BRAZIL Law and Practice Contributed by: Felipe Barreto Veiga, Rafael Teixeira, Gabriel Abdalla and Pablo Arana, BVA – Barreto Veiga Advogados
10. Litigation 10.1 Frequency of Litigation
ures solely for the purpose of entrenching manage - ment or preserving the position of controlling share - holders. Any defensive strategy must be demonstrably aligned with the company’s best interests and supported by a proper corporate rationale, consistent with the direc - tors’ duties of care and loyalty. 9.3 Common Defensive Measures Common defensive measures include the adoption of poison pill provisions in the company’s bylaws, the pursuit of white knight alternatives, the implementa - tion of share buyback programmes and, where appro - priate, the initiation of litigation to challenge alleged procedural irregularities. In the Brazilian context, poison pill clauses frequent - ly establish a mandatory tender offer obligation if a shareholder’s participation exceeds a specified own - ership threshold, thereby operating as a deterrent against unsolicited accumulations of control. 9.4 Directors’ Duties Directors are required to act with due care and loyalty, ensuring that any defensive measures adopted are proportionate, reasonable and demonstrably directed towards the protection of the company’s legitimate interests, rather than the preservation of management positions or control structures. 9.5 Directors’ Ability to “Just Say No” Directors may not arbitrarily obstruct a transaction that is demonstrably aligned with the company’s best interests and supported by an appropriate corporate rationale. In practice, however, the outcome of takeover attempts in Brazil is frequently influenced by the pres - ence of a controlling shareholder, whose position may ultimately be determinative in approving or resisting a proposed transaction.
Litigation arising out of M&A transactions is less prev - alent in Brazil than in jurisdictions such as the United States, but disputes do occur, particularly in connec - tion with post-closing indemnification claims, earn-out mechanisms and delisting processes. Brazilian courts have generally adopted a restrictive approach to the interpretation of material adverse change clauses, placing primary emphasis on the contractual language agreed by the parties and on the allocation of risks as reflected in the transaction documentation. 10.2 Stage of Deal The majority of disputes in M&A transactions arise after closing, most commonly in relation to purchase price adjustments, indemnification claims and contin - gent consideration arrangements. Pre-closing injunctions are comparatively less fre - quent, but may be sought in the context of contested public transactions, particularly where there are alle - gations of procedural irregularities or breaches of dis - closure obligations. 10.3 “Broken-Deal” Disputes The COVID-19 pandemic gave rise to disputes con - cerning the invocation of material adverse change (MAC) clauses and force majeure arguments in the context of pending transactions. Brazilian courts have generally adopted a restrictive approach to the interpretation of MAC provisions, placing decisive weight on the specific contractual language and the allocation of risk negotiated by the parties. In response, transaction documents have increasingly incorporated more detailed and precise MAC formulations, including express carve-outs and objective financial thresholds designed to reduce interpretative uncertainty.
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