The joint committee of the Brazilian Securities and Exchange Commission (CVM) approved, on January 25, 2022, the execution of a settlement agreement within the scope of an administrative sanctions proceeding (PAS CVM SEI 19957.011341/2018-77) filed against officers and directors ofa company in the pulp and paper sector. The charge was for breach of duty of care, as per article 153 of Law 6,404/76 (the Brazilian Corporations Law - LSA), and misuse of power, pursuant to article 154, paragraph 2, due to the fact that the accused had signed loan agreements, representing the company, to transfer funds to its CEO.

The proposal of a settlement agreement was made by the accused jointly and after the expiration of the statutory period to submit it or even for an expression of interest in submitting it (that is, during the 30 days after the service of process). The Federal Attorney General's Office Specialized in the CVM (PFE-CVM) found that it was possible to accept the proposal after the deadline, given the authorization granted by the regulations,[1]which was ratified by the Settlement Agreement Committee and by the joint committee of the CVM.

The company's bylaws and shareholders' agreement mandated that the execution, amendment, or extinguishment of contracts with related parties be previously approved by the Board of Directors (BD), an approval that was not obtained by the officers who signed the loan agreements for the transfer of funds to the CEO, in the amount of R$24.5 million, according to the explanatory notes in the financial statements.

The signing of the contracts is said to have been attended by the CEO (beneficiary of the funds), the chairman of the BD, and two other corporate officers (chief commercial officer and chief forestry officer). Once the investigation carried out by means of an administrative inquiry was completed, the technical area proposed to hold the chief executive officer and the chairman of the BD responsible for misuse of power,[2] by lending the company's funds without the authorization of the competent bodies. The other officers were accused of breaching the duty of care[3] by failing to check whether the requirements necessary for signing the loan agreements had been met.

Initially, the proposed settlement agreement contemplated payments of R$350,000 for the CEO and the Chairman of the BD, and R$100,000 for each of the other officers. In commenting on the initial proposal, the PFE-CVM considered that there was no legal impediment to the execution of the settlement instrument, since the requirements to cease the irregular practice and correct the irregularities had been met. However, it reinforced that the analysis of the sufficiency of the proposed amounts would be up to the Settlement Agreement Committee, which is responsible for deciding on the advisability and expedience of entering into the settlement agreement.

In a first opinion, the committee believed it would be possible to evolve in the negotiations with the corporate officers as a way of terminating the PAS, by means of a settlement agreement, increasing the initial proposal to R$ 350 thousand to be paid by each proponent in a single installment. On the same occasion, it deemed it inadvisable to accept the individual payment of R$350 thousand proposed by the CEO and the chairman of the BD, considering the difference in relation to the amount that the committee believed to be reasonable in view, also, of the background of the accused.

During the negotiation, the corporate officers tried to maintain the amount proposed by the committee, but with payment in installments, which was denied by the body, maintaining its initial decision on its own grounds. In the negotiation with the CEO and the chairman of the BD, it was argued, in a meeting with the committee members, that the loan contracts were remunerated at rates higher than those contracted under market conditions, the funds had already been repaid to the company, and that, while in effect, the loans were duly recorded in the financial statements. Even so, the fine proposed was raised to R$1.050 million in a new proposal by the CEO and the chairman of the BD.

At the last meeting, the committee reexamined the case in light of the new proposal and found that the enhancement met the necessary sufficiency of values in deciding on advisability and expedience, since "the facts are prior to the entry into force of Law n. 13,506, of November 14, 2017" and there was "representativeness of the amount offered, equivalent to three (3) times the amount negotiated with each of the other two proponents in the case," justifying the "appropriate and sufficient outcome to discourage similar practices, in compliance with the preventive purpose of the settlement in question, including because CVM has, among its legal objectives, promotion of expansion and efficient operation of the capital market.”  The joint committee followed the committee and accepted the settlement.


[1] Article 84, CVM Resolution 45: "In exceptional cases, in which it is found that the public interest favors the analysis of a proposal for the execution of a settlement agreement submitted after the deadline referred to in article 82, such as those of offering full compensation to those harmed by the conduct that is the subject of the proceeding and of modifying the factual situation existing at the expiration of said deadline, the analysis and negotiation of the proposal may be carried out by the Reporting Board Member."

[2] Article 154, paragraph 2, b and c: “Officers are prohibited from: b) without prior authorization from the general meeting or the board of directors, borrowing funds or assets from the company, or using, for their own benefit, from a company in which they have an interest, or from third parties, its assets, services, or credit; c) receiving from third parties, without authorization in the by-laws or from the general meeting, any type of personal advantage, direct or indirect, due to the exercise of their position.”

[3] Article 153: “Officers and directors of the company must employ, in the exercise of their functions, the care and diligence that every active and upright man usually employs in the administration of his own affairs.”