Mês: October

_The October edition│2024 of our Newsletter has the following highlights:

– B3 conducts a new public consultation to revise the rules of the Novo Mercado trading segment

– STF rejects income tax charge on donor for advance inheritance

_B3 conducts a new public consultation to revise the rules of the Novo Mercado trading segment

In October, B3 launched the second public consultation regarding updates to the Novo Mercado Regulation, aiming to gather new contributions for the evolution proposal of the rules applicable to companies listed in this special segment.

The first public consultation with initial proposed changes was presented by B3 in May of this year, and some points faced criticism from law firms, public companies, and market representatives.

Given the high number of interactions and expressions from the market, along with the quality of the debate, B3 deemed it appropriate to hold a second public consultation, incorporating amendments to the original proposal. This will be the last opportunity for interested parties to submit their proposals before the closed hearing, during which listed companies in the segment will vote on the final proposal, which will also be subject to CVM approval.

Below, we highlight the main changes introduced in the second public consultation.

• Novo Mercado “Alert” and List of Situations

In its first public consultation, B3 proposed the inclusion of the Novo Mercado “Under Review” label for companies involved in relevant events that may require a swift action by B3. This does not necessarily refer to situations linked to any irregular practice but could simply be the consequence of an adverse economic scenario.

Thus, in its initial proposal, B3 considered that the occurrence of the following events would warrant the inclusion of the “under review” label:

• Disclosure of a relevant fact indicating the possibility of a material error in financial information, including those related to fraud;
• Delay of more than 30 days in delivering financial information;
• Report from independent auditors with a modified opinion;
• Request for judicial recovery in Brazil or equivalent procedures in another country;
• Inability to keep the statutory director in function due to incarceration or death, without disclosing a substitute or succession plan for more than 7 business days;
• Environmental disaster involving the company; or
  Disclosure of a relevant fact regarding: (a) fatal accident involving employees or service providers of the company while performing their duties that is not accompanied by an action plan; or (b) the existence of labor practices that violate human rights within the company’s operational scope.

In light of the significant number of responses regarding the issue, in its second public consultation, B3 proposed changing the name to Novo Mercado “Alert” to clarify that it is merely an informational measure, without excluding the company from the Novo Mercado, and also reduced the list of situations warranting the label to only include the events listed in items (i), (ii), (iii), and (iv) above. Additionally, it proposed the possibility of prior expression from the Company subject to the label’s inclusion, as well as the introduction of a procedure for the company to disclose the alert issued by B3.

• Limitation of participation in boards of directors

In its first public consultation, B3 proposed that managers of Novo Mercado companies could dedicate themselves to a maximum of five boards of directors of public companies.

Considering the contributions received, in its second public consultation, B3 maintained the limit of five boards and proposed the following changes:

• Positions held in the boards of directors and management of companies will be counted as a single position in the case of: (i.1) controlling, controlled, or commonly controlled companies; (i.2) that have their annual consolidated financial statements; or (i.3) part of the same group of companies, as defined in the Corporations Law; and
• The CEO or main executive holding a position on the board of directors of the company itself will be counted as a single position.

• Limit on terms for independent directors

In the first public consultation, B3 proposed a limitation of 10 consecutive years for a director to be considered independent in the same company. However, in light of the received comments, B3 proposed increasing the duration to consider the board member independent until the 12^th year of service on the board.

• Reliability of Financial Statements

Regarding the reliability of financial statements, B3 had proposed that, in the annual management report, declarations regarding the effectiveness of the company’s internal controls be presented by the CEO and the CFO, as well as the disclosure of a review report issued by an independent audit firm attesting the evaluation made by the management.

In the second public consultation, the proposal is to maintain the declaration regarding the effectiveness of internal controls, which may be presented in the annual management report, in the reference form, or in a separate document, allowing each company to choose the format that best suits it. Regarding the assurance report by an independent audit firm, B3 opted to withdraw it from the proposal.

• Sanctions

B3 had proposed in its first public consultation the possibility of applying a penalty, by itself, of disqualification at the end of a sanctioning process initiated due to violations of the inspection and control rules, along with an increase in fines.

However, concerning the disqualification penalty, the main criticisms were, in summary, that (i) such a measure should not be applied within the context of voluntary self-regulation, (ii) the measure would be contradictory as it would only apply to the Novo Mercado segment, (iii) B3 would not have the authority for its application; and (iv) the costs with D&O insurance and indemnity agreements would be high.

Considering this scenario, B3 withdrew from the proposal the creation of the disqualification penalty and the alteration of fine amounts. It is part of the proposal, however, the modification of the monetary correction criterion for fines, which is currently done annually by the variation of the Broad Consumer Price Index (IPCA), to the positive annual variation of the Interbank Deposit (DI) rate.

• Arbitration – Market Chamber

Finally, B3 maintained its initial proposal for flexibility in utilizing other arbitration chambers to resolve conflicts involving listed companies and proposes that the criteria for accrediting other chambers be approved by the B3 board of directors.

Updates on public consultations can be accessed through the following link: https://www.b3.com.br/pt_br/regulacao/regulacao-de-emissores/atuacao-normativa/revisao-dos-regulamentos-dos-segmentos-especiais-de-listagem.htm

_ STF rejects income tax charge on donor for advance inheritance

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

– Brazilian Securities and Exchange Commission (CVM) amends points of CVM Resolution No. 175

– The extemporaneous registration of a partner’s withdrawal does not have retroactive effects

_ Brazilian Securities and Exchange Commission (CVM) amends points of CVM Resolution No. 175

CVM issued CVM Resolution No. 187, which entered into force on October 1, 2023, to introduce some changes to CVM Resolution No. 175, a regulatory framework for investment funds that revoked the former CVM Instruction No. 555 and consolidated the regulation of investment funds. Due to the relevant changes brought about by the new regulatory framework and the consequent emergence of doubts and questions regarding its provisions, the new changes introduced in CVM Resolution No. 175 reflect the requests made by market representatives.

These new amendments focus on the general provisions of the rule and its Normative Annexes I, II, III, IV and XI, which cover financial investment funds (FIF), receivables investment funds (FIDC), real estate investment funds (FII), equity investment funds (FIP) and pension funds, respectively.

In the general sphere of the rule, the changes include adjustments in different aspects, such as the transfer of open class quotas, the deadline for reviewing the financial statements, which is now up to 60 days after they are made available to the quotaholders, and the possibility for the custodian to request the administrator to convene quotaholders’ meetings.

In the Annexes, several changes were incorporated, including the inclusion of the mention of “Long-Term” in the disclosure of omitted FIF operations, the definition of subclasses of subordinated quotas in FIDCs, the relaxation of rules for the acquisition of credits owed by companies in reorganization, among other changes related to the composition and operation of these funds. The new regulation for investment funds promises to bring significant advances in the financial scenario, improving the transparency and security of investments.

CVM Resolution No. 175 mentioned above was published on the CVM website, and can be accessed through the link below:

https://conteudo.cvm.gov.br/legislacao/resolucoes/resol175.html

_ The extemporaneous registration of a partner’s withdrawal does not have retroactive effects

Unanimously, the 4th Panel of the Superior Court of Justice (STJ) decided that the registration with the Board of Trade of a corporate act resolving on the withdrawal of a partner from a company after the deadline provided for by law, that is, 30 days from the signing of the document, does not have retroactive effects, which may lead to its liability for debts assumed by the company.

The central case involved the conversion of a limited liability company into a simple company in 2004, transferring the filing of the company’s corporate acts from the Board of Trade to the Registry of Legal Entities. However, the corporate conversion instrument was only registered years after the date of the act, so that the transformation was not properly publicized.

After receiving notices in tax foreclosures related to debts acquired by the company after her withdrawal, the former partner filed a lawsuit against the Board of Trade of the State of Rio de Janeiro to correct the filing date of the corporate change but was unsuccessful in the lower courts.

In the STJ, Reporting Minister Antonio Carlos Ferreira noted that, as from the conversion to a simple company, the corporate acts were registered exclusively with the Civil Registry of Legal Entities, including the corporate act that resolved on the withdrawal of the managing partner of the company. However, in the case in question, the conversion of the type of company was filed with the Board of Trade only a decade later, resulting in the formal permanence of the businesswoman as a managing partner during that period.

According to the Reporting Minister Antonio Carlos Ferreira, “the registration normally confirms the existence, allowing the identification of the individual entrepreneur or the business company and its submission to the set of business rules due to the economic activity. However, corporate changes need to be disclosed through registration to be effective before third parties.”

The Reporting Minister also pointed out that, according to articles 1,150 and 1,151 of the Civil Code and article 36 of Law 8,934/1994, changes to the articles of incorporation take effect from the date they were written, provided that they are registered within the following 30 days, or from the date of registration, if the deadline is not met. In dismissing the appeal, the Reporting Justice concluded that the lack of continuity of the registration with the Board of Trade allowed the lawsuits to be directed against the former managing partner, due to her formal position in the registered entity.

More information regarding the case can be found at the link below:

https://processo.stj.jus.br/processo/judgment/eletronico/documento/mediado/?documento_tipo=integra&documento_sequencial=208051735&registro_numero=201902100078&peticao_numero=&publicacao_data=20230919&formato=PDF&_gl=1*b9bhsz*_ga*MTM4MDU1ODIwMS4xNjY3ODMzNjA2*_ga_F31N0L6Z6D*MTY5NjQ1MTg2NS45LjEuMTY5NjQ1MjUzNS42MC4wLjA.

_the october│2021 edition of our Newsletter has the following highlight:

– CVM Resolution 44 issued in August 2021 replaces CVM Instruction No. 358/2002

– Understanding Shareholders’ Agreements: Voting Rights

_CVM Resolution 44 issued in August 2021 replaces CVM Instruction No. 358/2002

In August 2021, the Brazilian Securities and Exchange Commission (“CVM”) issued CVM Resolution No. 44, which addresses the disclosure of information related to a material act or fact, the trading of securities pending an undisclosed material act or fact, and the disclosure of information related to the trading of securities (“CVM Resolution 44”), which revoked CVM Instruction No. 358/2002 (“ICVM 358”).

CVM Resolution 44, which came into force on September 1, 2021, has as its main objectives: (i) adapt the text of ICVM 358 that treats insider trading, in order to bring the provisions closer to the consolidated interpretation in CVM on the subject; (ii) make the regime of investment plans more flexible; and (iii) make the obligation of disclosure of information release policy by publicly-held companies more flexible.

While companies start the process of updating the policies of disclosure of information and trading of securities in order to reflect the new provisions introduced by CVM Resolution 44, we highlight the main changes briefly below.

Presumptions for characterizing the misuse of privileged information

To reflect the consolidated interpretation of the CVM board, CVM Resolution 44 provides the following relative presumptions in order to characterize the misuse of privileged information in securities trading:

• Presumption of use: The person who has traded securities with material information not yet disclosed has made use of such information in said trading. This presumption also applies to a former manager who has left the company for three months or less ago and has material, undisclosed information;

• Presumption of access and knowledge: Controlling shareholders (direct or indirect), managers and fiscal council (conselho fiscal) members, and the company itself, have access to all material information not yet disclosed. Such individuals, as well as those who have a commercial, professional or trust relationship with the company, upon having access to material information not yet disclosed, know that it is privileged information; and

• Presumption of relevance: Since the beginning of studies or analyses, information regarding the following matters are relevant: operations of any form of corporate reorganization or business combination, change in the company’s control, decision to promote the cancellation of the publicly- held company’s registration or change in the change of the environment or segment for trading of its shares, as well as a request for judicial or extrajudicial recovery and bankruptcy filed by the company itself.

Autonomous prohibition on trading securities prior to the disclosure of quarterly and annual information

The ICVM 358 already regulated the prohibition of trading securities by controlling shareholders, managers, and fiscal council members in the period of 15 days prior to the date of disclosure of the company’s quarterly accounting information and annual financial statements, and this prohibition was maintained by CVM Resolution 44, in an objective form.

However, CVM Resolution 44 has formalized the method of calculation of the 15 day period related to the prohibition, which must be made excluding the day of disclosure, observing, however, that, on the day of disclosure, trades can only be carried out after such disclosure has been effectively made. In addition, CVM Resolution 44 expressly provides that the referred prohibition is absolute, that is, it is not necessary to demonstrate the intention of obtaining undue advantage from the trading.

Regime of individual investment plans

Regarding the rules related to investment plans, which are instruments that enable their signatories to trade securities during prohibited periods, CVM Resolution 44 has reduced from 6 to 3 months the minimum period related to the effects of the plans and their eventual modifications and cancellations.

Furthermore, CVM Resolution 44 has expanded the list of individuals who may enter into such plans, making it possible for anyone who has a relationship with a publicly-held company that makes them potentially subject to the trading prohibitions to enter into such plans.

Information disclosure policy by publicly-held companies

The policy for disclosing material acts or facts is no longer mandatory for all publicly-held companies, and is now required only for companies that, cumulatively: (i) are registered in category “A”; (ii) have been authorized by a market managing entity to trade shares on the stock exchange; and, (iii) have outstanding shares, with the exception of the shares held by the controller, people related to the controller, company’s managers and those held in treasury.

The full text of CVM Resolution 44 can be accessed in Portuguese through the following link:

http://conteudo.cvm.gov.br/legislacao/instrucoes/inst044.html

_Understanding Shareholders’ Agreements: Voting Rights

Expressly foreseen in the Brazilian Corporation Law, the shareholders’ agreement is an important instrument of corporate governance for companies, and through which shareholders may establish rules regarding their relationship within the company, such as the exercise of voting rights, election of managers and transfer of shares. It is worth highlighting that shareholders’ agreements may be executed by all shareholders or by part of them. This enables the existence of more than one shareholders’ agreement within the same company.

We are now initiating a series of articles in which the main aspects related to shareholders’ agreements will be addressed.

In this first article, we present some considerations regarding the political rights that can be contemplated within a shareholders’ agreement, with emphasis on the right to vote and its implications, in particular qualified quorums, golden shares, block voting, prior meetings, and voting limits.

Voting rights and qualified quorums

The Brazilian Corporation Law establishes as a general rule that each common share is entitled to one vote in the deliberation of the shareholders’ meeting. It is possible, however, to restrict the voting rights of the preferred shares or to create classes of common shares with the attribution of plural voting, not exceeding ten votes per share. It is through the vote, and always observing the interests of the company, that the shareholders express themselves regarding the matters on the agenda at a shareholders’ meeting, so that, depending on the corporate structure, a single vote can be decisive for the approval or rejection of a certain matter.

As a standard rule, decisions at a shareholders’ meeting are taken by an absolute majority of votes (that is, a majority of the votes of those present at the meeting), excluding blank votes.

Regardless of the quorums provided by law, it is possible – and fairly common – for bylaws and shareholders’ agreements to establish higher approval quorums for a wide variety of matters in order to accommodate the different concerns and/or needs of the shareholders on a case-by-case basis.

As shown in the following items, the shareholders’ agreement may also provide specific rules for the exercise of voting rights, and it is always important to ensure the compatibility of the rules created for the agreement to be effective.

Golden Shares

Another voting mechanism are the golden shares or, as a term used in the context of privatizations of Brazilian companies, “special class shares”. The purpose of golden shares is to allow their holder to have distinctive influence on the deliberations of the general meeting, even if its owner does not hold the majority of the company’s capital stock.

For instance, in the case of the privatization of Embraer, the Brazilian Union became the holder of a single special class common share, which grants it, among other dispositions, veto rights in a series of matters, including the change of Embraer’s name and corporate purpose.

The golden share may also be used in contexts other than privatizations. In family businesses, for example, it may be held by the family leader and granted certain special rights that preserve his/her interests within the family context.

Block Voting

Block voting, in turn, is a mechanism capable of standardizing the vote of shareholders integrating the same group. Under this mechanism, it is possible to establish approval quorums within the block itself, so that the decision taken by such quorum is binding on all members of the block.

However, the matters foreseen in the shareholders’ agreement for the purposes of block voting are not unlimited. As stated in Special Appeal 1.152.849-MG, judged by the Superior Court of Justice, there is a distinction between the vote of will, which refers to the manifestation of the shareholders’ will, and the vote of truth, which consists in the shareholder’s assessment regarding the correspondence of the document in question and the reality of the corresponding object. Therefore, a shareholders’ agreement that has as its object the vote of truth, which declares the legitimacy of the managers’ acts, is considered invalid.

Such mechanism is important, for instance, in companies that have as shareholders members of different family units. Therefore, it is possible, via shareholders’ agreement, to establish that each family unit will vote as a block, which, in addition to ensuring a greater representation of each unit in corporate decisions, ends up being a way to bind future generations.

As an example, the Natura & CO Holding S.A. shareholders’ agreement currently establishes five shareholder blocks, and there is a specific chapter in the document to address them, providing, among other matters, the definition of a representative and an alternate for each block, and the specification that each block may enter into shareholder and/or voting agreements with each other for the purpose of organizing the block’s activities within the scope of the Natura & CO Holding S.A. shareholders’ agreement.

Prior Meetings

The purpose of prior meetings is to enable a group of shareholders (whether the controlling group or not) to establish, in advance, their votes regarding the matters of a given meeting. The shareholders’ agreement, therefore, may regulate prior meetings, including the rules for calling, installing, and approval quorums.

This mechanism is often used together with block voting. Using the same example as in the previous item, the Natura & CO Holding S.A. shareholders’ agreement regulates prior meetings, which must be called and held prior to each shareholders’ meeting. In this case, only the representatives of the shareholders’ blocks attend, and the resolutions passed at the prior meeting (according to the quorum and rules established in the agreement) bind the vote of all shareholders that are parties to the agreement.

Voting Limit

Voting limits can be established in the bylaws and shareholders’ agreements as a corporate governance tool to limit the interference of a certain shareholder or group of shareholders in the company’s decisions. This limitation can be used, for example, to create equality among shareholder groups – which in a family business can be useful in creating a balance in voting rights among family units with very different corporate interest between them, without interfering in other rights inherent to each unit’s corporate interest, such as profit sharing.

Out of curiosity, it is worth mentioning that currently B3’s bylaws establish a shareholder voting limit, so that no shareholder or group of shareholders may, as a general rule, cast votes higher than 7% of the capital stock.

Considering the above, the relevance of the management of political rights in shareholders’ agreements is evident, since its treatment may directly influence the outcome of the resolutions at shareholders’ meetings. In upcoming publications, we will mention other aspects related to political rights in shareholders’ agreements, such as the election of directors and officers, the binding of votes regarding management and the resolution of deadlocks.

The text above was published in legislation and market session of Capital Aberto on October 6, 2021, and can be accessed in Portuguese through the link below:

https://legislacaoemercados.capitalaberto.com.br/entendendo-o-acordo-de-acionistas-direitos-de-voto/