The recommendations of the Brazilian government authorities to avoid meetings and crowds of people to combat the spread of COVID-19 in Brazil concern publicly-held companies and the market in general in relation to the deadline required for the ordinary shareholders’ meetings to resolve on the company’s financial statements. According to article 132 of Law No. 6,404/76 (the Brazilian Corporations Law), such ordinary shareholders’ meetings shall be held within the first four months after the end of the last fiscal year.
The Brazilian Securities and Exchange Commission (CVM) has not yet formally expressed its opinion on the matter, whether so as to not impose administrative sanctions against companies which have not held their ordinary shareholders’ meetings within the aforementioned deadline, whether to confirm and guide companies that wish to hold them virtually. In this article, we examine the second scenario.
Currently, shareholders’ general meetings of are held at the companies' headquarters, mostly in person, with all formalities imposed by the applicable laws and regulations for their validity, such as registration of the shareholders' attendance in the proper book, transcription of the minutes of the meeting in the proper book, and preparation of certified copy of the respective minutes of the meeting for presentation before the boards of trade. These formalities generally requires the physical presence of shareholders.
Regarding the current coronavirus pandemic, however, such meetings do not comply with the recommendations of health professionals and government authorities, since shareholders and advisors often need to travel (often by plane) to the places where the meetings are to be held. Given this situation, would it be possible, from the corporate point of view, to hold entirely electronic or virtual meetings?
Electronic or virtual meetings are those "that occur entirely electronically, without the physical presence of or need for meetings by shareholders. Shareholders remotely access a platform by means of which they register their presence through digitalsignature certificates, discuss the agenda, and then vote. This whole process takes place virtually, allowing shareholders in different places around the world to participate at the same time in the same meeting, without the need to travel to a particular location."
On this subject, the first paragraph of article 121 of the Brazilian Corporations Law provides that "in publicly-held companies, the shareholder may participate and vote virtually in a general meeting, in accordance with the regulations of the Brazilian Securities and Exchange Commission." Likewise, the first paragraph of article 127 of the Brazilian Corporations Law, which addresses concerns related to the attendance book, states that "for all the purposes of this law, shareholders who record their presence remotely shall be deemed to be present at the general meeting, in the manner provided for in the regulations of the Brazilian Securities and Exchange Commission." Both provisions were the result of amendments to the Brazilian Corporations Law by Law No. 12,431/11, which aimed not only to accept the possibility that shareholders vote remotely, but also to embrace the possibility of "providing systems that would enable shareholders to participate and vote remotely and in real time."
CVM Normative Ruling No. 481/19 ("ICVM 481"), however, included as an obligation for companies to make available only the vote the remote ballot. Such ballot allows shareholders to vote remotely on matters to be resolved on at the meeting, by filling it out and sending it to the company a certain amount of time in advance. The submission may be provided directly to the company by shareholders or through the custody agent or bookkeeping agent of the shares issued by the company in question.
But even though it represented a great advance, especially to avoid massive absence of the shareholders, the ballot provided for in ICVM 481 is a limited instrument, since it does not allow shareholders to participate in the debates and discussions held during the meeting. The ballot must not be confused with holding the meeting of shareholders itself virtuallly, which should allow shareholders to effectively participate in the meeting, discussing the topics presented, posing questions to the management members, and casting their vote remotely in real time.
Since 2015, CVM has pointed to the possibility of holding virtual meetings. The subject was discussed through the report on the public hearing SDM No. 09/14 upon which amendments to ICVM 481 were discussed. The conclusion of the report, however, was to leave virtual meetings as an option for companies, since, in the understanding of CVM, there was not yet, at the time, sufficient technology to hold them: "In the process of preparing the draft, studies were conducted on the existing technologies for holding virtual meetings and electronic transmission of votes at the time of the meeting. The conclusion of these studies was that, although they are evolving rapidly, there are no technologies that have been sufficiently tested in order to ensure that a virtual meeting may be held efficiently. Therefore, the CVM believed that it would not be advisable to require companies to adopt these technologies at this time. It is possible that in the future, with the increase in the degree of reliability of these platforms, CVM will review this decision. For the time being, and even so as not to inhibit the development of appropriate technologies, virtual meetings will remain an option for companies.
Reinforcing this position, article 21-C, paragraphs 1 and 2, of ICVM 481 expressly states that "without prejudice to the provisions of article 21-B [remote ballot], the company may make available to shareholders an electronic system [...] for remote participation during the meeting [...] and, if it makes an electronic system for remote participation during the meeting available, the company must provide the shareholder with an alternative for participating and voting."
In other words, both the Brazilian Corporations Law and ICVM 481 allow companies to structure the means to hold their ordinary shareholders’ meetings virtually. In addition to complying with recent public health recommendations from government authorities, the measure may help promote increased shareholder participation in these discussion forums.
The most complicated issues to be faced in the implementation of meetings of shareholders virtually are those related to technology, since the platforms used should ensure that shareholders are able to: (i) identify themselves appropriately (through a digital signature certificate); (ii) send proxy documents and other documents requested from them in the usual manner by digital means, if they have not sent them in advance; and (iii) participate and vote remotely, in real time.
There are still other legal issues to be addressed, but for which companies can structure solutions, especially considering the current emergency scenario. They are:
- The need to hold the meeting at the company's headquarters: article 124, paragraph 2, of the Brazilian Corporations Law states that meetings must be held at the company's headquarters and, in any case, never outside the locality of the headquarters. As a solution the company may delegate a responsible professional to be present at the headquarters and assume the function of secretary and/or chairman to conduct the meeting in house, even if the discussions and votes occur virtually.
- Company’s Regular Disclosure Documents (Formulário de Referência): Annex 24 of ICVM 480/09 provides a separate field ("if the company provides an electronic system for remote receipt of the ballot or remote participation") in its item 12(h) for companies to report whether they have a system that allows remote participation by shareholders (and not mere exercise of voting rights) at general meetings. For the time being, as companies wishing to hold virtual meetings will not have time to include the procedures involved in their regular disclosure documents, we believe that shareholders may be guided by the information provided by the company in a notice to shareholders and in the instructions provided for in the management proposal for the meeting.
- Registration of attendance in the proper book: An electronic document that mirrors the physical shareholders' attendance book could be made available in the virtual platform developed by the company, with access restricted to those have been previously accredited upon proof of shareholder status. It must be signed with the digital signature certificate.
- Conduct of the proceedings: by means of the virtual signature of the attendance book, shareholders would receive a password to access the videoconference where the discussions of the general meeting will be conducted by the chairman and secretary.
- Transcription of the minutes in the proper book with the signature of those in attendance: by means of the declaration of adjournment of the meeting, the minutes would be drawn up during the videoconference and, once approved by all, would be available for signature with the digital signature certificate in the same virtual platform of the company as referred to in item 2 above; and
- Preparation of certified copy of the minutes to be filed: the company's management would prepare a digitally signed certified copy of the minutes and present it for file before the applicable board of trade. Only the certified copy of the minutes authenticated by the chairman and secretary shall be presented to the board of trade. Therefore, it could be signed in a physical copy if there is a regulatory barrier to filing it with only the digital signatures of the chairman and secretary.
The members of the management, the company's independent auditors, and shareholders would participate remotely. However, it should be noted that the possibility of holding a general meeting of shareholders electronically does not require the shareholder to choose to participate in the meeting by virtual means. Thus, companies should be prepared to receive shareholders who wish to appear in person at their headquarters. For this reason, it will be necessary to designate a professional responsible for receiving and verifying the documents of such shareholders, assuming the role of secretary and/or chairman of the meeting.
The measure also avoids allegations that the meeting was held outside the location of the company’s headquarters. In other words, general meetings held on a virtual basis open up a new possibility for participation by shareholders, which in no way excludes in-person participation. Companies must be ready to reconcile the participation of all in both virtual and in-person meeting arrangements.
It is possible to conclude that CVM's legal and regulatory framework allows Brazilian publicly-held companies to hold virtual meetings. Until the present date, however, no company has tested this model. If COVID-19 continues to advance, the market expects CVM to formally express its opinion on the matter. This opinion could come in the form of both guidance to companies wishing to test the virtual meeting model and suspension of penalties for those who fail to hold such meetings within the dealine provided for by the laws and regulations. The latter option may not solve the problem of companies that depend on financing or are participating in bids, situations which require that the ordinary shareholders’ meeting be held.