The Brazilian Securities and Exchange Commission (CVM) released, on February 28, 2023, the Annual Circular Letter 2023 – CVM/SEP containing the main guidelines regarding the obligations of publicly-held, foreign and incentivized companies before the autarchy.

The annual circular letters of the Superintendence of Relations with Companies (SEP) are great references for companies, as they facilitate the understanding of the procedures to be adopted in their routine obligations, in addition to bringing information about the rule interpretations of the CVM and SEP.

We highlight below some points of the Circular Letter.

  • Presentation of the DFP in the context of the registration as a publicly-held company

In item 2.10 of the Official Letter, the CVM clarified that it is not necessary to present the DFP (Form of Standardized Financial Statements) during the process of registration of public companies when financial statements are presented for registration purposes with a date later than the last fiscal year, either due to a material change in the conditions of the issuer or because the issuer was constituted throughout the fiscal year.

The CVM stated that, in these cases, the DFP is not necessary for the financial statements for registration purposes or for the financial statements of the last fiscal year.

  • Appeal against the imposition of a punitive fine

In relation to item 2.16 of the letter, it is worth analyzing the excerpt below:

"Pursuant to article 16 of CVM Resolution No. 47/21, as amended by CVM Resolution No. 159/22, the decision to apply punitive fines may be appealed to the CVM Collegiate to the superintendent of the area, in the second and last instance and without suspensive effect, within 10 (ten) days from the date of signature of the return receipt of the Office at the company's headquarters. Only in cases where the punitive fine is applied by the General Superintendence or by a member of the Collegiate who acts as Rapporteur will it be up to appeal to the Collegiate. (emphasis added)"

The excerpt highlighted above should not be interpreted as a possibility that the appeal against the decision to impose a punitive fine may be addressed, in any case, to the CVM Collegiate. This possibility was excluded by the modification brought by CVM Resolution 159/22, and the small excerpt highlighted, in our understanding, seems to be a mere error, considering the modifications of the aforementioned resolution.

The text of the letter itself confirms this understanding when it correctly highlights that the CVM Collegiate could only be triggered for this appeal if the penalty was applied by the "General Superintendence or by a member of the Collegiate who acts as Rapporteur."

  • Financial statements

For the financial statements, the CVM also brought some new considerations, highlighted below.

  • Disclosure of the Value Added Statement (DVA)

The CVM warned that some companies have not presented the DVA in their financial statements, quarterly information and DFP, with all the details required in Technical Pronouncement CPC No. 09, citing its items 15, 30 and 33, Models I, II and III.

  • Early Disclosure of Financial Information

In item 3.2.2, the CVM brought a new recommendation for companies that disclose financial information in advance to adopt a disclosure policy that provides for and establishes criteria for such communications.

The letter also deals with this issue in item 4.24 (Operational data and metrics), emphasizing that companies often disclose operational information through communications to the market, and not by material facts. These are the well-known "operating previews" and other communications that show results prior to the disclosure of quarterly financial statements (ITRs) and financial statements.

Considering the recommendations expressed in the previous annual letter and the new considerations, below are the items to be observed by companies for this type of communication:

  • The disclosure of financial information in advance should be done in an exceptional way.
  • If the financial data is anticipated, in any case, the company must do so in an equitable manner and emphasize that the information is preliminary, adding whether or not it has been audited or reviewed by the independent auditors. Such information must be true, complete, consistent and not misleading.
  • This information should, as a rule, be disclosed in a material fact. In SEP's view, information from the financial statements is presumably a material fact.
  • However, there is no impediment to such disclosures occurring via a notice to the market, provided that the information disclosed (i) does not allow inferring the financial result or (ii) represents a multiple commonly used for the valuation of companies in that sector. Management should assess the relevance of the material fact in each disclosure.
  • If it is not an exceptional disclosure, and the Company has the practice of anticipating financial information, it is recommended that it adopts a disclosure policy that:

"(i) establishes what data or metrics will be disclosed, containing a precise definition of the indicator, if necessary;

(ii) defines the periodicity of disclosure (monthly, quarterly, etc.);

(iii) fixes the date, or period, for such disclosure (e.g., between the 5th and 7th business day of each month); and

(iv) determines that disclosure be made on a regular basis, thereby avoiding discretion in disclosure."

  • In the event of a change in the disclosure policy that deals with the anticipation of financial information, the company must previously disclose a material fact about the modification.

Considering this, we believe that the CVM signals that it may closely evaluate the previous operational and other disclosures that may anticipate information on the companies' results, and it is highly recommended that the companies adopt the suggestions contained in the letter.

  • Acquisition of a company – disclosure of information

Regarding communications about acquisitions, it was already recommended that publicly-held companies disclose such operations with complete information and that would allow investors to analyze the business carried out. Therefore, there isn’t a regulatory change that motivates the CVM's recommendation brought in item 4.1.2 of the letter.

In this sense, the recommendation for companies to disclose a material fact or a communication to the market containing "relevant information available that allows the understanding of the business by the public to which the information is intended, which includes the main conditions of the business (price, form of payment, etc.), as well as financial information (revenue, EBITDA, profit, etc.) and / or operational of the acquired business" , denotes a concern of the autarchy with disclosures that did not bring sufficient information about the business done.

In their new disclosures about acquisitions, therefore, the companies should seek to provide information in line with this new excerpt of the letter.

  • Related Party Transaction Communication

In the item about the communication of transactions between related parties (4.16), the CVM brought a new recommendation as a "good practice". Although it is not mandatory, it is recommended that companies disclose the transaction with a related party under the terms of article 33, item XXXII, of CVM Resolution 80/22, at the time of its approval by the competent corporate bodies, even if it mentions its conditions for the implementation of the operation.

The deadline established by CVM Resolution 80/22 continues to be seven business days, counted from the occurrence of the transaction, pursuant to article 33, item XXXII, of the resolution.

  • Fiscal Council – replacement of an alternate member

In its item 7.1.4, the letter highlights the need to hold a general meeting to elect an alternate member of the fiscal council when a member resigns. This requirement stems from the provisions  of the Brazilian Corporate Law, which in its article 161, paragraph 1, establishes that the fiscal council must have alternate members in equal number to the number of effective members.

This excerpt from the letter demonstrates the CVM's concern with cases in which the replacement of the alternate member of the fiscal council is prolonged, leaving the composition of the body in disagreement with the provisions of the Brazilian Corporate Law.

Although the legislation does not set a deadline, the excerpt signals that the CVM will not allow companies to simply wait for a new and not yet scheduled meeting. Thus, it is recommended that companies convene such an assembly in the shortest possible time.

It is also noteworthy that, pursuant to article 26, first paragraph, item II, paragraph "a", of CVM Resolution 81, the election of a member of the fiscal council in companies registered in category A, and that have outstanding shares, will require the procedures for remote voting.

  • Communication on the closure of repurchase programs

In its item 7.14, the CVM recommended that companies disclose the closure of their repurchase programs informing at least the number of shares acquired and the intended destination for the repurchased shares.

  • Modifications introduced by Law 14.195/21

The letter brings changes resulting from the important changes promoted  by Law 14.195/21, among which stand out those related to the plural vote and the composition of the board of directors, with the requirement of occupation of the positions by independent members, as well as with the prohibition of cumulation of positions for the positions of chairman of the board and chief executive of the company.

On these topics, we recommend reading our e-book, as well as an article on the modifications brought by CVM Resolution 168.

  • New Reference Form

The letter has new guidelines on the completion of the Reference Form, a topic of great interest to issuers, due to the changes contained in CVM Resolution 80/22, as amended by CVM Resolution 59/21.

In addition, the completion of the "New Reference Form" will take place on the CVM's web platform, pursuant to Circular Letter 7/2022-CVM/SEP, modifying the operational aspect of the presentation of the information.

Soon, we will analyze in this portal the CVM guidelines for completing the new Reference Form.