To what extent may noncompliance with formal requirements provided for by the law, bylaws and shareholders’ agreements annul call notices for general meetings (GMs)? To find answers to this question, we analyze in this article the understandings of legal scholarship and case decisions related to the annullability of GMs convened in disagreement with established procedures.

The standard provisions for convening GMs are set forth in Law No. 6,404/76 (the Brazilian Corporations Law or LSA), but the company's bylaws and/or shareholders' agreements may change these rules, provided that they do not conflict with the LSA.

A fundamental requirement for a call notice for a GM to be valid is for the initiative to originate from a competent body or person.[1] According to article 123 of the LSA, it is within the purview of the board of directors, if any, or the executive officers, subject to the provisions of the bylaws, to issue such a call notice.

Also in accordance with the LSA, whenever it is necessary to hold a GM, the members of the board must meet in advance, observing the proper formalities for the meetings of this body and respecting its collegial nature, to approve the proposal for a call notice. In practice, however, the call notice is often done by the chairman of the board or another member and, as a routine act, this should not result in any prejudice for the company. It must be emphasized, however, if any damage to the legitimate interest of the company or any shareholders is found, failure to comply with a formality may render the call notice invalid.[2] Here, it is important to emphasize that the annullability of AGs convened with a procedural irregularity must take into account the actual damage caused to the company and/or its shareholders.

The importance of the shareholders’ interest

Following this line of thought, Erasmo Valladão Novaes França points out that “at a particular meeting, in which there was a disregard for the formalities set forth in the law or bylaws related to the call notice and call to order, nothing other than the interests of the shareholders themselves are at stake at the time in which the meeting is held."[3] Therefore, one should not conceive of the annullability of a GM based on formal requirements when what is to be protected, which is the most relevant point here, is the interests of the shareholders. In the absence of actual damage or conflict in relation to such interests, nullity of the GM is not justified, and the act must therefore be preserved.

This understanding is corroborated by the following decision by the São Paulo Court of Appeals, in which a suit to annul a GM was denied because no actual harm to the applicant shareholder was found:

"Appeal - Action for Annulment - Questioning of acts of representation of the Estate of Guilherme Muller Filho - Allegation of defect in call notice for an ordinary general meeting and the resolution reached therein - Overcome by the spontaneous appearance of all shareholders - Absence, in addition, of the actual and effective indication of damages caused to the interests of the parties and/or of the company - Sufficiently grounded judgment - Ratification in the form of article 252 of the Internal Rules of Procedure of this Court - Appeal denied relief. “(Appeal No. 0104399-42.2007.8.26.0000, Opinion drafted by Beretta da Silveira, decided on February 7, 2012)

Call notice for GM prompted by shareholder

Another interesting point about the annullability of GMs called only by the board is the strict interpretation of the LSA that the chairman or any other member of the board would not individually have competence to attend to the request for a call notice made in accordance with letter (c), sole paragraph, of article 123 of the LSA.[4] Fulfillment of the request for a call notice made by a shareholder holding shares representing 5% of the capital stock would also necessarily require the convening of a prior meeting of the board, only by means of which a decision should be reached by the board, if the call notice is to be made or not.

A contrary line of argumentation states that the request to convene a GM made by a shareholder representing 5% of the capital stock would generate a power and duty[5] on the part of the officers and directors, to be interpreted as a prompted call notice,[6] which would authorize the members of the board, in the strict fulfillment of their duties, to comply with the shareholder's request and, if necessary, contradict procedures established in the LSA and/or bylaws, in order to comply with the eight-day legal deadline established in article 123 of the law. In this manner, board members may take exceptional measures to obtain greater speed, which, of course, would require a case-by-case interpretation, considering the relevance of each act against the provisions of the LSA and/or bylaws and its actual prejudice to the other shareholders.
[7]

In this same sense, the Brazilian Securities and Exchange Commission (CVM) affirmed, upon analyzing the organizational function of bylaws, that "the improper use of this organizational function that bylaws have, and indeed it is legitimate that they have it, to prevent or curtail the rights of shareholders cannot be accepted. The organizational function of bylaws cannot serve as a pretext for producing bureaucratic rituals and formal whims that prevent shareholders (or board members) from exercising the right conferred by law."[8]

One notes, again, an inclination to preserve the objectives sought by GMs, here interpreted broadly, over and against the formal and/or procedural aspects of lesser importance indicated in the LSA and/or bylaws.

And when the board is constituted in an irregular manner?


Another situation that may cause nullity is the convening of a GM done by a board constituted irregularly, in disagreement with the provisions of article 146 of the LSA and its paragraphs (for example, it is necessary to follow the registration and publication procedures indicated in the article for election of the board members and indicate the term of office for each board member elected).

In relation to this specific scenario, Modesto Carvalhosa pondered that: "it is clear that in this case there should be no nullity due to formal issues, that is, an irregular call notice. If, however, the resolutions reached are prejudicial to the corporate or individual interests of the partners, the defective origin of the call notice shall be a convincing issue supporting the nullity of such resolutions."[9]

In this case, it was understood that the irregular call notice should be disregarded, always considering potential damages to the company's and the shareholders' corporate and individual interests, respectively, since the determination of nullity of all GMs convened by an irregularly composed board would represent a much greater problem for the company’s life than failure to comply with a simple formal requirement of a call notice, a situation that should be avoided.[10]

In addition, it is understood that the fact that the LSA establishes a public call notice procedure for GMs (articles 124 and 289), in addition to the call notice procedure set forth in article 123 of the same law, safeguards the greater objective of giving adequate publicity to call notices, thereby correctly informing the shareholders that GMs will be held. In view of the supplementary nature of these two procedures, it is even more irrelevant that non-compliance with minor formalities is lacking.

Prevalence of relative nullity over absolute nullity

One should add to the above the fact that in legal scholarship and case decisions the prevailing understanding is that absolute nullity should be ruled out, and corporate acts should be preserved when it is possible to opt for the application of relative nullity. Again, the degree of non-compliance with legal norms and/or procedures and the effective harm to shareholders should be considered. This is, for example, the teaching of Nelson Eizirik when he affirms that: “In Corporate Law, one applies, with the adaptations necessary, the general regime of annullability of acts that are erroneous or defective (relative nullity), and not absolute nullity."
[11]

It is therefore verified that the Brazilian legal system, via both legal scholarship and case decisions,[12] invokes the existence of a detachment from the nullity in corporate law under the classical theory of nullities. In addition, the tendency in Brazilian and comparative law is to understand nullities in the corporate context as relative, thereby relegating absolute nullity to only truly exceptional situations.[13]

Conclusions


Thus, although it is important to observe the provisions of the law and/or bylaws regarding the regular calling of GMs (and it is recommended that this be done strictly to avoid questions), legal scholarship and case decisions tend to value preservation of the effects of call notices whenever possible, either by relativizing procedures of minor importance for convening GMs, or based on the understanding that the application of relative nullity should prevail over absolute nullity in the corporate law context. In order to consider the annullability of GMs convened via a call notice with procedural defect, therefore, it is always necessary to observe the relevance of the procedures not followed and the actual harm caused to the shareholders and/or the company as a result of this noncompliance.

 

1. Additional requirements for regular convening of a GM: (i) publication of the call notice (articles 124 and 289 of the LSA) and (ii) delimitation of the matters to be discussed (article 124 of the LSA). TEPEDINO, Ricardo. Direito das companhias [“The law of corporations”], 2nd v. / Coordinators: Alfredo Lamy Filho; José Luiz Bulhões Pedreira – Rio de Janeiro: Forense, 2009, p. 890.

2. COELHO, Fábio Ulhoa. Curso de direito comercial [“Commercial law course”], volume 2: direito de empresa [“company law”] - 15th ed. - São Paulo: Saraiva, 2011, p. 225.

3.  NOVAES FRANÇA, Erasmo Valladão. Invalidade das deliberações de assembleia das S/A e outros escritos sobre o tema da invalidade das deliberações sociais, [“Invalidity of resolutions at general meetings and other writings on the issue of invalidity of corporate resolutions”], 2nd ed. São Paulo: Malheiros Editores, p. 102.

4. “Article 123, sole paragraph: The general meeting may also be called: (...) (c) by shareholders representing at least five percent of the capital stock, when the directors do not attend to, within a period of eight days, a request for a call notice, duly substantiated, indicating the matters to be addressed (...)"

5. GUERREIRO, José Alexandre Tavares. Convocação de assembleia geral por acionista [“Calling of general meetings by a shareholder”]. Revista de Direito Mercantil [“Journal of Business Law”], n. 41. São Paulo: Revista dos Tribunais, Jan/Mar 1981, p. 154.

6. CARVALHOSA, Modesto. Comentários à lei de sociedades anônimas [“Comments on the Brazilian Corporations Law”]. 3rd ed. São Paulo: Saraiva, 2003. V. 2, p. 634.

7. CASTELLO BRANCO, Adriano. O Conselho de Administração nas Sociedades Anônimas [“The Board of Directors in Corporations”]. 2nd ed. – Rio de Janeiro: Forense Universitária, 2007, pp. 54-59.

8.  CVM/RJ - Administrative Proceeding No. 2005/3806 - Opinion by chief judge Marcelo Fernandez Trindade, dated July 21, 2005.

9.  CARVALHOSA, Modesto. Comentários à lei de sociedades anônimas [“Comments on the Brazilian Corporations Law”], 2nd volume: articles 75 to 137 - 6th ed. - São Paulo: Saraiva, 2014, p. 927.

10. TJSP – AI No. 2136380-06.2017.8.26.0000 – 1st Chamber of Business Law - Opinion drafted by Cesar Ciampolini – decided on October 18, 2017.

11.  EIZIRIK, Nelson. A lei das S/A comentada [“The Commented Brazilian Corporations Law”], volume III, São Paulo: Quartier Latin, 2011, pp. 591/592.

12.  STJ – Special Appeal REsp 1.330.021 – (2012/0025233-6) – 4th Panel – Opinion drafted by Justice Luis Felipe Salomão - Published in the Electronic Gazette of the Judiciary on April 22, 2016.

13.  BORBA, Gustavo Tavares. COELHO, Fábio Ulhoa (coord.). Tratado de direito comercial: tipos societários, sociedade limitada e sociedade anônima [“Treaty on Trade Law: corporate types, limited liability companies and corporations”]. São Paulo: Saraiva, 2015, pp. 371, 386 and 387.