BRAZIL Law and Practice Contributed by: Octaviano Duarte, Henrique Forssell and Marcelo Lucidi, Duarte Forssell Advogados
3.3 Shareholders’ Claims Against Fraudulent Directors See 1.1 General Characteristics of Fraud Claims , 1.2 Causes of Action After Receipt of a Bribe , 1.3 Claims Against Parties Who Assist or Facilitate Fraudulent Acts and 1.4 Limitation Periods . Under Brazilian corporate law, directors are bound by a statutory duty to exercise reasonable care, skill and diligence in their roles, alongside a fiduciary duty to act in the company’s best interests. Should the com - pany or shareholders determine that directors have breached these duties, they have the right to pursue actions for damages against these individuals. Directors and officers are not ordinarily liable for the company’s debts. They may, however, incur personal liability where they engage in fraud, abuse of pow - ers, asset diversion, conflicts of interest, or other acts carried out in violation of the law or the company’s constitutional documents. In the insolvency context, acts detrimental to creditors may also be challenged under the specific rules of Brazilian insolvency law, including those governing ineffective acts and revoca - tory actions. In judicial reorganisation, bankruptcy and similar proceedings, the relevant office-holder may investi - gate the conduct of directors and officers and, where appropriate, bring claims to recover losses, unwind unlawful transactions and seek redress for harm caused to the estate or its creditors. 4. Overseas Parties in Fraud Claims 4.1 Joining Overseas Parties to Fraud Claims Under Brazilian law, defendants have several mecha - nisms available to involve other parties in legal pro - ceedings or initiate separate actions against third par - ties based on subsidiary liability. These mechanisms include: • joinder of parties; • intervention of third parties; and • the filing of counterclaims.
other individuals, whether they are perpetrators, co- perpetrators or participants in the crime, from personal liability. Punishment is based on the principle of strict liability, meaning that investigators are not required to prove that the legal entity intended to commit a crime. It is sufficient to establish a connection between the legal entity and the crime under investigation. The scope of the law encompasses all legal entities, associations, and foundations with headquarters, branches or representation in Brazil, regardless of whether this connection is temporary. Furthermore, leniency agreements may be offered to legal entities that voluntarily come forward and offer their co-operation with investigations. 3.2 Claims Against Ultimate Beneficial Owners As a rule, a company’s liabilities are typically confined to its own assets. However, shareholders or ultimate beneficial owners can be held liable in cases of “abuse of legal personality”, a legal concept referring to situ - ations where the company is exploited as a vehicle for fraud. As discussed above, to establish liability in such cases, it is necessary to file a motion to pierce the corporate veil and provide evidence of abuse of legal personality in the form of commingling of assets or deviation from the corporate purpose. Any aggrieved party has legal standing to bring forth this claim. In the case of bankrupt companies, the claim is normally filed by the judicial administrators for the benefit of all creditors. The claimant typically bears the burden of specifying, to the extent possible, the liability attributable to the shareholder or ultimate beneficial owners, aiming to repair or compensate for all damages caused by the fraud. However, in cases of systemic and widespread fraud (eg, the use of entirely fictitious companies to structure financial pyramid schemes), there are prec - edents where shareholders and beneficiaries became liable for all the liabilities of the legal entity.
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