The limits of the Director’s performance as per Law 14195/2021
Popularly known as a bureaucratic country, the “infamous” Brazilian government requirements also reflect internationally and, in the business scenario, it could not be different. The World Bank’s ranking Doing Business is known for evaluating business and investments in economies around the world, to encourage countries to compete for more efficient business environments.
In this sense, on August 26, 2021, Law 14195/2021 [1] was sanctioned. Its objective was precisely to present initiatives aimed at facilitating the business environment, making provisions, among others, about the business scope, seeking an evolution of Brazil’s position with the respective ranking.
One of the main changes was the repeal of the sole paragraph of article 1015 of the Brazilian Civil Code [2], which provided for exceptional situations in which the company could disengage from obligations assumed by the Directors, if they had acted beyond the powers provided for in the articles of association, or if they were carrying out operations apparently foreign to the common business of the company.
This last situation was known in the law theory for being inspired by the Ultra Vires Societatis Theory, which argues that if the Director practices management acts in violation of the corporate purpose established in the articles of association, this act cannot be imputed to the company.
Although the Theory at first showed safety and protection for companies, its practical application did not follow the provisions of the Civil Code.
In fact, the understanding that guided the higher courts, especially the Superior Court of Justice, was that, even if the Directors had acted with excess power, the company is bound upon third parties in good faith for the acts performed. [3]
The main argument of the decisions that benefited third parties that contracted with the Company was to avoid the prevalence of a scenario of instability that the provisions of the sole paragraph of article 1015 of the Civil Code brought, because (i) the dynamism of the business relationship does not match the careful analysis of contracts and articles of association and (ii) the application of the article should privilege the theory of appearance and objective good faith, depending on the security of business relations.
It should be noted that although article 1015 of the Civil Code is in the chapter for private unlimited companies, it applies to limited companies, as these are governed subsidiarily in case of omission of the provisions. However, if the limited liability company is supplementarily governed by the rules applying to corporations, established in Law 6404/1976, the Ultra Vires Societatis Theory does not apply.
Thus, it can be concluded that the revocation came to favor the third party in good faith and the theory of appearance to the detriment of the company, in order to adapt the Civil Code to the international business environment and the understanding of the higher courts.
However, what would be the practical effects of the repeal? Will the company now be bound to all business carried out, even if the Director has acted excessively or practiced powers outside the corporate purpose?
It does not seem reasonable that the company should always be held liable, especially in cases of legal business in which there is no vulnerability or lack of assets of either party; or represent significant economic values in which the limits of the Director’s performance could be known to the other party by quick consultation in the company’s public documents.
The initial conclusion is that the simple generic provision in the articles of association that the Director is prohibited from using the corporate name in activities outside the corporate interest does not seem to us to have more practical application and should disappear over time, since the revocation consolidated
the application of the theory of appearance.
A recommended option is to write Contracts that expressly define the powers, amounts, and types of contracting that the Directors are authorized to perform, in order to inhibit actions outside the provisions of the Instrument and also establish internal policies for the inspection of documents approved by the Directors
themselves.
The opposite is also valid: the contracting party must carry out a minimum investigation, proving the powers of the legal representative who will sign the document, which, in many cases, is a simple public consultation, at no cost to the Company. This investigation is the minimum expected in economically relevant legal business or signed by large companies whose structure is notably known.
In any case, the moment requires caution, with the adoption of measures aimed at protecting the companies as much as possible while the higher courts do not define the liability of the companies in view of the performance of Directors after the repeal of the sole paragraph of article 1015 of the Civil Code.
[1] BRASIL. Law 10406, of January 10, 2002. Available at: http://www.planalto.gov.br/ccivil_03/
leis/2002/l10406compilada.htm. Accessed on: March 21, 2022.
[2] BRASIL. Law 14125, of August 26, 2021. Available at: http://www.planalto.gov.br/ccivil_03/_
ato2019-2022/2021/lei/L14195.htm. Accessed on: March 21, 2022.
[3] BRASIL. Superior Court of Justice. SPECIAL APPEAL 2012/0113956-5. Rapporteur: Justice
Luis Felipe Salomão. DJe (Official Gazette) 02/05/2015. Brasília, DF: Superior Court of Justice,
[2014] Available at: https://scon.stj.jus.br/SCON/GetInteiroTeorDoAcordao?num_registro=
201201139565&dt_publicacao=05/02/2015