On June 2, the Executive Branch, through the Ministry of Finance, submitted to the National Congress for deliberation the text of Bill 2.,925/23, which aims to amend Law 6,385/76 and Law 6,404/76 (the Brazilian Corporations Law). The aim is to deal with transparency in arbitration proceedings and the system of private protection of investors' rights in the securities market.
Spearheading Bill 2,925/23 is the Secretary of Economic Reforms, Marcos Barbosa Pinto, former chairman of the Brazilian Securities and Exchange Commission (CVM). The bill is considered one of the main changes to the Brazilian Corporations Law since the changes brought about by Law 10,303/01.
In general terms, Bill 2,925/23 sets out clearer parameters for bringing liability actions, increasing the possibility of compensation for investors. According to a note from the Ministry of Finance, the main innovation is the possibility for minority shareholders and debentureholders who are harmed by the illegal acts of controlling shareholders and administrators to have the right to bring a collective civil action for liability.
Below is a brief summary of the main changes proposed by the bill.
I. Amendments to Law 6,385/76
Expanded supervision: broadening the CVM's powers under article 9 of Law 6,385/76 to create more instruments for the CVM to investigate cases, including, among others, the power of the agency to:
- request a search and seizure warrant from the Judiciary in the interest of an investigation or administrative proceeding;
- request review of and copies of investigations and proceedings opened by other federal entities; and
- share access to information subject to confidentiality with monetary and tax authorities, provided that, with regard to the last two items, the CVM and these authorities respect the same secrecy restrictions applicable to the information at its source.
Civil liability: civil liability for losses suffered by investors as a result of the action or omission of issuers in breach of the laws and regulations of the securities market will apply to:
- officers and directors of securities issuers;
- controlling shareholders of the issuer, when the laws or regulations directly impose on them the duty to comply with the rule infringed on or when they contribute to the commission of the illicit act; and
- offerors and underwriters of public offers for the distribution of securities, as well as offerors and brokers of public offers for the acquisition of securities.
- Civil liability in the above cases will require proof of fault or intent.
Collective actions: change of criteria for investors to have standing to bring collective civil actions for liability for damages arising from breaches of securities laws or regulations, as well as individual compensation actions.
Publicity in arbitration proceedings: the possibility for the articles of association, bylaws, indentures, and instruments of issues of securities to provide for liability claims to be decided by arbitration, with the proviso that arbitration proceedings must be public.
II. Amendments to the Brazilian Corporations Law
Publicity in arbitration proceedings: obligation to publicly disclose arbitration proceedings relating to publicly-traded companies.
Closure of liability suits: expansion of the list of matters exclusive to the general meeting provided for in article 122 of the Brazilian Corporations Law to include, as a competence of the meeting, the authorization of a transaction aimed at closing liability suits provided for in articles 159 and 246 of the Brazilian Corporations Law. The transaction to close liability suits will not take effect if shareholders representing 10% of the voting capital stock decide to reject it.
Prohibition of voting by officers and directors: a prohibition on officers and directors voting, as shareholders or proxies, in resolutions on the exoneration of officers and directors and auditors from liability and on the filing of liability suits.
Limitation on the exoneration of officers and directors and auditors: amendment of the rules for exoneration of officers and directors and auditors for liability in relation to events occurring during their term of office. The automatic exoneration upon approval of the annual financial statements is eliminated.
Filing of liability suits: alteration of the criteria for shareholders to have standing to file the liability suits provided for in articles 159 and 246 of the Brazilian Corporations Law, as well as a prohibition on the company filing an independent liability suit in the event of a liability suit filed by a shareholder.
Rebalancing economic incentives in liability suits: change in the premium due to the plaintiff of the suit by the convicted officer or director or controlling shareholder, from 5% to 20% of the amount of the compensation.
With the approval of Bill 2,925/23, it will be incumbent on the CVM to regulate the changes in greater detail.