In a recent ruling, the São Paulo Court of Justice (TJSP) addressed a sensitive issue for the credit markets by upholding the attachment of shares owned by a debtor, even though the company in which he holds such interests is currently undergoing judicial reorganization. The decision is part of a broader discussion on the extent of shareholders’ exposure to personal liability in the context of corporate distress.
In the case, the interlocutory appeal was formally dismissed on procedural grounds for lack of prior examination by the lower court. Nevertheless, the Court took the opportunity to address the substantive controversy and articulate a position with potential precedential and market-guidance value, structured around 3 core points:
1. Equity interests are attachable assets and the measure is legally valid: The Court reaffirmed that the attachment of equity is expressly supported under current Brazilian law, emphasizing that: (i) article 835, IX of the Brazilian Code of Civil Procedure (CPC) lists equity interests in limited liability companies as property subject to attachment; (ii) article 1.026 of the Brazilian Civil Code authorizes both the attachment and subsequent liquidation of such interests; and (iii) the measure targets the personal assets of the shareholder-debtor, and not the assets of the company under judicial reorganization. Therefore, there is no unlawful interference with the debtor company’s estate nor any violation of the judicial reorganization framework.
2. Affectio societatis and low liquidity do not bar attachment: The decision also addresses two arguments frequently raised in defense of shareholders and companies, and limits their impact: (i) any concern regarding the admission of a third party into the company’s ownership structure does not preclude the attachment itself. Those issues are to be resolved at the enforcement/expropriation stage, through mechanisms such as: (a) redemption of the execution; (b) exercise of preemptive rights by the other shareholders or by the company; and (c) a petition for partial dissolution of the company; and (ii) the relatively low liquidity of equity interests, as compared to other assets, is treated as a business and enforcement risk assumed by the creditor and does not justify denying the attachment. It is up to the creditor to assess the economic viability of pursuing that specific asset.
3. “Least onerous means” principle is not a blank check: The Court rejected the use of the “least onerous means” principle as an abstract defense tool aimed solely at delaying enforcement, without any concrete proposal to replace the attached asset with equivalent or superior security.
The TJSP’s decision strengthens predictability in Brazilian enforcement proceedings, particularly in scenarios involving corporate distress. Judicial reorganization is no longer treated as an absolute shield for shareholders who are themselves debtors, to the extent that: (i) creditors remain able, within statutory limits, to reach the personal assets of shareholders; (ii) the attachment of equity interests is recognized as a legitimate enforcement mechanism, including in situations where more liquid assets are not readily available; and (iii) the room for purely dilatory defenses, based on generic references to the “least onerous means” principle or to the company’s ownership structure, is significantly narrowed.
As a result, the decision is likely to encourage more strategic use of the attachment of equity interests, allowing creditors to calibrate their enforcement tools to the specific asset profile of the debtor and its shareholders.
