05/12/2024
It is not uncommon for financial difficulties to arise during the course of business. In some cases, these challenges put the company’s economic viability at risk. To avoid bankruptcy, a request for judicial reorganization is permitted, a measure that has been increasingly employed in Brazil.
In recent years, the country has seen a significant rise in judicial reorganization requests, having more than 4,000 companies currently in this situation[1]. This scenario sparks discussions on ways to improve and speed up the judicial reorganization process, such as the use of mediation.
The consensual method of conflict resolution was reinforced in Brazilian law several years ago, marked by the enactment of the Mediation Law, the 2015 Civil Procedure Code, and other dispersed legal norms.
In the context of judicial reorganization, Law n. 14.112/2020 introduced Section II-A to the Judicial Reorganization and Bankruptcy Law, addressing the use of mediation either as a preliminary or incidental measure to judicial reorganization, thereby establishing the possibility of mediating disputes at any stage of the jurisdictional process.
As a result, mediation has gained prominence in the judicial reorganization field, becoming a valuable tool for companies in distress, as it enables sensitive issues between debtors and creditors to be handled neutrally, empathetically, and confidentially, helping to prevent media speculation about insolvency.
The intervention of a mediator, acting as an impartial entity, brings objectivity to negotiations, organizes dialogue between the parties, fosters trust, and helps to balance biases. This third party can assist in creating consensual solutions, which, in addition to preserving relationships among the parties involved, can enhance the pace of the debtor’s restructuring.
However, despite the clear benefits of mediation in the context of judicial reorganization, it remains underutilized due to cultural and institutional barriers that limit its application in insolvency proceedings. Therefore, it is of greatest importance to encourage professionals that work in the field to adopt this technique.
It is crucial, however, to have strategic and effective legal counsel to ensure that all available methods for aiding the debtor’s restructuring are properly deployed. The Dispute Resolution team at L.O. Baptista has extensive experience in mediation and is available to assist clients in evaluating the best strategies for tackling insolvency-related procedures.
[1] According to a survey conducted by RGF Consultoria, in the third quarter of 2024, Brazil had 4.408 companies under Judicial Reorganization – https://rgfassociados.com/monitores-rgf/.
Co-authored by: Silvia Rodrigues Pachikoski, Mariana Dias Sallowicz, Gabriel Rogenfisch Quintans, José Victor Palazzi Zakia and Julia Guimarães Rosseto
