Regulatory Flexibility in the Brazilian Capital Markets During the Covid-19 Pandemic
It is well known that the impact of the pandemic and the need for restricted circulation deeply affected the global economy. Emergency measures were implemented in many strategic areas, including capital markets’ regulatory flexibility.
In 2020, after the declaration of a "State of Calamity" by the Brazilian Congress (Legislative Decree No. 6/2020, of March 20, 2020, expired), the Brazilian Government, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM) and the Brazilian Stock Exchange (B3 S.A. – Brasil, Bolsa, Balcão) enacted rules aiming to simplify the applicable obligations for all publicly held companies.
In the context of measures taken by the Brazilian Government, it is worth mentioning the following: (i) Law No. 14.030/2020 (July 28, 2020), which increased the board of directors’ competence on urgent matters, authorized CVM to extend corporations’ legal deadlines, as well as regulated virtual shareholders' general meetings; and (ii) Complementary Law No. 182/2021 (June 1, 2021), allowing CVM to enact regulations aiming to facilitate the access of emerging growth companies (EGC, classified by companies with total annual gross revenues of less than R$500 million) to the capital market, waiving certain obligations (e.g. to appoint a fiscal council by request of minority shareholders, to engage an underwriter in public offerings, to pay mandatory dividends and to disclose information via newspaper publications).
With regard to CVM, new rules were enacted to suspend or extend several deadlines between 2020 and 2021, including for the filing of annual and quarterly financial statements, cadastral forms, reference forms (similar to US 20-F) and information about the Brazilian Code of Corporate Governance. In addition, Resolution No. CVM 4/2020 (August 20, 2020 - expired) was also enacted, which promoted temporary and experimental alterations in requirements applicable to public offerings by small businesses (total annual gross revenues of less than R$10 million, temporarily reduced to R$5 million) by means of equity crowdfunding.
B3 also provided regulatory flexibility to listed companies through the Circular Letter No. 005/2020-VOP (April 7, 2020), such as: (i) companies whose boards of directors were not in compliance with the special segment rules (minimum composition or number of independent members) were not notified by B3 whenever such noncompliance occurred before the revocation of the State of Calamity (provided that the company would take measures to resume compliance at its next shareholders’ meeting); (ii) for the companies that have approved share buyback programs up until the revocation of the State of Calamity and, due to the implementation of such programs, no longer comply with the minimum free float percentage, B3 granted a period of 18 months to resume compliance (as of the date of the program’s conclusion); and (iii) regarding penny stock rules (obligation of keeping the quotation of securities at no less than BRL 1.00/unit), B3 suspended the monitoring of this obligation until six months after the revocation of the State of Calamity.
Also, the above-mentioned Circular Letter provided additional time for companies listed on the Novo Mercado to adapt themselves to the rules of this segment's regulation – which would expire originally at the annual general meeting that would approve the financial statements for 2020 – extending to the ordinary general meeting that approved the 2021 financial statements (the majority of Brazilian companies hold their annual general meetings at the end of April).
Virtual or Hybrid Shareholders’ General Meetings
Amid all the regulatory flexibility, the creation of virtual/hybrid general meetings was a novelty. Before the pandemic, Brazilian Corporate Law (Law No. 6.404/1976) and the rules enacted by CVM established that general meetings should only be held in person, commonly at a company’s headquarters.
For the shareholders, the only possibility of voting without being present at the meeting was either mandating some representative or through a structured form, which could be filled with their voting intentions (now regulated by CVM –Resolution No. 80, of March 29, 2022). A remote voting system was mandatory at all general meetings and also in the event of extraordinary general meetings held through the year to elect members of the fiscal council or board directors.
In March 2020, the Brazilian Government enacted the Presidential Provisional Measure No. 931 (subsequently converted into the above mentioned Law No. 14.030, of July 28, 2021). Through this rule, Brazilian Corporate Law (Law No. 6.404/1976, article 124-A, §2º) permitted general meetings to be held virtually or partially so (with the remote voting procedure remaining mandatory).
In order to regulate this new kind of meeting, CVM enacted the Instruction CVM No. 622, of April 17, 2020, which was recently substituted by Resolution No. 81, of March 29, 2022, requiring: (i) the company to disclose information detailing the rules and procedures on how shareholders could participate and vote remotely at the meeting, including giving them sufficient information to access and use the system; and (ii) that the system must guarantee the possibility of manifestation by the shareholders and simultaneous access to documents presented during the meeting that have not been previously made available, as well as the full recording of the meeting and the possibility of communication between shareholders.
It is remarkable that the coordinated action of the Brazilian Government, CVM and B3 helped Brazilian publicly held companies to overcome some of the main regulatory challenges imposed by the pandemic scenario.
Furthermore, the flexibility provided support that helped develop new procedures, such as virtual or hybrid general meetings, which could simplify previous obligations, reduce regulatory costs and increase efficiency for all market participants.
Many of these procedures will also help the development of the capital market in the years to come.
 “The COVID-19 pandemic and associated policy responses aimed at containing the virus are having far-reaching economic consequences. The pandemic has had an impact on human health and behaviour, and governments deployed considerable and diverse virus containment and economic support measures”. OECD. Understanding Structural Effects of COVID-19 on the Global Economy: First Steps. Available at: https://www.oecd-ilibrary.org/docserver/f6a9ef88-en.pdf?expires=1653087224&id=id&accname=guest&checksum=E9176BF20B3411AA5E000B9C432B93B4
 Deliberations CVM No. 846 (March 16, 2020); 848/2020 (March 25, 2020); 849/2020 (March 31, 2020); 852/2020 (April 15, 2020); 853/2020 (April 22, 2020); 862/2020 (July 23, 2020) and Resolution CVM 26/2021 (March 31, 2021).
The views, thoughts and opinions contained in this Focus article belong solely to the author and do not necessarily reflect the WFE’s policy position on the issue, or the WFE’s views or opinions.