Adriana Pallis and Paula Soncini       The Administrative Council for Economic Defense (CADE) recently examined two cases of abuse of the constitutional right to access the Judicial Branch with the purpose of harming competitors, a practice known as ?sham litigation?

On December 15, 2016, the Brazilian Corporations Law turned 40. Conceived in a political and economic climate quite different from what we live in today, under the military regime and in the midst of an oil crisis that caused the decline of the Brazilian economy "economic miracle”, the Law was considered avant-garde for the time. So much so that some aspects were changed more recently, with the advances and needs arising from the development of the country’s capital markets.

Despite having undergone some changes since its creation, such as the 1997 “mini-reform" to facilitate Brazilian privatization processes, and the 2001 “counter-reform" to provide greater security to minority shareholders, the basis of the Law remains the same. Its text deserves recognition because, 40 years later, it still works surprisingly well. It is not happenstance that the Law is still considered contemporary 40 years after it was enacted and that it has undergone few changes even in a Brazil where events alter outlooks so quickly.

The fact that the Law left the regulation of some points to the Brazilian Securities and Exchange Commission (CVM) resulted in rapid responses to attend the updates needs throughout the Brazilian capital market’s evolution. One example is the regulation of takeover bids: by enacting Ruling No. 361/2002, CVM regulated the various types of mandatory public offerings and established the procedure applicable to such offers, whether mandatory or voluntary. The regulations with respect to disclosure of material information by listed companies was also detailed by the CVM by means of Ruling No. 358/2002.

However, CVM’s changes in understandings when resolving listed companies issues still causes some market uncertainty. One example is in relation to conflicts of interest: at times the rule is that the existence of conflicting interests should be treated as "formal", thus preventing a vote be cast under these circumstances, and at other times the rule is that conflicting interests should be treated as "material," thus allowing a vote to be cast, but being that vote subject to cancellation if it is found that it was not cast for the company’s benefit. This lack of clear guidance affects the company’s business and the position of the shareholders themselves at the general meetings.

The Brazilian Corporations Law is complete and balanced. The rules are well-connected and explain much of the life of companies, but after all this time some modernization in order to follow the market’s evolution and sophistication could do some good. Some points deserve attention, such as the concept of control. There is much debate about establishing a minimum percentage to constitute control: on one hand, it could bring greater certainty to the market, especially in cases of transfer of control, but on the other hand, it may not be consistent with reality and the established percentage may not represent the company’s actual control (for example, a high percentage for companies with dispersed capital, or a low percentage for companies with concentrated ownership).

Finally, we should think of adjustments in order to adapt legal provisions to innovations introduced by technology. The possibility of voting remotely, introduced in 2011 and recently regulated by the CVM, is an example of how the Law is already adjusting to the new reality. But some other points could still be modified, such as the need for publication of acts and financial statements in two widely circulated newspapers. This obligation could be limited, for example, to only one newspaper, and the other method of disclosure could be via a website.

Despite the need for adjustments, any further reform in the Brazilian Corporations Law should be conducted with caution to avoid causing damages in the arrangement of articles which work together like a gear, in a complementary and interdependent manner.