Executive Order No. 931/20 (MP 931/20) has just been issued, with measures related to the holding of general meetings of corporations and meetings of partners of limited liability companies, in response to complaints by publicly-held companies and class entities such as Abrasca and IBRI regarding the difficulties caused by the coronavirus pandemic.
With the text of MP 931/20, the Brazilian Corporations Law is amended in order to, essentially:
- Authorize, in the 2020 fiscal year, ordinary general meetings (AGO) of corporations (including publicly- and privately-held companies, government-owned companies, and government-controlled companies and their subsidiaries) to take place within the first seven months of the following fiscal year, by July 31, 2020;
- Exceptionally during the 2020 fiscal year, authorize the Brazilian Securities and Exchange Commission (CVM) to extend the deadlines established in the Brazilian Corporations Law for publicly-traded companies, including the date for presentation of financial statements;
- Authorize the board of directors to resolve, ad referendum of the AGO, on urgent matters within the competence of the General Meeting (unless expressly prohibited in the bylaws); and
- Authorize general meetings to be held outside the address of the company's headquarters, but in the same municipality, in the case of publicly-traded companies, give CVM the power to authorize the holding of digital meetings and at locations outside the municipality of the company's headquarters.
CVM is expected to issue a resolution or other regulation on the points whose competence has been assigned to the authority (in particular with regard to the deadlines for disclosure of financial information), which should occur soon.
The measures are optional, that is, companies may maintain their original schedule for disclosing information and holding ordinary general meetings. In such cases, encouragement of participation by means of remote voting is recommended. It is up to each company's management to evaluate the options offered by the new regulations, based on its specific situation and history of participation in meetings.
Among the practical consequences of the measures for companies choosing to postpone the meeting are:
- Postponement of approval of the annual financial statements and allocation of profit and loss for the year ended December 31, 2019, in which case it is up to the management of the companies that so desire to evaluate other possibilities for distribution of profit and loss, such as interim or intermediate dividends or interest on equity. There may also be a mismatch between the disclosure of the financial statements and their approval, for those companies that choose to disclose their annual financial statements within the usual timeframe, but postpone the ordinary general meeting;
- Extension of the terms of office of the members of the board of directors that expire on the date of the annual general meeting, as well as of the audit committees that have been set up, as determined by the Brazilian Corporations Law;
- For companies without an established and non-permanent audit committee, postponement of the possibility of setting up the committee and electing its members, with the risk that there may some damage to its work, considering that by the time the committee is set up, the financial statements will have already been disclosed;
- Postponement of approval of the overall compensation of officers and directors and audit committee members (the latter, provided that the audit committee has been set up) to the 2020 fiscal year.
The measures are exceptional and mean recognition of the practical difficulties that companies face in meeting their regulatory obligations, either due to the unavailability of professionals and officers and directors of the company itself and of third parties involved (such as independent auditors), or due to the inability to ascertain the concrete and estimated effects of the pandemic on their profit and loss and operations.