Brazil: Disclosure of Relevant Information in Brazil

Published 12/06/2016 por Isis Magri Teixeira

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).

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