BRAZIL Trends and Developments Contributed by: Lucas Akel Filgueiras, Pedro Miranda, Giovana Bosso and Caroline Cidri, Akel Advogados
Another factor strengthening the distinction between the two doctrines is that, while insufficiency of assets to meet debts is not, in itself, a ground for disregarding corporate personality, it may warrant converting the judicial reorganisation to liquidation. Second, to avoid an information asymmetry that would prejudice negotiations, creditors must have full visibil- ity of the asset base available to satisfy the debts at issue in the judicial reorganisation. Accordingly, a filing requirement is that the complaint be accompanied by the company’s balance sheet (Article 51, II, a of the LRF). If the personal assets of shareholders or executives are only brought in after the court’s confirmation of the plan, the meeting of the creditors may decide to amend the plan’s terms (eg, re-assessing the haircut applied to claims and the projected timetable for pay- ment) so that it reflects an increased capacity to sat- isfy obligations resulting from disregarding corporate personality (LRF, Article 35, I, ‘a’). Moreover, business preservation is not a principle that can be invoked to deny piercing the corporate veil, thereby shielding the personal assets of shareholders and executives who, through unlawful acts, cause a widespread default prejudicial to good-faith creditors. By curbing irregular dealings involving the company’s assets after the fact, disregarding corporate personal- ity protects the company’s separate corporate per- sonality, rather than destroying it. In the same vein, the rules on removal of the debtor’s management under Article 64 (caput and sole para- graph) of the LRF should not be confused with the asset liability that follows on from granting an applica- tion to disregard corporate personality. Disregarding corporate personality is aimed at extend- ing liability so that both shareholders and executives are made to satisfy certain debts contracted only by the company, whereas removal affects only the offending manager and is designed to safeguard sound corporate governance in a company in the deli- cate position of going through judicial reorganisation.
It is also worth noting that the personal-asset liability of an individual who is held liable for the company’s debts in judicial reorganisation as a result of piercing the corporate veil is different from the position of a person joined to the proceedings as a respondent by reason of substantive consolidation. To begin with, recognition of substantive consolidation depends on satisfaction of its own statutory criteria in Article 69-J of the LRF, which are different from the criteria set out in Article 50 of the Civil Code. Furthermore, where an individual or legal person’s personal assets are made answerable for the debtor company’s liabilities in judicial reorganisation follow- ing the court’s granting of an application to disregard corporate personality, that person’s liabilities are not renegotiated within the restructuring proceeding (ie, a shareholder’s personal debts are not brought into the judicial reorganisation). Finally, under substantive consolidation, the text of Article 69-J of the LRF provides that the liabilities of the debtors, and not merely the assets comprising the estate, must be encompassed by the judicial reor- ganisation. Exactly for the grounds laid out thus far, case law from the São Paulo Court of Appeal (TJSP) acknowledges applications to disregard corporate personality even where the company is in judicial reorganisation. Having settled the question of the admissibility of applications to disregard the corporate veil in judicial reorganisation, it is also appropriate to comment on: (i) standing to apply ( legitimidade ativa ); (ii) the proper respondent ( legitimidade passiva ); and (iii) the court’s jurisdiction ( competência ) to hear the application. Standing to apply Article 133 of the CPC provides that “the application to disregard corporate personality shall be brought at the request of a party or by the Public Prosecutor’s Office, if it is entitled to intervene”. Accordingly, anyone who is a party to the judicial reor- ganisation may request that the application be admit- ted.
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