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Debt Collection in Brazil

What’s going on in Brazil? Answer: quite a lot.

To begin with, it is the fifth largest country in the world, only slightly smaller than the United States, with more than 3,000,000 mi.² of territory. It has about 200 million people, and is an agricultural and energy powerhouse. A few years ago, it was being touted as a first rank trading partner for the world, and many exporters all over the world lined up to sell and do business there. The kindest thing that can be said about all this is that the results have not been good, for many exporters into Brazil.

There are a number of factors that are really negative. Most importantly: the main customer for exports out of Brazil is China, which is experiencing an economic slowdown of considerable proportion, and thus not importing as much from Brazil. Brazil suffers from enormous corruption, and now an ongoing scandal of colossal proportions in their petroleum industry, which has rocked the government and the industry, with dozens of prominent people being indicted for various forms of fraud. It is a very stratified society, with a wealthy business, professional, and political class, and a majority of the citizenry poor with left wing leanings. We are, at the moment, in the middle of a huge upheaval politically. Their currency has fallen in value severely.

But the worst thing about Brazil, from my standpoint as an international commercial law attorney, is the fact that their court system is abominable. To begin with, a foreign company filing suit to collect a debt is often met with a demand for the posting of a bond, varying in amount — depending on the particular judge — between 20% and 40% of the amount of the claim. If the bond is not posted, the claim will be dismissed. If the bond is posted, then you can look forward to years of unending delays, interlocutory appeals, and other delaying tactics. We know of one case, admittedly extreme, that took 19 years to get to judgment.

The practical approach to collecting a debt in Brazil is to avoid relying on suit, but to hit the ground running as soon as possible with local demand and local credit reporting by a Brazilian commercial law attorney. The creditor needs to remain flexible and realistic — your first loss is your best loss, usually.

Brazil used to have an investment credit rating for its government debt, but this has now been reduced to junk rating; the economy is seriously into recession; we hear statements like “you cannot just get money out of Brazil anymore” and the 2016 government budget calls for a financial transaction tax on currency exchanges and transfers.

Exporters beware.

Have questions about collecting a debt in Brazil?  Feel free to reach out to our office and we would be glad to assist you.

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William Victor Gruman