Ano: 2021

May 2021

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

– Decision of the Superior Court of Justice points out the necessary formalities for the transfer of shares in a privately held company

_ Decision of the Superior Court of Justice points out the necessary formalities for the transfer of shares in a privately held company

 

When ruling on the Special Appeal No. 1.645.757, the Brazilian Superior Court of Justice (“STJ“) was asked to decide, at the buyers’ request, on the declaration of absence of a corporate relationship, termination of a share assignment agreement, as well as the return, by the sellers, of the amounts paid due to said agreement, under the argument that the buyers never, in fact, became shareholders of the company because the term of transfer of shares was not drawn up in the corporate book of registration of transfer shares.

 

In addition, it was alleged that the share assignment agreement provided for the said drawing up in the aforementioned corporate book, and such failure implied in the noncompliance with the obligations established in the agreement, giving rise to its termination.

 

In the vote of the reporting minister, Mr. Ricardo Villas Bôas Cueva, it was pointed out that Law 6,404/1976 (“Brazilian Corporation Law“) itself, in addition to the doctrine and STJ jurisprudence, provide that the transfer of shares only operates through a transfer deed drawn up in the book of registration of transfer of shares, which must be dated and executed by the assignor and assignee, therefore, the agreement entered into by the parties, by itself, does not count as title to the shares.

 

In addition, considering that neither the Brazilian Corporation Law nor the agreement established a time limit for drawing up the transfer term in the proper book, the reporting minister pointed out that it would be necessary to define from which moment the absence to execute such transfer deed would characterize the default of the obligations set forth in said agreement.

 

The reporting minister concluded that, in the absence of a fixed term in the law and in the agreement, the default is only established after the debtor is notified to comply with the obligation, and buyers cannot, from the outset, request the termination of the agreement without giving the opportunity to draw up said transfer deed.

 

Finally, we emphasize the importance of the formalities involved in this type of transaction, in addition to the execution of an agreement.

 

 

More information regarding the Special Appeal No. 1.645.757 can be accessed in Portuguese through the link below:

 

https://processo.stj.jus.br/processo/revista/documento/mediado/?componente=ATC&sequencial=122590359&num_registro=201602228580&data=20210408&tipo=91&formato=PDF

 

 

April 2021

_the april│2021 edition of our Newsletter has the following highlights:

– General aspects regarding the election of the Board of Directors

– Brazilian Securities and Exchange Commission convicts the chairman of the board of directors for voting in a conflict-of-interest situation

_ General aspects regarding the election of the Board of Directors

 

The Board of Directors is a collegiate body, mandatory for publicly-held companies, authorized capital companies and mixed-capital companies, and optional for other companies, in accordance with article 138 et seq. of Law No. 6,404 of 1976 (“Brazilian Corporation Law”). It must be composed of, at least, 3 members, elected and dismissible, at any time, by the shareholders’ meeting. In this sense, there are 3 types of election that can be adopted, which are: (i) majority voting; (ii) multiple voting; and (iii) separate voting.

 

The Brazilian Corporation Law does not specifically regulate how the majority voting system should occur. The legal doctrine understands that there are two ways to organize it: “by groups” or “by candidate”. In the first form, shareholders vote for a group of candidates corresponding to the number of positions to be filled. In the second form, the shareholders vote directly on the candidates, and, in the end, the candidates with the most votes are elected.

 

Alternatively to the majority voting system, the Brazilian Corporation Law, in its article 141, stablishes the possibility of the multiple voting procedure. In this case, shareholders representing at least 10% (ten percent) of the voting capital stock (or, in case of publicly-held corporations, according to the percentages provided in CVM Normative Instruction No. 165/1991), may, up to 48 hours before the shareholders’ meeting, request the adoption of the multiple voting procedure, which attributes to each share as many votes as there are positions to be occupied.

 

The multiple voting procedure should not be confused with majority voting “by candidate” system. In the majority voting “by candidate” procedure, each share has one vote per position to be occupied, and the most voted candidates are elected. On the other hand, in the multiple voting procedure, each shareholder has the right to cumulate its votes in a single candidate or to distribute them among several.

 

It is important to highlight that, whenever the multiple voting procedure is adopted, the dismissal of any elected member will result in the dismissal of all the other members, which will require a new election. In any other situations of vacancy, in the absence of an alternate, the first shareholders’ meeting that takes place must deliberate on the new election of the entire board of directors.

 

Furthermore, the Brazilian Corporation Law provides, in the abovementioned article 141, in its 4th paragraph, exclusively for publicly-held corporations, the possibility of the separate voting procedure. This form is guaranteed exclusively to minority shareholders that prove the ownership uninterrupted of shares, during the 3 months preceding the shareholders’ meeting, and may be required by shareholders representing a minimum quorum of 15% of the total voting shares or 10% of the capital stock, when considering preferred shares without voting rights or with restricted voting rights, nevertheless CVM’s understanding is that the percentage of 10% also applies to companies that have only issued voting shares. For this purpose, it is possible to consider the shares of a single shareholder or the shares of shareholders acting together.

 

Finally, whenever the election of the board of directors is cumulatively performed by the multiple voting procedure and the holders of common or preferred shares exercise the right to elect a member separately, the controlling shareholder shall be ensured to the right to elect members of the board of directors in a number equal to the number of those elected by the other shareholders, plus one, regardless of the number of members established in the bylaws.

 

 

_Brazilian Securities and Exchange Commission convicts the chairman of the board of directors for voting in a conflict-of-interest situation

 

The Administrative Proceeding CVM SEI 19957.010833/2018-45 was filed by the Superintendence of Relations with Companies (“SEP“), in order to determine the liability of the controlling shareholder of a publicly held company, who was also the chairman of the board of directors, for voting and approving the execution of the dissolution of an agreement with another company in which the defendant was also a shareholder, due to an alleged conflict of interest situation with the company, in violation to articles 156 of the Brazilian Corporation Law.

 

The accusation originated from a complaint of a shareholder reporting abuses in the approval of said termination by the company’s management.

 

According to article 156 of the Brazilian Corporation Law, managers are prohibited from intervening in any transaction in which they have a conflicting interest with the company, as well as in the deliberation that the other managers take regarding such matter, provided that said manager informs the other of his/her impediment and includes in meeting’s minutes the nature and extent of their interest. However, there is disagreement as to the nature of the aforementioned conflict of interest, whether formal (i.e. the impediment must be verified a priori) or material (i.e. the impediment must be verified a posteriori).

 

In the analysis of the case, the reporting director Flavia Perlingeiro, understood that the defendant was prevented from voting at the board of directors’ meeting, regardless of the examination of the transactions’ matter, reinforcing the position historically adopted by CVM, that the nature of the conflict of interests is of formal, although she stressed that such impediment may vary according to the specifics of the case, this means there can be exceptions.

 

In his defense, the defendant stated that the decision taken at the board of directors meeting was unanimous and that it would have been approved even without his vote, declaring, as well, that there was no damage to the company or the market. The reporting director refuted such arguments since the approval of the matter by the other directors does not rule out the illegality of the defendant’s conduct of voting in a situation of conflict of interest, since it does not depend on the result of the deliberation, affirming also that the characterization of the violation of article 156 of the Brazilian Corporation Law does not depend on losses or damages.

 

Director Alexandre Costa Rangel presented a vote in disagreement with the reporting director’s vote as to the nature of the conflict of interest in question, according to his understanding the matter in question constitutes a material conflict. Due to this premise, it would be essential to demonstrate the personal interest and counterpoint of the manager regarding the transaction, in addition to the effective approval at the expense of the company’s interests.

 

Finally, with the vote of the director Alexandre Costa Rangel defeated, CVM’s board decided, by majority, to convict the defendant to the payment of a fine of R$ 150,000.00.

 

More information regarding the Administrative Proceeding CVM SEI 19957.010833/2018-45 can be accessed in Portuguese through the link below:

 

https://www.gov.br/cvm/pt-br/assuntos/noticias/cvm-condena-eike-batista-por-ter-votado-em-situacao-de-conflito-de-interesse-em-reuniao-do-conselho-de-administracao-da-mmx

 

March 2021

_the march│2021 edition of our Newsletter has the following highlights:

Brazilian Securities and Exchange Commission publishes Circular Letter with general orientations regarding the rules and procedures that must be observed by publicly held corporations

Brazilian Securities and Exchange Commission refuses term of commitment with company’s controlling shareholders and managers in proceeding regarding the approval of their own accounts and compensation

_ Brazilian Securities and Exchange Commission publishes Circular Letter with general orientations regarding the rules and procedures that must be observed by publicly held corporations

 

On February 26th, 2021, the Brazilian Securities and Exchange Commission (“CVM“) published the Circular Letter/CVM/SEP/Nº1/2021 (“Ofício CVM/2021”), which provided the Superintendence of Relations with Companies (Superintendência de Relações com Empresas) (“SEP”) general orientations regarding the rules and procedures that must be observed by publicly held corporations. Among this years’ news, we highlight:

 

(i) Communications regarding lives on social media: the same rules set forth in the legal regulations that treats the disclosure of relevant information (Instruction CVM nº 358/02) and establish general rules about the content and way of the information that the issuers must observe (articles 14 to 19 of the Instruction CVM nº 480/09) are applied to lives on social media. In this sense, CVM recommends the disclosure, in advance, of a notice to the market informing the date, time and the internet address where the live is going to be transmitted, as well as the material presented in meetings with analysts, at the same day of the meeting or presentation. In addition, CVM recommends that companies include in their disclosure policy all the possible and necessary information to grant the market predictability on how the company handles disclosures in general.

(ii) Electronic signature – Remote Voting Bulletin: companies should not require from shareholders who wish to vote remotely, the delivery of physical documents to ratify the electronic remittance of documents mentioned in the meeting’s call notice, when said documents are electronically signed using the ICP-Brasil certification.

(iii) Management’s Compensation: CVM’s board decided (No. 19957.007457/2018-109) that the social contributions burden by the employer shall not integrate the amounts of the global compensation which is approved annually by the general shareholders’ meeting. Therefore, companies shall not disclose said amount in the charts of item 13 of the Reference Form (Formulário de Referência), but may do so, at their discretion, as “Other information deemed relevant”.

(iv) Related Party Transactions: Although, as a rule, the negotiations of agreements with related parties is not a matter subject to the board of directors’ approval, it is not possible to dissociate it completely from the liabilities inherent to those agreements, notably due to the obligation of monitoring the officers, in order to ensure that such agreements comply with the corporate law.

 

Oficio CVM/2021 may be accessed in Portuguese through the link below:

 

http://conteudo.cvm.gov.br/legislacao/oficios-circulares/sep/oc-sep-0121.html

 

 

_Brazilian Securities and Exchange Commission refuses term of commitment with company’s controlling shareholders and managers in proceeding regarding the approval of their own accounts and compensation

 

The Administrative Proceeding CVM SEI 19957.003922/2020-50, was initiated by SEP, in order to determine irregularities practiced by controlling shareholders of a publicly held company, which were also its CEO and VP, on voting and approving their own (i) management accounts and (ii) compensation as managers without considering the company’s financial situation.

 

The accusation originated from a complaint of a shareholder regarding the transaction with the aforementioned CEO and VP, who would no longer receive compensation as managers and would be hired and consultants, which would generate savings in expenses. After the analysis, by SEP, of several documents released by the company, signs of irregularities were identified in matters involving the approval of the accounts and the compensation for the officers, which could be considered abusive compared to the company’s revenue, net loss and net worth.

 

The shareholders presented a proposal to execute a term of commitment through which they were willing to ensure the maintenance of the management’s compensation in the average of the parameters determined by the Brazilian Institute of Corporate Governance (Instituto Brasileiro de Governança Corporativa – IBGC).

 

CVM’s board, in line with the conclusion of the Term of Commitment Committee, rejected the term of commitment in this case, considering thar (i) the defendants did not propose an indemnity for the company’s losses and did not correct the practices considered irregular, and (ii) the importance of the matter to the capital market.

 

More information about the term of commitment can be accessed in Portuguese through the link below:

https://www.gov.br/cvm/pt-br/assuntos/noticias/cvm-rejeita-acordo-com-acionistas-de-companhia

 

February 2021

_the february│2021 edition of our Newsletter has the following highlights:

Ordinary Shareholders’ Meetings and quotaholders’ annual meetings

Brazilian Investment Offshore – Deadline for presenting the Annual Declaration of Brazilian Capital Abroad – DCBE 2021 before the Brazilian Central Bank

Foreign Investment in Brazil – Deadline for presenting the financial and economic statement before the Brazilian Central Bank before the Brazilian Central Bank

Publication of Normative Instruction DREI/SGD/ME No. 82 regarding digital books

_ Ordinary Shareholders’ Meetings and quotaholders’ annual meetings

 

In the upcoming months, corporations and limited liability companies shall disclose their financial statements and call their Ordinary Shareholders’ Meetings or quotaholders’ annual meetings, as appropriate, regarding the financial year ended on December 31st, 2020.

 

Matters to be Discussed and Preparatory Proceedings to Ordinary Shareholders’ Meetings and Quotaholders’ Annual Meetings

 

All corporations, publicly-held and closely-held ones, need to hold, within the first 4 months following the end of the fiscal year, an Ordinary Shareholders’ Meeting: (i) to examine the management accounts, analyze, discuss and vote the financial statements; (ii) to deliberate on the destination of the net profit of the relevant financial year and on the distribution of dividends; and (iii) to appoint management and the members of the Audit Council (Conselho Fiscal), as applicable.

 

Additionally, corporations must prepare the documents listed in art. 133 of Law No. 6,404/1976 (“Brazilian Corporations Law“) and publish a notice informing its shareholders that such documents are available at the company’s headquarters. Such disclosure is waived if the companies publish their financial statements in the newspapers used by them up to 1 month before the date set for the Ordinary Shareholders’ Meeting or when such meeting gathers all the shareholders.

 

Nevertheless, corporations must publish their financial statements before the Ordinary Shareholders’ Meeting is held, and those with less than 20 shareholders and net worth less than R$ 10 million are allowed not to publish them, as long as they are included in the minutes of the Ordinary Shareholders’ Meeting for registration with the competent commercial board.

 

Regarding limited-liability companies, within the first 4 months following the end of the fiscal year, they need to hold a meeting in order: (i) to examine the management accounts, analyze, discuss and vote the financial statements; (ii) to appoint management, as necessary. The meeting is not necessary in case all of the shareholders decide, in writing, on the aforementioned matters.

 

IT IS IMPORTANT TO HIGHLIGHT THAT LIMITED-LIABILITY COMPANIES, OR GROUP OF COMPANIES UNDER COMMON CONTROL, WHICH, IN THE 2020 FISCAL YEAR, RECORDED ASSETS IN AN AMOUNT HIGHER THAN R$240 MILLION OR ANNUAL GROSS REVENUE IN AN AMOUNT HIGHER THAN R$300 MILLION SHALL: (A) PREPARE THEIR FINANCIAL STATEMENTS IN AGREEMENT WITH THE APPLICABLE RUKLES SET FORTH IN THE BRASILIAN CORPORATIONS LAW; (B) SUBMIT THE FINANCIAL STATEMENTS TO THE APPRECIATION OF AN INDEPENDENT AUDITOR REGISTERED AT CVM, AND (C) PUBLISH THE FINANCIAL STATEMENTS PRIOR TO THE DATE OF THE GENERAL ANNUAL MEETING.

 

Digital Meetings

 

Finally, due to the enactment of Law No. 14,030, of July 28th, 2020 (conversion of Provisional Measure No. 931/2020), the meetings may be held partially or exclusively on a digital platform, and shall comply with the applicable rules established by the Normative Instruction No. 622 of the Brazilian Securities and Exchange Commission, in case of publicly-held companies, and/or those of the National Department of Business Registration and Integration (“DREI”), in case of closely-held corporations and limited liability companies.

 

_Brazilian Investment Offshore – Deadline for presenting the Annual Declaration of Brazilian Capital Abroad – DCBE 2021 before the Brazilian Central Bank

 

Between February 15th, 2021 and April 5th, 2021, all individuals and legal entities resident, domiciled or headquartered in Brazil, which, on December 31st, 2020, held assets abroad in an amount equivalent to or higher than US$100 thousand must submit the annual declaration of Brazilian capital abroad to the Brazilian Central Bank (“Annual Declaration 2021”)

 

Besides the Annual Declaration, it is mandatory to quarterly submit the Declaration of Brazilian Capital Abroad if the amount of goods and rights held abroad is equivalent to or higher than US$100 million, based on the following schedule:

 

Base Date

Deadline

03.31.2021

04.30 – 06.05.2021

06.30.2021

07.31 – 09.05.2021

09.30.2021

10.31 – 12.05.2021

 

Late submission of the Annual Declaration 2021 or its submission with false, inaccurate, incomplete or incorrect information may result in fines of up to R$250 thousand.

 

_Foreign Investment in Brazil – Deadline for presenting the financial and economic statement before the Brazilian Central Bank before the Brazilian Central Bank

 

It is mandatory that all Brazilian companies that has received foreign investment, regardless of the amount, inform, until March 31st, 2021, the value of their net equity and paid-up stock capital as of December 31st, 2020 (“Financial and Economic Statement”).

 

Please note that Brazilian companies with assets or net equity equal to or higher than R$250 million must submit 4 Financial and Economic Statements per year, according to the schedule below:

 

Base Date

Deadline

03.31.2021

until 06.30.2021

06.30.2021

until 09.30.2021

09.30.2021

Until 12.31.2021

 

Late submission of the Financial and Economic Statement or its submission with false, inaccurate, incomplete or incorrect information may result in fines of up to R$250 thousand.

 

_Publication of Normative Instruction DREI/SGD/ME No. 82 regarding digital books

 

On February 22nd, 2021 was published the Normative Instruction DREI/SGD/ME No. 82 (“IN DREI 82”), which establishes the procedures to be adopted for authentication of accounting books or not, of individual entrepreneurs, individual companies of limited liability, companies and books of auxiliary agents of commerce.

 

Pursuant to article 2nd of IN DREI 82, the opening and closing terms of any bookkeeping instrument, which the interested party deems convenient to adopt, including non-mandatory books, will be submitted to the Board of Trade’s authentication. For this purpose, the opening and closing terms shall be signed with any digital certificate issued by an entity accredited by the Brazilian Public Key Infrastructure (Infraestrutura de Chaves Públicas Brasileira – ICP Brasil) or any other means of proving the authorship and integrity of documents in electronic form and shall contain, at least, the following information:

 

  • Opening Term:
  • purpose of the book (name of the book);
  • order number;
  • corporate name;
  • Corporate Taxpayers Registry – CNPJ;
  • municipality of the headquarters or branch;
  • number and date regarding the file of the articles of incorporation before the Board of Trade; and
  • date and signatures.

 

  • Closing Term:
  • purpose of the book (name of the book);
  • order number;
  • corporate name;
  • period to which the bookkeeping refers; and
  • date and signatures.

 

It is worth mentioning that the electronic systems used shall guarantee, at least, the security, reliability and inviolability of the data. In this sense, the authentication of the Digital Accounting Bookkeeping (Escrituração Contábil Digital – ECD), through the Public Digital Bookkeeping System (Sistema Público de Escrituração Digital – SPED), releases any other authentication.

 

Finally, the books shall be exclusively digital, being able to be produced or launched on electronic platforms and stored or not on the servers of the Boards of Trade, which will adapt their systems to receive the books or their data, including corporate books and agents’ books auxiliary, so that, after the entry into force of IN DREI 82, on June 22nd, 2021, new paper books, filled in or blank, should not be submitted for authentication.

 

Access the full IN DREI 82, in Portuguese, through the link below:

 

https://www.in.gov.br/en/web/dou/-/instrucao-normativa-drei/sgd/me-n-82-de-19-de-fevereiro-de-2021-304448972

January 2021

_the january│2021 edition of our Newsletter has the following highlights:

– Brazilian Chamber of Representatives approves Legal Landmark for Startups

– Brazilian Securities and Exchange Commission accepts term of commitment with Company’s Investor Relations Officer after inadequate disclosure of information

– Brazilian Securities and Exchange Commission decides on the concept of management compensation for corporate purposes and the disclosure of related information

_ Brazilian Chamber of Representatives approves Legal Landmark for Startups

 

The Brazilian Chamber of Representatives approved on December 14th, 2020 the Supplementary Bill n. 146/2019 (Projeto de Lei Complementar 146/2019)  (“PLP 146/2019“), also known as the “Legal Landmark for Startups” (Marco Legal das Startups). Pursuant to the approved project, startups shall be considered entrepreneurial or corporate organizations, recently incorporated or in recent operation, whose performance is characterized by innovation applied to its business model or products or services offered, with (i) gross revenue of up to BRL 16,000,000.00 (sixteen million Reais) and (ii) up to 10 years of registration before the National Registry of Legal Entities (“CNPJ”). In addition, such entities shall declare in their by-laws or articles of incorporation that they use innovative business models for the generation of products or services, or yet be framed in the special tax regime of “Inova Simples”. The Supplementary Bill states that the investor which makes a capital contribution to a startup shall not be considered as a partner or shareholder of such, nor will he be liable for any debt of the company, with express prohibition in the legal text of extending to him the disregard of the legal personality.

 

PLP 146/2019 also brought legislative innovations to other areas of the Brazilian corporate law. The main highlights of the project approved by the Brazilian Chamber of Representatives are:

 

  • Administration of companies: PLP 146/2019 proposes the reduction of the minimum number of officers in companies from 2 (two) to 1 (one) officer;
  • Mandatory publications: closely-held companies with less than 30 shareholders and with annual gross income of up to BRL 78,000,000.00 (seventy eight million Reais) shall be allowed to make their mandatory publications in electronic form and replace the mandatory corporate books by mechanized or electronic registry;
  • Regulation of the capital market: the Brazilian Securities and Exchange Commission (“CVM”) shall regulate favorable conditions for smaller companies (i.e., companies whose annual gross revenue is less than BRL 500,000,000.00 (five hundred million Reais)) to access the capital market, whether by dispensing or modulating (i) the obligation of installing an audit committee (Conselho Fiscal) at the request of shareholders, (ii) the obligation of intermediation by a financial institution in public distributions of securities, (iii) the distribution of the mandatory dividend, (iv) the form of publications ordered by law and (v) the form of determining the fair price and its revision;
  • Stock Options Regulation: the supplementary bill regulates the granting of stock options, which shall be considered as part of the employee and of the individual taxpayer compensation, which shall be considered paid, due or credited at the moment of its exercise.

 

Currently, PLP 146/2019 is in progress in the Federal Senate. More information about PLP 146/2019 can be accessed through the link below (in Portuguese only):

 

https://www25.senado.leg.br/web/atividade/materias/-/materia/146040

 

_Brazilian Securities and Exchange Commission accepts term of commitment with Company’s Investor Relations Officer after inadequate disclosure of information

 

The Administrative Proceeding CVM SEI 19957.010395/2019-04, was initiated by CVM’s Superintendence of Relations with Companies (Superintendência de Relações com Empresas) (“SEP”), in order to determine the inadequate disclosure of relevant information about a publicly-held company’s businesses, considered an infraction of the duty to inform, provided in article 157, §4, of Law 6,404/76 (“Brazilian Corporation Law”) and articles 3rd and 6th, sole paragraph, of CVM Instruction No. 358/02 (“ICVM 358”).

 

The case was originated when SEP analyzed an article, published on a website of a widely spread newspaper, which mentioned some information related to the Company’s Quarterly Information Form (“ITR”), regarding: (i) the company’s expectations of an EBITDA growth of 30% in the following year; and (ii) the company’s expectation to have a debt twice as high as its EBITDA in the next years.

 

When requested by B3 S.A. – Brasil Bolsa Balcão (“B3”), the Company clarified that the statements made on the presentation of the result of the ITR, which took place at the day before the publication of the article, were mere expectations, not constituting guidance (Projeções).

 

Afterwards, once again the company inappropriately disclosed relevant information related to its business, and on such occasion the Investor Relations Officer did not adopt the necessary measures for its wide dissemination. Likewise, when questioned, the company clarified that such information were mere expectations for the future and proposed a term of commitment to end the process.

 

Finally, the Commitment Term Committee decided that it was possible to end the case by entering into a term of commitment, with the assumption of a pecuniary obligation, in the amount of R$510,000.00 (five hundred and ten thousand reais).

 

More information about the term of commitment can be accessed in Portuguese through the link below:

 

https://www.gov.br/cvm/pt-br/assuntos/noticias/anexos/2021/copy_of_20210105_PAS_CVM_SEI_19957_010395_2019_04_parecer_comite_termo_compromisso.pdf

 

_Brazilian Securities and Exchange Commission decides on the concept of management compensation for corporate purposes and the disclosure of related information

 

On December 8th, 2020, CVM’s Board decided in Administrative Proceeding CVM SEI No. 19957.007457/2018-10 on the information to be provided in item 13 of the Reference Form (“FRE“),  the inclusion of amounts paid as social contributions burden by the employer, in the overall amount of the management compensation to be submitted for approval by the general shareholders meeting, pursuant to art. 152 of Brazilian Corporation Law, and the compatibility of the information presented as share-based compensation with the company’s financial statements.

 

The case was based on the request from SEP regarding certain adjustments in the FRE and in the compensation proposal for the management of a publicly-held company, so that the social contributions paid by the employer (item 13.1.b.ii) and the amounts related to the management compensation presented in the FRE as share-based compensation for the last three fiscal years would be compatible with those disclosed in the company’s financial statements (item 13.2.d.v). Furthermore, SEP requested the company to indicate in the next management compensation proposal that until that moment the company was not considering the social contributions in the overall amount.

 

The company re-submitted the adjusted FRE as requested by SEP, however, as they did not agree with SEP’s understanding, they also filed a request for reconsideration, in which they argued that (i) the methodology for preparing item 13 of the FRE differs from the methodology used for recognizing expenses in the financial statements, and as the company presents in its compensation proposal the total amount of the stock options carried out that year, they choose to report the information in the FRE in the same manner; (ii) the social contributions paid by the company stem from a legal imperative and cannot be considered a benefit, not being subject to the shareholders’ approval nor subject to the provisions of accounting pronouncement CPC 33 (R1), as they are not a benefit; (iii) as there are variables in the compensation of the management, it would be difficult for the amount paid by the company to be identical to the amount approved in previous years, and the need to ratify the amounts approved by the general shareholders meeting would generate legal insecurity for the company and its management, with the risk of non-fulfillment of obligations in the event of nonratification.

 

REPORTING DIRECTOR, MRS. FLÁVIA PERLINGEIRO, DECIDED TO PARTIALLY GRANT THE APPEAL, SINCE SHE UNDERSTOOD THAT (I) THE WORDING OF ITEM 13.2.D.V OF THE FRE IS CLEAR IN POINTING OUT THAT THE AMOUNTS TO BE INFORMED THERE FOR THE LAST THREE FISCAL YEARS ARE THOSE REFLECTED IN THE RESULTS OF THE RESPECTIVE FISCAL YEARS, I.E. THEY REFLECT THE ACCOUNTING TREATMENT APPLICABLE TO THE FINANCIAL STATEMENTS, WITHOUT PREJUDICE TO DISCLOSURE, IN ITEM 13. 16, AS COMPLEMENTARY INFORMATION, OF THE AMOUNTS THAT REFLECT THE COMPANY’S OWN METHODOLOGY; AND (II) SOCIAL CONTRIBUTIONS CANNOT BE CONSIDERED AS “BENEFITS OF ANY NATURE” FOR THE PURPOSES OF ARTICLE 152 OF THE BRAZILIAN CORPORATION LAW, AS THE SOCIAL SECURITY CONTRIBUTION PAID BY THE COMPANY IS NOT EVEN DIRECTLY RELATED TO THE AMOUNT OF THE SOCIAL SECURITY BENEFIT THAT THE MANAGER, IN THE FUTURE, IF ELIGIBLE, MAY RECEIVE FROM THE BRAZILIAN SOCIAL SECURITY INSTITUTE (“INSS“). THE BOARD UNANIMOUSLY FOLLOWED THE VOTE OF THE REPORTING DIRECTOR.

 

The Reporting Director’s vote can be found in full in the link below (in Portuguese only): http://conteudo.cvm.gov.br/export/sites/cvm/decisoes/anexos/2020/20201208/1361_19_Voto_da_Relatora.pdf