Shareholders liability in brazilian entities’ obligations incurred during the term of their partnership

A recent decision issued by the Superior Court of Justice (RESP 1.537.521/RJ) has analyzed the liability of former shareholders over obligations incurred by a legal entity after the date of their withdrawal from their former companies.

In a nutshell, a former shareholder whose withdrew from a partnership in February 2004 filed a motion for advance dismissal of enforcement, in virtue of the seizing of his personal assets as outcome from the filing of a rental collection claim against his former company, in order to charge outstanding rental fees related to the period from December 2005 to August 2006. Shortly after, the court has granted a motion for disregard of legal entity requested by the Landlord sustained by a potential unlawful dissolution of the former company, decision which has allowed the seize of the former shareholders’ assets to guarantee the payment of such debt.

According to the terms of the motion filed by the former shareholder, considering the date of his withdrawal from the former company (February 2004) and the date of registration of the relevant amendment to the articles of association of the former company with the Commercial Registry reflecting the assignment of his equity stake (June 2004), the seizing of assets was illegal due to provisions of the Brazilian Civil Code that a former shareholder will remain liable for obligations incurred by the former company for a period of up to two years counted as of the date of registration of the relevant amendment to the articles of association with the Commercial Registry. In this case, the Lower Court has decided that the former shareholder would remain liable for obligations incurred by the former company until June 2006 i.e. until the second anniversary of the date of registration of the relevant amendment to the articles of association with the Commercial Registry. The former shareholder filed a special appeal to the Superior Court of Justice to reverse the decision from the Lower Court.

In the judgment of the special appeal filed by the former shareholder, the Superior Court of Justice decided that in case of assignment of equity stake the liability of the former shareholder will be restricted to obligations incurred by the former company up to the date of withdrawal from the partnership i.e. the date of registration of the amendment to the articles of association of the former company with the Commercial Registry reflecting the assignment of the equity stake (June 2004).

In view of the above, such precedent of law shed a light over a sensitive matter that impact on the assessment of foreign investors regarding the risks involved in their potential investments in Brazil, , providing a greater legal certainty and predictability environment.