Bankruptcy Declaration by Extension to Companies in the Same Economic Group

The Superior Court of Justice (STJ) ruled in Special Appeal No. 1,897,356 that declaring bankruptcy for companies within an economic group requires strict criteria to extend its effects to other entities within the same conglomerate. The mere existence of an economic group is insufficient for disregarding corporate personality and attributing liabilities to affiliated companies.

Requirements for Extending Bankruptcy

The extension of bankruptcy effects to other group companies is only possible when abuse of corporate personality is proven, which can be demonstrated by two main criteria:

1. Asset Commingling: This occurs when the resources of the companies involved are intermingled, with no clear separation of assets, highlighting a lack of distinction between the assets and liabilities of each legal entity. This mixing may occur through disorganized financial transactions, unjustified resource transfers, or the use of one company’s assets to cover the debts of another.
2. Misuse of Purpose: When the activities of one or more companies in the group are aimed at defrauding creditors or concentrating losses in one entity while others benefit from the profits. This conduct must be shown through evidence demonstrating that operations were inappropriately directed to harm one of the group’s companies.

The STJ has consistently held that the mere existence of an economic group or commercial relationships between affiliated companies is not enough to extend bankruptcy. In a recent decision, the Fourth Chamber overturned the extension of bankruptcy declared against three companies economically related to a bankrupt textile company. The STJ ruled that the commercial relationship alone does not satisfy the legal requirements for disregarding corporate personality, such as asset commingling or misuse of purpose.

For bankruptcy extension to apply to other companies within an economic group, concrete evidence of corporate personality abuse is essential. Jurisprudence is clear that commercial and corporate ties alone do not justify this extension; a thorough analysis of the facts and circumstances surrounding each case is necessary.

Thus, before considering bankruptcy extension, it is essential to carefully investigate the transactions among the companies and produce robust evidence confirming asset commingling or misuse of purpose, as outlined in Article 50 of the Civil Code.