By Antonio Carlos C. Mazzuco, Andre Jerusalmy and Vitor Antony Ferrari
Given the scenario created by the crisis imposed by COVID-19 in all countries, affecting all world economies in an unprecedented way, closing nations and forcing consumers, producers, investors and all their employees to take refuge in quarantine in a way never seen before, drastic measures by business leaders become essential, regardless of economic measures determined by governments.
Evidently, the control and preservation of companies' cash flow, the renegotiation of their debts and the due and necessary attention to their employees must be prioritized in this time of uncertainty, aiming at the maintenance of the company and a rapid resumption of operations after the pandemic outbreak has been overcome.
Companies and business activities are true social institutions in which diverse interests come together: the company's profit; wages (of a clearly food-related nature) and the maintenance of workers; supplier credits; the movement of wealth between people, the generation of jobs and the consequent collection of taxes by the tax authorities.
In this time of uncertainty, as in many others already experienced in our country, the entrepreneur who adopts preventive measures and crisis containment invariably obtains an advantage when the market stabilizes, placing himself at a level of greater security, a fact that brings security to the activity itself, to his employees and creditors and guarantees the perpetuity of the business.
Today, therefore, it is clear that the continuity of business activities becomes unviable without the adoption of joint measures that, despite being bitter, have the sole and exclusive purpose of preserving companies.
Among the measures to be adopted, we highlight the essential renegotiation of contracts, especially those of a financial nature. We are facing an extraordinary event, which can be considered an “Act of God”, and many contracts provide for the possibility of renegotiation (or even early maturity) in the case of such acts. One of the methods used in such renegotiations (in fact widely used in recent years due to the financial difficulties of companies) was the extension of debts, either through contractual amendments or through the issuance of new debts, exchanging expensive debts, with high interest rates, for cheaper debts.
Another option, which in our opinion should be used in order to preserve companies, is Judicial or Extrajudicial Recovery, which, strictly speaking, aims to economically recover the company in crisis, ensuring it has the means necessary for its maintenance, with the strict objective of preserving its social function of generating value and economic movement.
Brazilian legislation allows companies whose activities have been disrupted due to the crisis the opportunity to demonstrate, through judicial and extrajudicial recovery procedures, that they have the conditions to emerge from the economic and financial crisis in which they find themselves, before failure to meet their financial commitments results in bankruptcy being declared.
Therefore, Judicial and Extrajudicial Recovery are characterized as instruments to align the interests of various creditors, being a procedure in which the entrepreneur (whether it is a business corporation or other forms of business organization) that is going through a financial crisis, seeks to obtain differentiated treatment from the Judiciary in view of the delay in fulfilling its financial obligations. The institutes of Judicial and Extrajudicial Recovery were created to protect the rights of creditors, to preserve the company, the employment of workers and the generation of wealth and movement in the market.
As mentioned above, the institutes of Judicial and Extrajudicial Recovery were created to allow the continuity of the activity of companies that are experiencing economic difficulties, but that have the possibility of recovery and overcoming the economic crisis experienced.
The choice between Judicial and Extrajudicial Recovery must be made based on a legal and financial risk assessment. It must be made on a case-by-case basis, but some issues may indicate the need for the judicial option, such as, for example, the harassment of creditors to the company's cash flow through restrictive measures such as seizure of current accounts and credits.
Ideally, therefore, business owners should anticipate a cash flow difficulty situation and seek to renegotiate their commitments in advance. In such cases, the Extrajudicial Recovery institute could be used.
It is worth noting that in the current scenario, not only large companies are affected, but also the entire wealth-generating conglomerate in the country, regardless of size or even economic sector. In view of this, the diversity of existing instruments for renegotiating commitments, efficient cash management and debt renegotiation tend to be widely used to readjust business activities to maintain and resume activities in light of the crisis that has already begun. Neither creditors nor the Judiciary can be oblivious to this reality.