Mês: September

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

– STJ rules on Stock Options commercial nature

– Due to deadlocks, B3 will launch a new public consultation to revise the rules of the Novo Mercado trading segment

– B3 releases the first edition of the Companies Guide

– CVM promotes enhancements to the Empresas.Net System

_STJ rules on Stock Options commercial nature

By a vote of 7 to 1, the 1st Section of the Superior Court of Justice (STJ), in a context of Special Appeals (Theme 1.226), decided that stock options have a commercial and not compensatory nature.

The discussion held in the STJ through REsps 2.069.644 and 2.074.564 was whether the taxation of the acquired shares should occur at the time of purchase (compensatory nature, subject to a 27.5% income tax rate) or at the time of sale (commercial nature, subject to capital gains tax rates ranging from 15% to 22.5%).

The heart of the matter was to determine whether stock option plans should be considered as a part of employees’ compensation or as an independent commercial transaction. This definition would help to identify the applicable income tax rate and the timing of its incidence.

The recognition of the mercantile nature by the Superior Court of Justice has established the understanding that income tax should be applied at the moment the employee sells its shares with capital gain, causing a significant tax impact for individuals. The decision served to preserve the purpose of stock options which is to encourage employee participation in the company’s activities, allowing them to benefit from better performance of the company’s shares in the market.

More details about the Court decision in Portuguese can be accessed through the following link: https://processo.stj.jus.br/repetitivos/temas_repetitivos/pesquisa.jsp?novaConsulta=true&tipo_pesquisa=T&cod_tema_inicial=1226&cod_tema_final=1226.

_ Due to deadlocks, B3 will launch a new public consultation to revise the rules of the Novo Mercado trading segment

B3 plans to launch a new public consultation regarding updates to the Novo Mercado trading segment regulation. The last structural reform of the segment took place in 2017 with the implementation of stricter governance rules. However, after some controversies involving listed companies, B3 decided to revise the regulation to provide greater security to companies in the Novo Mercado.

As a result, in the first half of this year, B3 presented a public consultation with initial changes proposals, which were criticized by law firms, listed companies and market representatives. The 58 contributions to the consultation revealed some issues that need to be solved, particularly regarding the “Under Revision Seal” and the new limitations for board members.

“Under revision” seal

The first topic of the public consultation was the possibility of placing the Novo Mercado seal “under revision” if any of the following events occur: (i) Disclosure of a material fact that indicates the possibility of a material error in financial information; (ii) Delay of more than 30 days in delivering financial information; (iii) Independent auditors’ report with a modified opinion; (iv) Filing for judicial reorganization in Brazil or equivalent procedures in foreign jurisdictions; (v) Inability to maintain an executive officer in their position due to arrest or death, without the disclosure of a replacement or succession plan for more than 7 business days; (vi) Environmental disaster involving the company; and (vii) Disclosure of a material fact regarding a fatal accident involving the company’s employees or service providers in the performance of their duties, which is not accompanied by an action plan or regarding the existence of labor practices that violate human rights within the company’s operations.

The deadlines for the start of fact verification by B3 and the period during which the seal will remain “under revision” were outlined in the proposals listed in the public consultation. According to B3, the purpose of the proposed modification is to allow the Novo Mercado Seal to signal to investors and the market if something significant is happening with the company.

The criticisms on the proposal, however, were almost unanimous among participants of the public consultation. One of the arguments raised was that the function of signaling potential problems to investors is already addressed by CVM Resolution 44, which deals with the disclosure of material facts. Thus, the “under revision” seal could cause further reputational issues for companies and lead to premature reactions from investors, especially because B3’s proposal did not specify whether affected companies would have the right to prior notice or response.

Modifications regarding board members

Another proposal was to limit the participation of board members to a maximum of five boards of listed companies at the same time, except for executive officers (one board), statutory officers (two boards) and Chairmans of a Board of Directors (who can chair one board and participate in up to three more, or chair two boards and participate in one more).

Regarding this, some stakeholders expressed support for the change, while others opposed the limitation arguing that such decision should be made internally by each company. The suggestion made in this case was for the participation of board members in different boards to be disclosed transparently so that companies can make informed decisions.

Another change proposed by B3 was to limit the term during which board members are considered independent to 10 years. This provision was based on data from the “OECD Corporate Governance Factbook 2023,” which cites 29 countries that have a maximum term for board members to remain considered independent, with variations between 5 and 15 years.

In the Brazilian case, after the proposed 10-year period, the board member can remain on the company’s board but will no longer qualify as “independent.”

The main criticisms of the proposal were regarding the established term. The market for independent board members is scarce, which leads to the perception that a 10-year period is too short. The recommendations made in this case were to increase it to 12 years, with a longer adjustment period for companies.

Updates on the public consultation can be accessed in Portuguese 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

_ B3 releases the first edition of the Companies Guide

In September, B3 launched the Companies Guide, a publication aimed at guiding listed companies on good practices in corporate governance and regulatory compliance. The guide provides a comprehensive overview of the main requirements and obligations of listed companies, covering topics such as disclosure of material information, compliance, risk management and the responsibilities of managers.

Additionally, the guide consolidates official documents released by B3’s, including recent updates to regulations as well as developments implemented based on practical experience gathered over the years.

The guide can be accessed in Portuguese through the following link: https://www.b3.com.br/pt_br/regulacao/regulacao-de-emissores/atuacao-orientadora/interpretacoes.htm

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

– CVM proposes reform in the rules and procedures of shareholders’ general meeting

– Review of the G20/OECD Corporate Governance Principles

– Judicial summons via messaging app may be valid if it provides unequivocal notice of the lawsuit

– Accession of the Fortaleza football team to the Football Joint-Stock Company (Sociedade Anônima do Futebol – SAF)

_ CVM proposes reform in the rules and procedures of shareholders’ general meeting

The Brazilian Securities and Exchange Commission (“CVM“) initiated on September 21, 2023, public consultation SDM 01/2023 with proposals for amendments to CVM Resolution No. 81/2022, which set forth the rules and procedures related to shareholders’ general meetings.

The proposal provides for the expansion and improvement of the mechanisms of remote participation and voting and is part of the CVM’s regulatory agenda for the year 2023.

The main points covered by the amendment proposal are:

• Expansion of the circumstances requiring the disclosure of the remote voting ballot for all shareholders’ meetings, i.e. general, or special, annual or extraordinary;
• Improvement of the remote voting ballot to incorporate the experience of CVM and the companies from recent years;
• Inclusion of cases for exemption from the obligation to provide the remote voting ballot, for situations in which shareholders are not using such mechanism; and
• Adjustments in the transmission flow of voting instructions, in order to optimize the use of the timeframe for collecting, processing and counting votes by the regulated entities involved in the process.

Suggestions and comments may be forwarded to the CVM until November 24, 2023.

More information about the public consultation SDM 01/2023 can be found in the link below:

https://conteudo.cvm.gov.br/audiencias_publicas/ap_sdm/2023/sdm0123.html

_ Review of the G20/OECD Corporate Governance Principles

On September 11, 2023, the G20 and the Organization for Economic Cooperation and Development (OECD) updated the Principles of Corporate Governance to promote corporate sustainability, trust and financial stability. The G20/OECD Corporate Governance Principles, considered to be the international standard for corporate governance, help policymakers assess and improve the legal framework and corporate governance of companies, as well as support market confidence.

Revised in 2023 to reflect recent developments in capital markets and corporate governance policies and practices, the update of the Corporate Governance Principles took into consideration, among other aspects:

• sustainability recommendations, including guidelines for dealing with the climate crisis and addressing other risks and/or opportunities;
• gender equality;
• concentration of corporate control;
• encourage the use of technology in corporate governance practices, such as remote and hybrid shareholders’ meetings;
• the role and rights of shareholders.

The Principles are divided into six segments: (i) ensuring a solid corporate governance structure; (ii) rights and equitable treatment of shareholders; (iii) institutional investors, stock markets and other intermediaries; (iv) promoting information disclosure and transparency; (v) defining the obligations and responsibilities of the board of directors; and (vi) emphasizing sustainability.

More information on the Corporate Governance Principles can be accessed through the link below:

G20/OECD Principles of Corporate Governance – OECD

_ Judicial summons via messaging app may be valid if it provides unequivocal notice of the lawsuit

According to a recent ruling by the Third Chamber of the Superior Court of Justice (“STJ“), the judicial summons via messaging app may be considered valid if it fulfills the purpose of providing the recipient unequivocal notice of the lawsuit filed against them, even if such practice lacks legal basis.

In the case decided by the Third Chamber of the STJ, the decision was for the annulment of a summons made via a messaging app, since it was found to have harmed the defendant, as they became absent or in default in the lawsuit.

Due to the absence of any legal basis or authorization, Minister Nancy Andrighi, rapporteur of the case, stated that the communication of legal proceedings via messaging app has a defect in terms of form, which could lead to its annulment. Nevertheless, the Minister also concluded that, in the context of civil procedural legislation, the general rule is freedom of forms, and it is necessary to investigate in these situations whether a deviation from the form provided for by law necessarily implies nullity of the act or whether, if the intended purpose is achieved (i.e. effective notification), it could eventually be validated.

More information about the aforementioned decision of the STJ can be accessed at the link below:

https://www.stj.jus.br/sites/portalp/Paginas/Comunicacao/Noticias/2023/22082023-Citacao-por-aplicativo-de-mensagem-pode-ser-valida-se-der-ciencia-inequivoca-da-acao-judicial.aspx

_ Celerity of corporate courts

A study points out that the average time of processing business lawsuits in specialized courts of the Court of Justice of the State of São Paulo (TJSP) is almost half the time of processing in generalist courts.

There are four specialized courts in the State of São Paulo and according to the study, the lawsuits in progress are divided into the following demands:

• 37% are about corporate issues;
• 23% are related to intellectual property and data protection;
• 20% correspond to cases of recovery and bankruptcy;
• 16% are related to contractual disagreements;
• 3% are arbitration-related topics; and
• 1% deal with other topics.

The central idea of the study was to evaluate whether the main objectives for the creation of such courts are being met, namely: celerity, quality, and predictability. The relevance of this issue lies in the billions of Brazilian Reais involved in the lawsuits and in ensuring legal certainty for investors, since without the business courts, cases of this nature would be distributed to the civil courts, which carry demands of the most varied natures.

More information about the study can be accessed in Portuguese through the link below:

https://valor.globo.com/legislacao/noticia/2023/08/01/varas-judiciais-empresariais-sao-mais-celeres.ghtml

_ Accession of the Fortaleza football team to the Football Joint-Stock Company (Sociedade Anônima do Futebol – SAF)

Fortaleza has just become another Brazilian football team to be framed as SAF. On September 22, 2023, supporters-members and board members voted to amend the bylaws of the Nonprofit Association to transform it into a SAF. In total, 1.256 club members voted, setting a historic recorded for the club in terms of voting participation.

The transformation into SAF aims to expand credit lines, implement professional governance models and improve attractiveness for potential investors. This model allows the retention of key decision-making and control of the club’s management, while also giving fans the opportunity to acquire assets of the institution.

In addition to the approval of the amendment of the bylaws, the necessary acts to adapt the SAF were carried out, including the election of the members of the Board of Directors and members of the Fiscal Council. There will also be the creation and hiring of the Chief Executive Officer (CEO), who will be responsible for the management of all the club’s football-related matters.

More information about the SAF of Fortaleza in the link below:

https://ge.globo.com/ce/futebol/times/fortaleza/noticia/2023/09/23/saf-do-fortaleza-e-aprovada-com-1195-votos.ghtml

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

– CVM eases rules for legal publications of small sized listed companies

– CVM regulates on rules of the Brazilian Corporate Law on plural voting and on the composition of the Board of Directors of listed companies

– The online version of the 2023 reference form (Formulário de Referência) is now available

_CVM eases rules for legal publications for small sized listed companies

On September 1, 2022, the Brazilian Securities and Exchange Commission (“CVM“) edited CVM Resolution No. 166 (“RCVM 166“) in order to make easier to disclosure publications required by Law No. 6404, of December 15, 1976, as amended (“Brazilian Corporate Law“) for small sized listed companies, considered as those whose annual gross revenues are lower than five hundred million reais (R$500,000,000.00).

RCVM 166 allows small sized companies to disclosure the publications required by the Brazilian Corporate Law and by CVM itself through Empresas.Net or Fundos.Net systems, with no additional charges. The publications will be considered to have been disclosed on the dates they were released on the aforementioned systems.

Regarding the publications carried out by third parties, as it is the case of a bid offer, provided for in article No. 258 of the Brazilian Corporate Act, the third party may send the applicable documents to the company, which will be responsible for the immediate publication in the Empresas.Net or Fundos.Net systems. If the company does not disclose the documents sent, the third party shall arrange its disclosure in a wide circulation newspaper published at the same place of the company’s headquarters.

According to João Pedro Barroso do Nascimento, current President of CVM, RCVM No. 166, which will come into effect on October 3, 2022, brings important modernization, which will make companies and the business environment more flexible and unburdened. It is a flexibilization that generates cost reduction.

RCVM 166 can be accessed in Portuguese through the link below:

https://conteudo.cvm.gov.br/export/sites/cvm/legislacao/resolucoes/anexos/100/resol166.pdf

_CVM regulates on rules of the Brazilian Corporate Law on plural voting and on the composition of the Board of Directors of listed companies

On September 20, 2022, CVM edited CVM Resolution No. 168 (“RCVM 168”), which seeks to regulate legal provisions introduced by Law No. 14.195/2021 in the Brazilian Corporate Law, regarding the composition of the board of directors of listed companies and plural voting on shareholders’ meetings.

Among the changes is the possibility of accumulating the positions of chief executive officer and of chairman of the board of directors in small sized companies whose annual gross revenues are less than five hundred million reais (R$500,000,000.00).

The RCVM 168 also determined that, pursuant to article 140, 2^nd paragraph of the Brazilian Corporate Law, it is mandatory for independent directors to participate in listed companies’ board of directors who cumulatively meet the following requirements::

• are registered in category A;
• have securities admitted for trade on the stock exchange market by an entity that manages an organized market; and
• have shares or Depositary Receipts outstanding.

Regarding the classification of members of the board of directors as independent, RCVM 168 adopted equivalent criteria as those covered in the Novo Mercado Regulation.

In addition, RCVM 168 also established that plural voting does not apply to shareholders’ meetings that resolve on related party transactions that must be disclosed pursuant to Appendix F of CVM Resolution No. 80, which addresses the related party transaction communication.

The changes will come into effect on October 3, 2022,  provided that the changes regarding the management of companies only apply to managers’ terms starting from January 1, 2023 on.

RCVM 168 can be accessed in Portuguese through the link below:

https://conteudo.cvm.gov.br/export/sites/cvm/legislacao/resolucoes/anexos/100/resol168.pdf

_The online version of the 2023’ reference form (Formulário de Referência) is now available

On August 28, 2022, CVM/SEP Letter No. 04/2022 was published by the CVM to inform listed and foreign companies about the continuity of the migration process of structured forms to online platform Empresas.Net system.

The measure promises to bring more agility in navigating the Empresas.Net system by eliminating the need to download and run the application on a computer.

In this regard, the test period of the new platform for sending the reference form (Formulário de Referência), FRe Online, began on September 1, 2022, and is now available on Empresas.Net system.

During the test period, companies may send CVM suggestions for improvements to enhance its navigation. This is extremely important since the use of the new platform will be mandatory from January 1, 2023.

FRe Online already reflects the new structure of the reference form established by CVM Resolution No. 59, which will come into force on January 02, 2023. If, on one hand, the resolution, among another measures, simplified the structure of the reference form by excluding some items, on the other hand it included the requirement for disclosure of new information, such as, for example, information related to ESG topics and practices.

The full CVM Letter No. 04/2022 and the Empresas.Net System can be accessed in Portuguese through the following links:

CVM Letter:

https://conteudo.cvm.gov.br/legislacao/oficios-circulares/sep/oc-sep-0422.html

Empresas.Net System website

https://www.rad.cvm.gov.br/ENET

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

– Amendments related to companies’ management in the Brazilian Corporation Law carried out in 2021

_Amendments related to companies’ management in the Brazilian Corporation Law carried out in 2021

Throughout 2021, several amendments were made in the Law No. 6,404, of December 15th, 1976 (“Brazilian Corporation Law”) that resulted in the modification of rules related to companies’ management, in addition to other corporate matters.

In June 2021, the Supplementary Law No. 182 of 2021 (“Supplementary Law 182/21”), known as the Legal Framework for Startups, was published, with the aim to modernize the business environment in Brazil and influence innovative investments. In August 2021, the Law No. 14,195 of 2021 (“Law 14,195/21”) was published, resulting from the conversion process of the Provisional Measure No. 1,040 of 2021 (“MP 1,040/21”), issued by the Federal Government earlier this year, in order to simplify and improve the mechanisms related to companies and investments in Brazil.

In general terms, the main changes made to the rules relating to the management of companies were:

• Accumulation of positions: The prohibition for publicly held companies of the accumulation of the position of Chairman of the Board of Directors and the position of Chief Executive Officer or main executive officer of the company was introduced by MP 1.040/21 and established with the publication of Law 14,195/21. The Brazilian Securities and Exchange Commission (“CVM”) may issue rule that exempts such prohibition for smaller-sized companies, as provided in article 294-B of the Brazilian Corporation Law (Article 138, paragraphs 3rd and 4th of the Brazilian Corporation Law).
• Independent Directors: The Law 14,195/21 extended the mandatory participation of independent directors in the composition of the Board of Directors to all publicly held companies, under the terms and conditions defined by CVM, which previously was previously applicable only to publicly-held companies listed in the Novo Mercado and Level 2 segments of B3 S.A. – Brasil, Bolsa e Balcão (Article 140, paragraph 2nd, of the Brazilian Corporation Law).
• Composition of the Board of Officers: Previously, if was mandatory for the Board of Officers to be composed of at least two members. However, with the publication of the Supplementary Law 182/21, the Board of Officers can be composed of only one member (Article 146, caption, of the Brazilian Corporation Law).
• Foreigners in the Management: The Law 14,101 allowed the election of foreign natural individuals to the composition of the Board of Officers, which was previously allowed only for the Board of Directors. In this case, the investiture of the manager residing or domiciled abroad must be subject to the constitution of a representative residing in Brazil, with powers to, at least three (3) years after the end of the manager’s term of office, receive: (i) summons in actions filled against such member based on the corporate legislation; and (ii) summons and subpoenas in administrative proceedings filled by CVM, in the case of exercise of management position in a publicly-held company (Article 146, caption and paragraph 2nd, of the Brazilian Corporation Law).

CVM has still not comment on the matters that are assigned to it to issue supplementary instructions.

The full texts of the Supplementary Law 182/21 and the Law 14,195/21 can be accessed through the links below:

http://www.planalto.gov.br/ccivil_03/leis/lcp/Lcp182.htm

http://www.planalto.gov.br/ccivil_03/_ato2019-2022/2021/lei/L14195.htm