil for a corporation to propose, and then get confirmation from creditors. The Brazilian law only allows a 180-day stay to get a plan in order, and there is no extension. If the plan is not proposed in 60 days after acceptance of the petition, the corporation faces liquidation proceedings. Tosto also says If the reorganization plan is not accepted by 50 percent of the creditors the corporation will automatically go through the liquidation process.
Brazilian lawyers usually handle the reorganization cases, for the most part, but they are handling more liquidation proceedings because of the recession and the drop in exports. Many export companies can’t afford to operate in Brazil due to the currency devaluation and the high cost of doing business in Brazil. That means bankruptcy lawyers in Brazil are very busy these days.