The Brazilian Securities and Exchange Commission (CVM) investigated the delivery of relevant information, which had not yet been disclosed to the market, by a director of a listed company to operators of a brokerage, as well as the use of this confidential information by such operators.

In a brief context, the operators of the brokerage conducted trades in the secondary market on their own behalf while in possession of non-public information about the company, which was transmitted through phone calls by a director of the company and only became public through the disclosure of a material fact by the company 10 (ten) days after the first trade was conducted.

The director was accused of violating his confidentiality duty as an administrator of a listed company, according to art. 155, § 1º, of Law No. 6.404/76, in conjunction with art. 8º of the former CVM Instruction No. 358/02 (revoked by CVM Resolution No. 44/2021). The operators were accused of using insider information to gain an advantage, violating art. 155, § 4º, of the same law, in combination with art. 13, § 1º of CVM Instruction No. 358/02.

CVM’s board unanimously decided to impose a temporary disqualification penalty on the director for 60 months, preventing him from holding administrative positions or serving as a statutory auditor in listed companies or entities that require CVM authorization. The operators were fined R$ 200,000.00 each by a majority vote. The penalties considered the director’s recidivism, previous decisions in similar cases, and the severity of the violations committed.

To access the full report and the vote of President João Pedro Nascimento, the voting manifestation of Director Marina Copola, and the voting manifestation of Director João Accioly in Portuguese, access the respective links.

Request for calling a Shareholders’ Meeting by minority shareholders

Article 123 of Law No. 6.404/76 (“Brazilian Corporate Law“) establishes that the board of directors, if one exists, or the directors must call a shareholders’ meeting, observing the provisions of each company’s by-laws. In the sole paragraph, item “c,” it states that the shareholders’ meeting can also be called by shareholders representing at least 5% of the capital stock when the managers do not respond, within 8 days, to a justified request indicating the matters to be discussed.

For listed companies, CVM Resolution No. 70/2022 (“RCVM 70“) reduces this percentage, allowing it to be as low as 1%, depending on the company’s capital stock.

Despite the requirement to send justifications along with the request to call the shareholders’ meeting, it is generally understood that it is not the role of the management to evaluate the merits of such justifications; they should only verify whether the formal requirements of the request are met. The deliberation on the presented matters and justifications are up to the shareholders, gathered in a meeting, considering the applicable quorum requirements.

Election of the board of directors of listed companies by the multiple vote procedure

The election of the board of directors is typically conducted through slate voting, where each vote is given to a specific group of candidates for certain roles. The slate with the highest number of votes is elected, which means that a controlling shareholder can often elect all the members of the board of directors. To counterbalance this, Brazilian legislation allows for the multiple vote procedure and separate voting to ensure that minority shareholders have the opportunity to elect board members.

Article 141 of the Brazilian Corporate Law grants minority shareholders representing at least 10% of the voting capital the right to request the adoption of the multiple vote procedure during the elections for the company’s board of directors. Under RCVM 70, this percentage can be reduced to a maximum of 5% depending on the company’s capital stock.

Through the multiple vote procedure, the number of votes corresponding to each share is multiplied by the number of positions to be filled. Each shareholder can either accumulate their votes on one candidate or distribute them among multiple candidates, aiming to maximize the number of board members elected.

It is important to note that if the election is held through this procedure, the dismissal of a board member will also lead to the dismissal of the remaining members, necessitating a new election; and, in other cases of vacancies, if there is no alternate, the next shareholders’ meeting shall conduct a new election for the entire board.

The Petrobras Case

Having provided this background on the process for minority shareholders to call shareholders’ meetings and the election of board members through the multiple vote procedure, we will briefly address the Petrobras case, which has gained significant media attention recently.

One controversy involves Petrobras’s decision to elect a new board member through a meeting of its board of directors to fill a vacancy caused by a resignation request. The current Petrobras board was elected at the Ordinary Shareholders’ Meeting through the multiple vote procedure.

On May 15, the company announced that the current CEO’s nomination for the roles of CEO and board member would be submitted to the board itself, referring to the Brazilian Corporate Law and its by-laws while stating that the CEO would remain on the board until the first shareholders’ meeting scheduled for 2025. In a statement on May 31, Petrobras responded to a minority shareholders’ request to call an extraordinary shareholders’ meeting to elect a new board, arguing that there was no need for such a call and that it would entail unnecessary costs.

After Petrobras denied the request to call the meeting, CVM initiated administrative proceedings to investigate potential noncompliance with Article 123 of the Brazilian Corporate Law. The Associação de Investidores no Mercado de Capitais (AMEC) , an association of investors, publicly advocated for calling the meeting, arguing that it  was aligned with the election of the board through the multiple vote procedure and requested clarifications from Petrobras.

According to news reports, CVM’s Superintendency of Relations with Companies (Superintendência de Relações com Empresas – SEP) stated that the company’s disagreement with minority shareholders’ justifications could not preclude the calling of a meeting, emphasizing that the request only needs to meet legal requirements.

As of now, CVM’s board has not yet commented on the matter.

To access the Letter with AMEC’s request for clarification in the Petrobras case in Portuguese, access the following link: https://amecbrasil.org.br/petrobras-pedido-de-esclarecimentos-da-amec-e-decisao-da-cvm-pela-realizacao-de-age/

For more information in Portuguese on how multiple voting and separate voting procedures work in the election of the board of directors in listed companies, access our team’s article published in Legislação & Mercado through the following link: https://legislacaoemercados.capitalaberto.com.br/como-funcionam-o-voto-multiplo-e-a-votacao-em-separado-na-eleicao-do-conselho-de-administracao-em-companhias-abertas/