Summary:
This article addresses the liability of shareholders following the innovations brought to the investment fund environment by the Economic Freedom Law and CVM Resolution No. 175/22. It also analyzes, in particular, the liability of private equity funds (FIPs) in cases of abuse of control in the investee company or when the legal personality of the latter is disregarded. [1].
1. Contextualization of the Current Stage of Regulation on Investment Funds
Initially, it is important to clarify that we are at a very particular moment regarding the redefinition of the rules on investment funds. This is because the Economic Freedom Law (Law No. 13.874/19 – LLE) promoted significant changes in the legal framework on the subject, but the new CVM regulation was only partially elaborated. It is certain that, notwithstanding the issuance of the general rules (CVM Resolution No. 175/22), the specific normative annexes for each type of fund are still pending publication at this time.[2] (March/2023).
Please note that CVM Resolution No. 175/22 will come into effect.[3] Effective October 2, 2023, instructions pertaining to various categories of investment funds will be revoked, such as CVM Instruction No. 578/16, which specifically addresses Private Equity Investment Funds (FIPs).
The regulatory annex on FIPs will certainly be published by October 2nd, but, from all indications, there seems to be no movement from the regulator to promote substantial changes to the specific rules contained in ICVM No. 578/16, so the trend would be to have a new regulatory annex on FIPs with rules similar to those currently in force.
In this context, notwithstanding these regulatory uncertainties, it can be concluded, through an analysis of the general part of the new CVM Resolution No. 175, as well as the rules of the regulation currently in force for FIPs (ICVM No. 578/2016), that investment funds remain a "pooling of resources," without legal personality, constituted in the form of a "special type of condominium." However, the leading role in the management of the fund has changed, becoming shared between the manager and the administrator.[4].
The FIP (Investment Fund in Participations) also continues to be a "vehicle" intended for the acquisition of shares, subscription warrants, simple debentures, and other securities convertible or exchangeable into shares issued by publicly traded or privately held companies, as well as securities representing participation in limited liability companies. Furthermore, by its very nature and concept, the FIP must participate in the decision-making process of the invested company, with effective influence on the definition of the strategic policy and management of the legal entity that received the FIP's resources (Article 5 of ICVM No. 578/16), according to a rule that has traditionally been part of the regulation.
Thus, participation in the decision-making process of the investee company, with effective influence on the selection of management members and the definition of the company's strategic policy, constitutes an essential characteristic of the FIP (Private Equity Investment Fund) that will certainly not be altered by the imminent new regulatory annex to CVM Resolution No. 175/22 to be issued regarding this fund category.
Furthermore, such participation in the control of the investment, as provided for in Article 6 of ICVM No. 578/16, will continue to be carried out through the holding of shares that form part of the controlling block, through the execution of a shareholders' agreement, or through the adoption of a procedure that ensures the fund effective influence in the definition of strategic policy and its management, which occurs, in particular, through the appointment of members to the board of directors.
2. Main General Innovations Contained in the LLE and CVM Resolution No. 175/22
a) Essential Service Providers and the New Form of Investment Fund Formation
The process of establishing and operating the funds, according to innovations promoted by CVM Resolution No. 175/22 (art. 7º[5]), will now be carried out by joint decision of the “essential service providers“, which are the fiduciary administrator and the fund manager (article 3, item XXX). This novelty represented a paradigm shift in the investment fund environment, since the previous CVM regulation stipulated that the investment fund would be created by the exclusive act of the administrator, who was the central figure (gatekeeper) of the regulatory system then in force, so much so that he, as administrator, was responsible for contracting the other service providers (including the manager), through instruments that should have provided for his joint liability for any irregular acts committed by the contractors.[6] [7].
Thus, until the entry into force of CVM Resolution No. 175/22, the administrator was responsible for contracting all service providers for the fund, including the manager. With the new regulation, however, there was a division of the main responsibilities between the administrator and the manager, recognizing that these two agents perform essential activities for the fund and, therefore, should share the leading role in managing this investment vehicle.
In the case of FIPs (Private Equity Investment Funds), the control exercised over the investee companies (participation in the decision-making process of the investee company, with effective influence on the definition of its strategic policy and management) rests exclusively with the manager, which produces certain externalities in relation to liability for acts of abuse of control occurring in these investee companies, as well as in the contours of decisions that may disregard the legal personality of the investee company, as will be analyzed in the following chapters.
b) Possibility of Limiting the Liability of Shareholders and Segregated Assets
Regarding the limitation of liability of shareholders, the LLE (Law on Limited Liability Companies) introduced important changes, which were recently regulated by CVM Resolution No. 175/22.
Prior to the changes introduced by the LLE (Law on Financial Transactions), the liability of investors in investment funds was stipulated in Article 15 of ICVM No. 555/14, which provided for the liability of investors. “"for any negative net worth of the fund, without prejudice to the liability of the administrator and the manager in case of non-compliance with the investment policy or the concentration limits provided for in the regulations and in this Instruction"”.
With the enactment of the LLE (Law on Limited Liability of Funds), however, the Civil Code was amended to provide for the possibility of the fund's regulations establishing a limitation of liability for unit holders. Here are the terms of the new provision in the Civil Code:
Art. 1.368-D.The regulation of the investment fund could, In accordance with the provisions of the regulations referred to in paragraph 2 of article 1,368-C of this Law, establish:
I – the limitation of each investor's liability to the value of their shares;
(…) 1. The adoption of limited liability by an investment fund established without limited liability will only cover events that occurred after the respective change in its regulations.
As can be inferred from the new wording of the Civil Code, the regulations of investment funds have the power to limit the liability of unit holders to the value of their units, it being understood that the alteration of the liability rule will only be applicable to events that occurred after the respective change in the regulations, according to the general principle applicable to cases of changes in rules on liability.[8].
The new CVM regulation, when addressing the issue, only stipulated that “"The regulations may stipulate that the investor's liability is limited to the amount subscribed by him/her.", without creating any restriction or special procedure for promoting this rule change. The sole paragraph, in turn, clarifies that if “"Although the regulations do not limit the liability of the shareholder, shareholders are liable for any negative net worth, without prejudice to the service provider's liability for damages caused by acting with intent or bad faith."” (art. 18).
Thus, from the effective date of CVM Resolution No. 175/22, investment funds may amend their regulations to provide for the limitation of liability of unit holders, which will be effective in relation to events occurring after the amendment. Furthermore, to facilitate this adjustment to the regulations, which was considered beneficial to unit holders (and indeed is), it was permitted that the modification does not require a shareholders' meeting resolution, so that the administrator and/or manager may, without consulting the unit holders, proceed with the alteration or definition of the limited liability rule in the fund's regulations (Article 135 of CVM Resolution No. 175/22).[9]).
c) On the Importance of Limiting the Liability of Shareholders
The limitation of liability was a crucial intellectual invention that enabled a huge increase in economic activity worldwide, and it was originally linked to the legal personality of companies. Through this rule, investors could limit their losses to the amount allocated (subscribed/paid in) to the invested company without risking their entire personal assets due to the potential failure of a business venture. This was essential in creating the conditions for financing high-risk projects (as was the case in the past with the great voyages of discovery). This innovation, along with another fundamental idea – that shares could be traded (negotiable securities, allowing for the liquidation of the investment) – enabled massive investments in activities that demanded large capital outlays (a reality that became increasingly common in the post-industrial revolution world).
The importance of limited liability, alongside the concepts of legal personality and the possibility of transferring shares, were therefore essential factors for global economic development in recent centuries, as analyzed by John Mickletwait and Adrian Wooldridge:
“The most powerful economic force of the time [19th-century Great Britain] finally brought together the three main ideas that define the modern company: that it could be an “artificial person” with the same capacity to do business as a real person; that it had the ability to issue any number of marketable shares to as many investors as it wished; and that the liability of these investors could be limited (and thus they could only lose the money they had invested in the firm).”[10]
Thus, although the limitation of shareholders' liability was an attribute created, in its historical origin, specifically for corporations, under the assumption that the legal entity (corporation) is not confused with its shareholders, who are distinct persons with segregated responsibilities (allowing for the limitation of risks and, thus, a safer allocation of available resources), nothing prevents this attribute from being extended to unincorporated entities, as occurred in the case of investment funds, since the teleological reasons that justify the limitation of shareholders' liability also apply, for quite clear reasons, to the unit holders of investment funds.
It was precisely to allow this risk segregation, limiting it to the invested value, that the LLE (Law of Economic Freedom) began to admit the limitation of the liability of shareholders to the value invested in the fund, if this rule is provided for in the investment fund's regulations, which can generate greater protection for the investor, who would thus be protected from being liable for any liabilities of the investment vehicle.
In other words: the investment fund remains a non-legal entity, but, nevertheless, by express provision of law and regulation, it has added to its legal framework the possibility of limiting the liability of shareholders, which constitutes a great evolution for the investment fund industry, bringing them closer to companies in one of their most important attributes (limitation of liability), even though investment funds retain a different nature (special condominium) and, consequently, lack legal personality.
3. Seizure of Shares due to Shareholder Debts and Appropriate Settlement Methods
It is also important to point out, in a general analysis, that investment fund units can be seized to pay off the debts of the unit holders, since the units are part of the respective investor's assets.
It is worth noting, at this point, that brokerage firms and securities distributors are already full participants in the CCS (National Financial System Client Registry) and Bacen Jud systems, in line with the provisions of Central Bank Communication No. 31,506, of 12/21/2017, which is why inquiries about the existence of investment positions and orders to block securities can be made by magistrates through these systems.
Blocking orders issued through the Bacen Jud system regarding investment funds make it impossible for the investor to redeem or sell their shares during the blocking period. It should be noted that, once the shares have been seized, the appropriate liquidation method will vary depending on the nature and characteristics of the investment fund.
If the fund is open-ended, defined as those in which unit holders can request the redemption of their units at any time, the liquidation will be simpler, as the judge can issue an order for the fund administrator to arrange for the redemption of the debtor's units in the manner provided for in the fund's regulations, after which the amount determined will be deposited at the disposal of the Court.
On the other hand, in the case of closed-end funds, which are those in which units can only be redeemed at the end of the fund's term, the liquidation will, in principle, have to wait for the end of the fund's term. Indeed, if the judge were to order the liquidation of the closed-end fund unit before the aforementioned term, there could be serious harm to the collective of unit holders, since the fund, to comply with the order received, might have to sell illiquid assets before the due time, that is, before the investment reaches the desired maturity, or have to dispose of the liquid part of the assets that would be essential for the proper composition of a "portfolio" containing liquid and illiquid assets, thus disrupting the investment fund's strategy. It should be reiterated, however, that there is no doubt that the pledged units will remain blocked, making it impossible for the unit holder to sell their units.
Given this scenario, it also seems possible, in order to satisfy the creditor more quickly, for the Court to order the sale of the closed-end fund units on the secondary market, with the proceeds of the sale being transferred to the Court.
In the case of closed-end funds without trading on an organized market, the solution to satisfy the creditor before the fund's maturity date would be the sale of the units, as provided for in articles 879 et seq. of the CPC (Brazilian Code of Civil Procedure), or the adjudication of the units, should the creditor so desire.[11].
4. The Exercise by the FIP of Control Power in the Investee Company
Moving beyond the general rules and into the realm of private equity funds (FIPs), the first issue to be analyzed concerns the control of the invested company, and, in this context, what the powers and responsibilities of the FIP's shareholders would be.
Adolf Berle, in his classic lectures on the power of control in companies, defined control as the de facto power that involves, in particular, the choice of administrators and the possibility of influencing the company's management. Control can be located in a single shareholder holding the majority of voting shares (majority control), in a group of several shareholders who, together, hold these shares (shared control), in a minority capable of mobilizing the rest of the voting shares or controlling the assembly due to the absenteeism of the other shareholders (minority control), or, if the shares are intensely dispersed, in the administrators themselves ("managerial control").[12].
Although Brazilian corporate law does not define the power of control, Article 116 of Law No. 6,404/76 defines the controlling shareholder as the one who is “"holder of shareholder rights" that ensure him, on a permanent basis, a majority of the votes in the deliberations of the general assembly and the power to elect a majority of the company's directors"” e “"effectively uses its power to direct social activities and guide the functioning of the company's bodies"”.
As Bulhões Pedreira and Lamy Filho explain, the power of control “"It arises from the fact that the same person (or group of people) holds the number of shares whose voting rights, when exercised in the same direction, constitute a majority in the deliberations of the general meeting."”[13], Therefore, it is a de facto power. It is precisely this factual circumstance that elevates the controlling shareholder to a distinct legal position, imbued with a duty to use their power to ensure the company achieves its purpose and fulfills its social function (article 116, sole paragraph, of Law No. 6,404/76).[14].
From this differentiated position arises the possibility of the controller (or controlling group) being held liable for acts of abuse of power (article 117 of Law No. 6,404/76), which is characterized “"for committing an infraction while exercising the legal prerogative of shareholding control"” and, once the abuse in the exercise of control power has been characterized, “"The controlling shareholder must be held liable for the damages caused by their conduct, as established in the opening paragraph of the article."”[15].
By its very nature, a Private Equity Fund (FIP) exercises or participates in the control of the companies it invests in. This makes it important to analyze the control situation within a company invested in by the fund, in order to determine who actually wields this power!
Initially, it is important to note that the attempt to draw a conceptual parallel between corporations and investment funds is quite imperfect, since the ways in which these two legal instruments are organized have significant differences, especially regarding the nature and structure of power that prevails in each of them. Although delving deeper into this issue is beyond the scope of this article, it can be said that the unit holders of investment funds have less power than the shareholders of corporations, or, in other words, that the power of the manager/administrator of investment funds, according to the rules established by the CVM (Brazilian Securities and Exchange Commission), is, as a rule, much greater than the power held by the administrators of a publicly traded company (Law No. 6,404/76).
In the case of Private Equity Investment Funds (FIPs), it is observed that the controlling power in the company invested in by the fund rests with the fund manager (article 34 of ICVM No. 578/16), who participates in general meetings and, therefore, defines the votes to be cast by the FIP as the controlling shareholder or part of the controlling group. Thus, there seems to be no doubt that, as a rule, the FIP manager will be responsible for any abuse of power in the invested company (article 117 of Law No. 6,404/76).
Thus, barring exceptional situations, unit holders should not be held liable for any abusive exercise of control in the invested companies simply because control is a de facto situation, and unit holders do not participate in or even give their opinion on the selection of administrators, nor do they define any relevant issue within the invested company. These powers are concentrated in the figure of the FIP manager, according to rules already consolidated in the CVM regulation (ICVM No. 578/16), which will certainly not be altered by the new relevant regulatory annex of CVM Resolution No. 175/22.
Therefore, it can be concluded that the shareholders of the FIP (Private Equity Fund) should not, ordinarily, be considered perpetrators of acts of abuse of power, since control of the investee company is not exercised by the shareholders, but rather by the FIP manager, who, alone or in conjunction with other agents, will be in the position of controller of the investee company, according to the powers that are in fact exercised by him in the investee.
Certainly, in unorthodox situations where collusion between the manager and shareholders is proven, both could be held jointly liable, but this would be an exceptional situation and would require proof of collusion.
Finally, it should be noted that both the old regulation (article 38 of ICVM No. 578/16) and the new one (article 96 of CVM Resolution No. 175/22) provide for the possibility of establishing investment committees for the fund, which may be requested by the unit holders, the administrator, or the fund manager. This structure, although it may confer some additional influence to the unit holders, does not affect the manager's own responsibility, as can be seen in paragraph 2 of article 96 of CVM Resolution No. 175/22, according to which “"The existence of councils and committees does not exempt the manager from responsibility for the operations of the asset portfolio."”. However, depending on the rules stipulated in the regulations and the conduct of the shareholders, this committee may assume other responsibilities for any abusive acts committed in the invested company, but it can never remove the responsibility of the manager.
5. Hypotheses of "Disregarding the Legal Personality"“
a) When can a shareholder be affected by the disregard of the legal personality of the invested company?
As previously stated, the potential liability of shareholders for abusive acts occurring within companies invested in by FIPs should, as a rule, fall on the manager, since, by virtue of the FIP structure defined in CVM regulations, it is the manager's responsibility to exercise or participate in the control of the invested companies, thus influencing the decision-making process and the definition of strategic policy.
It is important to emphasize, with regard to the liability of the participants in a legal entity, that the general rule is the limitation of the liability of partners and shareholders of limited liability companies or corporations (SA), so that disregarding the legal personality is an exception that requires extraordinary requirements to be granted.
According to Article 50 of the Civil Code, the segregation of assets (between the company and its partners) and the rule of limited liability can only be disregarded, in a specific case, when it is found that the company has been used in a distorted manner, for the benefit of the partners or third parties, thus requiring the fulfillment of the legal requirements of... misuse of purpose or from commingling of assets, without which patrimonial autonomy must be preserved.[16].
Since the shareholders of a Private Equity Fund (FIP) have no say in the management of the invested company, as the fund exists precisely to professionalize the investment and management activities of the invested companies, it follows that, in the event of a decision disregarding the legal personality, the general rule should be to only target the assets of the manager, as he is the one who controls the company (Article 34, III, of ICVM No. 578/16).[17]) and, therefore, may be held liable in case of abuse in the use of the legal personality.
In the case of misuse of purpose, which is defined by "“Use of a legal entity for the purpose of defrauding creditors and for the practice of illegal acts of any nature.”"(art. 50, § 1º, of the Brazilian Civil Code of 2002), it also seems to us that, as a rule, only the manager of the FIP (Private Equity Investment Fund) can be affected by the decision to disregard the legal personality, since he would have the power to conduct or influence these abusive acts. The unit holders should not, as a rule, be held liable in this context of disregarding the legal personality for misuse of purpose, since they would not have the power to command the irregular acts, and liability for abuse cannot be considered under the rules of the Brazilian Civil Code of 2002 without conduct or benefit on the part of these investors lacking the power to direct the business (unit holders).".
In cases of asset commingling, the piercing of the corporate veil may affect shareholders in cases of "asset transfers" of significant value to the fund (Article 50, § 2, II, of the Brazilian Civil Code of 2002) or when there is "non-compliance with asset autonomy" (Article 50, § 2, III, of the Brazilian Civil Code of 2002), provided that these diversions are made for the benefit of the FIP (Private Equity Investment Fund) or its shareholders. Even so, in these cases, the liability rule stipulated in the fund's regulations must be verified, so that if the rule of limited liability is provided for, only the fund's own assets (segregated collective assets of the share class) or the assets of the shareholder specifically benefited by the asset commingling could be reached. However, if the rule of limited liability is absent from the FIP's regulations, then the personal assets of the shareholders could be considered.
In the case of "repetitive fulfillment by the company of obligations of the partner or administrator or vice versa" (art. 50, § 2º, I, of the Brazilian Civil Code of 2002), the assets of the FIP (Private Equity Investment Fund) could only be affected by the decision to disregard the legal personality when this deviation was carried out for the benefit of the fund, which, in practice, is very difficult to occur, since, in these cases of irregularity, what is normally observed are distorted acts carried out for the benefit of the manager himself or related parties.
In general terms, it can be said that, since it is not the fund's shareholders who control the invested company (but rather the manager, individually or jointly with the controlling group), they (nor the FIP itself, whose assets belong to them) cannot, as a rule, be affected by the decision to disregard the legal personality, except for the cases, already mentioned, in which the fund benefits from the abuse in the use of the legal personality.
In other words, since the fund's shareholders have no say in the management of the invested company, they cannot be considered authors or participants in the abusive acts in the use of the legal personality, so as to justify their personal assets being affected as a result of piercing the corporate veil. Even so, if it is found that the beneficiary of the misappropriation was the investment fund itself, it will certainly be feasible, in this specific case, to reach the fund's assets by piercing the corporate veil of the invested company, otherwise irregular conduct by the manager would be encouraged.
It should be noted that the conclusions presented above assume the normal functioning of the FIP (Private Equity Investment Fund), where the FIP's votes in the investee company's shareholder meetings are defined and cast by the FIP's manager. However, if it is proven that the shareholders acted in collusion with the manager in carrying out acts of abuse of corporate personality, it will certainly be possible to prosecute all those who actually participated in the abuse.
b) When the FIP is used fraudulently by the shareholder (REsp No. 1,965,982/SP)
In the previous section, we analyzed the hypothesis of disregarding the legal personality of a company invested in by a Private Equity Fund (FIP), and how this disregard could affect the assets of the FIP and its shareholders.
In this section, we will analyze the case where the FIP itself has been used by its shareholder(s) to promote procedural fraud by concealing assets, and how this could, through the disregard of the legal personality, end up reaching the assets of the FIP itself. This hypothesis of disregard, called "reverse" by doctrine and jurisprudence, was the subject of recent analysis by the STJ, in REsp No. 1,965,982/SP.
The precedent does not concern disregarding the "legal personality" of the company.“[18] The aim was not to target an investment fund (“affected assets”) but rather a company (BRACOL HOLDING) that was named as a defendant in a specific lawsuit, which it ultimately targeted through seizure. online, the assets of the FIP. Faced with the judicial seizure, the FIP argued that its assets belonged to the group of investors (third parties), not to the executing shareholder.
In this context, it is important to note that, according to the judgment, the FIP (Investment Fund in Participations) initially had as its sole shareholder the defendant company BRACOL HOLDING, which, in December 2009, contributed 20,296,764 shares of the company BERTIN to the FIP. However, subsequently, BRACOL HOLDING transferred approximately 85% of its shares in the FIP to BLESSED HOLDING, a company based in Delaware/USA, and the share transfers allegedly occurred, according to the court decision, by “"absolutely ridiculous amounts"”. It is important to emphasize that, at the time of the seizure... online (September/2014), the FIP had only two shareholders (BRACOL HOLDING and BLESSED HOLDING).
Given this scenario, the Superior Court of Justice (STJ) concluded that the companies BRACOL HOLDING and BLESSED HOLDING,“"especially given the negligible value of the share transfer, they were members of the same economic group"”, as well as that “"They acted with misuse of purpose and commingling of assets, aiming to conceal their true assets in order to harm creditors."”. Furthermore, at the time of the judicial seizure, the FIP had only two related-party investors, which is why, contrary to what was alleged in the lawsuit, there was no basis to claim an attack on the assets of third parties., “"but only from companies belonging to the same economic conglomerate"”.
This very brief factual summary of the STJ ruling is sufficient to highlight the exceptional nature of the situation. This is because, in this specific case, it was understood that the FIP (Investment Fund in Participations) was used fraudulently by the defendant company, with a misuse of purpose (due to the intent to conceal assets, to cause harm to creditors) and commingling of assets (between BRACOL HOLDING, FIP, and BLESSED HOLDING, which were the only shareholders of the fund at the time of the seizure).
The law cannot condone abuse of any form, regardless of the nature of the perpetrator (whether a corporate entity or an unincorporated entity). The autonomy of assets presupposes the proper use of the legal form, whose structure, while fundamental to socioeconomic progress, cannot serve as a shield for perpetrating fraud against creditors.
Sérgio Campinho succinctly summarizes the issue of the misuse of separate legal personality within legal entities, and it is certain that these conclusions can be applied..., mutatis mutandis, In the field of investment funds:
From everything that has been presented, we can conclude that the “"disregard doctrine"” This represents a safeguard for the interests of third parties against fraud and abuse perpetrated through the improper use of the legal personality of a company in relation to that of its partners. However, its application requires essential care and restraint from the magistrate, so as not to trivialize its use in specific cases, lest it lead to the destruction of the institution of the legal entity, a centuries-old construction of recognized importance for the economic development of nations. Only when there is conclusive and uncontroversial proof of fraud or abuse of rights, perpetrated by the diversion of the purpose of the legal entity or by the commingling of assets, is its application admissible, as a way to repress the improper and abusive use of the legal entity. Mere indications and presumptions of abusive or fraudulent acts, or even the mere economic incapacity of the legal entity, do not, by themselves, authorize the application of this principle.[19]
It is important to highlight the fraudulent context found in the case analyzed by the Superior Court of Justice (STJ), especially the fact that the sole shareholders of the Private Equity Fund (FIP) were considered related parties, which was essential for the conclusion of the judgment.
The indiscriminate disregard for the asset autonomy of the FIP (Private Equity Fund) would cause serious and unnecessary distortions, especially since the FIP's units can be easily seized to cover the debts of the unit holders, as they represent a security of participation (Article 14 of CVM Resolution No. 175/22).[20]) and, as such, has economic value and forms part of the shareholder's assets until the respective expropriation occurs (as explained in Chapter 3). However, the FIP's assets are composed of an indivisible pool of resources, generally belonging to a group of shareholders, who should not be harmed by debts that are not their responsibility.
For this reason, the STJ ruling itself made a point of stating that, in theory (that is, if the fraud had not occurred in the specific case), the argument raised by FIP would be correct. See the excerpt below from REsp No. 1,965,982/SP:
In theory, therefore, the appellant's assertion that the assets managed by the FIP belong jointly to all investors (unit holders) is correct, preventing the fund from being held liable for the debt of a single unit holder. Only in theory, it should be reiterated, could the judicial seizure not fall on the common assets of the investment fund for the debts of a single unit holder, except for the seizure of only their share.
(…)
All these rules, however, which are mandatory under normal circumstances, must yield to unequivocal proof that the very constitution of the investment fund was fraudulent, as a way to cover up illegalities and conceal the assets of companies belonging to the same economic group, always taking the necessary precautions to avoid affecting the shares held by those who have no relationship with the defendant.
In other words, under ordinary circumstances, there is no need to consider reverse piercing of the corporate veil and consequent disregard for the asset autonomy of the FIP (Investment Fund in Participations), under penalty of indirectly affecting the assets of someone who has no relationship with the debtor being sued, which would certainly cause a decrease in efficiency in this regulated environment, harming the country's economic development. This understanding, as explained in this item, was already well understood and adopted within the STJ (Superior Court of Justice), even before the enactment of CVM Resolution No. 175/22.
In summary, it can be concluded that the rule, under ordinary circumstances, is respect for patrimonial autonomy, with exceptions only for exceptional situations such as that analyzed in REsp 1.965.982/SP.
6. CONCLUSION
As can be seen, the responsibility of investors in private equity funds, after the innovations brought about by the Economic Freedom Law and CVM Resolution No. 175/22, has become better defined and conditioned on what is stipulated in the fund's regulations.
Responsibility for acts of abuse of control power occurring in the company invested in by the FIP (Private Equity Investment Fund) generally falls to the manager, who exercises, through regulation and in practice (individually or jointly with a group), corporate control of the legal entity receiving the investments. Only exceptionally, if some type of collusion between the manager and the unit holders is proven, could one consider extending this responsibility to the unit holders.
The disregard of legal personality, based on article 50 of the Civil Code, can only affect the assets of the FIP (Investment Fund in Participations) when there is asset commingling for its benefit, or in other situations where it is demonstrated that the abuse was carried out to benefit the investment fund itself. Furthermore, in even more exceptional cases, reverse piercing of the corporate veil may occur when the fund is used by the debtor shareholder as a device to prevent execution and, cumulatively, there is no other shareholder who is not effectively involved in the scheme (REsp nº 1.965.982/SP).
Therefore, although such exceptional situations may exist, it must be concluded that, as a rule, the manager, not the unit holders or the fund, will be responsible for any abusive acts (related to the power of control or the use of legal personality) carried out in the company invested in by the FIP.
[1] Gustavo Tavares Borba, Doctor of Law from PUC/SP, Former Director of the CVM (Brazilian Securities and Exchange Commission) and partner at Tavares Borba Advogados Associados; Luiza Coelho da Rocha, LLM Candidate at NYU and partner at Tavares Borba Advogados Associados; and Gustavo Melo Gabriel, Postgraduate in Law from EMERJ and UFF and partner at Tavares Borba Advogados Associados.
[2] With the exception of the specific rules regarding FIF and FIDC, which have already been published.
[3] We are using the future tense because we are writing in March 2023, before the entry into force of CVM Resolution No. 175/22, which, with regard to most of the rules, will only occur on October 2, 2023.
[4] Prior to Resolution No. 175/22, from a regulatory perspective, the leading role belonged exclusively to the administrator (who hired all other professionals who provided services to the fund, including the manager), although, in practice, the manager's role was already extremely significant in many cases.
[5] Article 7. The investment fund must be established by a joint resolution of the essential service providers, who are responsible for approving its regulations in the same act.
[6] According to article 79 and paragraphs of ICVM 555/14:
Art. 79. The contracting of third parties (…)
- 1. It is the responsibility of the administrator, as the fund's representative, to contract service providers, through prior and thorough analysis and selection of the contractor, and the administrator must also be named as a consenting party in the contract.
- 2. Contracts entered into in accordance with paragraph 1, relating to the services provided in items I, III and V of paragraph 2 of article 78, must contain A clause stipulating joint and several liability between the fund administrator and third parties contracted by the fund for any losses caused to unit holders due to conduct contrary to the law, regulations, or normative acts issued by the CVM (Brazilian Securities and Exchange Commission).. (emphasis added)
[7] Regarding FIPs, however, even before CVM Resolution No. 175/22, there were already some particularities regarding the importance of the manager in this specific type of fund, which even generated doubts about the mandatory nature of a contractual solidarity clause between the administrator and the manager in this fund category.
[8] The same applies in the case of transformation into a type of company that has a different liability rule, as can be seen in article 222 of Law No. 6,404/76.
[9] Article 135. In the context of adapting investment funds to this Resolution, essential service providers are permitted to make changes to the regulations to address the following matters:
(…)
III – Limitation of the liability of shareholders to the subscribed amount.
[10] Micklethwait, John; Wooddridge, Adrian. “Company – A Brief History of a Revolutionary Idea”. Rio de Janeiro: Objetiva, 2003, p. 18.
[11] It should be noted that the CVM (Brazilian Securities and Exchange Commission), on its website, provides clarifications to judges and other judicial branch employees that are useful in situations where the seizure and subsequent monetization of securities is necessary, such as investment fund units. Available at: https://www.gov.br/cvm/pt-br/assuntos/protecao/sistema-bacen-jud
[12] Berle, Adolf A. “'Control' in Corporate Law.‘. Columbia Law Review 58, no. 8 (1958): 1212–25. https://doi.org/10.2307/1119961. p.1224.
[13] Bulhões Pedreira, José Luiz; Lamy Filho, Alfredo. Company Structure, In: FAMY FILHO, Alfredo; BULHÕES PEDREIRA, José Luis (Coord.). Corporate Law. Rio de Janeiro: Forense, 2017, 2nd ed. p. 828.
[14] Ibid., p. 835.
[15] EIZIRIK, Nelson. Annotated Corporations Law. Volume I – Articles 1 to 120. São Paulo: Quartier Latin, 2011, p. 684.
[16] This analysis does not focus on the dysfunctional hypothesis of disregarding the legal personality that has been (ironically) conventionally called the "minor theory," since this type of overcoming the separation of assets between the company and its partners would not encounter limits or requirements, constituting a mere disregard for the rule of limited liability, even to the detriment of partners who never participated in the administration nor were controllers, which has been generating serious disincentives to economic activity, for the reasons already explained in chapter 2.c.
[17] Article 34. The management of the fund's portfolio is the professional management, as established in its regulations, of the assets comprising it, carried out by a legal entity accredited as a securities portfolio manager by the CVM (Brazilian Securities and Exchange Commission), having the power to:
(…)
III – to monitor the assets invested by the fund and exercise the voting rights arising from these assets, carrying out all other actions necessary for such exercise, in accordance with the provisions of the manager's voting policy.
[18] Quotation marks were used to highlight that the expression was used improperly, since investment funds do not have legal personality, being, as already explained, a special type of condominium (article 1,368-C of the Brazilian Civil Code of 2002). Nevertheless, since investment funds can hold rights and obligations in their own name (article 1368-E of the Brazilian Civil Code of 2002), the analogous application of the... disregard doctrine (doctrine of disregard), for the purpose of overcoming the asset segregation provided for in article 1368-D, III, of the Civil Code.
[19] Campinho, Sérgio. “Business Law in the Light of the Civil Code”. Rio de Janeiro: Renovar, 2011, 12th ed., pp. 81-82.
[20] Article 14. The quotas are book-entry, nominative, and correspond to fractions of the equity of the quota class, conferring rights and obligations to the quota holders, as provided for in the regulations.