This is quite similar to Chapter 11 protection in the USA. Basically Varig have 6 months free from action by their creditors in which they have to restructure the business. Their options are to make the company attractive to a buyer, or set their house in order and wind up the company at the end of this time giving the best return to their creditors. They could of course, restructure the company and return to profitability, but that isn't really likely without a lot of State aid.
In the meantime they can continue flying, BUT, they have a problem in that they can't force companies to extend further credit. Petrobras, for example, might decide to cut their losses and not sell more fuel to Varig on credit, strictly cash only. Same with Infraero, landing fees paid in cash. There may be other issue, such as the payment of employee social security, union action, loss of slots at the major airports, and last but not least, corruption. (This is Brasil, after all
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Varig, as we know it today, is basically dead. Vasp is already dead and gone, but there is major competition in the form of TAM and GOL, both well run airlines. They would, I suspect, be more than happy to see Varig fail rather than be taken over.
alemaobaiano