Increasingly, the acquisition of court-ordered payment (government-backed judicial bonds) and distressed assets has been gaining traction in the country, as it is a transaction involving the purchase of judicial credits at a high discount with the potential for significant recovery gains.
On the other hand, there are risks related to liquidity, debtor insolvency, or legal disputes.
To avoid risks and secure gains, it is crucial to take certain precautions when acquiring court-ordered payment, especially when the objective is to use them to settle tax debts (either one’s own or those of third parties).
Below are some key precautions to observe when acquiring court-ordered payment, whether municipal, state, or federal:
1. The current stage of the court-ordered payment: First and foremost, it is essential to understand which stage the court-ordered payment is currently in, as the process begins with a final, unappealable judicial decision (res judicata) against a public entity (Federal, State, or Municipal government). Following the final decision, the execution and liquidation phase (enforcement of judgment) begins, during which the exact amount owed is calculated. Subsequently, the issuance phase takes place, where the judge issues the document so that it can be included in the public budget and enter the chronological payment queue. Navigating all of these stages takes time, which is why the discount rate applied to the acquisition of the court-ordered payment must factor in its current stage.
2. Analysis of the legal possibilities for utilizing court-ordered payment: Legislation may provide for the following ways to use court-ordered payment, which directly impacts their market value and the waiting time to receive the credits: (i) Offsetting credits originating from court-ordered payment in general against tax and non-tax liabilities; and (ii) “Direct Agreement” which is the early settlement of the court-ordered payment by the government in exchange for a discount. This option depends on a public call and typically applies a discount rate of 20% to 40%, depending on the value of the court-ordered payment. If there is legislation authorizing either of the situations above, it serves as an indicator that the court-ordered payment possess liquidity.
3. Analysis of the legal requirements for utilizing court-ordered payment: Beyond the mere possibility of using court-ordered payment, legislation usually outlines the specific requirements necessary for their utilization. Consequently, the court-ordered payment will only have actual liquidity if it meets these criteria.
4. Conduct a legal Due Diligence: Finally, once all the previous points have been analyzed, a thorough Due Diligence must be conducted to verify whether the credit actually exists, has market value, and has not yet been sold to third parties, in addition to evaluating other potential judicial issues.
The acquisition of court-ordered payment is an excellent alternative for settling your company’s tax debts or for diversifying and expanding your earning potential. However, this investment also involves risks that require careful attention.
