The topic of the moment in the financial market is called extrajudicial recovery. After GPA (Grupo Pão de Açúcar) announced an agreement with 46% of its creditors for debt restructuring, this Wednesday (11), it was time for Raízen – – ask the market for time to catch its breath from the debt of R$65.1 billion.
This measure, although common and widely seen in retail companies, can cause some confusion among non-professional creditors, who invest in shares in these companies.
Yes, extrajudicial recovery may indicate a difficult time financially for the company, but it is also not a big deal and does not mean that the company is about to go bankrupt – unlike some cases of judicial recovery.
The difference in the two terms is minimal but, in practice, one has nothing to do with the other.
What is a judicial recovery
Before understanding how the measures taken by GPA and Raízen work, it is important to understand, within the legal sphere, how judicial recoveries work.
This is a legal instrument used by companies that are close to bankruptcy.
For this purpose, there is Law No. 11,101/2005, which guarantees companies the right to overcome their financial difficulties without having to undergo immediate asset liquidation.
From the moment a company identifies that it will need to take action, it must request the need from a judge who, in turn, will approve or not the continuation of the measure.
After release, the company must carry out a recovery plan with deadlines and conditions for paying the debt and present it to creditors. If approved by more than 60% of creditors, the judicial recovery process begins.
The necessary requirements for this action are:
- Documentation proving the company’s financial situation;
- Detailed recovery plan;
- Projection of future cash flow to pay debts.
Some famous cases of judicial recovery include
Other companies, such as Gol and Azul airlines, even went outside of Brazil, in the United States, to use the same mechanism: the famous Chapter 11.
What is an extrajudicial recovery
Now that the definition of judicial recovery has been made, it is very simple to understand what an extrajudicial recovery is just based on the etymology of the word.
An extrajudicial recovery is one that does not need to go through the judiciary to happen, that is, no judge is called. Still, the company must put together a recovery plan to present to its creditors and, if accepted, debt restructuring takes place.
Ana Paula Tozzi, CEO of AGR Consultores, explains that a extrajudicial recovery it is a step before the judicial one. In other words, this measure is normally the first option for companies that are in debt and still far from bankruptcy.
“Judicial recovery is a much more complex rite. It always needs to have an intervenor and a space for legal protection. Extrajudicial recovery, in turn, aims to reach an agreement between the main creditors to restructure the debt”, he explains.
In the view of Daniela Correa, a lawyer specializing in Business Law, the measure is positive, as it tends to preserve the company and its operations. The expert explains that filing for extrajudicial recovery does not mean that the company will have its activities inoperative.
Therefore, the tendency, according to the lawyer, is for everything to remain the same in the operations of both companies, even if they are in the process of debt restructuring.
Arthur Horta, partner at Link Investimentos, adds that the decision taken by GPA and Raízen is a much more flexible, agile and friendly direct negotiation between companies and creditors, and is usually well received by the market. “In most cases it is positive, because the company will have cash flow,” he says.
and that several scenarios could happen over the next few months. “It’s not a death sentence, on the contrary, it’s a formal request for time on the market”, concludes the expert.
