If you live in the United States, you know that an individual or a company can file for bankruptcy when they are floundering financially and cannot pay for the debts they owe. Bankruptcy in Brazil doesn’t apply to individuals, and only private companies can file for it. If you’re looking to open a business in Brazil or expand your current one, it is difficult to think ahead to bankruptcy, since it is certainly not the fate you wish upon yourself. However, it is important to consider your business from all angles before making any rash decisions, so you should learn about the ins and outs of bankruptcy in Brazil.
In 2005, the bankruptcy laws in Brazil actually changed. Before 2005, the law stated that in the event of a business going bankrupt, all employees and taxes had to be paid with the company’s assets first before the creditors received the amount that they were owed. While this was great for employees, it often left creditors with nothing, and they were therefore less likely to give out loans to new businesses. Fortunately under the new law, employees are still paid first, up to a maximum of 100 salaries, but certain creditors are paid in full before taxes. Other changes to the bankruptcy law include:
- A restructuring of debts outside the court
- Faster access to collateral for creditors
- Committees of creditors that help with decision-making
Bankruptcy laws are not only for times when companies go out of business. Under the current bankruptcy law in Brazil, three proceedings are covered:
- Bankruptcy – The first proceeding covered under the Brazilian laws of bankruptcy is the actual process of liquidating a company’s assets so that they can pay off its debts. This involves selling all property and goods to meet the debt’s requirements. Debts can be those owed to employees, tax collectors, and creditors.
- Court-Ordered Restructuring – In this proceeding of bankruptcy, the court is supposed to help the company restructure its debts so that the business can carry on successfully. It requires a judge’s approval and it is only used when companies have been in business for at least two years.
- Extra-Judicial Restructuring – While this form negotiation still as to be approved by courts, it involves a private negotiation between the debtor and the creditor. It is the process of rearranging debts so that they can be met without putting the company out of business. After approval, the debtor and creditor are on their own, but if either party falters in their agreement it will again be in the hands of the judge.
Seeking legal assistance
Bankruptcy laws in Brazil were originally created in 1945 but have recently been rewritten to ensure that creditors are protected. When creditors are protected, they are more likely to give loans to new businesses, which allows the economic landscape of Brazil to flourish. If you are considering opening a business in Brazil, you should understand bankruptcy laws before you take out any loans, just in case you have any trouble paying them back. You should also consider speaking with a professional about bankruptcy so that you leave no stone left unturned in your research.