2023 saw the volume of judicial reorganization requests rise sharply in Brazil. According to data from Serasa Experian, requests increased by 70% in relation to 2022, marking the fourth highest number since 2005, when Seras Experian began collecting data on this subject.
This spike in requests posed a significant test for the Brazilian Bankruptcy Law (Law No. 11,101/2005), which was reformed in 2020 to simplify procedures for protections against creditors. One of the measures the legislation introduced was a more structured approach to DIP (debtor-in-possession) loans – a financing option for companies subject to reorganizations. This also changed how these creditors are prioritized in receiving the amounts owed, providing greater legal certainty in relation to granting credit. However, DIP financing still requires the presiding judge’s approval and, in many cases, the creditors’ as well.
In 2024, judicial reorganization requests are expected to persist at a similar rate due to economic uncertainty and a large number of companies with high leverage ratios amid persistently high interest rates.
“Judicial reorganization has emerged as the primary mechanism for debt restructuring, enabling companies to negotiate their debts with creditors, and obtain funding via DIP financing or asset sales without succession. These reorganization scenarios present a multitude of business opportunities for funds, financial institutions, and investors in general”
“If we compare judicial reorganization and bankruptcy, the former grants far more autonomy to the private sector, albeit with the oversight of a judge and judicial administrator. The process is based on contractual negotiation and has proven to be more effective. It’s crucial to improve bankruptcy procedures to grant more autonomy to creditors and the bankrupt estate itself. More efficient bankruptcy procedures would yield positive effects – even for judicial reorganizations”
