Brazil plans changes to bankruptcy law to help recovery: source

BRASILIA (Reuters) - Brazil plans to overhaul its bankruptcy law to help troubled companies survive a two-year recession that has led a record number of them to suspend debt payments, a senior member of the government’s economic team said on Tuesday.

Brazil's President Michel Temer, gestures during an interview with Reuters at his office in Brasilia, Brazil, January 16, 2017. REUTERS/Adriano Machado

President Michel Temer also plans to announce new measures next week to increase productivity and bolster the construction sector, said the official, who requested anonymity to speak freely.

The measures could also include creating a new income bracket for applicants of the government-backed home-ownership program known as “Minha Casa Minha Vida.”

Hamstrung by a crippling fiscal crisis, the Temer administration has relied on various measures to reduce the debt burden of consumers and companies struggling with country’s deepest recession on record.

Those measures, as well as other major reforms to the labor and pension legislations, could bolster potential growth to up to 4 percent a year from the current range of 2 percent to 2.5 percent, the official said.

A key legislative change involves relaxing the bankruptcy law to allow debt-laden companies to sell healthy assets without transferring part of the credit risk connected to them.

“The changes would give guarantees and viability to the recovery of these companies by, for example, facilitating the sale of assets,” said the official.

Bankers and lawyers expect bankruptcies to set a record in 2017, with tight credit and the lingering recession forcing a growing number of large Brazilian companies to seek protection from creditors.

A new bankruptcy law is part of the government’s push to improve the business climate. Other efforts include slashing red tape and simplifying the intricate tax system.

To increase his dwindling popularity, Temer in December unveiled measures to reduce credit card interest rates and allow workers to draw on severance fund accounts, known as FGTS.

Since taking office in May after the removal of his leftist predecessor, Dilma Rousseff, on mismanagement charges, Temer has struggled to revive an economy that not long ago was an emerging-market superstar.

The Brazilian economy is expected to grow a meager 0.5 percent in 2017 after shrinking more than 7 percent in the previous two years, according to a weekly central bank poll.

Additional reporting by Daniel Flynn, Maria Pia Palermo and Patricia Duarte; Editing by Lisa Von Ahn