The Brazilian Securities Exchange Commission ("CVM") has made public its Board of Directors' decision issued on August 12, 2014, with respect to CVM Proceeding No. 2014/6342 ("Proceeding").
The Proceeding was initiated by SPE STX 25 Desenvolvimento Imobiliário S.A. ("STX") concerning the development of the "Rio Business Soft Inn", because STX intended to sell 151 hotel units ("condo hotel units") during the construction period, at an average price of R$400,000.00 in accordance with Law No. 4.591/64 (Real Estate Development Law).
In the Proceeding, STX requested exemptions from: (a) registration with the CVM of the public offering of the condo hotel units; (b) the obligation of contracting securities brokers; (c) compliance with certain duration rules regarding public offers established in the applicable CVM regulation; and (d) registration of the issuer of the offering.
The structure proposed by STX requires the execution of the following agreements: (a) Assignment of purchase and sale of condo unit commitment; (b) Incorporation of special partnership; (c) Lease Agreement; and (d) Statement of acceptance of the special partnership. These legal instruments are considered as collective investment contracts by CVM.
The CVM Board of Directors, acting unanimously, granted the exemption requested by STX, but it mandated that the public offering promotional materials should (a) be previously approved by CVM and (b) inform the reader that CVM exempted registration of the public offering and, thus, CVM does not guarantee the accuracy of the information provided or the quality of the securities.
It is important to underline that the requirements imposed by CVM were softer than those previously imposed on Arpoador Fashion Hotel Empreendimento SPE Ltda. and Incortel Vitoria Consultoria e Hotelaria Ltda., who tried to sell fractional interests in hotel real estate under construction that was not subject to the provisions established under Law No. 4.591/64.
Therefore, it should be noted that CVM has demonstrated a consistent trend regarding the following issues:
- Hotel Developments, with condo units offered to the general public during the construction period, established under Law n.º 4.591/64 and with the creation of a special partnership, should have their request for exemption approved, without further limitations imposed by CVM;
- Hotel Developments, with fractional interests offered to the general public, but established without compliance to the provisions established under the Law n.º 4.591/64, might have their request for exemption approved, provided, that such offer is addressed only to qualified investors (as established by Instruction n.º 409 issued by CVM) or the investments are substantial;
- Hotel Developments with units offered for sale to the general public and established under Law n.º 4.591/1964, without the creation of a special partnership, have not yet been analyzed by CVM. Therefore, we await its position regarding this specific situation, as well as the eventual publication of subsequent legislation that consolidates the procedures to be adopted on this topic.
Suspension of investment offers
Further, on August 10, 2014, CVM issued Deliberation n.º 725/2014, alerting the market that Cabral Garcia Empreendimentos Imobiliários Ltda. ("Cabral Garcia") is not registered to offer, through its website or media advertisements, investments related to its hotel developments. By means of the Deliberation, CVM ordered the immediate suspension of such investment offerings, under threat of a punitive fine, without prejudice to subsequent application of furtherlegal sanctions.
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