10/30/2019
Recently sanctioned by the Brazilian President, Act nº 13.874/19 – better known as the “Economic Freedom Act” (“Act”) – entailed various legislative changes, including in relation with “piercing the corporate veil” as provided for in the Brazilian Civil Code (“CC”).
The main purpose of the changes brought about by the Act was to reaffirm and consolidate the doctrinal and jurisprudential trend that had been developed in recent years, specially by the Superior Court of Justice (“STJ”). For this reason, it was included an Article 49-A in the CCand the wording of its Article 50 was amended.
In order to facilitate debt recovery, “piercing the corporate veil” entitles creditors of a company to access the personal assets of shareholders and managers of the relevant company, for debts contracted on company’s behalf.
As it is well known, the allocation of a certain capital to a company serves, among other purposes, to limit shareholders’ liability against potential risks connected with the activities to be developed by the company.
Such legal prerogative has, however, exceptions, as provided for in specific laws, in the areas of labor, tax, and social security, as well as in specific provisions of the CC. Since 2002, the CC has defined that the company’s liabilities might reach shareholder’s assets in some specific situations.
Since the enactment of the Act, changes to the CC have better qualified the acts that may trigger a request to pierce the corporate veil, namely:
(i) deviation from the corporate purpose (Article 50, 1st paragraph) is described as the use of the legal entity for purposes of harming creditors or performing illegal acts; and,
(ii) confusion of assets (Article 50, 2nd paragraph) is described as the failure to segregate the company’s assets from the shareholders or managers, in situations that may be qualified as the company repeatedly paying off shareholders debts , or also the transfer of assets or liabilities without the receipt of the effective and fair consideration.
Among the changes introduced by the Act, there is a provision that the piercing the corporate veil shall only apply to the assets of the shareholder(s) and/or manager(s) who directly or indirectly benefited from the abusive practice. Previously, there was no distinction between the subjective elements of willful misconduct and negligence.
Thus, it is clear that the purposes of the changes were to better qualify the requirements for the due application of the “piercing the corporate veil”. These specific qualifications are more than welcome, since they provide greater legal security for the use of that tool, enabling more objectiveness for everyone: company, shareholders, managers and creditors.
