By: Vitor Ferrari and Ivan Kubala

In order to protect economic activity, job creation and the social function of companies, the legislator chose to create means of protection for companies undergoing recovery that are in economic difficulties and also to ensure that their creditors receive what is rightfully theirs. Among these, the Judicial Recovery process was created, provided for in Law 11.101/05.

During a judicial recovery process, the indebted company (under recovery) must prepare a judicial recovery plan in which it describes the means by which it will pay off creditors' debts. It should be noted that the purpose of Judicial Recovery is to rebuild the economic activity of the company under recovery through its own assets. Therefore, only its assets will be affected by the process.

Therefore, even if the amounts obtained from the company's assets are less than what is necessary to cover the credits, there is no reason to use the Disregard of the Legal Personality of the company under recovery to reach the assets of the company's partners so that the creditors are paid in full. So much so that the law itself that deals with the judicial recovery process does not provide for this possibility, although many creditors demand it as compensation.

According to the Civil Code, if the abuse of legal personality is confirmed, characterized by the deviation of purpose, by patrimonial confusion or even fraud against creditors, the judge may, at the request of the parties, or even of the Public Prosecutor's Office, when it is up to him to intervene in the process, and thus disregard it so that the effects of certain relationships are extended to the private assets of administrators or partners of the legal entity benefiting from the abuse..

However, as already mentioned, this institute does not apply to the judicial recovery procedure, which is different from those provided for in the Civil Code. Within the judicial recovery and bankruptcy law there are a series of mechanisms to combat bad faith practices that may be committed by administrators.

If abuse of the legal personality of the company under recovery is proven, the legal veil of the company will not be removed so that the civil institute of disregard of the legal personality can be applied. In reality, each fraudulent partner will be held liable for the crimes provided for in the Law on Judicial Recovery and Bankruptcy. Therefore, a civil institute is not applied to punish them, but rather one from Criminal Law, even if their assets are not directly affected.

It is understood, therefore, although it is a point often raised in Judicial Recovery processes, this institute does not involve the Disregard of the Legal Personality of the partners of the recovering company since their objectives are completely conflicting. 

With the collaboration of Luis Felipe Simões