Debt Recovery in Brazil: Is It Possible to Go After the Shareholders?

In the case of unpaid debts owed by a Brazilian company, is it possible to sue not only the company but also its shareholders or directors?

The answer is yes: in Brazil, there is a legal mechanism known as desconsideração da personalidade jurídica (disregard of legal personality), which allows courts to pierce the corporate veil when limited liability is abused. Below, we explain in practical terms how this mechanism works, when it can be applied, and the steps to take to use it in debt recovery.

What is the “desconsideração da personalidade jurídica” in Brazil?

In Brazil, the principle of the corporate veil (personalidade jurídica) ensures that the company is a legal entity separate from its shareholders and directors, with its own independent and limited liability. However, in exceptional circumstances, Brazilian law allows this separation to be disregarded, making shareholders or directors personally liable for the company’s debts.

This measure is allowed in cases of abuse of legal personality, which mainly manifests through:

• Diversion of corporate purpose: the company is used for purposes other than those for which it was established, with the intent of harming creditors;
• Asset commingling: no separation between the personal assets of shareholders/directors and the company’s assets (e.g., the company pays personal expenses of a shareholder, transfers assets without compensation, etc.).

In such cases, the judge may grant an incidente de desconsideração da personalidade jurídica, allowing the extension of liability or debt recovery to the personal assets of shareholders or directors, who then become responsible for the company’s obligations.

When is it possible to go directly against shareholders or directors?

It is important to stress that this action is the exception, not the rule. Typical cases in which Brazilian courts may accept it include:

• when abuse of legal personality is proven with concrete evidence of misappropriation of funds or asset commingling;
• when the company is used to “mask” the liability of a shareholder attempting to evade debt;
• in favor of consumers or employees, even without strict proof of fraud, in certain situations aimed at protecting the weaker party;
• when the company is part of a group and there is abusive coordination between parent and subsidiary companies, with the transfer of funds and the shifting of risks onto third parties.

Limits and conditions

For a judge to authorize direct action against shareholders or directors there must be a clear causal link between the abuse of legal personality and the creditor’s damage. Furthermore, shareholders or directors must be summoned to court and given the opportunity to defend themselves and the mere existence of a corporate group does not justify extending liability to the parent company, unless there is evidence of abuse.

How to proceed with an action to recover debts from shareholders or directors

Here are the practical steps to follow:

• Gathering evidence

First of all, it is necessary to collect evidence showing corporate activities that deviate from the company’s stated purpose or suspicious asset transfers (assets moved without economic justification, personal debts paid with company funds) or actions suggesting that the company is only a tool to hide shareholders’ liability.

• Enforcement against shareholders’ assets

If the judge grants the request, the personal assets of shareholders and directors can be seized to satisfy the debt. This opens the door to foreclosures, seizures, etc., within the limits established by Brazilian law.

• Advantages and complexities of direct action against shareholders

The advantages can be summarized as follows:

• It allows access to assets that would otherwise be unavailable if the company is insolvent or lacks useful assets.
• It increases deterrence: the risk of personal liability encourages shareholders to cooperate and seek an amicable solution.

As for the challenges, it should be noted that this is an exceptional remedy: if the evidence is not strong, the request is generally rejected. Moreover, the procedure is complex, and court costs are high, which is why this path is typically pursued only for medium- to high-value debts.

Conclusion

In Brazil, it is possible to attempt to recover an unpaid debt not only from the debtor company but also directly from its shareholders or directors, provided there is strong evidence of abusive conduct, commingling of assets between individuals and the company, or management of the company for purposes other than those stated in its corporate purpose. The main legal tool is the incidente de desconsideração da personalidade jurídica.
For significant claims, it is worth considering this path, with a well-structured strategy and in collaboration with a lawyer specialized in this type of action.