Mês: June

April/May/June 2024

_The April I May I June 2024 edition of our Newsletter has the following highlights:

– CVM Accepts Settlement Agreement with Director Worth R$ 3.2 million

– Important Decisions by the CVM Board Addressed in the Annual Circular Letter

– B3 Launches Public Consultation on Proposal to Evolve Novo Mercado Regulations

_ CVM Accepts Settlement Agreement with Director Worth R$ 3.2 million

 

In April this year, the Board of the Securities and Exchange Commission (“CVM”) accepted a proposal for a Settlement Agreement with the Investor Relations Officer of a publicly traded company (“DRI”) in three cases involving the disclosure of material facts.

In the administrative sanctioning process (PAS), the DRI was being investigated for the untimely disclosure of a material fact regarding a potential corporate acquisition previously reported by the press, in violation of art. 157, §4 of Law 6.404/79 (“LSA”) and arts. 3 and 6, sole paragraph, of the then-current CVM Instruction 358 – now replaced by CVM Resolution No. 44.

In the PAS, the relevant information was leaked after the submission of a non-binding offer for the potential acquisition of a factory by the company. When questioned by the CVM on the matter, the company responded generically that it always evaluated investment opportunities in line with its business strategy and that, at that time, there were no facts or binding documents that warranted disclosure to the market.

The SEP took the opportunity to reiterate the CVM’s understanding that “in the event of information leakage or if the company’s securities trade abnormally, the material fact must be immediately disclosed, even if the information relates to ongoing (not concluded) negotiations, initial talks, feasibility studies, or even the mere intention to carry out the transaction. Therefore, if the relevant information escapes the control of management or there is abnormal fluctuation in the price, quotation, or trading volume of the securities issued by the publicly traded company or referenced to them, the DRI must inquire with the people with access to acts or material facts to determine whether they are aware of any information that should be disclosed to the market.”

Additionally, the SEP highlighted that, according to the already established understanding within the CVM, the relevance of a fact is not affected even if, after its disclosure, there is no atypical change in the price or traded volume of the shares.

In the two administrative processes (PA), the DRI was being investigated for the alleged failure to disclose material facts about changes in financial projections prior to or concurrently with their announcement in earnings presentation conference calls held throughout 2022 and 2023, in violation of the same provisions mentioned above. Furthermore, there was an investigation into the failure to update the company’s reference form with the same projections within the stipulated timeframe, in violation of arts. 21, §3, and 25, §3, VIII, both of CVM Resolution No. 80.

As part of the Settlement Agreement, the DRI committed to pay CVM the amount of R$ 3.2 million.

For more information on the topic, visit: CVM aceita Termo de Compromisso com diretor da CSN no valor de R$ 3.2 milhões — Comissão de Valores Mobiliários (www.gov.br)

https://www.gov.br/cvm/pt-br/assuntos/noticias/anexos/2024/20240402_PAS_CVM_19957_000589_2022_99_parecer_do_comite_de_termo_de_compromisso.pdf

_ Important Decisions by the CVM Board Addressed in the Annual Circular Letter

 

The release of the 2024 Annual Circular Letter by the Superintendence of Corporate Relations (SEP) of the Securities and Exchange Commission (CVM) on March 7, 2024, is a significant milestone in the context of annual corporate practices. In addition to providing comprehensive guidelines on the disclosure of periodic and occasional information for publicly traded companies, the document highlights recent decisions and relevant regulations issued by the regulator.

One of the highlighted decisions pertains to the topic of cash-settled derivatives, emphasizing the complexity and potential impacts of these transactions on the securities market. CVM President João Pedro Nascimento, in the context of PAS CVM No. 19957.009010/2021-72, emphasized the importance of full disclosure of these operations, recognizing the effects that may result from them. He noted that although they are purely financial settlement instruments, derivatives are often equated with direct stock purchases, especially when the involved parties acquire or borrow shares as hedging. This analogy is crucial in cases of significant share acquisitions, even if they do not result in isolated majority control.

The central concern lies in the possibility of undisclosed derivatives transactions significantly influencing the liquidity and distribution of the target company’s securities, potentially distorting investors’ perception of their true condition and affecting corporate governance and market efficiency. Therefore, the decision underscores the importance of transparency and proper disclosure of these transactions to maintain the integrity and efficiency of the securities market, as well as to protect investors and promote adherence to corporate governance principles.

Additionally, the Circular highlighted the recent decision made in the context of the Administrative Sanctioning Process (PAS) CVM No. 19957.008172/2021-936, which brought important clarifications regarding the possibility of administrators voting on the proposal of a liability action against themselves, as stipulated by Article 159 of the Corporate Law. In a judgment that began on May 23, 2023, and concluded on September 5 of the same year, the CVM Board outlined three fundamental points.

Firstly, it was decided that the conflict-of-interest situations described in Article 115, §1, of the Corporate Law should be interpreted according to the material/substantial approach, in line with the predominant doctrine and recent positions of the CVM Board. Next, the Board highlighted that, specifically in the context of deliberations related to liability actions under Article 159 of the mentioned law, there are additional justifications in the law itself that support the application of the material approach, allowing shareholders/administrators to vote in these deliberations.

Finally, the Board established that if a shareholder/administrator decides to vote on deliberations related to the proposal of a liability action provided for in Article 159 of the Corporate Law, they must bear the burden of proving that their vote was made in the best interest of the company, considering the specific circumstances of the case in question. In summary, although the decision allows the exercise of the right to vote by shareholders/administrators in these deliberations, it also imposes the responsibility of demonstrating the absence of a conflict of interest with the company, requiring consistent argumentation aligned with the company’s interests.

The Annual Circular and the mentioned decisions can be accessed through the links below: https://conteudo.cvm.gov.br/legislacao/oficios-circulares/sep/oc-anual-sep-2024.html

https://conteudo.cvm.gov.br/export/sites/cvm/sancionadores/sancionador/anexos/2023/SEI_19957009010_2021_72.pdf

https://conteudo.cvm.gov.br/sancionadores/sancionador/2023/20230905_PAS_19957008172202193.html

_ B3 Launches Public Consultation on Proposal to Evolve Novo Mercado Regulations

 

B3 S.A. – Brasil, Bolsa, Balcão (“B3”) has launched a Public Consultation regarding the proposal to evolve the Novo Mercado Regulations (“Regulations”), aiming to gather contributions from market agents, companies, investors, regulators, associations, and other interested parties (“Consultation”).

The Consultation aims to enhance the value of the Novo Mercado Seal and protect companies and their investors by adopting additional corporate governance requirements that help mitigate risks. This initiative intends to make the Brazilian capital market more attractive, potentially drawing more investment from local and international investors.

Below are the main proposals presented in the Consultation:

  1. “Under Review” Novo Mercado Seal: B3 suggests implementing an “under review” seal as a precautionary measure to signal relevant events that may affect the company, such as potential material errors in financial information, delays in financial information delivery, auditors’ reports with modified opinions, requests for judicial recovery, inability to maintain statutory directors, environmental disasters, fatal accidents, and labor practices that violate human rights.

 

  1. Aligning Senior Management’s Actions with the Company’s Interests: Regarding the board of directors, B3 presented three proposals for improvement that follow the international evolution of corporate governance. They are: (i) limiting the number of boards of directors that a board member of a Novo Mercado company can be part of, (ii) establishing a term limit for independent board members in the same company, and (iii) increasing the minimum number of independent board members required by the Novo Mercado.

 

  1. Reliability of Financial Statements: With the aim of protecting investors, B3 consulted the market on the adoption of an international practice related to the effectiveness of internal controls for the preparation of financial statements by companies. Therefore, B3 proposes that statements regarding the effectiveness of the company’s internal controls be presented in the annual management report by the CEO and the CFO, and that there be an assurance work by an independent auditing firm regarding the assessment made by the company’s management.

 

  1. Sanctions and Handling of Irregular Conduct: At this point, B3 consults the market regarding the possibility of applying the penalty of disqualification from holding positions as an administrator, member of the audit or risk committees, or member of the fiscal council due to non-compliance with rules of supervision and control structures.

 

Regarding the fines imposed in sanctioning processes, B3 seeks to gather market agents’ perceptions on a proposal to adapt the Regulations so that the fine ranges provided are replaced by a maximum pecuniary penalty, adjusted to maintain proportionality with the potential damages that irregular conduct may cause to companies in the segment and their investors.

 

  1. Flexibility Regarding Arbitration Chambers: Given the advancement of arbitration as a preferred conflict resolution method among market agents, B3 proposes measures to allow greater flexibility in choosing the Arbitration Chamber by the company, no longer requiring the Market Chamber to be the mandatory forum for resolving corporate and business disputes.

Besides the main proposals, B3 also suggests several ancillary measures to adapt the Regulations to legislative changes, clarify certain practices, and pose specific questions to the market to gather opinions on topics such as executive compensation, integrity, and other relevant issues.

As seen, these changes aim to enhance the value of the Novo Mercado Seal, improve protection for companies and investors, and ensure that corporate governance practices align with international standards, providing more reliability in the Brazilian stock exchange for investors.

The text of the Public Consultation, including the annex with the revised draft of the complete Regulations, can be accessed from the following link:
file:///C:/Users/ccg/Downloads/Consulta%20Publica%20-%20Evolucao%20do%20Novo%20Mercado%20(2).pdf

 

A aprovação das contas e das demonstrações financeiras

Posted in: Uncategorized

June 2023

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

– Highlights of the proposal to amend the Brazilian Corporate Law

– Decree No. 11,563 regulates the Brazilian Legal Framework of Crypto Assets

 

_ Highlights of the proposal to amend the Brazilian Corporate Law

 

The Bill 2.925/23 to amend Law No. 6,404/1976, the Brazilian Corporate Law, and Law 6,385/1976, which created the Brazilian Securities and Exchange Commission (“CVM“), proposed by the Executive Branch, through the Ministry of Finance, was submitted for approval by the National Congress on June 2, 2023 (“PL 2,925“). The purpose of the proposed changes is to include greater protection for minority shareholders against losses caused by controlling shareholders or managers of listed companies.

 

Among the changes proposed in PL 2.925, the following stand out:

 

  • Expansion of CVM’s competences: in order to create new means of instruction of administrative processes, such as, among others, the performance of inspections in the establishments of investigated companies and the request, through the judicial power, of search warrants and seizure of documents and information.

 

  • Civil Liability: for losses suffered by investors as a result of action or omission of companies in violation of the legislation and regulation of the securities market, subject to proof of guilt or intent, applicable to:
    • Managers;
    • Controlling shareholders, when the legislation or regulation directly imposes on them the duty to comply with the infringed norm or when they contribute to the practice with managers (joint and several liability);
    • Offerors and the coordinators of public offerings for the distribution of securities and offerors and intermediaries of public offerings for the acquisition of securities.

 

  • Class Actions for Civil Liability: possibility for legitimate investors to bring class actions for civil liability.

 

  • Arbitration: the by-laws, regulations, deeds and instruments for the issuance of securities may provide that the liability action shall be decided by arbitration, provided that they are public, and CVM may regulate the limits of this public character, including cases in which confidentiality will be admitted.

 

  • Termination of Liability Law Suit: inclusion of the authorization and termination of a liability law suit, which are treated by articles 159 and 246 of the Brazilian Corporate Law, as being within the competence of Shareholders’ Meetins. Even if approved, the termination shall not take effect if shareholders representing ten percent of the voting capital decide to reject it.

 

  • Restriction to Vote: managers may not vote in resolutions regarding the exemption from liability of managers and members of the fiscal council and on the filing of a liability law suit.

 

  • Exemption from Liability: exclusion of automatic exemption from liability for managers and members of the fiscal council after the approval of financial statements and management accounts.

 

  • Legitimacy for the Filing of a Liability Law Suit: when shareholders, within the shareholder’s meeting, decide not to promote the law suit, change in the hypothesis of legitimacy by shareholders of listed companies.

 

  • Award in Liability Law Suits in case of Conviction: in case of conviction of managers or controlling shareholder, an award of 20% on the total amount of the indemnity shall be paid to the plaintiff.

 

PL 2.925 and its status can be accessed in Portuguese through the link below:

https://www.camara.leg.br/proposicoesWeb/fichadetramitacao?idProposicao=2367421

 

_ Decree No. 11,563 regulates the Brazilian Legal Framework of Crypto Assets

 

On June 14, 2023, Decree No. 11,563 was published, which regulates Law No. 14,478 of September 21, 2022, also known as the Brazilian Legal Framework of Crypto Assets (“Decree“). This Decree establishes the guidelines for the provision of virtual asset services and assigns to the Central Bank of Brazil the responsibility of regulating the crypto asset market.

 

Since the entry into force of the Decree on June 20, 2023, the Brazilian Central Bank is competent to:

 

  • regulate the provision of virtual asset services, in compliance with the guidelines of the Brazilian Legal Framework for Crypto Assets;
  • regulate, authorize, and supervise virtual asset service providers; and
  • deliberate on the other hypotheses established in the Brazilian Legal Framework of Crypto Assets, except with respect to the National Registry of Politically Exposed Persons.

 

The Decree does not apply to assets representing securities which shall remain under the jurisdiction of CVM, subject to Law No. 6,385/1976.

 

The Decree can be accessed in Portuguese through the link below:

http://www.planalto.gov.br/ccivil_03/_ato2023-2026/2023/decreto/D11563.htm

Concessão de florestas pode impulsionar créditos de carbono

Lei 14.590/23 amplia rol de atividades permitidas a concessionários

Posted in: Uncategorized

Revista do Advogado 158

Fusões e Aquisições – Formatos usuais de preço em operações de M&A e seus efeitos para as demais condições contratuais.

Posted in: Uncategorized

June 2022

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

– The win-win situation of issuing and selling carbon credits

– CVM resolution on corporate demands benefits minority shareholders

_The win-win situation of issuing and selling carbon credits

Despite a seemingly recent topic, discussions involving global warming and climate change have been part of our daily lives for more than 30 years since the Intergovernmental Panel on Climate Change (IPCC), established in 1990.

Over time, terms like low carbon economy and carbon credits were allowed to be explored as new actors and players, such as the market and investors, recognized the magnitude of the challenge and opportunities involved in reducing the carbon footprint and the environment protection.

Currently, governments, companies and investors can contribute to the reduction of GreenHouse Gases (GHG) emissions that cause global warming through investing in carbon projects or through the purchase of final credits, called carbon credits and/or verified emission reductions (RVE), thus reducing GHG emissions into the atmosphere.

RVE, or carbon credits, represent, per unit, one ton of carbon dioxide (CO2), or the equivalent amount of another greenhouse gas, not released into the atmosphere. Once generated and certified, these credits can be traded on the voluntary carbon market, where there are numerous opportunities to buy and sell the credits, always aiming to reduce GHG emissions.

Carbon offset projects

The COP26 (26th session of the Conference of the Parties), held in Glasgow, UK, in November 2021, was an important step towards the voluntary carbon market as it regulated international transactions, which facilitates the purchase of credits generated in a country by companies and people from other nations.

This regulation made room for a promising market, estimated at between 30 billion and 50 billion dollars by 2030, in projects that generate carbon credits. Brazil is able to be responsible for 20% of the world market, the equivalent of 6 billion dollars (or about 30 billion reais) by 2030.

Currently, there are many investors interested in significantly providing funds to carbon projects, which represents a great opportunity for owners of areas suitable for carrying out such projects. They will be able to increase their land value and still receive a percentage of the results without the often prohibitive amount needed to finance a carbon project.

For rural producers, carbon credits represent the chance to generate green income and real estate appreciation combined with the preservation of the environment and the fight against climate change, and their exploitation is increasingly accessible to all interested parties.

Furthermore, with Law No. 14.119/21, which regulated the payment for environmental services, the income received for environmental services that carbon projects can generate will not be part of the basis for calculation of the Income Tax, Corporate Tax, contribution to the Social Integration Program and to the Public Servants’ Fund Financing Program (PIS/Pasep) and Contribution for Social Security Financing (Cofins), making the carbon market even more attractive.

With technical advances and investments made in the area, operational aspects related to the generation of carbon credits were also improved. As a result, more people can benefit from this market. It is not only the large landowners of areas with untouched native forest that can join the projects, but also the farmers and ranchers who own smaller areas.

Investors today can count on Redd+ (Reduced Emissions from Deforestation and Degradation) projects, which conserve existing standing forests, avoiding the release of carbon into the atmosphere; ARR (Afforestation, Reforestation and Revegetation), which carry out the afforestation or reforestation of areas, so that the trees capture, as they grow, carbon from the atmosphere; ALM (Agricultural Land Management), which, from the professional management of agriculture or livestock, manages to both reduce GHG emissions into the atmosphere as well as capture these gases from the atmosphere, in both cases keeping them in the soil.

Brazil has great potential for all these modalities, either because it has a huge forest asset in different biomes, such as the Amazon or the Pantanal, or because of its large areas suitable for reforestation, besides the large agricultural market that it holds. Given this scenario, how can producers in the agricultural sector and other investors enter the brave new world of the carbon market?

Steps for the issue of carbon credits

The issue of carbon credits requires the fulfillment of several steps that range from the elaboration of a Redd+, ARR or ALM project in an area, formal contracting between the owner of the area and the company that will execute the project, through monitoring of the area, followed by a thorough examination by a certifier that will attest that the project has generated a certain amount of carbon credits by capturing or preventing the release of GHGs into the atmosphere.

Once the credits are certified and registered, the sale stage begins through a carbon credit assignment agreement to an interested party who can “retire” them on their behalf, which means that they will offset their emissions with the carbon credits purchased or simply keep them in their possession to sell at another time.

For the smooth progress of all these stages, there are now companies and law firms ready to advise rural producers in areas suitable for the development of carbon projects. These specialized companies are responsible for the feasibility study, preparation of the credit issuance report, technical proposal, validation, monitoring, certification of credits and their issuance, as well as intermediating the search for buyers. Law firms, on the other hand, take care of aspects related to land tenure in the area where the project is intended to be carried out and the contracts for the purchase and sale of credits.

To have access to the promising carbon market, the holder or owner of the credits shall have a title or legitimate possession, have their Rural Property Registration Certificate (CCIR), the Georeferencing certification by The National Institute for Colonization and Agrarian Reform (SIGEF) legally endorsed and when applicable, the Environmental Rural Registry (CAR), the Environmental Declaratory Act (ADA) and the regular payment of the Rural Property Tax (ITR).

Another important contribution of legal advice concerns contractual commitments, since carbon projects, although they may yield credits in five-year “harvests”, are generally long-term projects whose contracts can reach or exceed 30 years of validity. Thus, it is essential that the parties involved are well advised so that they do not have their expectations frustrated.

The carbon credit market is booming and there is an increasing social and governmental pressure for landowners to comply with environmental requirements and reduce GHG emissions, at the same time as the search for carbon credits by institutions that wish to neutralize their emissions only increase. It is essential to be prepared to enter this promising market.

The text above was published in Portuguese in the Legislação & Mercado section of Capital Aberto on April 26th, and can be accessed through the link below:

https://legislacaoemercados.capitalaberto.com.br/o-ganha-ganha-da-emissao-e-venda-de-creditos-de-carbono/

_CVM resolution on corporate lawsuits benefits minority shareholders

The Brazilian Securities and Exchange Commission (CVM) introduced a new regulation to improve investors and minority shareholders’ access to information, through which listed companies shall disclose information about lawsuits or arbitrations based, in whole or in part, on corporate or securities legislation, or on the rules issued by CVM,  in which the company itself, its shareholders or its managers are involved as a party.

The regulation determines rules for which information must be disclosed and the deadlines vary according to which side the company, shareholder or manager is (plaintiff’s or defendant’s). The disclosure of the communication on corporate lawsuited shall be made through CVM’s electronic system and the company website.

A controversial point in the new communication is confidentiality: the regulation provides that only confidentiality established by law shall be respected, therefore, arbitration confidentiality clauses, as a rule, may not be used as an excuse for restricting the disclosure of such information.

The resolution is part of an effort made by the CVM together with other organization to improve the mechanisms of protection of investors and minority shareholders, which aims to elevate the Brazilian legal system closer to the ones found in countries with more developed markets.

We contributed on the subject in the article “Resolução da CVM sobre demandas societárias beneficia minoritários” published in Portuguese in the Legislação & Mercado section of Capital Aberto on June, 2nd, 2022, which can be accessed through the following link:

Resolução da CVM sobre demandas societárias beneficia minoritários