What insolvency means for business owners in Brazil

01

Name what the family is trying to preserve

For a founder, the business may represent decades of work and a promise to employees or relatives who joined it. Siblings can agree that the business matters and disagree about whether that means keeping the family in control, preserving local jobs or protecting the next generation from additional debt. Those are different objectives. Ask which ones a proposal can deliver, who is bearing its cost and how much time the family can buy.

Put company decisions and household decisions on separate calendars. Decide who can speak for the company, who can commit family funds and who will check a decision where interests diverge. A board can use the same operating forecast to compare keeping the whole business, selling a viable unit and financing an orderly closure. Document the cash each option needs and the outcome the family is actually choosing.

02

Separate ownership, signed obligations and potential liability

Start with the legal form. Brazilian law recognises the separation between a legal person and its shareholders or administrators. A sociedade limitada generally limits each member’s liability to the value of their quotas, while all members are jointly responsible for paying in the subscribed capital. An empresário individual operates in their own name, so the same company-shareholder separation does not apply. Identify the legal form on the governing documents and the legal party named in the order.

The company’s default alone does not make a third party liable under the insolvency statute. Exposure may still arise from an obligation personally signed, security over a personal asset, a statutory basis for liability or a court ruling extending a specific obligation. Keep those categories separate, even if one person is the shareholder, managing director and guarantor.

Sources for this section: Civil Code, Articles 49-A, 966–967 and 1,052 · Law No. 11,101/2005, Articles 1, 6-C, 81–82-A and 190

03

Review personal guarantees on their own timeline

The company’s judicial restructuring ordinarily leaves creditor rights against guarantors and other co-obligors in place. STJ Súmula 581 addresses continuation of those claims and enforcement. For a debtor-proposed plan, check the terms of any release and the guarantee holder’s consent, including any reservation. A separate standstill can also govern enforcement.

A creditor-proposed alternative plan has a specific rule. To reach a vote, it must provide for the release of personal guarantees given by individuals for claims being replaced under the plan, where the claimholder gave the qualifying written support under Article 56(6)(III) or votes for the plan. Article 56(6)(V) bars voting reservations in that situation.

Gather the signed instruments and amendments. Mark whether the owner signed as a representative, as a personal guarantor such as a fiador or avalista, or as the person providing a particular asset as security. Review the conditions for enforcement, any demands already received and any potential exemption or defence under the applicable rules. Family-home protections, for example, have statutory exceptions. An owner and the company may need separate counsel when their interests diverge.

Sources for this section: Law No. 11,101/2005, Articles 49(1), 50(1), 56(6)(III) and (V), and 59 · STJ Súmula 581, enforcement against guarantors and co-obligors · STJ, plan clauses, consent and guarantee enforcement · Law No. 8,009/1990, family-home protection and exceptions

04

Distinguish veil piercing from a guarantee and from group liability

A claim to pierce the corporate veil (desconsideração da personalidade jurídica) seeks to extend the effects of a specific obligation to another person or entity. Under Civil Code Article 50, that route requires abuse through misuse of corporate purpose or commingling of assets, and targets shareholders or administrators who benefited directly or indirectly from the abuse. In bankruptcy, Articles 82 and 82-A distinguish statutory personal-liability claims from an incident seeking to disregard the company’s legal personality. Article 82-A bars simply extending bankruptcy or its effects to limited-liability shareholders, controllers or directors. The STJ distinguishes a veil-piercing incident brought inside the bankruptcy case from a separate proceeding targeting assets outside the estate.

For judicial restructuring, the Superior Labour Court’s Repetitive Theme 26 permits labour courts to hear such an incident against shareholders, subject to an express order of the restructuring court suspending enforcement against them. It requires abuse under Article 50. Default, insufficient assets or unsuccessful enforcement alone do not meet that test. The Labour Code applies the procedural safeguards of the Code of Civil Procedure to the incident.

A claim against another group company is a separate question. STF Theme 1232 generally requires a group company to have participated in the merits stage before labour enforcement can be directed against it, with exceptions for business succession or abuse of legal personality under the applicable procedure. Check the defendant named in the original case, the precise basis for any later addition and subsequent rulings.

Sources for this section: Law No. 11,101/2005, Articles 6-C and 82–82-A · Civil Code, Articles 49-A and 50 · Labour Code, Articles 2, 448-A and 855-A · Code of Civil Procedure, Articles 133–137 · STJ, application of Article 82-A and assets outside the bankruptcy estate · TST, Repetitive Theme 26, judicial restructuring and shareholder liability · STF, Theme 1232, inclusion of a group company in labour enforcement

05

Keep a viable operation working while decisions are pending

A judicial restructuring stay can change the enforcement calendar. The business still needs cash, materials, people and customer confidence. Build a short-horizon cash forecast by legal entity. Start with cash the entity can actually use and isolate restricted balances and assigned receivables. Then test payroll, utilities and supplies against realistic collections. Compare the forecast with what the plant, warehouse or service team can deliver if a key supplier tightens terms.

Clarify who can authorise new commitments and check any restrictions on asset disposals, guarantees or financing. Brazilian judicial restructuring law has a framework for court-authorised financing. A shareholder advance, an external loan and a sale each raise different approval and documentation questions. Review proposed intercompany transfers and dealings with owners before they happen. Company records should make the business purpose and consideration traceable.

Where the owner’s choices depend on a realistic plan for the operation, Ritus Partners ↗ (opens in a new tab), a PreservaCred restructuring partner, can be a point of contact for financial restructuring, working-capital planning and operational turnarounds.

Sources for this section: Law No. 11,101/2005, Articles 6, 6-A, 64, 66 and 69-A–69-F

06

Tell employees, suppliers and the community what they can act on

Employees want to know which shifts will run and when they will be paid. Suppliers want to know whether outstanding invoices and new deliveries are being handled separately. Customers want to know who will complete orders and honour service commitments. Use a consistent update with confirmed facts, named contacts and a date for the next decision. Avoid promising terms that require a lender, buyer or court to act first.

A plant closure can affect contractors, transport firms and shops that depend on each shift. Planning for those effects can be practical. Arrange access to employment records, identify service obligations and plan what happens to customer property or orders in progress. In Brazil, STF Theme 638 requires prior union involvement for mass dismissals. That procedural requirement does not itself give the union a veto or require the parties to reach a collective agreement.

Sources for this section: STF, Theme 638, prior union involvement in mass dismissals

07

Plan for a sale or closure as a sequence of decisions

A business may need to stop accepting new orders while it still delivers existing work and protects inventory, records and equipment. The timing of a shutdown and the timing of a bankruptcy ruling can differ. Once the court declares bankruptcy, the debtor loses authority to administer estate assets. The ruling addresses provisional continuation under the judicial administrator or sealing the premises. The administrator can perform certain bilateral contracts where the statutory conditions and approvals are met.

A sale of a business unit can preserve operations under a new owner. Put the transaction documents beside the operating plan. Establish which people, equipment, customer contracts and licences are needed on day one, who can transfer or replace them, and what cash is needed to reach that day. If a sale slips, the fallback may require funding for security, record retention, environmental obligations or a managed handover.

• Which parts of the business can operate independently, and who has authority to decide?
• What cash, staff and suppliers are needed through a sale or shutdown?
• Which commitments need separate arrangements before orders stop or ownership changes?

Sources for this section: Law No. 11,101/2005, Articles 60–60-A, 75, 99, 103, 117 and 140–142

08

Leave the next meeting with a dated decision

An owner’s briefing can have four parts. Record the next company cash deadline, the next personal enforcement or negotiation deadline, the best funded operating option and the fallback if its assumptions fail. Assign a person to each action. A family meeting can settle priorities, while the authorised officers and advisers deal with the company’s decisions and their legal implications.

Revisit the briefing after a change that matters, such as a funding refusal, an enforcement order, loss of a licence or a written offer for a unit. Give the family enough information to discuss the consequences without turning personal assets into an assumed source of company funding. That makes it possible to compare a commitment to preserve the operation with the actual cost and authority needed to deliver it.