Cesar Peres Dulac Müller logo

CPDMA BLOG

Category:
Date: 17 de July de 2023
Posted by: CPDMA Team

Exit financing: the unexplored option in Brazilian judicial reorganization

exit financing 1

The exit financing: is a financial strategy widely used in developed markets, such as the United States and Europe. However, in Brazil, this practice is still little explored or even known [1].

The term exit financing: refers to a form of financing provided to companies in the process of judicial reorganization, after the protection guaranteed by the stay period. This financing is often used to enable the creditor to pay the competing claims in accordance with the approved plan, enabling the closure of the judicial reorganization process.

The exit financing: can also be an alternative for the lender of a company in crisis whose credit is in default. In this case, the lender agrees to grant another loan that can be used to pay off the previously granted credit or other credits that, if defaulted, could lead the company to bankruptcy. This option is often more cost-effective in the long run for creditors than filing for bankruptcy or selling the assets to a third party, which could result in lower-than-market auction values.

Compared to DIP Financing, o exit financing: may involve a higher value and greater risks for the funder. This is because the exit financing: may imply the payment of all debts renegotiated in the reorganization plan, even if the deadline provided for in Article 61 of the Civil Code has not elapsed. Law 11.101/05.

For the company in a crisis situation, there are several benefits in the exit financing:It will be able to save the procedural costs of the judicial reorganization process, centralize its payments with one or a few creditors, reducing the costs of carrying its liabilities and the need to negotiate with unsophisticated creditors. In addition, it no longer uses the expression in Judicial Recovery next to your name, which helps your reputation in the market.

For creditors, the advantage lies in immediately receiving the amount renegotiated in the plan, reducing the risk of future defaults and the need to liquidate assets in the event of a bankruptcy decree, which would possibly result in even greater losses.

The only drawback of such a strategy lies in the lack of legal incentives for the lender, since its claim will not be treated as extra-conscursial in the event of the company's bankruptcy, as the judicial reorganization will have been terminated. Therefore, the exit financing: should have contractual mechanisms in place to protect against these risks, such as the provision of covenantsfinancial. In addition, it will be essential to negotiate with creditors excluded from the reorganization to prevent them from using the termination of the judicial reorganization as an opportunity to try to expropriate the assets of the company in crisis.

As indicated earlier, the exit financing: is a concept still little explored in Brazil, but it has the potential to transform the judicial reorganization process in the country. Despite the challenges, the evolution of judicial understanding and the need for solutions for companies in reorganization indicate a promising future for the concept. exit financing: in Brazilian law. Thus, it is essential that entrepreneurs and lawyers understand and exploit this financial resource so that it can be used effectively and safely.

By: Álvaro Scarpellini Campos

Special Situations | CPDMA Team

[1] On the subject: DIAS, Leonardo Adriano Ribeiro. Financing in Judicial Reorganization and Bankruptcy. São Paulo: Quartier Latin, 2014.

Return

Recent posts

Misuse of a trademark by a former partner can be recognized not only as unfair competition, but also as bad faith.

On February 14, the newspaper "Valor Econômico" published an article in which it was pointed out that the São Paulo Court of Justice had recognized unfair competition in the improper use of a trademark by a former partner. The article, however, does not give the number of the case in which it would be possible to analyze more details of the decision, but it does inform that the individuals had signed a [...]

Read more
The first sanctions applied by the National Agency for the Protection of Personal Data (ANPD) were a wake-up call for companies: the LGPD is a serious law and must be complied with.

The General Personal Data Protection Law - Law No. 13,709/18 (LGPD) was published in 2018 and came into force in 2020. This deadline was given to public and private legal entities (processing agents) that collect, store or process the personal data of individuals, in Brazil or abroad, in order to [...]

Read more
Business position on the recent STF decision that ruled that it is constitutional for trade unions to charge assistance contributions

Recently, the Federal Supreme Court (STF) unanimously ruled that unions can collect an assistance contribution, including from non-member employees, in ARE 1.18.459 (Topic 935 of the General Repercussion), as long as the worker is guaranteed the right to object, establishing the following thesis: "it is constitutional to establish, by agreement or [...]

Read more
The new chapter in the legal dispute involving the term "HELLES", registered as a 'trademark'.

Recalling the case... It all started at the beginning of 2019, when the brewery Fassbier gave extrajudicial notice to a series of breweries in Rio Grande do Sul for the alleged misuse of the term HELLES, claiming to have exclusive use of the expression, given that the word was registered as a trademark. Not satisfied with [...]

Read more
Suspension of labor executions against companies in the same economic group

In a recent decision, the STF suspended the processing of labor executions that discuss the inclusion, in the execution phase, of a company that is part of an economic group that did not participate in the knowledge process. In labor proceedings, when the execution phase is reached and the main debtor does not have enough assets to pay the debt, many [...]

Read more
STJ decides that the legal personality of a civil association can be disregarded, but limits liability to the directors

The 3rd Panel of the Superior Court of Justice (STJ) [1] dismissed a special appeal filed by the directors of a civil association, which had its legal personality disregarded in a case involving the improper use of a trademark. The Court, in a judgment drafted by Justice Marco Aurélio Belizze, held that the disregard of [...]

Read more
crossmenuchevron-down
en_USEnglish
linkedin Facebook pinterest youtube lol twitter Instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter Instagram