Brazil: CVM Amends Rules Governing Organization, Administration, And Operation Of FIP′s

On July 1, 2013, Rule No. 535 ("CVM Rule 535") of the Brazilian Securities and Exchange Commission ("CVM") entered into force, thereby amending CVM Rule 391 of July 16, 2003 ("CVM Rule 391"), which governs the organization, administration, and operation of equity investment funds ("FIP′s") in Brazil.

The main changes introduced by CVM Rule 535 are: (i) the possibility of a FIP providing guaranties, aval  guarantees of debt securities, acceptance, or co-obligations upon approval of the FIP′s equity interest holders ("Quotaholders") at a duly convened Quotaholders′ meeting; and (ii) modification of the deadlines for approvals by Quotaholders at Quotaholders meetings and for delivery of the FIP′s financial statements to Quotaholders and to the CVM. 

Included hereunder is a brief description of these changes. 

I.  Guarantees by the FIP

CVM Rule 535 allows the administrators, on behalf of the FIP, to provide personal guaranties, aval guarantees, acceptance, or co-obligations in any form, provided that such provisions must be set forth in the FIP′s by-laws and be approved by a "qualified majority" of Quotaholders assembled at the Quotaholders Meeting. Pursuant to CVM Rule 535, the above-referenced qualified majority is at least two-thirds of the quotas issued by the FIP.

For any FIP existing on the date that CVM Rule 535 entered into force, it is permissible under CVM Rule 535 for the FIP to amend its by-laws in order to permit the provision of such guarantees, upon the unanimous vote of Quotaholders assembled at a Quotaholders Meeting. 

Additionally, CVM Rule 535 requires that administrators must ensure the maximum dissemination of information about all guarantees provided by the FIP, through at least the disclosure of important factual materials and the prominent display at all times of the guarantees on the administrator′s website. 

The ability of FIP′s to provide guarantees, which was previously prohibited by CVM Rule 391, is an answer to a long-standing demand of the capital markets industry and reflects the nature and primary characteristics of investments and dispositions made by FIP′s. Until the enactment of CVM Rule 535, any guarantee or co-obligation by the FIP depended upon the unanimous approval of the Quotaholders assembled at a Quotaholders Meeting, as well as the express authorization of the CVM. 

II.  Deadlines to approve and deliver FIP Financial Statements

CVM Rule 535 alters the deadline for approval of the FIP′s financial statements by the Quotaholders at a Quotaholders Meeting: they now have up to 150 days from the end of the FIP′s respective fiscal year. Until the enactment of CVM Rule 535, the deadline for approval of the FIP′s financial statements by Quotaholders was June 30th of each subsequent year. 

Additionally, the deadline for submission of the FIP′s "annual information"1 to Quotaholders and the CVM is now 120 days from the end of the respective fiscal year. The previous deadline, pursuant to CVM Rule 391, was ninety days. 

Finally, CVM Rule 535 clearly provides that information concerning the composition of the investment portfolios of the FIP must be sent to the Quotaholders and to the CVM on a semi-annual basis, based upon the civil calendar, while financial statements, the information regarding the FIP′s expenses, and the data of entities providing custodial services to the FIP must be sent to the Quotaholders and to the CVM on a semi-annual basis, based upon the FIP′s fiscal year. 


1. According to Article 32, III, of CVM Rule 391, annual information consists of: (i) financial statements for the respective fiscal year, including the independent auditor′s opinion, (ii) the book value per quota as of the balance sheet date, as well as profitability in the respective period, and (iii) the FIP′s expenses in accordance with the provisions of Article 27 of CVM Rule 391, specifically, the amount of expenses and the percentage relative to the FIP′s average net equity on an annual basis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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