March 2023

_the march│2023 edition of our Newsletter has the following highlight:

– Ordinary Shareholders’ Meetings and Quotaholders’ annual meetings

– CVM’s Annual Letter News

– Institutional Shareholder Services (ISS) discloses proxy voting guidelines

 

_ 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, 2022.

 

Matters to be Discussed and Preparatory Proceedings to Ordinary Shareholders’ Meetings and Quotaholders’ Annual Meetings

 

All corporations, listed and non-listed, 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 managers and the members of the Fiscal Council (Conselho Fiscal), as applicable.

 

Additionally, corporations must prepare the documents listed in art. 133 of Law No. 6.404/1976 (“Brazilian Corporate Law“) and publish a notice informing its shareholders that such documents are available at the company’s headquarters; in the case of listed companies, the documents must also be available on the company’s IR website, as well as in the Brazilian Securities and Exchange Commission (“CVM“), and B3 S.A. – Brasil, Bolsa, Balcão (“B3“) websites. This publication is waived if the companies publish their financial statements up to 1 month before the date set for the Ordinary Shareholders’ Meeting or when such meeting gathers all the shareholders.

 

Nevertheless, corporations must publish their financial statements before the Ordinary Shareholders’ Meeting is held, according to the instructions below:

 

  • Those whose annual gross revenue is up to R$78 million may do so electronically through the SPED System (Central de Balanços do Sistema Público de Escrituração Digital – SPED), pursuant to article 294, III, of the Brazilian Corporate Law and, according to Ordinance ME No. 12.071/2021 and Ordinance Nº 10.031/2022;

 

  • Listed companies with individual gross revenues of less than 500 million Brazilian Reais in the last fiscal year, classified as small sized companies pursuant to article 294-B of the Brazilian Corporate Law and CVM Resolution 166/2022 (“RCVM 166“), may do so electronically through the Empresas.NET system (CVM’s system for disclosure of documents); and

 

  • For other companies, the publication must be carried out in a widely circulated newspaper, and it may be done in a summarized form, subject to the provisions of article 289, II of the Brazilian Corporate Law and Opinion CVM No. 39, applicable to listed companies, with simultaneous disclosure of the full documents on the same newspaper’s website, which must provide digital certification of the authenticity of the documents maintained on its own page issued by a certifying authority accredited within the Brazilian Public Key Infrastructure (ICP-Brasil).

 

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 the shareholders decide, in writing, on the aforementioned matters.

 

Financial Statements of Large Companies

 

Pursuant to Law No. 11.638/2007, limited liability companies, or group of companies under common control, which, in the 2022 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 rules set forth in the Brazilian Corporate Law; and (b) submit the financial statements to the appreciation of an independent auditor registered at Brazilian CVM.

 

After the publication of Circular Letter SEI No. 4742/2022/ME by the National Department of Business Registration and Integration -DREI, the understanding that the publication of financial statements for these companies is optional was confirmed, and Boards of Trade were instructed to follow this guideline, so that the filing of corporate acts of such companies will not be rejected on the grounds of lack of proof of said publications.

 

Digital Meetings

 

Pursuant to Law No. 14.030/2020, the ordinary shareholders’ meetings and quotaholder’s annual meetings may be held partially or exclusively in a digital form, and must comply with the applicable rules established by CVM Resolution No. 81/2022, as amended, in the case of listed companies, and/or those of the National Department of Business Registration and Integration (“DREI“), in the case of closely-held corporations and limited liability companies.

 

_ CVM’s Annual Letter News

 

CVM’s Superintendence of Corporate Relations (“SEP“) disclosed, on February 28, 2023, the Annual Circular Letter 2023 (“Letter“), which provides guidance on regulatory updates and on the procedures that listed, foreign and supported companies must comply with, in addition to pointing out important CVM’s board rulings (“Annual Letter“).

 

Among the new guidelines, the following stand out:

 

  • Publications: flexibility in carrying out publications ordered by the Brazilian Corporate Law or provided in CVM regulations by small sized listed companies (i.e., those with annual gross revenue of less than R$ 500,000,000.00 (five hundred million reais), based on the financial statements of the last fiscal year), according to RCVM 166, which allows for such publications to be made through the Empresas.NET systems;

 

  • Acquisition of a company or corporate interest by listed companies: guidance on the minimum information that shall be included in the document disclosing the operation (material fact or communication to the market, subject to the applicable regulation) to enable better understanding of the transaction, including the main conditions of the business (such as price and payment terms), as well as financial and/or operational information about the acquired business;

 

  • Business Environment Improvement Law: CVM Resolution No. 168/2022 regulated and gave practical applicability to Law No. 14.195/2021, which provides for (i) the mandatory separation between the functions of chairman of the board of directors and CEO or principal executive of listed companies whose consolidated gross revenue is less than R$ 500,000,000.00 (five hundred million Brazilian Reais); and (ii) the mandatory presence of at least 20% independent members on the board of directors of listed companies that cumulatively meet the following criteria: (a) registered in category A, (b) have securities admitted for trading on a stock exchange, and (c) have shares or depositary receipts outstanding; and

 

  • Guidelines to fill out the Reference Form (Formulário de Referência), according to its new structure provided for in CVM Resolution No. 59/2022.

 

The Letter can be accessed in Portuguese through the link below:

https://conteudo.cvm.gov.br/legislacao/oficios-circulares/sep/oc-anual-sep-2023.html

 

_ Institutional Shareholder Services (ISS) discloses proxy voting guidelines

 

As usual, Institutional Shareholder Services (ISS) proxy advisory firm released the Benchmark Policy Recommendations for shareholders’ meetings to be held from February 2023. It is a guide of voting guidelines for meetings based on best corporate governance practices.

 

Among the recommendations included in the guidelines, the following are worth highlighting:

 

  • Election of the Board of Directors: recommendation to vote against (i) bundled election or individual members if the board’s composition after the election does not have any female members; and (ii) members who are already part of the board of directors of more than 5 companies;

 

  • Board of Directors Structure: recommendation to vote against changes in the board of directors’ structure or number of members within the context of company control divergences;

 

  • Installation of the Fiscal Council: recommendation to vote in favor of the installation of the fiscal council, except if candidates have not been indicated/disclosed by management or minority shareholders in a timely manner. In this case, the recommendation is to abstain from this deliberation;

 

  • Management Compensation: in general, the recommendation is to vote in favor of the management compensation, provided that they are presented within the applicable regulatory deadline containing all the elements required by CVM regulation. The recommendation to vote against applies to compensation proposals that are not adequately detailed or clear.

 

The Benchmark Policy Recommendations can be accessed through the link below:

https://www.issgovernance.com/file/policy/active/americas/Brazil-Voting-Guidelines.pdf

Detalhamento de remuneração de administradores é desafio

Apesar de haver mecanismos de avaliação dos investidores, nem sempre se presta a devida atenção ao assunto

Posted in: Uncategorized

March 2022

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

– CVM publishes Circular Letter with general orientations regarding the rules and procedures that must be observed by listed companies

– The Role of Corporate Governance in the ESG Agenda

– Understanding Shareholders’ Agreement: Tag Along and Drag Along

– Understanding Shareholders’ Agreement: Preemptive Right and Right of First Offer

_CVM publishes Circular Letter with general orientations regarding the rules and procedures that must be observed by listed companies

 

On February 24, 2022, the Brazilian Securities and Exchange Commission (“CVM“) published their annual Circular Notice (“CVM Notice/2022“)which outlines general guidelines from the Superintendency of Company Relations (“SEP“) on procedures to be observed by listed companies, especially regarding the disclosure of periodic and eventual information. Among the updated matters, we highlight:

 

  1. Summary Publications: due to the new wording of Article 289 of Law No. 6404/76 (“Corporation Law“), the mandatory publications made as of January 1, 2022, regardless of the period to which they refer, may occur in a summarized form and only in a large circulation newspaper, no longer being mandatory to publish them in the Official Gazette. According to SEP, it is sufficient for listed companies to update their Registration Form, item “Channels of Disclosure”, and disclose a Notice to Shareholders explaining that the update was motivated by the change in legislation. The full version of the corporate acts and the financial statements published in summary form must be available for access on the web page of the newspaper, with digital certification of the authenticity of the documents, according to the procedures established in the CVM Guidance Opinion No. 39, issued on December 20, 2021.
  2. (Update of the Reference Form: in the event of a change in the number of treasury shares resulting from the execution of a buy-back program, SEP understands that it is not necessary to update the Reference Form. However, if the number of shares acquired during the program reaches the levels of 5%, 10%, 15%, and so on, of the same type or class of shares, due to the possibility of variation in the percentage of all shareholders, their recommendation is to update item 15.1/2 of the Reference Form.
  3. Uninterrupted Ownership of Shares in Separate Elections of the Board of Directors: Pursuant to paragraph 6 of article 141 of the Corporation Law, only shareholders who prove the uninterrupted ownership of shares, during the period of at least 3 months immediately prior to the shareholders´ meeting, may exercise the right to elect and remove a member and his alternate from the Board of Directors, in a separate vote. Since CVM Instruction 481/09, does not contain any provision regarding the submission of supporting documentation of uninterrupted ownership by shareholders wishing to exercise this right, SEP clarifies that the aforementioned Instruction requires that the shareholder itself verify the uninterrupted ownership of its shares when filling out the items on the remote voting bulletin, being possible to carry out a prior alignment with the custodian bank to verify the uninterrupted ownership of the shares before sending the reports on the remote voting to the companies. However, according to SEP, regarding the bulletins sent directly to the company, it is up to the companies’ management to guarantee the integrity of the remote voting process, and that any documental requirements should not represent an unnecessary creation of obstacles to the shareholders’ participation in the meetings.
  4. Delays in Periodic and Eventual Disclosures: companies shall inform the market if they have difficulties in meeting deadlines for the submission of periodic and eventual disclosures, and the Investor Relation Officer is responsible for assessing the form of this disclosure, which shall contain, at least: (a) that the company will not disclose the periodic information within the deadlines established in the Corporate Law or in specific rules regarding the subject; (b) the reasons why the company will not be able to meet the deadline; (c) the effective measures that are being adopted to correct the problem; and (d) the estimated deadline, within reasonability, for disclosure of the periodic information that will not be timely disclosed.

 

 

The full text of CVM Notice/2022 can be accessed in Portuguese through the following link:

https://conteudo.cvm.gov.br/legislacao/oficios-circulares/sep/oc-anual-sep-2022.html

 

_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/

 

[1] Accessed at https://www.anbima.com.br/pt_br/imprensa/governanca-e-o-aspecto-do-esg-mais-observado-pelas-gestoras-de-recursos-8A2AB2887E4BC696017E54173A2C381B-00.htm.

[2] Accessed at https://www.spglobal.com/en/research-insights/articles/what-is-the-g-in-esg

 

 

_Understanding Shareholders’ Agreement: Tag Along and Drag Along

 

It is very common for shareholders’ agreements to have clauses with the purpose of regulating the transfer of shares issued by the company, both for the shareholders themselves and for third parties. In this context, shareholders’ agreements may contain mechanisms used to protect controlling and minority shareholders in case of transfer of shares, such as Tag Along and Drag Along clauses.

 

The Tag Along mechanism in general aims to protect minority shareholders. The term “Tag Along” translated into Portuguese means, literally, “to go together”, since the Tag Along clause grants the right to sell the shares held by the minority shareholder together with the shares held by the controlling shareholder, in case of receiving a proposal to sell its shares.

 

Minority shareholders shall have the option to exercise or not the tag along right, so that they can choose between selling their shares together with the controlling shareholder or remaining in the company after the entrance of the acquiror of control. If they decide for the joint sale, they will have the right to demand that the acquirer offers the equivalent value, or a percentage thereof to be established in the shareholders’ agreement, of the amount paid per share to the controlling shareholder, under the same terms and conditions offered to the controlling shareholder.

 

The Drag Along mechanism, also known as the right to demand the sale, generally aims to protect the controlling shareholder, since it guarantees the controlling shareholder the right to compel the minority shareholder to sell its shares in the event of receiving an offer from a third party to acquire all of the company’s shares. In this regard, the main idea is to prevent good opportunities to sell the company from being lost.

 

Since it is a “forced sale”, it is quite common that minimum conditions are established so that the controlling shareholder can exercise his Drag Along right, such as the determination of a minimum offer price and the form of payment of the acquisition price.

 

In the event of applying the Drag Along clause, the price to be paid for the minority shareholder’s shares may be equivalent to the price received by the majority shareholder or a percentage thereof to be determined in the shareholders’ agreement, which may establish other criteria for setting the value, as well as payment terms and conditions.

 

It is important to emphasize that Tag Along and Drag Along clauses can be used in other shareholding structures, including in companies that do not have the figure of a controlling and minority shareholders. In any case, the scenario and characteristics of each company and its shareholders must be analyzed in order to establish the best mechanisms for share transfers to be used in each case.

 

The text above was published in Portuguese in the Legislação & Mercado section of Capital Aberto on February 15, 2022, and can be accessed via the link below:

https://legislacaoemercados.capitalaberto.com.br/entendendo-o-acordo-de-acionistas-tag-along-e-drag-along/

 

_Understanding Shareholders’ Agreement: Preemptive Right and Right of First Offer

 

Unlike listed companies, whose basic principle is the free circulation of shares, article 36 of Law No. 6.404 of December 15, 1976, as amended (“Corporation Law“), allows some limitations to be imposed on the circulation of shares issued by closely-held corporations, since these limitations are strictly regulated in the by-laws and their negotiation is not prevented or conditioned to the approval of the company’s management bodies or by the majority of shareholders.

 

The possibility of limiting the circulation of shares is mainly due to the personal character (intuitu personae) that often prevails in closely-held corporations, in which the identity or some attribute of the shareholders is highly relevant. Thus, in these companies, shareholders seek ways to have greater control over the shareholding structure of the company, precisely to prevent their shares from being sold to someone who does not have the same attributes as the transferee shareholder or in whom the other shareholders do not have the same confidence.

 

Among the possibilities of mechanisms restricting the free circulation of shares, two of them are very common in shareholders’ agreements and in some by-laws: (i) the Right of First Refusal and (ii) the Right of First Offer.

 

  1. Right of First Refusal

 

The most common mechanism to restrict the transfer of shares is the right of first refusal. If any shareholder wishes to sell his shares (“seller“), this mechanism guarantees that the other shareholders (or part of the other shareholders, as the case may be) (“offerees“) have preference in the acquisition of such shares, on equal terms with the potential buyer, which may be another shareholder or a third party

 

The right of first refusal usually originates with the receipt of an irrevocable and irreversible proposal from a third party to the seller for acquisition of the shares. For it to be efficient, it is recommended that the right of first refusal clause provide for the obligation of the seller to notify the offerees of the proposed acquisition of the shares, containing the conditions presented by the third party, so that the offerees can evaluate whether or not to exercise their preference to acquire the shares offered under the same conditions proposed by the third party.

 

The right of first refusal clause may also establish that if more than one shareholder is interested in exercising the right of first refusal, the acquisition of the shares must be proportional to their holdings in the company’s capital stock.

 

If no offered party chooses to exercise the right of first refusal within a certain period established by the parties, then the seller may proceed with the sale to the third-party bidder.

 

  1. Right of First Offer

 

In the right of first offer, in contrast to the right of first refusal, the procedures do not depend on an offer from an interested third party, the seller’s intention to sell is sufficient. In this case, the seller must, before offering its shares to any third party, present its intention to the other shareholders (or part of the shareholders, as the case may be).

 

In practice, after the seller communicates to the offerees about its intention to sell, the period begins for the offerees to send their proposals to acquire the shares.

 

If more than one offeree sends a proposal to acquire the shares, the seller may choose, at its sole discretion, the one that presents the best terms and conditions.

 

If no offeree chooses to exercise the right of first offer within the period defined by the parties, then the seller may request offers from third parties. If it receives offers from third parties on more favorable terms than those submitted by the offerees, the seller may sell its shares to such third parties.

 

  • Other Considerations

 

Both right of first refusal and right of first offer allow their beneficiaries to have some control over the process of entrance of new shareholders in the company. The most notable difference between these two modalities of limiting the circulation of shares is whether or not a third-party proposal is required to initiate the procedures.

 

In other words, in the case of the right of first refusal, since the initial offer is sent by a third party, the offeree may have more assurance as to the market value of the company. Thus, this modality can become advantageous for minority shareholders or for shareholders who do not have a clear vision of the company’s value. On the other hand, the right of first refusal can make it difficult for the seller to obtain a good offer, since the potential buyer knows that his offer, even if accepted, will be subject to the right of first refusal of the other shareholders.

 

In cases where the offeree already has a clearer view of the company’s market value, it is likely that it will be better prepared to evaluate its investment and send a good proposal to the seller, so that, in this case, the application of the right of first offer may be more advantageous than the right of first refusal. In this case, the offeror will have greater liquidity in its sale process to third parties, since the potential interested party that may present a proposal knows that, once accepted, there will be no more uncertainty as to the possible acquisition by another shareholder.

 

Some shareholders’ agreements and by-laws provide for a combination of these mechanisms, starting with the right of first offer and then applying the right of first refusal. In this case, the offerees have, in fact, the possibility of covering a third party’s proposal that is more favorable than the one initially presented by them. This structure is usually well-suited to family businesses, where keeping the shares in the family is seen as essential by the shareholders.

 

In addition, it is quite common that if minority shareholders do not have the right of first offer, they are guaranteed with tag along rights, which will be covered in our next article in this series.

 

The text above was published in Portuguese in the Legislação & Mercado section of Capital Aberto on December 21, 2021, and can be accessed via the link below

https://legislacaoemercados.capitalaberto.com.br/entendendo-o-acordo-de-acionistas-direito-de-preferencia-e-direito-de-primeira-oferta/

March 2021

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

Brazilian Securities and Exchange Commission publishes Circular Letter with general orientations regarding the rules and procedures that must be observed by publicly held corporations

Brazilian Securities and Exchange Commission refuses term of commitment with company’s controlling shareholders and managers in proceeding regarding the approval of their own accounts and compensation

_ Brazilian Securities and Exchange Commission publishes Circular Letter with general orientations regarding the rules and procedures that must be observed by publicly held corporations

 

On February 26th, 2021, the Brazilian Securities and Exchange Commission (“CVM“) published the Circular Letter/CVM/SEP/Nº1/2021 (“Ofício CVM/2021”), which provided the Superintendence of Relations with Companies (Superintendência de Relações com Empresas) (“SEP”) general orientations regarding the rules and procedures that must be observed by publicly held corporations. Among this years’ news, we highlight:

 

(i) Communications regarding lives on social media: the same rules set forth in the legal regulations that treats the disclosure of relevant information (Instruction CVM nº 358/02) and establish general rules about the content and way of the information that the issuers must observe (articles 14 to 19 of the Instruction CVM nº 480/09) are applied to lives on social media. In this sense, CVM recommends the disclosure, in advance, of a notice to the market informing the date, time and the internet address where the live is going to be transmitted, as well as the material presented in meetings with analysts, at the same day of the meeting or presentation. In addition, CVM recommends that companies include in their disclosure policy all the possible and necessary information to grant the market predictability on how the company handles disclosures in general.

(ii) Electronic signature – Remote Voting Bulletin: companies should not require from shareholders who wish to vote remotely, the delivery of physical documents to ratify the electronic remittance of documents mentioned in the meeting’s call notice, when said documents are electronically signed using the ICP-Brasil certification.

(iii) Management’s Compensation: CVM’s board decided (No. 19957.007457/2018-109) that the social contributions burden by the employer shall not integrate the amounts of the global compensation which is approved annually by the general shareholders’ meeting. Therefore, companies shall not disclose said amount in the charts of item 13 of the Reference Form (Formulário de Referência), but may do so, at their discretion, as “Other information deemed relevant”.

(iv) Related Party Transactions: Although, as a rule, the negotiations of agreements with related parties is not a matter subject to the board of directors’ approval, it is not possible to dissociate it completely from the liabilities inherent to those agreements, notably due to the obligation of monitoring the officers, in order to ensure that such agreements comply with the corporate law.

 

Oficio CVM/2021 may be accessed in Portuguese through the link below:

 

http://conteudo.cvm.gov.br/legislacao/oficios-circulares/sep/oc-sep-0121.html

 

 

_Brazilian Securities and Exchange Commission refuses term of commitment with company’s controlling shareholders and managers in proceeding regarding the approval of their own accounts and compensation

 

The Administrative Proceeding CVM SEI 19957.003922/2020-50, was initiated by SEP, in order to determine irregularities practiced by controlling shareholders of a publicly held company, which were also its CEO and VP, on voting and approving their own (i) management accounts and (ii) compensation as managers without considering the company’s financial situation.

 

The accusation originated from a complaint of a shareholder regarding the transaction with the aforementioned CEO and VP, who would no longer receive compensation as managers and would be hired and consultants, which would generate savings in expenses. After the analysis, by SEP, of several documents released by the company, signs of irregularities were identified in matters involving the approval of the accounts and the compensation for the officers, which could be considered abusive compared to the company’s revenue, net loss and net worth.

 

The shareholders presented a proposal to execute a term of commitment through which they were willing to ensure the maintenance of the management’s compensation in the average of the parameters determined by the Brazilian Institute of Corporate Governance (Instituto Brasileiro de Governança Corporativa – IBGC).

 

CVM’s board, in line with the conclusion of the Term of Commitment Committee, rejected the term of commitment in this case, considering thar (i) the defendants did not propose an indemnity for the company’s losses and did not correct the practices considered irregular, and (ii) the importance of the matter to the capital market.

 

More information about the term of commitment can be accessed in Portuguese through the link below:

https://www.gov.br/cvm/pt-br/assuntos/noticias/cvm-rejeita-acordo-com-acionistas-de-companhia

 

March 2020

_the March │2020 edition of our Newsletter has the following highlights:

Brazilian Securities and Exchange Commission and the impacts of the Coronavirus on publicly-held corporations

Anticipation of adaptation to the new rules related to the Board of Directors of publicly-held corporations listed at Novo Mercado 

Brazilian Securities and Exchange Commission releases Circular Letter with general guidelines for publicly-held corporations

Brazilian Central Bank simplifies approval of foreign investment in financial institutions based in Brazil

_ Brazilian Securities and Exchange Commission and the impacts of the Coronavirus on publicly-held corporations

The CODIV-19 pandemic arrives at a time when the Brazilian corporations are getting ready for holding their annual shareholders meetings and are finalizing and releasing their financial statements.

Given the relevant impacts of this pandemic in several sectors of the economy and in the capital markets in Brazil and around the world, on March 10th, 2020, the Brazilian Securities and Exchange Commission – CVM issued CVM/SNC/SEP Circular Letter No. 02/2020, which highlights the importance publicly-held corporations and their independent auditors carefully consider the impacts of COVID-19 on the corporations businesses and report the main identified risks and uncertainties in their financial statements, observing the applicable accounting and auditing rules.

CVM points out that special attention should be paid to the economic events as far as business continuity and/or accounting estimates (such as those related to asset recoverability, measurement of fair value, provisions and active and passive contingencies, revenue recognition and provisions for losses) are concerned.

For corporations whose fiscal year ended on December 31st, 2019, CVM advises that such impacts should be recorded as a “subsequent event”, pursuant to CPC (accounting committee) 24.

Further, pursuant to the aforementioned Circular Letter, corporations shall also evaluate the need to disclose relevant facts and to include projections and estimates related to COVID-19 risks in the preparation of their reference form (Formulário de Referência), pursuant to CVM Instruction No. 480/2009.

As far as the holding of the annual shareholders meeting is concerned, the biggest uncertainty is whether CVM or the Brazilian Government will, in any way, adapt the rules for these meetings, given the recommendations of the Brazilian sanitary authorities, as the SEC did in the U.S. However, CVM’s power in this case is limited, since it has no authority to postpone the deadline for the holding of annual meetings, once it is set by law. The annual shareholders meetings shall take place within the four-month period following the end of the fiscal year, which means, for most corporations, that their annual meetings shall take place until the end of April, i.e., in the middle of the expected pandemic pick in Brazil.

In this regard, on March 17th, 2020, CVM revoked CVM Instruction 559/2015, related to Depositary Receipt programs by Brazilian company to trade offshore. With the revocation of said instruction, the obligation of corporations that have issued such depositary receipts to call their shareholders meetings with at least 30-day notice is also revoked.

The Portuguese version of the Circular Letter can be accessed at: http://www.cvm.gov.br/export/sites/cvm/legislacao/oficios-circulares/snc-sep/anexos/ocsncsep0220.pdf 

_ Anticipation of adaptation to the new rules related to the Board of Directors of publicly-held corporations listed at Novo Mercado

Pursuant to Circular Letter No. 618/2017-DRE of B3 S.A. – Brasil, Bolsa, Balcão (“B3”), the corporations listed at Novo Mercado trading segment, which Board of Directors mandate is of 02 years and terminates in 2020,  shall anticipate their adaptation to the new rules related to the composition of the Board of Directors, pursuant to the new Novo Mercado Regiment.

These corporations shall already comply with the following new rules at their annual shareholders meeting to be held in 2020:

  1. the number of independent directors at the Board shall be the higher between 2 and 20% of the Board members; 
  2. amendment to the definition of independent director pursuant to the new rules and delivery of an independence statement by each nominee;
  3. management proposal shall include statement by the board of directors as to the adherence to the company’s nomination policy by all the nominees included in the proposal and as to the independence of the nominees said to be independent.

B3’s Circular Letter and the new Novo Mercado Regiment can be accessed at:

http://www.bmfbovespa.com.br/pt_br/listagem/acoes/segmentos-de-listagem/novo-mercado/

_ Brazilian Securities and Exchange Commission releases Circular Letter with general guidelines for publicly-held corporations

In February, CVM issued CVM/SEP Circular Letter No. 02/2020, which contains general guidelines for publicly-held corporations regarding disclosure of information and the performance of certain transactions.

The annual release of these guidelines by CVM is usual and brings a consolidation of the entity’s general rules and understandings regarding relevant issues or the day-to-day obligations.

We highlight the following updates in this year’s Circular Letter:

  • Sanctioning procedures (CVM Instruction No. 607/2019): possibility of submitting to CVM a proposal for a term of commitment, by the person being investigated or by the defendant.
  • Amendments to the amount of fines (CVM Instruction No. 608/2019): in the event of non-compliance with the deadlines for the delivery of periodic and occasional information;
  • Changes in periodic and occasional documents (CVM Instruction No. 609/2019): the preparation of management proposals for general meetings is now only mandatory for corporations registered in Category A before CVM, authorized to trade shares in the stock exchange, and that have outstanding shares; and

 

  • Recent relevant decisions granted by CVM’s Board, such as the one related to the dismissal of the obligation to issue a press release regarding transactions with related parties, under certain circumstances.

 

CVM CLARIFIED THAT THE CIRCULAR LETTER HAS THE PURPOSE OF STIMULATING THE CORPORATIONS’ INFORMATION DISCLOSURE IN A COHERENT WAY AND ALIGNED WITH THE BEST CORPORATE GOVERNANCE PRACTICES, AIMING AT TRANSPARENCY, AS WELL AS REDUCING THE NEED OF POSSIBLE IRREGULARITIES.

The Portuguese version of the Circular Letter can be accessed at: 

http://www.cvm.gov.br/legislacao/oficios-circulares/sep/oc-sep-0220.html 

_ Brazilian Central Bank simplifies approval of foreign investment in financial institutions based in Brazil

On January 24th, 2020, Circular No. 3,977 was published by the Brazilian Central Bank, which, based on Decree No. 10,029, issued on September 26th, 2019, recognized foreign investment in the capital stock of financial institutions based in Brazil as being of interest to the Brazilian government, no longer requiring a specific authorization for said foreign investment.

The rule regulates Decree No. 10,029, which gave the Central Bank the power to recognize foreign investment in financial institutions as of national interest, in compliance with the provisions of article 192 of the Brazilian Federal Constitution and dismissing the provisions set forth in article 52 of the Transitional Constitutional Provisions Act.

Thus, BACEN authorization processes for foreign or national investments in financial institutions are now the same.

Circular 3,977 can be accessed in Portuguese at:

http://www.in.gov.br/en/web/dou/-/circular-n-3.977-de-22-de-janeiro-de-2020-239630515