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Conflict of interests, groups of companies and de facto directors. A Portuguese case

Alexandre de Soveral Martins

The Portuguese Supreme Court of Justice decision partially reproduced above analyses an interesting (and complicated) case in which it was discussed whether or not deals carried out between the controlling company and its subsidiaries were null or voidable. The problem arose because a director of the subsidiaries was also considered to be a de facto director of the controlling company. The definition of a group of companies was also addressed, and the court accepted that the existence of unified and common management would be the distinguishing criterion, although Portuguese Company Law does not say so. Thus, central questions of company law and, in particular, of the law of groups of companies were debated.

Conflitto di interessi, gruppi di societÓ e amministratori di fatto. Un caso portoghese

La decisione della Corte Suprema di Giustizia portoghese, parzialmente riprodotta sopra, analizza un caso interessante (e complicato) in cui si discuteva se le operazioni effettuate tra una società dominante e le sue società controllate fossero o meno nulle o annullabili. Il problema nasceva dal fatto che un amministratore delle società controllate era considerato anche un amministratore di fatto della società controllante. È stata affrontata anche la definizione di gruppo di società e il tribunale ha accettato che il criterio distintivo fosse l’esistenza di una gestione unificata e comune, sebbene il diritto societario portoghese non lo dica. Sono state quindi discusse questioni centrali del diritto societario e, in particolare, del diritto dei gruppi di società.


The nullity of contracts as stated in paragraph 2 of Art. 397 of the CSC refers to business deals that do not correspond to the exercise of the company’s normal activity, or that, if they do, provide a special advantage to the director, in relation to other people in similar contractual situations.




a) Admissibility of the review […]

The 1st instance verdict, when addressing the invoked nullity of the contracts based on the provision of article 397(2) of the CSC [Código das Sociedades Comerciais – Portuguese Company Law], considered the following:

“In this sequence, in this regard, it was neither proven nor does it result from the facts referred to that Mr. AA was the de [continua ..]

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1. The case and the perimeter - 2. Conflicts of interests and related parties - 3. De facto directors - 4. The group - 5. Some final remarks - NOTE

1. The case and the perimeter

The Portuguese Supreme Court of Justice Ruling of May 10, 2021 [[1]], decided on a case in which the Claimant (Sabril) demanded payment from Defendants (Felmica, ADM, Mota Pastas, Mota Mineral and Mota II). Among other things, it has been discussed whether contracts entered into between the former and the latter should be declared null and void. All the Defendants had AA as Director. On the other hand, AA was considered the owner and beneficiary of W, SGPS, the latter owning 100% of the Claimant. AA was also considered de facto director of the Claimant Sabril. However, it seems that the contracts under scrutiny were not concluded directly by AA acting as Director of the parties. The Claimant Sabril won the plaintiff in all previous instances. At first instance, the court held that it was not proven that AA was de facto Director of the Claimant (and, at the same time, one of the Defendants Director), or that there has been self-dealing. The Court of Appeals (Tribunal da Relação) decided that AA acted as de facto director of the Claimant while he was also director of the Defendants. However, it also held that it was not proven that the contracts giving rise to the debts were entered into between the Defendants and the Claimants’ de facto director (AA). Also, the Court of Appeal considered that it had not been proven that the deals made had been to Claimant’s advantage. Finally, the Court of Appeal took into account that AA had not represented [continua ..]

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2. Conflicts of interests and related parties

In a contract entered into between a company and one of its directors, there is a potential risk that the latter may act against the interest of the company he or she manages. We are, therefore, facing a classic agency problem. The director can use his position to achieve business deals that are advantageous to himself and detrimental to the company and the shareholders (especially to the minority shareholders). Tunneling and extraction of private benefits of control becomes easier, and that may also increase creditors’ risk [[6]]. If the director’s company is a member of a group, the risk of conflicts of interest increases due to the presence of the parent company’s interest and the group interest (where it is accepted that this can be identified and is worthy of protection [[7]]). The director himself will then find many ways to conceal his indirect personal interest [[8]]. According to IAS 24 [[9]], the company’s director is a related party (parte correlata, parte relacionada). Major financial scandals with worldwide repercussions have involved related-party transactions, as can be seen in reports about the Enron and Parmalat cases [[10]]. In the case we are commenting on, the companies in question did not issue shares admitted to trading on a regulated market. Therefore, they were not subject to the regime that transposed SRD (in the wording of Directive 2017/828), and that one may find in the Portuguese Securities Code [continua ..]

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3. De facto directors

Portuguese Company Law has no definition of de facto directors. However, the concept is used in several legal regulations. One of them can be found in art. 189.º, 2, a), of the Portuguese Insolvency Law (Código da Insolvência e da Recuperação de Empresas, or CIRE): de facto directors may be affected by a court decision declaring that the company’s insolvency was caused or aggravated with malice or negligence, and that would mean that they would also be responsible for the debts that remain unpaid at the end of the procedure (art. 189.º, 2, e), of the Portuguese Insolvency Law). This is a solution similar to the one we found in art. L 651-2 of the French Code de Commerce (“responsabilité pour insuffisance d’actif” des “dirigeants de droit ou de fait”), and to the wrongful trading liability in Sec. 214 of the Insolvency Act in what concerns shadow directors [[22]]. It seems possible to say that someone may be considered a de facto director whenever his/her appointment never existed, is null and void, was never effective or ceased to produce effects [[23]]. A de facto director may be a shadow director, but it does not need to be so. De facto directors act as regularly appointed directors [[24]]. This also means that he/she acts with autonomy and stability. But that is not enough. It is also necessary that the company accepts, or, at least, tolerates that behaviour [[25]]. [continua ..]

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4. The group

Portuguese Company Law has a rather complex set of rules for company groups. Portugal seems to have been the third country in the World (after Germany and Brazil) to have a systematic set of rules dealing with company groups [[31]]. Many of those rules were influenced by German Aktiengesetz. Meanwhile, other countries developed their own national paths. That was the case in Hungary, the Czech Republic, Albania, Poland, Croatia, Slovenia, Taiwan, Turkey, and Italy [[32]]. However, Portuguese Company Law has no definition of group, and no rules concerning de facto groups. As Engrácia Antunes puts it, Portuguese Company Law “permits “factual groups” to operate in the loopholes of the traditional company law” [[33]]. According to Portuguese Company Law, there are only three ways of building a company group: a) By owning 100% of the share capital of the other company (domínio total, total domination); b) By contract of subordination (contrato de subordinação, Beherrschungsvertrag); c) By horizontal contract (contrato de grupo paritário, Gleichordnungskonzern) [[34]]. The first alternative requires that the parent company owns the subsidiary’s shares – one of the companies has property rights over the other company’s shares, directly or indirectly (according to certain requirements). The same does not apply to the other two alternatives, which require one of the above contracts [continua ..]

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5. Some final remarks

This comment ends with a note about a possible different ending to the story told, and with the underlining of two issues deserving the attention of the Portuguese legislator. In its decision, the Supreme Court of Justice did not discuss if it would be possible to disregard the legal personality of the Claimant and of W, SGPS, in order to identify a direct link between the Claimant and AA. And it is true that there weren’t enough facts to say that the disregard could take place. But it seems that the Defendants did not try to explore that strategy, and that probably limited the way how they searched for evidence. However, disregarding the legal personality of the Claimant and of W, SGPS, could have shown AA negotiating with the Defendants. Although Portuguese Company Law does not expressly provide for the possibility to disregard a company’s legal entity, Portuguese courts have recognised it in several decisions[[36]], as well as most of the authors[[37]]. In the present case, we would be talking about a “disregard for imputation” (Zurechnungsdurchgriff) [[38]]. What was written about the group of companies in Portuguese Company Law evidences a very narrow landscape. In EU Regulation 2015/848 on insolvency proceedings (recast), Art. 2 (13) reads as follows: “‘group of companies’ means a parent undertaking and all its subsidiary undertakings”. Art. 2 (14) adds that a “‘parent undertaking’ means an [continua ..]

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