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Brazil Introduces Lenient New Bankruptcy Law

Posted on the 21 February 2017 by Angelicolaw @AngelicoLaw

Brazil’s troubled economy has led to record numbers of companies filing for bankruptcy. That may come as no surprise considering Brazil’s current recession is often described as the country’s worst in a century.

Last year, several of Brazil’s biggest companies filed for bankruptcy protection. Oi, the country’s largest fixed-line operator and fourth-largest mobile operator, was denied restructuring of its debt and consequently filed for the Brazilian equivalent of Chapter 11. The company’s debt came to a crushing 65.4 billion reals (21 billion USD). In addition to Oi, Brazil’s second-largest airline, Gol Linhas Aéreas Inteligentes, underwent a restructuring process to manage the 780 million real (250 million USD) debt it had with its creditors.

President Michel Temer has already introduced several measures to fuel economic growth and recently announced a new measure to address the country’s bankruptcy problems. Part of his new plan is to allow companies with debt to sell their assets without the debt affecting the price or sale of the assets. This change is an attempt to minimize the economic pressures felt by debt-ridden companies and ultimately stem the tidal wave of bankruptcy that has swept the country.

Other economic policies introduced by Temer include:

  • minimizing the bureaucracy in opening and closing businesses;
  • streamlining tax declarations;
  • reducing credit card interest rates;
  • providing tax breaks to participants in the government’s “Minha Casa Minha Vida” social welfare program; and
  • granting permission for employees to access their severance fund accounts (FGTS).  

The government also proposed major reform to the country’s pension system, raising the retirement age from 54 to 65. The current system allows workers to collect their full salaries after retiring in their mid-fifties and reportedly accounts for as much as 40 percent of the government’s budget. Temer also introduced an austerity measure that would freeze budget increases for the next 20 years.

A key question remains: are any of these policies working? After two years of stagnation and an overall 7 percent fall in GDP, Brazil is predicted to see a modest but promising turnaround this year. If government estimates are correct, Brazil will see GDP growth between 0.5 and 1 percent in 2017.

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