Fabio de Almeida Braga is a partner at
Demarest Advogados Banking and Restructuring area
“The assertion that the company is not confused with the members as individuals is a principle, but it cannot be an obstacle precluding the actions of the State when serving justice perfectly and fully, as this is the Judge’s attitude, attempting to clarify the facts in order to adjust them to the law.”
(Justice Edgar de Moura Bitencourt)
In cases of abuse of corporate entity, characterized by a deviation from the purpose or by confusion of assets, the judge may decide, upon demand by the party or by the Prosecution Office, when that office has the power or duty to intervene in the proceeding, that the effects of certain defined obligations be extended to the private property of the managers or members of the legal person.
The situation described above is set forth as a rule in Article 50 of the Brazilian Civil Code, and presents the legal concept that, in accordance with the doctrine, is also known as disregard of legal entity.
In short, it suffices to say that in case the corporate purpose of the legal entity is distorted, deviating the company from its goal for acts deliberately performed by its members, officers and managers, or, further, if such individuals cause improperly a confusion between their own assets and legal entity’s, the abuse of corporate entity is acknowledged, with the legitimation of court intervention, establishing the effects on the private assets of members and officers, who become equally and jointly liable for company’s obligations.
This is a rule that excludes the standard differentiating the corporate entity from the personality of the members constituting it, under Article 44 of the same Civil Code, which attributes personality to people it describes. And its obligation nature is highlighted as a result of a fact not seldom seen, that the members or even the officers of the company use it in clear opposition to its corporate intent (as defined by its corporate purpose), damaging the achievement and the performance of the company intent and the interests of creditor third parties. All for the undue and illegitimate benefit of the members and officers.
So, the rule of Article 50 exists with the purpose of providing a concerned third party with the legal instrument necessary to bind the assets of the members and officers liable for the undue use of the company with the pecuniary obligations to which the legal entity is subject.
Provisions of the same kind are also found in the tax law (Article 135, III of the CTN), in the consumer protection law (Article 28 of the CDC), in the environmental protection law (Article 4 of Law 9065/98) and in the labor law (Article 2, Paragraph 2 of the CLT). In the case of the anticorruption law (Article 19, Paragraph 1), the punishment applicable in case the members use the company to perform unlawful acts and against the interest of the Government goes beyond the mere disregard of corporate entity and reaches even the dissolution of the legal entity.
These laws also describe, in addition to the abuse of corporate entity, other positive facts leading to the disregard of company’s corporate entity, like using the company consistently to make easier or promote the practice of unlawful acts or organizing the company to conceal or dissimulate unlawful interests or the identity of the beneficiaries of the performed acts, in addition to practices such as abuse of rights, performance through excess of power and violation of legal provisions.
The disregard of corporate entity of a company depends, as set forth in the law, on an act of a judge with jurisdiction, and can be entered only upon request; the judge cannot act on its own initiative. It is important to point out that the corporate entity is not terminated through such decision, but rather, it is stayed temporarily and specifically, with the purpose that certain obligational relations and specific equity duties contracted on the company’s behalf (although not necessarily for its best interests) and under its responsibility are also extended to members’ assets.
Thus, by considering the factual aspects leading to the court request for disregard, what the judge does is to define the company obligations which, as they cannot be settled essentially by using its own assets, should become part also of the liability scope of members and officers. Their private assets become subject to such settlement, as a manner to establish, in practical and concrete terms, a joint and several liability on obligations between the company and the members in order to pay for the collected debt. Such binding of assets owned by members and officers is essential so that they hold liability also by the facts that led to abuses in the corporate use and in the management of the legal entity’s assets.
As example of this is found in situations in which, urged to meet a pecuniary obligation, the legal entity, its members, representatives, managers and officers simply and merely fail to comply with acts that, under regular and normal conditions, would cause the natural performance of the obligation.
Likewise, the members, the controllers and the officers of the company may be involved in situations requiring the ascertainment of their liability in the practice of apparently unlawful acts performed on behalf of or through the company. Although in these cases it is necessary to find out if the behavior of the parties is imputable only to themselves, it is important to point out that their liability may become material, like in the case of limited liability companies, upon their participation in corporate decisions violating provisions in the law or in the articles of organization of the company, as set forth in Article 1080 of the Civil Code, in the sense that decisions violating the articles of organization or the law make the liability of those who approved it expressly unlimited.
Concerning the officers, irrespective of how the company was organized, their liability becomes joint and liable as regards the compensation for losses caused to the company itself or to third parties in view of an improper action caused through them. This is what is prescribed in Article 1016 of the Civil Code. The officers are certainly liable before the company and harmed third parties due to their fault when performing their duties.
In both hypotheses of the aforementioned liability of members and officers, it is always possible that they may be subject to expropriations as a result of their own and sole duty to indemnify the damaged parties, since their intentional or non-intentional action must be imputed only to themselves, without making necessary to apply the rule of disregard of corporate entity. Hence the need to submit the case in question to court examination, in compliance with the due process of law.
Anyway, our courts have shown positions considering that acts intentionally making difficult the compliance with the duty to settle pecuniary obligations, including acts leading to the destruction of company assets or that even make difficult the performance of constraint orders, such as sequestrations, provisional attachments and levies, that are evidence per se of the abusive use of the corporate entity. In this case, all the court actions addressed both to the assets of the legal entity and to the assets of its members and officers are cumulated.
In the regulations prescribed by the current Code of Civil Procedure, the disregard of corporate entity is described between Articles 133 and 137, as a procedural incident, consisting in one of the kinds of interventions by third parties in the procedure.
Since the application of the disregard of corporate entity is exceptional, it should occur only in the cases in which the legal entity is provenly misused. Its procedural discipline is justified in view of the need to comply with the constitutional principle of the due process of law, as a means to guarantee the members and officers joining the case the right to adversary proceedings and the right to be heard.
As provided for in Article 133 of the CPC, the incident of disregard of corporate entity takes place upon an express request of the concerned party or upon decision of the Prosecution Office, when it acts and it has to intervene in the procedure. Such request must be supported by the factual demonstration of occurrence of the abuse of the company’s corporate entity, expressed, as we saw, by the deviation of purpose or confusion of assets. In these cases, the request to be submitted aims at making the effects of certain obligation relations be extended to the private assets of officers or members of such legal entity (Paragraph 1, Article 133 of the CPC).
The new aspect introduced by Paragraph 2 in such Article 133 is that the establishment of the reverse disregard of corporate entity now becomes also accepted during the proceedings, i.e., it is also possible that creditors of the members move for the disregard of corporate entity of a company in which the debtor in default is a member, with the purpose of reaching the assets of the company itself, which, in this case, is employed with the purpose of precluding somehow the consequence and the effects on members’ assets that might have been maliciously included in the company.
As Comparato teaches in his O Poder de Controle na Sociedade Anônima, the disregard of corporate entity “does not operate only toward the liability of the controller for debts of the controlled Company, but also in the reverse sense, i.e., in the liability of the latter for the controller’s acts.”
Under the new code, the incident of disregard may take place in any and all stages of the hearing process, as well as during the decision enforcement and during the execution process of an extrajudicially enforceable instrument. Such establishment halts the procedure until solving the reasons on the incident. The member regularly notified has 15 days to submit his defense, with the guaranty of production and request of evidence.
The request for disregard may be also described as originary, like in the cases in which is it submitted as a part of the own complaint filing the action of cognizance, i.e., in the core of the complaint itself. In this case, it is not necessary to file the procedural incident.
After the member is heard and the evidentiary stage is completed, the disregard incident shall be settled by the presiding judge, upon entering an interlocutory decision, what determines the possibility of access to the appellate instance by filing an interlocutory appeal. In this case, the CPC, already anticipating the possibility of the incident developing into an appeal, establishes the internal interlocutory appeal as a mechanism of appeal in the cases in which the judge-rapporteur enters the decision.
As the final outcome of the incident proceedings, with the acknowledgement of the disregard, the private assets of the members or officers, as the case may be, shall be exposed to the effects of the obligation relation sought in the case.
Finally, in concrete terms, in these cases, the disposal or encumbrance of the assets from the company or to the company shall be regarded as ineffective concerning the creditor party that requested its acknowledgment, provided the implementation of such act in a situation of fraud upon the execution is duly proven.
So, this is the new aspect of the introduction in the legal system of one more procedural instrument intended to govern and support the rights of creditors facing situations harming their asset rights under the law, in view of malicious acts of debtors who, intentionally and maliciously, are hidden behind the corporate entity of companies they organize in order to commit violations of every sort, in non-compliance with the constitutional rule of Article 5, XVII, for whom the only path is to submit to the court order of “piercing the veil” used to conceal the reality of fact and show an apparently lawfulness to the actions of the legal entity.