Mês: Fevereiro

January/February 2024

_The January – February│2024 edition of our Newsletter has the following highlights:

– CVM absolves accused of fraud in acquisition operation of controlling interest in a publicly traded company

– Google Trends helps identify errors or fraud in financial statements of Publicly Traded Companies

– Request for Suspension of Public Tender Offer for Acquisition of Shares due to alleged inconsistencies in the Appraisal Report is denied by CVM

– CVM releases new regulation on the disclosure of information related to diversity and inclusion support practices by publicly traded companies

_ CVM absolves accused of fraud in acquisition operation of controlling interest in a publicly traded company

 

The Brazilian Securities and Exchange Commission (“CVM“) unanimously decided to absolve shareholders of a publicly traded company (“Company“) from charges related to alleged fraudulent practices arising from an operation that secured control of the Company to one of the shareholders.

 

The shareholders were accused of colluding to transfer control of the Company to one of the shareholders through buying and selling ordinary shares directly on the stock exchange, so as to appear that an original acquisition of control had taken place, in order to avoid triggering protective measures and the obligation to make a public offer for shares (“OPA“), as stipulated by the Company’s Bylaws. The accusation was based on the premise that some of the shareholders held the controlling power.

 

The CVM found that there were not sufficient elements to prove that some of the shareholders indicated by the accusation held the controlling power – and consequently, they could not have fraudulently alienated it. There were, in summary, four main reasons used by the CVM to support this understanding.

 

Firstly, one of the shareholders did not have a majority of votes in general assembly deliberations, nor the power to elect the majority of administrators, in addition to evidence showing lack of alignment between such shareholders.

 

Secondly, both the information regarding the sale of shares held by one of the relevant shareholders and the notifications from the acquiring shareholders to the publicly traded company informing about their share acquisitions and their interest in participating in its administration were public.

 

Thirdly, the buying and selling operations of the shares were conducted on the stock exchange and, therefore, subject to third-party interference.

 

And fourthly, in the context of increasing the Company’s share capital, the acquiring shareholder chose to subscribe to a large number of shares issued, while the other shareholders chose not to subscribe to new shares.

 

In this context, the CVM dismissed the accusation of the obligation to carry out an OPA, since the acquisition of the controlling power in question did not result from a transfer of power by other shareholders, as required by the Brazilian Corporations Law (Law 6.404/76) and suggested by the accusation.

 

More information can be accessed through the link below:

https://www.gov.br/cvm/pt-br/assuntos/noticias/anexos/2023/20230919_pas_cvm_19957_011669_2017_11_diretor_otto_lobo_voto.pdf

 

_ Google Trends helps identify errors or fraud in financial statements of Publicly Traded Companies

 

Google developed the Google Trends platform as a free research tool capable of identifying the popularity of a search term on Google itself and also monitoring in real-time consumers’ online searches for retail products.

 

Thus, based on the analysis of data collected by Google Trends, researchers from the UCLA Anderson School of Management conducted a study in which they examined the relationship between data on the presence of 1,900 publicly traded companies on Google Trends and the revenues reported in their respective financial reports.

 

For this purpose, the study analyzed year-over-year variations in the quarterly search volume of products from the analyzed companies and the increase in their sales. Companies categorized as “Low Search-High Revenue Companies” (MUP Companies) were identified as having a 165% higher likelihood of subsequently correcting their sales data. Thus, the study concluded that discrepancies between these metrics could indicate inaccuracies in the accounting data or even fraudulent practices by the companies. In this sense, the research presented examples of retailers with financial difficulties, whose decrease in searches on Google Trends did not match the increases in revenues disclosed in the financial statements, indicating possible irregularities.

 

The research was also covered by the Wall Street Journal, which highlighted the utility of the metrics used by Google Trends for day traders and other investors to determine how much they should trust the financial reports of the companies. Furthermore, the Journal emphasized that the MUP metric, in particular, could even assist the United States Securities and Exchange Commission (SEC), auditors, and other interested parties in identifying fraudulent reports and data.

 

More information can be accessed through the link below:

https://capitalaberto.com.br/temas/companhias-abertas-temas/google-trends-ajuda-a-identificar-erros-ou-fraudes-em-balancos/

https://anderson-review.ucla.edu/wp-content/uploads/2023/11/Teoh-Google-RevMngmt.pdf

 

_ Request for Suspension of Public Tender Offer for Acquisition of Shares due to alleged inconsistencies in the Appraisal Report is denied by CVM

 

An asset manager requested the Brazilian Securities and Exchange Commission (“CVM“), on behalf of the funds under its management, to halt a public tender offer for the acquisition of shares (“OPA“) due to an increase in stake made by a company in which the managed funds were shareholders.

 

The request was based, in essence, on the allegation that the appraisal report presented in the context of the OPA did not reflect the fair value of the company, as it was produced based on “assumptions and projections provided by the Company that are blatantly contradictory and inconsistent, leading to a substantial devaluation of the evaluated entity”.

 

In response to the request, the Technical Area (SRE) concluded, in summary, that it did not identify technical or material errors in the appraisal report that should lead to the requested suspension of the OPA, as it was not within the CVM’s purview to judge the selection of assumptions used in an appraisal report. Shareholders who disagree with the assumptions used in an evaluation of the company subject to the OPA, if they hold more than 10% of the company’s issued shares, should submit a request to the administrators of that company, including evidence that, in their view, demonstrates a flaw or inaccuracy in the appraisal report of that company, requesting that the said administrators convene the special assembly provided for in article 4-A of the Brazilian Corporations Law..

 

The asset manager appealed to the Collegiate Body of the CVM, which unanimously followed the technical area’s understanding and deliberated against granting the appeal, confirming the understanding that the OPA, whose auction was already scheduled, should not be suspended.

 

More information about the process can be accessed through the link below:

PROC. 19957.004081/2023-41 (cvm.gov.br)

 

_ CVM releases new regulation on the disclosure of information related to diversity and inclusion support practices by publicly traded companies

 

On February 1, 2024, the Brazilian Securities and Exchange Commission (“CVM“) published Resolution CVM No. 198 (“Resolution CVM 198“), which makes specific adjustments to Resolution CVM No. 80 of March 29, 2022 (“Resolution CVM 80”), to add a section dedicated to disclosing information about the contingent of persons with disabilities (“PwD“) in the Reference Forms (“RF“) of publicly traded companies. This measure aims to expand the set of information provided about diversity in management bodies and human resources departments of publicly traded companies, aligning with CVM’s commitment to promoting an increasingly diverse and inclusive environment in the Brazilian capital market.

 

Companies can start providing this information immediately, if they wish, however, the detailing about PwD will only be mandatory as of January 2, 2025, to allow for the necessary operational adjustments for the inclusion of this information in the RFs for 2024.

 

In addition to this specific change, Resolution CVM 198 introduces modifications to the footnotes of the RF that will be effective as of March 1, 2024. These modifications aim to simplify the provision of information by companies applying for registration with the CVM, provided they are not simultaneously conducting a public offering of securities. As a result, companies will be able to present information regarding the last three fiscal years ended and the financial statements of the last fiscal year, without the need to provide information about the current fiscal year and about the accounting information disclosed after the end of the fiscal year..

 

To access the full text of CVM Resolution No. 198, dated January 31, 2024, simply follow the link below:

https://conteudo.cvm.gov.br/export/sites/cvm/legislacao/resolucoes/anexos/100/resol198.pdf

O papel da governança corporativa na agenda ESG

Ao longo dos últimos anos, houve um aumento significativo das discussões envolvendo tópicos de ESG na gestão de companhias em todo o mundo. Apesar de os aspectos sociais e ambientais estarem ganhando cada vez mais destaque, o pilar mais avançado no Brasil atualmente é o da governança corporativa.

Posted in: Uncategorized

Entendendo o acordo de acionistas: tag along e drag along

É muito comum que acordos de acionistas possuam cláusulas com a finalidade de regulamentar a transferência de ações de emissão da companhia, tanto para os próprios acionistas quanto para terceiros.

Posted in: Uncategorized

February 2020

_ the February │ 2020 edition of our Newsletter has the following highlights:

– Securities and Exchange Commission judges procedures involving violation of fiduciary duty

– Ordinary Shareholders’ Meetings and quotaholders’ annual meetings

– Brazilian Investment Offshore – Deadline for presenting the Annual Declaration of Brazilian Capital Abroad – DCBE 2020 before the Brazilian Central Bank

– Foreign Investment in Brazil – Deadline for presenting the financial and economic statement before the Brazilian Central Bank before the Brazilian Central Bank

_ Securities and Exchange Commissions judges procedures involving violation of fiduciary duty

On January 30th, 2020, the Securities and Exchange Commission (“CVM”) judged the sanctioning administrative procedures No. RJ2014/13977 and No. RJ2016/7961, in which the violation of fiduciary duties by publicly-held company managers was discussed in carrying out certain transactions.

In this case, the company, directly and through a controlled company, executed numerous loan agreements to lend funds to an entity that leased commercial establishments operated by the company in the expansion of its activities. This transaction was justified as the lessor went through an insolvency process, which represented a risk to its assets, including those leased by the company (“Transaction 1”).

Once the insolvency was overcome and due to the lack of interest in the activity explored in the leased establishments, the parties decided to settle the loans by (i) increasing the stock capital of a recently incorporated company (“NewCo”), with the consequent transfer of the leased assets, and (ii) payment in kind with NewCo’s shares, subscribed by the lessor, to the company. Subsequently, the company sold NewCo’s shares to a potential buyer, with payment of the acquisition price in two installments (“Transaction 2”).

Within the scope of Transaction 1, the prosecution assessed that such agreements had not been entered into under fair conditions or in the best interest of the company, since they provided for financial remuneration that was lower than market rates. CVM Reporting Director pointed out that the defendants presented solid arguments that indicated that the loans were on the company’s interest, however, as the company refrained from collecting any financial remuneration, there was no explanation for this behavior, which was why the company’s officer responsible for this transaction should be held responsible for failure to comply with his duty of diligence.

With respect to Transaction 2, on the other hand, the prosecution reported the existence of other agreements which had not been reported to the board of directors, audit council (conselho fiscal) or independent auditors, as well as e-mails, which indicated that the value of the second installment of the acquisition price had been included in the agreement only to equalize the sales price to the acquisition cost of said assets, therefore, the amount negotiated was less than the one set forth in the purchase agreement and reported in the company’ financial statements.

CVM Council,  following CVM Reporting Director Gustavo Gonzales’ vote, declared, with respect to Transaction 1, the extinction of the punishment against the officer responsible for this transaction, due to his death. However, regarding Transaction 2, due to the large number of defendants in this process, CVM Reporting Director chose to separate them into 2 groups, the members of group 1 were the defendants involved in the fraudulent structure of Transaction 2 and the members of group 2 were the defendants involved in the failure to fulfill their duty of diligence. Further, CVM Council decided, by unanimous votel, to apply penalties ranging from the payment of a fine to the temporary disqualification to exercise the position of manager or member of the audit council of publicly-held companies to certain members of group 1.

More information related to these procedures can be accessed in Portuguese at:

http://www.cvm.gov.br/noticias/arquivos/2020/20200130-3.html#PAS_CVM_RJ2014_13977

_ Ordinary Shareholders’ Meetings and quotaholders’ annual meetings

In the upcoming months, corporations and limited liability companies shall disclose their financial statements and call their Ordinary Shareholders’ Meetings or quotaholders’ annual meetings, as appropriate, regarding the financial year ended on December 31st, 2019.

All corporations, publicly-held and closely-held ones, need to hold, within the first 4 months following the end of the fiscal year, an Ordinary Shareholders’ Meeting: (i) to examine the management accounts, analyze, discuss and vote the financial statements; (ii) to deliberate on the destination of the net profit of the relevant financial year and on the distribution of dividends; and (iii) to appoint management and the members of the Audit Council (Conselho Fiscal), as necessary.

Regarding limited-liability companies, within the first 4 months following the end of the fiscal year, they need to hold a meeting in order: (i) to examine the management accounts, analyze, discuss and vote the financial statements; (ii) to appoint management, as necessary. The meeting is not necessary in case all of the shareholders decide, in writing, on the aforementioned matters.

IT IS IMPORTANT TO HIGHLIGHT THAT COMPANIES, OR GROUP OF COMPANIES UNDER COMMON CONTROL, WHICH, IN THE 2019 FISCAL YEAR, RECORDED ASSETS IN AN AMOUNT HIGHER THAN R$240 MILLION OR ANNUAL GROSS REVENUE IN AN AMOUNT HIGHER THAN R$300 MILLION SHALL: (A) PREPARE THEIR FINANCIAL STATEMENTS IN AGREEMENT WITH THE APPLICABLE RUKLES SET FORTH IN THE BRASILIAN CORPORATIONS LAW; (B) SUBMIT THE FINANCIAL STATEMENTS TO THE APPRECIATION OF AN INDEPENDENT AUDITOR REGISTERED AT CVM, AND (C) PUBLISH THE FINANCIAL STATEMENTS PRIOR TO THE DATE OF THE GENERAL ANNUAL MEETING.

_ Brazilian Investment Offshore – Deadline for presenting the Annual Declaration of Brazilian Capital Abroad – DCBE 2020 before the Brazilian Central Bank

Between February 15th, 2020 and April 5th, 2020, all individuals and legal entities resident, domiciled or headquartered in Brazil, which, on December 31st, 2019, held assets abroad in an amount equivalent to or higher than US$100 thousand must submit the annual declaration of Brazilian capital abroad to the Brazilian Central Bank (“Annual Declaration 2020”)

Besides the Annual Declaration, it is mandatory to quarterly submit the Declaration of Brazilian Capital Abroad if the amount of goods and rights held abroad is equivalent to or higher than US$100 million, based on the following schedule:

Base DateDeadline
03.31.202004.30 – 06.05.2020
06.30.202007.31 – 09.05.2020
09.30.202010.31 – 12.05.2020

Late submission of the Annual Declaration 2020 or its submission with false, inaccurate, incomplete or incorrect information may result in fines of up to R$250 thousand

_ Foreign Investment in Brazil – Deadline for presenting the financial and economic statement before the Brazilian Central Bank before the Brazilian CentraBank

It is mandatory that all Brazilian companies that has received foreign investment, regardless of the amount, inform, until March 31st, 2020, the value of their net equity and paid-up stock capital as of December 31st, 2019 (“Financial and Economic Statement”).

Please note that Brazilian companies with assets or net equity equal to or higher than R$250 million must submit 4 Financial and Economic Statements per year, according to the schedule below:

Base DateDeadline
03.31.2020until 06.30.2020
06.30.2020until 09.30.2020
09.30.2020Until 12.31.2020

Late submission of the Financial and Economic Statement or its submission with false, inaccurate, incomplete or incorrect information may result in fines of up to R$250 thousand.

February 2017

 

_Ordinary Shareholders’ Meetings and quotaholders’ annual meetings

In the upcoming months, the corporations and the limited liability companies shall disclose their financial statements and call their Ordinary Shareholders’ Meetings and quotaholders’ annual meetings, as appropriate, regarding the financial year ended on December 31, 2016.

All corporations, publicly-held and closely-held ones, need to hold, within the first 4 months following the end of the fiscal year, an Ordinary Shaholders’ Meeting: (i) to examine the management accounts, analyze, discuss and vote the financial statements; (ii) to deliberate on the destination of the net profit of the relevant financial year and on the distribution of dividends; and (iii) to appoint management and the members of the Audit Council (Conselho Fiscal), as necessary.

PLEASE NOTE THAT THE SHAREHOLDER WHO IS ALSO A MEMBER OF THE MANAGEMENT OF A CORPORATION SHALL NOT APPROVE THE MANAGEMENT ACCOUNTS ON THE ORDINARY SHAREHOLDERS’ MEETING.

One month prior to the date of the Ordinary Shareholders’ Meeting, corporations shall publish a notice to shareholders informing the documents required by the Brazilian Corporation Law are available to the shareholders at its headquarters, including, among others, the management report on the corporation’s business, the main administrative facts of year 2016 and a copy of the financial statements for such financial year. Alternatively, the corporations may publish a complete set of all of these documents 1 month prior to the Ordinary Shareholders’ Meeting.

Publicly-held corporations shall also disclose, through the Empresas.Net system of the Brazilian Securities and Exchange Commission (“CVM”), information and additional documents regarding the Ordinary Shareholders’ Meeting, with emphasis on the management proposal, document which contains detailed information on the matters that will be discussed at the Meeting. The Ordinary Shareholders’ Meeting shall be called with at least (i) 15 days prior to the Meeting, in case of publicly-held corporations that are not part of any Depositary Receipt Program; (ii) 30 days prior to the Meeting, in case of publicly-held corporations that are part of a Depositary Receipt Program; and (iii) 8 days, in case of closely-held companies.

We remind that the publicly-held companies who adopt the distance voting procedure in 2017 shall observe the new applicable deadlines, pursuant to CVM Instruction 561.

Regarding limited-liability companies, within the first 4 months following the end of the fiscal year, they need to hold a general meeting in order: (i) to examine the management accounts, analyze, discuss and vote the financial statements; (ii) to appoint management, as necessary. The meeting is not necessary in case all of the shareholders decide, in writing, on the aforementioned matters.

IT IS IMPORTANT TO HIGHLIGHT THAT COMPANIES, OR GROUP OF COMPANIES UNDER COMMON CONTROL, WHICH, IN THE 2016 FISCAL YEAR, RECORDED ASSETS IN AN AMOUNT HIGHER THAN R$240 MILLION OR ANNUAL GROSS REVENUE IN AN AMOUNT HIGHER THAN R$300 MILLION SHALL: (A) PREPARE THEIR FINANCIAL STATEMENTS IN AGREEMENT WITH THE APPLICABLE RUKLES SET FORTH IN THE BRASILIAN CORPORATIONS LAW; (B) SUBMIT THE FINANCIAL STATEMENTS TO THE APPRECIATION OF AN INDEPENDENT AUDITOR REGISTERED AT CVM, AND (C) PUBLISH THE FINANCIAL STATEMENTS PRIOR TO THE DATE OF THE GENERAL ANNUAL MEETING.

CVM Instruction 561, which regulated the distance voting procedure, may be accessed through the following link: http://www.cvm.gov.br/legislacao/inst/inst561.html

_CVM approves Term of Commitment in a Claim Involving Irregular Destination of Profits

In December 13, 2016, CVM’s Board approved the proposal to execute a Term of Commitment presented by the managers and controlling shareholders of a publicly-held company, within the scope of the Punitive Administrative Procedure CVM No. RJ2015/10671, started by the Superintendence of Companies Relations.

The procedure started with shareholders’ claims regarding the following irregularities: (i) destination of the totality of the net profit of the fiscal years of 2009 to 2014 to the profit reserves, in detriment of the distribution of the mandatory minimum dividend; (ii) establishment and irregular use of the statutory reserve; and (iii) execution of acts which were alien to the company’s business and purposes.

Simultaneously to the defenses, the accused presented proposals to execute Terms of Commitment. After the examination of the proposals, the Specialized Federal General Attorney (Procuradoria Federal Especializada) along with CVM and the Term of Commitment’s Committee (“Committee”) deliberated by the rejection of the proposals, because of the legal impediment due to the lack of payment of the mandatory minimum dividends, as well as the severity of the conduct of the accused.

ACCORDING TO THE COMMITTEE, THE MANAGERS OF THE COMPANY HAD TAKEN DECISIONS THAT HARMED THE PAYMENT OF THE DIVIDENDS, CREATING, A STATUTORY RESERVE WITH A POORLY DEFINED PURPOSE WHITHOUT THE OBSERVATION OF THE MAXIMUM LIMIT ESTABLISHED BY LAW, WHICH OBSTRUCTED THE PARTICIPATION OF THE SHAREHOLDERS IN THE COMPANY’S PROFITS, VIOLATING THEIR ESSENTIAL RIGHT FORESEEN IN LAW NO. 6.404/1976.

Afterwards, the accused submitted a new proposal of a Term of Commitment, in which they stated their intention to pay the retained dividends and accepted: (i) the amount of R$2 million as pecuniary obligation; (ii) partial reclassification of the statutory reserve’s balance and (iii) the approval of the amendment of the company’s by-laws regarding the statutory reserve.

The Board deliberated by the approval of the new proposal of Term of Commitment under the terms negotiated above.

The decision may be accessed through the link below: http://www.cvm.gov.br/decisoes/2016/20161213_R1/20161213_D0473.html

_Federal Government was discharged of the accusation of power abuse of controlling shareholder

In February 07, 2017, the Brazilian Securities and Exchange Commission (“CVM”) judged the Punitive Administrative Procedure CVM No.RJ2015/10677, started by the Superintendence of Companies Relations (“SEP”) to verify the liability of the Federal Government, as direct controlling shareholder of a petrochemical company, to whom it may have imposed the cost to fund the electric energy generation in the north of the country by another subsidiary, due to the Federal Government’s omission regarding the breach of the electric company and later novation of the debt resulting from such breach, in adverse terms for the petrochemical company.

According to SEP, the Federal Government should be liable for violating the provisions of article 116 of the Law No. 6.404/1976, as controlling shareholder of the petrochemical company, due to participating directly in the novation of the debt, obtaining benefits: (i) by the transference of values by the petrochemical company (its direct subsidiary) to the electric company (its indirect subsidiary, in which it held greater corporate interest); and (ii) on account of not needing to provide immediately the funds to the Sector Funds of the Brazilian electric sector, which would be used to the payment of the original debt.

Pursuant to CVM’s technical area, the debt’s novation was financially disadvantageous to the petrochemical company, having lower net value than the replaced debt.

THE REPORTING DIRECTOR HENRIQUE MACHADO REGISTERED THAT THE PERFORMANCE OF CONTROLLING SHAREHOLDERS OF MIXED-CAPITAL COMPANIES HAS BEEN RECEIVING GREAT ATTENTION OF CVM, HIGHLIGHTING THAT ONLY WITH THE PERCEPTION THAT THERE ARE LIMITS FOR THE PERFORMANCE OF THE CONTROLLING SHAREHOLDERS, MAY MIXED-CAPITAL COMPANIES RECOVER THE CONFIDENCE OF THE MARKET. HE ALSO EMPHASIZED THE RECOMMENDATIONS OF THE BRAZILLIAN CODE OF CORPORATE GOVERNANCE – PUBLICLY-HELD COMPANIES REGARDING MIXED-CAPITAL COMPANIES.

Notwithstanding, the Reporting Director understood that the accusation did not gather elements to prove the liability of the Federal Government in this case. He clarified that the conduction of transactions with third parties on behalf of the company is a matter for the management and, if failures are identified in this process, the managers shall be liable for such failures.

Regarding the allegation that the new debt was financially disadvantageous to the petrochemical company, the Reporting Director understood that the managers were trying to recover the company’s resources by negotiating the debt and not assessing investment options, and the analysis of the net present value of the debt by CVM was outside its limits of action, in line with the business judgment rule

Based on the above considerations, CVM’s Board decided, by unanimity, to discharge the Federal Government.

The decision may be accessed through the following link: http://www.cvm.gov.br/noticias/arquivos/2017/20170208-2.html#moore