CVM resolutions 166 and 168, issued in September 2022 by the Brazilian Securities and Exchange Commission (CVM), have amended CVM Resolution 59 and CVM Resolution 80, which provide for the registration and provision of periodic and eventual information of securities issuers admitted to trading in regulated securities markets.

The novelty of CVM Resolution 166 is the exemption of legal publications in newspaper for small businesses. The CVM Resolution 168, in turn, makes it mandatory to elect independent directors to publicly-held companies traded on the stock exchange and brings definitions related to plural voting and  new rules allowing the cumulation of the positions of Chairman of the Board of Directors and Chief Executive Officer, with the respective adjustments to Annex K of CVM Resolution 80. Both resolutions enter into force on October 3.

Dispensing legal publications in newspaper

To simplify the procedures applicable to small businesses, CVM Resolution 166 establishes that companies that have earned a consolidated gross revenue lower than R$ 500 million, as per the financial statements of the closing of the past fiscal year, may carry out the publications ordered by the Brazilian Corporate Law on the Empresas.NET or Fundos.Net.

Plural vote

The new resolution included Article 41-A in CVM Resolution 80, providing that plural voting (as provided for in Article 110A of the Law 6,404/76 or the Brazilian Corporate law),[1] is not applicable in votes of the general meeting of shareholders which deliberates on transactions with related parties that must be disclosed by publicly-held companies, which demonstrates CVM’s clear intention to level the votes of shareholders on the matter, due to its relevance.

Accumulation of positions

Annex K of CVM Resolution 80 began to regulate not only the non-conflict declaration to be provided by the directors at the time of their tenure, pursuant to Article 147, § 4, of the Brazilian Corporate Law, but expanded its application to additional investiture requirements in management positions.

This expansion of application aforementioned was due to prerogatives attributed to CVM by the Brazilian Corporate Law, which, when approaching the theme of the prohibition of accumulation of positions of chairman of the board of directors and chief executive officer of the company, provides in article 138, § 3, that the CVM may issue a normative act that excludes smaller companies from this impediment.

Thus, CVM established as an exception the possibility of cumulation of the position of chairman of the board of directors and the position of chief executive of the company for small businesses, pursuant to Article 294-B of the Brazilian Corporate Law.

Therefore, the closure of these functions will not apply to companies that have earned consolidated gross revenue lower than R$ 500 million, as per the financial statements of the closing of the last fiscal year.

Independent directors

The same prerogative is assigned to CVM by the Brazilian Corporate Law when dealing, in Article 140, § 2, with the mandatory participation of independent directors on the board of directors of publicly-held companies with shares traded on the stock exchange, determining that such participation will comply with the terms and conditions defined by CVM.

After the new resolution was published, the CVM established the rules regarding the mandatory presence of independent members on the board of directors. They will apply to companies that have, cumulatively:

  • registration of a publicly-held company, in category "A";
  • securities admitted to trading on the stock market by an organized market management entity; and
  • stock or stock deposit certificates (BDRs) in circulation.

The criteria adopted by CVM to determine the obligation of independent members on the board of directors present several points of convergence with that provided by B3 in its Novo Mercado Regulation, today considered the trading segment with stricter governance criteria for publicly-held companies in the Brazilian market.

The following table compares the criteria adopted by CVM in the newly published rule to those of the B3 Novo Mercado Regulation.

CRITERIA FOR INDEPENDENT DIRECTORS
  CVM New Market B3
  • Composition
 The number of independent directors on the board of directors shall correspond to, at least 20% (twenty percent) of the total number of directors. The company shall provide, in its bylaws, that its board of directors is composed of, at least 2 (two) independent directors – or 20% (twenty percent), which is higher than.

When, as a result of the percentage calculation, the result generates a fractional number, the company must round up to the immediately higher integer.
  • Framing

The framing of the independent director should consider its relationship with:


I – the company, its controlling shareholder and its directors; and

II - companies controlled, affiliated or under common control.

*References to the controlling shareholder include: (a) direct and indirect controlling shareholders; and (b) essential investment fund service providers that control the company

An independent director shall not be regarded as those who:


I – is the controlling shareholder of the company;

II – has its exercise of voting at the meetings of the board of directors bound by a shareholders agreement that has as its object matters related to the company;

III – is a spouse, partner or relative, direct or collateral line, up to the second degree of the controlling shareholder, the company's administrator or the controlling shareholder's administrator; and


IV – is or has been, in the last three (3) years, an employee or director of the company or its controlling shareholder.

The framing of the independent director should consider its relationship:


I – with the company, its direct or indirect controlling shareholder and its directors; and

II - with controlled companies, affiliated or under common control.

 

 


An independent director shall not be regarded as those who:


I – is the company's direct or indirect controlling shareholder;


II – has its exercise of voting at the meetings of the board of directors bound by a shareholders agreement that has as its object matters related to the company;


III – is a spouse, partner or relative, direct or collateral line, up to the second degree of the controlling shareholder, the company's administrator or the controlling shareholder's administrator; and

IV – has been, in the last three (3) years, an employee or director of the company or its controlling shareholder.
  • Situations of misframing

I – has a kinship by affinity up to the second degree with the controlling shareholder,, company administrator or to the controlling shareholder’s administrator;


II – is or has been, in the last three (3) years, an employee or director of related companies, controlled or under common control;


III – has commercial relations, including the provision of services or supply of supplies in general, with the company, its controlling shareholder or related companies, controlled or under common control;


IV – occupies a position with decision-making power in the conduct of the activities of a company or entity that has commercial relations with the company or its controlling shareholder;

V – receives other remuneration from the company, its controlling shareholder, related companies, subsidiaries or under common control beyond that related to the performance of the company's board of directors or committees, its controlling shareholder, its related companies, subsidiaries or common control, except cash proceeds arising from participation in the company's capital and benefits arising from supplementary pension plans; and


VI – founded the company and has significant influence on it.

I – is related to the second degree of the controlling shareholder, the company's administrator or the controlling shareholder's administrator;


II – has been, in the last three (3) years, an employee or director of related companies, controlled or under common control;


III – has business relations with the company, its controlling shareholder or related companies, controlled or under common control;

IV – occupies a position in a company or entity that has commercial relations with the company or with its controlling shareholder that has decision-making power in the conduct of the activities of that company or entity;

V – receives other remuneration from the company, its controlling shareholder, related companies, subsidiaries or under common control beyond that relating to its performance as a member of the company's board of directors or committees, its controlling shareholder, its related companies, subsidiaries or common control, except in cash proceeds arising from participation in the company's capital and benefits arising from supplementary pension plans.
  • Separate election
 In companies with controlling shareholders, directors elected by separate vote shall be considered independent. In companies with controlling shareholders, directors elected by separate vote shall be considered independent.
  • Deliberation

The characterization of the nominee to the board of directors as an independent board member should be deliberated by the general meeting, which may base its decision:


I – in the statement, forwarded by the nominee to the board of directors, attesting its framing in relation to the independence criteria established in this regulation, contemplating the respective justification, if any of the situations of misframing are verified; and


II – in the statement of the company's board of directors, inserted in the management’s proposal regarding the general meeting for the election of directors, as to the framing or non-framing of the candidate in the independence criteria.

The referral procedure mentioned above does not apply to nominations of candidates to members of the board of directors:


I – that do not meet the advance deadline for inclusion of candidates in the ballot paper, as provided for in the regulations issued by the CVM on remote voting; and


II - by a separate vote in the companies with a controlling shareholder.

The characterization of the nominee to the board of directors as an independent board member shall be deliberated by the general meeting, which may base its decision:


I – in the statement, forwarded by the nominee to the board of directors, attesting its framing in relation to the independence criteria established in this regulation, contemplating the respective justification, if any of the situations of misframing are verified;


II – in the statement of the company's board of directors, inserted in the managements proposal referring to the general meeting for the election of directors, as to the framing or non-framing of the candidate in the independence criteria.

The referral procedure mentioned above does not apply to nominations of candidates to members of the board of directors:


I – that do not meet the advance deadline for inclusion of candidates in the ballot paper, as provided for in the regulations issued by the CVM on remote voting; and

 

II - by a separate vote in the companies with a controlling shareholder.

With the determination of the mandatory presence of independent directors in listed companies of any segment and with the convergence of the criteria of independence of directors with those of the Novo Mercado, CVM makes another move to strengthen the levels of governance for publicly-held companies, equating them with those that voluntarily joined the Novo Mercado.

The provisions of Articles 4 to 7 of Annex K concerning (i) accumulation of positions as chairman of the board of directors and the position of Chief Executive Officer or main executive officer of the company and (ii) mandatory presence of independent members on the board of directors of publicly-held companies shall apply only to the term of office initiated from 1 January 2023,  which will require the adequacy of companies that do not adopt such rules from the next fiscal year.

 

[1]Art. 110-A provides: the creation of one or more classes of common shares with plural voting, not exceeding 10 (ten) votes per common share, is allowed:

I - in the closed company; and

II - in the publicly-held company, provided that the creation of the class occurs prior to the trading of any shares or securities convertible into shares of its issue in organized securities markets.