Acquisition Of Assets Under The Brazilian Bankruptcy Law

Labor Courts in Brazil are very reluctant to accept the

universal jurisdiction of the Bankruptcy Court in the case of labor

claims of companies undergoing a judicial recovery plan. The

Brazilian Federal Supreme Court confirmed the application of the

Brazilian Bankruptcy Law in a leading case related to the

acquisition by Gol of Varig'assets, ruling that the

Bankruptcy Court has the authority to judge such claims.

Brazilian Labor Courts are very protective of the

employees' rights and usually apply the law based on criteria

that differ from those used in other courts to serve the best

interests of employees when it comes to labor claims. However,

there are certain limits to their jurisdiction. These limits have

been recently discussed and defined in a leading case involving Gol

Linhas Aéreas Inteligentes S.A. (Gol), a publicly-held

corporation with shares listed in the New York Stock Exchange and

in the Brazilian Stock Exchange (BM&FBOVESPA). Gol is the

controlling shareholder of Gol Transportes Aéreos S.A., a

Brazilian low-cost, low-fare airline.

On March 28, 2007, GTI S.A., a wholly-subsidiary of Gol,

acquired the shares of VRG Linhas Aéreas S.A. (VRG), formed

to operate the brand "Varig", a Brazilian airline company

undergoing judicial recovery plan1 under the current

Brazilian Bankruptcy Law (Law No. 11.101, of February 9, 2005).

VRG was a company based on the Isolated Productive Unit (UPI) of

Varig (Viação Aérea Rio Grandense S.A.),

created in the bankruptcy recovery plan of Varig and its

subsidiaries Rio Sul and Nordeste (together, the Recovering

Companies) and acquired by VarigLog in the Judicial Auction held on

July 7, 2006.

Under the Brazilian Bankruptcy Law, the UPI was created and sold

fully free of liabilities of any nature (civil, labor, tax,

pension, etc.) and upon completion of the conditions established in

the Judicial Auction Notice, so to assure payment to the creditors

and the continued existence of the Recovering Companies.

However, a former employee of the "old Varig" claimed

that Gol was the successor of Varig and that Gol was consequently

liable for all Varig's labor debts and this claim was accepted

by the Labor Court. In its defense, Gol claimed the validity of the

existing arrangement to acquire the UPI of Varig without any

liabilities and that this acquisition was duly ratified by the

Bankruptcy Court2.

Under Brazilian law, the Bankruptcy Court has universal

jurisdiction to resolve any matters or issues related to a bankrupt

company or a company undergoing judicial...