Rafael Tridico Faria
Lawyer at Marcos Martins Advogados
The changes that have accelerated in recent months in the legal field, due to the Covid-19 pandemic, have led to debates about the use of technology as an alternative to holding general meetings by videoconference, i.e. digital meetings.
These measures would make it possible to simplify and speed up corporate acts, as well as reduce costs and debureaucratize the assembly regime, broadening new horizons for Corporate Law.
However, many latent problems have become major obstacles in this context. These problems also stem from the old and outdated rules of corporate law, many of which were made in 1970 and based on the reality and needs of that time.
It is true that many rules have been adapted and modernized over time, but there are still some that persist to this day. One example is the need to publish corporate acts in widely circulated newspapers. We explain: there is currently a great decline in this news vehicle, to the detriment of news portals on the internet or other digital media. The cost of publishing in newspapers is exorbitant and makes no sense in today’s modern world.
Another example is the need to hold assemblies and meetings in person, when we already have advanced enough technology to provide safe and effective means of meeting virtually.
It is true that until recently, this last “problem” was more of a nuisance for some shareholders or partners, who had to travel to the place where the meeting was scheduled to take place. However, in the current pandemic scenario in which we live, and with the need for social distancing and mobility restrictions in many cities, face-to-face meetings and assemblies are prohibited.
In the day-to-day practice of closed companies and limited liability companies, many meetings were already held “virtually”, mainly because the shareholders and partners already had a unanimous understanding of the agendas. However, for companies with differences between shareholders and partners, there is a need to comply with legal rules and formally call and hold meetings in person so that the agendas can be discussed and voted on. The same is true for publicly traded companies, which necessarily have to obey the rules for calling and holding their general meetings.
Add to this problem the rule in both the Brazilian Corporate Law and the Civil Code, which stipulates that meetings to consider the directors’ accounts, decide on the allocation of profits and, where necessary, elect directors must take place within the first four months of the company’s financial year[1]. In other words, for the vast majority of Brazilian companies, the legal need to hold these meetings coincided with the quarantine rules in large urban centers, which have been in force since the end of May 2020.
The situation therefore highlighted the urgent need to modernize the Corporate Law and the corporate rules set out in the Civil Code.
The solution was the publication of Provisional Measure 931 of March 30, 2020 (“MP 931/20”), which relaxed the deadlines for holding general meetings, allowing them to be held in the first seven months of the company’s fiscal year.
MP 931/2020 also delegated to the National Department of Business Registration and Integration of the Special Secretariat for Debureaucratization, Management and Digital Government of the Ministry of Economy (“DREI”) the regulation of remote voting for shareholders of limited liability companies, associations and closed companies and to the Brazilian Securities and Exchange Commission (“CVM”) the possibility of extending the deadlines for the presentation of financial statements and other deadlines provided for in the Brazilian Corporate Law for publicly-held companies and the possibility of holding digital meetings.
In turn, through IN 79, DREI regulated remote participation and voting, as provided for in Provisional Measure 931/20. But it went further and also regulated the holding of digital meetings and assemblies in closed companies and limited liability companies[2].
As a result, the CVM regulated the holding of digital meetings for publicly-held companies through CVM Instruction 622 of April 17, 2020, to enable and facilitate the timely holding of ordinary general meetings already called at that time. The CVM’s regulation was pragmatic and not very in-depth, on purpose, precisely to promote the holding of digital meetings in the current national scenario.
By the time all these rules were enacted, many listed companies had already called their general meetings and published their financial statements. Even so, some companies took the decision to postpone their general meetings, taking advantage of the new deadlines set out in MP 931/20 and CVM 622.
So far, very few digital meetings of publicly traded companies have been held. However, it is likely that there will be a significant increase in this type of meeting as companies adapt.
At first, for publicly traded companies, holding digital meetings may generate certain implementation costs with the platform for holding meetings digitally, but over time, it is possible that holding digital meetings will reduce costs and give the company greater visibility. It should also be noted that the implementation of digital meetings also facilitates the presence of minority shareholders in discussions and decision-making on the direction of companies.
It is possible that, after this critical moment, if Provisional Measure 931/20 is converted into law, the CVM will once again issue more detailed rules to regulate the holding of digital meetings, placing greater emphasis on making it easier for minority shareholders to participate in meetings.
Digital meetings were created as a matter of urgency and are gradually being tested by companies and the CVM itself. However, the benefits their existence has brought to the modernization of day-to-day corporate life are clear. Certainly, the conversion of Provisional Measure 931/20 into law will bring greater legal certainty to the holding of digital meetings and will lead to more in-depth regulation in the future.
However, in the current scenario, it is still necessary to be cautious about holding digital meetings based on IN 79 of the DREI, for closed companies and limited liability companies, as there is no legal support in MP 931/20 and, as a result, future discussions and possible annulments of meetings and digital meetings in these companies may occur.
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[1] Art. 132 of the Corporations Law. – Art. 132. Every year, within the first 4 (four) months following the end of the fiscal year, there shall be 1 (one) general meeting to:
I – Take the directors’ accounts, examine, discuss and vote on the financial statements;
II – Decide on the allocation of net profits for the year and the distribution of dividends;
III – elect the directors and members of the supervisory board, where appropriate;
IV – Approve the correction of the monetary expression of the share capital (article 167)
Art. 1.078 of the Civil Code – Art. 1.078. The shareholders’ meeting must be held at least once a year, within four months of the end of the financial year, in order to:
I – Taking the accounts of the directors and deciding on the balance sheet and the profit and loss account;
II – Appoint directors, where appropriate;
III – deal with any other matter on the agenda.
[Art. 1 of IN 79 – Art. 1 This Normative Instruction regulates remote participation and voting in meetings and assemblies of closed corporations, limited liability companies and cooperatives.
§ Paragraph 1 Exclusively for the purposes of the caput, meetings and assemblies may be:
I – Semi-presential, when shareholders, partners or associates can participate and vote in person, at the physical location of the meeting, but also remotely, under the terms of § 2; or
II – Digital, when shareholders, partners or associates can only participate and vote remotely, under the terms of § 2, in which case the conclave will not be held in any physical location.
§ Paragraph 2 – Shareholders, partners or associates may participate and vote remotely by sending a remote voting form and/or by acting remotely via an electronic system.
§ Paragraph 3 For all legal purposes, digital meetings and assemblies shall be considered to be held at the company’s headquarters.
§ Paragraph 4 This Normative Instruction does not apply to meetings in which shareholders, partners or associates participate and vote exclusively in person.
