25 OCT 2015, 07:24
Results of the financial crisis
An economic crisis has as one of its effects increased the default rate. Without getting paid, companies break down. While in judicial recovery, the Justice seeks to organize the debts and guarantee the reimbursement of the creditors. In this niche, standstill agreements – a modality of contract that aims at bringing creditors together and postponing charges in order to guarantee the payment of debts – has gained space.
This March, the banks Bradesco, Itaú, Santander, Banco do Brasil, HSBC, and Banco ABC organized and merged all the unpaid debts they had with Construtora UTC (an engineering company) in a package of BRL 1.2 billion to renegotiate the debt. At the end of that month, they signed with the company a standstill agreement, so that the due date of the debts was extended.
Guilherme Forbes, a lawyer who specializes in project finance at Stocche Forbes, explains that a standstill agreement is a formal contract in which creditors agree not to take action against the debtor company until the presentation of the proposal to pay off such debts. “Once the agreement is made, the contract is signed by the creditors and exists as a contractual obligation,” he explains.
Forbes points out that for the agreement to reach its goal, it is necessary to have good faith and mutual trust among the lenders, so that none of them exists unilaterally. “The key is to bring 100% of the creditors into the agreement. If that quorum is not reached, the creditors are exposed to the minority who can act alone to the detriment of creditors who agree to sign the standstill agreement”, he says.
Bruno D. Chiaradia, lawyer at Bernardi & Schnapp, says that the advantage of the agreement is the reduced risk of defaulting, as “the creditor sees a palpable possibility of paying later, which they understand as being more advantageous than starting a judicial battle”.
Bernardi & Schnapp’s lawyer also explains that the legal bases used in the standstill agreements are the civil laws, mainly the Civil Code. Forbes adds that in his firm, the teams dealing with such cases are multidisciplinary. “The working groups are made of insolvency professionals along with professionals in the area of finance (Banking Law, project finance, among others).”
Due to the financial crisis, the demand for standstill agreements has increased, granting the debt settlement mechanism an unprecedented character. Both Guilherme Forbes and Bruno Chiaradia say that demand for such contract in their law firms has increased. “We have been much sought after by the big banks to act in debt restructuring processes outside the scope of Judicial Recovery, and in this process, the standstill agreement is an instrument that comes up as a possibility”, says Forbes. Chiaradia began to notice the standstill agreements after the intensification of judicial recovery proceedings. “Because of the crises of 2008 and now, as well as the faculty of judicial recovery from 2005, it naturally became more bulky.”
Written By Marcos de Vasconcellos and Brenno Grillo