BRAZIL Law and Practice Contributed by: Octaviano Duarte, Henrique Forssell, Marcelo Lucidi and Mayara Rahman Rufino, Duarte Forssell Advogados
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 compa - nies, the claim is normally filed by the judicial administrators for the benefit of all creditors. The claimant typically bears the burden of speci - fying, to the extent possible, the liability attrib - utable to the shareholder or ultimate beneficial owners, aiming to repair or compensate for all damages caused by the fraud. However, in cas - es of systemic and widespread fraud (eg, the use of entirely fictitious companies to structure finan - cial pyramid schemes), there are precedents where shareholders and beneficiaries became liable for all the liabilities of the legal entity. 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 company or shareholders determine that directors have breached these duties, they have the right to pursue actions for damages against these individuals. In normal circumstances, directors are not per - sonally liable for company debts. However, exceptions arise in cases of:
• fraudulent trading, where an insolvent compa - ny sells assets or shares below market value; • unfair preferences among creditors; and • breaches of fiduciary duties. In the event of forced liquidation, a judicial administrator appointed by the Bankruptcy Court scrutinises directors’ actions before liqui - dation to uncover any fraudulent trading, unfair preferences or breaches of fiduciary duties. 4. Overseas Parties in Fraud Claims 4.1 Joining Overseas Parties to Fraud Claims Under Brazilian law, defendants have several mechanisms available to involve other parties in legal proceedings or initiate separate actions against third parties based on subsidiary liability. These mechanisms include: • joinder of parties; • intervention of third parties; and • the filing of counterclaims. Joinder of parties typically occurs when a defendant requests the inclusion of additional parties who may also be liable for the claims asserted in the complaint. This request is made in the defendant’s answer to the complaint, and, if granted, allows all relevant parties to be joined in the same proceedings. Similarly, intervention of third parties allows indi - viduals or entities with a legitimate interest in the outcome of the proceedings to participate in the case as either plaintiffs or defendants. This intervention can occur at various stages of the proceedings and is subject to judicial approv -
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