Ano: 2019

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

– Amendment to the Brazilian Corporations Law regarding mandatory publications

– Provisional Measure establishes the Declaration of Rights of Economic Freedom

– Brazilian Securities and Exchange Commission’s Board provides orientations regarding the voting procedures involved in the election of the Board of Directors of publicly-held companies

– Brazilian Securities and Exchange Commission’s Board rejects a request of the term interruption regarding a shareholders’ meeting which management proposal and distance voting bulletin were disclosed without the name of candidates indicated by the controlling shareholder

_ Amendment to the Brazilian Corporations Law regarding mandatory publications

On April 24, 2019, the Brazilian Official Press (“DOU”) published the Law 13.818/19, which amends certain articles of Law No. 6,404, of December 15, 1976 (“Brazilian Corporation Law“) regarding mandatory publications.

Under the provisions of the referred new law, the maximum net equity of corporations with less than 20 shareholders, which are exempt from publishing their notices to call general shareholders’ meetings and their financial statements, was increased from one million Reais (R$1.000.000,00) to ten million Reais (R$10.000.000,00).

In addition, the Law 13.818/19 establishes that publications in the Brazilian Official Press by publicly-held and closely-held companies will no longer be required as of January 1^st, 2022. Only a summary of the companies’ corporate acts and their financial statements will be published in a wide-circulation newspaper edited at the companies’ headquarters, with the simultaneous disclosure of the complete documents on the newspaper’s web page.

Additional information can be accessed in Portuguese at:

https://www.planalto.gov.br/ccivil_03/_ato2019-2022/2019/lei/l13818.htm

_ Provisional Measure establishes the Declaration of Rights of Economic Freedom

On April 30^th, 2019, the Provisional Measure No. 881 (“MP”) was published, which establishes the Declaration of Rights of Economic Freedom, as well as certain guarantees intending to promote free enterprise in Brazil.

Among the changes regarding corporate aspects, we highlight the following:

• Disregard of Legal Entity: the following new requirements were established: (i) 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; and (ii) fraud (confusão patrimonial), such as 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 shall not represent a distortion of the legal entity purpose.
• EIRELLI: The MP clarified that only the social assets of Individual Companies of Limited Liability (“EIRELLIs”) shall respond for contracted debts, which means the partners’ assets shall not be affected, except in cases of fraud.
• Single-member Limited Liability Company: The MP brought a new legal type of limited liability company, in order 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 hold more than one Single-Quotaholder Limited Liability Company. Therefore, it is possible that Single-Quotaholder Limited Liability Company will increasingly replace the EIRELLIs.

Additional information can be accessed in Portuguese at:

http://www.planalto.gov.br/ccivil_03/_ato2019-2022/2019/Mpv/mpv881.htm

http://www.economia.gov.br/central-de-conteudos/apresentacoes/2019/apresentacao-mp-liberdade-economica.pdf

_Brazilian Securities and Exchange Commission’s Board rejects a request of the term interruption regarding a shareholders’ ordinary meeting which management proposal and distance voting bulletin were disclosed without the name of candidates indicated by the controlling shareholder

On February 26th, 2019, Brazilian Securities and Exchange Commission (“CVM”) decided, within the scope of Administrative Proceedings No. SP2016/0245 (“Administrative Proceeding”), regarding an appeal filed by minority shareholders against a report from CVM’s technical area (“Report”), that there was no abuse of control in the reduction of the number of the Board of Directors’ positions on the occasion of the election of its members.

Since 2011, the company’s Board of Directors was comprised of 7 (seven) members. In 2015 the number of members was decreased to 5 (five) members, and in 2016 to 4 (four) members.

The minority shareholders argued that the arbitrary decrease of the number of members the company’s Board of Directors over the years was a strategy of the controlling shareholder to prevent candidates nominated by minority shareholders from being elected separately or by multiple voting, which would be considered as abuse of power, pursuant to article 117 of the Brazilian Corporation Law.

CVM’s technical department clarified that, based on the evidence presented within the scope of the Administrative Proceeding, it was not possible to prove that the reduction of the number of the company’s Board of Directors’ members was intended to prevent the election of candidates nominated by minority shareholders.

President Marcelo Barbosa, as well as the other members of CVM’s Board of Appeal, voted to maintain the understanding of the technical department’s Report and provided the following information regarding the election of the Board of Directors’ members of publicly-held companies:

• In the case the company’s by-laws establish a variable number of members to comprise the Board of Directors, is it necessary to inform the number of members which shall be elected, in order to enable the shareholders to decide which election proceeding they intend to use.
• the definition of the number of the members of the Board of Directors must precede the deliberations regarding the election of its members, in which shareholders may be required to express their opinion about (i) proceeding with the multiple voting method, in case it has already been requested, or (ii) adopting the separated voting method, with the withdrawal of the request for the multiple voting method, without prejudice to, if applicable, both procedures being adopted.
• if both multiple and separated voting methods are adopted in the same general meeting, the election of the Board of Directors’ members by separated voting shall occur before the multiple voting, since it will only be possible to identify the number of remaining seats after the separate voting, from which shall be calculated the multiple voting coefficient.
• these measures may also prevent possible abuses by shareholders holding shares that ensure the election of the majority of the Board of Directors members, which, by knowing the election method, may fix the number of members in order to prevent the election of the candidates appointed by the minority shareholders by multiple voting.

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

http://www.cvm.gov.br/export/sites/cvm/decisoes/anexos/2019/20190226/1234__SEP.pdf

http://www.cvm.gov.br/export/sites/cvm/decisoes/anexos/2019/20190226/1234.pdf

_ Brazilian Securities and Exchange Commission’s Board rejects a request of the term interruption regarding a shareholders’ meeting which management proposal and distance voting bulletin were disclosed without the name of candidates indicated by the controlling shareholder

On April 22^nd, 2019, CVM’s Board decided, by majority of votes, to reject the request regarding the interruption of an Ordinary and Extraordinary General Meeting’s call term of a publicly-held company (“AGOE”), pursuant to article 124, paragraph 5, item II, of Law No. 6.404/1976 (“Brazilian Corporation Law”).

The proceeding was originated from a complaint made by a minority shareholder, who informed, among other possible deviations from the aforementioned company, the late disclosure of the members of the Board of Directors’ candidates, as well as the disclosure of the distance voting bulletin, without the name of the candidates indicated by the controlling shareholder.

Since the names of the candidates indicated by the controlling shareholder were not sent within the term for disclosure of the AGOE’s management proposal and the distance voting bulletin, the aforementioned company decided disclose the referred documents without the candidates indicated or supported by the controlling shareholder and/or the administration.

Since the term for resubmission of the distance voting bulletin was over by the time the company received the controlling shareholder’s indication, according to article 21-A, paragraph 3, of CVM Instruction No. 481/2009, the information regarding the candidates was only included in the management proposal, which was submitted. For this reason, the applicants argued that shareholders were prevented from fully exercising their right of distance voting.

CVM’s Board, by majority of votes, understood that, in this case, it would not be possible to extend the AGOE’s call term, pursuant to article 124, paragraph 5, item II, of the Brazilian Corporation Law, since the complexity of the case shall be associated to matter of the resolution and not resulted from circumstances that, although they may interfere in the exercise of the shareholders’ voting rights, would take time to correct informational mistakes, and not to understand it. However, the same directors recognized that the Brazilian Corporation Law’s article aforementioned was created before the distance voting method and may need to be updated for the protection of shareholders.

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

http://www.cvm.gov.br/decisoes/2019/20190422_R2/20190422_D1383.html

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

– Brazilian Superior Court of Justice decides that former partners shall not be responsible for obligation incurred after leaving the company

– State of São Paulo Court of Justice decides on the charge of ITCMD tax in case of forgiven loans between family members

– State of Minas Gerais Court of Justice decides on the possibility of voting by controlling shareholders whose partners occupy positions in the management of controlled companies

– Once again, the founding partner Gyedre Carneiro de Oliveira has been ranked in Chambers Latin America and Chambers Global

_ Brazilian Superior Court of Justice decides that former partners shall not be responsible for obligation incurred after leaving the company

On February 5th, 2019, the Third Panel of the Superior Court of Justice decided on the Special Appeal No. 1.537.521 – RJ (“Appeal”), acknowledging, by unanimity, that former partners of limited-liability companies shall not be responsible for debts incurred by such company after the transfer of the quotas held by them and, consequently, leaving the company. In the Appeal, a former partner requested to be excluded as one of the defendants from a motion filed against the company, which intended to charge amounts owed by the company within the scope of a court agreement.

The ordinary courts decided that the former partner should continue as one of the defendants, pursuant to article 1.003, single paragraph, of the Brazilian Civil Code, which sets forth the following “within two years after the registry of the agreement’s amendment, the transferor [former partner] and the transferee are jointly liable before the company and third parties, for the obligations incurred while being partner”, regardless of the moment when such obligation was incurred.

THE REPORTING JUDGE OF THE APPEAL, IN TURN, CLARIFIED THAT IN THE EVENT OF TRANSFER OF QUOTAS, THE FORMER PARTNER’S RESPONSIBILITY REGARDING LOSSES INCURRED UP TO TWO YEARS AFTER THE REGISTRATION OF THE AMENDMENT TO THE ARTICLE OF ASSOCIATION, IS LIMITED TO THE LOSSES ARISEN FROM ACTS OCURRED WITHIN THE PERIOD IN WHICH THE FORMER PARTNER HELD ITS POSITION, WHICH MEANS BEFORE LEAVING THE COMPANY.

In conclusion, according to the vote of the Reporting Judge, the Third Panel of the Superior Court of Justice decided that the obligations presented in the motion were incurred after the former partner left the company, therefore the former partner shall not be responsible for such debt and shall be excluded from the proceeding.

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

http://www.stj.jus.br/sites/STJ/default/pt_BR/Comunicação/noticias/Not%C3%ADcias/Ex–sócio-não-é-responsável-por-obrigação-contra%C3%ADda-após-sua-sa%C3%ADda-da-empresa

_ State of São Paulo Court of Justice decides on the charge of ITCMD tax in case of forgiven loans between family members

In recent decisions, the State of São Paulo Court of Justice (“TJSP”) has decided on the charge of Death Transfer and Donation (inter-vivos) Tax (“ITCMD”) in case of loans between family members which ended up being forgiven.

In most cases, since there were not enough documents and elements to justify the execution of such loans, the judges understood that the transactions made were, in fact, a non-remunerated assets transfer, therefore the ITCMD shall be charged.

The Ninth Chamber was the only one that decided in favor of tax payers, as it considered that “donations” (article 538 of the Brazilian Civil Code) and “forgiveness of debt” (article 385 of the Brazilian Civil Code) are different concepts and shall not be held equivalent, since the first one is an agreement and the second one is an arrangement to extinguish an obligation. The court also acknowledged that the intention to hold equivalent an agreement to a plain arrangement to extinguish an obligation represents a violation of the lawfulness principle of the tax system.

Additional information can be accessed in Portuguese at:

https://esaj.tjsp.jus.br/cjsg/getArquivo.do?conversationId=&cdAcordao=10820839

https://esaj.tjsp.jus.br/cjsg/getArquivo.do?cdAcordao=7584854&cdForo=0

https://esaj.tjsp.jus.br/cjsg/getArquivo.do?cdAcordao=10014451&cdForo=0

_ State of Minas Gerais Court of Justice decides on the possibility of voting by controlling shareholders whose partners occupy positions in the management of controlled companies

On December 5th, 2018, the Twelfth Chamber of State of Minas Gerais Court of Justice (“TJMG”) decided on the possibility to approve a company’s management accounts by controlling shareholders, although some of its partners had management positions in the controlled company.

This case concerns a request of a preliminary injunction to prevent the controlling company to vote at the Ordinary Shareholders’ Meeting of the controlled company to approve its management accounts, pursuant to article 115, paragraph 1, of the Brazilian Corporation Law, which prevents shareholders from approving their own accounts as a member of the management.

It is important to clarify that, in such case, the controlling company’s capital stock was held by 69 partners, of which 6 were part of the Board of Directors, 4 were part of the Audit Committee and 3 were part of the Board of Officers of the controlled company. The controlling company, in turn, held approximately 51.57% of the controlled company’s capital stock.

JUDGE OCTÁVIO DE ALMEIDA NEVES DECLARED IN HIS VOTE THAT IT WAS NOT POSSIBLE TO STATE THE EXISTENCE OF A CONFLICTING VOTE, SINCE THE CORPORATE COMPOSITION WAS BROADER THAN THE PARTNERS WHO PARTICIPATE IN THE COMPANY’S MANAGEMENT. HE ALSO POINTED OUT THAT IT WOULD BE ABUSIVE FOR A COMPANY TO DEPEND ON THE VOTE OF A SINGLE SHAREHOLDER TO REJECT ITS ACCOUNTS, WHICH WOULD BE SIMILAR TO A PURE POTESTATIVE CONDITION, CONSIDERING THE PLAINTIFFS HELD APPROXIMATELY 35% OF THE COMPANY’S CAPITAL STOCK.

Also regarding this matter, recently the Brazilian Securities and Exchange Commission (“CVM”) manifested in 2 different occasions against the approval of the accounts by shareholders (legal entity) whose partners/shareholders belong to the controlled company’s management, within the scope of the Administrative Proceedings RJ2014/10060 (Óleo e Gás Participações S.A.) and RJ2014/1186 (Forjas Taurus S.A.). However, it is important to highlight that the cases aforementioned were different than the one addressed by TJMG, because in both proceedings judged by CVM the preponderant influence that the accused managers exercised over the shareholder (legal entity) was clear.

In line with the position adopted by TJMG, CVM’s director Gustavo Tavares Borba, in his vote within the scope of Administrative Proceedings RJ2014/10060, clarified that, despite his position against the approval of the accounts by the controlling shareholder, there are situations in which a company, even with a clear controlling shareholder, designs administrative bodies, with managers who are really independent and autonomous, in a way that the company’s acts would not be servant to the positions of its controlling shareholder (…). In these cases, unlike the situation under analysis, the controlling shareholder’s impediment might not extend to the company, but this would only be ascertainable in the examination of each case.

The aforementioned decisions can be accessed in Portuguese at:

https://www5.tjmg.jus.br/jurisprudencia/pesquisaPalavrasEspelhoAcordao.do

http://www.cvm.gov.br/sancionadores/sancionador/2015/20151110_PAS_RJ201410060.html

http://www.cvm.gov.br/decisoes/2014/20141104_R1/20141104_D18.html

_ Once again, the founding partner Gyedre Carneiro de Oliveira has been ranked in Chambers Latin America and Chambers Global

Founding partner Gyedre Carneiro de Oliveira has been once again ranked in 2019 edition of the Chambers and Partners Global and Latin America guides. The renowned British publication is one of the most prestigious directories which identifies and ranks the most outstanding lawyers in the world and in Latin America, based on research and client interviews.

More information regarding the Chambers and Partners can be accessed at:

https://www.chambersandpartners.com/

_the January | 2019 edition of our Newsletter has the following highlights:

Recently published law modifies the quorum to remove managers of limited liability companies and eliminates the necessity of holding special quotaholders meetings in order to vote partners out in some cases

Recently issued Provisional Measure creates the Brazilian Data Protection Authority

Brazilian Securities and Exchange Comission’s Board deems managers guilty for receiving excessive remuneration

Brazilian Federal Revenue extends the deadline for the appointment of the final beneficial owners of legal entities enrolled before the Brazilian Taxpayer’s Registry

_Recently published law modifies the quorum to remove managers of limited liability companies and eliminates the necessity of holding special quotaholders meetings in order to vote partners out in some cases

On January 4th, 2019, Law No. 13.792/2019 (“Law”) was published in the Brazilian Federal Official Press, altering the quorum to remove managers of limited liability companies and eliminating the necessity of calling a special quotaholders meeting to vote the exclusion of a partner when the company only has two quotaholders.

Before the innovation brought about by the Law, the removal of partners elected as managers from the company management depended on the approval of quotaholders representing, at least, two-thirds of the company capital stock, except if otherwise provided in the company’s articles of association.

Under the provisions of the new Law, the removal of partners elected as managers only depends on the approval of quotaholders representing the majority of the capital stock, as general rule.

Moreover, the new Law also stablishes that the former provision according to which partners could only be voted out in the scope of meetings or assemblies specifically called for this purpose is no longer applicable for companies that only has two quotaholders.

In such cases, according to the provisions of Article 1085 of the Brazilian Civil Code, the resolution may be approved by the majority partner by means of a simple amendment of the company’s articles of association, in case the referred corporate document expressly provides the exclusion of partners for gross misconduct.

Additional information on the Law can be accessed in Portuguese at:

http://www.planalto.gov.br/ccivil_03/_Ato2019-2022/2019/Lei/L13792.htm

_Recently issued provisional measure creates the Brazilian Data Protection Authority

On December 27th, 2018, the Brazilian President issued the Provisional Measure No. 869 (“MP 869”), which creates the National Data Protection Authority (“ANPD”) and modifies provisions of the Brazilian Personal Data Protection Law (Law No. 13.709, from August 14th, 2018) (“LGPD”).

The ANPD, previously foreseen in LGPD’s bill of law and vetoed by the Brazilian President when it sanctioned LGPD, due to the understanding that the proposal to create such agency was reserved to the executive power, was created by MP 869 under a different structure.

Among the innovations introduced by MP 869, we highlight that:

1. ANPD will be composed of: (a) an Executive Board comprised of 5 directors appointed by the Brazilian President; (b) a National Board of Personal Data Protection and Privacy comprised of23 members representing the public and private sectors, appointed by the Brazilian President; (c) a branch for internal affairs; (d) a branch for ombudsman; (e) a branch for legal advisory, and (f) executive and specialized branches liable for the enforcement of LGPD.
2. ANPD has powers to, among other attributions: (a) edit rules and proceedings to protect personal data; (b) decide, in the scope of its executive boards, about the interpretation of LGPD; (c) supervise and apply sanctions; (d) stimulate the adoption of standards for services and products which simplify the controlling and protection over personal data; (e) launch public hearings to gather suggestions over themes of relevant public interest; and (f) cooperate with other public authorities in order to perform its attributions in the scope of economic and governmental sectors subject to specific regulation.
3. The term upon which LGPD comes into force was extended for 6 months and shall begin in August, 2020.
4. The position of Data Protection Officer may be occupied by individuals (original provision of LGPD) as well as by legal entities.

MP 869 is in full force and effect and its provisions shall remain enforceable for 60 days, renewable for the same period, after which MP 869 shall be converted into law by the Brazilian Congress.

Additional information on MP 869 can be accessed in Portuguese at:

http://www.planalto.gov.br/ccivil_03/_ato2015-2018/2018/Mpv/mpv869.htm

_Brazilian Securities and Exchange Comission’s Board deems managers guilty for receiving excessive remuneration

On December 11th, 2018, the board of the Brazilian Securities and Exchange Comission decided on the Administrative Proceeding No. SEI 19957.002325/2016-21 (“Proceeding”), which was originated on the accusation report presented by the Company Relations Superintendence (“SEP”) against the majority shareholders and managers of a Brazilian publicly-held company.

In the scope of the accusation report, SEP sustained that the remuneration – in special the variable portion of it – payed by the company to its managers between 2010 and 2014 (i) exceeded the global limit imposed by the company’s General Shareholders Meeting and (ii) had its distribution decided by the company’s Board of Directors regardless of the criteria provided by the Brazilian corporate legislation.

In their counterarguments, the defendants appointed that:

1. by approving a global limit for the company’s managers remuneration, the shareholders do not approve the criteria for payment of the variable remuneration – i. e. percentages of the net profit, accomplishment of EBITDA projections, among others – described in the documents disclosed by the company to guide the resolutions of the shareholders, such as the management proposal and the information required by item 13 of the reference form, both required by the Brazilian regulation, but an isolated amount, dissociated of the aforementioned documents, deemed compatible with the Company’s interests by the shareholders;
2. the remuneration of the company’s managers could not be compared to others, received by board members of other companies, once they had to overcome and perform more activities than regularly expected for such occupation; and
3. according to CVM precedents, it is not within the commission attributions the revision of the remuneration payed to the Company’s managers.

The Reporting Director’s vote, accompained by the unanimity of CVM board members, sustained that:

1. indeed, the shareholders had only approved the global limit of the managers remuneration and not the criteria applied for its distribution and/or payment, reason why it is not possible to argue that the managers were payed beyond such global limit simply because the distribution of the remuneration did not complied with the criteria the company declared to apply in the corporate documents disclosed to stakeholders;
2. the execution of additional activities – i. e. out of the normal course of the board members’ duties – not only reveals an irregularity, but is also insufficient to justify the distribution of remuneration above market standards;
3. the payment of excessive remuneration to managers who are also shareholders of the company may be interpreted as irregular profit distribution; and
4. in the scope of the Proceedings, CVM did not intend to assess the decision taken upon the distribution of the Company’s managers remuneration, but to verify if the resolution about the distribution of such remuneration was taken on a regular basis, analysis compatible with the duties attributed to CVM.

As a result, pursuant to the Reporting Director’s vote, CVM’s board: (i) discharged the defendants accused in the quality of majority shareholders of the company in view of the lack of grounds to condemn them in the Proceedings; and (ii) condemned the defendants accused in the quality of members of the company’s board of directors in view of the violation of Article 152 of the Brazilian Corporate Law, due to the distribution of excessive remuneration to the company’s managers, once the referred resolution was taken regardless of the criteria provided by the Brazilian legislation.

Additional information on the Proceeding can be accessed in Portuguese at:

http://www.cvm.gov.br/noticias/arquivos/2018/20181211-2.html

_Brazilian Federal Revenue extends the deadline for the appointment of the final beneficial owners of legal entities enrolled before the Brazilian Taxpayer’s Registry

On December 28th, 2018, Normative Ruling No. 1863/2018, issued by the Brazilian Federal Revenue, was published in the Brazilian Federal Official Press, extending, for additional 180 days, the deadline for the appointment of the final beneficial owners of legal entities enrolled before the Brazilian Taxpayer’s Registry.

Under the provisions of this new normative ruling, the final term to appoint the final beneficial owner of legal entities ends on June 06th, 2019.

Additional information can be accessed in Portuguese at:

http://normas.receita.fazenda.gov.br/sijut2consulta/link.action?visao=anotado&idAto=97729