The Council of the Federal Justice recommends that financial penalties imposed under the Clean Company Act (Law No. 12,846/2013) are not transferred to the purchaser of assets in court-supervised reorganization proceedings

At the III  Commercial Law Conference held on June 7, 2019, the Council of the Federal Justice approved Precedent No. 104, according to which there will be no transfer of liabilities regarding financial penalties imposed under Law No. 12.846/2013 (Clean Company Act) on the acquirer of assets when the acquisition is based on article 60 of Law No. 11,101/2005 (Brazilian Restructuring and Bankruptcy Law).

The precedents of the Council of the Federal Justice are not binding, but they can influence the interpretation of the Federal Courts with regard to matters previously discussed by the body, such as protecting the acquirer of assets divested in the context of a court-supervised reorganization proceeding from the transfer of liabilities arising from the Clean Company Act.

Notwithstanding the provisions of the Brazilian Restructuring and Bankruptcy Law, whereby the assets divested under an approved restructuring plan will be disencumbered, and that there will be no transfer to the acquirer of the debtors’ penalties and fines,  there have been rulings to the effect that this benefit would only encompass tax and labor obligations, raising questions about environmental obligations and liabilities resulting from the Clean Company Act.

The Clean Company Act expressly provides that liability will subsist in cases of amendments to statutes or corporate conversions, mergers, consolidation or spin-offs. In this sense, there appears to be an apparent contradiction between the successor's liability provided for in the Clean Company Act and the protection set forth in the Brazilian Restructuring and Bankruptcy Law of the purchaser of assets in the case of divestment of branches or isolated productive units under a court-supervised reorganization proceeding.

The Precedent No. 104 strengthens the understanding that the assets purchased in a court-supervised reorganization or a bankruptcy proceeding must be divested through a competitive process free of any encumbrance.

The clarification given by a body within the Judiciary Branch is paramount to  fulfilling the  purpose of the statute, which is to assist the company’s recovery, since the encumbrance-free divestment of assets tends to increase interest in its acquisition, hence helping to raise more funds for the company in distress.