Brazil: Disclosure of Relevant Information in Brazil

Last Updated: 10 June 2016
Article by Walter Stuber

On June 2, 2016, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) issued Communiqué No. 02/2016, alerting the market participants about the responsibilities in the disclosure of relevant information.

In view of the damage to investment decisions and the possible abuses provided by informational asymmetry, CVM considered important to enhance the duties and responsibilities involved in the proper dissemination of information, which is not restricted to the obligations attributed to the Director of Relations with Investors  (Diretor de Relações com Investidores - DRI) of Brazilian publicly-held corporations (listed companies).

Article 157, paragraph 4, of Law No. 6,404, of December 15, 1975 (the Brazilian Corporation Law – BCL)[1] as well as article 2 of CVM Instruction No. 358, of January 3, 2002 (ICVM 358/2002)[2], determine the disclosure to the market of any material act or fact that may predominantly influence: (i) the price of the securities issued by listed companies or related thereto; or (ii) in the decision to buy, sell or hold such securities, or even to exercise any rights inherent to them.

For the purposes of article 2 of ICVM 358/2002, "material events" (comprising acts or facts) are defined as any decisions by majority shareholders, general shareholders' meetings, or by officers of publicly-held corporations, as well as any other acts or facts of a political-administrative, technical, business or financial nature related to the relevant business that may significantly influence: (i) the market price of the securities issued by the relevant corporation or backed on them; (ii) investors' decisions as to buy, sell, or preserve those securities; (iii) investors' decision as to exercise any rights inherent to titleholders of securities issued by the by the relevant corporation or backed on them.

According to the aforesaid definition[3], material events may include, but are not limited to: (i) signature of agreements or contracts regarding the transfer of the control of the company, even if under conditional provisions; (ii) changes in the control of the company, including celebration, amendments, or cancellation of shareholder agreements; (iii) celebration, amendments, or cancellation of shareholder agreements in which the company takes part in or are intervenient, or if they have been registered in the appropriate book maintained by the corporation; (iv) admission or departure of shareholders maintaining contracts or operational collaboration regarding financial, technological or administrative issues with the company; (v) authorization for listing securities issued by the company in any domestic or foreign market; (vi) decision to go private or decision to promote the cancellation of the publicly-held corporation's register; (vii) incorporation, merger or spinoff involving the company itself or linked corporations; (viii) transformation or dissolution of the company; (ix) changes in the company's assets; (x) changes in accounting criteria; (xi) renegotiation of debts; (xii) approval of stock options plans; (xiii) changes of the rights and privileges of the securities issued by the company; (xiv) splits, reverse splits or the issue of share dividends; (xv) acquisition of shares for the purpose of increasing treasury stock or cancellation, and the selling of shares so acquired; (xvi) amount of profits or losses and the distribution of dividends; (xvii) celebration or termination of contracts, or failure to close a deal, when the expectation for such is of public knowledge; (xviii) a project's approval, alteration or abandonment, as well as a delay in its implementation; (xix)  starting, retaking or suspending the manufacturing or commercialization of products or of services rendered; (xx) discoveries, changes or developments regarding technology or companies' resources; (xxi) modification of disclosed projections by the company; (xxii) reorganization arrangements, bankruptcy, or any lawsuit that alters the corporation's financial situation.

To ensure the orderly and equitable market access to such information, ICVM 358/2002 imputes to the DRI listed companies the duty to disclose it, so clear and precise, through official channels of communication, as well as to ensure its wide and immediate dissemination[4].

ICVM 358/2002 recognizes that the DRI may not be aware of all potentially material facts that will be subject to disclosure. However, with any atypical oscillation in the quotation, price or quantity of the traded securities issued by the company, it is the responsibility of the DRI to proactively verify the existence of the relevant information that must be disclosed to the market. This must also occur before any questioning by CVM or any self-regulatory entity[5].

On the other hand, controlling shareholders, directors, members, employees and members of statutory bodies are also required to keep the DRI informed about any relevant information of which they have knowledge[6].

In line with such obligations, CVM points out the need for those persons who, by their office or position, although not directly connected to the company, have access to information that could influence in a measurable way with the price of the securities issued by the company, can act in a manner coordinated with the institutional channels of the listed company and can communicate such information to the DRI before making it public. Therefore, the DRI can act in time to provide to the market true, complete and consistent information, that does not induce investors to error, as provided for in article 14 of the CVM Instruction No. 480, of December 7, 2009 (ICVM 480/2009)[7].

The relevant information does not necessarily originate from the company itself, and can arise from external events, such as strategic changes in specific sectors of the economy.

The responsibilities and guidelines mentioned herein are applicable to all listed companies, including mixed economy companies (sociedades de economia mista) controlled directly or indirectly, by the federal entities (the Union, the States, the Federal District and the Municipalities).

[1] Paragraph 4 of article 157 of the BCL establishes that: "The officers of a publicly-held corporation shall immediately inform the stock exchange and publish in the press any resolution of a general meeting or of the corporation's administrative bodies or any relevant fact which occurs in its business affairs, which may substantially influence the decision of market investors to sell or buy securities issued by the corporation".

[2] ICVM 358/2002 regulates the disclosure and use of information about material acts or facts, the disclosure of information in the negotiation of securities of issuance of publicly-held corporations by controlling shareholders, directors, members of the board of directors, of the fiscal board and of any agencies with technical and advising functions, according to the bylaws, as well as, in the event of the acquisition of significant blocks of shares issued by publicly-held corporations, and the negotiation of publicly-held corporations' shares in the event of pending of non-disclosed material facts to the market.

[3] The list of material events is contained in the sole paragraph of article 2 of ICVM 358/2002.

[4] Article 3 of ICVM 358/2002 states that:

"Art. 3 The Director of Relations with Investors shall publish and inform the CVM and also the stock exchange and entities of the organized over-the-counter market where the securities issued by the company are traded, as the case may be, as well as any material events occurred or related to their business, as well as to provide for their wide simultaneous publicity, to all markets in which such securities are traded.

Paragraph 1 Controlling shareholders, directors, members of the administrative council, of the statutory audit committee and of any technical and consultative bodies, according to the bylaws, shall report any material event they are aware of to the Director of Relations with Investors, who will provide for its disclosure.

Paragraph 2 In the event those people referred to in the previous paragraph have personal knowledge about material events and verify omission by the Director of Relations with Investors towards Investors in the fulfilling of his communication and disclosing duties, including the sole paragraph of the article 6 of this Instruction, they will only be exempt from responsibility if they communicate the material events to CVM immediately.

Paragraph 3 The Director of Relations with Investors shall disclose material events simultaneously to the market to be transmitted by any type of media, including information to the press, or in meetings of class, investors or analysts' entities or to a selected public, domestically or abroad.

Paragraph 4 Disclosures shall be carried out through publications in wide circulation newspapers usually utilized by the company; the disclosure shall be made in a summarized way indicating addresses in the world wide web Internet, where the complete information shall be available to all investors, with the content at least identical to the one sent to CVM and if it is the case, to the Stock Exchange and entities of the organized over-the-counter market in which the securities issued by the companies are traded.

Paragraph 5 Disclosure and communication of material events, including the summarized information aforesaid, shall be made in a clear and precise manner, as well as in an comprehensible language to the investors.

Paragraph 6 CVM has authority to determine the publication, correction, amendment or republication of information related to material events."

[5] Article 4 of ICVM 358/2002 provides that:

"Art. 4 The CVM, the Stock Exchange or entity of the organized over-the-counter market in which the securities issued by the companies are traded may, at any time, demand additional explanations from the Director of Relations with Investors about the communication and disclosure of material events.

Sole paragraph. According to the aforesaid, as well as in the event of atypical fluctuations on quotations, pricing or negotiated quantities of the securities issued by publicly-held corporations or related to them, the Director of Relations with Investors shall inquire the people who have access to relevant acts or facts, with the goal to verify if they are aware of information that should be disclosed to the market."

[6] This requirement is contained in paragraph 1 of article 3 of ICVM 358/2002, which is transcribed in footnote 4 above.

[7] Pursuant to article 14 of ICVM 480/2009:

"Article 14. The issuer will publish information that is true, complete, and consistent, which do not mislead the investor."

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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Walter Stuber
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