Globalization and technological developments have lead companies to spread their business and activities worldwide. When everything goes well, multinational companies can profit from exploring different market opportunities around the globe, but unfortunately that is not always the case

The shipping and oil & gas industries face the influence of the global economy and also deal with a great level of risk in the performance of their activities. It is not unusual to see in this complex and unstable market multinational companies struggling with their operations and entering into bankruptcy or supervised restructuring. As these companies operate around the globe, the consequences of a bankruptcy may generate effects in several different jurisdictions simultaneously.

Under Brazilian Bankruptcy Law (Federal Law 11.101/05), Brazilian Jurisdiction must prevail when it comes to declaring the bankruptcy of a company located in Brazil. This means that only a Brazilian Court would be competent to declare the bankruptcy a company established in the country, even if such company belongs to an international group.

This means that the declaration of bankruptcy of a multinational company rendered by a foreign court will in principle not have effects over a Brazilian branch or subsidiary, since only the Brazilian Courts would be competent to declare the bankruptcy of the entities registered and domiciled in Brazil.

Hence, although the Brazilian branch of the bankrupt company may have financial loans or direct cash investments made by its foreign headquarters, such situation does not entitle the creditors of such company to pursue any amount against the Brazilian branch. Under Brazilian Law perspective, such branch is considered independent from its shareholders, with an autonomous management in Brazil.

Based on the above, only the assets owned by the foreign bankrupt company in Brazil could eventually be seized in Brazil as guarantee for the payment of the credit pursued abroad, as long as the foreign bankruptcy decision is formally ratified by the Brazilian Superior Court of Justice. This means that a decision rendered by a foreign court declaring the bankruptcy of a foreign company will only produce effects in Brazil if such foreign decision is duly ratified in Brazil.

Given these principles of territoriality and Brazilian sovereignty, it is advisable for creditors that intend to seek enforcement in Brazil against the assets of a company under bankruptcy to resort to legal assistance in order to be properly protected.

Moreover, it is highly recommended for such assistance to be sought prior to any dispute and, more importantly during the negotiation of commercial contracts in order to obtain potential guarantees to secure a future credit. It is important to bear in mind that under Brazilian Law privileged credits will have a preferential position in the ranking of creditors in the event of bankruptcy of the debtor.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.