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Pandemic leads to surge in concealment of assets cases

Lawsuits seek to reach hidden assets of partners of indebted companies

07/08/2022

The pandemic has generated a record volume of lawsuits against indebted companies for concealment of assets. A survey by the Martinelli Advogados law firm shows that, in the Court of Justice of São Paulo (TJSP), 6,731 trials were handed down last year dealing with redirection of collections to partners or third parties, after allegation of fraud. The volume represents a 33% growth compared to 2019 and is double that recorded in the previous year.

This situation, according to experts, occurs mainly in times of crisis. With the increase in defaults, companies in difficulty decide to take irregular measures in an attempt to shield their assets from possible collections. Creditors are then forced to scrutinize the lives of companies and their partners to try and locate assets.

Columbano Feijó — Foto: Divulgação/Omar Paixão

Columbano Feijó — Foto: Divulgação/Omar Paixão

Since the economic crisis of 2008, companies with debts began to adopt more frequently practices to protect their assets, according to lawyer Columbano Feijó, a partner at Falcon, Gail, Feijó e Sluiuzas Advogados. “The pandemic caused this practice to increase again, since some activities were paralyzed, defaults increased exponentially, and many companies in difficulty took irregular measures,” he said.

Today, more than 6.1 million companies are delinquent, according to a survey by Serasa Experian, in May. Of the total, 52.7% are in the service sector. Next come commerce (38.1%), industry (7.9%) and the primary sector (0.9%).

The largest portion of businesses in the red is in São Paulo and are small in size. The delinquency among entrepreneurs, says the chief economist of Serasa Experian, Luiz Rabi, is still likely to continue as long as the economy remains unstable.

According to economist and lawyer Alessandro Azzoni, many companies have closed their doors or are in debt and cannot honor their liabilities. Mainly, he adds, bars and restaurants, which suffered a lot with the sanitary restrictions. “Nobody expected this situation to last for more than two years. And many that were already in debt became insolvent,” he said.

Those companies have now been the target of lawsuits. And when creditors are unable to locate the assets of these debtors, they resort to a provision that allows them to reach third-party assets and hold a partner or administrator responsible for the debt, in case of fraud.

These are cases in which debtors try to hide their assets through irregular asset shielding, many times using straw men. However, getting a favorable decision, in these cases, is not simple, according to Mr. Azzoni. “It’s necessary to prove that there was fraud, that during the execution the company sold its assets or transferred them to third parties in order not to pay its debt,” he said.

According to lawyer Luís Cascaldi, with Martinelli Advogados, who coordinated the research on the Court of Justice site, the higher number of cases reflects the economic crisis generated by the pandemic. These numbers may still be under-reported, because many are kept under the secrecy of justice, so that other creditors do not know about the search and locate the assets first.

To assist in the search for assets, he says that the law firm has used partnerships and adopted technology tools to make dossiers to creditors, of what could be asked for in these cases and if there are chances of recovering those amounts. In these cases, social media have been important, according to Mr. Cascaldi. “In one of the cases we found out that the debtor owned a horse farm, which was in the name of a third party, through a posted photo,” he said.

The possibility of reaching third-party assets in case of fraud is foreseen in article 50 of the Civil Code. The way this procedure should be conducted by the judge is also provided for in articles 133 to 137 of the Code of Civil Procedure (CPC).

When it comes to large economic groups, the actions of concealment of assets become more sophisticated, according to Mr. Feijó, such as the creation of companies with the sole purpose of emptying and hiding assets. In one of the cases in which he acts for a large construction company, he tries to recover more than R$3 million owed by an engineering company for unpaid labor lawsuits, which the construction company had to pay because it was co-responsible.

In the lawsuit, the lawyer says that he has obtained evidence that the debtor acted as a provider of labor services for building construction and is part of a fraudulent group, which includes the creation of more than 20 companies, with the purpose of emptying and hiding assets. He has already obtained an injunction in the São Paulo State Court of Justice to seize the amounts in the companies’ bank accounts until there is a ruling in the arbitration court.

*By Adriana Aguiar — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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States spent less on security during pandemic

Ursula Dias Peres — Foto: Silvia Zamboni/Valor
Ursula Dias Peres — Foto: Silvia Zamboni/Valor

Unlike health and education, states’ total spending on public security in 2021 was below that seen before the pandemic period. Spending on public security, considering the 26 states and the Federal District, was 3.4% lower than in 2019, despite the favorable situation for revenues in the last two years. In addition to fueling demonstrations that are still taking place in some states to use up the last days of the deadline for adjustments above inflation in an election year, the situation also shows, according to experts, the need for a new model of organization and financing of public security.

In Minas Gerais, the Legislative Assembly approved on Tuesday a 24% adjustment for public security. Also on Tuesday, the government of São Paulo raised salaries of civil servants in public security by 20%. In Rio Grande do Sul, the police will hold a new demonstration on Thursday to ask for salary adjustment for inflation of the last three years. According to the Superior Electoral Court (TSE), due to the elections, raises above inflation to public servants can be granted this year only until April 5.

The drop in spending on public security compared with health and education. The health crisis naturally increased health expenditures, which ended 2021 with a real increase of 15.9% compared to 2019. Spending in this field exceeded the 10.8% growth in current net revenue in the same period. Expenditure on education grew at a slower rate than revenue, but ended last year with a 7.1% increase compared to the pre-pandemic period.

The data collected by the Solidarity Research Network consider the expenses committed to public security reported by states. The 2019 and 2020 values were updated by the IPCA, Brazil’s benchmark inflation index. Expenses consider costs, payroll and investments. States represent about 80% of public sector expenditure on public security.

The real drop in expenses with public security in 2021 compared to 2019 occurred in 14 of the 27 federative entities, according to the data collected by the Network. For Ursula Dias Peres, a researcher at the Center of Metropolis Studies of the University of São Paulo (CEM/USP) and the Solidarity Research Network, the decline in security expenses in the total of the states is not large, but relevant because salary adjustments are restricted since 2020 and, in view of the increase in state revenues last year, the situation favored pressure from servants this year.

The higher collection of sales tax ICMS last year was not anticipated and led to an adjustment of spending by the states during the year, the researcher said. At the same time, Complementary Law 173 of 2020, which restricted salary adjustments, was in force until the end of 2021.

“This has heavily affected fields more dependent on human capital, such as public security, civil and military police and fire departments,” Ms. Peres said. She recalled that, in general, it was not necessary to cut programs, since the effect of the lack of adjustments naturally led to a reduction in expenses. She considers that there is heterogeneity between the states. There is no standard governance model, which results in different payroll weights for expenditures.

The good financial situation of the states did not go unnoticed by security civil servants. Cláudio Wohlfahrt, financial director of Ugeirm, a union of police clerks, inspectors and investigators in Rio Grande do Sul, says that the state’s GDP grew 10.4% in 2021, more than double the federal rate of 4.6%, and that the collection last year exceeded the budget forecast.

“The government’s coffer is full,” he said. The claim of security civil servants, who organized a strike on Tuesday and are expected to demonstrate again on Thursday, is to ask for adjustments that have not been made since 2019, says Mr. Wohlfahrt.

In a note, the Finance Department of Rio Grande do Sul says that, in recent years, it had no margin to guarantee any adjustment to civil servants, having delayed salaries for 57 months. Only in 2020, with reforms and adjustment measures, it was possible to catch up on salaries. The fiscal situation has improved, the government said, but the only issue that can currently be discussed is a general revision. The Rio Grande do Sul government announced that it will send to the Legislative Assembly a proposal for a general 6% adjustment for public servants, with an annual impact of R$1.5 billion.

What is not yet known, says Ms. Peres, is how ICMS will behave this year. Last year, revenue from the main tax collected by the states increased, partly due to the recovery of the economy and also driven by inflation and fuel prices. This year, she recalls, there are already changes in the tax levied on fuel. And any adjustment given in an election year for public security will be permanent.

Ms. Peres explains that, unlike health and education, security does not have a minimum constitutional allocation that obliges states to spend according to the level of revenue growth. In addition to the issue of destination, there are also important differences with other public services. Health, for example, says Ms. Peres, in addition to having been more impacted by the nature of the Covid-19 health crisis, in some states it is also operated largely by third parties, through social organizations, which makes spending less subject to restrictions on salary adjustments.

For sociologist Samira Bueno, executive director of the Brazilian Forum on Public Security (FBSP), an NGO that collects and monitors data in this field, one of the great challenges for associations that represent security civil servants is to claim salary adjustments at a time when indicators show a reduction in crime rates. According to the Violence Monitor, a partnership between FBSP and news outlet G1, there were 41,100 murders in 2021 in the country, down 7% from the previous year and the lowest number since 2007.

Source: Valor International

https://valorinternational.globo.com

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Brazilian stock market still shows after-effects of pandemic

The volatility caused by the pandemic gave rise to several small cycles in the capital markets — Foto: Silvia Zamboni/Valor
The volatility caused by the pandemic gave rise to several small cycles in the capital markets — Foto: Silvia Zamboni/Valor

Wednesday’s trading session marked the second anniversary of when Brazil’s benchmark stock index Ibovespa reached its lowest point during the Covid-19 crash. Since then, the global economy and the capital market have gone through several cycles that helped to distorted the prices of several stocks in the Brazilian stock market.

A survey carried out by Valor Data found that, two years after Ibovespa reached its lowest level, of 63,569 points, and its strong recovery – it closed at 117,457 on Wednesday – some companies are still strongly depressed, in some cases with a market capitalization below the one seen on that low point.

This is the case of retailer Magazine Luiza, which on Wednesday had a nominal market cap R$8.6 billion lower than the one seen two years ago. Or developer Eztec, which shrunk by R$2.1 billion in the period. Construction company MRV, toll road operator EcoRodovias and BR Malls have recovered from losses recently and posted a positive balance of R$728 million, R$363 million and R$675 million, respectively.

Since the index almost doubled in score, there are also clearly positive highlights, mostly blue-chip companies. Among banks, Itaú grew R$51 billion, Bradesco advanced R$58.5 billion, Santander gained R$44.8 billion and Banco do Brasil is worth R$36.6 billion more now. Oil giant Petrobras and mining company Vale, which start from a higher base given their size, gained R$279 billion and R$302 billion in market cap in the period.

But despite the snapshot, the Ibovespa could not have been in a less static way in the last two years. The volatility caused by the pandemic gave rise to several small cycles in the capital markets, making stocks gain and lose attractiveness quickly.

Alexandre Sabanai, a manager at Perfin, recalled that in March 2020, while the stock markets crashed, the market spent a few days without a reference. At that point, six circuit breakers were triggered in eight days between March 9 and 18.

“Agents price risks and returns well, but they don’t know how to deal with uncertainty. We didn’t know how lethal the virus was, how long it would take for infections to stabilize, so the start was difficult. When the initial panic passed, investors started to evaluate the sectors that would suffer the most.”

So while part of the assets showed a first sign of recovery, mainly from essential sectors such as supermarkets, pharmacies, sanitation and energy, others had a harder time, such as shopping centers, airlines, highway concessions and street retail.

Phil Soares, head of equity analysis at Órama Investimentos, recalls that the race for technology assets emerged at that point, while there was talk of the “new normal.” In the international market, the big techs emerged as natural winners, while in Brazil, with no companies on the technological front, the beneficiaries were companies that already had or accelerated their digital presence. Via Varejo rose 200% between March and September and the newcomer Locaweb jumped 450% in the period.

The market experienced a more generalized rally in late 2020, reflecting some hope with the beginning of mass vaccination, until the second wave of Covid-19, and a second lockdown, generated again a few more months of volatility in early 2021.

However, with a new reopening of the economy in April and government stimuli taking effect, economists revised activity data upward and companies again delivered great results, taking advantage of the low base of comparison of the previous year amid a buyer appetite, said Fernando Bresciani, an investment analyst at Andbank. On June 7, 2021, the index closed at 130,776 points, reaching 131,190 during the session.

China, which stimulated its economy after the crisis, also stimulated the metallic commodities, making iron ore reach the $220 level. But it was short-lived. Inflationary pressures began to trigger interest rate hikes and, in addition, the country was still dealing with a water crisis and uncertainties linked to the fiscal situation and elections. Thus, the local market suffered in the second half of 2021.

At the beginning of 2022, amid higher oil prices and the recovery of minerals, local assets started to call the attention of international investors. By March 21, R$81 billion had been invested, with a focus on blue-chip companies.

Agents expected the flow to trickle down to assets linked to the local economy, but as the Russia-Ukraine war again affected inflation, there is no longer a consensus. For now, the Ibovespa is on the rise. On Wednesday, the index gained 0.16%, to 117,457 points, its sixth consecutive advance, with local shares testing the thesis that some companies are trading at a discount here.

“We still can’t see strong growth, since there are many uncertainties around interest rates and inflation. But volatility drives these movements,” Mr. Bresciani said.

Source: Valor International

https://valorinternational.globo.com

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Ocean freights remain at record levels in Brazil driven by pandemic

A container ship docked in Santos — Foto: Ana Paula Paiva/Valor
A container ship docked in Santos — Foto: Ana Paula Paiva/Valor

After two years of pandemic, ocean freights remain at record levels in Brazil. On the one hand, the industry believes that prices in the short-term market have peaked and are unlikely to rise further. On the other hand, the persistence of the pandemic still generates a lot of uncertainty and makes forecasts difficult.

In Brazil, the routes most affected by price increases are those of imports from Asia and of exports to the United States. In the last two months, the routes to Europe have also seen sharp growth. The impact, however, is widespread, since the crisis is the result of a global disruption in maritime trade.

Since 2020, cargo transport has been going through a “perfect storm”: staff cuts due to the virus infection; port closures or congestion; and delays in cargo release. All this in the midst of a skyrocketing demand for consumer goods – in many countries fueled by government stimulus. This mismatch has led to a generalized shortage of containers and ships, travel delays and unprecedented price rises.

On the China-Brazil import route, freight rates began to climb as early as the second half of 2020, but it was last year that they reached an all-time high, around $10,000 per TEU (20-foot equivalent units of containers). The price closed 2021 at an average of $9,700 per TEU – an increase of 62% compared to the previous year and 397% higher than in January 2020, according to a survey by the National Confederation of Industry (CNI).

In the case of export routes to the United States, price increases accelerated in the second half of 2021. The freight to the East Coast of North America ended last year at $9,300 per TEU, more than five times the price charged a year ago. In the route to the Gulf Coast of the United States, the price closed 2021 at $7,700, compared with $1,400 in December 2020, CNI said.

These values refer to the short-term market, and do not include prices of bilateral contracts (signed between shipping companies and customers). In this type of agreement, companies that need to transport their products get more stability and protection for moments of price swings. If the entire market is considered, prices drop substantially. For example, in the Asia-Brazil import route, the average freight was $5,794 per TEU in November 2021, according to Logcomex’s calculation.

Prices in the spot market seem to have already peaked “both in exports and imports,” said Luigi Ferrini, senior vice president in Brazil at Hapag-Lloyd, a shipping company. At this moment, groups that are renewing long-term contracts are the ones feeling prices growth. Renegotiations have included price increases seen in 2021.

Andrew Lorimer, executive director at the consulting firm Datamar, believes that there is still room for some price increases. “It could still get a little worse. The main drivers of the crisis today are Chinese supply and U.S. demand, where the problems are likely to persist. In China, we have seen halts because of the omicron variant. And in the U.S., there are still logistical bottlenecks, a huge congestion at the East Coast ports,” he said.

The industry is also already seeing an accommodation of prices, although at a level considered high, said Matheus de Castro, an infrastructure specialist at CNI. “It is challenging to bring a perspective of resumption of normality, due to the behavior of the pandemic. But we are starting to see stabilization, although at prices five, six times higher than before the pandemic.”

Lower consumer spending in Brazil, paradoxically, has contributed to stabilization by helping to balance the supply/demand ratio, said Rafael Dantas, commercial director at the logistics company Asia Shipping. “[Consumer spending] has already peaked. We believe that the volume will fall this year. This is already happening in practice. December was not as heated as 2020, demand is slowing down. So, for us, the situation is almost normal.”

He also highlights, however, the uncertainties brought by the new wave of the pandemic in the world – especially in China, where social distancing measures are more drastic.

Rafael Gehrke, with Logcomex, believes that it will be possible to have a clearer vision about the potential stabilization of prices as of the second quarter, when the effects of the Chinese New Year will be over, at the beginning of February – a holiday that has a great impact on the cargo movement, with an increase in trips before and after the date, when the activities in the country are halted.

“From the second quarter on, other factors may also be clearer, such as the reaction of the local demand in Brazil or a potential increase in interest rates in the U.S., which may slow consumer spending a little,” he said.

Analysts say that it is difficult to predict at which level the freights will stabilize once the scenario calms down. Mr. Castro, with CNI, says that it is difficult to imagine that prices will return to the level seen in the last decade. Mr. Ferrini, with Hapag Lloyd, says that prices are likely to stop at some point between the current level and those seen before the pandemic.

Despite the difficulty of projection, Mr. Lorimer, with Datamar, considers the current prices unsustainable. “A good part of last year’s inflation has to do with the cost of transportation, which impacts everyone. Many products, such as those of lower value, don’t even sustain themselves with such high freight.”

Source: Valor international

https://valorinternational.globo.com/

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