Jurisdiction over IDPJ involving a bankrupt company lies with the universal insolvency court

In an article published by Consultor Jurídico, Luiz Eduardo Amaral de Mendonça, partner at FAS Advogados in cooperation with CMS, comments on a decision by the Brazilian Federal Supreme Court regarding jurisdiction to review incidents of piercing the corporate veil in cases involving companies undergoing bankruptcy or judicial reorganization.

The Federal Supreme Court held that jurisdiction to rule on an incident of piercing the corporate veil should lie with the universal insolvency court, and not with courts responsible for individual enforcement proceedings. This centralization seeks to preserve equal treatment among creditors, the organization of insolvency proceedings and the integrity of the rules applicable to companies in distress.

For companies, shareholders, officers, creditors and investors, the decision reinforces the importance of a coordinated legal strategy in insolvency scenarios. The ruling may affect labor enforcement proceedings, disputes with creditors, assessment of asset-related risks, corporate governance and the conduct of judicial reorganization and bankruptcy proceedings.