Brazilian Securities and Exchange Commission understanding in cases involving conflict of interest

The conflict of interest in corporate deliberations is a controversial issue. In times of car wash operationOperação lava-jato) and plea bargain arrangements, where members of management and shareholders are often involved in investigations, the issue takes on even greater proportions. In light of first paragraph of article 115 of Brazilian Corpora LawLaw No. 6,404/1976), the shareholder may not vote in deliberations of a shareholders´ meeting that may benefit him in a particular way or in which he has conflicting interest with the company.
Based on precedents of the Brazilian Securities and Exchange Commission”CVM”), the interpretation of this legal provision by the authority was directed at preventing the vote before the meetingformal conflict, a priori). Article 115 of the Corporate Law would lose its meaning if the conflict of interest could only be ascertained after deliberationmaterial conflict, a posteriori), since the purpose of the law is to avoid the shareholder to benefit himself in detriment of the common interest to the others.
This view was supported essentially by the argument that the prohibition of voting allows the decision-making power to be shifted to those who do not have a conflict of interest, thus preserving the social interest.
However, in a recent case judged by the CVMProcess SEI No. 19957.007563 / 2017-12), where the minority shareholder sought to prevent the controlling shareholderswho also held positions as directors of the company ) to vote in the resolution regarding the filing of a claim against the managers and controlling shareholderswho were involved in the unlawful acts confessed in awarding agreements) for damages caused to the Company, the CVM board concluded that it remains for the shareholders to evaluate if they are in a situation of conflict of interest with respect to the deliberations in question, and, if necessary, abstain from exercising their right to vote at the meeting.
Thus, “conflict of interest” remains a controversial topic, and CVM has expressed different opinions on the subject.
Candido Martins Advogados is following the developments on this subject and is available for any clarification