Projeto de Lei proposto pelo Ministério da Fazenda visa proteger e amparar shareholders lesados por condutas ilícitas na direção de companhias abertas.
O presidente da Comissão de Valores Mobiliários (CVM), João Pedro Nascimento, incentivou os envolvidos com a fraude contábil da Americanas a fazerem acordos de delação premiada com a autarquia.
– Execution of a non-definitive agreement: when is it necessary to disclose a material fact?
– Understanding Shareholder’s Agreements: liquidity and exit mechanism
– Deadline to submit the Annual Census of Foreign Capital statement to the Brazilian Central Bank
– Publication of Letter No. 37 by DREI changes procedural rules for enrollment of members of the board of directors’ and officers’ residing abroad
Much has been said about the duty of listed companies to disclose material facts. It is one of the main obligations of controlling shareholders and managers, especially of the investor relations officer, and is a constant inspection target by the Brazilian Securities and Exchange Commission (CVM).
In general terms, CVM regulation considers as material fact any act or fact of political-administrative, technical, transactional, or economic-financial character occurred or related to the company’s business that may impact the quotation of the securities issued by the company or related to them, the investors’ decision to negotiate the securities, and the investors’ decision to exercise rights inherent to the condition of holder of securities issued by the company or related to them.
The Brazilian Corporation Law and CVM regulations determine that material information must be immediately disclosed to the market and to the shareholders to prevent insider trading and to make the pricing of traded securities more efficient since shareholders and the market will have access to such information simultaneously.
However, listed companies are frequently in doubt as to whether it is necessary to disclose a material fact due to the execution of a non-definitive material contract, such as a non-binding memorandum of understanding, or a relevant contract that has a real and concrete possibility of being ended.
On this subject, CVM’s board understands that an information doesn’t need to be definitive for it to be considered relevant. It is possible that non-definitive facts that carry a certain degree of uncertainty are material – that is, assuming it’s concrete, the fact may be qualified as relevant.
Investor Relations’ assessment on whether to disclose a material fact
According to the consolidated understanding of CVM’s board, what is expected from the investor relations officer when evaluating the need to disclose a material fact is a two-step judgment. The first is about the probability of the act or fact to impact on the decision to trade securities issued by the company. The second is a judgment that involves counterbalancing the magnitude of the potential impact and the likelihood of its occurrence (CVM Sanctioning Proceeding No. RJ2018/6282).
As an exception to the duty to immediately disclose a material fact, CVM regulation stipulates that the secrecy of a material fact may be maintained if its managers or controlling shareholders understand that said disclosure will put legitimate interest of the company at risk.
This exception, however, is no longer applicable (i.e., the mandatory disclosure rule is restored) if the information is beyond the company’s control or if there is an atypical oscillation in the quotation, price, or traded quantity of its securities. In these cases, the company shall immediately disclose the material fact.
The text above was published in Portuguese in the Legislação & Mercado section of Capital Aberto on June 22, 2022, and can be accessed through the link below:
When one talks about liquidity and exit mechanisms regarding shareholders’ agreement, one seeks to regulate ways for a certain shareholder to leave the company. In other words, a liquidity and exit mechanism is a structure that guarantees to a certain shareholder the right to convert his or her shares into cash in addition to his or her withdrawal from the company.
These structures are quite common in agreements made after an external investment. In this regard, it is possible to come across clauses concerning a put option, registration rights and clawback, which will be detailed below, in addition to tag along and drag along clauses, which have already been subject of another article in our series on shareholder agreements.
Put option
The put option is one of the simplest liquidity mechanisms and can be granted by a shareholder to another shareholder or by the company itself and may contemplate part or the totality of the shares. Thus, if the shareholder who holds the put option wishes to exercise it, he may require the other shareholder or the company, according to the circumstances, to acquire the shares held by him or her as stated in the terms and conditions established in the shareholders’ agreement, including the ones related to valuation and the payment method.
As it is a lower cost mechanism when compared to carrying out an initial public offering (IPO) (registration rights clause), for example, the put option is more common in operations involving investment funds since they have a liquidity period for their investments and need to have greater ease and flexibility to sell their shares when the deadline approaches. This mechanism is also common to grant original shareholders the option to withdraw the company in situations in which the investing shareholder considers it essential to remain in the shareholding structure and/or in the company’s board for a certain amount of time.
Registration rights
The right to demand an IPO (also known as registration rights) may be granted in favor of a certain shareholder, who may exercise it upon the compliance with certain conditions to be verified within a reasonable period. This type of clause is often found in mergers and acquisitions transactions, especially in the context of private equity investments involving investment funds.
This occurs mainly due to the need to balance the liquidity risks of the operation with the best interests of the new investor, the company, and the original shareholders. This mechanism is known for offering investors a safe way to reduce or liquidate their stake in the company, benefiting from the premiums that are usually paid by the market in an IPO at favorable times for this type of operation.
Clawback
Although they are not considered a liquidity mechanism per se, value recovery clauses are important in the context of divestments to preserve the reaming shareholders’ principle of good faith in situations of greater distrust between the parties. These clauses guarantee the shareholder who withdrew from the company the right to claim amounts arising from any increase in valuation of the shares sold after his departure (within a contractually stipulated period), most often due to the sale of control or an IPO.
The importance of liquidity and exit mechanisms
Depending on the nature of the investment or the objectives of the shareholders, the provision of liquidity and exit mechanisms in shareholders’ agreements is fundamental, not only as a form of legal security, but also as a strategy to allow a shareholder to leave the company’s shareholder structure under pre-established conditions without jeopardizing the performance of the activities or even the continuity of the company.
The text above was published in Portuguese in the Legislação & Mercado section of Capital Aberto on May 09, 2022, and can be accessed through the link below:
Between July 1st and August 15th, some entities with foreign capital must submit to the Brazilian Central Bank the Annual Foreign Capital Census statement for the 2021 base year. The filling of the aforementioned statement is mandatory for:
The following are exempt from submitting the statement: natural people; the Union, States, Federal District and Counties’ administration; legal entities that are borrowers of on lending foreign credits granted by institutions headquartered in the country; and non-profit entities funded by non-residents contributions.
Finally, failure to submit the statement within the deadline, as well as the provision of false, incomplete or incorrect information, may subject those responsible to a fine.
On June 20, 2022, the Brazilian National Department of Business Registration and Integration (DREI) published a letter to revoke the need for the following procedures:
Letter No. 37 of DREI can be accessed in Portuguese through the link below:
– Family Businesses – Corporate Governance beyond Compliance
– Family Businesses – Family Holdings
Family-owned and run businesses face unique challenges. On the one hand, they have the strong influence of family identity and legacy, embedded in well-defined traditions and values. On the other hand, the mixture of family and business issues, such as old childhood stories and relationships dynamics between different family members, can have negative effects both for the company and the family itself. This is a delicate balance that deserves to be analyzed in depth, case by case.
When they work harmoniously, families are able to develop and perpetuate successful ventures, as we have seen in several Brazilian and foreign cases, groups such as the Itaú Unibanco, Baumgart, Rodobens, Walmart, Volkswagen, Tata and Heineken. For that, the alignment and effective commitment of those involved in relevant matters of corporate governance of the family business are necessary, which go beyond the simple compliance with rules and laws. The family, shareholders and senior management need to be truly aware of their respective roles and engagement with the development, perpetuity, and financial health of the company’s business, each one acting with loyalty and support within their spheres.
The influences of families on companies are often subtle. Corporate governance and succession planning in companies of this nature involves a careful and in-depth study of the characteristics of the family and its members, with a diagnosis of the current situation and the identification of future expectations, definition of roles and balances of powers, as well as rules relating to the company’s equity issues, such as dividends, investment, sale of equity interest and liquidity.
With this in mind, we are beginning a series of articles in which we will address the main aspects involved in the corporate structure and corporate governance of family businesses.
In our first article, we dealt with the role of the family holding and its importance in structuring the governance of these companies.
As already mentioned, family businesses have their own characteristics that distinguish them from other types of business. In these companies, the roles of family, management and ownership are easily confused, which makes their structuring, development, and administration more complex and challenging.
Careful and detailed planning of the governance and succession structures of family businesses, especially designed considering the particularities and profile of the family and its businesses, play an important role in the prosperity and perpetuity of the family group, both from a business and personal point of view.
In this structuring, equity holdings end up playing an important role and, not by chance, are one of the most common alternatives in planning such as this one, playing, together with an effective governance structure, an important role in distinguishing between the various spheres of activity of the company’s family (family, management and ownership) and in reducing family’s tensions.
Many believe that the creation of family or equity holdings is only justified in the structure of large business groups. However, this thinking is often due to lack of knowledge about its dynamics, advantages and disadvantages and, once these doubts are clarified, many entrepreneurs, regardless of their size, end up choosing to join the holding structure, seeing in it an orderly and safe way to promote the growth, maturation and perpetuity of the family business, in addition to encouraging greater business diversification and involvement of family members who show interest and ability to operate in the business.
With the concentration of investments in a single vehicle, these holdings bring important advantages to the family business group, such as:
Article originally published in “Portal Legislação & Mercado” from “Capital Aberto”, on 06/09/21
– CVM publishes Instruction reducing the minimum percentages of corporate interest required for filing lawsuits and exercise of related rights
– Publicly-held company is forced to provide list of its shareholders for purposes of the filing of a management liability lawsuit
– CVM acquits officer accused of insider trading for lack of intention to obtain undue advantage
On June 22, 2020, the Brazilian Securities Exchange Commission (“CVM“) published Instruction No. 627 (“ICVM 627“), which establishes a scale reducing, based on the capital stock, the minimum percentages of corporate interest required for the exercise of some of the rights set forth in Law No. 6.404 of 1976 (“Brazilian Corporation Law“).
Pursuant to the 1st article of ICVM 627, the reduced percentages shall apply to the shareholder who wishes to exercise the following rights:
As of July 1st, 2020, when ICVM 627 came into force, the percentage provided for in the aforementioned articles (i.e. 5% of the capital stock), was reduced according to the capital stock of the publicly-held company and is applicable as follows:
| Capital Stock (R$) | Minimum Percentage% |
| 0 to 100,000,000 | 5 |
| 100,000,001 to 1,000,000,000 | 4 |
| 1,000,000,001 to 5,000,000,000 | 3 |
| 5,000,000,001 to 10,000,000,000 | 2 |
| over 10,000,000,000 | 1 |
ICVM 627 and the report of its public hearing can be accessed at the link below, in Portuguese:
http://www.cvm.gov.br/legislacao/instrucoes/inst627.html
CVM’s Board has decided, in Procedure SEI 19957.010274/2019-54, in favor of the request made by minority shareholders, regarding the delivery by a publicly-held company of a list of its shareholders, with their names and number of their shares, pursuant to article 100, §1st, of the Brazilian Corporation Law, in order to fulfill the minimum quorum for the proposal of a civil liability suit against the company’s managers.
The company had rejected the shareholders’ request stating that there was no specific reason to justify the request for information, according precedents of CVM’s Board, declaring the shareholders were not able to support the alleged right to be defended, as required pursuant to article 100, § 1st of the Brazilian Corporation Law.
THE MEMBERS OF THE BOARD UNANIMOUSLY DECIDED TO FOLLOW THE TECHNICAL AREA’S REPORT, WHICH EXPRESSED SAID THAT THE LIST SHOULD BE PROVIDED IF THE REQUEST OF A SHAREHOLDER (I) COMPLIED WITH THE LEGAL REQUIREMENTS OF ARTICLE 100, § 1ST, OF BRAZILIAN CORPORATION LAW, THAT IS, IF IT WAS BASED ON THE BINOMIAL “DEFENSE OF RIGHTS” AND “CLARIFICATION OF SITUATIONS”, (II) WAS AIMED AT THE DEFENSE OF A RIGHT INHERENT TO ITS CONDITION AS SHAREHOLDER AND, THEREFORE, OF INTEREST TO ALL SHAREHOLDERS; AND (III) BASED ITS REQUEST, EVEN IF BRIEFLY, IDENTIFYING THE RIGHT TO BE DEFENDED OR THE SITUATION TO BE CLARIFIED. IN THIS SENSE, IT WOULD NOT BE FOR THE COMPANY TO ANALYZE THE MERIT OF THE REQUEST MADE BY THE SHAREHOLDERS, BUT ONLY TO VERIFY THAT THE LEGAL REQUIREMENTS FOR THE PROVISION OF THE LIST OF SHAREHOLDERS HAVE BEEN MET.
The decision is in line with the precedents of CVM’s Board in recent decisions and with the guidance of SEP (Superintendência de Relações com Empresas) contained in Circular Letter/CVM/SEP/No. 2/2020, which understand that, although requests that are justified to facilitate the mobilization of shareholders in order to discuss issues related to the company and participating in shareholders’ meetings (such as the adoption of a multiple vote or separate election of members of the Board of Directors and of the audit committee (Conselho Fiscal)), do not find support in article 100, § 1st, of the Brazilian Corporation Law, in the event that shareholders have to act together to defend any right that, due to the applicable legislation or the bylaws of the company, there is a minimum quorum to be met (such as a liability action against managers to be proposed by shareholders, such as the case examined herein, or the action for the full presentation of the company’s books), the list shall be provided.
More information can be accessed at the link below, in Portuguese:
http://www.cvm.gov.br/decisoes/2020/20200114_R1.html
CVM’s Board unanimously acquitted, following CVM’s reporting officer, when ruling on Administrative Proceeding CVM No. 19957.005966/2016-38, an officer of a publicly held company of the accusation of insider trading, in violation to article 13 of CVM Instruction No. 358/02 (“ICVM 358“).
The officer sold part of the shares he held after receiving financial information regarding the company during the quiet period, provided in article 13, §4th of ICVM 358. The defenses’ main argument was that the sale of shares was made to bear extraordinary personal expenses he incurred during such period, due to renovations he was carrying out on his property.
In the reporting officer’s vote, the four elements that would characterize an insider trading were: (i) existence of relevant information, not yet disclosed to the market; (ii) access to such information by the accused; (iii) use of the information when trading; and (iv) purpose to take advantage for themselves or for third parties. In addition, there is a relative presumption, against the accused, regarding the use of the relevant information with the intention to obtain an undue advantage for himself or for others, pursuant to ICVM 358, which can be dismissed if there is evidence to the contrary.
In this sense, the numerous receipts presented by the defense, which identified extraordinary expenses whose value could justify the sale of shares, were taken into consideration by the reporting officer and, considered along with the other arguments of the defense, such as the low securities volume operated and the inexpressive amount of the supposed avoided loss, caused her to create a reasonable doubt regarding the officer’s misconduct, therefore, voting for the acquittance of the accused, in accordance to the principle in dubio pro reo.
For more information on this case in Portuguese, please access the link below:
http://www.cvm.gov.br/noticias/arquivos/2020/20200616-1.html
– 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
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:
ICVM 607 can be accessed in Portuguese at:
http://www.cvm.gov.br/legislacao/instrucoes/inst607.html
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
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:
Additional information regarding the Report can be accessed in Portuguese at:
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