According to data from RGF & Associados, the sugarcane sector tops the list
Rodrigo Gallegos — Foto: Rogerio Vieira/Valor
Two out of every thousand active companies in the country ended the first semester under court-supervised reorganization. There were 3,823 such cases out of a pool of 2.1 million small-, medium-, and large-sized businesses. The sugarcane sector leads in the number of such cases.
For every thousand active companies in this sector, 38.6 were undergoing reorganization. Most cases are concentrated in Alagoas, Maranhão, Paraná, and São Paulo.
Following the sugarcane sector, the industries with the next highest numbers of companies undergoing reorganization are highway and railway construction, with 16.3 businesses per thousand in activity, and leather footwear manufacturing, with 13, followed by public transportation (12.5) and soybean cultivation (12).
These statistics come from the RGF Monitor on Court-Supervised Reorganization, developed by RGF & Associados. In addition to the number of companies undergoing reorganization, the platform details each sector by state, region, and national position.
“It’s a snapshot of the semester, not an accumulation of what happened month by month. We show, at that date [June], how many companies were under court-supervised reorganization, regardless of when the process started,” said Rodrigo Gallegos, a partner at RGF.
Precisely speaking, he asserts, the national index is 1.8 companies in the process of judicial reorganization for every thousand in operation.
The indicator uses data from the Ministry of Finance, which monthly releases information about all active companies in the country. From this dataset, it’s possible to identify those undergoing reorganization. By law, companies are required to change their business name when going through this process. “Company X” becomes “Company X – Under Court-Supervised Reorganization.”
This analysis excluded individual micro-entrepreneurs (MEI) and consolidated small-, medium-, and large-sized companies based on their headquarters. “Because, a company can have multiple branches. If we considered them all, it could distort the reorganization numbers,” explained Mr. Gallegos.
The Monitor will be updated quarterly. In the upcoming analyses, there will be a basis for comparison, showing whether the number of processes—both new entries and ongoing cases—remains stable, increases, or decreases.
Experts predict an increase in the quantity of new reorganization requests in 2023. According to Serasa Experian, the first semester closed with the highest level in the past three years.
Between January and June, 593 new requests were registered, a 52% rise over last year’s 390 in the same period.
Among the companies that needed to turn to the Judiciary to renegotiate with creditors this year are Americanas, Light, Oi, and Grupo Petrópolis. The combined debts of these four companies exceed R$100 billion.
What is seen in 2023 differs significantly from the pandemic years. In 2020, 2021, and 2022, the number of reorganization requests remained below historical averages. In 2022, for instance, 833 companies turned to the Judiciary. It was the lowest index in the past eight years.
“Many measures were taken to protect companies during the pandemic. The Judiciary was more protective, creditors were more willing to negotiate, and there were governmental interventions and credit releases,” said Samantha Longo, a partner at Bichara Advogados. Now, she asserts, the scenario is not so benevolent. Creditors want to be paid, and debtors are in a difficult situation.
Many companies leveraged themselves with credit offerings when interest rates were low during the pandemic—in 2020, the Selic rate was at 2%. Now, with the key interest rate at 13.25%, they are struggling to honor payments.
“With the Selic at this level and without the same negotiation advantages, companies don’t have many alternatives,” said André Moraes from Moraes & Savaget Advogados. “The profile of the clients approaching us remains the same— indebted due to leverage and the high interest rate,” he added.
The year 2023 is expected to reestablish what was observed in the pre-pandemic period. However, according to experts, it won’t be as extreme as 2016 and 2017—the worst years of the historical series. In 2016, during Dilma Rousseff’s impeachment, 1,863 reorganization requests were recorded.
The sugarcane sector, which leads the Monitor’s rankings for companies with the highest number of recoveries in the country—when considering the proportion per thousand active companies—has been on the edge for years.
It is affected by climate and market variations, like general commodities, but also needs to deal with government interventions in the fuel sector.
Ricardo Siqueira, from the RSSA law firm, which serves the sector, explains that most mills produce sugar and ethanol. The usual ratio is 70% sugar and 30% ethanol. “If one of them is poorly priced, it creates an imbalance. Ethanol has been sold below cost in Brazil since 2020,” he emphasized.
Among his clients, Mr. Siqueira represents a conglomerate of sugarcane-alcohol mills in the state of São Paulo. The company filed for court-supervised reorganization in 2020 with a liability of R$4 billion. He also works for companies in the sugar supply chain that had to turn to the Judiciary. Among them is a machinery and equipment supplier.
Joelson Sampaio, an economics professor at FGV, states that the challenges faced by the railway and road construction sectors and the footwear manufacturing sector—which also rank high—are likely related to input costs. “These sectors have been suffering considerably since the beginning of the pandemic,” he said.
Mr. Sampaio went on to say that the occurrences in the public transportation sector are linked to market issues. “It’s somewhat cyclical. It has already suffered a lot, and companies have begun reorganization, but this year has a positive effect.”
According to Monitor data, São Paulo is the state with the highest number of companies turning to the Judiciary to negotiate with creditors—1,198, a third of the national total. However, it is also the state where the majority of companies are located—793,194.
When proportionally analyzed, comparing the number of reorganization processes to the number of active companies, the index stands at 1.51 per thousand, which places it far behind other locations.
In the Central-West region, there are 3.12 reorganization processes for every thousand active companies. The state of Goiás drives up this index: for every thousand companies, 5.34 are in crisis. The rate in Mato Grosso do Sul is 1.06, and in Mato Grosso, it’s 3.42.
The Northeast is second in the regional rankings, with 2.36 reorganization processes per thousand active companies. In the South—the third-ranking region—it’s 2.15.
Surprisingly, the Southeast, where São Paulo is situated, appears in fifth place according to experts: 1.44 per thousand active companies are undergoing court-supervised reorganization. It ranks higher only than the North region, which has an index of 1.09.
Experts consulted by Valor see two potential reasons for the decentralization of court-supervised reorganizations: the market is more informed about the process and how it works, and the Judiciary is becoming more specialized.
“For instance, Mato Grosso do Sul has specialized courts in this area, and this trend is also being followed by Mato Grosso and Minas Gerais,” said lawyer Ricardo Siqueira. Additionally, he notes that the Reform of the Court-Supervised Reorganization and Bankruptcy Act, in effect since January 2021, has allowed agricultural producers to undergo reorganization.
*Por Joice Bacelo — São Paulo
Source: Valor International