Last November 22, the Brazilian House of Representatives approved Bill No. 3401/2008, which changes the rules on the liability of members and managers for companies’ debts.

In the Brazilian law, the legal personality of a company and that of its members and managers are deemed separate, and therefore the assets and obligations of one and the other do not commingle. However, this legal personality may be used by the members or managers of a company as an instrument to commit wrongful (against the law) or fraudulent (defrauding the law) acts, for them to derive specific benefits to the detriment of others.

Thus, in order to prevent abuses, the law provides on the piercing of the corporate veil, i.e., in the event that the members or managers commit fraud or wrongful acts, the legal personality of the company may be disregarded for the assets of the members or managers to be reached and satisfy the harmed creditor or consumer.

Therefore, even though the Brazilian law already provides on the piercing of the corporate veil, an adequate application of such doctrine required procedural improvement. In fact, in practice, the court was rendering inconsistent decisions and sometimes mistakenly using this doctrine as a punishment to the companies’ members, and not as a form of guaranteeing effectiveness of the proceedings.

The approved bill provides that the piercing of the corporate veil may be imposed upon verification that the members or legal representatives of the companies have actually committed a wrongful act to avoid paying debts and, in this case, their private assets shall be used to pay the debts.

In addition, the bill details steps for the piercing of the corporate veil, ensuring the right to the adversary proceeding whenever a member is held liable for debts. In this case, the term to file an answer shall be 15 days as from the notice, which must specify the facts that led to their liability.

Those who are served process shall have the right to produce evidence, and the judge may only order the piercing of the corporate veil after the Public Prosecutors’ Office is heard.

In case the judge decides to pierce the corporate veil, this measure shall only apply to the assets of those members or managers who have actually committed the wrongful act to the detriment of the settlement of debts to the creditors.

Finally, the bill further provides that the government decision relating to piercing the corporate veil shall only be effective after a court order is rendered. Please note that pursuant to the law currently in effect, an administrative proceeding could impose the piercing of corporate veil as a court, but without the proceedings set forth in the new bill.

The bill will now be sent for presidential sanction to be voted into law.

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For more information on the above or in other matters, please contact Maristela SA Rossetti (mar@rraa.com.br) or Gilberto Rossetti (gmr@rraa.com.br). 

This article is based on publicly available information and given for informational purposes only. It is not intended as legal advice or as a comprehensive analysis of the matters referred to herein.