The government’s proposal for the new Judicial Recovery law should give more power to creditors of the company that is facing financial difficulties and has to resort to legal instruments to avoid bankruptcy.
One of the most relevant changes in current legislation (from 2005) is that creditors will be able to present the judicial recovery plan; Today only controllers can do this. The point is controversial. Although it takes power away from the owners, the solution to the company’s recovery is often to remove them and prevent them from making decisions that remove value from the company when it is still possible to save it.
Proponents of the change claim that giving more power to creditors could reduce the financial cost of companies about to enter into judicial recovery or speed up the time spent under the regime when there is no alternative. The government’s objective is to shorten the average period of judicial recovery to between three and four years. Currently, according to a survey by Serasa Experian, the time is almost five years. And few companies are actually able to recover, around a quarter of the total.
Large companies, such as Oi and real estate developer PDG Realty, are in judicial recovery. According to Serasa, in the last two years, more than 3,000 companies requested the Court to enter the recovery regime.
Meirelles added that the new law should also encourage creditor banks to provide credit to companies. The new contribution could move them forward in the queue to receive it. A second important change in the new legislation should be the reduction of the tax charged when the company negotiates a debt reduction, in the technical jargon “haircut”.
Treated by the tax authorities as a capital gain, the reduction implies payment of Income Tax in excess of 30%. This increases the tax burden for a company that is already in bad shape.
One of the measures being studied is to extend the installment plan, another is to allow the company to use tax loss credits, which in some cases could nullify the effective payment. The most delicate phase, however, is when the company has to dispose of assets to pay debts.
The new legislation should make it clear that whoever buys a company from a group in crisis will not assume debts for the entire group. Current legislation is vague on this point, which creates uncertainty for potential buyers and reduces the sale value. This item can facilitate, for example, the exit from the crisis of contractors involved in Lava Jato and who are in judicial recovery, such as OAS and UTC. Both have healthy shares in other activities, such as airport and subway concessions.
Small companies in recovery will also be covered, with a mechanism to speed up the cleaning of the company’s name. The initial idea is that the proposal will be processed as a bill, authored by the Senate, but the legislative path was still under discussion at the weekend.
Source: Folha de SP
