Put Victor Antony Ferrari and Ivan Kubala – 30/06/2020

The Judicial Recovery Law provides numerous legitimate means for companies that use this tool to restructure themselves, preserving their activities and aiming to resume their growth in order to overcome the momentary economic and financial crisis in which they find themselves.

It is no coincidence that the legislation provides for an exemplary list of means for judicial recovery (article 50 of Law No. 11,101/05), enabling the debtor company to use the most varied strategies to overcome the crisis in which it finds itself, as long as the legal standards pertinent to each case are always observed.

Thus, we can cite as the most common examples the restructuring of debts through the implementation of deadlines, discounts and installments, changes in the company's management, payment in kind, suppression of guarantees, among others.

However, companies often also need to invest resources in their operations to promote and resume their activities, as well as to fulfill their obligations. However, given their status as a recovering company, they find it difficult to obtain the necessary capital through the most common means (bank loans), especially in the current situation in which the country finds itself, as a result of the COVID-19 pandemic.

In these cases, the recovery process also presents useful and advantageous mechanisms, such as DIP financing, as well as the sale of Isolated Production Units.

The Isolated Production Unit (UPI) is provided for in articles 60, 140 and 166 of Law No. 11,101/05, and although it is not conceptualized in the legislation in question, both for doctrine and case law it consists of a multiplicity of assets, from physical assets (real estate and equipment, for example) to intangible assets (brands and patents, for example) that often, because they are no longer useful to the company in crisis, can be brought together in a “package” for sale to other companies, thus allowing the entry of resources that can be used both as working capital and for payment of creditors and fulfillment of obligations assumed by the Recovering Company.

Therefore, the first advantage of this tool lies in its versatility, that is, it can be made up of the most varied assets.

The second advantage of the UPI, a unique characteristic that reflects the success of this means of recovery, consists of the absence of succession of liabilities by the purchaser, that is, the object of the sale will be free of any obligation, given that the Superior Courts have already consolidated the understanding that the buyer of the isolated production unit will not succeed the seller in his civil, labor and tax obligations.[1].

This position, in fact, is a reflection of the legislation itself, which provides that “the The object of the sale will be free of any encumbrance and there will be no succession of the successful bidder in the debtor's obligations, including those of a tax nature, in accordance with the provisions of § 1 of art. 141 of this law”[2].

It is worth mentioning that the provision that provides for non-succession has already been the subject of a Declaratory Action of Unconstitutionality.[3], having passed the scrutiny of the Supreme Federal Court, guardian of the Federal Constitution.

In addition, the Superior Labor Court, in line with the STF and the STJ, has also been consolidating its position in favor of the absence of succession of labor obligations in the sale of the Isolated Production Unit, and recently its Sixth Panel, unanimously, recognized that the purchaser of a UPI in a judicial recovery process is not responsible for the obligations of the debtor.[4].

It is worth noting that the precedent in question also clarified that the successor's liability is limited to the period after the auction of the UPI, so that any labor credits arising from dismissals occurring after the sale must be pursued against the previous employer, with regard to the value relating to the period prior to the auction, and the successful bidder may only be held liable for the value corresponding to the period of work after the auction.

Thus, the TST settled the controversy that still hung over the issue in question, making the sale of UPI a solid, safe and effective instrument against the crisis affecting companies undergoing judicial recovery.

However, the legal requirements for succession to be ruled out must be observed, i.e., it is recommended that the UPIs be identified and detailed in the judicial recovery plan, so that they can be subject to deliberation by creditors, and that their disposal occur through one of the methods provided for in art. 142 of Law No. 11,101/05, under penalty of such prerogative being ruled out.

Case law has therefore added strength and security to this tool, in harmony with the primary objective of judicial recovery,consistent in preserving the company, by overcoming the momentary financial crisis it is facing, aiming to maintain jobs, protect the interests of creditors and preserve the company's social function.

Therefore, the sale of UPI stands out among the means of judicial recovery because it is absolutely legitimate, versatile and safe, both for the company in recovery and for the buyer who will acquire the unit free of any encumbrances, with no succession of the acquirer with regard to the tax and labor liabilities of the Recovering Company.

Our team has extensive experience in preparing judicial recovery plans that provide for the sale of assets through Isolated Production Units (UPI) and is available to guide our clients on the advantages of this means of recovery that has been gaining prominence in the current scenario.

[1] AGRG CCC 97.732-RJ, STJ and AGRG CCC 112.638-RJ, STJ

[2] art. 60, Sole Paragraph, of Law No. 11,101/05

[3] ADIn 3.934-2 DF

[4] RR-20218-39.2016.5.04.0782