_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:
- the number of independent directors at the Board shall be the higher between 2 and 20% of the Board members;
- amendment to the definition of independent director pursuant to the new rules and delivery of an independence statement by each nominee;
- 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
