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Brazil's case law and opinions on time bars for joint stock companies to seek monetary compensation against officers/directors

Por: International Bar AssociationImprimirVisualizar em PDF

An important characteristic of Brazilian law is that there are two different legal concepts to bear in mind when referring to limitation periods: prescrição and decadência. All legal actions will be subject to a prescrição or to a decadência limitation period, depending on what the statute provides.

The importance in distinguishing prescrição from decadência lies in the different effects that such legal institutes have. The prescrição limitation period affects the claim, the exercise and the enforceability of a right. The decadência limitation period affects the right itself. Once the decadência period has elapsed, there is no longer any right, because it has been extinguished.

It is possible to toll the prescrição limitation period. The party entitled to a claim can unilaterally interrupt the limitation period for actions subject to prescrição at any time. Once tolled, the limitation period starts to run again. On the other hand, the decadência limitation period cannot be tolled. Once it starts to run, it is impossible to toll unless expressly provided by law.

Civil liability action against officers and directors and the prior annulment action

Article 159 of Law No. 6,404 (the Brazilian Corporate Law) provides that a joint stock company may bring a civil liability action against its officers and directors seeking monetary compensation for losses they have caused to the company's property.[1]

The company must prove that these officers and directors have acted with fraudulent intent or in violation of the law or the bylaws[2][3]. The prescrição limitation period for filing this action is three years, which runs from the date of publication of the meeting resolution that approved the balance sheet for the year in which the violation occurred. [4]

However, if the wrongful acts have been carried out in a financial year for which the officers' and directors' accounts have already been approved in the shareholder's annual or special meeting, the company will not be able to bring this action because the shareholders' approval of the accounts exonerates the officers and directors from any civil liability.[5]

Hence, to hold officers and directors liable, it will be necessary to annul the shareholders' meeting resolution that approved the officers' accounts prior to filing the civil liability action seeking compensation. Therefore, an annulment action must be filed under Article 286 of the Brazilian Corporate Law.[6] The annulment will depend on the evidence that that the resolution of the general meeting that approved the accounts is riddled with error, bad faith, fraud or misrepresentation. It means that the joint stock company bears the burden of proof that the wrongful acts committed by the officers or directors were deliberately omitted from the shareholders during the shareholders' meeting in order to secure approval.

The relevant portion of Article 286 of the Brazilian Corporate Law states that the prescrição limitation period to file an annulment action elapses after two years from the date of the general or special meeting that approved the directors' and officers' accounts. When the statute specifically uses the word prescreve, it is intuitive to think that the law created a prescrição limitation period which may be tolled under certain circumstances. However, Brazilian case law and scholars' opinions strictly construe this statutory provision governing annulment action as a decadência limitation period.[7][8]

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