Arthur B. Penteado *

Manuela R. Lisboa *

The issue regarding voting rights of shareholders in conflicts of interest has always been controversial as far as the CVM precedents are concerned. The key in this debate is to define whether or not a shareholder may exercise his/her voting rights in conflicting situations. Recently, the CVM elected the formal theory, as opposed to the substantial theory, to deal with this issue, modifying its historical position on the matter.

Pursuant to the Brazilian Corporations Law, a shareholder must refrain from voting on any resolution: 1) relating to the appraisal report of the assets it has contributed to the company; 2) approving the company’s accounts whenever also acting as an officer of the company; 3) that may grant the shareholder private benefits; or 4) in which the shareholder and the company have conflicting interests.

There are two main different theories to be considered on this matter: 1) the formal conflict theory, pursuant to which a shareholder with conflicting interests with the company must refrain from voting in the relevant resolution; and 2) the substantial conflict theory, which states that the analysis of the conflict should be made ex post upon examining the vote cast by the conflicted shareholder.

Resolutions regarding appraisal reports, the approval of company’s accounts or any other matter that may grant private benefits to a given shareholder are recognized by law as hypotheses of formal conflict and, therefore, shareholders must be prevented from voting thereupon. However, there is more debate when it comes to resolutions in which a shareholder and the company have conflicting interests.

The majority of Brazilian scholars understands that conflict of interest should be considered in accordance with the theory of substantial conflict and, consequently, shareholders should not be prevented from voting. The basic principle of this theory is that one should not assume beforehand that the shareholder with conflicting interest will necessarily violate her obligation to vote in accordance with the interests of the company. The idea is to preserve the majority principle for approval of corporate resolutions, except when expressly provided otherwise by law, without prejudice to verifying a posteriori the suitability of the vote. Until recently, this was the prevailing position of the CVM on the matter.

Nevertheless, in a recent case concerning the approval of a related party transaction, the CVM expressed a new position and stated, in general terms, that the formal conflict theory would be most adequate to dealing with conflict of interest between shareholders and the company.

One of the main arguments raised by the CVM to support its position was the literal interpretation of the Brazilian Corporations Law, as it does not seem reasonable to have, within a same legal provision, diverse commands without any express difference among them, namely: three hypotheses of vote prohibition and one of ex post control. Additionally, the CVM highlighted the effects of the adoption of the formal theory to protect interests of minority shareholders.

This new position of the CVM represents a great impact on the Brazilian capital market, as many publicly-held companies may be required to review their internal corporate governance practices as well as their business models if they desire to adapt to this new interpretation of the CVM.

* Arthur B. Penteado and Manuela R. Lisboa are respectively partner and associate of Machado, Meyer, Sendacz e Opice Advogados.

(Capital Aberto International Edition | Ano 1 | No. 1 | Jan - Mar 2011)

(Notícia na íntegra)