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Enforcement against Partners of Companies in Judicial Recovery: An Analysis Before Labor Courts

November 13, 2024

Recently, the Superior Labor Court (TST) ruled on the possibility of redirecting enforcement actions against partners of companies undergoing judicial recovery to settle credits arising from labor claims. This decision is an important milestone in labor law. Naturally, this is a controversial issue, with differences of opinion arising from the constant conflicts between the rights of labor creditors and the protection regime offered to companies undergoing judicial recovery.

Provided for in Law No. 11,101/2005, the judicial recovery procedure aims to provide companies in economic crisis with the necessary means to restructure their debts, avoiding bankruptcy. This is an essential process for preserving the company's social function, ensuring the maintenance of economic activity, jobs and tax collection.

Once the judicial recovery process has been approved, individual executions against the business corporation are suspended for a period of 180 days, extendable once, the so-called stay period. This suspension is essential for the restructuring of business activity, as it allows the company to organize its recovery plan without the pressure of immediate judicial executions, facilitating its preparation and approval. Once approved, the credits are renewed and paid in accordance with the provisions contained in the plan.

The big question surrounding this issue is whether labor creditors, whose claims are of a food nature and have legal priority, can redirect the execution to the partners' personal assets. The understanding that has been consolidating in the TST provides for the possibility of redirection when the assets of the debtor are not sufficient to pay the labor debts.

The TST, by admitting the possibility of enforcement against the partners of a company undergoing judicial recovery, is moving towards consolidating an understanding that is beneficial to workers, but dangerous to business partners. The main question raised is the following: even with the company protected by the judicial recovery regime, can labor obligations be disregarded?

The Court recognized the priority of payment of labor credits, admitting the possibility of execution against the partners of the business corporation when the latter does not have sufficient assets to settle its debts with former employees, even if it has limited liability. According to the Court, this understanding is based on the food nature of labor credits, which guarantees these creditors priority in receiving amounts.

This decision directly impacts both the legal security of labor creditors and the theory of business risk, as it increases it. For workers, the decision is received as a victory, as it increases the possibility of receiving severance pay more quickly compared to the form of payment within judicial recovery, especially when the company under recovery does not have the capital to immediately pay off the debt.

For business owners, however, the decision raises a point of concern. Holding partners of limited liability companies liable for labor debts during judicial recovery will certainly be an additional risk. By allowing direct execution over the personal assets of partners, the TST decision creates vulnerability, especially for those seeking to use judicial recovery as a tool for business reorganization.

This scenario may lead to greater caution on the part of partners in companies in difficulty, since the asset protection offered by judicial recovery does not fully extend to their personal assets. The measure tends to strengthen the protection of workers, ensuring them a greater guarantee of receiving their credits, even in companies undergoing recovery.

On the other hand, the decision also places a new responsibility on the partners, who must be aware of the practical implications of this understanding, which will bring new challenges and risks to the already adverse business environment. It is essential that the criteria for applying this decision are well defined, in order to avoid abuse and ensure greater legal certainty, in order to protect both the employees and the purpose of the judicial recovery itself.

This communication, which we believe may be of interest to our customers and friends of the company, is intended for general information only. It is not a complete analysis of the matters presented and should not be considered legal advice. In some jurisdictions, this may be considered lawyer advertising. Please see the company's privacy notice for more details.

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