Judicial Recovery: Strategies to Get Your Business Back on Track

Many companies in Brazil are currently undergoing judicial reorganization, information that is always available to the public and is not a secret, and in fact is important for everyone to know.

But what does this mean and how can my business really recover from a loss? That's what we're going to learn today!

What is judicial recovery?

Judicial reorganization is a type of judicial measure taken in extreme cases, it is the last resort for a company on the verge of bankruptcy to save itself.

It is a legal process that aims to enable the financial restructuring of companies that are in economic and financial difficulties.

It is a legal alternative to avoid bankruptcy and seek to preserve business activity, protecting the interests of creditors and employees.

In Brazil, for example, the Judicial Recovery and Bankruptcy Law (Law No. 11.101/2005) establishes the rules and procedures for the judicial recovery of companies.

The first step is taken by the company, which must apply to the courts, giving reasons as to why the crisis is happening.

When this happens and if the request for judicial reorganization is accepted by the judge, collections and lawsuits relating to that company are suspended for at least 180 days.

At this point, a trustee is also appointed by the judge, who is responsible for overseeing the process and communicating with creditors.

Within 60 days of the judicial reorganization being accepted, the company has up to 60 days to submit a reorganization plan, with proposals for negotiating debts and how it intends to stay open.

Returning to the stage of applying for judicial reorganization, there are two paths: approval and rejection by the judge. In the case of approval, the process can end in up to 2 years or it can lead to bankruptcy if the company does not comply with the plan.

And when the request is rejected, the company declares bankruptcy or has to pay all its creditors.

During the judicial reorganization period, the company is protected against debt collection and enforcement actions, allowing it to negotiate with its creditors and organize itself financially.

The aim is to enable the company to re-establish its financial health, maintain its activities and preserve jobs.

However, judicial reorganization does not guarantee that the company will restructure and return to its normal activities.

Who asks for recovery?

Who can file for judicial reorganization according to the Law 11.101/2005 it's just the company that owes.

However, there are some companies that cannot make this type of request under the law, such as public companies, mixed-capital companies, public or private banks, insurance companies, health plans and many other types of companies.

In order to apply for judicial reorganization, the company must meet certain requirements in our country, such as being registered with the commercial board for at least two years.

Furthermore, this company must not have filed for judicial reorganization in the last five years for the current application to be possible.

Another requirement is that if the company has been bankrupt in the past, the bankruptcy proceedings must be extinct.

How to overcome judicial recovery?

Overcoming judicial reorganization can be a challenge, but with dedication, strategic planning and determination, it is possible to get your business back on its feet.

The first step is to assess the situation, make a complete analysis of how your business is currently doing, identify the main problems and challenges that need to be tackled.

When it is decided that this is the only way out, the company needs to file for judicial reorganization, and for you to be successful in the reorganization you need to comply with the restructuring plan.

If your company is going through judicial reorganization, it is essential to comply with the reorganization plan approved by the court.

This involves following the obligations set out in the plan, meeting deadlines and maintaining clear communication with creditors and other parties involved.

When this doesn't happen, creditors can file for bankruptcy for the debtor company.

And the strategies for getting your business back on its feet will start when you put together your judicial reorganization plan.

The plan must clearly define the objectives that the company intends to achieve through the judicial reorganization.

This can include reducing debtsfinancial restructuring, the resumption of growth, the strengthening of the competitive position in the market, among others.

The specific strategies to be adopted to achieve these objectives must be detailed, including cost-cutting measures, reorganization of operations, renegotiation of contracts, expansion into new markets, among others.

In addition, it is necessary to establish a plan for how creditors will be paid, which may involve renegotiating debts, extending terms, reducing interest and other alternatives.

Internal restructuring measures should also be included, such as reducing the number of employees, looking for new partnerships, diversifying products and services and reviewing the organizational structure.

The plan must present realistic financial projections that demonstrate the viability of the recovery.

This can include cash flow projections, income statements and balance sheets for the coming years, taking into account the changes implemented in the plan.

It is important to emphasize that each company and each process is unique, and the recovery plan must be adapted to the specific circumstances of each case.

The plan must be drawn up with the support of specialized professionals, such as lawyers, financial advisors and accountants, to ensure its consistency and compliance with the applicable legislation.

How long does judicial reorganization last?

Judicial reorganization involves several deadlines, starting with the 180-day suspension of lawsuits and proceedings.

There is also a deadline for submitting a judicial reorganization plan, which must be within 60 calendar days.

And as a rule, the process should take up to two years, but this is a period that can be extended if there is a need shown in the recovery plan.

And if the plan is not achieved and is not viable, the company has no choice but to file for bankruptcy.