Out of the Red

Aug 1, 2006

Brazil's new bankruptcy law offers hope for indebted companies trying to stay viable, and assurance for their creditors, too.

In June 2005, Brazil's new bankruptcy law went into effect, giving troubled companies fresh hope for recovery. While critics say the law increases costs for companies going through a restructuring and question whether it provides enough security to potential investors, the legislation substantially increases the chances that creditors will recover at least some unpaid debts. Likewise, the law provides more options to companies with temporary financial problems, offering a true possibility to exit bankruptcy protection and continue to operate. "The new law is without a doubt a step forward. Before this law, Brazil didn't really have bankruptcy legislation," says Thomas Felsberg, a partner at Felsberg Associados, a law firm in São Paulo. The bankruptcy law, which was stuck in Congress for over 11 years, replaces legislation passed in 1945. The previous legislation awarded companies a two-year moratorium on their debt, but gave creditors little voice in the restructuring process. Once...

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