In May of this year, the Superior Court of Justice ("STJ") ruled on the Special Appeal No. 1526287-SP, deciding that the dissolution of a company and its insolvency do not justify the piercing of the corporate veil and thus holding the shareholders personally liable for the company´s debts.

The legal personality of a company serves as an instrument to protect the assets of the shareholders, since it restricts the liabilities of the company to its assets in case of failure of its business.

However, the Brazilian Civil Code and the Brazilian Corporate Law establish the possibility of piercing the corporate veil if there is abuse of the legal entity form, characterized by the misuse of its purpose, such as fraud against creditors or abuse of rights by the shareholders and also in case of confusion between the assets of the company and of the shareholders. In such cases, the shareholders may be held personally liable for the debts of the company.

In practice, the broad hypothesis of the theory is one of the reasons courts adopt their own criteria for piercing the corporate veil, which in many cases is done without discrimination.

In this respect, the recent decision issued by the STJ is beneficial towards business persons to the extent that the piercing of the corporate veil would only apply if one can "demonstrate that the shareholders intentionally misused the corporate form to conceal the practice of wrongful doing against creditors or third parties – whether for intentional disregard of the law or the by-laws, or for the inexistence of separation between the shareholders' assets and company's assets".

For the Court, there must be concrete evidence of abuse of the legal form or asset confusion to apply for the piercing of the corporate veil. Also, the insolvency of a company or its irregular dissolution without its registration with the competent Board of Trade do not justify the piercing of the corporate veil.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.