Brazil has an almost dizzyingly complex legal system that can be intimidating or prohibitive when seeking collection of debt through litigation. For this reason, our team of trained professionals prefers to make amicable contact with Brazil’s debtors and collect the debt without going to court. This saves clients time, money, and ample frustration.
1.1 The Amicable Phase
1.1.1 General Information
It is the policy of Accounts Receivable Brazil to adhere to a high level of professionalism throughout the entire debt collection process. Our focus is primarily on establishing a healthy and amicable relationship between the clients we represent and the debtors that our clients are pursuing. This is done by our in-house team of collection specialists, who are uniquely able to carry out the entire collection process in-house. There is no need to outsource our collection procedures to other companies or organizations within Brazil, leading to a much more efficient and results-driven process.
Our team of professional collections staff will pursue clients both orally and in writing. They are charged with a strict adherence to Brazil’s federal laws, as well as the laws governing each of the country’s individual states.
1.1.2 Local Agent Services and Visits
Accounts Receivable Brazil maintains a small group of field service agents who are capable of visiting debtors located in certain areas of the country. Currently, our agents are able to visit debtors in the greater Sao Paulo metropolitan area as a complimentary service. If our client wishes to reach a debtor outside of the Sao Paolo area, and needs one of our field service agents to visit the debtor, those costs will be charged to the client and must be covered by them. It is our policy to keep travel costs as low as we can, however, so that our clients’ costs can be controlled.
It is the policy of Accounts Receivable Brazil to charge interest on every debt that we are responsible for collecting within the country. This is permissible under Brazilian law; our interest rate uses the current applicable rate charged to Brazilian debts, plus an additional amount not exceeding 2 percent of the total debt’s amount. Currently, Brazilian regulations allow for charging a maximum of 1 percent interest on the debt, plus our 2 percent fee that will be compounded on top of that amount. That additional amount can only be applied once, and can only be utilized in the case of late payment.
In some cases, our clients may be responsible for paying an even higher interest rate to their financial institution. If this is the case, Accounts Receivable Brazil will work to verify the higher interest rate with the bank in question. Once we have verified the interest rate, we can apply it to the debt in the event of any legal action pursued to recover its full amount.
Culturally, debtors throughout Brazil are accustomed to paying interest because of late payments. The amount of that interest, however, is commonly considered a point of negotiation that can be used to encourage the debtor to make the debt current and satisfy their financial obligation to our client.
1.1.4 Debt collection costs
Debtors in Brazil can be charged the full cost of collecting their debt. This amount is equal the claim of late payment damage filed by the creditor. It should also be noted that Accounts Receivable Brazil is only able to charge full recovery and collection costs to the debtor if that same right is also granted to the debtor who we are pursuing. There are no current limits on how much may be charged to compensate for collection costs, but judges typically fix an amount between 1 percent and 20 percent of the outstanding debt as being sufficient to cover the creditor’s expenses for our services.
This, again, is something that Brazilian debtors are used to paying. Like the interest rate charged on debt, however, the costs of collecting a debt are considered negotiable. Accounts Receivable Brazil can use this to encourage the debtor to satisfy their obligation, based on the company’s needs and stipulations.
1.2 Legal Procedures in Brazil
1.2.1 General Information
Brazil employs a dual legal system that utilizes both civil law and common law. Civil law has precedent over common law practices and procedures, however. Most of Brazil’s laws and regulations are codified, though key parts of commercial legislation are non-codified. In fact, those non-codified statutes and regulations represent a key part of the Brazilian legal system. Furthermore, each of Brazil’s states and municipalities runs its own judicial system with its own laws, regulations, and codified statutes. The country deals with the first instance of all civil cases by utilizing a Justice of the Peace. Commercial matters, between two companies or a company and an individual, are dealt with through the Magisterial Courts. Those cases are assigned to a local magistrate who will oversee the case. Any decision made in a state or municipal court can be appealed to the country’s federal court system by either the client or the debtor being pursued.
1.2.2 Required documentation for legal proceedings
Brazil requires a large number of documents before a legal proceeding can begin at the municipal, state, or federal level:
- Copies of the contract stipulating payment or repayment
- Copies of any invoices pertaining to the debt
- Account statements that are used to verify payments made, as well as any credits placed on the account by the creditor
- Any available purchase orders
- A Power of Attorney document that has ben signed by the client
- Proof of the contractual relationship between all involved parties should be made available, if relevant, by the client
- Those documents that are not written in Portuguese will need to be translated into the country’s language and verified by a proper official before they can be used
1.2.3 Brazil’s Legal dunning procedure (known as “Protesto”)
The legal dunning procedure in Brazil is commonly referred to as “Protesto,” and it can only be pursued when the debtor has been traced and located. The country’s state or municipal courts handle this process. In most cases, legal dunning is pursued by the Justice of the Peace or the Magistrate located nearest to the debtor’s current address.
A court order must be obtained during the legal dunning process if the client wishes to eventually achieve an enforceable judgment against the debt that will help them collect the amount they are owed. This court order must be served to the debtor, and it must be served within the time frame stipulated by Brazil’s civil process law. This is why locating and tracing the debtor is so important.
Upon being served with the court order, the debtor has the right to appeal during both stages of the process. This would turn the legal dunning process into a standard lawsuit for our client.
If amicable collection has stalled or failed completely, the lawsuit procedure can begin. The process of filing a lawsuit can also begin if the debtor has disputed the validity of any action taken against them, or believes that the debt is inaccurate.
Brazil’s lawsuits can proceed in three distinct ways under the country’s existing legal code. The proper procedure will depend on any supporting documents offered by both the debtor and the creditor who is attempting to collect the debt.
1.2.5 Costs associated with the legal system
In Brazil, any costs associated with a civil law procedure are charged to the party who is deemed to have lost the case itself. The judge who decides the outcome of the lawsuit will also be responsible for determining the amount of court costs that should be charged to the losing party. Typically, this amount ranges from 10 percent to 20 percent of the amount of the debt that was decided by the lawsuit. Witnesses and any experts who are called during the lawsuit will represent an additional expense, and the cost for these essential parts of the legal procedure will be estimated when they are required. The cost and utility of witnesses or experts is decided on a case-by-case basis.
1.2.6 Average timeframe of legal proceedings
As is the case in virtually any country where a debt is owned, the length of a lawsuit will depend on the complexity of the case itself. The duration of the case will also depend heavily on the availability of the judge and lawyers involved. Generally speaking, clients can expect legal action to last at least a few months, with the most complex legal proceedings taking several years to complete.
1.2.7 Interest and other costs associated with the legal phase
Any interest accrued outside of court, as well as any fees added to a debt before or during the lawsuit, can be claimed by the creditor as an outstanding balance during the legal process. Brazil regulates a legal interest rate of 1 percent per month that can be applied to the debt while it remains outstanding. There is no legal limit that regulates how much can be charged in order to compensate for any legal costs incurred by either party.
During the case, the judge will decide how much of the debt’s total amount can be used to claim legal costs. This amount can be determined as low as 1 percent, or as high as 20 percent of the debtor’s outstanding balance upon the completion of the case. If a settlement is reached, both the debtor and creditor will bear the cost of any legal fees incurred, regardless of the actual outcome of the settlement itself.
1.3 Insolvency Proceedings
The goal of filing for insolvency in Brazil is to achieve situation where creditors can be paid an equal percentage of the filer’s outstanding debts. This is typically done by liquidating the debtor’s assets, including the assets of a company if the company is insolvent. It can also be done by collecting any enforceable income of an individual debtor who has been declared bankrupt by the proceedings.
Brazil usually pursues one of three types of insolvency proceedings:
- Preventive reorganization
- Suspensive reorganization
After the debtor or creditor has filed for insolvency of the debtor, Brazil’s insolvency code mandates that a preliminary liquidator be appointed to the case. The job if the preliminary liquidator is to determine whether or not sufficient assets exist to cover the full cost of the proceedings, including court costs and the costs associated with the liquidator handling the matter.
If the liquidator has determined that there are sufficient assets to cover these costs, insolvency proceedings begin immediately and a new preliminary liquidator will be appointed to handle the case. A court reserves the right to reject a declaration of bankruptcy if this procedure is not followed as prescribed. Once the insolvency process begins, creditors are able to lodge a claim against the debtor’s assets and reclaim any goods that were delivered to the debtor but were not paid for under ROT, or retention of title. Liquidators will decide whether goods in stock should be paid for using their original price. If not, they’ll be returned. A deadline for lodging claims is established when insolvency proceedings begin.
The appointed preliminary liquidator can accept the debt or dispute its accuracy. If a claim is disputed, the creditor will need to file a claim in court to prove its validity. The debtor, or the debtor’s company, will be required to pay priority creditors first, with a deadline of two years typically set by Brazilian law.
1.3.3 Required documents
Brazilian courts require the following documents to be provided before any claim can be filed:
- Original copy of the Power of Attorney declaration
- Copies of contracts
- Copies of invoices
- Copies of conditions of sales, if relevant to the case
- Copies of any orders, deliveries, or other confirmations, if relevant
- Copies of any correspondence relative to the claim that might help verify its validity
1.3.4 Expected timeframe and outcome
The deadline to lodge claims in Brazil is typically between one and three months. The deadline is related to the specific type of insolvency case that is being pursed by the debtor and the relevant legal authorities.
Insolvency proceedings in Brazil are not short. On average, they last a minimum of ten years and can last as long as ten years during the biggest and most complex cases brought before the courts.To get started today, call us at321-710-3530 to speak with an associate