Clarissa FreitasMarcos CostaAmanda Siqueira Costa Vilela and Renata Marques de Moraes

Recognizing the importance of transparency in the disclosure of information to shareholders and to the market as one of the mechanisms for establishing trust between investors and the system, the regulation applicable to publicly-held companies pays particular attention to their duty to provide information to support shareholder and investor decisions.

One of the purposes of this disclosure obligation is to avoid the practice of insider trading by enabling means of obtaining this information not only to the company and its shareholders, but to the market as a whole.

Among the various instruments available for this dissemination, the relevant fact stands out. Article 157, §4, of Law 6,404/76 provides a general definition of relevant fact by determining that the company must disclose "any resolution of the general meeting or the company's management bodies, or relevant fact that occurred in its business, which may have a significant influence on the decision of market investors to sell or buy securities issued by the company".

In the same sense, the Brazilian Securities and Exchange Commission (CVM) issued CVM Resolution 44/21 (which replaced the former CVM Instruction 358/02). Such rule established as relevant any decision of the controlling shareholder, resolution of the meeting or the management bodies, or any other act or fact related to the company's business that may influence the listing of the company's securities, the decision of investors to buy, sell or maintain such securities or the decision of investors to exercise rights related to the securities of which they are the holders.

In the context of a publicly held company, there are numerous hypotheses in which shareholders and investors may be impacted by the non-disclosure of the necessary and relevant information. Resolution 44/21 seeks precisely to diminish the free will of administrators to decide what is relevant and susceptible to disclosure.

In addition to the definition above, the resolution brings an example list of matters that can be considered relevant facts, such as the signing of control transfer agreements, corporate transactions in general, debt renegotiation, conclusion of contracts, among many others.

Of course, the listing of themes is not final. The analysis of the relevance of a given fact to the company will depend on the discretion and understanding of its management. The same fact may or may not be considered relevant for companies with different realities.

According to the understanding that CVM has expressed over the last few years, the general rule, in case of relevant fact, is that of wide disclosure, even if the information refers to the operation under negotiation, feasibility studies, initial negotiations or even the mere intention to conduct the business.

The material fact may, exceptionally, cease to be disclosed if, at the discretion of the controlling shareholders or directors, its disclosure puts at risk the legitimate interest of the company. The exception to the obligation of immediate disclosure, however, will cease to occur immediately in case of leakage of information or atypical fluctuation in the quotation, price or negotiated quantity of the securities issued by the company.

It will always be the responsibility of the Investor Relations Officer (DRI) to expedite, in a relevant and timely manner, the communication of relevant fact, and he may be personally held liable for any inaccuracy in the disclosure.

The relevant fact must be disclosed in the manner provided for in the Company's Material Act or Fact Disclosure Policy, on its official website, through CVM’s Empresas.NET system and in the news portal reported in the Registration Form.

In case of change in the company's communication vehicles, it will also be up to the DRI to change the disclosure policy, update the registration form and disclose the change before its effective implementation.

In addition to the obvious disclosure obligation, it will also be up to the DRI to monitor situations in the company's life, in contact with key people, to become aware of facts that may be relevant, monitor the price of securities to identify atypical fluctuations and supervise leaks of information.

In case of leakage or atypical oscillation, there should be immediate disclosure of the relevant fact, even if related to ongoing operations, feasibility studies or mere business intention.

In relation to accountability, it is necessary to highlight:

  • the joint and several nature of the responsibility between the DRI and the controlling shareholders, in case of inertia of the DRI, a situation in which directors and members of the boards of directors and tax, when aware of the possible inertia of the DRI, must provide themselves the disclosure; and
  • the personal accountability of the DRI in the event of non-compliance with the relevant disclosure policy. This gives the DRI coercive power to demand transparency and effectiveness in the reporting of information by other board members.

In addition to analyzing the content of the disclosure itself, it is important that the publication of the relevant fact is timely, so that the information is still useful to its recipients, without being disclosed late.

Adopting the understanding that relevance is in the potential to influence investors' decisions and not in their consummation, CVM has already considered atypical fluctuations in the price of securities as indications of the existence of relevant facts of necessary disclosure.

More recently, the CVM board, responsible for investigating irregularities committed by publicly-held companies in the disclosure of relevant facts, understood that the change in the company's pricing policy would be relevant, as it could mislead market participants.

According to CVM, companies should preserve consistency in disclosures – if the pricing policy was considered relevant and disclosed, any changes should also be disclosed in order to preserve the completeness of the information to the market.

In relation to litigation, the disclosure of the existence of legal proceedings involving the companies has already been understood as relevant by the CVM, even before the final judgment, given its potential impact on the negotiations of company’s securities.[1]

Another topic much discussed by the CVM board concerns the disclosure of events considered relevant facts through other instruments, such as the Market Release.

The DRI must pay attention on the fact that, if a given event is in a material fact (i.e., it has the potential to influence the investors' decision to trade with the company's securities), it may not be disclosed in a format other than the relevant fact. On the other hand, if a given event does not fit as a relevant fact, but is important for decision making, it should become public by means of notice to the market or notice to shareholders, for example.

It is increasingly common to find CVM jurisprudence by imputing penalties to the DRI for disclosure through the incorrect instrument, which is why it is necessary to observe the proper use of the means of disclosure and avoid the repetition of incorrect practices.

Given the relevance of the theme to the daily life of companies and the effective supervisory power of CVM on the subject, special care is recommended in the performance of the DRI to ensure effective compliance with applicable legislation.


[1] The disclosure of judicial, administrative and arbitration proceedings involving publicly held companies is also the subject of a specific item of the Reference Form, and the statement on corporate claims, pursuant to the recent CVM Resolution 80/22.