Bank indebtedness is one of the main factors responsible for the moments of financial instability strongly aggravated by the catastrophic pandemic arising from Covid-19. The crisis has led to a higher demand of bank loans by a large majority of companies and individuals in recent months.
In some cases, however, financial institutions grant credits at exorbitant interest rates even in renegotiation operations, in addition to all the charges for the contracting period, also those of the period of arrears and which significantly overburden the borrowers.
Considering that there was renegotiation, the credit has a new level of remunerative interest for the loan in installments, and the interest on the previous arrangements shall not be charged.
It is often possible to migrate a debt with high interest rates to another with lower rates, longer term and smaller installments that fit the budget. Sometimes with longer grace periods, including as well as to pay off the debt in cash with expressive reduction of the principal and interest amount being discussed.
The success achieved through an agreement is tied to a number of factors, one of which is the abusive action of the banks, that misuses the revolving credit of the company or individual to pay off installments that are in direct debit. In this way, the client’s debt to the institution grows exponentially. This type of collection has been recognized as illegal by the judiciary.
Before judicializing a negotiation, however, it is very valid to look for ways out and exhaust all amicable and administrative resources mainly. If the majority of credit borrowers decide to go to the judiciary, the jurisdictional provision will be even slower and will therefore not be able to satisfactorily meet the demands of companies, individuals and the market. Not to mention attorney’s fees and costs for filing and following up on legal suits.
The financial institutions are now more likely to accept renegotiations of debts, including loans, credit card, current account with credit limit, guaranteed account, financing and debt confession. Penalties for delays by financial institutions can legally be higher than penalties by non-financial companies and individuals, but there are limits, and in some cases even room for better conditions.
Renegotiating financial debts may also take place in both judicial and extra judicial recovery also known as restructuring that is now subject to the most recently enacted law 14.112 from December 2020 that mainly aims at assuring the business continuation, upholding employees and also suppliers as much as possible. Corporate social responsibility and social functions were also main criteria for lawmakers to bring this amendment to the previous Law 11.101 from 2005.
In regard to eligible financial debts also those not yet due can be presented by the debtor, including debts generated by the advancing of credits exports by financial institutions for instance. The new law even allows a special refinancing of tax debts which we did not have before. Thus, it is worth analyzing the liabilities situation of the given company specially if it is facing pandemic consequences and not able to honor its debts according to the original plans. It is a good opportunity to renegotiate financial debts.
It is worth mentioning that debts from essential capital goods like real estate or even machinery and special equipment guaranteed by fiduciary provisions cannot be subject to the recovery plan, as it is essential for the company’s business’s activities’ continuation. It is also important to highlight the possibility of previously launched negotiation, conciliation and corporate mediation before filing a judicial recovery. Additionally, and under certain conditions companies facing financial hardship but already in extrajudicial negotiation can try to be granted an injunction to suspend collection lawsuits filed within 60 days, to allow the settlement with creditors.
Therefore, the role of the administrator is extremely important, liaised not only to the supervision and checking of financial information of the recovering company (cash flow, income and equity statements) but also stimulating renegotiation and possible settlements to relieve the financial burdens of the indebted company. In the previous law the administrator was already in charge of gathering the assets along with credit analysis and sharing them among creditors. Now with the new law from 2020 the administrator also takes the judicial representation of the related court and out-of-court collections, also including but not limited to arbitral proceedings, as well as selling assets within 180 days from the filing of all assets gathering term i.e., report.
Within negotiations and settlement attempts, the administrator can also evaluate possible fraud actions and deviation of assets, always on the purpose of enabling the most beneficial gathering or recovery of assets to satisfy the outstanding credits and also the business continuity when conditions are favorable.
Last but not least it is also interesting to analyze the possibility of new refunding of already ongoing financial credit lines and new investments like DIP (Debtor-in-possession) in companies facing financial crisis which has been consolidated by the new law. These new funds are not subject to a bankruptcy conversion and are vital for the company to recover its financial capacity to get out of the crisis, based on an appropriate timeline for payback and effective guarantees to secure the new investors.
Tais Helena Bacellar, Administrative and Finance Director at PNST Advogados.