Publications

Category: Litigation

Amidst intense debate in the legal community regarding the repercussions of Constitutional Amendment 125/22 (CA 125/22), published on July 14th of this year, the Superior Court of Appeals (STJ) promoted the seminar "Argument of Relevance in Special Appeals", on September 27th.

The purpose of the meeting, held in partnership with the FGV's Center for Innovation, Administration, and Research in the Judiciary (CIAPJ) and the Institute for Reform of State-Company Relations (IREE), was to discuss implementation of the new filter for admissibility of appeals to the STJ.

In the panels, which were attended by justices, advisors, lawyers, and other magistrates, some important theoretical issues were addressed, such as the function of superior courts in Brazil and in comparative law. The focus of the meeting, however, was on the more practical aspects of CA 125/22.

One of them, the subject of great divergence among operators of the law, refers to the moment from which the parties will be obliged to demonstrate fulfillment of the requirement of relevance, under penalty of not having their appeal heard. On this point, Justice Mauro Campbell Marques defended that the application of CA 125/22 depends on regulations, despite the position of some state courts that have already been requiring appellants to demonstrate the relevance requirement.

Other important practical issues, such as competence and minimum quorum for ascertaining relevance, the appropriate way to regulate CA 125/22, and the very definition of the concept of relevance, were also addressed.

Although it is not clear what the trend for the court's position will be, it was clear that the Federal Supreme Court's experience with the general repercussion for extraordinary appeals, provided for in CA 45/04, will serve as a guide for the implementation of the relevance mechanism at the STJ.

The event reinforces the importance of the topic for the STJ and the great impact that CA 125/22 is expected to have on the dynamics of the courts and on lawyers' practice. It is important, therefore, to follow the new developments that should soon be established by the court.

Category: Corporate

Promulgated on September 22, Law 14,451/22 (a result of Bill 1,212/22) amends the Civil Code to reduce certain quorums for resolution on matters for limited liability companies as follows:

• Appointment of non-partner officers: previously, the quorum for resolutions was unanimity of the partners as long as the capital was not paid up. After full payment, the quorum for approval was at least 2/3. With the new law, the quorum becomes 2/3 of the partners, while the capital is not paid-in, and of partners holding more than half of the capital, after the payment is made.

• Modification of the articles of association, merger, and dissolution of the company or termination of liquidation: a quorum which used to be 3/4 of the capital stock is now more than half (absolute majority of the capital stock).

Regarding the appointment of non-partner officers, the reduction in quorum occurred both for the paid-in capital and the pending paid-in scenario. In the second case, the reduction was greater to give more protection to partners, since, pending payment, all partners are jointly and severally liable for the capital to be paid in.

On one hand, the change certainly facilitates and optimizes decision-making, but by eliminating the need for unanimity of the partners pending payment, it ends up subjecting all of them to the risk of the new administrator's will, in a scenario of joint and several liability for the payment of the capital stock.

As for the other matters, by extinguishing the high quorum of 3/4, the change seems to be more in line with the majority principle for decision-making within companies, as provided for in article 129 of the Brazilian Corporations Law and other similar institutions, such as condominiums.

The quorum of 3/4 was maintained for calls to order of partners' meetings (article 1,074). With this, opening of the meeting requires a quorum greater than that necessary for resolution on the matters, which creates a certain incongruity.

In general, the change brings limited liability companies closer to corporations, allowing greater interference and exercise of control with a smaller stake in the capital stock.

The change requires that partners of limited liability companies pay attention to their rights and the extent of the influence they now have on corporate decisions with the new provisions. This can certainly impact on the valuation of partners' interests in the company in the event of sale or other transactions, encourage the renegotiation of articles of association and shareholders' agreements to adjust the applicable quorums to the will of the partners, and motivate litigation in the event of abuse.

The new law has 30 days to take effect from the date of its publication. By the end of October of 2022, therefore, the changes will be in full effect.

Category: Litigation

In the judgment of Special Appeal 1.738.657/DF, the Third Panel of the Superior Court of Appeals (STJ) found that the insurer has no duty to render accounts as a result of life insurance and health insurance contracts.

The Court held that an action to demand accounts presupposes the existence of two elements:

• the custody or administration of securities, assets, or interests by third parties; and
• the need for clarification about this management, in the face of uncertainties regarding the balance resulting from the relationship between the parties.

The reporting judge of the appeal, Justice Moura Ribeiro, found that this essential factual premise also applies to health insurance and life insurance contracts, in the sense that there is no interest on the part of the insured to demand accounts, since there is no relationship of custody or administration of assets or interests of third parties by the insurer.

According to article 757 of the Civil Code, the insurance contract does not establish the obligation of the insurer for management of other people's property, but only to "guarantee the legitimate interest of the insured, related to person or thing, against predetermined risks", due to the payment of a premium.

Thus, the insurer's obligation is only to pay the compensation to the insured, upon occurrence of the loss, according to the amount previously established in the policy, with no duty to render accounts.

For the STJ, in life and health insurance contracts, "the amount of compensation to be received in the event of occurrence of the insured event is previously established in the contract and, therefore, there is no ‘custody' of the amounts resulting from the collection, that is, of the premiums.

There is, therefore, a distinction between the obligation to give and receive and the specific obligation to demand and render accounts, which shows the inappropriateness of the action of demanding accounts based on an insurance contract. In this case, the main obligation of the insurer is to pay compensation due to the occurrence of one of the events prefixed in the policy.

The conclusion is that there is no action to demand accounts based on an insurance contract, when there is no management of assets, nor are there complex debit and credit transactions linked to the contract.

For the Court, the claim for any clarification on the amount of the premium in the event of loss, due to uncertainty regarding the amount compensated in relation to the insured's contributions, should be carried out through the ordinary means and not through the special procedure of the action for demanding accounts.

This decision, which is already final and conclusive, established an important precedent as to the appropriate procedural means for clarifying the amount of compensation paid by the insurer. It also reinforced the legal nature of the insurance contract and the obligations assumed by the insurer, not admitting an expansive interpretation of the duties set in the policy and provided for by law.

The precedent also corroborates the already consolidated understanding of the case law that the action of demanding accounts is only applicable in the case in which there is administration or custody of assets and securities by others, and the holder has a legitimate interest in demanding accounts of this management, when there is uncertainty about the balance resulting from this relationship.

It is expected that the courts will observe the position adopted by the STJ and rule out the possibility for the insured to demand accounts from the insurer, given the legal nature of the insurance contract and the fact that the obligations assumed by the insurer are set forth in the policy and provided for by law. The decision precludes a broad and innovative interpretation of the duties of these companies, which would jeopardize the legal security of insurance relationships.

Category: Capital markets

For several years and at various times, there has been discussion not only in the scholarly sphere, but also in the administrative sphere of the Brazilian Securities and Exchange Commission (CVM) regarding the nature of conflicts of interests and the consequent prohibition on voting rights, whether the prohibition is absolute or whether it is necessary to analyze the merits of the decision (substantive theory). Over the years, we have seen the CVM's understanding varying from an understanding of formal conflict to one of a substantive conflict. Until now, the understanding that prevailed was that of a formal conflict.

On August 16th, again, an analysis in an administrative proceeding evaluated by the board of the CVM brought the topic to discussion, but with a majority already formed, which changes the understanding until then in force.

As the last change in the CVM's position occurred in 2010, it is necessary to recapitulate the whole discussion and the hectic history of decisions, but not without first going back to the legal provision that generated the different interpretations.

Article 115 of Law 6,404/76 (the Brazilian Corporations Law) treats as abusive and vetoes votes exercised with the purpose of causing damage to the company or to other shareholders; or that by which the shareholder seeks to obtain an advantage to which he is not entitled and that results or may result in damage to the company or to other shareholders. In practice, various situations can constitute abuse of voting rights.

Although voting is a shareholder's right, it cannot be exercised for a purpose other than the interest of the company, hence exercising the vote in this manner is considered abusive.

Abuse of voting rights can be committed by both the controlling shareholder and minority shareholders, because the Brazilian Corporations Law makes no distinction when dealing with abusive voting, and the rule applies to any shareholder who exercises the right to vote, in any kind of general meeting.

Voting with the purpose of causing damage to the company seeks only to harm the other shareholders.

Voting by means of which a shareholder seeks to obtain, for himself or another person, an advantage to which he is not entitled and which results or may result in harm to the company or to the other shareholders, is also considered abusive. In this case, the vote is contrary to the company’s interests and also seeks to obtain an illegitimate individual advantage.

But the aforementioned article of the Brazilian Corporations Law, in paragraph 1, also establishes three scenarios for resolutions in which the shareholder is prohibited from voting and in which there is an absolute prohibition, since it is assumed that there is a formal conflict of interest between the shareholder and the company:

• approval of the appraisal report of the assets with which he contributes to the formation of the capital stock;
• approval of his accounts as an officer; and
• that can benefit him in a personal way.

Article 115 also mentions a scenario for impediment against voting when there is an interest conflicting with that of the company, precisely the subject of analysis by the CVM's board that we will bring up in this article and discuss later.

The analysis even goes further and mentions a situation of private benefit as part of the same materialistic theory, and not as a case of formal conflict. But this is a controversy worth its own article.

The rule in paragraph 1 of article 115 of the Brazilian Corporations Law is exhaustive and does not allow interpretations that extend the prohibition, since the right to vote is considered an essential right of the shareholder and is also essential for the resolution passed at the meeting, in which the corporate interest is manifested. For this reason, the prohibition on exercising this right must be restricted to the reasons expressly provided for in the Brazilian Corporations Law.

In the three scenarios referred to in paragraph 1, the shareholder is prohibited from voting, although the prohibition on voting does not prevent him from attending the meeting and discussing the matters put up for resolution. The impediment is on voting, not on attending and expressing an opinion on the matters on the agenda, because the shares of the impeded shareholder make up the quorum required to convene the meeting, which is different from the quorum for resolutions.

The first scenario for prohibition on voting is related to approval of the valuation report of the shareholder's assets to be contributed to the capital stock. There is an absolute presumption that the shareholder, in this case, has no impartiality to vote, either on the choice of the experts or on the report prepared by them. In this situation, the prohibition effectively prevents the shareholder from approving a report that may overvalue his assets. Since the prohibition is absolute, the shareholder's intention or the content of his vote is irrelevant.

The second scenario for an impediment, provided for in paragraph 1, refers to approval of accounts, when the shareholder is also a company officer. The Brazilian Corporations Law also prohibits officers from voting as shareholders or proxies in this case (article 134, paragraph 1). The prohibition here is also absolute, since no one can be a judge in his own cause. Since the shareholder cannot separate the two roles he plays, the Brazilian Corporations Law prevents him from voting.

The third scenario of absolute impediment on voting is the one that occurs when the resolution may benefit the shareholder in a personal way, an expression identical to the one used in the 1940 law,^[1] which keeps the questions about what "personal benefits" would be, as well as its distinction from "conflicting interest", given the vagueness of the concepts. And, in this situation, as already mentioned, the new CVM decision puts in doubt whether it would even be a case of absolute impediment, even though paragraph 4 of article 115 cites only votes conflicting with the company's interests as null and void.

The personal benefit exists due to resolutions of the general meeting that result in an exclusive advantage for a certain shareholder, which does not benefit the other holders of shares issued by the company.

However, there is (still) great controversy about the extent of the concept of "personal benefit": whether it would only be established by virtue of advantages attributed to the shareholder in his capacity as a partner of the company or whether it would also apply in cases of advantages that do not arise from the corporate relationship itself or that are not directly related to the resolution to be taken.

According to part of the legal scholarship, only the lawful advantage conferred to certain shareholders in their capacity as shareholders, which exceeds the principle of equality among partners, constitutes a personal benefit.^[2] In other words, the establishment of a personal benefit presupposes the granting of an advantage of a corporate nature to a certain shareholder.^[3] According to this understanding, what the law intends to avoid is breaking of the relationship of equality among the shareholders, preventing one of them from deciding to assign to himself, through his vote, an advantage, even if legitimate, within the scope of corporate relations.

In its most recent opinions on the matter, the CVM found that a personal benefit would also cover advantages not linked to the corporate relationship, such as those arising from contracts signed between the shareholder and the company.^[4]

Despite the above controversy, we can say that a personal benefit is present when the resolution can bring about an exclusive advantage to a certain shareholder, which is not extendable to the other shareholders of the company.

In the three^[5] scenarios mentioned, the shareholder could not vote, regardless of his intention or the merits of the resolution. If he casts his vote, the chairman will not compute it. The resolution of the meeting, passed in the exercise of this vote, when necessary to form a majority, will be voidable. A resolution passed with a prohibited vote can be annulled, even if no damage occurs to the company.^[6]

Now we come to the issue of conflicts of interests, the subject of the current analysis and the change in the CVM's position: as we said, the final part of paragraph 1 also refers to the prohibition on voting when the shareholder has interests conflicting with those of the company, which generated all the discussion in legal scholarship and in the CVM's administrative sphere regarding the nature of the prohibition, whether it would be an absolute prohibition, as occurs in other cases, or whether it would be necessary to analyze the merits of the decision in each concrete case.

Situations of conflict of interest arise, as a rule, from the existence of a legal relationship involving, on the one hand, the shareholder and, on the other, the company. In these situations, a conflict arises when the shareholder's interest is incompatible with the corporate interest, and one of them cannot be satisfied without harming the other.

For some authors, scenarios of conflict of interest should be analyzed under a merely formal criterion, according to which the shareholder would be prohibited from intervening in any resolution in which he has an interest that potentially conflicts with the company, regardless of the merits of the decision or the factual circumstances in which it was adopted.^[7] Violation of this prohibition would render the resolution null and void, even if the vote cast by the shareholder has not caused any damage to the company.

For this school of thought, a formal conflict of interest exists in every bilateral legal transaction in which the shareholder and the company are contracting parties. Bilateral business, in itself, already implies the existence of diverse interests between the parties. Thus, there will always be a formal conflict, even if the legal transaction brings about equitable benefits for the company and its shareholder.^[8]

For other authors, however, corporate law regulates situations of conflict of interest from a substantive standpoint.^[9] Therefore, the possible illegality of the interference of the shareholder in the resolutions in which he is in a situation of potential conflict of interest with the company constitutes a factual issue, to be assessed a posteriori, based on an analysis of the merits of the decision, according to the concrete circumstances of each case.

The substantive (or material) conflict is only established when the vote is used in misuse of purpose, to promote shareholder interests incompatible with the corporate interest. In these cases, the shareholder's vote is unlawful, since he is sacrificing the corporate interest in favor of his own interest.

In the case of an absolute prohibition, the conflict of interests would be formal, found even before the vote is cast, by the simple position occupied by the shareholder and the company in a certain legal relationship. On the other hand, if the merits of the resolution were to be analyzed, the conflict would be of a substantive (or material) nature.^[10]

Let's take a look at the history of changes in the CVM's position on the subject: in a case in 2001, the understanding was that there is an absolute prohibition for a shareholder to participate in a resolution in which he had an interest potentially conflicting with the company, therefore considering it to be a case of a formal conflict of interest.^[11]

Indeed, in Administrative Inquiry TA RJ 2001/4977, the rapporteur board member Norma Parente expressed her opinion to the effect that the conflict is formal, when she decided that: "In the present case, it is unquestionable, in my opinion, that the benefit of the controller derives from the contract itself because he is on both sides, which is why he should abstain from voting, regardless of whether the contract is equitable. This is a case of negotiating with oneself. When referring to resolutions that may benefit the shareholder, the law does not assume that the shareholder is contracting with the company against the corporate interest. On the other hand, a conflict of interest does not presuppose that the interests are opposite but that the shareholder has dual interests. A conflict of interest, in fact, is established to the extent that the shareholder not only has a direct interest in the company's business but also has his own interest in the deal that is independent of his status as a shareholder because he is the counterparty to the deal. The conflict does not need to be divergent or opposing, or that there be an advantage for one and a loss for the other. The law employs the word conflict in a broad sense covering any situation in which the shareholder is negotiating with the company."

In 2002, the CVM's board understood differently and its opinion was that article 115 of the Brazilian Corporations Law regulates situations of conflicts of interest based on a substantive analysis, in which there is no absolute prohibition on the shareholder's participation in the general meeting's resolutions.^[12]

In this sense, in Administrative Inquiry No. TA RJ 2002/1153, through the prevailing opinion of board member Luiz Antonio Sampaio Campos, the understanding was settled that the conflict of interest would be substantive (material): "The line that finally came to prevail for cases of conflict of interest, as shall be shown below, was that for which the conflict of interest should be assessed in the concrete and specific case, in a substantive and not formal manner, and in my opinion it is the one that best defends the corporation’s assets and is integrated in the corporation system. This understanding, as I have already had the opportunity to explain, is a majority both in Brazil and abroad, and it is rare for anyone to hold the contrary, especially in Brazil (...) In Brazil, the subject has not been forgotten either. The view has always been that conflicts of interest are a question of fact, to be examined on a case-by-case basis, and that conflicts would need to be evident, colliding, strident, irreconcilable."

To the same effect was the judgment of Administrative Proceeding CVM RJ 2004/5494. The Appeals Board of the National Financial System - CRFSN, in appellate decision 4706/04, understood the conflict to be formal, since, when analyzing paragraph 1 of article 115 of the Brazilian Corporations Law, it concluded that: "The most appropriate interpretation for the final part of the provision in question - which deals with the personal benefit or conflicting interest - should be the one that concludes that the vote of the shareholder who considers himself to be in conflict is prohibited a priori, but only in the event that this voting shareholder, in his value judgment, finds himself in a situation of conflict. (...) The central issue is that, if there is, as there was, an interest of the external affiliate and indirectly of its subsidiary and this appellant in the execution of the contract, the latter should have abstained from voting, which would have avoided materialization of the conflict."

In a new change of position, in 2010, the board of the CVM returned to the position, in response to a consultation submitted by a publicly-traded company, that article 115, paragraph 1, of the Brazilian Corporations Law deals with cases of formal conflicts of interests, with the shareholder being absolutely prohibited from voting in any resolution in which he has interests potentially conflicting with the company.^[13]

In fact, in the decision of Administrative Proceeding CVM RJ 2009/13179, in which the rapporteur was board member Alexsandro Broedel Lopes, the agency stated again that the conflict was formal. Dissenting in this judgment was board member Eli Loria, who understood that the conflict of interest can only be found after the meeting is held and upon proof of the damage caused to the company. Here, the formal conflict was used despite the attempt to mitigate it, with the creation of a special independent committee in accordance with the provisions of Opinion 35, created for situations of corporate reorganization transactions in which parent and subsidiary companies are involved, representing "a single will".

In this decision, the CVM also pointed to the possibility of adopting a less rigid alternative, which would mitigate the excessive rigor of the defenders of the formal current, according to which cases of conflict of interests can be divided into two distinct groups:

• those in which the conflict is evident and appears a priori, in which the impediment to vote should be in force summarily; and
• those in which the conflict is not evident, for which the prohibition on voting must be justified if it is invoked by other shareholders.^[14]

In 2015, the board reaffirmed the formal theory in the Eletrobrás case, by deciding against the Federal Government's vote in the resolution for the renewal of the generation and transmission concessions of Eletrobrás' subsidiaries, although this decision was later modified by the CRFSN through a casting vote by the chairman of the board.

The same position, by the formalist theory, was confirmed in a new case reviewed in 2020, in which the board modifying the decision of the technical department, allowed the vote of the shareholders of Linx S.A. in the merger transaction STNE Part. S.A., on the understanding that there would be no conflict of interest or personal benefit in the situation.

In this case, two board members even affirmed that there was no personal benefit, because there was no breach of the equality of treatment or direct relationship with the resolution, as well as no "flagrant opposition between the interests of the appellants and the corporate interest", and there was no conflict capable of preventing Linx S.A. shareholders from voting.

In the administrative sanctions proceeding whose judgment was initiated at the board session on August 16, 2022 (case 19957.003175/2020-50), the board concluded that the materialist theory of conflict of interests should be adopted, changing its position, given that "the historical analysis added to the majority principles and presumption of good faith and strengthening of the means of remedial protection of minority shareholders' rights in the Brazilian capital market is not consistent with the adoption of a formal analysis with regard to the impediment on voting by shareholders in the cases analyzed in paragraph 1 of article 115 of the Brazilian Corporations Law."

This already seemed to be a trend, not only because of the attempt to soften the formal theory (although maintaining it) in 2010, but also because in 2021, in a case involving Cyrela - FII Grand Plaza, "bases of the material theory of conflict of interests" had already been used to allow the vote of a majority shareholder of an investment fund in a resolution passed at a shareholders' meeting regarding the spin-off of an investment fund, even though the formal theory was still confirmed, as we said above.

In fact, there was no settled case law on the subject, which was positioned either by the formal theory or the material theory.

We are now waiting for the board decision to change the position and, if so, for how long it will prevail.

^[1] Article 82 of Decree-Law 2,627/40 stated the following: "shareholders cannot vote on resolutions of the general meeting regarding the valuation report of assets contributed to formation of the capital stock, nor on those that benefit him in a personal way." However, article 95 of the same law provided that: "a shareholder who, having interests contrary to those of the company in a transaction, votes on a resolution that reaches the necessary majority with his vote shall be held liable for losses and damages." EGBERTO LACERDA TEIXEIRA. Das Sociedades por Quotas de Responsabilidade Limitada ["Limited Liability Companies"] - updated according to the New Civil Code by Syllas Tozzini and Renato Berger. 2nd edition, São Paulo: Quartier Latin, 2007, p. 176, criticizes its wording, noting that: "The legislator, in our opinion, would have been better advised to not make the subtle and dangerous distinction between ‘personal benefit' and 'interests contrary to those of the company' because, in fact, the two errors can easily be confused, they being the modalities of the 'self-contract' or 'contract with oneself'".   

^[2] ERASMO VALLADÃO AZEVEDO E NOVAES FRANÇA. Temas de Direito Societário, Falimentar e Teoria da Empresa ["Topics in Corporate and Bankruptcy Law and Theory of the Company"]. São Paulo: Malheiros, 2009, p. 576/577

^[3] Vote of Officer Luiz Antonio de Sampaio Campos in a decision by the Board of the CVM in CVM Administrative Proceeding TA/RJ2001/4977.

^[4] Decision of the Board of the CVM in CVM Case RJ 2009/13179 and in CVM RJ 2009/5811.

^[5] Except for the mention made in PAS 19957.003175/2020-50 as noted herein.

^[6] JOSÉ ALEXANDRE TAVARES GUERREIRO, "Conflicts of Interest between Controlling Companies and Subsidiaries and between Affiliates, in the Exercise of Voting Rights at General Meetings and Corporate Meetings", Revista de Direito Mercantil, Industrial, Econômico e Financeiro ["Journal of Commercial, Industrial, Economic, and Financial Law"]. São Paulo: Ed. Revista dos Tribunais, v. 51, July-September, 1983, p. 29-32.

^[7] MODESTO CARVALHOSA. Comentários à Lei de Sociedades Anônimas ["Comments on the Law of Corporations"], São Paulo: Saraiva, 2003, vol. 2, pp. 464/465; NORMA PARENTE. "O Acionista em Conflito de Interesses" ["Shareholders in Conflicts of Interests"]. In: Direito Empresarial (Aspectos Atuais de Direito Empresarial Brasileiro e Comparado) ["Business Law (Current Aspects of Brazilian and Comparative Business Law)"]. Ecio Perin Junior, Daniel Kalansky, and Luis Peyser (Coord.). São Paulo: Método, p. 3229 et seq.

^[8] NELSON EIZIRIK. Temas de Direito Societário ["Topics in Corporate Law"]. Rio de Janeiro: Renovar, 2005, p.72.

^[9] NELSON EIZIRIK. A Lei das S/A Comentada ["Comments on the Brazilian Corporations Law"]. São Paulo: Quartier Latin, 2011, vol. I, pp. 662/663. To the same effect: ERASMO VALADÃO AZEVEDO E NOVAES FRANÇA. Conflito de Interesses nas Assembléias de S.A. ["Conflicts of Interest in Corporate Meetings"]. São Paulo: Malheiros, 1993, p. 89. LUIZ GASTÃO PAES DE BARROS LEÃES. Estudos e Pareceres sobre Sociedades Anônimas ["Studies and Opinions on Corporations"]. São Paulo: RT, 1989, p. 25; TRAJANO DE MIRANDA VALVERDE. Sociedades por Ações ["Corporations"]. Rio de Janeiro: Forense, 1959, p. 26.

^[10] Understanding that this is a formal conflict of interest: MODESTO CARVALHOSA. Comentários à Lei de Sociedades Anônimas ["Comments on the Brazilian Corporations Law"]. v. 2 ..., p. 470; NORMA PARENTE, according to opinion issued in CVM Administrative Inquiry TA RJ 2001/4977, decided on December 19, 2001, and article published in Direito Empresarial: Aspectos Atuais de Direito Empresarial Brasileiro e Comparado ["Current Aspects of Brazilian and Comparative Business Law"]. São Paulo: Método, 2005, p. 329-343. Considering that this is a substantive conflict: LUIZ GASTÃO PAES DE BARROS LEÃES, "Conflito de Interesses" ["Conflicts of Interests"]. In: Estudos e Pareceres sobre Sociedades Anônimas ["Studies and Opinions on Corporations"]. São Paulo: Revista dos Tribunais, 1989, p. 25-26; FABIO KONDER COMPARATO, "Controle Conjunto, Abuso no Exercício do Voto Acionário e Alienação Indireta de Controle Empresarial" ["Joint Control, Abuse in the Exercise of Shareholder Voting and Indirect Disposal of Corporate Control"]. In: Direito Empresarial: Estudos e Pareceres. São Paulo: Saraiva, 1990, p. 91; ERASMO VALLADÃO AZEVEDO E NOVAES FRANÇA, "Conflito de Interesses: Formal ou Substancial? Nova Decisão da CVM sobre a Questão" ["Conflict of Interests: Formal or Substantive? New CVM Decision on the Issue"]; Revista de Direito Mercantil, Industrial, Econômico e Financeiro ["Journal of Commercial, Industrial, Economic, and Financial Law"]. São Paulo: Ed. Malheiros, v. 128, October-December, 2002, p. 259; TRAJANO DE MIRANDA VALVERDE. Sociedades por Ações ["Corporations"]... v. II, p. 116 and 315; CARLOS FULGÊNCIO DA CUNHA PEIXOTO. Sociedades por Ações ["Corporations"]. v. 3, São Paulo: Saraiva, 1972, p. 81; EGBERTO LACERDA TEIXEIRA and JOSÉ ALEXANDRE TAVARES GUERREIRO. Das Sociedades Anônimas no Direito Brasileiro ["Corporations in Brazilian Law"]. v. 1, São Paulo: José Bushatsky, 1979, p. 278; PEDRO A. BATISTA MARTINS, "Responsabilidade de Acionista Controlador – Considerações Doutrinária e Jurisprudencial" ["Responsibility of Controlling Shareholders - Considerations from Legal Scholarship and Case Law"], Revista de Direito Bancário e do Mercado de Capitais ["Journal of Banking and Capital Markets Law"]. São Paulo: Ed. Revista dos Tribunais, v. 27, January-March, 2005, p. 58-63. On this subject, see also LUIZA RANGEL DE MORAES, "A Jurisprudência no Tocante aos Conflitos de Interesse no Exercício do Voto em Sociedades Anônimas" ["Case Law Regarding Conflicts of Interest in the Exercise of the Vote in Corporations"], Revista de Direito Bancário, do Mercado de Capitais e Arbitragem ["Journal of Banking and Capital Markets Law and Arbitration"]. São Paulo: Ed. Revista dos Tribunais, v. 11, January-March, 2001, p. 281-288; and JAIRO SADDI, "Conflitos de Interesse no Mercado de Capitais" ["Conflicts of Interest in the Capital Markets"]. In: Rodrigo R. Monteiro de Castro and Leandro Santos de Aragão (Coord.). Sociedade Anônima – 30 Anos da Lei 6.404/76 ["Corporations - 30 Years of Law 6,404/76"]. São Paulo: Quartier Latin, 2007, p. 344-346. The dispute was summarized in the article "Is a Formal Conflict of Interest Enough to Stop a Shareholder or Board Member from Voting?", in the Antithesis Section, Revista Capital Aberto ["Open Capital Journal"]. No. 89, January, 2011, pp. 30-31.

^[11] CVM Administrative Inquiry 2001/4977.

^[12] CVM Administrative Inquiry TA-RJ 2002/1153

^[13] CVM Board Decision in Case RJ2009/13179.

^[14] In this regard, it is worth transcribing the following excerpt from the opinion of board member Alexsandro Broedel: "59. The text above conveys the idea that there will be, in cases of conflict of interests, two distinct situations: (i) one in which such conflict is apparent a priori, when, then, the impediment on voting must be in force summarily; (ii) another in which this conflict is not so evident, it being possible, obviously, to consider the prohibition on voting, which, however, must be justified, when invoked by other shareholders. (...) 62. I fully agree with Comparato's interpretation of article 115, paragraph 1. I believe that the conflict of interest can be found both a priori, in cases where it can be easily evidenced, and a posteriori, in situations where it does not shine through."

Category: Tax

Fernando Colucci and Alexia Costa Polloni

The problem of gender inequality in taxation has gained greater visibility in the legal universe. There are several forms of taxation that mainly affect women.

In early June, the Federal Supreme Court (STF) ruled the Direct Action of Unconstitutionality 5,422, filed by the Brazilian Institute of Family Law (IBDFAM), which questioned the constitutionality of the alimony taxation. Not only does this type of taxation aggravate the gender inequality scenario, but it also compromises the primary goal of the right to alimony, which is to ensure a life with dignity to those who cannot provide it for themselves.

In a decision taken in plenary, the Supreme Court ruled the action well founded and declared unconstitutional the taxation of alimony arising from family law, excluding from the scope of assessment the maintenance support due for other reasons – such as those arising from civil wrongdoing.

Interpretation was given in accordance with the Federal Constitution to Section 3, §1, of Law 7,713/88;^[1] Sections 4^[2] and 46^[3] the Annex to Decree 9,580/18; and Section 3, caput and §1^[4] and §4^[5] Decree-Law 1,301/73.

To understand the impacts of this form of taxation and the consequences of the Supreme Court's decision, it is necessary to highlight some essential characteristics of the family law alimony – its objective, its subjects and its way of quantification – before dealing with the tax legislation challenged by the direct action of unconstitutionality.

Characteristics of the right to alimony

In family law, the main objective of the alimony is to guarantee a life with dignity, citizenship and freedom to those who do not have the means to provide their own livelihood.^[6] The maintenance allowance should enable access to universal rights, such as education, food, clothing, leisure, health and housing, preserving the living standard of those who receive it.^[7]

In technical terms, in relation to the subjects involved, there are two parties involved in this legal relationship: a creditor and a debtor. While the creditor receives the alimony, the debtor pays for it.

According to the most recent data released by the Brazilian Federal Revenue, approximately 97.5% of pensions declared in the calendar year 2020 for the purposes of Personal Income Tax (IRPF) were paid by men.^[8]

The last statistical survey conducted by the Brazilian Institute of Geography and Statistics (IBGE) in 2019 revealed that the custody of underage children was granted unilaterally to women in 61.8% of divorces. To husbands, in only 4.1% of cases.^[9]

These data indicate that men mainly occupy the debtor position, while the creditor position is occupied by women and their children. Despite the diversity of family arrangements that can be contemplated in the obligation to provide maintenance, the reality of the subjects involved is much more restricted. The arrangements are limited to: men as debtors, and women as creditors or as legal guardians of the creditors – which are the children of whom they have custody.

The quantification of the support should, in theory, comply with the trinomial need/possibility/proportionality, considering the need of the creditor and the possibility of the debtor, according to Section 1,694, §1 of the Civil Code.^[10]

Necessity arises when the creditors do not have sufficient means to provide livelihood for themselves. The possibility exists when the debtor is able to provide the maintenance of the creditor, without harming its own livelihood. Proportionality determines the balance between these two factors.

There is an important aspect in the maintenance allowance quantification directly related to gender inequality. Even if the woman is entitled to receive the support, the arbitrated amount does not usually dampen the fall in their standard of living after a divorce.^[11] It is common for women's needs to be valued with excessive caution: the value set is usually not enough to guarantee the life with the dignity promised by the provision.

According to IBGE, women dedicate themselves to the care of the home and those who inhabit it twice as many hours as men.^[12] This domestic and affective work performed by women is devalued^[13] and disregarded when quantifying the support.

It is by this scenario that the alimony taxation is supported.

Taxation of alimony

Law 7,713/88 determines the incidence of IRPF on the value of perceived support paid in cash. On the one hand, pursuant to Section 3, §1 of that law, the Received alimony should be part of the IRPF calculation basis. On the other hand, pursuant to Section 12a, §3, I^[14] of the same law, the values Paid as alimony may be deducted from the basis for calculating the tax, when the support is the result of compliance with a court decision, an agreement approved by law or consensual separation or divorce made by public deed.

Before the Supreme Court decision, the alimony taxation was completely paid by the creditor. The debtors, in turn, could enjoy a tax benefit, deducting from the calculation basis of the IRPF the amounts paid as alimony.

Given that women – more specifically mothers who hold custody of their children after divorce – occupy, in the overwhelming majority, the direct or indirect creditor position, it is clear that they are more tax-charged.

These women could pay the tax in two ways, pursuant to Section 4, single paragraph, of Decree 9,580/18:

• As creditors, declaring and paying the IRPF on the pension amounts they receive in their own name; or
• As legal guardians of the creditors – their children, who receive the support – placing them as dependents in their statement and paying the IRPF on the amounts received by them.

Women, therefore, supported the financial burden of the tax payment, using part of the alimony – or their income itself – which should be intended to pay the children's expenses.

The negative impacts of the taxation extinguished by the Supreme Court

It does not take much to identify the gender inequality perpetuated by this form of taxation: the tax burden was concentrated on the creditor and, given that this position is occupied mostly by women, the entire financial burden of the tax payment used to fall on them.

However, this is not the only negative impact of the alimony taxation that was extinguished by the Supreme Court decision of unconstitutionality.

The taxation of amounts received as alimony, because they are not considered at the time of the quantification of the support, further reduced these amounts, which are usually already insufficient to cover the expenses of the wife and children after a divorce. Through this form of taxation, the party that was recognized to be in need was subjected to the payment of the tax, while the opposing party enjoyed a deduction benefit.

The proportionality, therefore, was not at all balanced, sacrificing women’s need in benefit of men’s possibility. Consequently, one of the parties of the supporting allowance relationship was at a clear disadvantage compared to the other.

The Supreme Court decision suppressed another impact: non-compliance with the alimony’s main objective. The jeopardy of part of the support for IRPF payment and the non-recognition of the costs faced by women with domestic work drastically reduced the value of the pension that could effectively be used to ensure the education, food, clothing, leisure, health and housing of the creditors.

Although indirectly, the disproportionality in the quantification of the alimony and the failure to comply with its main objective ended up increasing gender inequality. The need of women who asked for alimony was further aggravated, intensifying their position of disadvantage in relation to men.

The Supreme Court decision, therefore, removed from our legal system a form of taxation that not only deepened gender inequality, but put at risk the essence of the institute on which it relied.

The interpretation given by the Supreme Court to Law 7,713/88 and its corresponding decrees, in the analysis of the Direct Action of Unconstitutionality 5,422, helped to reduce the impact of gender inequality on taxation and on the alimony itself. The trial restored much of the proportionality in the alimony and paved the way for the satisfaction of its main purpose.

Although there are still several other issues related to gender inequality that need to be addressed in the Brazilian legislation, the Supreme Court's decision is an extremely important milestone for this necessary change in our legal system.

^[1] Law 7,713/88, Section 3: "The tax shall be levied on gross income, without any deduction, with the prohibition of the provisions of the arts. 9th to 14th of this Law. §1 - The entire proceeds of capital, work or combination of both, maintenance and pensions perceived in cash, and also income of any kind, thus also understood are the capital increases not corresponding to the declared income".

^[2] Annex to Decree 9,580/18, Section 4: "In the event of perceived income in cash by way of maintenance or pensions in compliance with a judicially approved agreement or judicial decision, including provisional or provisional maintenance, verified the civil incapacity of the creditor, the taxation will be made on his behalf by the guardian, the trustee or the person responsible for his custody (Decree-Law 1,301/73, Section 3, § 1, and Section 4).

Single paragraph. Optionally, the person responsible for the maintenance of the creditor may consider it its dependent and include its income in its statement, even if in values below the limit of the first range of the annual progressive table (Law 9,250/95, Section 35, caput, items III to V and VII)".

^[3] Annex to Decree 9,580/18, Section 46: "The amounts perceived, in cash, by way of maintenance or pensions, in compliance with a court decision, in an agreement approved by judicial or public deed registered in a notary's office, including the provision of provisional maintenance (Law 5,172/66 – National Tax Code, Section 43, § 1; Decree-Law 1,301/73, Section 3 and Section 4; and Law 7,713/88, Section 3, § 4)".

^[4] Decree-Law 1,301/73, Section 3, caput and § 1: "The net alimony or pensions perceived in cash constitute taxable income, classifiable in the "C" Form of the income statement of the creditor, which will be taxed distinctly from the feed. § 1 - In the case of civil incapacity of the creditor, he shall be taxed in the form of this section, and the income statement must be made on his behalf by the guardian, curator or guardian".

^[5] Decree-Law 1,301/73, Section 4, §4: "The provisions of Sections 2 and 3 also apply to cases of provision of provisional or provisional maintenance".

^[6] DIAS, Maria Berenice. Family Law Handbook. 4. Ed. São Paulo: Editora Revista dos Tribunais Ltda., 2016. Electronic book. p. 910.

^[7] TARTUCE, Flavius. Civil Law: family law. 14. ed. Rio de Janeiro: Editora Forense Ltda., 2019. Electronic book. p. 788.

^[8] Brazilian Federal Revenue - Large IRPF Numbers: calendar year 2020, financial year 2021

^[9] IBGE - Civil Registry Statistics - 2019. Table 5.8. Vital Statistics System

^[10] Civil Code, Section 1,694. Relatives, spouses or partners may ask each other for the support they need to live in a manner compatible with their social condition, including to meet the needs of their education. § 1 - Maintenance shall be fixed in proportion to the needs of the complainant and the resources of the obliged person.

^[11] OLIVEIRA, Ligia Ziggiotti de. Feminist Views on Contemporary Family Law. 2. Ed. Rio de Janeiro: Lumen Juris, 2020. p. 128.

^[12] IBGE - National Survey by Continuous Household Sample: other forms of work 2019

^[13] OLIVEIRA, Ligia Ziggiotti de. Feminist Views on Contemporary Family Law. 2. Ed. Rio de Janeiro: Lumen Juris, 2020. p. 126.

^[14] Law 7,713/88, Section 12a. §3: "The basis of calculation shall be determined by deducting the following expenses related to the amount of taxable income: I – amounts paid in cash as alimony in the face of family law rules, when in compliance with a court decision, a court-approved agreement or a consensual separation or divorce made by public deed; e (...)"

Category: Labor and employment

Law 14,442/22, published on September 5, regulates teleworking and changes the rules on meal allowances, provided for in the Brazilian Labor Laws (CLT). The law is the result of the conversion into law of Executive Order 1.108/22, already discussed in an article in this portal, available at this link.

Remote work is the rendering of services outside the employer's premises, predominantly or not, using information and communication technologies that, by their nature, do not constitute external work. Thus, even those who work just one day from home will be subject to the remote work rules.

Companies that had already implemented telecommuting, home office, or remote work policies (including work from anywhere policies) must reevaluate and adjust their practices to bring them into line with the new rules, if they have not already done so.

The point of greatest attention is the requirement to track the working hours of employees who work remotely, except in case of activities performed by task or by production or employees who occupy positions of trust, in accordance with article 62, II, of the CLT.

This is because, by requiring companies to implement mechanisms to track the working hours of employees working remotely, the new rule generates reversal of the burden of proof for companies, in the event of a labor lawsuit disputing the payment of overtime.

Thus, if companies do not control the working hours of employees who work remotely, the burden is on the company to prove that the employee did not work overtime.

Based on our experience, the production of this proof (absence of overtime) in situations like this is very difficult, since the company usually has difficulties in obtaining witnesses or records that can prove the employee's actual working hours.

Therefore, it is highly recommended that companies review the mechanisms used to track working hours in cases of remote work and, if they have not adopted them, that they evaluate and implement them in order to carry out correct tracking of working hours.