Three years after the important reform of the Bankruptcy and Reorganization Law, the Federal Government intends to implement new changes to the corporate insolvency system, this time focusing on bankruptcy. This likely update should generate interesting opportunities for the stressed asset market.
According to data from Serasa Experian, based on the 12 months to November 2023, bankruptcy and judicial reorganization filings grew by 39% compared to the same period last year. Together, they total 2367 requests.
According to data from the Brazilian Association of Jurimetry (ABJ), only 6.1% of credits are recovered in bankruptcy proceedings, which last an average of 11 years. This means that the credits are considered unrecoverable by their holders.
In this scenario, through Bill 3/2024, the Ministry of Finance sent a set of changes to the National Congress with the aim of giving creditors a greater role in the bankruptcy process, with emphasis on the creation of the figures of the fiduciary manager and the bankruptcy plan.
The former, chosen by the creditors themselves at a meeting, will have the primary role of managing all the assets collected by the bankrupt estate and complying with the bankruptcy plan to the letter.
The aim is to make the process more effective by reducing the bureaucracy of various tasks essential to the liquidation of the bankruptcy, such as the valuation of assets, the disposal of assets and the resolution of liabilities. For example, the fiduciary manager will not need to request judicial authorization at all times to carry out these activities, as long as they are previously established in the bankruptcy plan.
This, in turn, will be presented by the manager or, in his absence, by the trustee and must include a well-detailed roadmap of how to manage the estate’s resources, realize the assets and pay the liabilities, as well as measures involving the estate’s contingencies and any agreements, all with due accountability.
The plan will be accompanied by lists of assets, creditors, lawsuits and estimated amounts owed to each class of benefactor.
Criticism can be leveled at the points of the reform, such as the fact that it is not necessary to create a fiduciary manager, since his functions are carried out by the judicial administrator. There is also the fear of giving excessive power to the largest creditors, to the detriment of the smaller ones.
Finally, there is no ceiling on the fiduciary manager’s remuneration, which can even be paid according to the successful sale of assets. Bankruptcies with significant assets will tend to attract many people interested in the management role.
Even so, experts from the Ministry of Finance believe that the reform has the potential to halve the time it takes to process bankruptcies and significantly increase the rate of credit recovery.
In addition, even if no Judicial Reorganization rules are changed, there is an expectation that it will also benefit from better choices by creditors, since currently many plans are approved due to the low prospect of payment in bankruptcy.
