Mês: April

_the april│2022 edition of our Newsletter has the following highlight:

– Improvement to the Remote Voting Forms for the season of Shareholders’ Meetings

– CVM publishes six new Resolutions and includes mandatory disclosure of notice of corporate demands

_Improvement to the Remote Voting Forms for the season of Shareholders’ Meetings

B3 introduced improvements to the voting forms, in particular to facilitate the election of the board of directors through the multiple voting procedure, allowing shareholders to distribute their votes proportionally in a different (even smaller) group of candidates than the one nominated in the simple election, which until the beginning of this year was not possible.

This amendment was designed to increase shareholders’ voting options in distance voting, in addition to simplifying and providing more security to voting, considering the possibility of mistakes in reading the votes manually imputed by shareholders in the system, especially if we consider that in most cases, shareholders choose to divide their votes equally among some candidates.

In addition, the improvements also include: (i) the possibility of including in the remote voting form a resolution with fixed text specific for the election of the president and vice-president of the company’s board of directors, which promotes a good practice of corporate governance, and (ii) the availability of an English version of the system’s standardized questions, an important measure to reduce potential problems of interpretation by foreign shareholders.

We contributed on the subject in the article “B3 improves voting instruments for shareholders’ meetings” published in the legislation and market section of “Capital Aberto”, on April 06, 2022, which can be accessed through the link below:

https://legislacaoemercados.capitalaberto.com.br/voto-a-distancia-ganha-novas-possibilidades/

_The Role of Corporate Governance in the ESG Agenda

Over the past few years, it is possible to observe a significant increase in discussions involving ESG topics in the management of companies around the world. Although social and environmental aspects are gaining increasing prominence, the most advanced pillar in Brazil today is corporate governance.

Since the creation of the Novo Mercado segment of the B3 stock exchange in 2000, the Brazilian market has been establishing a high standard of governance, with the adhesion of specific practices and obligations aiming at increasing transparency in the disclosure of information for the decision-making process of shareholders and investors.

In this context, unsurprisingly, the result of a recent survey by AMBIMA (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais – which stands for the Brazilian Association of Financial and Capital Market Entities)[1] with 209 asset managers, released earlier this year, indicated that governance is the ESG aspect most observed by asset managers, with ethics and transparency being the factors most mentioned by them (92%).

Among the governance priorities, labor policies and relations (79%), data privacy and security (77%), board independence (75%), and board compensation (54%) were also mentioned.

The survey’s conclusion is encouraging, since pillar G is the core of ESG. Without good corporate governance, it is impossible to effectively implement social and environmental actions and align the company’s objectives with the creation of long-term value not only for its shareholders, but also for society in general.

Under the scope of governance, the rules and procedures to be observed in the decision making of companies are defined, from the elaboration of policies to the determination of rights and responsibilities among its different participants, including the board of directors, officers, shareholders, stakeholders, and the market in general. Thus, the increase in corporate governance standards is directly related to an increase in the transparency with which companies relate and communicate with the market and their shareholders, managers, employees, and partners in general.

It is no coincidence that over the past few years, companies with good corporate governance practices have outperformed the general market indexes in both the US and Brazil.

In this line, an S&P Global survey (2020)[2] on governance factors showed that companies rated below average in relation to good governance are more susceptible to mismanagement. Therefore, failures in governance policies may expose companies to unacceptable levels of risk, significantly compromising their business

Given the evolution of the Brazilian market on the subject, the simple disclosure of information on integrity, policies and codes of ethics and conduct is not enough. It is essential that companies realize the value that the effective adoption of good corporate governance practices generates in their relationships, in the management of their business, and in their perception before the market and the community in which they operate.

The text above was published Portuguese in the Legislação & Mercado section of Capital Aberto on February 22, 2022, and can be accessed through the link below:

https://legislacaoemercados.capitalaberto.com.br/o-papel-da-governanca-corporativa-na-agenda-esg/

_CVM publishes six new Resolutions and includes mandatory disclosure of notice of corporate demands

On March 29^th, 2022, the Brazilian Securities and Exchange Commission (“CVM“) published six new Resolutions, effective on May 2^nd, 2022. The new rules introduce a new notice on corporates to be disclosed by publicly-held companies, in addition to contemplating revisions related to the Decree No. 10,139/2019, which provides for the consolidation of the interior normative acts to Decree issued by bodies and entities of the direct, autarchic and foundational federal public administration, which do not necessarily imply effective changes of merit, which are verified only in the Resolutions No. 79, 80 and 82.

Regarding the regulatory novelties, we highlight the new notice of corporate demands provided for in CVM Resolution No. 80/2022, which consolidated the rules regarding the registration and disclosure of periodic and occasional information by publicly-held companies. This announcement, which received public comments through Public Hearing 1/21, will make it mandatory to disclose certain judicial and arbitration claims based, in whole or in part, on corporate or securities legislation, or on the rules issued by CVM as of May 2, 2022.

From then on, it will be necessary to disclose the following information about the corporate claims in which the company, its shareholders or its managers are parties, in this capacity, and (i) that involve homogeneous diffuse, collective or individual rights or interests; or (ii) in which a decision can be rendered whose effects affect the legal sphere of the company or of other holders of securities issued by the issuer that are not parties to the process, such as action for annulment of corporate resolution, action for the administrator liability and action for the controlling shareholder liability:

• notice regarding its initiation, within 7 (seven) business days from, according to the capacity of the party as plaintiff or defendant, the date of filing of the action or summons or, in case of arbitration, of the presentation of the request for its initiation or receipt, indicating: a) parties to the process; b) values, assets or rights involved; c) main facts; and d) request or provision claimed;

• in the case of legal proceedings, decisions on requests for injunctive and evidence relief, decisions on jurisdiction and competence, decisions on the inclusion or exclusion of parties and judgments on the merits or termination of the proceedings without judgment on the merits, in any instance, in the period of 7 (seven) business days from its knowledge by the party;

• in the case of arbitration, submission of a response, execution of an arbitration term or equivalent document that represents stabilization of the demand, decisions on precautionary or urgent measures, decisions on the arbitrators’ jurisdiction, decisions on the inclusion or exclusion of parties and arbitral awards, partial or final, within 7 (seven) business days from its knowledge by the party;

• any agreement entered into in the course of the claim, within 7 (seven) business days of the presentation of its execution, indicating amounts, parts and other aspects that may be of interest to the collective of shareholders.

We emphasize that companies may not use the confidentially clause provided for in the regulations of arbitration chambers in order to fail to comply with the disclosure of the notice. Therefore, CVM was categorical, in the notice of Public Hearing 1/21, in stating that chambers regulations cannot contravene legal and regulatory provisions, since the disclosure obligations set forth in CVM Resolution No. 80/2022 reflect central concerns of the capital market rules and cannot be excluded by arbitration agreements, arbitration chamber regulations or by any other agreement.

More information regarding the new CVM Resolutions can be found in the link below:

https://www.gov.br/cvm/pt-br/assuntos/noticias/cvm-publica-6-novas-resolucoes

_the april│2021 edition of our Newsletter has the following highlights:

– General aspects regarding the election of the Board of Directors

– Brazilian Securities and Exchange Commission convicts the chairman of the board of directors for voting in a conflict-of-interest situation

_ General aspects regarding the election of the Board of Directors

The Board of Directors is a collegiate body, mandatory for publicly-held companies, authorized capital companies and mixed-capital companies, and optional for other companies, in accordance with article 138 et seq. of Law No. 6,404 of 1976 (“Brazilian Corporation Law”). It must be composed of, at least, 3 members, elected and dismissible, at any time, by the shareholders’ meeting. In this sense, there are 3 types of election that can be adopted, which are: (i) majority voting; (ii) multiple voting; and (iii) separate voting.

The Brazilian Corporation Law does not specifically regulate how the majority voting system should occur. The legal doctrine understands that there are two ways to organize it: “by groups” or “by candidate”. In the first form, shareholders vote for a group of candidates corresponding to the number of positions to be filled. In the second form, the shareholders vote directly on the candidates, and, in the end, the candidates with the most votes are elected.

Alternatively to the majority voting system, the Brazilian Corporation Law, in its article 141, stablishes the possibility of the multiple voting procedure. In this case, shareholders representing at least 10% (ten percent) of the voting capital stock (or, in case of publicly-held corporations, according to the percentages provided in CVM Normative Instruction No. 165/1991), may, up to 48 hours before the shareholders’ meeting, request the adoption of the multiple voting procedure, which attributes to each share as many votes as there are positions to be occupied.

The multiple voting procedure should not be confused with majority voting “by candidate” system. In the majority voting “by candidate” procedure, each share has one vote per position to be occupied, and the most voted candidates are elected. On the other hand, in the multiple voting procedure, each shareholder has the right to cumulate its votes in a single candidate or to distribute them among several.

It is important to highlight that, whenever the multiple voting procedure is adopted, the dismissal of any elected member will result in the dismissal of all the other members, which will require a new election. In any other situations of vacancy, in the absence of an alternate, the first shareholders’ meeting that takes place must deliberate on the new election of the entire board of directors.

Furthermore, the Brazilian Corporation Law provides, in the abovementioned article 141, in its 4^th paragraph, exclusively for publicly-held corporations, the possibility of the separate voting procedure. This form is guaranteed exclusively to minority shareholders that prove the ownership uninterrupted of shares, during the 3 months preceding the shareholders’ meeting, and may be required by shareholders representing a minimum quorum of 15% of the total voting shares or 10% of the capital stock, when considering preferred shares without voting rights or with restricted voting rights, nevertheless CVM’s understanding is that the percentage of 10% also applies to companies that have only issued voting shares. For this purpose, it is possible to consider the shares of a single shareholder or the shares of shareholders acting together.

Finally, whenever the election of the board of directors is cumulatively performed by the multiple voting procedure and the holders of common or preferred shares exercise the right to elect a member separately, the controlling shareholder shall be ensured to the right to elect members of the board of directors in a number equal to the number of those elected by the other shareholders, plus one, regardless of the number of members established in the bylaws.

_Brazilian Securities and Exchange Commission convicts the chairman of the board of directors for voting in a conflict-of-interest situation

The Administrative Proceeding CVM SEI 19957.010833/2018-45 was filed by the Superintendence of Relations with Companies (“SEP“), in order to determine the liability of the controlling shareholder of a publicly held company, who was also the chairman of the board of directors, for voting and approving the execution of the dissolution of an agreement with another company in which the defendant was also a shareholder, due to an alleged conflict of interest situation with the company, in violation to articles 156 of the Brazilian Corporation Law.

The accusation originated from a complaint of a shareholder reporting abuses in the approval of said termination by the company’s management.

According to article 156 of the Brazilian Corporation Law, managers are prohibited from intervening in any transaction in which they have a conflicting interest with the company, as well as in the deliberation that the other managers take regarding such matter, provided that said manager informs the other of his/her impediment and includes in meeting’s minutes the nature and extent of their interest. However, there is disagreement as to the nature of the aforementioned conflict of interest, whether formal (i.e. the impediment must be verified a priori) or material (i.e. the impediment must be verified a posteriori).

In the analysis of the case, the reporting director Flavia Perlingeiro, understood that the defendant was prevented from voting at the board of directors’ meeting, regardless of the examination of the transactions’ matter, reinforcing the position historically adopted by CVM, that the nature of the conflict of interests is of formal, although she stressed that such impediment may vary according to the specifics of the case, this means there can be exceptions.

In his defense, the defendant stated that the decision taken at the board of directors meeting was unanimous and that it would have been approved even without his vote, declaring, as well, that there was no damage to the company or the market. The reporting director refuted such arguments since the approval of the matter by the other directors does not rule out the illegality of the defendant’s conduct of voting in a situation of conflict of interest, since it does not depend on the result of the deliberation, affirming also that the characterization of the violation of article 156 of the Brazilian Corporation Law does not depend on losses or damages.

Director Alexandre Costa Rangel presented a vote in disagreement with the reporting director’s vote as to the nature of the conflict of interest in question, according to his understanding the matter in question constitutes a material conflict. Due to this premise, it would be essential to demonstrate the personal interest and counterpoint of the manager regarding the transaction, in addition to the effective approval at the expense of the company’s interests.

Finally, with the vote of the director Alexandre Costa Rangel defeated, CVM’s board decided, by majority, to convict the defendant to the payment of a fine of R$ 150,000.00.

More information regarding the Administrative Proceeding CVM SEI 19957.010833/2018-45 can be accessed in Portuguese through the link below:

https://www.gov.br/cvm/pt-br/assuntos/noticias/cvm-condena-eike-batista-por-ter-votado-em-situacao-de-conflito-de-interesse-em-reuniao-do-conselho-de-administracao-da-mmx