Brazil: Court-Supervised Reorganization: Creditor's Abstention From Voting In A General Meeting Of Creditors. How To Proceed?

The recent Reorganization and Bankruptcy Law no. 11,101/2005 (" Reorganization and Bankruptcy Law") reflects the Lawmaker effort to consolidate a core reorganization principle, that is, the principle of ensuring tools and possibilities for the recovery of the Company under Reorganization.

Under the Reorganization and Bankruptcy Law, only the Creditors of the Company under reorganization have power to decide on the approval or not of the Reorganization Plan already presented in Court and meeting the legal provisions.

In general lines, the Creditors gathered in a General Meeting of Creditors resolve on the approval, rejection or review of the plan presented by the Company under Reorganization.

At said Meeting, it may happen that one or more Creditors in attendance, regardless of the reason, opt for abstaining from exercising their voting right.

The Reorganization and Bankruptcy Law does not provide for this issue, despite its significance. As a consequence, it is incumbent on the interpreter of the Law to attempt to establish whether the credit amount as well as the attending Creditor that abstained from exercising its voting right can be considered in the resolution quorum or not.

Article 4 of the Law on Introduction to the Brazilian Legal Rules determines that, even in case of omitted legal provisions, it will be incumbent on the Judge to decide "based on analogy, the customs and general principles of law", without a necessary prevalence of any one of those criteria over the others.

The Code of Civil Procedure is in line with article 4 of the Law on Introduction to the Brazilian Legal Rules and determines that in no event shall the Judge avoid giving an opinion by alleging a legal gap or omission, and that he must, where required, reach a decision by analogy, as set forth in Art. 126, Law no. 5,869, of January 11, 1973 ("Code of Civil Procedure").

Analogy consists in applying a provision on a similar case to a situation not provided for in law. In other words, it consists in applying a rule that concerns another similar legal precept, given the lack of an express legal provision on the case under examination. Art. 129, Law no. 6,404/76 (Law of Corporations) provides that "general meeting resolutions, except for those provided for in Law, shall be approved by absolute majority vote, white votes not computed" and is the most suitable provision to allow compliance with the analogical-interpretation rule. It is also worth pointing out the penalty contained in art. 118, paragraph 9, of the Law of Corporations, according to which the aggrieved party is permitted to use the votes of shareholders subscribers to a Shareholders' Agreement, that abstained from voting. In other words, the abstention is seen by the lawmaker as something harmful whose effects should be counterbalanced.

The Special Bankruptcy and Reorganization Chamber of the Court of Appeals of the State of São Paulo wisely adopted the same position and in a decision on Motion for Clarification no. 429.622.4/5-02, in an appeal involving Parmalat Brasil S.A. Indústria de Alimentos (under court-supervised reorganization) and Deutsche Trustee Company Limited, by applying Art. 129, of the Law of Corporations to the Creditors' meeting by analogy: "(...) In view of the significance of the resolution on the reorganization plan and in respect for the higher principle of the corporate reorganization that substantiates Law no. 11,101/2005, and of the lack of a specific rule on the possibility of a creditor present as a Meeting to abstain from voting, in accordance with Art. 4 of the Law of Introduction to the Civil Code, the provision in Art. 129 of the Law of Corporations should be applied: "General meeting resolutions, except for those provided for in Law, shall be approved by absolute majority vote, white votes not computed."

Evidently, the creditor abstaining from voting does not vote for either the approval or rejection of the Reorganization Plan, that is, its inaction is equivalent to a white vote. This is the understanding of Prof. Modesto Carvalhosa: "The resolution quorum is exclusively formed by the voting shares that have effectively pronounced pro or con the respective proposal. White votes are excluded from this computation, because they represent the votes of those that failed to pronounce, those that abstained from voting and those that voted on any matter different from that under examination." (Emphasis supplied).1

Hence, the creditor's abstention from voting at a General Meeting of Creditors should not be considered for the resolution quorum. This prevents awarding the positive or negative influence of the shareholder that abstained from voting. That influence may even be decisive depending on the total amount of the Credit held by the creditor that abstained from voting.

Hence, based on the principles, doctrine and case law reviewed for this article, we came to the conclusion that the analogical application of Art. 129 of the Law of Corporations for resolution on the quorum of the General Meeting of Creditors is the form legally correct and effective to settle doubts and potential conflicts stemming from the vote abstention by creditors present at the General Meeting of Creditors.

São Paulo, September 5, 2012.


1. CARVALHOSA, Modesto, Comentários à Lei das Sociedades Anônimas [Comments on the Law of Corporations], Ed. Saraiva, 1997, volume 2, pg. 619

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