2023-06-26 19:23:30
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Judicial recovery is a term that can generate fear in investors and consumers linked to the company that goes through this process. It is a concept that relates to financial crisis and is often associated with the decline of an organization. However, reality is more complex than that and, by understanding it, we can visualize how this instrument is effectively a protection mechanism.
What is Judicial Recovery?
Judicial recovery (RJ) is a legal procedure created to prevent a company, in the midst of a financial crisis, from going bankrupt. This measure benefits not only the partners, but also employees, suppliers, service providers, customers and everyone who is directly or indirectly linked to the organization.
At the heart of the RJ, there is the objective of establishing an agreement between the debtor company and its creditors. When successful, this agreement protects employees, suppliers, banks and service providers, while ensuring the continuity of the company and, consequently, tax collection.
This measure is not intended to remove the entrepreneur or disqualify him from conducting business. On the contrary, the proposal is to make the company viable once more, allowing the operation to proceed with the same (or greater) solidity than before the crisis.
Who can apply for Judicial Reorganization?
According to Law 11.101/2005, complemented by Law 14.112/2020, only the debtor company can apply to RJ. Among natural persons, only rural producers have this right. However, the law restricts the use of this tool by public companies, government-controlled companies, financial institutions, among others.
To be eligible for the RJ, the company needs to meet several criteria, including having at least two years of registered activity, not having gone through another RJ process in the last five years, and not having obtained a special plan concession from RJ in the last eight years.
Judicial Recovery x Bankruptcy
RJ and bankruptcy are two legal tools designed to deal with financial crisis situations in companies. However, while RJ is an effort to avoid bankruptcy, bankruptcy is the legal declaration that a company is unable to pay its debts.
In summary, judicial recovery is a valuable resource that can allow companies in financial difficulties to restructure and continue their operations, benefiting all their stakeholders. It is a complex and challenging process, but one that, if well conducted, can avoid bankruptcy and allow a new beginning for the company.
How does it work?
You already understood what judicial recovery is and its main objectives. But how does it actually work in practice?
The first point you must understand deals with who makes the order. It is the company itself that is going through difficulties that must apply for judicial recovery to the competent judge. For this, a lawyer makes the initial petition and presents it to the court with the signature of the representative.
In this petition, the company must demonstrate the facts and grounds that gave rise to the request. For example, the debts she has, who the creditors are, the balance sheet and other important data to demonstrate the need for the procedure.
Once the process has started, the judicial recovery will go through two distinct phases. Check out a summary of each of them:
deliberation phase
After filing the company’s request for judicial recovery, the judge needs to analyze it and verify that all legal requirements are present. Then he accepts the application and determines the suspension of the company’s charges.
Thus, court proceedings and protests in notary offices once morest the company in recovery are suspended for 180 days. At that time, the so-called judicial administrator will also be appointed.
This agent is responsible for overseeing the entire procedure and communicating with creditors and the company. He must be a reputable professional, preferably a lawyer, economist or accountant. There is also the possibility of appointing a legal entity specialized in these services.
execution phase
After the deliberative phase, which ends with an order from the judge guaranteeing the benefit of judicial recovery, the execution phase of the process begins. In it, the company will have up to 60 days to present the judicial recovery plan.
This is the most important document of the entire process, considering that it gathers the essential information for the procedure. Some data that must be included in the plan are:
detailed information on the means adopted for the recovery of the company; demonstration of economic viability of the business with the recovery; economic-financial report and evaluation of the company’s goods and assets.
After the plan is presented, the judge will publish it in a notice so that all creditors have access. They can also make their objections, substantiating the reasons for not agreeing with him. They will be voted on at a general meeting of creditors.
At this meeting, interested parties will have the right to vote on whether or not to accept the proposals presented by the company in the plan. If the proposal is rejected at the meeting, the company must go out of business and its assets will be auctioned.
On the contrary, if the plan is approved, the process ends and it will be archived for 2 years. During that time, if the company fails to comply with the plan, the creditors can meet to file for the bankruptcy of the business, stating their reasons.
Which companies listed on the stock exchange are in bankruptcy?
Despite being a more common procedure in small and medium-sized companies, large companies listed on the if may also apply for judicial recovery.
According to data from May 2021, 20 companies listed on the Brazilian market were in this situation.
Check the list in alphabetical order:
AMERICANAS BARDELLA ETERNIT HOTÉIS OTHON IGB S/A INEPAR JOÃO FORTES LIGTH LUPATECH MMX MINING OI REFINERIA DE PETRÓLEOS MANGUINHOS POMIFRUTAS RENOVATES RODOVIAS DO TIETÊ SARAIVA LIVREIROS TECNOSOLO TEKA WETZEL S/A
Should I invest in companies in this situation?
A common doubt among investors is the possibility of investing in companies that are undergoing judicial recovery. To evaluate this decision, you need to consider your profile and your financial goals.
This investment seeks to take advantage of the possible appreciation of the company following the judicial recovery, in case it manages to recover. Considering that the price of the papers usually drops a lot when the company asks for recovery, the opportunity can be lucrative.
However, as you can imagine, investing in companies in turnaround is considered to be quite risky. After all, the plan may not have the desired effects — causing losses. So the possibility may be more suitable for bold investors with more knowledge of the market.
In addition, it is essential to carry out a good analysis of the company and the recovery plan. Thus, the investor will be able to assess whether it is possible for it to fulfill its obligations and return to the expected expansion.
Conclusion
Judicial recovery is an important and necessary tool to assist companies in situations of serious financial crisis. With a well-structured and executed process of judicial recovery, it is possible to allow the company to continue its operations, preserve jobs and protect creditors.
However, it is worth mentioning that judicial recovery is not a magic solution to all financial problems. It requires planning, discipline and commitment on the part of the company’s management. In addition, guidance from legal and financial experts is required to ensure that all stages of the process are carried out correctly and effectively.
Ultimately, judicial recovery is a process that seeks to balance the interests of all stakeholders of a company in crisis, in order to allow its survival and, ideally, its future flourishing. Understanding this process is essential not only for managers of companies in difficulty, but also for investors, employees, suppliers and consumers who depend on the continuity of these companies.
Frequently Asked Questions regarding Judicial Recovery
1. What is a judicial recovery process?
Judicial recovery is a legal procedure provided for in the Brazilian bankruptcy law (Law No. 11,101/2005) which aims to prevent the bankruptcy of a company in financial difficulties. During the process, the company presents a detailed plan on how it intends to restructure itself, pay its creditors and resume its financial health. The plan must be approved by creditors and the court.
2. What happens when a company is in judicial recovery?
When a company is in receivership, it goes through a series of legal and operational steps to restructure its debts and operations. The company continues to operate, but under judicial supervision. During this process, the company has to present a recovery plan, which must be approved by the creditors. If approved, the plan is implemented with the aim of restoring the company’s financial stability.
3. When is judicial recovery applicable?
Judicial recovery is appropriate when the company is in a situation of economic and financial crisis, that is, when it cannot generate enough resources to pay its debts and maintain its operations. Judicial recovery serves as an alternative to bankruptcy, allowing the company to restructure and try to overcome its difficulties.
4. What is the advantage of judicial recovery?
The main advantage of bankruptcy is that it allows the company to continue its operations, rather than being liquidated, which can be beneficial for both owners and employees, suppliers and the community at large. In addition, judicial recovery can provide a better return for creditors than bankruptcy, as it seeks to restructure debts in a way that preserves the value of the company. It is important to point out, however, that the success of the process depends on a number of factors, including the viability of the recovery plan and the company’s management capacity.
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