An increase of 3.9% compared to the last three months of 2023, according to data from the RGF Monitor
04/30/2024
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Rodrigo Gallegos — Foto: Rogerio Vieira/Valor
The number of companies in court-ordered reorganization in Brazil continues to rise. By the end of the first quarter, 4,203 companies were under court supervision to renegotiate debts with creditors. This marks a 3.9% increase compared to the last quarter of 2023, according to data from the RGF Judicial Recovery Monitor, conducted by consultancy RGF & Associados and shared exclusively with Valor.
The monitoring reveals that 1.87 out of every 1,000 small, medium, and large corporations were undergoing restructuring, from a total of 2.3 million. This ratio is the highest since RGF began compiling the figures in the second quarter of 2023. The situation is particularly severe in the Midwest region of the country, where three out of every thousand companies are facing reorganization. In the state of Goiás, the figure approaches five.
The concentration of these cases in certain locations is not random. Among the five segments facing the most significant financial challenges, three are tied to the agribusiness sector, which is predominant in the region. Leading the list is sugar cane cultivation, with 29 companies in reorganization per one thousand, followed by dairy production (15.88), road and railroad construction (15.05), municipal public transportation (15.03), and soybean cultivation (11.83).
In the January-March period, notable cases of companies entering reorganization include the DIA grocery stores chain in São Paulo, with a debt of R$1.1 billion; OSX, one of businessman Eike Batista’s companies in Rio de Janeiro, with liabilities of R$7.94 billion; and the Libra Bioenergia Group, an ethanol producer in Mato Grosso, owing R$534.7 million. Meanwhile, Schumann Móveis e Eletrodomésticos, a chain from Santa Catarina, exited the process.
According to restructuring and judicial recovery specialist Rodrigo Gallegos, a partner at RGF, the figures still reflect the aftermath of the COVID-19 pandemic. “With the rise in interest rates, companies began to lose cash flow, and financial stability ended in 2023,” he explains. He also mentions the impact of the Americanas case, which entered reorganization early last year and caused “all financial institutions to hold back on credit.”
Mr. Gallegos anticipates that the effects of the pandemic will continue to be felt in the coming months but should improve towards the end of the year and the beginning of 2025. “If everything remains as it is today, with the economy improving, the government’s efforts, and the Central Bank gradually reducing interest rates, these are excellent signs for the cost of debt to start declining.”
Despite these statistics, RGF experts observe a slowdown in the rate of companies in this situation, indicating that the growth is not exponential. “From the third to the fourth quarter, we saw a significant increase, both in absolute terms and in the index. It’s still growing, but at a slower pace than last year,” notes Roberta Gonzaga, a consultant specializing in restructuring at RGF.
The absolute number of companies entering judicial reorganization was 17% lower in the last quarter compared to the previous period—296 in 2024 versus 357 in the fourth quarter of 2023. However, as fewer companies exited the process at the start of the year, the total number of companies in this predicament continues to rise. There were 196 exits from court supervision at the end of last year but only 138 at the beginning of this year. Under the Judicial Reorganization and Bankruptcy Act (Law 11101/2005), judicial protection lasts two years from the date the procedure is authorized, a period that the judge can extend.
Ms. Gonzaga highlights a positive development in the three-percentage point increase in the category of companies that have resumed normal operations after exiting legal proceedings. It rose from 60% to 63% and has consistently remained above half. In the third quarter of 2023, it was at 55%.
According to lawyer Cinthia de Lamare, a partner in the restructuring and insolvency department at the law firm Cescon Barrieu, another discreet reason for the continued rise in judicial reorganizations is their evolving perception. They are no longer viewed solely as a means to renegotiate debtor debts but also as a business environment.
“Within court-ordered reorganizations, we see everything from financing with debtor-in-possession at more attractive rates for investors to the sale of assets and corporate operations on the capital market. It all signals to the market that the process can be an appealing solution for viable companies,” she explained, noting a paradigm shift.
Ms. Lamare also points out that the greater involvement of creditors has made the tool more sophisticated, enhanced by the reform of Law 14112 in 2020, which has bolstered entrepreneurs’ confidence in seeking judicial reorganization. “Today we have clearer rules, and the court-supervised recovery plan itself is crafted by many hands, which makes the recovery more successful.”
The RGF Judicial Recovery Monitor, which utilizes data from the Federal Revenue Service, only considers judicial recoveries that have already been approved by the courts, not applications. Micro-entrepreneurs and government companies are excluded from the database, as are subsidiaries, so only the parent company is considered.
In the first quarter, according to data collected by Serasa Experian, 501 requests for judicial reorganization were submitted, and 427 were granted. The difference in data results from the disparate research methodologies. While RGF uses data from the Internal Revenue Service, Serasa, which has been tracking the data since 2005, when the historical series began, gathers information from courthouses, bankruptcy courts
and official and state court gazettes.
*Por Marcela Villar — São Paulo
Source: Valor International