Justice Humberto Martins of the STJ (Superior Court of Justice) suspended the bankruptcy of construction company Coesa, formerly OAS. In a decision issued this Wednesday (9th), the Justice ruled that the bankruptcy must remain suspended until the court decides on the merits of a request against the conversion of the judicial reorganization into bankruptcy.

Judicial reorganization is a stage prior to bankruptcy. Through it, the courts grant companies time to negotiate deadlines for paying their debts with creditors. Bankruptcy, on the other hand, is the end of the company: it must pay its debts within a set period and cease its activities.

Founded in 1976 in Bahia, OAS was one of the contractors at the center of the Petrobras corruption scheme uncovered by Operation Car Wash (Lava Jato). The company became one of the largest in the country, with 120,000 employees, but after the discovery of bribes paid to secure contracts with the state-owned company, it plunged into a crisis that culminated in its judicial reorganization.

In 2019, OAS signed an agreement with the MPF (Federal Prosecution Service) in which it admitted to taking part in illegal activities and undertook to pay a fine of BRL 1.92 billion.

Today, the construction company has total debt of around BRL 4.5 billion.

What happened

In June, the TJ-SP (São Paulo State Court of Justice) granted a request by Gerdau and converted Coesa’s judicial reorganization into bankruptcy.

The steelmaker is one of the construction company’s creditors and challenged a transfer of contracts between Coesa and a company in the same economic group, KPE Engenharia. These contracts are worth between BRL 30 million and BRL 40 million.

According to Gerdau, this transfer of contracts was intended to “deceive creditors and protect assets to the detriment of paying substantial debts”.

Following this decision, Coesa appealed to the STJ and requested the suspension of the conversion of the judicial reorganization into bankruptcy. The company is represented before the court by attorneys Rodrigo Mudrovitsch, Giuseppe Giamundo Neto and Marcus Vinícius Furtado Coêlho.

On July 14, the Vice President of the STJ, Justice Og Fernandes, denied the request and upheld the bankruptcy ruling.

In that decision, Og said there was a “contradiction between the conduct of the applicants [Coesa] – insofar as they declined works, contracts and receivables – and the reasons put forward regarding the need to maintain the judicial reorganization plan for the company’s recovery”.

What this Wednesday’s decision says

In this Wednesday’s decision, Humberto Martins said that declaring bankruptcy before the merits of the issue are discussed could be irreversible. And, according to him, Brazilian legislation is based on the principle of preserving business activities.

He also argued that the reorganization plan of Coesa, then OAS, was approved by the creditors, and the allegation of fraud was made by only one of them, Rigabras, a creditor of around BRL 400 thousand.

“A summary conclusion that fraud occurred, without exhaustive evidence of its occurrence, cannot support a bankruptcy ruling, without respecting the exhaustive cognition necessary to reach such a drastic measure, which should only be taken if there is no chance of preserving the company; and this conclusion is reached based on the basic and inescapable premise of the important social function of companies in society”
Humberto Martins, STJ Justice

News originally published on UOL (in Portuguese), on 08.09.2023.