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Date: 9 de September de 2022
Posted by: CPDMA Team

Formal vs. Material conflict of interest: abusive shareholder voting under the new CVM understanding

Imagem demostrando os símbolos da justiça fazendo referência ao conflito de interesses, acionistas e à CVM.

On August 15, 2022, the Brazilian Securities and Exchange Commission (CVM) held a trial session to determine the conflict of interest in the vote of a controlling shareholder of a publicly-held company. The issue concerns the interpretation of article 115, paragraph 1, of Law 6.404/76 (Brazilian Corporations Law), which determines the abstention of a shareholder from voting in deliberations concerning matters that may benefit him/her particularly or in interests conflicting with those of the company, below:

 Art. 115. O acionista deve exercer o direito a voto no interesse da companhia; considerar-se-á abusivo o voto exercido com o fim de causar dano à companhia ou a outros acionistas, ou de obter, para si ou para outrem, vantagem a que não faz jus e de que resulte, ou possa resultar, prejuízo para a companhia ou para outros acionistas (Text changed by Law # 10.303, 2001).

 § Paragraph 1 the shareholder may not vote in the general meeting's deliberations regarding the evaluation report of assets with which he contributes to the formation of the corporate capital and the approval of his accounts as administrator, nor in any other deliberations that may benefit him in a particular way,or in which he has interests conflicting with those of the company.

At the time of the judgment, through Administrative Proceeding 19957.003175/2020-50, the majority of the Collegiate Body understood that the vote cast by the controlling shareholder was not abusive, even though the formal reading of the text of the law could constitute an offense to art. 115 and its paragraph 1. This is because, as stated in the vote cast by the Rapporteur of the case, it is necessary to differentiate the concepts of formal and material conflict of interests, that is, it is not enough to consider only the legal text (formal conflict), but to analyze each practical case, identifying if the vote configured, a posterioria private benefit or conflict of interests with the company (material conflict). 

Analyzing the practical case, a group of minority shareholders filed a complaint with the CVM, indicating the abusiveness of the vote cast by a majority shareholder, in a meeting held in 2019, in the resolution of the following agendas: (i) increase in the amount of the authorized capital stock of the company, and (ii) the inclusion of a statutory rule conferring powers to the company's board of directors to issue subscription warrants, within the limit of the authorized capital. It so happens that, according to the minority shareholders, this capital increase was related to the capitalization of AFAC (Advance for Future Capital Increase), which the controlling shareholder would perform sequentially in the company. 

However, the agenda of that EGM was directly related to the company's Judicial Recovery Plan (JRP), which was known by all the shareholders, especially since it had been approved by the creditors, a crucial point in the business of restructuring a loss-making company.

In view of these facts, the rapporteur of the case indicated that in order to consider the vote abusive, it would have to be analyzed the reflection of the vote a posteriori, which was cast in accordance with the JRP and aimed at converging interests with those of the company.

 The position of the reporter of the process, in the sense that the practical case must be analyzed and it must be identified whether the vote cast configured any conflict or particular benefit, goes against the pacified understanding of the CVM and of several scholars in recent years, although the theme was always subject to relevant discussions about the applicability of the formal or material conflict.   

Although the judgment of the referred process is not yet closed, because one of the member directors of the CVM's Collegiate Body has requested the case to be examined, the majority of the directors have already presented a vote in agreement with the rapporteur. Thus, the new understanding of CVM, from now on, should prevail in the sense that in order to configure the abusive vote cast by a shareholder it must be identified a private benefit or interest conflicting with that of the company, otherwise the vote cast should not be disregarded. 

By: Liège Fernandes Vargas

CPDMA Team | Corporate law

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