After almost three months after the enactment of Brazilian Federal Law N. 14,112 on December 24, 2020 amending the Brazilian Company Voluntary Arrangements and Bankruptcy Law (Brazilian Federal Law N. 11,101/2005), there was, on March 26, 2021, the reversal of several presidential vetoes, among them, the one referring to the sole paragraph of Article 60 of Federal Law N. 11,101/2005. With the revalidation of the aforementioned article, the assets of companies in bankruptcy combined in the so-called Isolated Productive Units (“IPUs”) were expressly allowed to be acquired free and clear of any encumbrances, with no successor liability of the buyer to the obligations of any nature, including, but not limited to those of an environmental, regulatory, administrative, criminal, anti-corruption, tax and labor nature.

As an indeterminate legal concept, the IPUs represent a multiplicity of assets that range from physical assets (such as real estate, equipment, etc.) to immaterial assets (such as trademarks, patents, etc.), which are detached from the assets of the company in bankruptcy and aggregated for sale to other companies.

Regarding the effects over time, the new rule only applies to the purchase of IPUs that occurred from March 26, 2021, the effective date of the reversal of the vetoes of Federal Law N. 14.112/2020. As for the practical effects, the new rule brings greater legal certainty as it expressly provides for the absence of succession of the asset buyer in several matters included in an non-exhaustive list, thus expanding the list of liabilities that will not be succeeded by the asset aquired. The previous language of Federal Law N. 11,101/2005, on the contrary, brought uncertainties because it only predicted that the object of the sale would be free of any burden and that the acquirer would not succeed the purchaser’s obligations, “including those of a tax nature”.

This gap had already been filled over time by precedents from the Superior Courts until it culminated in the legislative change carried out now. In this sense, specifically with regard to the absence of an anti-corruption succession, Precedent N. 114 approved by the Council of Federal Justice in June 2019, within the scope of the III Conference on Commercial Law, but without force of law, already provided that the pecuniary penalties applied to the debtor based on Federal Law N. 12,846, of August 1st, 2013 (“Brazilian Clean Companies Act”), will not be transferred to the buyers of assets in judicial reorganization or bankruptcy proceedings, when the disposal occurs through IPUs.

With regard to the liability regime for succession of obligations arising from violations of the Brazilian Clean Companies Act, Article 4 of Federal Law N. 12,846 establishes, in its first paragraph, the successor’s liability for the payment of fines and full compensation of the damage caused in the hypothesis of merger and incorporation, limited to the transferred equity, as long as due to acts prior to such corporate operations. There is no specific reference in the Brazilian Clean Companies Act to successor’s liability in cases of asset acquisition, which is why the language of Article 60, Sole Paragraph of Law N. 11,101/2005 makes clear the absence of such liability in relation to the IPUs’ for obligations arising from any unlawful acts practiced in violation of the Brazilian Clean Companies Act, either by the legal entity in the bankruptcy process or with the involvement of the acquired asset themselves.

Likewise, the economic group of the buyer is also not affected by the joint liability set out in Article 4, paragraph 2 of Law 12,846/2013, with no provision for joint and several liability in fines and full compensation for damages between the buyer of the assets within the scope of the judicial reorganization process and its parent company subsidiaries, affiliates or consortiums, within the scope of the respective contract.

In practice, the acquirer of assets and companies belonging to the same economic group are therefore exempted from liability for eventual reimbursement obligations for damages to the Treasury, sanctions and fines imposed based on Law N 12,846/2013, whether within the scope of judicial or administrative proceedings, through Administrative Liability Proceedings or leniency agreements. As stated in the Senate opinion issued during the vote on bill 4.458/2020, the recent change in the Brazilian Company Voluntary Arrangements and Bankruptcy Law “further expands the protection of the buyer, considering that it will not assume any debt, even if anti-corruption rules require so.

However, this expansion of the legal protection brought by Federal Law N 11,101/2005 should not be seen as a weakening of the Brazilian Clean Companies Act or a permissive for the practice of corruption acts, considering that such protection covers only the acquirer of assets within the scope of the recovery proceeding, not extending to companies undergoing judicial reorganization. These companies remain objectively liable, in the administrative and civil spheres, for harmful acts against the national or foreign public administration. In addition, as provided in Article 4 of Federal Law N 12,846/2013, this liability remains even if the company submitted to bankruptcy has gone through corporate restructuring, transformation, incorporation, merger or spin-off.

Another practical effect of the language of Article 60, sole paragraph, of Federal Law N. 11,101 is to expedite the integrity due diligence mechanisms in the context of asset acquisitions carried out in judicial reorganization proceedings. Decree 8.420, in its Article 42, item XIV, points out, as one of the evaluation parameters of the integrity programs, the verification, during the processes of mergers, acquisitions and corporate restructuring, of the commitment of irregularities or illicit or of the existence of vulnerabilities in the legal entities involved. Once verified the compliance of the specific case in the hypothesis, considering that the succession of the IPUs’ acquirer has been removed from the anti-corruption obligations, it is possible to act more quickly in the decision involving the purchase of assets under judicial recovery proceedings.

Therefore, the sale of assets through IPUs became one of the most attractive and effective mechanisms for Bankruptcy, allowing debtors to fulfill their obligations by receiving a fair price for their assets without depreciation of any charges transmitted to the buyer, as well as creditors to be satisfied in their demands and buyers assured of the absence of successor liability.  Investors now have greater legal certainty in the acquisition of assets potentially involved in acts of corruption.

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