It has almost been one year since the decision of the Brazilian Securities Commission (CVM) Board that authorized Inepar to proceed with a private capital increase through the capitalization of unsecured credits and with real state guarantees held against it, by means of an intermediary, the commission agent, as subscriber of the shares to be issued in the process.
The decision by the authority represented an important step forward in order to speed up and, in some cases, enable the restructuring of debts of publicly-held companies, thus allowing creditors to receive payment on debts in a simpler and faster manner.
In the case of Inepar, CVM’s authorization was granted in the context of the judicial recovery plan of the company approved on May 21, 2015. Considering the need to execute the measures deliberated on in the plan, the company consulted the CVM regarding the applicability of CVM Instruction No. 505, of September 27, 2011, as amended (ICVM 505), to capital increases carried out through a commission agent.
ICVM No. 505 establishes rules and procedures to be followed by institutions authorized to act as members of the distribution system, for their own account and/or that of third parties, in securities transactions in regulated markets. Its objective is to improve the systems of registered institutions to avoid registration failures that may create undesirable risks for transactions carried out on regulated securities markets.
The focus of the discussion was the exemption from compliance with article 22 of ICVM 505, which states that the intermediary shall identify the final client in all transactions that it executes or registers within 30 minutes after the registration of the deal. This is because one of the options for converting Inepar's credits, provided for in the plan, established that creditors who expressed timely interest in converting their credits into shares issued by Inepar for subsequent sale on a stock exchange would receive the amounts arising from such payment of the credits to which they are entitled. This whole process would happen through a commission agent, who would act on behalf of the creditors (orclients).
The archetype of the commission agent is supported by the Brazilian Civil Code (Law No. 10,406, of January 10, 2002, as amended), notably in articles 693 et seq. Indirectly, this archetype is also supported by article 1, item III of ICVM 505, which defines clients as the natural person or legal entity, investment fund, investment club, or non-resident investor on behalf of whom transactions with securities are conducted."
The commission agent may be appointed by means of a commission contract concluded between the client and the commission agent, the purpose of which is the acquisition or sale, by the commission agent, on his own behalf, of assets to the account of the client. In Inepar’s capital increase, the express manifestation of acceptance of the option to convert the credits to which they are entitled and the nomination of the commission agent by the creditors is sufficient to characterize the creditors as clients and, therefore, to authorize, as the case may be, the conclusion of a commission contract on their behalf.
The decision by the judicial body was based on the opinion of the Superintendence of Market Relations and Intermediaries (SMI) of the CVM on July 6, 2016. For the technical area, the proposal to conduct the capital increase through a commission agent, as approved in the plan, would have advantages that would justify it, among them:
- allow expediency in the proceeding, especially for creditors who may not make regular investments in the securities market and would need to open accounts with a qualified institution for a single transaction;
- it is the only viable alternative for certain creditors who may, due to legal restrictions or other reasons, not be direct holders of shares issued by Inepar;
- solve a specific case (judicial recovery) in a practical manner that is supported by Brazilian legislation and does not contradict regulations; and
- provide alternatives to attend to the interests of different lenders and ensure the successful recovery of companies in financial difficulty.
In view of these advantages, we believe that the archetype of the commission agent as subscriber could be adopted also in cases of debt restructuring of companies that are not in judicial recovery. This is a consideration for future restructuring.