Oi's judicial recovery: plaster on a necrotic leg does not cure, it just postpones the inevitable

Placing a leg in a cast makes sense when there is a fracture that can be healed with immobilization. When the diagnosis requires amputation, placing a layer of plaster takes the problem out of sight, while the situation worsens.

Likewise, the institute of judicial recovery, introduced in Brazil in 2005, serves to help reorganize a company's accounts and operations, not to postpone its bankruptcy while consuming the assets that could pay its creditors. At the end of the day, it's literally about transparency about the diagnosis and chosen treatment.

Those who follow the economic news have seen, in recent days, the former telephone giant Oi remove the plaster cast from an already necrotic leg. On August 25, the Rio Court confirmed the bankruptcy declared in November 2025.

The company impressively went through two judicial recoveries. The first began in 2016 and ended in December 2022. The new request came in March 2023. In the first, it indicated debts of approximately R$65 billion. In the second, around R$44 billion.

During the two processes, it sold the mobile operation, control of the fiber infrastructure and the pay TV unit. The money made it possible to pay some creditors. But paying part of the debt does not mean recovering the business.

Selling an asset produces cash once and can reduce expenses. At the same time, it can eliminate sources of revenue. The outcome depends on the ability of the remaining operation to sustain the obligations that survived the sale. In the case of Oi, the reorganization did not deliver autonomy.

In July, judicial management reported that cash availability projected for the end of that month had fallen from R$88.1 million to R$19.6 million. He warned that the amount could make the operation unsustainable from August onwards.

The economic test to justify the continuation of a recovery should compare the value preserved by the operation with that which could be recovered by a sale or liquidation of assets. It is not enough to show that the company can reach the next month. It needs to offer a better perspective than simply selling assets to pay off debt.

The Brazilian scenario of expensive credit makes this examination even more necessary. We are experiencing a record number of companies undergoing judicial recovery. High interest rates can make a previously manageable debt structure unsustainable. This makes the distinction between a company suffocated by financing more urgent and another whose business is no longer sustainable and wants to choose the creditors who will receive a share of the booty. The first may need time. The second has an enemy on the clock.

For stock market investors, the word "recovery" can lead to false security. But it describes an attempt, not a certification that the company will become viable again. Buying the share requires evaluating the business that will remain and the portion of it that will still belong to the investor, not just betting on the closure of a process.

Oi showed the distance between these two things. The plaster is not a certificate of cure. And, for those who buy shares waiting for the company to get back on its feet, the decisive question is not how long it will remain standing, but what will be left when the protection is removed.