Conflict of interest between partners and company

One of the issues that continues with discussions in the Brazilian corporate law is about to the limits that should be imposed to the possibility of partners, both from limited and anonymous society, to deliberate in assemblies where there could be a risk of interest between such partners and the company in which they participate.

These discussions are very important when it is verified that, depending on its conclusion, the right to vote of a member, essential under the corporate law, may be eliminated.

First of all, we point out that there are matters in which the Brazilian law expressly prohibits the member from voting, given the obvious and deep conflict that exists. Among these matters, we may cite (i) the resolutions regarding the approval of appraisal report of assets conferred on the company’s capital stock; (ii) approval of the accounts of shareholders as directors of the company; (iii) matters that may exclusively benefit a member, in particular; and (iv) at general meetings of creditors when such shareholders participate in the capital stock of the company that is in judicial reorganization.

These cases are known in Brazilian law and doctrine as situations that there is a formal conflict of interests, whose analysis must be made as priority.

The Board of Appeals of the National Financial System has already established an understanding that in the hypotheses involving the approval of an appraisal report, the approval of accounts of the managing partner or matters that may exclusively benefit a particular member, there is a formal and a priority impediment to the exercise of the right to vote (as occurred, for example, in the case in which Eike Fuhrken Batista was fined for voting in breach of articles 115, §1 and 134, §1, both of Federal Law 6404 / 1976 - which governs joint-stock companies and which usually also governs in a limited way also limited companies - in a resolution regarding the approval of accounts of controlling shareholders of the company called Óleo e Gás Participações).

However, there are several other situations in which, although there may be some type of conflict of interest between partners and company, this possibility does not authorize the partner to be aprioristically deprived of his essential right to the social vote.

In the line of thinking of the professors such as Professors Tullio Ascarelli and Erasmo Valladão Azevedo and Novaes França, the company contract has a multilateral character and, because of this, there would always be diverse interests between partners and society.

Therefoe, the Brazilian corporate law itself (Article 115, §4 of Law 6404/1976) admits that, in the case of a conflicting vote, the resolution taken by the shareholders will be voidable, and non-null (according to the content of the Brazilian Civil Code, are fully valid until expressly declared as invalid by competent authority, as it is the case in Italian corporate law).

In other words: that trend preaches that the Brazilian corporate law, with the exception of matters that characterize a formal conflict of interests (mentioned above), could not be interpreted in a way that any "conflicting" vote prevents the member from voting in a meeting of shareholders. Such analysis would have to be done after the verification of any losses to the company or to the other shareholders, or if the member had had undue advantages, which would characterize the abusive exercise of the right to vote.

However, there is still no final decision of the Board of Appeals of the National Financial System and the Securities and Exchange Commission on the subject, which brings legal uncertainty in the end. For example, in the judgment of PAS CVM No. RJ2001 / 4977, regarding the possible conflict of interest that would exist between Tele Celular Sul Participações S / A and its controlling shareholder (Alvaro Pereira de Moraes Filho) due to a contract that there was the fixing of payment of royalties for the use of the trademark belonging to the controller, prevailed the interpretation of the Director Norma Parente that preached the formal analysis of the conflict of interests.

On the other hand, when judging the PASM CVM No. RJ2002 / 1153, which tried to find out if the interests of the controlling shareholders of Tele Norte Leste Participações S / A and Telemar Participações S / A would be conflicting when they authorized a contract for services that, in the end, would bring smaller financial advantages to the other shareholders, the CVM Board, with a new composition, understood that the analysis of the eventual conflict of interests would have to be a after the event. The winning vote, from the Director Wladimir Castelo Branco Castro was based on the principle of good faith and on the fact that it can’t be assumed that a vote would not be held for the benefit of society.

In sum, both the complexity of the issue of conflict of interest between partners and society and its important social reflexes reinforce the necessity to achieve as soon as possible a final position of the Brazilian authorities on the subject, as a way to bring certainty and security for all corporate lawsuits in Brazil.

Welson Lassali Rodrigues
Chiarottino e Nicoletti