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Possibility to replace judicial deposits performed by companies in labor and tax lawsuits by other forms of guarantee less burdensome to taxpayers

Due to the recent economic crisis resulting from the coronavirus pandemic (Covid-19), several taxpayers are seeking to replace judicial deposits performed in labor and tax lawsuits with insurance guarantees and bank guarantees, in order to obtain a financial relief to honor payroll payments etc.

Labor Aspects

On March 27, the National Council of Justice (“CNJ”) issued a decision maintaining the suspension of Articles 7 and 8 of Joint Law No. 1/2019 of the Superior Labor Court (“TST”), the Superior Council of Labor Justice (“CSJT”) and the Labor Justice Control Agency (“CGJT”), which aimed to limit the use of letters of bank guarantee and bank insurance in labor claims.

This decision was rendered in the judgment of Administrative Procedure No. 0009820-09.2019.2.00.0000, at the 6th Extraordinary Virtual Session of CNJ. According to the CNJ, Joint Law No. 1/2019 violates the principle of legality and the functional independence of the judiciary, therefore, these guarantee instruments must be allowed without restrictions.

In addition, the CNJ pointed out that the rejection of a letter of bank guarantee or bank insurance has adverse economic consequences for companies that aim judicially the acceptance or replacement of judicial guarantees (considered as a provisional guarantee, according to Normative RulingNo. 3, item I, of TST). Moreover, according to the CNJ, the main grounds adopted by the labor courts to reject the offer of the letters of guarantee and insurance were the lack of immediate liquidity and the limited term. As a result, negative decisions caused delays in releasing labor credit to creditors.

However, according to the current legislation, letters of bank guarantee and bank insurance are equivalent to the guarantee offered in cash (as per Article 835, § 2º of the Civil Procedure Code – CPC, art. 9, §º 3 of Law No. 6,830/80 and the Case Law Guidance No. 59 of TST). In addition, according to Article 882 of the Consolidation of Labor Laws (“CLT”), the only condition for the presentation of judicial guarantees is the demonstration that the value guaranteed represents 30% of the total amount due. Finally, the rules for the presentation of bank insurance with a limited term are provided for in Articles 757 and 760 of the Civil Code and Ordinance No. 477/2013, issued by the Superintendence of Private Insurance (“SUSEP”).

Thus, considering that (i) the Federal Constitution contemplates the free exercise of economic activities and does not prohibit the practice of (lawful) acts that may reduce the financial burden of legal entities (Article 170); and (ii) the replacement of judicial deposits will not prejudice the creditor (Article 847 of the CPC), we understand that the companies have good arguments for requesting the replacement of guarantees already offered (i.e. deposits) to reduce costs.

In this context, we understand that this strategy may significantly reduce the costs of Brazilian companies in the current period of crisis.

Tax and Social Security Aspects

As mentioned above, the Plenary of the National Council of Justice (full bench of CNJ) determined the suspension of Articles 7 and 8, of Joint Act n. 01/2019, which prohibited the replacement of judicial deposits by letter of bank guarantee or insurance in labor claims, authorizing the substitution by other forms of guarantee less burdensome to taxpayers.

This favorable outcome is an important precedent that can also be invoked by taxpayers who wish to replace judicial deposits in tax lawsuits, especially considering the significant decrease in commercial at this time of the global crisis.

It is worth mentioning that the Superior Court of Justice (STJ) current case law is contrary to the withdrawal of judicial deposits before a final non-appealable decision, which may make it difficult to grant such request.

However, considering the relevant economic impacts as a result of the Covid-19 pandemic crisis, many judges are more sensitive to the difficultiesof Brazilian companies in honoring payroll payments, taxes etc. during this crisis period. Of course, the factual situation of each taxpayer and the substantive law involved will influence the choice of the best course of action for each tax lawsuit.

This e-alert is a general review of the subjects discussed above and does not constitute a legal opinion or legal consult. Please feel free to contact us should you need further clarification on this foregoing.

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