Brazil: Brazilian M&A. Marital Consent in a Share Deal.

Last Updated: 30 November 2015
Article by Lucas Tavares Bueno

The granting of marital consent, regulated by article 1.647 of the Brazilian Civil Code, is the practice of permission given by a marital spouse to their partner for them to undertake a certain act, which without said authorization, would be invalid. This practice was established as a means to protect and nourish marital harmony and as a way of protecting familial assets.

Of the four initiatives from the aforementioned article, the most well-known is the first which determines the authorization of the spouse concerning the alienation of real goods. This cited initiative originated from the Brazilian Civil Code of 1916, having been written at a time when real property was undoubtedly of the upmost importance to a couple's assets.

Nowadays, though real property continues to hold a position of importance, people own other assets which are of equal or higher value, for example, stocks or shares. In private transactions involving the sale and buying of companies, i.e., the selling and buying of stocks or shares, where the value involved greatly exceeds that of the real property which the seller possesses, there has been discussions regarding the necessity to obtain marital consent from the spouse, especially concerning whether the other spouse should or should not sign the transaction documents, such as a Share Purchase and Sale Agreement ("SPA").

At a first glance, article 1.647 of the Brazilian Civil Code does not require the signature of the spouse when considering the selling and buying of stocks or shares. Not surprisingly, in most of the marital regimes, the value gained from the transaction is to be considered marital property. Given this designation of marital property, each spouse would have a right to 50% of the goods received. Now, if the spouse were to have a right to 50% of this property, what would occur if the spouse/seller failed to notify the other spouse of the transaction, or deposited the full value of the sale in an account not shared with the other spouse?

In summary, the spouse who was not notified of the transaction may have a right to bring an action asking for the annulment of said transaction, arguing that the operation generated damages or that the sale was founded on a fraudulent act whose objective was to harm his/her respective assets. The chances of a favorable judgment would depend on the production of evidence proving the damages caused and/or the occurrence of fraud. This possibility will remain as long as the contract does not contain the express consent of the marital spouse.

Furthermore, it is important to mention that in accordance with the rules governing sales as established by the SPA, the seller, in general terms, is also responsible for indemnifying the purchaser regarding past contingencies. If the seller were to fail in his/her contractual obligations, the buyer would have a right to claim restitution, and as such, may have a right to seize the seller's assets as a means to receive this indemnification. Given the rules of marital property, the other spouse (i.e. the non-seller) would have a right to question the seizure of the seller's assets, claiming that he or she is the rightful owner of 50% of the marital property, and therefore, that percentage of the goods could not be seized due to the indemnity obligation, since his/her consent was not given for the transaction.

On the other hand, if the spouse were to sign the SPA, consenting to the terms and conditions, it is possible to argue that he/she has maintained an indemnity obligation to the purchaser or, at minimum, that he/she were aware of this obligation, and thus, would not be able to request the release of seized assets for the purposes of indemnification.

Given this analysis of contracts concerning the selling and buying of stocks or shares, it is not unlikely to foresee many situations where the value of such assets exceeds the value of shared marital real property and as a result the consent of the spouse should be obtained. Brazilian doctrine has begun to recommend this course of action for the alienation or recording of fungible marital goods of a heightened value. For this and other reasons, it is recommended that the seller's spouse sign the SPA consenting to the transaction.

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.

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