BRAZIL Trends and Developments Contributed by: Lucas Akel Filgueiras, Pedro Miranda, Giovana Bosso and Caroline Cidri, Akel Advogados
No 37 from the Federal Justice Council’s First Civil Law Conference). Because liability for abuse of rights does not require fault, to disregard corporate personality, the evidence must only establish abuse of the company’s separate personality through commingling of assets or misuse, regardless of the intentions of the shareholder, execu- tive (or third party) to be held liable for the company’s debts. These propositions are supported by the settled case law of Brazil’s Superior Court of Justice (STJ), which holds that: “Disregard is not a rule of civil liability; it does not depend on proof of fault; it should be recognised in the enforcement proceedings, whether individual or collective; and, finally, it reaches those individuals who in fact benefited from the abuse of corporate personality, whether they are shareholders or merely managers”. (STJ, REsp 1.036.398/RS, Reporting judge: Min. Nan- cy Andrighi, Third Panel, 16 Dec 2008). It is, therefore, a case of liability under Article 927, sole paragraph, of the Civil Code, which provides that “there shall be an obligation to pay damages regard- less of fault, in the cases specified by law.” Second, because this is strict liability arising from abuse of rights, the creditor is not required to prove fault or actual loss caused by the conduct that grounds disregard of corporate personality, since “abuse of rights is an autonomous legal category in relation to civil liability. Accordingly, the abusive exercise of legal positions is subject to control regardless of damage” (Federal Justice Council, Enunciation No 539, VI Civil Law Conference). This fact confirms that the evidence to be presented in support of disregarding corporate personality must relate to abuse of the position held by the shareholder, executive or third party; the nature or content of any legal relationship between them and the company, or between them and the creditors, is immaterial.
Examples of conduct amounting to abuse that may justify disregard include: (i) cash pooling operated across companies in the same group; (ii) bringing for- ward payments on the eve of filing for judicial reor- ganisation; (iii) misappropriation of company funds; (iv) using a company’s staff and resources to carry out the business of another group company; (v) trans- ferring company assets to close relatives of a share- holder or executive; and (vi) misuse of the company’s operations. Third, abuse of rights gives rise to joint and several liability between the company and the shareholders, executives or third parties held liable upon the court’s granting of an application to disregard corporate per- sonality, as follows from Article 265 of the Civil Code and, above all, Article 942, quoted below: “A person who infringes another’s rights is liable to compensate for the loss caused; if more than one person is responsible, they are jointly and severally liable”. There is therefore joint and several liability between such third parties and the original debtor. Conclusions As this article has shown, it is not uncommon in Brazil for judicial reorganisations to be preceded by (or con- ducted alongside) actions designed to benefit share- holders, executives or third parties at the expense of the body of creditors. To remedy the harmful effects of such irregularities, it is imperative to admit an application to disregard corporate personality, which may be filed by any party to the reorganisation proceedings, including creditors, the trustee, and even the Public Prosecutor’s Office. Through this application, shareholders, executives or third parties who took part in or benefited from unlaw- ful acts within the debtor company must be made answerable for the whole of the debt if the applica- tion is brought within the reorganisation proceedings themselves, or for specific debts where it is brought in individual actions by creditors.
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