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Covid-19 could push over 2,500 Brazilian companies close to bankruptcy, says study

. Apr 22, 2020
The financial constraints caused by the Covid-19 pandemic could lead an unprecedented level of companies to the brink of bankruptcy, according to a study by consultancy firm Alvarez & Marsal, published by newspaper O Estado de S. Paulo.

The financial constraints caused by the Covid-19 pandemic could lead an unprecedented level of companies to the brink of bankruptcy, according to a study by consultancy firm Alvarez & Marsal, published by newspaper O Estado de S. Paulo.   

The company verified a correlation between the number of requests for court-supervised recovery — companies’ final recourse before bankruptcy — and GDP performance in Brazil. With the International Monetary Fund predicting a 5-percent contraction for Brazil in 2020, they estimate that more than 2,500 domestic companies may be forced to turn to the courts to avoid liquidation. 

If confirmed, that would be 40 percent above the yearly record of 1,800 requests in 2016, when the country’s GDP fell by 3.5 percent. However, even if the recession is less severe, companies that weren’t able to fully recover from the 2015-2016 crisis are set to suffer: a 1.5 percent GDP drop could lead to 2,100 requests, according to the study. “The companies that survived the last crisis managed to reinvent themselves but they don’t have enough cash flow to support a long stoppage,” said Leonardo Coelho, Alvarez & Marsal’s director of reorganizations.

As we reported in our March 26 story, the justice system is already expecting a legal collapse similar to what is being seen in Brazil’s hospitals. With several cases set to arrive in a short space of time, courts are unlikely to be able to cover the demand. 

 
Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Before joining The Brazilian Report, she worked as an editor for Trading News, the information division from the TradersClub investor community.

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