Jayme Petra de Mello Neto
Lawyer at Marcos Martins Advogados
Article by Dr. Jayme Petra de Mello Neto published by the SEGS portal, talks about the entry into force of the reform of the Bankruptcy and Reorganization Law. The lawyer points out the new rules and the significant advances applied by the law, and actions to be adopted with the aim of minimizing the economic impacts of the crisis, as well as avoiding mass bankruptcies of companies.
There is no denying that the pandemic has generated a crisis never seen before in our history. The peculiar moment in which humanity is living has led to the emergence of behavior that is absolutely different from what happened before.
In 2020 alone, more than 75,000 companies closed their doors, 98.8% of which were small and medium-sized, according to data from the National Confederation of Trade in Goods, Services and Tourism (CNC). Unfortunately, this crisis is still set to grow and, in the midst of an increasingly aggravating scenario, the concern is to avoid mass bankruptcies.
Since the beginning of the pandemic, some actions have been taken to minimize the economic impact. Among them are the suspension of employment contracts for up to 120 days and an offer of credit with a grace period of up to eight months to start paying back loans through the National Support Program for Micro and Small Enterprises (PRONAMPE). However, these did not have the expected effect.
The actions implemented in government programs with a moratorium character to give the cash flow a boost, were for a fixed term and the bills have already started to arrive. To make matters worse, contamination rates have skyrocketed again and we are once again experiencing the closure of a large part of the commercial sector. The financial reserves that many companies used to survive have been exhausted and turnover has plummeted once again.
In this scenario, some have had to resort to more drastic measures. One of these is Judicial Recovery , which, although its law was revised earlier this year, the text did not include specific elements to help entrepreneurs in this time of pandemic.
This is especially true because the nature of Business Law in Crisis does not generate effects to deal with transitory and generalized situations, as is the case with the pandemic, but rather to deal with crises of individual companies in normalized markets. In practice, its major problem is that the solution implies predicting a situation in which the crisis will be over and the contractual party will be able to return to the normal market – in addition to forcing the entrepreneur, already weakened and cash-strapped during the pandemic, to have to negotiate with his creditor on unequal terms.
Judicial Recovery, as currently conceived in the Law, is an extremely expensive and specialized process, and few effectively specialized law firms are able to bring it to a successful conclusion.
In addition to the cost of legal fees, there are other necessary expenses for the company facing judicial reorganization, such as significant expenses for advisory work; trustee fees, costs and procedural expenses, for example.
From a social point of view, there is no denying the negative impact that a process like this has on a company’s image – a situation that even makes it difficult for banks to grant loans on normal lines of credit, with lower interest rates and charges.
In a situation like the one we are facing, the physical closure of a company may be the best alternative for it to continue in business. It may be worthwhile for the entrepreneur to consider whether it would not be better to close down, pay off the debts and preserve their personal name in the market in order to return to another business model that is more suited to the current market.
Liquidating a company using a legal system that effectively allows the name to be cleared can be a quick and efficient tool for economic recovery.
Along these lines, one of the novelties of the reform of the Judicial Recovery and Bankruptcy Law is precisely the so-called fresh start, which allows a businessman who has gone bankrupt to return to the world of entrepreneurship more quickly. We need the market to absorb this idea and do away with the negative image of “bankruptcy”, as if it were a declaration of incompetence.
In many developed countries, such as the vast majority of Europe and the United States, the liquidation of a weak business serves as a springboard for the entrepreneur to take on even bolder and more promising businesses. There is a culture of learning from mistakes and starting again. We need to develop that kind of mentality here too and keep moving forward. The failed entrepreneur cannot be seen as a loser without forgiveness. In Brazil, this thinking means that they have to fight much tougher legal, economic and social battles compared to the rest of the world’s business community, in order to rise from the ashes, in a heroic attitude.
In this context, the ideal is to rely on the support of a multidisciplinary team, made up of lawyers, economists and accountants, in order to assess what the alternatives are for the company. Unfortunately, there is no single remedy that can solve all the problems at once. You have to analyze each case and rely on the experience and strength of other specialists to overcome your company’s individual crisis and navigate the global crisis of the pandemic.
Jayme Petra de Mello Neto is a lawyer at Marcos Martins Advogados and a specialist in civil and corporate law.
About Marcos Martins Advogados:
Founded in 1983, Marcos Martins Advogados is highly regarded in the areas of Corporate, Tax, Labor and Business Law. Based on values such as commitment, ethics, integrity, transparency, responsibility and the constant specialization and improvement of its professionals, the firm positions itself as a true partner for its clients.
Article published at: https://www.segs.com.br/seguros/284176-como-evitar-falencias-em-massa-das-empresas
