Brazil: CVM Publishes Its Annual Official Letter With Guidelines On Procedures To Be Observed By Publicly-Traded Companies, As Well As Foreign And Incentivated Companies

Last Updated: 18 March 2015
Article by Bruno M. Ferla and Alan Parker
Most Read Contributor in Brazil, October 2018

On February 26, 2015, the Superintendence of Relations with Companies ("SEP") of the Brazilian Securities and Exchange Commission ("CVM") published Official Letter CVM/SEP No.02/2015 ("Official Letter").

The Official Letter, traditionally published on an annual basis before the season of Annual Shareholders' Meetings of publicly-traded companies, establishes guidelines and recommendations from CVM with respect to best corporate governance practices, encourages proper disclosure of periodic and relevant information, as well as equality in the relationship between investors, publicly-traded companies and the general market.

The Official Letter is purely informational, providing orientation for the market. Compliance with the CVM approved guidelines is not mandatory, nor does non-compliance subject companies to penalties in case of breach of the provisions established therein. However, the effective adoption of the guidelines set out in the Official Letter is highly encouraged by the CVM.

Among other changes made in this year's Official Letter, when compared to the Official Letter of 2014, we highlight the following:

  1. The company's Management Report (Relatório de Administração), as provided for in article 133 of Law No. 6,404/76, as amended ("Brazilian Corporations Law"), which is disclosed to shareholders one (1) month in advance of the date of the Annual Shareholders' Meeting, should contain, in addition to all of the information usually found in this Report, information regarding decisions influenced by the controlling shareholder of the company and, as the case may be, description of the main investments made as a result of public policies applicable to the company;
  2. Annual disclosure of the company's Reference Form (Formulário de Referência), as provided for in article 24 of the CVM Ruling No. 480/09 ("ICVM 480"), shall occur, preferably, after the company's Annual Shareholders' Meeting, in a manner where it is possible to include and update certain information, for example information regarding remuneration of company's management in the document. Additionally, CVM also recommended that the Reference Forms should be drafted and elaborated by the in-house technical team of the company, as opposed to outside counsel and advisors;
  3. Although there is no express obligation in the Brazilian Corporations Law, as a way to comply with the diligence duties (dever de diligência) incumbent on company administrators, CVM recommends that the members of the company Board of Directors revise and expressly deliberate on the approval of the quarterly financial statements of the companies;
  4. In the guidelines regarding the Proposal of the Board of Directors to be presented at Annual Shareholders' Meetings of publicly-traded companies category A (CVM Ruling No. 481/09 and its amendments introduced by CVM Ruling No. 552/14), CVM included a new item recommending that the Proposal of the Board of Directors should contain information about potential taxes to be levied in the context of dividend distribution to be deliberated during the Annual Shareholders' Meeting;
  5. A new orientation was also included recommending that call notices of the Shareholders' Meetings of publicly-traded companies should be provided at least thirty (30) days in advance of the proposed date. CVM is suggesting that the meetings should be called concomitantly with the disclosure of the Proposal of the Board of Directors;
  6. CVM confirmed the understanding that, whenever possible, the issuers of securities in Brazil and in more than one jurisdiction must disclose Material Facts Notices (Fatos Relevantes) only after the end of the trading day in all countries where the securities are negotiated. It is worth pointing out that article 5 of the CVM Ruling No. 358/02 ("ICVM 358") provides that the Material Fact Notices must be disclosed, whenever possible, before the opening or after the end of the trading days in all applicable countries. With this understanding, CVM intends to ensure that the market has more time to understand and analyze the impact of the disclosed information;
  7. In the case where the publicly-traded company does not comply or otherwise delays disclosure of periodic or relevant information, the Investor Relations Officer must, without prejudice to any potential investigation and punishment by the CVM, provide an Announcement to the Market (Comunicado ao Mercado) with information on (a) the failure to comply with the terms and deadlines provided for in the Corporations Law; (b) the reasons for the delay in disclosure; (c) the measures being taken to remedy the delay; and (d) the estimated timeline for compliance with this obligation;
  8. CVM formalized its position that, notwithstanding the provisions of article 126, paragraph 1, of the Brazilian Corporations Law, shareholders that are legal entities may be represented in the Shareholders' Meetings of the publicly-traded companies by their legal representatives (as provided for in the By-Laws or Article of Association of the shareholders) or by a duly constituted attorney-in-fact. It is not mandatory for the attorney-in-fact or representative to be a shareholder, administrator or a lawyer;
  9. For purposes of the calculation of the percentages for the election of members of the Board of Directors by the multiple voting (voto múltiplo) mechanics, as established in article 141 of the Brazilian Corporations Law, the shares held by the company itself as treasury shares shall be excluded from the total number of shares and from the total number of voting shares;
  10. Additionally, although it is recommended that the presentation of candidates to the Board of Directors by the minority shareholders (when provided for in the By-Laws of the company) is made in advance, CVM clarified that such "requirement" (presentation of candidates in advance) cannot serve as an obstacle, during the Shareholders' Meeting, to the right of the minority shareholders to indicate or elect members to the Board of Directors of the company;
  11. CVM recommends the elaboration and disclosure of a "Policy of Transactions with Related Parties". These transactions must be analyzed by the Audit Committees (where it exists), or by any other specific board committee responsible for analyzing the conditions of this type of transaction, to guarantee that the transactions are in best interest of the company;
  12. Regarding the Disclosure Policy (Política de Divulgação), CVM's suggests, in addition to the minimum provisions as set out in article 16 of ICVM 358, a company should also establish other criteria, such as the obligation of the Investor Relations Officer to disclose information to the market, supervision of potential leaks of relevant information, proceedings to be adopted in case a Material Fact Notice is disclosed during a trading session, as well as a contingency plan to be adopted in the case of relevant information leaks, among others; and
  13. CVM confirmed its understanding that article 253 of the Brazilian Corporations Law is only applicable to companies converted into wholly-owned subsidiaries (subsidiária integral) as a consequence of a merger of shares (article 252 of the Brazilian Corporations Law). Note that article 253 sets out the rules for admission of a shareholder in a wholly-owned subsidiary and provides that the shareholder can acquire shares of the subsidiary in the same proportion of the shares it holds in the publicly-traded company in case the latter intends to sell the shares. Article 253 also provides that the shareholders may subscribe to a capital increase of the wholly-owned subsidiary if the publicly-traded company (controlling shareholder) is admitting other shareholders in the subsidiary. Moreover, in case the capital stock of the subsidiary is held by two or more shareholders, the provisions of article 253 would only be applied in case the structure is utilized to circumvent the law.

Please note that the information above is highly summarized. Our Capital Markets team is available for any further clarifications regarding CVM's Official Letter of 2015.

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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