To vote or not to vote, that is the question!

Last July 11th, the joint Congressional Committee that analyses the Provisional Measure for Economic FreedomMP 881/2019) approved several amendments that were not included in the original text with the issuance of a draft bill of law.

Among the changes is the right of the shareholder to exercise its voting rights at the meeting even though conflicting interests with the company are involved. The Brazilian Corporations Law prohibits the shareholder vote in resolutions of general meetings in which it has conflicting interests with the company. This new proposal establishes that the potential conflict of interest between the shareholder and the company should not deprive the shareholder of the right to vote, allowing the decision to be annulled provided it is demonstrated that certain conditions or adequate compensation for the company were not observed. In this case, provided the loss has been proved, the shareholder who exercised its conflicting voting rights will be liable for the damages caused and will be obliged to transfer to the company any improper advantages it has obtained.

The deliberative bodycollegiate) of the Brazilian Securities and Exchange CommissionCVM), going against the decisions of the technical area of the CVM and the Brazilian Corporations Law, had expressed its views that the shareholder does not need to express its impediment at the time of voting, only being liable to reimburse the losses caused for abusive conduct if any damage to the company is proven. The draft bill of law consolidates the understandings of the deliberative body of the CVM.

In a country like Brazil, where corporate control is concentrated in the hands of a few families and business groups, it can be said that this position of the legislature has a more political than technical bias.

The position goes in the opposite direction of the European Union rules on conflict of interest. In 2017, for example, Directive 2017/828 prohibited the conflicting shareholder from voting on relevant transactions between the company and related parties of the shareholder.

The bill of law still needs to be analysed and voted by the House of Representatives and the Senate to be converted into law. Until then, the current text of the Brazilian Corporations Law applies.

By Giovanna Paes Cruz, lawyer at Candido Martins Advogados