One of the great points of discussion in the case law when a new law comes into effect is the moment at which the new legislation should be applied to legal relationships of continuous treatment or, as in the case we analyze here, in the hundreds of thousands of ongoing lawsuits, as occurred when the Code of Civil Procedure of 2015 (CPC/15) entered into effect.

The temperature of the debates rises if the matter involves one of the most effective measures for the recovery of credits litigated in the Judiciary: piercing of the corporate veil.

In a recent decision handed down by Justice Nancy Andrighi in the judgment of Special Appeal 1.954.015 PE, the Superior Court of Appeals (STJ) upheld a court decision handed down when the Code of Civil Procedure of 1973 (CPC/73) was in force, which provided for inverse piercing of the corporate veil when it is possible to seize the assets of companies of which the debtors are partners. The parties affected by the decision were subpoenaed after the new Civil Code went into effect.

The decision under appeal was made in the record of an action for enforcement of judgment, arising from a judgment issued in an action for damages, in which, after finding irregular succession between the judgment debtor companies, the court decided, without summoning the parties, for reverse piercing of the corporate veil to reach the assets of a legal entity different from the judgment debtor company, composed of the same partners, who were also respondents in the action for execution.

In the special appeal, the appellant argued that there was violation of articles 133 et seq. of the Code of Civil Procedure of 2015, which provide for the ancillary proceeding for piercing of the corporate veil. With this, he hoped to have the nullity of the procedural acts carried out in compliance with the decision, which had been issued in 2014, still in effect under the Code of Civil Procedure of 1973.

In the current law, contrary to the provisions of the previous code, a specific procedure is mandated, in which the judge must summon the parties to respond to the request to pierce the corporate veil, directly or inversely, in order to later decide on the inclusion of the new agents as defendants in the proceeding.

The dispute, therefore, touches on intertemporal law and the procedural requirements to grant piercing of the corporate veil.

The Code of Civil Procedure of 2015 came into effect on March 18, 2016,[1] and, in its article 1,046, provided as follows: "Upon the entry into force of this Code, its provisions shall immediately apply to pending cases, and Law No. 5,869, of January 11, 1973, shall be repealed." The expression “outright" leaves no doubt that the procedural rule listed in the Code of Civil Procedure has immediate application to ongoing proceedings.

Despite the legislator's intention to apply the new law immediately to pending cases, we must remember that the process is composed of a succession of acts that occur at different times. Therefore, each procedural act must be evaluated separately to determine which law governs it.

This is the core of the so-called Theory of Isolated Procedural Acts, established in article 14 of the Code of Civil Procedure of 2015 and described in the tempus regit actum principle. The new law only affects procedural acts to be performed after it enters into effect, respecting the effectiveness of those already performed.

With the new procedural law in effect, the case law is questioning, based on the Theory of Isolated Procedural Acts and the tempus regit actum principle, which procedures should follow the Code of Civil Procedure of 1973 and which should be converted to the current Code of Civil Procedure of 2015. Or rather, is it possible to speak of retroactivity of procedural acts performed during the transition of codes?

With this in mind, the STJ has drafted a series of administrative rulings (E. Adm.) of the Code of Civil Procedure of 2015 to guide the legal community on the issue of intertemporal law regarding the application of the rules of the two codes in several specific situations.

These are the rulings and their central themes:

  • Adm. 2: Admissibility requirements for appeals based on the CPC/73
  • Adm. 3: Admissibility requirements for Appeals based on the CPC/15
  • Adm. 4: Procedural act performed after the CPC/15 entered into effect
  • Adm. 5: Appeals based on the CPC/73 and the opening of the term provided for in the CPC/15
  • Adm. 6: Appeals based on the CPC/15 and the opening of the term for formal defects
  • Adm. 7: Appeal and fees for loss on appeal under the CPC/15

Despite the STJ's efforts to define parameters, the issue is far from being exhausted.

To contextualize the decision rendered by the STJ in the case under discussion, it is interesting to analyze the concept of piercing of the corporate veil.

In substantive law, piercing of the corporate veil is provided for in article 50 of the Civil Code of 2002. It established, in a list of examples, the casers that would justify its application, particularly in cases where the individualization between the civil existence of the partner and the company is lost, due to abusive and fraudulent actions, with the aim of protecting the assets of one (partner) or the other (company) from their creditors.

As well outlined in the grounds of the appellate decision under analysis, “piercing of the corporate veil has as a parameter, therefore, illegitimate action of the company through abuse of rights, performed through violation of the law or of the articles of association, and also through mixing of assets.

Once the requirements of article 50 of the Civil Code are met, two forms of application of piercing of the corporate veil can be recognized.

The first of these is piercing of the corporate veil itself, which occurs when, to satisfy creditors, the assets of the partners are affected. The second is inverse piercing of the corporate veil, in which, to satisfy creditors, the assets of the legal entity are affected, which occurred in the judgment under discussion.

Although the concept of piercing of the corporate veil has been in force since the Civil Code of 2002 was published, the Code of Civil Procedure of 1973 did not provide a specific procedure for its implementation.

The application of the concept was based on case law. In general terms, if the requirements are found to be met in summary review, the judge can “pierce the veil" of legal entity, overcome asset autonomy and authorize, in an incidental manner, that a certain act of expropriation affect the partner's or the company's assets, depending on whether it is a case of piercing of the corporate veil or inverse piercing.

In this context, the possibility of a defense for those whose assets were affected by piercing of the corporate veil was postponed, that is, only after the act of expropriation could those affected submit their defense.

This is exactly what happened in this case. In fact, in the situation at hand, both companies in which the "succession" was found, besides having the same partners, who were already defendants in the execution of judgment, had the same lawyers as representatives in the record.

Despite these "coincidences", no appeal was filed against the decision that recognized the irregular succession of the judgment debtor companies. This contributed, in the understanding of the STJ, to upholding the decision under appeal, and even recognized preclusion of the possibility of arguing the nullity of the procedural acts performed.

The justice writing for the court, in her grounds for the decision, found that there is nothing to be said of modifying the decision, either due to the inertia of the appellant in the decision that included it as a defendant in the cause, or due to the temporal situation of the law to be applied to the act that so decided. It did not suffice, on the part of the judgment debtor company, to claim that the publication of the decision rendered in 2014 occurred in 2019, in order to make use of the new law that would benefit it.

The STJ followed its settled understanding that the new procedural law will not retroact to acts already completed, which occurred under the old law, even if the proceeding follows its course after the enactment of a new law, which ensures greater legal certainty to acts already performed, even with the enactment of a new law to the contrary.

More than that, the court has signaled that, even if minimum parameters have been defined to guide the decision as to which law is applicable to the case, when elements of intertemporal law are present, other procedural elements, such as preclusion of the matter in question and the effects of the decision handed down by the state courts, will be taken into consideration on a case-by-case basis when deciding these issues.

 

[1] As per Administrative Restatement 1 of the STJ