Requests for judicial reorganization increase by 11.1%.

Requests for judicial reorganization rose from 81 to 90 in February 2021, an increase of 11.1% compared to the same month of the previous year. Compared to January, there was also an increase, this one of 83.7%. According to the Serasa Experian Bankruptcy and Judicial Reorganization Indicator, micro and small businesses were responsible for driving the index up, as requests from these companies grew by approximately 34% year-on-year, while other business sizes saw declines.

According to economist Luiz Rabi from Serasa Experian, this increase means that the financial challenges for companies in 2021 are already surpassing those of the previous year. “The jump in the number of requests may reflect entrepreneurs who chose to wait for the new Bankruptcy and Judicial Reorganization Law to come into effect, which happened at the end of January. However, this growth also reveals how business owners, especially those of smaller businesses, were unprepared to deal with the extent of the economic impacts caused by the pandemic.”

Among the segments, the analysis shows that commerce was the sector with the largest increase in the number of orders, totaling 35 in February of this year compared to 21 in the same month of 2020. According to Rabi, the increase in inflation, the price of raw materials, and the cut in emergency aid, which reduces consumers' purchasing power, negatively affected the cash flow of companies in this area. Service businesses totaled 34 orders, industries 14, and the primary sector seven.

In February, bankruptcy filings fell from 96 to 84 when considering the year-on-year variation. The service sector has the highest number of filings (52), while micro and small businesses stand out by size with 43 filings. A month-on-month comparison shows a 110% increase, as 40 filings were registered in January 2021 and 84 in the following month.

Tax benefits – Last week, the National Congress overturned 12 of President Jair Bolsonaro's 14 vetoes on the new Law 14.112/2020, which was approved on December 24th of last year, substantially altering Law 11.101/2005, the Bankruptcy and Corporate Reorganization Law. Therefore, the text once again includes tax benefits and advantages that enable the attraction of resources and investments to companies undergoing judicial reorganization.

According to Rodrigo Macedo, partner and legal director of Andrade Silva Advogados, this action restores balance to the law. "With this decision by the National Congress, the provision that exempts investors who acquire assets from companies undergoing judicial reorganization from any responsibility for the debtor's obligations has been reinstated," Macedo states.

With the removal of the vetoes, the sole paragraph of article 60 and paragraph 3 of article 66 are once again in effect. “There was insecurity on the part of investors and companies regarding these vetoes made by the federal government. Investors were often hesitant to acquire assets from companies in crisis, fearing liabilities involving those assets. However, with the article remaining in place, this issue is resolved,” adds the legal director.

Furthermore, companies undergoing judicial reorganization will also receive tax benefits. There will be no payment of the Social Integration Program (PIS) and the Contribution to Social Security Financing (Cofins) on the forgiven debt amount, and the use of tax losses to pay Income Tax (IR) and the Social Contribution on Net Profit (CSLL) will be permitted.

Of the vetoes that were upheld, Rodrigo Macedo highlights the one in paragraph 10 of article 6, which referred to the suspension of labor executions against the company undergoing judicial reorganization and its managers, until the plan was approved. "For companies, overturning this veto would be particularly beneficial in ensuring greater peace of mind during negotiations with creditors," the lawyer points out.

It is important to remember that, after the changes in legislation, the tax authorities are now responsible for requesting the bankruptcy of a company undergoing judicial reorganization if there is a breach of the tax payment plan, agreement, or even asset stripping, which was not foreseen until now. "The tax authorities now have a more prominent role, however, the tax benefits have been maintained so that companies are not disadvantaged at the time when they need them most," emphasizes Rodrigo Macedo.

Source: Diário do Comércio