Ano: 2019

December 2019

_ the December │ 2019 edition of our Newsletter has the following highlights:

– Brazilian Securities and Exchange Commission discharges members of the Board of Directors on a charge of non-compliance with the duty of diligence

– Brazilian Securities and Exchange Commission rules on a case of alleged irregularity in the appointment of member of the audit committee

_ Brazilian Securities and Exchange Commission discharges members of the Board of Directors on a charge of non-compliance with the duty of diligence

 On November 19th, 2019, the Brazilian Securities and Exchange Commission (“CVM”) decided on the Administrative Proceeding CVM RJ2016 / 7197 (SEI No. 19957.005981 / 2016-86) (“PAS”), filed by the Business Relations Superintendence (“SEP” or “Prosecution”) to ascertain the liability of members of the board of directors of a publicly held corporation (“Company”) for not acting with care and diligence in the exercise of their attributions, in violation of article 153 of Law No. 6.404/76 (“Brazilian Corporate Law”).

According to CVM Director Carlos Alberto Rebello Sobrinho, the PAS was due to a complain regarding the decision taken by the member of the board of directors (“Defendants”), which declared the Share Subscription Option and Other Covenants Agreement (“Option”) entered into by and between the Company and its controlling shareholder to be not enforceable.

The Option granted the Company the right to demand the subscription by the controlling shareholder of common shares issued by the Company at a subscription price of R$ 6.30 to US$ 1 billion. The Option was exercised by the Company’s board of officers, which required the controlling shareholder to immediately pay the amount of US$ 100 million. However, on the same date, the controlling shareholder sent the Company a conflict notice questioning the validity of the exercise of the Option and starting an amicable settlement procedure, as previously agreed on in the option agreement. Afterwards, it was established that the dispute would be settled upon the conclusion of a legal opinion to be rendered by 3 independent legal experts or until one of the parties amicably ended the discussion.

The legal experts concluded that the Option was unenforceable due to the non-implementation of the suspensive condition provided in the agreement. Therefore, at a meeting of the board of directors of the Company, the Defendants unanimously and unreservedly decided to close the dispute regarding the exercise of the Option, declaring it to be unenforceable, based on the legal opinions, giving full discharge to the controlling shareholder.

As pointed out by SEP, the Defendants disregarded several relevant matters, such as the fact that it was not clear which pieces of information were provided to the legal experts in order for them to prepare the legal opinion. Furthermore, the Prosecution added that due to the decision to declare the Option unenforceable and to release the controlling shareholder of its obligations under the agreement, the efforts to satisfy the Company’s rights had not been exhausted, as the dispute was not submitted to arbitration, as provided for in the agreement. Thus, SEP understood that the Defendants’ decision was not taken diligently.

The Defendants did not agree with SEP, arguing that their decision was based on the legal opinions issued by legal experts, which, unanimously, concluded that the Option was unenforceable. Furthermore, they argued that, given the non-implementation of the suspensive condition, there would be no room for any attempt to negotiate with the controlling shareholder and that the costs and risks of bringing the matter to an arbitral decision could be damaging to the Company. Finally, the Defendants claimed that they decided the matter on an informed, thoughtful and disinterested manner, supported by the “right to rely on others”, without any indication that suggested the need for further investigation into the matter. In addition, the Defendants stated that their diligence should be assessed from the perspective of the “business judgment rule”, already consolidated by CVM’s case law.

At the end, CVM Board unanimously decided to discharge the Defendants from the charge of non-compliance with their duty of diligence. CVM Chairman, Marcelo Barbosa, took the opportunity to reinforce that it is important that managers have consistent documents and records to support their decisions, in order to demonstrate compliance with their duty of diligence.

More information on this precedent can be accessed in Portuguese at:

http://www.cvm.gov.br/noticias/arquivos/2019/20191119-3.html

_ Brazilian Securities and Exchange Commission rules on a case of alleged irregularity in the appointment of member of the audit committee

On November 26th, 2019, CVM Board decided on the Administrative Proceeding No. SEI 19957.006822 / 2018-61 (“PAS 2018-61”), in which it was discussed whether a minority shareholder, a party in derivative contracts entered into with the Company’s controlling shareholder, could participate in the separate election of members of the company’s audit committee, pursuant to article 161, paragraph 4th, of the Brazilian Corporate Law.

The technical department at CVM filed the claim because the minority shareholder, attending the company’s General Shareholders’ Meeting, had elected both effective and alternate members of the company’s audit committee by means of the separate voting procedure, surpassing the votes of the other minority shareholders qualified to participate in the said voting procedure.

On the technical department’s point of view, this minority shareholder and the controlling shareholder would have the same interest, since the financial agreements entered into between them had transferred the risk of the appreciation and devaluation of the shares issued by the company to the controlling shareholder. Therefore, when voting in the company’s General Shareholders Meeting, the minority shareholder (i) did not represent the interest of a proper minority shareholder and (ii) was, in fact, a mere extension of the will of the controlling shareholder.

In the judgment of PAS 2018-61, CVM Board ruled, by unanimity of votes, that the minority shareholder should not be prevented from voting in the separate voting procedure of members of the company’s audit committee, since THE FINANCIAL AGREEMENTS ENTERED INTO WITH THE CONTROLLING SHAREHOLDER DID NOT, BY THEMSELVES, REVEAL AN ARRANGEMENT BETWEEN THE PARTIES CAPABLE OF PORTRAYING AN IMPEDIMENT TO VOTE, GIVEN THAT, IN THIS CASE, IT WAS POSSIBLE TO VERIFY (I) THE EXPOSURE OF THE MINORITY SHAREHOLDER TO THE VARIATION OF THE SHARES’ PRICE, AN ESSENTIAL PARAMETER TO DETERMINE IF THERE IS POLITICAL INTEREST AND (II) THAT THE EXISTING POLITICAL INTEREST WAS DEEMED TO REPRESENT THE WILL OF A MINORITY SHAREHOLDER.

More information on this precedent can be accessed in Portuguese at:

http://www.cvm.gov.br/noticias/arquivos/2019/20191126-2.html#PAS_CVM_RJ2018_4585_SEI_19957_006822_2018_61_

November 2019

_ the November | 2019 edition of our Newsletter has the following highlights:

– Brazilian Securities and Exchange Commission’s public hearing regarding the minimum percentage required for the proposition of lawsuits by shareholders

– Brazilian Securities and Exchange Commission decides on layering case for the first time

– Carneiro de Oliveira Advogados law firm and its partner Gyedre Carneiro de Oliveira are highlights in the law yearbook “Anuário Análise Advocacia 500 | 2019

_ Brazilian Securities and Exchange Commission’s public hearing regarding the minimum percentage required for the proposition of lawsuits by shareholders

On October 10th, 2019, the Brazilian Securities and Exchange Commission (“CVM”) issued a public hearing regarding a normative ruling’s minute that reduces the minimum percentage required for the proposition of lawsuits by shareholders (“Proposal”).

The initiative came from suggestions presented by the Working Group created through the Joint Ordinance MF/CVM 92/2018, along with the Ministry of Economy, to study and propose the improvement of protection measures for minority shareholders.

Pursuant to article 291 of Law No. 6.404/76 (“Brazilian Corporation Law”), the Proposal sets a scale that reduces the minimum percentage of equity interest required for the proposal of lawsuits regarding manager’s liability provided for in article 159, paragraph 4 of the Brazilian Corporation Law, and the liability against controlling companies, in accordance to article 246, paragraph 1, item “a”, of the Brazilian Corporation Law.

According to the survey made by CVM’s Economic Analysis and Risk Management Counsel (“ASA”), the Proposal provides the minimum percentage according to the following division of companies based on the respective capital stock value:

 

Capital Stock Range

Minimum Percentage

R$0,00 a R$100.000.000,00

5%

R$100.000.001,00 a R$1.000.000.000,00

4%

R$1.000.000.001,00 a R$5.000.000.000,00

3%

R$5.000.000.001,00 a R$10.000.000.000,00

2%

acima de R$10.000.000.000,00

1%

 

Comments and suggestions regarding the division above, as well as the possibility of extension of the definition of scale to the following minimum percentages provided for in the Brazilian Corporation Law, shall be sent to CVM until December 6th, 2019:

  1. the judicial requirement of exhibition of books, in accordance with article 105 of the Brazilian Corporation Law;
  2. the convening of a shareholders whenever the officers do not comply with a justifiable request that a meeting be called, in accordance with article 123, sole paragraph, item “c” of the Brazilian Corporation Law;
  3. the requirement to disclosure information regarding the negotiation of securities by managers and the terms and conditions of their management agreements, in accordance with §1° of article 157 of the Brazilian Corporation Law; e
  4. the requirement to disclosure information regarding subjects within the competence of the fiscal council, in accordance with §6° of article 163 of the Brazilian Corporation Law.

ADDITIONALLY, THE PUBLIC HEARING OPENS A SPACE TO DISCUSS THE CONVENIENCE OF THE REVISION THE SCALES FIXED IN CVM NORMATIVE RULINGS N° 165 AND 324, WHICH REFERS TO THE MINIMUM PERCENTAGE NECESSARY TO REQUIRE THE MULTIPLE VOTING PROCESS TO ELECT BOARD MEMBERS AND THE INSTALLATION OF THE FISCAL COUNCIL, RESPECTIVELY.

The Proposal can be accessed in Portuguese at:

http://www.cvm.gov.br/noticias/arquivos/2019/20191010-1.html

_ Brazilian Securities and Exchange Commission decides on layering case for the first time

On October 1st, 2019, CVM’s Board decided, for the first time, on a case of layering, which consists in the violation of item “I” and “II”, “b”, of CVM’s Normative Ruling No. 8/1979 (“ICVM 8/79”). The Sanctioning Administrative Proceeding (“PAS”) was filed against the defendant (“Defendant”), according to the Reporting Officer, President Marcelo Barbosa, in order to investigate alleged operations to create artificial layers of offers to purchase and sell various assets in the corporate book.

According to Barbosa, the manipulation of assets’ price occurred through the following steps:

  1. creating false liquidity by inserting artificial offers on the opposite side of the corporate book from those that were actually intended, forming layers of offers without the real purpose of being executed, which changed the spread of the offering book, in order to attract investors to include or improve their offers;
  1. register, by the investor, of the intended purchase or sale offer on one side of the book (before or after the creation of false liquidity);
  1. execution of the intended offer under conditions provided by false liquidity; and
  1. once the intended offer was complete, the artificial offers were canceled.

CVM’s department of Market and Intermediary Relations (“SMI”) noted this strategy pattern in other operations, in which the interference of the Defendant, other parties’ reaction to the offers inserted by the Defendant, and, finally, the execution of a more advantageous offer to the Defendant than those prior to its performance was remarked.

Therefore, it was stated that the Defendant had been using such strategies between the years of 2013 and 2017, even after being notified about the existence of possible irregularities, reinforcing the characterization of a malicious conduct, according to the report, which, according do SMI, constitutes a violation of ICVM 8/79.

Finally, CVM’s Board decided, by unanimous votes, to impose a fine of one and a half times the value of the economic advantage obtained with the noncompliance of ICVM 8/79, duly restated according to the IPCA rate since the date of the last operation questioned by the prosecution until CVM’s Board decision. Besides, CVM also established the communication of this case to the Federal Public Prosecution Service of the State of São Paulo, considering the evidence of a public criminal action crime.

More information regarding the PAS can be accessed in Portuguese at:

http://www.cvm.gov.br/noticias/arquivos/2019/20191001-2.html#PAS_CVM_SEI_n__19957.006019_2018-26

_ Carneiro de Oliveira Advogados law firm and its partner Gyedre Carneiro de Oliveira are highlights in the law yearbook “Anuário Análise Advocacia 500 | 2019”

The law firm Carneiro de Oliveira Advogados and its partner Gyedre Palma Carneiro de Oliveira were named by the magazine Análise Advocacia 500 among the most admired law firms and lawyers of 2019.

The yearbook Análise Advocacia 500 presents the most admired Brazilian law firms and lawyers in different fields of Law, according to the opinion of the heads of Legal Departments of the biggest Brazilian companies.

October 2019

_ the October │ 2019 edition of our Newsletter has the following highlights:

– Provisional Measure regarding Declaration of Rights of Economic Freedom is converted into Law

– Brazilian Federal Senate approves councilors’ nomination and CADE’s quorum is restored

– CVM regulates the electronic publication of corporate acts

_ Provisional Measure regarding Declaration of Rights of Economic Freedom was converted into Law 

On September 20th, 2019, Provisional Measure No. 881/19 (“MP”) was sanctioned by the Brazilian President and converted into Law No. 13.874/19, which establishes the Declaration of Rights of Economic Freedom. This Law establishes rules regarding the protection of free enterprise and the free exercise of economic activity, the actions of the State as normative and regulatory agent and other measures.

Among the changes regarding corporate aspects, we highlight the following: (i) disregard of legal entity; (ii) single-member limited liability company; and (iii) new rules regarding corporate acts’ file before the Boards of Trade.

Disregard of Legal Entity: the Brazilian Civil Code was amended to provide the following new requirements for the disregard of a legal entity: distortion of the legal entity purpose, which consists in the fraudulent use of the legal entity for the purpose of harming creditors and for the practice of illegal acts of any nature, or fraude (confusão patrimonial), which is the improper confusion between the companies’ and the partners’ assets. The mere existence of an economic group without the presence of the other requirements does not authorize the disregard of the legal entity. The mere expansion or change in the original purpose of the legal entity does not represent a distortion of the legal entity purpose. The disregard of legal entity is also applicable to the extension of the obligation of partners or directors to the legal entity.

Single-member Limited Liability Company: the Brazilian Civil Code was also amended to allow the constitution of a limited liability company by a single quotaholder, and the single partner’s constitution document shall observe the article of associations’ provisions, when applicable. Unlike EIRELI, it is not required for a Single-Quotaholder Limited Liability Company to have a capital stock equivalent to, at least, one hundred (100) minimum wages and the same individual may have more than one Single-Quotaholder Limited Liability Company.

New rules regarding corporate acts’ file before the Board of Trade: Law No. 8.934/34 (Trade Registration Act) was amended to provide the possibility of automatic file of documents and declarations regarding mere register information before the Board of Trade,  as well as certain corporate acts which follow DREI’s instruments standards. For other corporate acts, Law No. 13.874/19 provides that the analyses and registration before the Boards of Trade shall take up to five business days, depending on the case.

Law No. 13.874/19 can be accessed in Portuguese at:

http://www.planalto.gov.br/ccivil_03/_ato2019-2022/2019/lei/L13874.htm

_ Brazilian Senate approves councilors’ nomination and CADE’s quorum is restored

On October 1st and 2nd, 2019, the Brazilian Federal Senate (“Senate”) approved the appointment of four new members of the Administrative Council of Economic Defense (“CADE”).

Indicated by Brazilian President Jair Bolsonaro, the following members were elected as new CADE’s councilors: Lenisa Rodrigues Prado, Sérgio Costa Ravagnani, Luiz Augusto Hoffman and Luis Henrique Bertolino Braido (“New Counselors”).

After the publication of his appointment in the Brazilian Official Journal (“DOU”), on October 7th, 2019, Councilor Sérgio Costa Ravagnani took office. As a result, the minimum quorum of four Counselours for the establishment of CADE’s Court (“Court”) was restored and cases that were suspended since mid-July are being processed again.

The other members elected shall take office within the next days, after the publication of their appointment in the DOU.

More information regarding the appointment of New Counselors can be accessed in Portuguese at:

https://www12.senado.leg.br/noticias/materias/2019/10/01/senado-reconduz-procurador-geral-do-cade-e-aprova-tres-conselheiros

https://www12.senado.leg.br/noticias/materias/2019/10/02/plenario-aprova-luiz-augusto-hoffmann-no-conselho-do-cade

_ CVM regulates the electronic publication of corporate acts

On August 5th, 2019, Provisional Measure No. 892 (“MP 892”) was issued, which amended article 289 of Law No. 6.404 of December 15th, 1976 (“Brazilian Corporation Law”), establishing that publications ordered by the referred law shall be made electronically, provided that (i) publicly-held companies shall follow the regulation issued by the Brazilian Securities and Exchange Commission (“CVM”); and (ii) closely-held companies shall follow the regulation issued by the Ministry of Economy (“ME”).

In accordance with MP 892, on September 30th, 2019, CVM’s Resolution No. 829 (“Resolution 829”) and ME’s Ordinance No. 529 (“Ordinance 529”), regarding corporation acts’ electronic publications proceedings, were published in the Brazilian Official Journal (“DOU”, and, jointly with Resolution 829, the “Regulations”).

Regarding publicly-held companies’ publications, Resolution 829 provides that:

  1. publications shall be made on NET system;
  2. documents will be considered as published on the date of their disclosure on NET system;
  3. in case of Articles 151 and 258 of the Brazilian Corporation Law, regarding publication of a manager’s resignation letter and the notice for public offer to acquire control, as well as in other situations provided for in the Brazilian Corporation Law or in CVM’s Ruling in which the publication is made by third parties, the publication shall be made by sending the documents to the company, with a copy to the Corporate Relations Superintendence (“SEP”).The company shall immediately make the publication on NET system.
  4. publications will be made without previous analyses by CVM and B3 and do not imply their agreement with the content of the documents;
  5. publicly-held companies shall continue to disclose on their website the publications provided by the Brazilian Corporation Law; and
  6. the obligation for publicly-held companies to file documents before the Boards of Trade is maintained in cases provided by the Brazilian Corporation Law.

Closely-held companies’ publications shall be at the Public Digital Bookkeeping System (“SPED”), pursuant to Ordinance 529. Such publications authenticity will be digitally certified by an authority registered before the Brazilian Public Key Infrastructure (“ICP Brazil”). SPED will also allow the issuance of documents that prove the authenticity, inalterability and the date of publication of corporate acts.

We highlight that Resolution 829 and Ordinance 529 may be amended or revoked if MP 892’s wording is modified during the National Congress decision regarding the conversion of MP 892 into Law until December 3rd, 2019.

More information regarding the Regulations can be accessed in Portuguese at:

http://www.cvm.gov.br/legislacao/deliberacoes/deli0800/Deli829.html

http://www.in.gov.br/web/dou/-/portaria-n-529-de-20-de-setembro-de-2019-217770815?inheritRedirect=true&redirect=%2Fweb%2Fguest%2Fsearch%3FqSearch%3DPORTARIA%2520N%25C2%25BA%2520529%252C%2520DE%252020%2520DE%2520SETEMBRO%2520DE%25202019

September 2019

_ the September │ 2019 edition of our Newsletter has the following highlights:

– Considerations regarding Capitalization of Retained Profits by Companies

– STJ excludes quotaholders of a dissolved company as defendants in an enforcement proceeding

– CVM expands the possibility of distant voting by shareholders

_ Considerations regarding Capitalization of Retained Profits by Companies 

Pursuant to articles 194 to 196 of the Law n° 6.404/76 (“Brazilian Corporation Law”), if there is a remaining balance of net profits of the fiscal year after the due legal destination, subject to the provisions of each company’s bylaws, it shall necessarily be (i) allocated to statutory reserves, if applicable; (ii) retained for the execution of the capital budget, if previously approved by the company’s general meeting; or (iii) distributed to shareholders as additional dividend, pursuant to article 202, paragraph 6 of the Brazilian Corporation Law. Profits which were retained in the reserves may be allocated, upon the company’s general meeting’s decision, to the stock capital, except for the unrealized profits and the contingency reserves.

The capitalization of profits provided for in article 169 of the Brazilian Corporation Law corresponds to a type of capital increase with the company’s own resources without increase of its assets. The Brazilian Securities and Exchange Commission (“CVM”) and the legal doctrine understands that, unlike capital increases upon the issuance of new shares, in which there is an effective inflow of funds to the company’s equity, the capital increase through capitalization of profits constitutes a reallocation of values that already exist in the balance sheet.

Therefore, if new shares are issued as a result of the capitalization of profits, they are conferred only as an update of the shareholder’s interest in the company.

Finally, the legal doctrine states that the company’s management is responsible for proposing the capital increase through capitalization of profits or capitalization of reserves. Such proposal shall be approved in the shareholders general meeting by the absolute majority of votes, excluding blank votes. In case of an authorized capital company, the deliberation may be taken by the board of directors, pursuant to the terms of the company’s bylaws.

_ STJ excludes quotaholders of a dissolved company as defendants in an enforcement proceeding

On April 2nd, 2019, the Superior Court of Justice (“STJ”) decided on REsp nº 1.784.032 (“Special Appeal”), filed against a judgment that held quotaholders of a limited liability company (“Company”) as defendants in an enforcement proceeding against the Company.

Originally, the Company was the defendant of an indemnifying motion and, before the court’s decision, with the consequent constitution of an execution instrument, the quotaholders decided to dissolve the Company regularly, in accordance with the procedures provided for in the Brazilian Civil Code regarding the termination of limited liability companies. In the dissolution, the quotaholders did not receive any asset or liabilities of the Company. With the Company conviction, the creditor initiated the enforcement proceeding and, as the Company was extinct, it requested the quotaholders inclusions as defendants.

Considering that the Company was regularly extinct, without proof of fraud, misuse of purpose or property confusion, the quotaholders filed the Special Appeal to reverse the decision which included them as defendants, since the rules regarding civil or procedural succession, applicable at the time of the extinguishment of the legal entity, were not observed by the ordinary instances.

By unanimity of votes of the members of the 3rd Chamber of the STJ, the Reporting Justice excluded the quotaholders as defendants in the enforcement proceeding, according to the following arguments:

  • within the scope of civil obligations, “lifting the corporate veil” of the legal entity, which cannot be confused with its extinguishment, is only possible when there is proof of the abusive use of the legal entity, whether due to misuse of its purpose or demonstration of property confusion;

 

  • the original court, when applying the disregard of the legal entity, admitted the succession of the Company, which was the original defendant of the indemnifying motion, determining the replacement of the Company by its quotaholders, without complying with legal procedures for granting the claimed succession. In addition, the extinguished Company was a typical limited liability company and its liquidation did not result in assets sharing, because there was no net equity, neither assets nor liabilities by the time of the Company termination; and

 

  • the succession by quotaholders was not applicable, since, according to article 1.052 of the Brazilian Civil Code, after the capital stock is fully paid, quotaholders of limited liability companies are not responsible for the company’s losses. Therefore, once the company is dissolved and the disputing legal entity is extinguished, without the distribution of remaining assets, there is no viability for the claim of redirecting the enforcement of the execution instrument against the company’s former quotaholders.

Additional information regarding the Special Appeal can be accessed in Portuguese at:

https://ww2.stj.jus.br/processo/revista/inteiroteor/?num_registro=201803219004&dt_publicacao=04/04/2019

_ CVM expands the possibility of distant voting by shareholders

On September 3rd, 2019, CVM issued the Normative Ruling No. 614/2019 (“ICVM 614”), which changes a specific matter of the Distant Voting Bulletin (“Bulletin”).

Currently, when filling out the Bulletin, shareholders shall choose between (i) requiring the separate election of members of the board of directors and voting in the candidate of their choice; or (ii) participating in the general election of the members of the board of directors, including through the multiple voting procedure.

According to the new wording of the Bulletin, which will be effective on January 1st, 2020, shareholders may state their voting intention to both situations described above. However, the votes regarding the general election of members of the board of directors shall only be valid if the quorum required for the separate election is not reached, within the terms of article 141, paragraph 4, of the Brazilian Corporation Law.

More information regarding ICVM 614 can be accessed in Portuguese at:

http://www.cvm.gov.br/legislacao/instrucoes/inst614.html

August 2019

_ the August │ 2019 edition of our Newsletter has the following highlights:

– New Provisional Measure allows publications imposed by the Brazilian Corporation Law in the internet

– Brazilian Securities and Exchange Commission acquits Investor Relations Officer for not disclosing a relevant fact

– Controversy regarding article 115 of the Brazilian Corporation Law proposal presented by the Brazilian Bar Association

_ New Provisional Measure allows publications imposed by the Brazilian Corporation Law in the internet

On August 5th, 2019, the Provisional Measure No. 892 (“MP 892”) regarding mandatory corporate publications was published, which amends article 289 of Law No. 6,404, of December 15, 1976 (“Brazilian Corporation Law“), in order to establish a new system for publications made by closely and publicly-held companies.

According to the new wording of article 289 of the Brazilian Corporation Law, the publications of publicly-held companies shall be made in the Brazilian Securities and Exchange Commission’s website, as well as in the website of the applicable stock exchange entity.

The Brazilian Securities and Exchange Commission (“CVM”) shall release a specific regulation regarding the provisions of article 289 of the Brazilian Corporation Law, which shall establish the acts and publications that must be filed before the Board of Trade. Closely-held companies’ publications and disclosure are subject to a normative act of the Brazilian Minister of Economy (“Regulation”). Either way, according to MP 892, mandatory publications shall not be charged. 

However, even though MP 892 is already in force, its article 5 sets forth that its provisions will only be effective on the first day of the month following the publication of the normative acts regarding the Regulation, which means MP 892’s effectiveness is conditioned, at first, to the publication of the Regulation. 

In addition, a provisional measure is a type of normative ruling that needs to be converted into law by the National Congress, otherwise it may lose its effectiveness. In case MP 892 is not analyzed by the National Congress within 60 days of its release, which may be extended once for the same period, it may lose its effectiveness and article 289 of the Brazilian Corporations Law will not be amended.

MP 892 can be accessed in Portuguese at:

http://www.planalto.gov.br/ccivil_03/_ato2019-2022/2019/Mpv/mpv892.htm

_ Brazilian Securities and Exchange Commission acquits Investor Relations Officer for not disclosing a relevant fact

On July 9th, 2019, the CVM’s Board decided, within the scope of Administrative Proceedings No. RJ2016/7190 (“Administrative Proceeding”), on the responsibility of an Investor Relations Officer for the non-disclosure of a relevant fact regarding the arbitration proceeding decision of a publicly-held company.

According to the accusation, the DRI failed to comply with the provisions of Article 157, paragraph 4, of the Brazilian Corporation Law and Articles 3 and 6, sole paragraph, of CVM’s Normative Ruling No. 358/2002 (“ICVM 358”), which establish the obligation to disclose acts or facts that are considered relevant to the business and decisions of publicly-held companies’ investors.  

The defense argued that the disclosure was not made, at first, because of the confidentiality of the arbitration proceeding, and the information regarding the conviction was not relevant, since the decision did not have a significant financial impact to the company.

In addition, the defense claimed that the non-disclosure of the information did not influence company’s investors’ decisions regarding the purchase and sale of securities or in the decision to exercise any of their rights. 

The Board’s Reporting Officer, Gustavo Machado Gonzales, stated in his vote that the definition of relevant information is open on purpose, and its application involves a complex and subjective judgement, which means it is possible to have a discrepancy regarding the actual relevance of a particular information to be disclosed.

According to the Reporting Officer, even though he understood the aforementioned information was relevant, there was no breach of the Brazilian Corporation Law and ICVM 358, since the choice not to disclose the information was supported on reasonable grounds. Therefore, CVM’s Board unanimously decided to discharge the DRI.

Additional information regarding the Administrative Proceeding can be accessed in Portuguese at:

http://www.cvm.gov.br/export/sites/cvm/noticias/anexos/2019/20190709_PAS_CVM_RJ2016_7190_voto_diretor_Gustavo_Gonzalez.pdf

http://www.cvm.gov.br/export/sites/cvm/noticias/anexos/2019/20190709_PAS_CVM_RJ2016_7190_relatorio_diretor_Gustavo_Gonzalez.pdf

_ Controversy regarding article 115 of the Brazilian Corporation Law proposal presented by the Brazilian Bar Association

The Brazilian Bar Association’s corporate law special committee included, in the Provisional Measure 881/2019 (“MP 881”), a new wording for Article 115 of the Brazilian Corporation Law regarding the possibility of shareholders voting in situations of conflict of interest.

Currently, CVM’s prevailing understanding is that the controlling shareholder is previously prevented from voting in general meetings that discuss situations of conflicting interests, also known as “formal conflict”.

The suggested amendment would authorize the controlling shareholder to vote in the event of a potential conflict, provided that such voting is in good faith. In this case, if any benefit was subsequently proved in favor of the controlling shareholder due to his vote, it would be considered void.

According to the special committee’s members, the purpose of the proposed amendment is to provide legal certainty to investors, since it is still hard to identify conflict of interest in certain situations.

On August 9th, 2019, the Brazilian Institute of Corporate Governance (“IBGC”) released a statement expressing its disagreement with the aforementioned proposal presented by the Brazilian Bar Association, because, in its opinion, the exclusion of this restriction and the authorization to vote in situations of conflict of interest, even if potential, are opposite to the best practices of corporative governance and would expose minority shareholders to situations of vulnerability.

In addition, the Capital Market Investors Association (“Amec”), also contrary to such proposal, stated that they agree with the clarification of doubts regarding the application of Article 115 of the Brazilian Corporation Law through debates and further discussions, considering the complexity and relevance of the issue. 

After the disapproval by associations that operate in the area and all controversy and complexity involved in this matter, the amendment to Article 115 of the Brazilian Corporation Law was removed from MP 881, which is still in discussion by the National Congress.

July 2019

_ the July │ 2019 edition of our Newsletter has the following highlights:

– Brazilian Securities and Exchange Commission releases new Normative Ruling regarding supervisory agreements

– Legal validity of digitally signed documents

– Brazilian Securities and Exchange Commission discloses its Sanctions Activity Report for the first quarter of 2019

_ Brazilian Securities and Exchange Commission releases new Normative Ruling regarding supervisory agreements

On June 17th, 2019, the Brazilian Securities and Exchange Commission (“CVM”) issued Normative Ruling No. 607 (“ICVM 607”) which provides, among other matters, the procedures regarding the autarchy’s sanctioning action. ICVM 607 will be effective on September 1st, 2019, and its main innovation is the possibility to execute administrative agreements within the scope of supervisory proceedings (“Supervisory Agreement”).

The Supervisory Agreement may be proposed to CVM by individuals or legal entities to confess a violation of legal and regulatory rules subject to CVM’s supervision for the purposes of (i) identifying other individuals or legal entities involved in such violation, when applicable; and/or (ii) obtaining information and documents that prove such violation.

The ratification of the Supervisory Agreement proposed to CVM may cause (i) the extinction of the public administration’s punitive action, in the event that the Supervisory Agreement proposal is submitted without CVM’s prior knowledge of the reported violation; or (ii) the decrease of 1/3 to 2/3 of the applicable penalties, in case CVM has prior knowledge of the reported violation.

Among the Supervisory Agreement’s innovations, we also highlight the following:

  • The proposal may be submitted to CVM until the beginning of the violation judgment by its board;
  • The proposal remains confidential until the Supervisory Agreement is executed.
  • The analysis of the Supervisory Agreement proposal shall be made by the Supervisory Agreement’s Committee (“CAS”), and its composition and operation are subject to a specific regulation to be issued by CVM’s president.
  • The rejection of a Supervisory Agreement proposal does not imply a confession regarding the matter nor recognizes the analyzed practice as illegal.
  • Once the Supervisory Agreement is executed, it shall be published within 5 days, in a clear and sufficient way for the comprehension of its clauses on CVM’s web page.
  • The failure to comply with the obligations assumed in the Supervisory Agreement may cause the annulment of the punishment extinction benefits, or penalties reduction mentioned above, by means of a statement issued by CAS or CVM’s board.

ICVM 607 can be accessed in Portuguese at:

http://www.cvm.gov.br/legislacao/instrucoes/inst607.html

_ Legal validity of digitally signed documents

The pursuit to sign agreements digitally has been frequently requested by the parties involved, but there are still many doubts regarding its legal validity and formalization.

Articles 104 and 107 of the Brazilian Civil Code of 2002 provide that the legal transaction and the declaration of will are not necessarily subject to the form determined by law, except when a special form is not expressly forbidden or stated. Thus, if the digital signature is not forbidden in the applicable regulation, it is possible to use it for the purposes of the validity of legal transactions.

On August 24th, 2001 the Provisional Measure No. 2.200-2 (“MP”) was issued, whereby the Brazilian Public Key Infrastructure – ICP-Brazil (Infra-Estrutura de Chaves Públicas Brasileira) was created to ensure the authenticity, integrity and legal validity of digital documents, supporting applications and applications that use digital certificates, as well as the performance of secure electronic transactions.

In accordance to article 10, paragraph 1, of the MP, the information provided by documents that were digitally signed by its signatories through the certification procedure provided by ICP-Brazil, shall be presumed to be true.

In addition, the validity of digitally signed agreements has already been recognized by Brazilian judicial courts. In 2018, the Brazilian Superior Court of Justice (“STJ”) decided, within the scope of Special Appeal No. 1.495.920 – DF (2014/0295300-9) regarding the execution of extrajudicial enforcement of an electronic loan agreement, which was signed through digital certificate technology, in compliance with the certification procedure provided by ICP-Brazil, without the signature of witnesses.

The reporting judge, justice Paulo de Tarso Sanseverino, understood that the need for two (2) witnesses to sign this type of agreement, in order for it to be considered an execution instrument, would hinder its execution. In addition, since digitally signed agreements are subject to the electronic certification authenticity, duly checked by ICP-Brazil, the reporting judge understood that the witnesses’ signatures were unnecessary.

Finally, considering legal and case law recognition regarding this matter, individuals and legal entities tend to use digital signing to formalize agreements more frequently, due to the facility and promptness involved in this procedure, nevertheless, the use of specialized platforms is always recommended for this purpose.

Additional information regarding the MP and Special Appeal No. 1.495.920 – DF (2014/0295300-9) can be accessed in Portuguese at:

http://www.planalto.gov.br/ccivil_03/MPV/Antigas_2001/2200-2.htm

http://www.stj.jus.br/sites/STJ/default/pt_BR/Comunica%C3%A7%C3%A3o/noticias/Not%C3%ADcias/Contrato-eletr%C3%B4nico-com-assinatura-digital,-mesmo-sem-testemunhas,-%C3%A9-t%C3%ADtulo-executivo

_ Brazilian Securities and Exchange Commission discloses its Sanctions Activity Report for the first quarter of 2019

On May 30th, 2019, the CVM disclosed its Sanctions Activity Report for the first quarter of 2019, which consolidates the information regarding CVM’s punitive action (“Report”).

Article 9, items V and VI of Law No. 6.385/76 provides that CVM is responsible for assessing, mainly upon administrative proceeding, illegal acts and unfair practices of directors and officers, members of the audit committee of publicly-held companies, shareholders of publicly-held companies, intermediaries and other market participants.

Among the punitive information regarding the first quarter of 2019, we highlight the following:

  • Punitive and investigative procedures: CVM initiated 20 investigative administrative proceedings. 29 administrative proceedings were completed by the technical areas with some kind of prosecution.
  • Commitment Agreements: 17 proceedings regarding Commitment Agreements’ proposals were assessed, involving R$14,67 million, from which 13 were approved by CVM’s Board, amounting to the sum of R$14,11 million.
  • Fines: CVM’s board decided 18 administrative proceedings, which penalized 32 defendants upon the payment of fines, amounting to the sum of R$183,3 million. The total amount of the fines increased approximately three times in comparison to the same period in 2018, even though the number of penalized defendants in the same period has decreased by half.

Additional information regarding the Report can be accessed in Portuguese at:

http://www.cvm.gov.br/export/sites/cvm/publicacao/relatorio_atividade_sancionadora
/anexos/2019/20190530_relatorio_atividade_sacionadora_1o_trimestre_2019.pdf