Brazil: Conflicts Of Interest In Corporate Reorganizations

Last Updated: 13 February 2008
Article by Monique Mavignier

One of the most delicate issues in commercial law is the regulation of corporate reorganization transactions, in which there are not two distinct parties, with opposing interests, but instead a single interest, or a single controlling shareholder, present in the various companies involved in the reorganization. In this respect, two solutions are theoretically possible: either to restrict voting rights and, in many cases, make the transaction impracticable for lack of quorum or to create an alternative system to protect minority shareholders. Article 264 of Law no. 6,404/76 (the Brazilian Corporations Law) was created with this last purpose in mind.

Article 264 requires that, in consolidations, spin-offs or mergers involving controlled companies or companies under common control, the shareholders of the controlled company must receive – in addition to information on the exchange ratio effectively offered – a statement demonstrating how the exchange ratios for the shares belonging to the non-controlling shareholders are calculated, based on the net equity value of the shares issued by the companies involved, valued according to the same criteria and on the same date, at market prices or based on another criteria accepted by the Brazilian Securities Commission ("CVM").

The rule contained in article 264 seeks to provide to minority shareholders additional information on the reasonableness of the share exchange ratio negotiated by management and, consequently, to prevent abusive actions by the controlling shareholder. In other words, the controlling shareholder is able to exercise its voting rights in a situation where there is a potential conflict of interests, because minority shareholders are able to compare the exchange ratio effectively offered with an independent valuation and, if they decide to exercise their appraisal rights, are entitled to the higher of book value or the valuation performed pursuant to article 264.

In recent years, discussion on the application of article 264 to corporate reorganization transactions has intensified, mainly in transactions subject to the jurisdiction of the CVM, by virtue of the large number of this type of transaction involving publicly held companies. The position adopted by the CVM on this question therefore merits a brief examination.

The issue which frequently comes up in corporate reorganization transactions to which article 264 applies concerns the real usefulness of the valuations required by law, in light of the time and cost of preparing valuations in certain transactions, such as transactions approved by 100% of the shareholders involved or transactions involving a merger of a wholly-owned subsidiary, where the merged company's shares, at the time of the merger, are held exclusively by the absorbing company.

In both the above described situations, the CVM's position seems to be that (i) either there is no interest to be protected by the commission, which then no longer requires submission of a valuation under article 264 by the publicly held companies involved, although the CVM recognizes that it does not have the power to exempt companies from complying with the provisions of article 264, or (ii) the CVM is justified in authorizing the adoption of a simpler criteria, such as a comparison of the book value of the companies involved, to meet the ends sought by article 264.

The CVM's reasoning appears to be that in such cases, there is no potentially dissenting minority that could possibly exercise its appraisal rights to withdraw or, even if the absorbing company has minority shareholders, there is no change to its net equity and, therefore, no issuance of new shares (which is why it is not necessary to establish any exchange ratio), given that the value of the merged company is already fully reflected in the absorbing company's net equity, due to the equity method of accounting.

Anumber of decisions by the CVM illustrate the issues raised above. In cases involving Unibanco, Suzano Petroquímica, Gafisa and Dixie Toga, for example, the Commission acknowledged the need to take the relative costs and benefits into account, and simplified the merger process of wholly-owned subsidiaries or closely-held companies controlled by publicly-held companies, in which third-party shareholdings was completely irrelevant.

It is appropriate, lastly, to mention the CVM's opinion on the method to be applied for purposes of complying with the provisions of article 264 in the cases which do not fall under the situations described above. In a recent decision (in a proceeding to investigate the merger of Banco Santander Noroeste S.A. into its controlling shareholder, Banco Santander S.A., in 1999), the CVM held that "this is 'a method of individual valuation of assets and liabilities, tangible and intangible, at their probable market value' – the so-called "liquidation balance sheet". At the same time, nothing prevents the CVM from authorizing the use of a different method in certain transactions, such as discounted cash flow, the purpose of which is to obtain economic value and reflect future prospects, and indeed the CVM has already granted such authorization on application by the interested party. It is also obvious, nonetheless, that however appropriate another method appears to be, its use must be authorized by the Commission.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.