By Antonio Carlos C. Mazzucco and Andre Jerusalem

With the arrival of the period of general meetings, between the end of March and the month of April, the Securities and Exchange Commission (“CVM”) began to be questioned about the possibility of postponing these events, due to the reality that both Brazil and the world are going through: the coronavirus outbreak and the quarantine to contain it. In other words, people have been avoiding leaving home and contact with people, even more so when it results in crowds.

The assembly is one of the obligations of corporations, provided for in article 132 of Law 6,404/76 (“Corporation Law”), which must take place in the first four months of the year and, if it is not held, the CVM may punish the company. But in these times of Covid-19, how should one proceed?

Firstly, for clarification, the meetings are held to approve the financial statements of the previous year and its management. These are two distinct deliberations (approval of the accounts and approval of the management's actions). Although the prevailing case law is that approval of the accounts is also approval of the management's actions, there are theories that approval of the financial statements does not imply agreement with the management's work.

Second, traditionally, meetings are held with the physical presence of investors or their proxies and the company's management. However, the articles of association may provide for a different method for holding the meeting, including holding it remotely and with remote voting, as provided for in article 121 of the Corporations Law. However, if the articles of association do not provide for such method, the general rule that the meeting is held with the physical presence of shareholders or their duly appointed proxies must be followed.

To make the already worrying situation even worse, as of March 23, 2020, the Commercial Board of the State of São Paulo (JUCESP) suspended in-person services, making it impossible to file all contractual amendments for companies established in the State of São Paulo. In practice, this means that no company in the State of São Paulo will be able to amend its articles of association to include provisions for remote voting, since the amendment of such articles requires the physical filing of the documents.

The importance of holding the assembly for companies, its composition and the coronavirus are precisely creating a business clash and a series of questions to the CVM, such as the possibility of making the dates more flexible, holding it remotely or mitigating the punishment if the assembly takes place at a different time.

If the CVM decides to postpone or extend the term, this measure must be changed by means of a Provisional Measure (MP), since the usual period is provided for in the Civil Code and endorsed by the Corporations Law, and the CVM does not have the power to change it. In other words, it is not only up to the CVM to understand that the extension of the term is plausible, but the President of the Republic must also be responsible for the decision.

However, due to the dependence on the Executive, there is a possibility that the MP will not occur. With this, the CVM may move towards virtual meetings, a flexibility that the Securities and Exchange Commission (“SEC”), the regulatory body of the North American capital markets, has already been giving companies in this current pandemic scenario, which can, in addition to changing the date and location of meetings, use new technologies, such as virtual meetings without the cost of sending additional proxy materials and the provision of alternative means for companies to shareholders to present proposals, including by telephone.

The other path that the CVM may choose to adopt is not to impose punishment or to mitigate it in the event that the meeting takes place after the period established by law without the need for prior justification. This flexibility emphasizes the issue of lack of justification, since the CVM already has an established provision regarding the possibility of postponing the meeting in its Normative Instruction number 372, published on June 28, 2002 (“Instruction 372”), however under pre-established conditions, such as the presentation of a duly substantiated and instructed request to the Superintendencies of Relations with Companies at least eight business days in advance of the date initially established for the holding of the general meeting, in addition to the provisions set forth in article 124, §5, I and II of the Corporations Law.

Certainly, in the current situation and while there is no concrete position from the CVM, it would be up to the shareholders to make the request for postponement already provided for in Instruction 372, under the justification of the existence of force majeure (restrictions on movement imposed by the coronavirus) preventing the holding of the in-person meeting, also based on all the guidelines of the Ministry of Health for combating Covid-19. Additionally, it is also important for companies to certify about delays in the delivery of financial statements and reports from independent auditors due to this reason.

Finally, considering the uncertainty generated by the current situation, it is recommended, if possible, that the meeting be held within the stipulated period, since the situation is still uncertain and it is not known how long it will last.

In view of this, our teams are available to inform and assist you regarding this possible scenario and its consequences.