The liability of partners in M&A (merger and acquisition) operations is crucial in corporate law. The company that emerges from a merger or acquisition assumes all the obligations of the original companies, including their labor liabilities.
In principle, Article 1.024 of the Civil Code protects shareholders by prioritizing the execution of company assets before private assets. In other words, it assigns subsidiary liability to the partners, which does not mean exemption from liability.
First of all, the new company will bear debts and liabilities using its equity. If this is exhausted, shareholders will be liable up to the limit of their shareholdings.
For labor claims, however, private assets can also be seized because of the food nature of this resource, which is considered essential for the worker. The practice is known as "disregarding legal personality".
Thus, although there is protection for the partners' assets, it is not absolute. In mergers and acquisitions, the succession of rights and obligations can lead to them being held liable for unfulfilled labor obligations, whether by the original company or the new one.
How to protect yourself
Generally speaking, mergers and acquisitions are quite complex and require special attention to the process of getting to know and investigating the company to be acquired, known as due diligence.
Legal due diligence is essential to identify problems with the target company before the deal is made, allowing for better negotiation between the parties and prior strategic alignment.
The target company must not only comply with Brazilian labor laws, but its labor practices must also be in line with the expectations of the buyer/investor.
Those involved need to be aware of existing liabilities and contingencies. Once the deal is done, there will be a transfer of responsibilities through labor succession and, yes, there is a possibility that the acquiring partners will be held liable in the event of any conviction arising from the previous administration.
Due diligence is therefore crucial if no one is to be taken by surprise and end up incurring losses as a result of convictions, debt payments, fines, compensation and other liabilities.
Source: Migalhas