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In general, the Brazilian legal system is very slow and
inconsistent. It suffers from such varied problems as laws that are rather
antiquated, or brand-new and untested, corrupt judges and unmanned rural court.
Civil procedures in Brazil are comparatively expensive.
Therefore, it might be advisable to look first at out of court agreements or
arbitration.
Legal proceedings
In Brazil, all the 26 states have
their own court organisation and structures. It depends on the amount in dispute which court will be in charge and if there will be an option on
appeal.
Creditors can initiate a debt enforcement proceeding on basis of executory instruments or negotiable instruments (e.g. written acknowledgement of debt, promissory notes, bills of exchange, dublicata).
Arbitration
Brazil ratified the United Nations Convention on the Recognition
and Enforcement of Foreign Arbitral Awards in 2002, facilitating the recognition
and enforcement of foreign arbitral awards.
Arbitration is also offered by several official Brazilian
arbitration bodies. Brazilian courts give effect to domestic and international
arbitration agreements.
Arbitration is faster than litigation. Large commercial disputes
may last between six months and two years.
Arbitrators fees depend on their professional standing, the
location and the complexity of the case. Meanwhile, arbitration is widely used in Brazil as an
alternative to civil procedures.
Lawyer and court fees
As lawyers fees are not fixed by law, costs can vary according
to the complexity of the case.
Contingency fees and fees on a hourly basis are common. The
Brazilian bar association (Ordem dos Advocados do Brasil) provides some
non-binding guidance on the fees level.
Court fees vary between the single federal states and according
to the amount in dispute. They have to be paid in advance by the claimant.
Reimbursement of fees: The losing party has to reimburse
the winning party’s legal costs plus related expenses as well
as those of the lawyers.
Therefore, legal action can be very expensive.
Bankruptcy procedure
In 2005, a new bankruptcy procedure came into effect. The new law significantly altered the insolvency procedures in
Brazil.
The main changes are the improvement of creditor rights and the enhancement of recovery changes of distressed
companies via restructuring.
Distressed companies are now much more easy to reorganise while remaining in
operation.
This might especially be of great value to larger companies.
Restructuring
The new legislation has introduced mechanisms for extrajudicial
and judicial restructuring.
Any extra-judicial restructuring enables the debtor to negotiate
his debts directly with his creditors within six months time.
An agreement requires the approval of creditors representing at
least 60% of the total credits in all categories and a final judicial consent.
This
approval is also binding to dissident creditors.
Regarding judicial restructuring, a reorganisation plan has to
be approved by the creditors meeting within 180 days, which may be extended for
an additional period of 90 days.
Within this period, an automatic stay for the creditors will be
in place. In
case of non-approval, the company’s assets will be liquidated.
To incite further financial support and lending for the
distressed company under a restructuring scheme, any lender that provides
financing will obtain a super-priority lien over the other creditors assets in
the company.
Improvement of creditor rights
In contrast to the old regulation, the new law inverts the
former order of preference by giving priority to secured creditors in relation
to tax claims.
This should mean a significant improvement in the chances of debt recovery, since tax debts are generally the bulk of debts of distressed Brazilian
companies.
While the absolute priority of labour and social security claims in bankruptcy proceedings remains, its maximum amount was capped.
Average time to complete a
bankruptcy procedure
Brazil: 10.0 years
Average OECD: 1.5 years
Collection of receivables in Brazil
Safeguarding your credit sales in Brazil
Protecting your credit sales in other countries
Reproduced by kind permission of Atradius
Atradius copyright. The statements and recommendations made herein are for
informational purposes only and should not be utilised as a substitute for
professional advice in specific situations. Therefore we ask for your
comprehension that we can't take over any liability for this report. If legal
advice or other expert assistance is required the services of a professional
should be sought.
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