Articles

Corporate Actions under Law No. 6.404/76

Corporate Suits in Brazilian Corporation Law

Gustavo Tavares Borba

Summary: This article analyzes the main characteristics of actions to annul shareholder resolutions and to hold controlling shareholders or administrators liable, focusing especially on the externalities of these types of actions, considering legislative provisions and the evolution of jurisprudence, as well as the structural characteristics of the corporate relationship and its repercussions in procedural law.

Keywords:Corporate actions. Action to annul a shareholders' meeting. Action to hold controlling shareholders and administrators liable. Class actions.

Abstract: The paper analyzes the main characteristics of actions to annul resolutions passed in the general shareholder's meeting and civil liability actions against controllers, executive officers, and board members, particularly focusing on the consequences and externalities of these types of lawsuit, in view of the legislative provisions and the evolution of case law, as well as the structural characteristics of the corporate relationship and its repercussions on procedural law.

Keywords: Corporate class actions. Actions to annul resolutions passed in the general shareholder's meeting. Civil liability actions against controllers executive officers and board members. Class actions.

Summary: Introduction. 1. General Rules on the Annulment of Corporate Acts. Rulings from the Superior Court of Justice. 2. Recommendation for Reducing the Statute of Limitations under the Brazilian Corporations Law (LSA). 3. Need for Annulment of the Resolution Approving Accounts to File a Liability Action against an Administrator. Critical Analysis of the Jurisprudence of the Superior Court of Justice. 4. The Peculiar Character of Defining the Active and Passive Parties in an Action to Annul a Shareholders' Meeting Resolution – Proposal for a Federal Amendment. 5. Action Filed by a Shareholder of a Subsidiary, as its Procedural Substitute, Against the Controlling Company – Article 246 of the Brazilian Corporations Law (LSA). 6. Liability Action Against an Administrator – Article 159 of the Brazilian Corporations Law (LSA). 7. Corporate Class Action – Brief References. Conclusion.

Introduction.

The most traditional corporate actions are those in which the annulment of shareholder meeting resolutions or the liability of controlling shareholders (articles 117 and 246 of the Brazilian Corporations Law) or administrators (articles 159 and 245 of the Brazilian Corporations Law) is sought. Also very popular, influenced by the American experience, are class action lawsuits through which shareholders seek compensation for losses suffered as a result of management failures, especially informational ones.[1]

Virtually all actions brought by shareholders against a company to discuss annulment issues or liability of a controlling shareholder, administrator, or the company itself have distinct consequences (when compared to actions concerning contractual relationships of a civil or non-corporate business nature) and a peculiar structure that demands special attention. Furthermore, legislative reform is highly recommended to make these types of corporate actions more efficient, since current legislation is weak regarding annulment actions, and, concerning liability actions, although the legal norms have been very well drafted, there is a flawed evolution in jurisprudence.

The most emblematic case of this distortion in the application of the rules of Law No. 6,404/76 occurred in the judgment of the process known as the "Petroquisa Case" (REsp No. 745,739/RJ), in which the minority shareholder, as a procedural substitute for the company (art. 246), filed a liability action against the controlling shareholder due to alleged irregularities that would have been committed to the detriment of the controlled company, consequently investing his time and money to correct the dysfunctional situation that would have harmed the company of which he was a shareholder.

In this case, as will be better analyzed in Chapter 6, although the plaintiff was successful in the first and second instances, his right to receive the monetary "prize" provided for in § 2 of article 246 of the LSA is waived.[2] This was prevented by the decision of the Superior Court of Justice (STJ), which understood that the merger between the companies involved in the litigation (controlling and controlled companies) would create confusion between creditor and debtor and, furthermore (here's the problem!), would prevent the shareholder who filed the lawsuit and the lawyer who represented them from receiving, respectively, the "premium" of 5% and the "special fees of 20%".“, As foreseen in Law No. 6404/76, this completely destroyed the incentives for filing lawsuits that are provided for in Article 246 of the Brazilian Corporate Law (LSA), whose objective was to promote a healthier environment in the Brazilian capital market by encouraging the filing of lawsuits against irregularities committed in that environment.

On the other hand, it is worth highlighting that, with regard to corporate nullities, the jurisprudence has progressed very well, since, following the classic teachings of Miranda Valverde and Alfredo Lamy Filho, it has been positioning itself, since the last decade of the last century, in a very consistent and technical way on the subject, in the sense that nullities in the corporate environment are always (or almost always) relative and subject to the limitation and forfeiture periods provided for in articles 285, 286 and 287 of the Brazilian Corporations Law (LSA).

In this context, the importance of studying this topic stems from the fact that, when assessing these corporate issues in court, a deeper analysis of the peculiarities related to corporate dynamics (and consequently to corporate law) is required, especially regarding the influence of these special characteristics on the legally appropriate solutions to resolve the intricate corresponding procedural issues.

Procedural law was not conceived and designed with corporate relations as its parameter. Specifically regarding contractual relations, the general theoretical framework was based on bilateral contracts, where there are opposing interests. Corporate law, in turn, has certain principles and peculiarities that do not perfectly fit into pure contract law. Consequently, procedural (civil) law does not always accommodate perfect solutions for procedural issues arising in lawsuits involving corporate matters, which would require adaptations to avoid possible dysfunctional consequences derived from judicial decisions.

Despite any similarities that may be drawn between corporate law and classical contract law, the existence of significant structural differences seems clear and well-established, as Tullio Ascarelli has long demonstrated through the now predominantly accepted idea of the multilateral contract.,[3] as well as from the perspective of the company as an organic institution that followed in the evolution of the study of the subject.

Thus, due to the unique and particular characteristics of corporate law, there is a need for jurisprudence to evolve in order to adopt interpretations that are attentive to the peculiar characteristics of this different type of relationship, without which one will inevitably arrive at distorted legal solutions that are incapable of resolving disputes peacefully.

Given this scenario, an interdisciplinary approach to the subject is necessary, since procedural solutions for corporate issues cannot always be based on reasoning commonly used for solutions adopted in civil matters.

Furthermore, considering the customary origin of commercial law, strongly influenced by practice, it seems necessary, both from a substantive and procedural perspective, to understand the effective consequences of judicial decisions on the life of the company and its relationship with third parties and partners, in order to comprehensively and adequately assess the beneficial or detrimental effects of certain positions.

The Italian jurist Francisco Galgano perfectly addresses the issue of the need for differentiated legal treatment in the field of business activities, stating that the Italian Civil Code “does not hesitate, (…), to derogate from the rules of common law, when the application of such rules translates into an impediment to business activity, into an obstacle to business efficiency (…)”.[4]

This paper aims to provide a brief analysis of the need for an interpretative effort and, in some aspects, even a revision of the legislation, so that the judicial process in the corporate environment can flow more efficiently and harmoniously.

Considering the available space, this article, after a panoramic analysis of the possible compensatory and annulment lawsuits foreseen in the Brazilian Corporate Law (LSA), will focus on two specific issues: the peculiarities of the statute of limitations in the corporate environment and the need to adapt procedural rules for corporate actions. As the objective of this study is to present ideas to improve the current regime, both interpretative possibilities for existing rules and proposals for legislative change will be presented, all with a view to achieving greater efficiency in this environment.

General Rules Regarding the Annulment of Corporate Acts. Key Jurisprudence from the Superior Court of Justice.

Law No. 6,404/76 consolidated all the evolution regarding the invalidity of corporate acts, maintaining provisions similar to those of Decree-Law No. 2,627/40.,[5] such as reduced limitation periods, the function of verifying objective legal requirements by the Commercial Registry, and the possibility of remedying a defect or flaw in the company's formation, even after an annulment action has been filed.

Minor adjustments to the previous legislation were made by Law No. 6,404/76, such as shortening the period for annulling "resolutions adopted in a general or special meeting, irregularly convened or urged, violating the law or the bylaws, or tainted by error, fraud or simulation" from three to two years.

Lamy Filho, after analyzing the legislation and doctrine of several continental European countries, concluded, with his characteristic precision, that modern legislation, broadly speaking, restricts "cases of absolute nullity, transforming them, as far as possible, into voidabilities," admits "the effectiveness of the act, even if flawed by some irregularity, prevails until it is annulled by judicial decision," as well as "the validation or ratification of the act so that, once the irregularity is remedied, it acquires the certainty of validity indispensable to the functioning of the company.".[6]

Given the legislative and doctrinal evolution on the subject, it can be concluded that the invalidity regime applicable to companies has the following peculiarities:[7] a) significantly shorter limitation periods; b) non-retroactivity of the effects of invalidity, which will only result in the liquidation of the company (there is no full return to normalcy). status quo ante); c) broad possibility of "remedying" the defect at any time, even if it is a defect that, according to common law, would lead to the nullity of the act; and d) a different approach to void and voidable acts.

After intense discussions held over the last few decades on the subject, case law has consolidated in this sense, as can be seen, by way of illustration, in the summary of REsp No. 1,330,021/SP judged by the 4th Panel of the Superior Court of Justice (STJ), with Justice Luís Felipe Salomão as the reporting judge:

CORPORATE LAW AND CIVIL PROCEDURE. SPECIAL APPEAL. APPEALED DECISION THAT DOES NOT ADDRESS THE MERITS OF THE CASE. FILING OF INFRINGING APPEALS. INADMISSIBILITY. INCORPORATION OF A COMPANY. THE ASSEMBLY DELIBERATION CONSTITUTES THE WILL OF THE PUBLIC LIMITED COMPANY, IN ITS MOST GENUINE AND SOVEREIGN FORM, HAVING THE POWER TO AFFECT THE PERSONS WHO ARE INSTITUTIONALLY LINKED TO THE COMPANY. THERE IS A DISTANCING OF NULLITY IN CORPORATE LAW FROM THE CLASSICAL THEORY OF NULLITIES. The trend in national and comparative law is to understand nullities in the corporate sphere as relative, relegating absolute nullity to truly exceptional situations, preserving the effects already produced. The law establishes reduced limitation periods to mitigate the instability and insecurity arising from the possibility of annulment of corporate acts for a long period. Re-examination of evidence, in the context of a special appeal. Inadmissibility. (...) 2. The general meeting is the highest deliberative body of the corporation, which may deal with any matters concerning the corporate purpose of the business corporation. On the one hand, article... 121 of the Corporations Law, which states that the general meeting, convened and installed in accordance with the law and the bylaws, has the power to decide on all matters relating to the company's purpose and to take the resolutions it deems appropriate for its defense and development. 3. Although there are diverse currents defended by renowned scholars, the prevailing understanding today – including support from Law No. 6,404/1976, comparative law, and precedents from the two private law chambers of the Superior Court of Justice – imposes a certain distancing of nullity in corporate law from the classical theory of nullities, recognizing the following peculiar features: a) much shorter limitation periods; b) non-retroactivity of the effects of invalidity, which only entail the liquidation of the company (there is no full return to the status quo ante); c) broad possibility of the defect being remedied at any time, even if it is a defect that, according to common law, would entail the nullity of the act; d) a different approach, when compared to the general theory of nullities, for void and voidable acts, with a "national and global tendency to understand nullities in the corporate sphere as relative, relegating absolute nullity to truly exceptional situations," while preserving the effects already produced.[8]) […] 6. Special appeal not granted[9]

It should be noted that this understanding consolidated the classic decisions of the late Justice Sálvio de Figueredo (e.g., REsp No. 35,230, of April 10, 1995).,[10] Based on these findings, the Superior Court of Justice has consistently adopted the position that the regime of nullities in corporate law does not coincide with the general theory of nullities in civil law, due to the peculiarities already indicated.

Recommendation to Reduce the Statute of Limitations for LSA.

Although case law has progressed well on this matter, it is noticeable that the legislation has dealt with the topic of "invalidity" in a very brief and scattered way, so much so that Law No. 6,404/76 only states that the annulment of incorporation would have to be proposed within 1 year (art. 285), that the action to annul a resolution of an assembly would prescribe in 2 years (art. 286) and that several other limitation periods in the corporate environment would be 3 years (art. 287).[11]

Therefore, there were no more specific rules regarding actions to annul corporate resolutions; everything was derived from the general rule that establishes the time limits for filing such actions and from other scattered regulations.[12]

Although the Brazilian Corporations Law (LSA) is not entirely clear about the specific characteristics of invalidities within the corporate context, the original limitation periods of Law No. 6,404/76, together with other specific provisions,[13] They highlight this strong differentiation in relation to the rules of the general theory of nullities, since, while the Brazilian Corporations Law (LSA) has provided for limitation periods of 1, 2 and 3 years since 1976, the rules of the 1916 Civil Code stipulated, at the time,[14] long limitation periods, up to 20 years.

With the general reduction in limitation periods brought about by the "new" Civil Code of 2002, it became imperative to also revise the limitation periods for corporate matters, so that they are updated in light of the faster pace of modern life.

Subjecting the annulment of a company's incorporation to a 1-year period and the annulment of its resolutions to a 2-year period, given the speed of the current economy and market, proves to be quite inadequate, since this type of action promotes great insecurity that spreads both to the internal sphere of the company (corporate relations) and to the various, increasingly intense relationships that are formed between the company and the various third parties with whom it interacts.

Erasmo Valladão Azevedo e Novaes França, analyzing the rules in force in different Western countries, makes it quite clear that the time limits currently in force in Brazil for invalidating corporate resolutions are excessive:

Even so, however, Brazilian corporate law is, in this matter, out of sync with the current world, where deadlines – of decay, It should be noted that the procedures for annulling resolutions are even more significantly shorter. To give a few examples: a AktG The German law of 1937 stipulated a deadline of 1 month; a AktG of 1965, idem (§ 264, 1); the Swiss Code of Obligations of 1911, the term of 2 months (art. 706, no. 4); the Italian Civil Code of 1942, the term of 3 months (art. 2.377); the Portuguese Commercial Companies Code of 1986 establishes the term of 30 days (art. 59º); the Argentine Commercial Companies Law of 1972, the term of 3 months (art. 251); the Bolivian Commercial Code of 1977, the term of 60 days (art. 302); the Venezuelan Commercial Code of 1955, the term of 15 days (art. 290); the Ecuadorian Companies Law of 1977, the term of 30 days (articles 229 and 291, paragraph 1); and so on.[15]

Furthermore, beyond a mere comparison with foreign legal instruments, it is very clear to us that the reduction of limitation periods promoted by the Brazilian Civil Code of 2002 demonstrates an undeniable trend, which should be reflected in the proportional reduction of limitation periods for corporate matters, so that these remain substantially shorter than those in force for civil relations.

Marcelo Vieira Von Adamek expressed the following opinion on the subject in the explanatory memorandum preceding the draft bill to improve Law No. 6,404/76:

With regard to the time limit for annulling shareholder meetings and their resolutions, it should be noted that the Brazilian Corporations Law (LSA) is also completely out of sync with the corporate laws of the vast majority, if not all, of countries that have enacted similar provisions. The two-year period for annulling those acts is in total contrast with the principle of... stability The resolutions of shareholder meetings should govern this matter. Our neighbors, Argentina (Commercial Companies Law, art. 251) and Uruguay (Commercial Companies Law, art. 366), for example, provide for a 90-day period for annulment. Germany, a one-month period (Joint-Stock Companies Law, § 246, 1) and Portugal, a 30-day period (Commercial Companies Code, art. 59, 2). Italy, a 90-day period (Civil Code, art. 2,377). And it is understandable that this is so: the annulment of a resolution has deleterious effects not only for shareholders, but also for third parties, especially in cases of capital increases.[16]

It would therefore be advisable to reduce, at a minimum, by half the time limits stipulated in articles 284 to 286 of the Brazilian Corporations Law (LSA), so that the time limit for annulling the incorporation of a company would be reduced to 6 (six) months and the time limit for annulling resolutions to a maximum of 1 (one) year. This would increase legal certainty in a particularly sensitive environment such as the corporate environment, allowing for faster stabilization of internal and external relations, which would provide gains in efficiency and legal certainty for corporate relations, the capital market, and business transactions in general.

Need for Annulment of the Resolution Approving Accounts in Order to File a Liability Lawsuit Against an Administrator. Critical Analysis of the Jurisprudence of the Superior Court of Justice.

Notwithstanding the aforementioned positive precedents from the higher courts on the topic of "annulment of shareholder meeting resolutions," discussions regarding corporate invalidity do not end there.

When analyzing the issue of the interrelation between the two-year statute of limitations for annulling a shareholders' meeting resolution approving accounts (article 286 of the Brazilian Corporations Law) and the three-year statute of limitations for liability actions against directors (article 159, § 3, of the Brazilian Corporations Law), the Superior Court of Justice[17] It has been decided that the failure to file an action to annul the resolution within the 2-year period would preclude the filing of a liability action, since the approval of accounts would exonerate the administrators from liability (Article 134, § 3, of the Brazilian Corporations Law), so that the liability action could not dispense with the prior or simultaneous annulment of the resolution.

These decisions have been heavily criticized by legal scholars.,[18] since it would have assigned to quitus The interpretation of § 3 of Article 134 of the Brazilian Corporations Law (LSA) gives it a force that should not be derived from it, since the rule of exemption from liability would consist of a mere relative presumption of regularity of action, which could, as is usual in this type of presumption, be overturned in the liability action itself or through a new shareholders' meeting decision, especially because the aforementioned provision expressly exempts cases of "error, fraud, deceit or simulation". Critics of this jurisprudence add that the absolute presumption of exemption from liability, as interpreted in several STJ (Superior Court of Justice) rulings, has no precedent in any foreign legal system.[19]

It seems to me that, at this point, the criticisms are well-founded, since it would not make sense to lose 1/3 of the legally stipulated period for filing a liability lawsuit against the administrators due to the need to annul the shareholders' meeting decision approving the accounts. Therefore, considering that the presumption of regularity could be refuted, with justification, within the liability lawsuit itself,[20] There would be no basis for reducing, through indirect means, the three-year period stipulated in Article 159, § 3, of Law No. 6,404/76.

Furthermore, anyone familiar with the dynamics of an approval of accounts at a shareholders' meeting clearly understands that irregularities, when they exist, are not explicitly stated in the financial statements and other information made available to shareholders, which is why giving undue weight to the... quitus The approach resulting from the approval of accounts would not be the most appropriate course of action.[21]

It should be noted that the analysis of this issue should not be tainted by the perception that the 3-year period for liability actions is excessive. As already explained in the previous chapter, corporate time limits do indeed need to be reduced, but until that happens, the interpretation should never be biased towards reducing the limitation and forfeiture periods provided for in the Brazilian Corporations Law (LSA), which would generate catastrophic consequences for the legal certainty required in this area.

On the Peculiar Nature of Defining the Passive and Active Parties in an Action to Annul a Assembly Resolution – Proposal for a Federal Legislative Amendment.

As a rule, every shareholders' meeting resolution creates a new situation for the company, since the combination of votes forms the will of the company itself, so that the resolution becomes part of the legal sphere of the legal entity, modifying its nature in some way. status.

Furthermore, in certain cases, shareholder meeting resolutions can create or extinguish rights in relation to shareholders, as occurs in the case of resolutions regarding the distribution of dividends.,[22] which necessarily implies the establishment of the right to receive the corresponding amounts by the shareholders.

The proposed action to annul the assembly resolution, whether due to violation of the law or bylaws or because it is tainted by a defect of consent, will be of a negative constitutive nature.[23] In theory, nothing prevents this constitutive action from being combined with a declaratory action.

It is worth noting, however, that most shareholder meeting decisions do not directly affect shareholders, but only indirectly, therefore making their participation in the action unnecessary (there is no necessary joinder of parties). Even so, since the annulment action could be brought by several shareholders, it cannot be said that each legal claim would be completely independent of those of the others, as such an interpretation would generate procedural chaos and legal uncertainty.[24]

The issue becomes particularly complex when the resolution to be annulled confers, directly or indirectly, rights on shareholders or a group of shareholders, as in the case of a resolution on the distribution of dividends or that affects a group of shareholders.vg...exclude the votes of a certain class of shareholders or alter their rights).

In these cases, it would be a fallacy to argue that the resolution would not affect the legal sphere of any shareholder, since, in reality, there would be an undeniable impact on the private legal sphere of the shareholders as a result of the annulment of the resolution.[25]

Strictly speaking, according to a strict reading of the CPC rules, whenever a resolution creates, extinguishes, or affects the rights of shareholders, it would be necessary for them to participate in the annulment action, since, considering the indivisible nature of the object of the action (annulment of the assembly), they would necessarily be affected by any judgment that finds the request valid, as it would not make sense for the resolution to be annulled in relation to some and not annulled in relation to other shareholders (unitary joinder of parties).[26]Nor could it be argued, in these cases, that the annulment of the assembly would only affect the company, since we are dealing precisely with the specific hypothesis in which the resolution would create or extinguish shareholder rights.

As already mentioned at the beginning of the article, proceedings involving corporate matters require special attention to issues whose treatment cannot be identical to that applied in classic contractual relationships. In this context, the most "traditional" solution, from the perspective of Civil Procedural Law, would be the mandatory summons of each shareholder whose sphere of rights could be affected by the eventual decision to be rendered in the action, since this would constitute mandatory joinder due to the indivisibility of its object (necessary unitary joinder).

However, this does not seem to me to be an efficient solution, considering the peculiarities of corporate dynamics, since the investor, when acquiring a share, often does not intend to participate in these internal company matters, but only to receive their dividends.

Furthermore, these annulments of resolutions can generate repercussions that, due to corporate dynamics, will benefit future shareholders, and not those who would be "cited" at the beginning of the legal action. For example, if there is a shareholders' meeting resolution to distribute 10% of profits and this resolution is suspended by a preliminary injunction, only to be overturned after 5 years (allowing the distribution), there is no doubt that, especially when dealing with a publicly traded company, the composition of the shareholder base would already be very different from what it was when the action was filed. Therefore, it can be concluded that those who would benefit from the reversal of the preliminary injunction and the consequent delayed distribution of dividends would be the new shareholders, and not those who were shareholders at the beginning of the action, since the action carries the rights arising from it until the moment of its execution.

It therefore seems likely that many shareholders have no interest in participating in this lawsuit, which is why summoning everyone would be disproportionate and unproductive, in addition to generating risks related to the costs of litigation that are completely foreign to the position of a market investor.

In this scenario, it becomes very clear that the classic procedural system would be inadequate to resolve this situation properly within the corporate context. Thus, it seems to me that the best solution is..., de lege ferenda, This would involve establishing a rule for disclosing shares using the same system that would govern the convocation of general meetings (article 124 of the Brazilian Corporations Law), at which point all shareholders wishing to participate in the share could join.[27] (observing the criteria of legitimacy that might be foreseen by law and the period of qualification that would be set by the court), by virtue of the acquisition of the shares, it being certain that the action would have res judicata effect for all shareholders, present and future, who might be affected by the action, thus preventing the filing of new actions to discuss the same subject.

Although there may be concerns about procedural turmoil due to the excessive number of shareholders joining the lawsuit, it does not seem to me that this is a real risk, considering the corporate dynamics and the ordinary interests of most market investors.[28]

Furthermore, this seems to be the most harmonious and appropriate solution for dealing with changes in the corporate structure, which implies that the beneficiary or victim of a court decision will not always be the same person who was part of the corporate structure when the lawsuit was filed. This requires a procedural rule that is capable of handling this particular dynamic.

Therefore, I believe that a legislative reform to provide a specific rule for the open formation of the procedural relationship in corporate annulment actions would be quite appropriate, so as to allow shareholders to be summoned for the purpose of participating in the process (by rules equivalent to those for summoning a shareholders' meeting), provided that certain requirements defined by the judge based on legal criteria are met and the qualification period is observed, from which point the shareholders could or could not participate in the action, choosing, in the first case, the side of the action in which they would join, and all (present, past and future shareholders) being subject to the effects of the decision that might be rendered.[29] This rule, in my opinion, would be more suited to corporate reality and would generate greater legal certainty.

Action brought by a shareholder of a subsidiary, acting as its procedural substitute, against the controlling company – Article 246 of the Brazilian Corporations Law.

As already mentioned in Chapter I, Article 246 of the Brazilian Corporate Law (LSA) provides a system of incentives for filing lawsuits against irregular conduct by controlling shareholders that may cause harm to their controlled companies.

It is important to emphasize, right from the start, that in a derivative action (unlike the class action (In the American system), the benefit sought is directed towards society, not towards the shareholder who would file the lawsuit as a procedural substitute for the company. Thus, without devising an incentive mechanism for filing such a lawsuit, it would be very unlikely, if not irrational from an economic standpoint, that a shareholder would embark on such a venture.

The logic behind the legal rule is as follows: a controlled company, subject to the will of the controlling company by virtue of the majority principle, would hardly authorize the filing of a liability action against its controlling company. Therefore, shareholders who together held 5% of the share capital would have extraordinary standing to file a lawsuit against the controlling company on behalf of the controlled company, reversing this trend of not investigating any irregularities.

This rule represents a conceptual advancement for the capital market, generating extremely positive externalities, so much so that, on the one hand, it would be able to reverse expropriatory acts carried out by controlling shareholders, and, on the other hand, it would have a deterrent effect on new irregular conduct, since there would always be the risk that minority shareholders would bring the action as procedural substitutes for the controlled company.

However, filing a lawsuit involves risks (losing the case) and requires expenditure of resources (lawyers, expert opinions, court costs, etc.), which is why the natural tendency would be for minority shareholders not to file a lawsuit, since the risks of loss would be high and the possible benefits, in case of victory, would be indirect and dissipated among all shareholders, since the compensation would be paid to the controlled company (substituted in the proceedings). Therefore, there would be a situation of risk concentration and benefit dispersion, as Bulhões Pedreira perfectly explains:

The reason for this is very simple. In principle, every shareholder who initiates the action gains nothing, because the result benefits the company (...). This stems from the recognition that it is pointless to better define the rights of minority shareholders if those rights are not exercised. Otherwise, all laws become dead letters. It is unreasonable to expect any shareholder to spend years on a lawsuit, arguing with the controlling shareholder, and in the end receive nothing, at most reimbursement of expenses.”[30]

To reverse this situation of little incentive to file the lawsuit, the Brazilian Corporations Law (article 246) provided a rule that the shareholder who filed the lawsuit as a procedural substitute for the controlled company would receive, in case of success of the lawsuit, a bonus of 5% of the compensation amount and, furthermore, that the lawyer who acted in the case would receive fees in the pre-fixed percentage of 20%.

Through this rule, there would be an incentive for the lawyer to represent the case and for the shareholder to file the lawsuit. On the one hand, it encourages the filing of a lawsuit against the controlling shareholder who acted irregularly to correct the damage already suffered by the controlled company and, on the other hand, it discourages new irregular conduct, since, in that case, there will be a risk that the controlling shareholder, in addition to compensating for the damage, will have to pay an extra 25% (20% in fees and 5% in premium).

It is worth noting that this rule exists in several other legal systems, sometimes focusing on rewarding lawyers (who in many places sponsor this type of action).[31]In some cases, the prize is awarded to shareholders, and in others, to shareholders. In Brazil, the law opted to divide the prize between the shareholder (5%) and the lawyer (20%), which seems to us an intelligent strategy, as it would engage investors and lawyers in the same cause.

Article 246 of Law No. 6,404/76, therefore, would have the role of encouraging minority shareholders to file lawsuits against allegedly irregular conduct by the controlling shareholder, in order to correct or prevent wrongdoing in the capital market.

It turns out that, although the legal provision was very well drafted by the authors of Law No. 6,404/76, Lamy Filho and Bulhões Pedreira, the application of the rule, as already mentioned, left much to be desired, since, after the judgment by the STJ (Superior Court of Justice) of Special Appeal No. 745,739-RJ, all the incentives provided for in Article 246 were rendered meaningless through the interpretation that the mere incorporation of the controlled company by the controlling company would be sufficient as a strategy to prevent the payment of the compensation and premiums provided for in the law.

To explain further: a minority shareholder of Petroquisa (subsidiary) entered the lawsuit as a procedural substitute for Petroquisa, using the rule of article 246 of the Brazilian Corporations Law (LSA), to claim compensation for acts by Petrobras (controlling company) that allegedly caused damage to the subsidiary/Petroquisa. Without addressing the merits of the claim, it is noted that the lawsuit was successful in the first and second instances, but the 3rd Panel of the Superior Court of Justice (STJ) overturned the decision in the judgment of Special Appeal No. 745.739-RJ on August 28, 2012, when, in a preliminary matter, it held that the action could be dismissed without prejudice due to the merger between the creditor (subsidiary, procedural substitute in the action) and the debtor (controlling company, defendant in the action), as a result of the merger operation carried out after the second instance decision that upheld the judgment against the creditor.

It should be noted that only the preliminary issue of confusion, as analyzed in REsp No. 745.739/RJ, which defined the matter as follows, will be examined here:

SPECIAL APPEAL – PRIVATIZATION – LAW 8.031/90 – COMPENSATION UNDER ARTICLE 246 OF LAW 6.404/76 – ALLEGATION OF ABUSE OF POWER BY THE CONTROLLING SHAREHOLDER (ARTICLE 117 OF LAW 6.404/76) – LACK OF STANDING TO SUE – NOT APPLICABLE – NEW FACT – SUBSEQUENT INCORPORATION OF THE COMPANY BY THE CONTROLLING SHAREHOLDER – CONFUSION BETWEEN CREDITOR AND DEBTOR – ARTICLE 381 OF THE CIVIL CODE – (…)

IV – With the reported merger (new fact), the alleged creditor (controlled company) and the supposed debtor (controlling company or shareholder) merge into a single legal entity. Any credits of the controlled company, as well as any obligations, become credits or obligations of the controlling company itself.

V – Therefore, the qualities of creditor and debtor become confused, and, although there is still no final and unappealable judicial decision conferring the right or defining the obligation, there is no legal possibility for the continuation of the lawsuit, given the inevitable confusion.

VI – Therefore, in the present case, what the Civil Code, in articles 381 et seq., calls merger occurs, and although the provisions of article 267, item X, of the Code of Civil Procedure could be applied and the case dismissed without prejudice, given the importance and relevance of the matter dealt with here, it is highly recommended and appropriate to examine the merits of the special appeal.(…)

XII – Given the circumstances of the case, there is no conviction, no winner or loser. Thus, each party shall bear the legal fees of their respective attorneys and shall be responsible for half of the court costs and expenses of the proceedings, with no payment of the award provided for in § 2 of article 246 of Law 6.404/76 being due, and the release of the funds to the appellee being permitted.”[32]

This ruling, by admitting that the incorporation of the subsidiary extinguishes not only the compensation of the substituted party (which would already be debatable as it would affect the "substitution relationships" of the shares due to the operation, according to article 264 of the Brazilian Corporations Law), but also prevents the payment of the premium to the minority shareholder (who filed the lawsuit) and the special fees of 20% to the lawyer (article 246, § 2, of the Brazilian Corporations Law), ended up destroying all the incentives provided by law for filing the lawsuit.

Since this type of action always involves controlling companies[33] and controlled, and taking into account that the controlling company always has the discretionary option to incorporate the controlled company (since it would control the two shareholders' meetings approving the transaction, which is a typical case). self-dealing transactionAs a consequence, the liability action under Article 246 of the Brazilian Corporate Law could always be dismissed by a unilateral decision of the controlling company that allegedly acted improperly.

The consequence of this jurisprudence is the annihilation of all incentives provided by law for bringing a liability action against the controlling shareholder, since no minority shareholder, after the decision, would invest time and money in an action that could be completely rendered unfeasible through a merger between the companies, which can be decided at the discretion of the controlling shareholder who is the defendant in the action.

Reversing this jurisprudence, therefore, appears imperative so that Article 246 of Law No. 6,404/76 does not become an ineffective provision that fails to fulfill its function.

The problem, however, is that, after the decision in REsp No. 745.739/RJ, no further actions are being filed based on Article 246 of the Brazilian Corporations Law (LSA), which makes a change to this jurisprudence very unlikely, since no rational investor would embark on a legal adventure, risking, after decades of litigation, seeing the defendant incorporate its subsidiary and thus extinguish the action without a judgment on the merits.

In this context, I believe that the best way to change the situation and achieve some effectiveness in Article 246 of the Brazilian Corporate Law (LSA) would be a legislative amendment stating that corporate transactions carried out after the filing of the lawsuit, even if they make it impossible for the subsidiary to receive compensation, would not prevent, if the original arguments are successful, the minority shareholder who filed the lawsuit from receiving the 5% award and the 20% attorney's fees, without which the incentives for filing the lawsuit under Article 246 would become completely nonexistent.

Finally, it should be noted that in the US, where this type of action is quite common and effectively serves to deter market irregularities and remedy existing irregularities, there are several precedents for guaranteeing the "reward" of the action (which in the American system goes to the lawyer).[34]) be received even when, due to some circumstance, compensation becomes unfeasible despite the finding of irregular conduct by the defendant in the action.

As an example, we can cite the case... Mills v. Electric Auto Lite Co. (396 US 375), decided by the US Supreme Court in 1970,[35] when it was decided that, in light of the proven violation of the rules of Section 14(a) from the Security and Exchange Act of 1934 (relevant omissions in power of attorney/proxy Regarding the relationship between the administrators of Electric Auto-Lite Co. and the other company that participated in the merger, attorney fees would be due regardless of whether there was a loss, that is, even if the transaction was considered "fair" (fair transaction) and therefore, compensation is not applicable. The short excerpt below explains the rationale for the ruling ordering payment of Council fee even in the absence of damage:

In many suits under § 14 (a), particularly where the violation does not relate to the terms of the transaction for which proxies are requested, it may be impossible to assign monetary value to the benefit. Nevertheless, the stress placed by Congress on the importance of fair and informed corporate suffrage leads to the conclusion that, in vindicating the statutory policy, petitioners have rendered a substantial service to the corporation and its shareholders. Cf. Bakery Workers Union v. Ratner, 118 U.S. App. DC 269, 274, 335 F. 2d 691, 696 (1964). Whether petitioners are successful in showing a need for significant relief may be a factor in determining whether a further award should later be made. But regardless of the relief granted, private stockholders' actions of this sort ’involve corporate therapeutics,“ and provide a benefit to all shareholders by providing an important means of enforcement of the proxy statute. To award attorneys' fees in such a suit to a plaintiff who has succeeded in establishing a cause of action is not to saddle the unsuccessful party with the expenses but to impose them on the class that has benefited from them and that would have had to pay them had it brought the suit.

As can be seen, even in cases where the action is unsuccessful with respect to the claim for damages (since the transaction would be considered to have a "fair" price), American precedents still hold that attorney's fees ("lawsuit premium") are due, provided that the irregularity of the conduct is proven, otherwise the objectives of the rule would be rendered unfeasible.

Liability Action Against Administrator – Article 159 of the Brazilian Corporations Law.

Article 159 of Law No. 6,404/76 deals with liability actions against directors for alleged irregularities that may cause harm to the company.

The natural course of action, when faced with a situation of suspected misconduct by an administrator, would be to submit the matter to the general shareholders' meeting for deliberation on the issue. If the proposal to file a lawsuit is approved, the company itself would then initiate legal proceedings.

Law No. 6404/76, however, mindful of the realities of corporate life, could not disregard the strong influence of administrators in this environment, since the administration could, even if the general meeting had resolved in favor of filing the lawsuit, not propose or delay the filing of a liability lawsuit against themselves or their peers. Furthermore, the controlling shareholder, who is the one who chooses the administrators, could dominate the general meeting and vote against filing the liability lawsuit, even if there was evidence of irregularity.

To correct these distortions, paragraph 3 of the aforementioned provision allows any shareholder to file the lawsuit as a procedural substitute for the company when the company delays for more than three months the filing of the lawsuit already approved in a general meeting, while paragraph 4 allows that, notwithstanding the rejection of the lawsuit by the general meeting, shareholders representing at least 51% (five percent) of the company's share capital may file the corporate action. ut singuli against the administrators.

Paragraphs 3 and 4 attempt, through the phenomenon of procedural substitution, to enable the filing of a liability lawsuit by the company (procedurally substituted) against its administrators, for the purpose of compensation for damages suffered, even when the administration delays filing the lawsuit or the controlling shareholder protects administrators who fail in their duties.

The problem, however, is that the Law, unlike the rule in Article 246, did not provide in paragraph 4 of Article 159 any effective incentive for the initiative of minority shareholders.

Although the derivative action allows a shareholder holding 5% of the share capital to bring a liability action against the administrator when the shareholders' meeting resolution is against filing the action, it is observed that, in practice, shareholders do not have effective incentives to go to court as procedural substitutes for the company, since, acting in defense of the company's interests, they would in principle bear all the expenses arising from court costs and attorney's fees incurred in filing the action, as well as being subject to the risk of losing the case (borne individually by the shareholder/procedural substitute), while the benefits obtained in case of success of the action would be destined to the company, only indirectly benefiting the plaintiffs, in a dissipated and identical way for all shareholders. Furthermore, if the compensation is insufficient to reimburse all the expenses of the legal action, the reimbursement of the procedural substitute shareholder would be partial even in the case of success of the action (§5).

It is clear, therefore, that shareholders have no effective incentive to bring this action, as evidenced by the low utilization of this type of legal action. In this regard, it is worth transcribing the analysis of the topic carried out by Erik Frederico Oioli and José Afonso Leirão Filho:

This is one of the obstacles to corporate activism, given that, of the gains obtained, only a fraction (often small) goes to the active shareholder, as seen above. After all, the rational behavior of the shareholder, like that of any investor, is guided by the risk versus return analysis, concluding that they may have little to gain and much to lose.[36]

It can be concluded, therefore, that a legislative amendment would be important to provide some kind of "reward" to the plaintiff and/or lawyer in the action (as chosen by the legislator), without which the liability action against directors brought by minority shareholders will continue to exist almost exclusively on paper.

Corporate Class Action Lawsuits – Brief References.

The collective action in the capital markets that exists in the Brazilian legal system is that provided for in Law No. 7,913/89 (“public civil action for liability for damages caused to investors in the securities market”), whereby the Public Prosecutor's Office, either on its own initiative or at the request of the CVM (Brazilian Securities and Exchange Commission), may initiate legal action to “prevent losses or obtain compensation for damages caused to holders of securities and investors in the market,” in cases of fraudulent operations in their various forms (ICVM 08/79), trading based on privileged information by insider primary and failure to disclose relevant information.

As provided for in Article 2 of the aforementioned Law, the judgments will revert in favor of the injured investors in proportion to their losses, who may apply, within a period of 2 years, to receive these amounts.

Whether due to lack of expertise from the Public Prosecutor's Office, whether due to the inherent difficulty of this type of action, the fact is that they are extremely rare.,[37] if not nonexistent, actions of this nature that have been proposed by parquet.[38] Furthermore, the law did not specify whether the action would be against the company or against the administrators responsible for the errors, which is always the biggest point of contention in this type of lawsuit.

Given the empirical ineffectiveness of this type of public civil action, what is currently being discussed in Brazil, both in the judicial and arbitral spheres, is the filing of a collective action by the shareholders themselves, along the lines of... class action American, in which the holders of securities file a lawsuit against the company seeking compensation due to irregular acts, especially the dissemination of misleading information.

Given that this involves importing a procedural action from a different system (the USA), a thorough analysis of its compatibility with our legal system would be essential, as well as an assessment of the positive and negative externalities of this procedural instrument, which, it should be noted, has already been subject to serious criticism in its own country of origin.[39]

Given the complexity of the topic, which would require a broad analysis incompatible with the length of this article, we will leave this subject to be developed on another occasion, these brief references being made only to provide context for the important discussion on the... class action so that it would not be completely forgotten in this article.

Conclusion.

Since the 1970s, Brazil has had a sophisticated and theoretically capable legal procedural framework to correct irregular conduct by the controlling company that causes harm to the controlled company. This includes incentives to encourage the plaintiff (procedural substitute) to file a lawsuit and special fees for the lawyer representing the case. However, the interpretation adopted by the Superior Court of Justice (STJ) in Special Appeal No. 745.739/RJ ended up hindering the incentives for filing the lawsuit, which rendered Article 246 of the Brazilian Corporations Law (LSA) of little practical use.

The action against directors (article 159 of the Brazilian Corporations Law) lacks incentives within the legal framework itself, which would require, for improvement purposes, some adjustments to the law regarding the creation of adequate incentives for filing the action, thus achieving the goal of creating a healthier and more regulated capital market.

Regarding actions to annul shareholder meetings or decisions made by shareholder meetings, although the law is quite sparse on the subject, case law has progressed well, recognizing the peculiar nature of the theory of nullities in the corporate environment and the various consequences arising therefrom. In any case, specific legislative changes would be highly advisable to codify important points on the subject, reduce the limitation periods (defined in the 1970s), and address some sensitive procedural issues related to the matter.

As already mentioned in the initial chapter, this article sought only to point out existing problems in the area of corporate procedure, as well as to suggest some reflections on the best interpretations of existing rules and possible improvements that could be made to the legislation, without, in any way, presenting completely ready-made answers to these delicate and difficult questions.

[1] However, due to space limitations, this collective action will not be studied in depth in this article; only brief, general considerations on the subject will be made in the final chapter, before the conclusion.

[2] Art. 246. The controlling company shall be obliged to compensate the company for damages caused by acts committed in violation of the provisions of articles 116 and 117 (...).

§ 2 The controlling company, if convicted, in addition to repairing the damage and bearing the costs, will pay attorney's fees of 20% (twenty percent) and a bonus of 5% (five percent) to the plaintiff, calculated on the amount of the compensation.

[3] Here is the classic lesson from the aforementioned Jurist: “In my view, society is born from a contract, and more precisely from a subspecies, perhaps still neglected, of contracts, which I propose to call multilateral. The various peculiarities of its constitution seem to reconcile with the fundamental concept of contract (since there is, in society, a contrast of interests that the contract aims to resolve, unlike what occurs in cases of complex acts), although they evidence the existence of a particular subspecies, that of the multilateral contract (whose peculiarities already appear, in the process of constitution, in the rule that the defect of one adhesion does not invalidate the entire contract, and so on). This contract, however (and its peculiarity is also revealed in this aspect), aims at the discipline of a subsequent activity in relation to an end that unifies the various interests of the different parties; it therefore has an instrumental character. From this fact arise peculiarities that, ultimately, relate to the protection of third parties. Furthermore, a separate patrimony results from the contract, a legal person, and it is by This makes it possible to distinguish what pertains to the validity of the contract itself (which concerns the theory of nullity or annulability of the company) and what pertains to the formation of separate assets (which ultimately concerns publicity and the theory of irregular companies). The contract aims at the constitution of an organization, the discipline of a subsequent activity for the achievement of a specific purpose and, therefore, it is necessary to organize the management of the company” (ASCARELLI, Tullio. Overview of commercial law. São Paulo: Saraiva, 1947. pp. 156-157.

[4] GALBANO, Francisco apud LAMY FILHO, Alfredo. Vices or defects in the decisions of corporate bodies. In: The law of corporations. Rio de Janeiro: Renovar, 1996, vol. II, p. 699.

[5] Draft bill authored by Miranda Valverde.

[6] LAMY FILHO, Alfredo. Vices or defects in the decisions of corporate bodies. In: The law of corporations. Rio de Janeiro: Renovar, 1996, vol. II, pp. 699-700.

[7] It should be noted that the justification for this difference in regime lies in the principle of business continuity, the need for stability in social relations (between shareholders and between them and the company), and the protection of the economic environment and third parties who interact with the company, relying on the presumption of regularity of corporate acts filed with the Commercial Registries.

[8] BORBA, Gustavo Tavares. COELHO, Fábio Ulhoa (coord.). Treatise on commercial law: types of companies, limited liability company and corporation.. São Paulo: Saraiva, 2015. p. 371, 386 and 387.

[9] BRAZIL. Superior Court of Justice. Special Appeal No. 1,330,021/SP. Rapporteur: Justice Luís Felipe Salomão. São Paulo 2016. Electronic Journal of Jurisprudence. Brasilia, March 17, 2016.

[10] BRAZIL. Superior Court of Justice. Special Appeal No. 35,230. Rapporteur: Minister Sálvio de Figueredo. Brasília 1995. LEXSTJ – Vol 80. São Paulo, April 10, 1995.

[11] Furthermore, due to the reform carried out in 2011 (Law No. 10,303/2011), the general three-year statute of limitations in corporate law was extended to any action, regardless of its basis, brought by a shareholder against the company (Article 287, II, "g", of Law No. 6,404/76). For obvious reasons, this rule applies to actions brought by the shareholder by virtue of their shareholder status, not to other actions unrelated to that position.

[12] For example, article 206, II, a, of Law No. 6404/76, which determines that the annulment of the incorporation of a company results in its dissolution and liquidation (article 207), is a very different outcome from that which would occur in the case of a return to... status quo ante, according to the general theory of nullities.

[13] For a more in-depth look at the topic, we suggest reading the article “Invalidation of the General Assembly and its Resolutions” (BORBA, Gustavo. Invalidation of the General Assembly and its Resolutions). In: ULHOA COELHO, Fábio (Coord.). Treatise on Commercial Law – Vol. 2. São Paulo: Saraiva, 2015).

[14] From January 1, 1917 (when the 1916 Civil Code was in effect) to January 11, 2003 (when the 2002 Civil Code was in effect).

[15] NOVAES FRANÇA, Erasmo Valladão Azevedo. Annulment of the Assembly for the Transformation of a Public Limited Company. InNOVAES FRANÇA, Erasmo Valladão Azevedo (Coord.) Topics in Corporate Law, Bankruptcy Law, and Business Theory. São Paulo: Malheiros, 2009. p. 261.

[16] The work of Marcelo Vieira Von Adamek, entitled "Suggestions for Improving the Corporations Law: A Draft Bill," is yet to be published (the author authorized its use in this article prior to publication).

[17] BRAZIL. Superior Court of Justice. Appeal in the Appeal on Points of Law No. 950.104/DF. Rapporteur: Justice Massami Uyeda. Brasília 2009. Electronic Official Gazette. Brasilia, March 30, 2009. Available at: https://scon.stj.jus.br/SCON/GetInteiroTeorDoAcordao?num_registro=200701988987&dt_publicacao=30/03/2009. Accessed on November 1, 2021; BRAZIL. Superior Court of Justice (Fourth Panel). Appeal in the Instrument of Appeal No. 640.050/RS. Rapporteur: Minister Luis Felipe Salomão. Brasília 2009. Electronic Official Gazette. Brasilia, May 19, 2009. Available at: Accessed on November 1, 2021; BRAZIL. Superior Court of Justice. Special Regime No. 1,313,725/SP. Rapporteur: Minister Ricardo Villas Bôas Cueva. São Paulo 2012. Journal of the Superior Court of Justice – Vol 227. Brasilia, June 26, 2012; BRAZIL. Superior Court of Justice. Special Appeal No. 1,515,710/RJ. Rapporteur: Justice Marco Aurélio Bellizze. Brasilia 2015. Electronic Official Gazette. Brasilia, June 2, 2015. Available at:https://scon.stj.jus.br/SCON/GetInteiroTeorDoAcordao?num_registro=201403278369&dt_publicacao=02/06/2015Accessed on: November 1, 2021; etc.

[18] Jose Edwaldo Tavares Borba understands that, even if no action to annul the resolution approving the accounts is proposed, it would be permissible to file a liability action against the administrators, provided that the 3-year period stipulated in article [article number] is observed. Article 159, § 3, of the Brazilian Corporations Law (LSA): “It is therefore reaffirmed that the approval of the accounts leads only to a relative, generic and abstract presumption of regularity of these accounts. Proof of wrongdoing, produced in the civil liability action, removes the presumption of innocence that favors the administrator. (…) It is therefore necessary to establish the assertion that, even after the expiration of the period for the generic rebuttal of the presumption of exemption from liability of the administrators, which is two years from the date of the general meeting that approved the respective accounts (art. 286), there would still remain the period, which is three years from the publication of the minutes that approved these accounts (art. 287, II, “b”, 2), for the specific and concrete rebuttal of this presumption, to be promoted, by means of proof of wrongdoing.” (TAVARES BORBA, Jose Edwaldo. InVENANCIO FILHO, Alberto; SILVERIA LOBO, Carlos Augusto; ROSMAN, Luiz Alberto Colonna (Coord.). Corporations Law at 40 years old. Rio de Janeiro: Forense. 2017. p. 532-533).

Jose Gabriel Assis de Almeida, in turn, after analyzing each of the STJ's rulings on the subject, and noting the lack of in-depth analysis of the various details that the issue would entail, concludes that the filing of an action to hold administrators liable would not require the annulment of the shareholders' meeting decision approving the accounts, since the same meeting that approves the filing of the liability action could review the previous decision approving the accounts: "From all that has been presented, it appears that the STJ did not follow the correct path in referring to the need for a prior judicial action to annul the resolution approving the accounts, for the filing of a liability action against a company administrator (ALMEIDA, Jose Gabriel Assis de). InCASTRO, Rodrigo Rocha Monteiro de; AZEVEDO, Luis Andre; HENRIQUES, Marcus de Freitas (Coord.). Corporate Law, Capital Markets, Arbitration and Other Topics – A Tribute to Nelson Eizirik. (São Paulo: Quartier Latin, 2020. pp. 685-686). In fact, the rules of Law 6.404/7 deserve a different interpretation that gives them their full useful meaning (...) The first path is that of annulment by an act of the company itself, through a new resolution. This path should be followed whenever there is a majority of the company in favor of this annulment and the subsequent filing of a liability action against the administrator. It is normal that, if there is the will of the majority, this path is the easiest, dispensing with legal action to annul the dismissal of the administrators.”.

[19] It should be noted that there is a bill authored by the jurist Marcelo Vieira Von Adamek that seeks to resolve this problem through a rule that restricts the exemption from liability arising from... quitus, limiting it “only with respect to the facts expressly revealed to the shareholders who approved the settlement at the general meeting, and also to the company, without in any way preventing the filing of the action referred to in Article 159, § 4, of this Law by the other shareholders.” Indeed, this would be an interesting way to address the problem generated by the case law.

[20] This is because the "error" referred to in Article 134, § 3, of the Brazilian Corporations Law (LSA) must be understood in its broadest sense, which would be equivalent to ignorance about the irregularities committed.

[21] In this sense, as José Edwaldo Tavares Borba states in the aforementioned article, citing the legislation of Spain, Argentina, Italy, France and Portugal, it is not common to adopt an extensive interpretation of the exonerating effect of the shareholders' meeting decision that approves the accounts (TAVERS BORBA, Op. Cit., pp. 525-527).

[22] Regarding the topic: PACHECO, João Marcelo; DA SILVA, Thiago Jose. Dividends. Theory and Practice. In: CASTRO, Rodrigo Rocha Monteiro de; AZEVEDO, Luis Andre; HENRIQUES, Marcus de Freitas (Coord.). Corporate Law, Capital Markets, Arbitration and Other Topics – A Tribute to Nelson Eizirik. São Paulo: Quartier Latin, 2020. p. 495-517.

[23] The Portuguese jurist José Nuno Marques Estaca states: “The annulment action in question assumes the nature of a constitutive declaratory action.” (ESTACA, José Nuno MARQUES.). Society's interest in social deliberations. Coimbra: Almedina, 2003. p. 155). Pinto Furtado's teaching is in the same vein: “The judgment that decrees the annulment is a constitutive judgment, under the terms of article 4 – 2 of the Code of Civil Procedure, because it alters the legal order that existed until then, based on the (resolvable) validity of the resolution” (PINTO FURTADO). apud ALMEIDA, LP Moitinho de. In: Annulment and suspension of corporate resolutions. Coimbra: Coimbra Editora, 2003. p. 62).

[24] Imagine a hypothetical and exaggerated situation in which, in a company with 300 shareholders, each of them filed a different lawsuit seeking the annulment of the same resolution. Certainly, there would be a connection between the lawsuits to avoid contradictory decisions, but even so, it would be chaotic and inefficient to have to defend against 300 different lawsuits, especially when some of them might be at different procedural stages.

[25] Luiza Carlos Piva, in the collective work "Company Law," explains the right to dividends quite clearly: "The shareholder's right to dividends only becomes enforceable after the approval of the balance sheet by the General Meeting, and the resolution to allocate profits, or part thereof, to the payment of dividends: until this occurs, the enforceability of profits does not exist." (PIVA, Luiz Carlos.). In: FAMY FILHO, Alfredo; BULHÕES PEDREIRA, José Luis (Coord.). Corporate Law. Rio de Janeiro: Forense, 2017, 2nd ed. p. 1,252).

[26] Cândido Rangel Dinamarco perfectly analyzes the characteristics of unitary joinder of parties: “The ineffectiveness of a judgment rendered without all the necessary co-litigants being present in the proceedings is, in this sense, absolute ineffectivenessNot only does it fail to produce effects on legitimate third parties not involved in the process, but it also fails to produce the typical effects on the parties themselves. This is why doctrine traditionally states, emphatically, that this judgment... inutilliter datur: she is given uselessly, in the literal sense of the word and in consideration of the total and absolute social futility of the process in view of the objective that motivated it. (...) the legal situations that give rise to necessary joinder of parties ex Article 47 of the Code of Civil Procedure (necessary unitary joinder of parties: see above, no. 27) refers to situations that do not allow for duality or heterogeneity of treatment: they are indivisible. "The indivisibility of the situation implies that either it is regulated (and in a uniform manner) with respect to all holders, or it cannot be the subject of any provision." (DINAMARCO, Cândido Rangel.). Joint litigation: a study on common, unitary, necessary, and optional joint litigation. 2nd Edition, São Paulo: Revista dos Tribunais, 1986. pp. 221-222).

[27] Our legal system already has a similar rule regarding collective actions for the defense of homogeneous individual rights, with the publication of a notice for potential interventions, as can be seen in Article 94 of the Consumer Protection Code (Law No. 8079/90).

[28] A similar fear arose with the expansion of permission for remote participation in general meetings (new wording attributed by Law No. 14,030/20 to the paragraphs of articles 121 and 124 of Law No. 6,404/76), when it was thought that there could be a gigantic increase in the participation of small shareholders, which did not materialize.

[29] It should be noted that Peter Christian Sester, in a recently published article, analyzes, from the perspective of corporate arbitration proceedings, "the need for the effect erga omnes and the concentration” in decisions on annulments of corporate resolutions. The author, in the development of the article, cites German legislation on the matter, which determines the disclosure of the action and the possibility for all shareholders to have the option of joining, within 1 month, as assistants. German law also provides that the decision will be effective against all shareholders and members and bodies of the company. For clarity, the free translations of § 246 (4) and § 248 (1) of the [relevant law] are transcribed. Aktiengesetz (German LSA), carried out in the aforementioned article: “§ 246 (4) The executive board shall immediately publish the notice of the filing of the annulment action in the Official Gazette (…). A shareholder may intervene in the proceedings as an assistant within one month from the date of publication.” “§248 (1) Insofar as the resolution is annulled by a judgment that has become final, such judgment shall have effect for and against all shareholders and members of the board of directors and management, even if they were not parties to the proceedings (…)” (SESTER, Peter Christian. The Need for a Corporate Arbitration Subsystem. InMONTEIRO, Andre Luís; PEREIRA, Guilherme Setoguti J.; BENEDUZI, Renato (Coord.) Collective Corporate Arbitration, São Paulo: Revista dos Tribunais, 2021, pp. 518-519).

[30] BULHÕES PEDREIRA, José Luis apud BUSCHINELLI, Gabriel Saad Kik; BRESCIANI, Rafael Helou. Procedural Aspects of the Controlling Shareholder Liability Action filed by a Shareholder Holding less than 5% of the Share Capital. In: YARSHELL, Flávio Luiz; PEREIRA, Guilherme Setoguti J. (Coord.). Corporate Litigation – Volume II. São Paulo: Quartier Latin, 2015, p. 252.

[31] On the subject, Adreas Cahn and David C. Donald have this to say about the American regime of derivative actions: “While derivative action may be an 'ingenious accountability mechanism', when combined with contingent fees, as in the US, it shifts the incentive to bring corporate wrongs to court from the person who is injured (…) to the lawyer prosecuting the case (who will receive a percentage of any damages paid to the corporation‘. (CAHN, Andreas; DONALD, David C. Comparative Company Law, Cambridge University Press UK, 2011. p. 603).

[32] BRAZIL. Superior Court of Justice. Special Appeal No. 745.739/RJ. Rapporteur: Minister Massami Uyeda. Rio de Janeiro 2021. Electronic Journal of Jurisprudence. Brasilia, August 28, 2021.

[33] Note that the controller can also be a natural person, which certainly does not prevent the filing of an action based on article 246 of the Brazilian Corporations Law (LSA), since, in this case, although the law refers to a "controlling company," the provision should be applied equally, by analogy, in the case of a natural person controller, as there would be no justification for differentiating between the two situations.

[34] In this sense, Melvin Aron Eisenberg and James D. Cox explain that, in the American system, incentives are concentrated on the lawyer, who will receive substantial benefits (“fee”) in case of success or settlement, but, in return, will bear the costs of the action: “As a practical matter, the engine that normally drives a derivative action involving a publicly held corporation is not the plaintiff, but the plaintiff's attorney. The plaintiff typically makes little or no investment in the action and stands to gain very little benefit. His attorney, on the other hand, makes a very substantial investment (in the form of his time and disbursements) and stands to reap a very substantial benefit (in the form of a fee).” (EISENBERG, Melvin Aron; COX, James D. Cox). Business Organizations – Case and Materials. Thomson Reuters/Foundation Press, 11th ed, 2014, p. 1,113). In Brazil, unlike the previous approach, the benefit/incentive was split between the plaintiff (5%) and the lawyer (20%).

[35] UNITED STATES SUPREME COURT. Mills v. Electric Auto Lite Co. (396 US 375), 1970. Available at: https://scholar.google.com.br/scholar_case?case=12493769403275984331&q=mills+v.+electric+auto-lite+co&hl=en&as_sdt=2006&as_vis=1. Accessed on: November 1, 2021.,

[36] OIOLI, Erik Frederico; FILHO, José Afonso Leirão. In: YARSHELL, Flávio Luiz; PEREIRA, Guilherme Setoguti J (Coord.). Corporate Litigation – Volume II. São Paulo: Quartier Latin, 2015. p. 172.

[37] Arnoldo Wald and Alberto Camiña Moreira express their views on the matter in an article published in Valor Econômico on December 27, 2019: “With the exception of individual initiatives by some agents of the Public Prosecutor's Office (MP) who are interested in the subject, it must be said that the institution is not focused on this issue. Concerned with administrative misconduct, the environment, and other relevant legal assets, the MP has neglected this role conferred upon it (…) There is, moreover, a mismatch between criminal repression (the responsibility of the Public Prosecutor's Office) and civil repression. The Superior Court of Justice (STJ) has already examined a criminal issue related to insider trading. However, so far, it has not had the opportunity to examine the civil aspect, relating to compensation. On the website of the Federal Regional Court of the 3rd Region (TRF-3), nine decisions can be found using the term insider trading, six appeals and three habeas corpus petitions. Only two cases discuss the annulment of the administrative sanctioning process.” carried out by the CVM. In the field of civil compensation, no precedent was found. (…)” (WALD, Arnoldo; MOREIRA CAMIÑA, Alberto. Law No. 7,913/89 and the capital market. Economic Value. December 27, 2019. Available at: (Accessed on: November 1, 2021).

[38] To make this public civil action more effective, it would be important to amend the law to clearly establish the CVM's legitimacy to bring the action, which could lead to greater efficiency in this area.

[39] As John C. Coffee pointed out in his analysis of class actions American companies as mechanisms for compensating damages and deterring irregular practices: “Deterrence works best when it is focused on the culpable, but there is little evidence that securities class actions today satisfy this standard. Rather, because the costs of securities class actions – both the settlement payments and the litigation expenses of both sides – fall largely on the defendant corporation, its shareholders ultimately bear these costs indirectly and often inequitably”. (COFFEE JR., John C. Reforming the Securities Class Action: On Deterrence and Its Implementation, Columbia Law Review, 2006. p. 1,536).

William Bratton and Michael Wachter share a similar understanding when analyzing the “fraud-on-the-market (FOTM)” actions based on the provisions of Section 10(b) of the Securities and Exchange Act and Rule 10b-5 of the Securities and Exchange Commission: "FOTM came forth making two promises: (1) it would compensate present fraud victims, and (2) it would operate as a deterrent against future fraud. FOTM is now generally seen to have altogether failed to deliver on the first promise (…) As to the deterrent promise, FOTM is thought to deliver, but only a little. Enterprise liability causes the problem once again: if FOTM were serious about deterrence, the funding would come from individual miscreants.“(BRATTON, William W; WACHTER, Michael L., The Political Economy of Fraud on the Market. Philadelphia: Faculty Scholarship, 2011. p. 72-73).