Bankruptcy Costs of Brazilian Bankruptcy Law Compared to International Studies

Abstract

This study aims to investigate which are the costs involved in bankruptcy and reorganization procedures conducted under Brazilian bankruptcy law, as compared to other studies identified. Such analysis will be made through the identification, classification and measurement of direct and indirect costs to the parties of these proceedings (debtor, creditors). Based on the data obtained and the considerations already made, it can be said that the application of the Brazilian bankruptcy law is costly and slow. Regarding the bankruptcy, the time and the way resources are allocated compromise the purpose of the law, which is to reimburse creditors. Regarding reorganization, despite its higher credit recovery rate, the direct costs incurred in this proceeding may consume 25% of the company’s initial asset and indirect costs incurred by this company may compromise its financial viability. In the sample of this study, 14% of reorganization proceedings were converted into bankruptcy, which may indicate the difficulty in following the reorganization plan and overcoming the crisis.