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The liquidation process: How it works for companies

The liquidation process occurs after the dissolution of a company, which can happen by operation of law or by court decision. For most cases, a liquidator is appointed.

This representation can be either by an individual or a legal entity. The liquidator is in charge of proceeding with the liquidation of a civil society or a company. According to Law 6.404 de 1976

“the liquidator shall represent the corporation and perform any acts required for the liquidation, including the transfer of real and personal property, the effecting of compromises and the giving and receipt of releases.” All procedures, whether the immediate sharing of assets to the partners or the discharge of the company’s liabilities, must be carried out by this liquidator.

When the liquidator is appointed manager, usually by general meeting, he can take out a loan to pay off any debts. Foreign entrepreneurs (living outside the national territory) who establish businesses in Brazil necessarily need legal representatives.

According to Art.119 of this same law:

“A shareholder resident or domiciled abroad must maintain a representative in Brazil empowered to accept service of process in proceedings brought against him under this Law.

Sole paragraph. The exercise of any shareholder’s right in Brazil shall give the proxy or legal representative the capacity to accept service of process.”

Long and costly processes

The first public company liquidated in the Bolsonaro administration was Companhia Docas do Maranhão (Codomar). It has been inactive for 20 years and under liquidation process for the last 3 years. They spent more than 18 million BRL with employee expenses. Previously, CorreiosPar, an investment company associated with Correios has also been liquidated.

These examples show how long and costly such a process can be. Many companies in the process of dissolution do not want to sell their businesses, usually because of unsustainable liabilities. According to Marlon Tomazette, it is up to the liquidator to recognize the state of insolvency when a company’s liabilities exceed its assets. Lawsuits also affect liquidation.


The role of liquidators in legal representation

Representing a company with business involving environmental issues in Brazil has high risks. Environmental crimes have sentences according to their impact on the environment and public health. As legal representatives generally provide this service to several entrepreneurs at the same time, the risks affect agreements of other companies – once the representative cannot exercise his responsibilities, he cannot fully enjoy his rights and perform the necessary actions to assist the business of the represented party.

The State has sovereignty to act in its territory under the laws established therein, but cannot act in another country. Brazil cannot, for example, demand the arrest of someone who has been convicted under the Brazilian law. To resolve these issues, there are extradition treaties for countries to cooperate in trials and punishment processes.

Being a legal representative is much more than signing documents. When dealing with a liquidated company, the representative becomes the main contact of tax authorities in case any discrepancies arise in a tax return, for example. It is a position responsible for the safety of both parties. That is why it is essential for those providing this service to continuously manage their clients’ risks.

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