Conflicts of Interests at Debenture Holders’ Meetings

Debentures are widely used by both public and private companies of various sizes to raise funds in the capital market. For context, in 2022, 459 series of debentures were issued in Brazil, raising a total of BRL 270.5 billion, with an average of BRL 589.4 million per issuance. The smallest issuance was BRL 2 million, and the largest was BRL 5.4 billion¹.

One characteristic of debentures is that an unlimited number of investors may invest in the same series or issuance, and those investors may not always have converging interests. Conflicting interests among debenture holders tend to come to the surface when the issuing company seeks to restructure its debts, and is subject to the quorums and majorities established by law and in the debenture agreement.

Unless the law specifically provides otherwise (as in the case of court-supervised restructurings), decisions made at debenture holders’ meetings are absolute, binding all debenture holders, even those who did not attend the meeting or voted contrary to the majority. Moreover, debenture holders who voted contrary to majority position do not have appraisal rights, so they are doubly bound by the majority’s decision.

In such circumstances, decisions made at debenture holders’ meetings, just as in the case of shareholders’ meetings, must be protected against conflicts of interest, which can result in debenture holders casting their votes with a view to obtaining an advantage they are not entitled to².

Brazil’s Corporations Law, Law 6.404/76, does not expressly state that the provisions governing conflicts of interest and abuse of voting rights by shareholders apply also to debenture holders: while article 71§2 does provide that the provisions of the Law apply to debenture holders’ meetings, to the extent compatible, it does not make specific reference to any particular provision.

Renowned corporate law scholars such as Nelson Eizirik argue that the rules on abuse of voting rights and conflicts of interest under article 115 of Law 6.404/76 should also apply to resolutions made at debenture holders’ meetings³. As for Brazil’s securities commission, the CVM (Comissão de Valores Mobiliários), while it has dealt with many cases of conflict of interest at shareholders’ meetings, references to conflicts of interest in debenture holders are rare.

In 2008, Commissioner Sergio Weguelin issued an opinion in favor of applying article 115 of Law 6.404/76 to debenture holders’ meetings⁴. However, this issue was not addressed by the other Commissioners, as it was not central  to the case under consideration at the time. Precedents in the courts are rare too, although in one case⁵, the court excluded the vote cast by a debenture holder it was an investment fund holding that was part of the corporate group of the issuer’s controlling shareholder.