Mês: August

_the august│2023 edition of our Newsletter has the following highlight:

– CVM publishes Guidance Opinion on Soccer Corporations (SAF)

– Real estate companies and equity holdings face unfavorable scenario in judicial disputes over exemption from the ITBI – Tax on the Transfer of Real Estate

– B3 launches new Issuers Regulation

– Celerity of corporate courts

– Electronic signature in Extrajudicial Executive Titles

_ CVM publishes Guidance Opinion on Soccer Corporations (SAF)

On August 21, 2023, CVM published Guidance Opinion 41, which brings the autarchy’s understanding regarding the rules applicable to Soccer Corporations (“SAF“) that wish to access the capital market to finance their activities.

Undoubtedly, the preparation of the Opinion was encouraged by the advent of Law 14.193/2021 (“SAF Law“), which establishes the incorporation of companies whose main activity is the practice of professional soccer and provides for rules regarding incorporation, governance, means of financing soccer activity, treatment of liabilities of sports entities and specific tax regime.

Among several relevant aspects of the Guidance Opinion, we highlight its purpose to guide investors and market participants on the use of instruments that enable access to the capital market by SAF, anticipating the expected movements of Brazilian clubs. The opinion presents several instruments available in the market with preliminary guidelines on their access by the FAS, namely:

• Initial public offering (IPO)
• Bonds (called “Debenture Fut” and provided for in the SAF Law itself)
• Investment crowdfunding
• Investment funds
• Securitization

In this sense, the guidance seeks to harmonize the norms and rules provided for in the SAF Law, in the Brazilian Corporate Law, subsidiarily applied to the SAF, and in the regulatory framework of CVM itself, avoiding interpretative normative doubts and, consequently, providing greater legal certainty to investors.

CVM reiterated that the autarchy will continue to monitor the matter in Brazil and other markets in order to intensify its understanding of the matter and, eventually, issue new statements.

The Guidance Opinion can be accessed in Portuguese through the link below:

https://conteudo.cvm.gov.br/legislacao/pareceres-orientacao/pare041.html

_ Real estate companies and equity holdings face unfavorable scenario in judicial disputes over exemption from the ITBI – Tax on the Transfer of Real Estate

Recently, the interpretation of article 156, paragraph 2, item I of the Federal Constitution, which provides for the exemption from the ITBI (Tax on the Transfer of Real Estate) on the transfer of assets or rights incorporated into the assets of a legal entity in capitalization process and on the transfer of assets or rights arising from merger, spin-off or dissolution of a legal entity, was the subject of discussion by the Federal Supreme Court.

The discussion began under Extraordinary Appeal 796.376/SC. The was about a transaction in which part of the equity was destined to the formation of the capital stock and another part was destined to the capital reserve, the interested party intended for the immunity to be applied to the whole amount, and not only in relation to the part that composed the capital.

By majority vote, the Supreme Court established the thesis that the exemption from the ITBI does not reach the value of the assets that exceed the limit of the capital stock to be paid, such as those allocated in capital reserve, for example. The judgment did not clarify, however, whether it would be necessary to meet the requirement of preponderant non-real estate activity in order to benefit from the tax exemption. The vote of Justice Alexandre de Morais even mentions that the restriction to the exemption would apply only to cases of merger, spin-off or dissolution of a legal entity.

In this scenario, real estate companies and equity holdings have been facing an unfavorable scenario in the judiciary, in which the lower courts have maintained the understanding that the predominance of non-real estate activities is still a condition for the exemption from the ITBI when contributing real estate in the capital stock of a company.

However, a recent decision handed down unanimously by the Court of Justice of the Federal District (TJDF) (case no. 0705115-03.2021.8.07.0018) agreed with the understanding of the taxpayers, in the sense that there would be no incidence of ITBI in the contribution of real estate in the capital stock of companies, including real estate holdings.

The theme has great relevance and its development before the courts deserves attention, especially to ensure adequate corporate, succession and patrimonial planning.

The Extraordinary Appeal 796.376 of the Federal Supreme Court can be accessed in Portuguese through the link below:

https://redir.stf.jus.br/paginadorpub/paginador.jsp?docTP=TP&docID=753582490

_ B3 launches new Issuers Regulation

On August 19, 2023, the new Issuers Regulation launched by B3 entered into force, which replaced, consolidated and improved the rules provided for (i) in the Regulation for Listing of Issuers and Admission to Trading of Securities, and (ii) in the Issuer’s Manual and its respective annexes.

Annex B of the new Regulation brought three relevant changes related to ESG measures – Environmental, Social and Governance that must be met, in the “practice or explain” model, by companies already listed in B3. They are:

• Measure ESG 1: Elect as a full member of the board of directors or of the statutory board of directors, at least: (a) 1 woman, and (b) 1 member of an underrepresented community (this being any person who is: “black”, “brown” or “indigenous”, according to the classification presented by the IBGE; member of the LGBTQIA+ community; or person with disabilities, under the terms of Law 13.146/2015). The deadline for adoption for companies already listed will be the mandatory annual update deadline of the reference form (Formulário de Referência) of the year 2025 for one of the criteria and the year 2026 for both criteria.
• ESG Measure 2: Establish ESG requirements for the appointment of members of the board of directors and the statutory board of directors in the bylaws or in the Nomination Policy considering, at least: (a) complementarity of experiences, and (b) diversity in matters of gender, sexual orientation, color or race, age group and inclusion of persons with disabilities.
• ESG Measure 3: Establish, in the remuneration policy or practice, performance indicators linked to ESG themes or targets, when there is variable remuneration of the managers. The deadline for adoption for companies already listed of ESG measures 2 and 3 will be the mandatory annual update deadline of the reference form (Formulário de Referência) for the year 2025.

The following companies are released from complying with the ESG measures above: (i) registered as category B before CVM; (ii) small sized companies, pursuant to Article 294-B of the Brazilian Corporate Law; (iii) beneficiaries of funds from tax incentives, pursuant to CVM Resolution No. 10; and (iv) Sponsored BDR issuers.

In addition, pursuant to article 64, sole paragraph, of the new Regulation, the instruments of investiture of managers shall expressly indicate their subjection to the provisions of the new Regulation.

The new Issuers Regulation can be accessed in Portuguese through the following link:

https://www.b3.com.br/data/files/3B/31/0A/CF/394798101DBF7498AC094EA8/Regulamento%20de%20Emissores%20_20.07.2023_.pdf

_ Celerity of corporate courts

A study points out that the average time of processing business lawsuits in specialized courts of the Court of Justice of the State of São Paulo (TJSP) is almost half the time of processing in generalist courts.

There are four specialized courts in the State of São Paulo and according to the study, the lawsuits in progress are divided into the following demands:

• 37% are about corporate issues;
• 23% are related to intellectual property and data protection;
• 20% correspond to cases of recovery and bankruptcy;
• 16% are related to contractual disagreements;
• 3% are arbitration-related topics; and
• 1% deal with other topics.

The central idea of the study was to evaluate whether the main objectives for the creation of such courts are being met, namely: celerity, quality, and predictability. The relevance of this issue lies in the billions of Brazilian Reais involved in the lawsuits and in ensuring legal certainty for investors, since without the business courts, cases of this nature would be distributed to the civil courts, which carry demands of the most varied natures.

More information about the study can be accessed in Portuguese through the link below:

https://valor.globo.com/legislacao/noticia/2023/08/01/varas-judiciais-empresariais-sao-mais-celeres.ghtml

_ Electronic signature in Extrajudicial Executive Titles

On July 14, 2023, Law No. 14,620 entered into force, which included paragraph 4 to article 784 of the Code of Civil Procedure (CPC), thus considering that in extrajudicial executive titles constituted or attested by electronic means, any type of electronic signature is allowed according to current legislation, and the signature of witnesses to validate these documents is also waived when their integrity is confirmed by a signature provider.

Before Law No. 14,620/2023 entered into force, the formalization of contracts, whether in physical or electronic format, required, for the contract to be considered an extrajudicial enforceable title, the signature of the parties, accompanied by two witnesses.

In addition, there was a discussion about the possible loss of executive effectiveness of documents signed electronically by a certifying entity not accredited by ICP Brasil. Due to the new wording, the electronic signature of documents through entities not accredited in the Brazilian Public Key Infrastructure – ICP Brasil is now fully valid.

Law No. 14,620/2023 can be accessed In Portuguese through the link below:

https://www.planalto.gov.br/ccivil_03/_Ato2023-2026/2023/Lei/L14620.htm

_the august│2022 edition of our Newsletter has the following highlight:

– Bill of Law proposes to revise the quorums for corporate resolutions set forth in the Brazilian Civil Code

– Courts establish jurisprudence on procedural succession of shareholders

– Brazilian Securities and Exchange Commission acquits listed company in case of abuse of controlling power

– B3 submits to public hearing proposal to include ESG goals and increase diversity in the management of Brazilian issuers

 

_Bill of Law proposes to revise the quorums for corporate resolutions set forth in the Brazilian Civil Code

Bill of Law No. 1212/2022 (“Bill“), which changes the quorums for corporate resolutions in limited liability companies, was approved by the Constitution, Justice and Citizenship Committee and will be sent to the Senate for voting.

Currently, the Brazilian Civil Code determines the minimum quorum of three quarters of the capital stock for the approval of the following resolutions: 1) amendment to the articles of association; 2) incorporation, merger, or dissolution of the company; and 3) termination of liquidation. The Bill proposes that the quorum for these decisions changes to a simple majority one.

According to the Bill, the quorum for appointments and dismissals of directors would also be of simple majority. Today, the quorum required for these choices is of absolute majority. For the appointment of a non-partner director, the Civil Code determines quorums that vary according to the paid-up capital stock: if it has not yet been paid-up, the partners’ unanimity is required to appoint a non-partner director; if it has already been fully paid-up, the quorum is reduced to 2/3 of the partners. The Bill suggests that the mentioned quorums should be replaced, respectively, by two-thirds of the partners and by simple majority.

The text of the Bill can be accessed in Portuguese through the link below:

https://legis.senado.leg.br/sdleg-getter/documento?dm=9156767&ts=1659641373140&disposition=inline

_Courts establish jurisprudence on procedural succession of shareholders

Creditors of dissolved companies now have a new judicial way to recover amounts due. Recently, the São Paulo Court of Justice and the Superior Court of Justice in Brazil decided that partners of extinguished companies may be held liable for debts owed to creditors if assets were returned to them upon the company’s dissolution, according to lawsuits No. 2008757-80.2022.8.26.0000, 2150408-37.2021.8.26.0000, 2145773-13.2021.8.26.0000, REsp 1652592 and REsp 1784032.

Called “procedural succession of the partner”, this thesis arose by analogy to the succession of assets, provided for in article 110 of the Brazilian Code of Civil Procedure, combined with the rules of execution proceedings (article 779, II), and establishes that, just as the heirs are liable for the debts of the deceased up to the limit of the assets inherited, the partners of extinguished companies are liable for the company’s debts up to the limit of the assets returned at the time of dissolution.

Creditors shall only have to prove the extinction of the company and capital stock composition. It should be noted, however, that if the debt exceeds the amounts received within the scope of the dissolution of the company, it is still necessary to prove misuse of purpose or confusion of assets in the procedure for piercing of the corporate veil in order to reach the personal assets of the partners and obtain the amounts due.

The lawsuits mentioned above can be accessed in Portuguese through the links below:

Processo n. 2008757-80.2022.8.26.0000

Processo n. 2150408-37.2021.8.26.0000

Processo n. 2145773-13.2021.8.26.0000

REsp 1652592

REsp 1784032

_Brazilian Securities and Exchange Commission acquits listed company in case of abuse of controlling power

On July 12, 2022, the Brazilian Securities and Exchange Commission (“CVM“) judged the Sanctioning Proceeding SEI 19957.011341/2018-77, started to determine the liability of a controlling shareholder for alleged abusive exercise of power, provided for in article 117 of Law 6.404/76 (Brazilian Corporate Law).

According to the prosecution, in order to approve the execution of a contract supposedly contrary to the interests of controlled company A (a listed company) in a meeting of the Board of Directors, the controlling shareholder used a control structure of contractual nature, i.e., a shareholders’ agreement of subsidiary A and a quotaholders’ agreement of an investment fund also controlled by the controlling shareholder, which was also a shareholder of subsidiary A, to bind the votes of the members of the Board of Directors elected by minority shareholders.

The prosecution alleged that the controlling shareholder interference in the Board of Directors of controlled company A by binding the votes of members of the Board of Directors appointed by minority shareholders to its orientation would characterize an abuse of the controlling power since it would prevent these directors from engaging in the company’s management, subordinating the company’s interests to the wishes of the controlling shareholder. It also raised the point that even if the controlling shareholder could determine how the members of the Board of Directors appointed by other shareholders should vote, the exercise of this power would be prohibited when dealing with a matter that (i) is contrary to the interests of the company or (ii) is of exclusive competence of the Board of Directors, by legal provision.

The central issue in this case, therefore, was the assessment of the limits of binding the members of the board of directors appointed under a shareholders’ agreement, as authorized by article 118 of the Brazilian Corporate Law.

The defense claimed, mainly, that according to paragraphs 8 and 9 of art. 118 of the Brazilian Corporate Law, the shareholders’ agreement’s rules bind all the company’s resolutions, including board meetings, and that, regardless of this, CVM has no jurisdiction to discipline shareholders’ agreements.

For the reporting director, Marcelo Barbosa, the defense is right to point out that the managers are also bound by the shareholders’ agreement guidelines, since the Brazilian Corporate Law itself admits the alignment between the orientation of the controlling block and the administration’s performance for the exercise of the power-duty of control, also mentioning that a different interpretation would be to deny the effectiveness of the shareholders’ agreement in the most relevant deliberations for the ordinary course of a company’s business and make this instrument unviable as a mechanism for regulating the conduct of shareholders and managers, eliminating the predictability of the outcome of disagreements precisely in situations in which the parties sought to foresee the disagreement and agree on a solution. He then dismissed the hypothesis that CVM intended to evaluate the validity and effectiveness of the clauses of the shareholders’ agreement, and emphasized that, in this case, it would limit itself to determine the existence of abuse of controlling power by the shareholder when using the shareholders’ agreement.

Nevertheless, regarding the binding nature regarding the members of the Board of Directors, he pointed out that managers are not prevented from acting autonomously and exercising their usual functions. In this case, the members of the board of directors stated their position and were not prevented from engaging in the administration. Thus, there is no characterization of abuse of controlling power.

The reporting director also expressed himself contrary to the prosecution’s subsidiary thesis, stating that there is no legal limitation for binding the vote of managers on matters that are of exclusive responsibility of the board of directors, closing that such an understanding would result in the ineptitude of shareholders’ agreements that have the purpose of establishing rules for the exercise of controlling power.

Therefore, the reporting director voted to acquit the controlling shareholder due to the lack of illegal exercise of its controlling power, and his vote was unanimously followed by CVM’s board.

The report of the Sanctioning Proceeding is available in Portuguese through the following link:

https://www.gov.br/cvm/pt-br/assuntos/noticias/anexos/2022/20220712_PAS_CVM_19957_011341_2018_77_voto_presidente_marcelo_barbosa.pdf

The reporting director’s vote is available in Portuguese through the following link:

https://www.gov.br/cvm/pt-br/assuntos/noticias/anexos/2022/20220712_PAS_CVM_19957_011341_2018_77_voto_presidente_marcelo_barbosa.pdf

_B3 submits to public hearing proposal to include ESG goals and increase diversity in the administration of Brazilian issuers

On August 17, 2022, B3 submitted to public hearing a proposal to include Environmental, Social and Corporate Governance (ESG) measures to be adopted by listed companies in a “apply-or-explain” model in which issuers that do not adopt B3’s recommendations must explain to the market and investors the reasons that prevented their development.

In summary, B3’s proposals are the following:

• election of at least 1 (one) woman and 1 (one) member a minority community as effective members of the companies’ board of directors or as officers;

• inclusion, in its bylaws or in its appointment policy, of procedures for the nomination of members of the board of directors or board of officers, contemplating, at least, criteria of complementarity of experiences and diversity regarding gender, sexual orientation, color or race, age group and inclusion of people with disabilities

• definition of performance indicators linked to ESG themes or goals in the variable compensation policies of the members of the board of directors or board of officers; and

• preparation and disclosure of a document approved by the board of directors on ESG guidelines and practices, contemplating, at least, issues related to socio-environmental responsibility, fighting discrimination, respect for human rights and labor relations, defense against suffering and mistreatment of animals, environmental protection, treatment of solid waste and hazardous chemicals, and corporate governance and compliance mechanisms that indicate how such ESG guidelines and practices are being implemented by the company.

Upon the eventual implementation of the proposals submitted by B3, companies will be required to include discussions related to ESG issues in their daily operations and consequently experience diversity in the composition of their management structures.

B3 will receive comments on the proposals contained in the public notice until September 16, 2022, by e-mail to sre@b3.com.br.

The public notice can be found in Portuguese at the link below:

https://www.b3.com.br/data/files/77/67/BC/DB/8ABA2810F9BC5928AC094EA8/20220817_B3%20ASG_Edital%20de%20Audiencia%20Publica.pdf

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

-The Family Business System’s Circles: Ownership, Family and Business.

-Brazilian Chamber of Deputies approves multiple voting shares through the Provisional Measure for the Improvement of the Business Environment, which proceeds to presidential approval

_The Family Business System’s Circles: Ownership, Family and Business.

Family Businesses can be fragile or resilient depending not only on their operational and strategic performance in their field of operation, but mainly on how the several parties involved in their corporate governance system align themselves and deal with the challenges and conflicts that may arise. In a nutshell, we can organize the Family Business System into three independent but partially overlapping subsystems: ownership, business, and family:

The Ownership Circle is occupied by all the individuals and legal entities that already have a shareholding interest in the company, whether this interest is a majority or a minority stake, bound or not to a shareholders’ agreement. Those are the people who are entitled to dividends and the approval for most relevant matters set forth in the Corporations Law.

However, members in the Business circle are managers and employees. This condition, unlike ownership, is not a direct consequence of succession, although in practice it is often confused with it.

The Family circle, in its turn, consists in all the people who are part of the corporate family. This circle is comprised of family members who may or may not be shareholders (or who may become shareholders in the future) and those who may or may not be involved in the management of the company.

By defining the position of each person in the system, it is possible to objectively identify the different perspectives, concerns, dilemmas, incentives, priorities, limits, and dynamics within the family business environment.

There is no right or wrong point of view. This model provides a neutral perspective of the situation, making it possible to mitigate potential conflicts between different groups. In addition, it helps to identify the source and reason of problems, as well as to outline possible solutions to impasses. For example, on one hand, a brother A, a family member owner with no position in the company, may conflict with brother B, a family member owner working in the company, because he believes that the dividends distributed were below his expectations and did not represent a reasonable return on his investment. On the other hand, Brother B may not understand Brother A’s frustration and believes that the distribution was fair, justifying the retention of profits with possible reinvestment in expansion.

By applying the model, the difference in the position of each of the brothers is evident and therefore easier to understand individual concerns. Each member of the system has a legitimate interest, and all must be respected, welcomed, and included as effectively as possible in the company’s decisions, rules, and policies. Besides the issue of profit allocation, some sensitive topics that take prominence refer to:

• shareholders preparation and succession;
• leadership succession, which is often concentrated on the founder in the first generation, whose replacement may occur gradually or abruptly;
• retirement age of family managers;
• choice of managers (family and external);
• family members hiring;
• support to family members in need;
• exit mechanisms for family members that do not want to remain in the company.

Each family business is unique, and in our work, we analyze its particularities in depth so that, together with the participants, we can create an appropriate corporate governance. The best time to discuss and define corporate governance is before it really becomes essential. Anticipating, in this case, can mean a valuable opportunity to discuss sensitive issues, converge interests, and provide the sincere commitment of all to the defined rules, in order to avoid conflicts that are harmful both to the company’s business and to family relations themselves.

For a family business to succeed, it is essential to have a solid union, which means being aligned on the fundamental values of where the company wants to go and how and what should be done to achieve this goal.

The text above was published in legislation and market session of Capital Aberto on July 21, 2021, and can be accessed in Portuguese through the link below:

https://tinyurl.com/pm2tejbk

1 The Three Circles Model of the Family Company System was developed by Renato Tagiuri and John Davis at Harvard Business School and was published in professional documents starting in 1978. It was published for the rst time in Davis’ PhD dissertation – The Inuence of Life Stages on Father-Son Work Relationships in Family Companies, in 1982. In 1996, the Family Business Review publication brought up the classic article by Tagiuri and Davis, “Bivalent Attributes of the Family Firm“

_ Brazilian Chamber of Deputies approves multiple voting shares through the Provisional Measure for the Improvement of the Business Environment, which proceeds to presidential approval

On August 5, 2021, the Chamber of Deputies approved Provisional Measure No. 1,040/2021, also known as the MP for the Improvement of the Business Environment, which gave rise to the Conversion Bill No. 15/2021, which awaits presidential approval.

The MP for the Improvement of the Business Environment provides for changes to encourage business in Brazil, which may improve Brazil’s position in the Doing Business ranking, including the possibility of granting common shares issued by companies the right of multiple voting, which allows a single share to be assigned more than one vote.

Currently, such mechanism is prohibited by the Brazilian corporate law, which adopts the principle that each common share corresponds to one vote in resolutions taken at shareholders’ meetings (Article 110 of Law No. 6,404/1976), although this is a right already known in the capital market of other countries, especially in the US, which has attracted Brazilian companies at the time of going public, since multiple voting shares allow original shareholders to maintain control of the companies without necessarily holding a majority of the share capital or without the need to enter into a shareholders’ agreement with a group of investors.

Pursuant to the wording of Conversion Bill No. 15/2021, it is intended to create one or more classes of common shares with multiple voting rights up to ten votes per share with a term of validity of up to seven years, which may be renewed, subject to some restrictions for its creation.

Any stock company (sociedade por ações) may approve the creation of shares with attribution of the multiple vote, subject to the protections provided for in the project, except for publicly-held companies that already have shares traded on organized markets, which are excluded from the proposed wording. However, the text authorizes publicly-held companies to have shares with a multiple voting rights, if they have created such class of shares before their IPO.

It has been discussed whether the implementation of the multiple voting shares in Brazil via a provisional measure would be the ideal path, since such a change in the current system should be preceded by a broad and effective debate. In this sense, while the plural vote allows its holder to maintain greater influence in decisions than its effective participation in the capital stock, a situation that is relevant in certain companies that debut their participation in the capital market in which the figure of the controlling shareholder often has a weight and a value recognized by investors, it is also necessary to have safeguards to protect investors.

We contributed on the subject in the article “Voto plural chega ao Brasil” in “Legislação & Mercados” session of Capital Aberto published on August 17, 2021, which can be accessed in Portuguese through the link below:

https://tinyurl.com/twmtv32k