Debt Collection In Brazil

With the Brazilian economy in difficult times, customers and suppliers have reason to be concerned about the future performance by one or another business partner in Brazil. The most recent development in insolvency proceedings highlights the seriousness of the economic situation of many Brazilian companies: Within the first seven months of 2015 alone, 523 Brazilian companies have been declared bankrupt (regular insolvency) and 627 applied for of court-supervised restructuring proceedings. In contrast, 2014 saw in the same period "only" 427 and 476 cases respectively. It is hence cautiously estimated that there will be a total rise of between 20 - 35% in the number of companies that are insolvent or require judicial restructuring in 2015.

Among the currently increasing numbers rank well-known heavyweights of the Brazilian energy and construction industry, such as OAS, Schahin and Galvão Engenharia, which in recent months filed for insolvency and initiated judicial restructuring proceedings respectively as a result of being involved in the current Lava Jato investigation pertaining to the Petrobras bribery scandal. In addition, the majority of Brazilian-domiciled car manufacturers are drastically reducing their local production due to a slump in sales, which is causing more than a few of their suppliers to falter. What fits in with this picture is the fact that, , according to the credit check agency SERASA Experian, the Brazilian corporate default rate raised 12,9% in the first semester of this year compared to the corresponding prior year period. A similar deterioration tendency in payment behaviour has been observed by Euler Hermes. The latter predicts 68 days in the average Days Sales Outstanding (DSO) related to Brazilian listed companies for this year which means the increase of two more days in comparison to 2014.

In this difficult scenario, business partners of companies operating in the above-mentioned industries are at particular risk of their counterparts defaulting on claims for payment or performance either partially or even entirely. Suppliers and customers are therefore well-advised to concern themselves in advance with the settling and realisation of debts in the event that one of their Brazilian partners becomes insolvent. Christian Moritz, lawyer in São Paulo,* deals with important aspects of this topic in the following FAQs.

How will I find out about the insolvency of my Brazilian business partner?

At the latest, it will...