28/10/2024
Recently, Justice Alexandre de Moraes of the Brazilian Supreme Court (STF) issued a ruling ordering the transfer of funds blocked in the accounts of X Brazil and Starlink Brazil to the Federal Government. The accounts were frozen to enforce fines imposed due to non-compliance with judicial orders by the social network X and were based on the existence of joint liability among companies within the X group. In simplified terms, the STF recognized the existence of a “de facto economic group.”
This decision has raised concerns within the legal community, particularly regarding the stability of the corporate veil piercing doctrine mentioned in Article 50 of the Brazilian Civil Code, which states that in cases of abuse of legal personality—characterized by a diversion of purpose or asset confusion —a judge, upon request from a party or from the Public Prosecutor’s Office (when intervening in the process), may disregard the legal entity to extend the effects of certain obligations to the personal assets of administrators or partners directly or indirectly benefiting from the abuse.
It is important to highlight that in civil matters, corporate veil piercing requires not only evidence of abuse of rights but also objective criteria of (i) purpose deviation or (ii) asset confusion, extending as well to (iii) those who benefit directly or indirectly from any illegality. Therefore, piercing the corporate veil is considered an exceptional measure under Brazilian law.
The disregard of the corporate personality, in any case, is episodic, associated with a specific obligational relationship. Mere insolvency or lack of assets to meet financial obligations may lead to the judicial reorganization or bankruptcy of the company, but not to piercing the corporate veil. Thus, for the veil to be pierced, there must be proven evidence of an abuse of rights.
In the case of disregarding the corporate veil due to the existence of an “economic group,” “family group,” or “shared ownership structure,” it is worth noting that Article 50, §4 of the Civil Code stipulates that “The mere existence of an economic group, without the presence of the requirements set forth in the caput of this article, does not authorize the disregard of the corporate personality.”
The argument supporting the existence of a “de facto economic group” in the STF’s decision was, ultimately, the decision-making power of Elon Musk, which led to the automatic disregard of the corporate entity. The decision also referenced Article 2 of the Brazilian Consolidation of Labor Laws (CLT), which governs labor liabilities, yet omitted Paragraph 3 of the same article, which specifies that “mere identity of shareholders does not characterize an economic group.”
In this regard, the 1st Panel of the Superior Labor Court (TST) recently ruled that the shareholders of Hospital Santa Catarina S.A., a privately held corporation, could not be held liable for the company’s debts without proper proof of fault or willful misconduct, thereby dismissing the application of corporate veil piercing. The reporting judge of the appeal, Justice Hugo Scheuermann, highlighted that Law 6.404/1976 requires proof of intent or fault by managers to hold them responsible, pointing out that asset separation is a foundational principle of corporations, in which shareholder assets shall not be confused with those of the corporation.
Thus, despite the recent—and controverted—decision of the STF, prevailing case law holds that the general requirements for piercing the corporate veil must be met, even when applying the doctrine due to the existence of an economic corporate group. In this sense, mere irregular dissolution of the corporation and/or the absence of seizable assets are insufficient to warrant the application of this measure.
