Bankruptcy during the pandemic: what the law says

 

Understand how a company reaches a court-declared bankruptcy situation and how its payment orders are given, especially regarding workers' rights

More than 4 months have passed since the beginning of the social isolation decree in Espírito Santo due to the pandemic caused by COVID-19. During this period, many companies were forced to close their doors indefinitely, lay off employees, change work contracts to home office, among many other changes. However, not all can survive the economic chaos and declare bankruptcy. And in light of this situation, what does the law say? And what about workers' rights? According to lawyer Antônio Augusto Genelhu Júnior from Genelhu Advogados, Bankruptcy Law No. 11.101/2005 specifically addresses cases of judicial and extrajudicial recovery and the definitive bankruptcy of a legal entity. "With the pandemic, the financial crisis has affected various sectors and entrepreneurs who began to have more debts than capital entering the company, which causes their accounts to go into the red, making the business economically unviable. Thus, the company collapses to the point where it cannot resume its activities due to economic problems; therefore, at the request of the debtor entrepreneur or one of its creditors, there is the possibility of a judicial declaration of bankruptcy," explains the lawyer. It is important to emphasize two key points: delinquent companies that have financial problems and recoverable debts, and insolvent companies that have more debts than assets, having no way to recover economically. "The Law created mechanisms for entrepreneurs to try to recover their business, allowing them to resort to judicial or extrajudicial recovery. Declaring bankruptcy is the last step. And it is only done after attempting recovery, so it is not an action taken at any time, at any moment. A thorough administrative and judicial analysis is necessary to assess whether there is truly no economic solution for the business," he explains. Was it not possible to preserve the economic activity carried out there? In other words, did judicial or extrajudicial recovery not apply to the business? So how is the bankruptcy request made? According to Antônio Augusto Genelhu Júnior, Article 94 of Bankruptcy Law 11.101/2005 defines situations in which a company can declare bankruptcy. Insolvency is provided for in Article 94 of the Bankruptcy Law, deriving this presumption from the hypotheses of unjustified default in satisfying the company's debts (Article 94-I), where the debtor entrepreneur, without relevant legal reason, does not pay, upon maturity, a liquid obligation materialized in one or more executive titles, duly protested, whose total exceeds the equivalent of forty minimum wages—thus preventing the bankruptcy process from starting due to a trivial amount, turning it into a mere collection instrument. Another situation arises from frustration of execution (Article 94-II), where on the date of the bankruptcy request or after being executed without a judicial action based on a liquid amount, the debtor does not pay, does not deposit, and does not name sufficient assets for seizure within the period set by law. Or from bankrupt acts (Article 94-III), where one of the behaviors considered acts of bankruptcy has been practiced, which presumes the economic insolvency of the entrepreneur. It is worth remembering that there is a formal requirement that consists of the judicial declaration, that is, the sentence that decrees bankruptcy which, according to the provisions of Articles 99 and following of the Bankruptcy Law, places the business entity, along with its creditors, contracts, and other legal acts under the framework of bankruptcy regime. "In short, bankruptcy is a collective execution process initiated against the entrepreneur who finds themselves in one of the situations contemplated in Article 94 of the Bankruptcy Law and which decisively reflects on the personal, patrimonial, and contractual order of the debtor entrepreneur, being its triggering conditioned to the fulfillment of three requirements, namely: the condition of entrepreneur, insolvency, and judicial declaration," explains Genelhu. [caption id="attachment_32703" align="aligncenter" width="300"] Lawyer Antônio Augusto Genelhu Júnior talks about what the Bankruptcy Law says[/caption] But how does the bankruptcy institute fare during the pandemic period caused by COVID-19, in which several measures were adopted to protect the debtor and the entrepreneur? According to Genelhu, initially, there was no modification. The Chamber of Deputies approved, in May of this year, Bill 1397/2020, which establishes "emergency and temporary measures, effective while the state of public calamity lasts," initially until December 31, 2020, according to Legislative Decree No. 06, of March 20, 2020. However, according to Genelhu, organized society and especially the legal community await modifications to the bankruptcy institute, even if of a provisional nature, especially due to its seasonality. "In anticipation of consideration by the Federal Senate and sanction by the Presidency of the Republic, Bill 1397/2020 established and fixed two interesting lines of emergency adjustment in the legal framework regarding insolvency. Salubriously, it establishes, in Chapter I, a legal suspension and proposes the creation of a preventive negotiation procedure of voluntary jurisdiction, inspired by the French system of prevention and anticipation of business crises. Also provisionally, in Chapter II, it proposes important changes to the regime of judicial, extrajudicial recoveries, and bankruptcies (Law 11.101/2005)," concludes Genelhu. Workers' rights When a company declares bankruptcy, according to lawyer Márcio Dell'Santo from Genelhu Advogados, the employee can rest assured, they will have all the rights of an unjustified dismissal. "The worker has all their rights guaranteed such as unpaid salaries and benefits, a 40% indemnity fine on the FGTS, accrued and proportional vacation with an additional 1/3 constitutional, 13th salary, and withdrawal from the FGTS. In fact, they will also be entitled to unemployment insurance, as long as they are within the required waiting period to obtain the amounts," he explains. [caption id="attachment_32704" align="aligncenter" width="300"] Lawyer Márcio Dell'Santo talks about workers' rights after company bankruptcies[/caption] Dell'Santo also emphasizes that to guarantee their rights in situations such as bankruptcy, it is important for the employee to safeguard and have all necessary documentation in hand, including the company’s registration card, among other documents that prove their link with the company. "If the company refuses to pay what it owes, by right, to its employee, they can file a lawsuit in labor court to guarantee their rights," he states. It is worth remembering that, legally, in the event of bankruptcy, labor credits will always be prioritized in payments owed by the company, with this amount not exceeding 150 minimum wages.