The emergence of virtual shareholder meetings in Brazil

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Bruno Robert
Huck, Otranto, Camargo Advogados, São Paulo
bruno.robert@lhoc.com.br

Lucas Carneiro Gorgulho Mendes Barros
Huck, Otranto, Camargo Advogados, São Paulo
lucas.barros@lhoc.com.br

Like all other sectors of life, the Covid-19 pandemic is driving the reinvention of usual corporate routines in many ways, particularly around digitalisation. One of the areas that is directly impacted is the conduct of shareholder meetings.

Brazilian law did not have any express permit or ban on the conduct of virtual shareholder meetings conducted by electronic means for the generality of companies (limited liability companies and closely held corporations, for instance).^[1] Since 2011, Brazilian corporation law expressly authorised remote participation and voting in publicly held corporations, as ruled by Comissão de Valores Mobiliários (CVM, the Brazilian Securities and Exchange Commission).^[2] In corporate practice, this authorisation resulted solely in ballot voting in publicly held corporations: virtual meetings conducted by electronic means were almost inexistent in Brazil.

Recent rules have changed everything. On 31 March 2020 the federal government issued Provisional Measure No. 931/2020 to reconcile the conduct of corporate acts during the current pandemic by enabling remote participation, especially shareholder meetings. Among other provisions, it amended the Brazilian corporations law^[3] and the Brazilian Civil Code,^[4] expressly permitting virtual participation and exercise of voting rights in general shareholder meetings, both in private companies and in publicly held corporations. Even though the provisional measure is still under the consideration of Congress – which may confirm, repeal or amend the measure – its effects and impacts were immediate, at least on publicly held companies.

Specific regulation was issued by governmental offices, as follows:

• Departamento Nacional de Registro Empresarial e Integração (DNREI, the National Trade Register Office) issued Normative Rule No. 79/2020, on 14 April 2020, applicable to the generality of companies; and

• CVM issued Rule No. 622/2020, on 17 April 2020, applicable to publicly held companies.

The regulations set the criteria for the conduct of digital and hybrid shareholder meetings – generally referred to as virtual shareholder meetings – the former being those with participation of shareholders only by digital means and the latter being those that admit physical and digital participation. The specific rules on virtual shareholder meetings are complementary to the general rules on company shareholder meetings and does not preclude their application.

On 10 June 2020, Law No. 14,010/2020 was issued for setting the Emergency and Transitional Juridical Regime for legal relations ruled by Private Law (RJET), due to the pandemic. It expressly authorises the conduct of shareholder meetings by electronic means, even if it is not provided for in company bylaws, until 30 October 2020.^[5] Any electronic means may be adopted by the company as long as they ensure the identification of the shareholder and the security of the votes.^[6]

Virtual shareholder meetings in the generality of companies

DNREI Normative Rule No. 79/2020 is the rule regarding virtual shareholder meetings applicable to the generality of companies.

It distinguishes between ‘digital’ (fully virtual) and ‘semi-presential’ (hybrid) shareholder meetings, which are both permitted by discretion of the company management. It also expressly permits ballot voting on the generality of companies, along with participation by electronic systems – previously, similar provisions had only existed in regulation issued by CVM and was only applicable to publicly held corporations.^[7]

A company must comply with the following criteria to conduct virtual shareholder meetings, among others:

• the correspondent documents and information shall be made available by virtual means;^[8]

• the call notice shall inform that the shareholder meeting will be virtual, advise the means available for shareholder participation^[9] and indicate the identification documents that are required for participating in the meeting;^[10] and

• the technology used for the virtual shareholder meeting shall permit:

– the remote participation by the shareholders;

– the register of attendance of shareholders;

– the participation of managers and persons authorised to participate or whose presence is compulsory;

– the remote voting and the register of votes;

– the visualisation of documents shown during the meeting,

– the receipt of written statements of shareholders;

– the full record of the meeting; and

– ensure its security, reliability and transparency.^[11]

If the shareholder meeting is conducted virtually, its minutes may be executed in physical or electronic documents.^[12] It may also be executed solely by one of the members of presiding board, prescinding the signature of each shareholder.^[13]

Virtual shareholder meetings in publicly held corporations

Publicly held corporations are the only corporate type that have a specific rule relating to shareholder meetings: CVM Rule No. 622/2020. It was produced with the declared purpose of implementing limited amendments to the regulations to face the urgent and unexpected scenario caused by the pandemic. A broader reformulation of rules applicable to remote participation in publicly held corporations is already on the regulatory agenda and expected in the near future.^[14]

The rule distinguishes between ‘exclusively digital’ (fully virtual) and ‘partially digital’ (hybrid) shareholder meetings. Any of them may be conducted by discretion of company management. Ballot voting must be made available to shareholders even if the corporation conducts a virtual shareholder meeting.

The corporation must comply with the following criteria to be allowed to conduct the shareholder meeting virtually:

• the call notice shall have information on the type of virtual meeting to be conducted, as well as the rules and procedure for remote participation and voting of shareholders;^[15] and

• the electronic system used by the corporation for conducting the shareholder meeting shall ensure:

– the register of attendance of shareholders and votes;

– the possibility of manifestation and simultaneous access to documents shown during the shareholder meeting;

– the full record of the meeting; and

– the possibility of communication among the shareholders.^[16]

To allow the remote participation of the shareholder, the corporation may request the presentation of identification documents two days before the date of the shareholder meeting, which may be presented by physical or electronic means.^[17] Shareholders may present their identification documents at the beginning of the meeting if they attend in person, even if the corporation suggests presenting them in advance.

The minutes of virtual shareholder meetings of corporations may be physical or electronic and the members of the presidential board may certify the presence of shareholders.^[18]

The 2020 ordinary shareholder meetings season

Brazilian corporations must hold an ordinary shareholder meeting each year, within four months of the end of prior fiscal year, as required by Brazilian corporation law.^[19] The agenda is the discussion and voting on:

• management accounts;

• financial statements;

• destination of net profits;

• distribution of dividends; and,

• when applicable, election of managers and members of audit committee.

Most ordinary general shareholder meetings take place in April each year as fiscal years usually end on 31 December. Due to the pandemic, the term was extended to seven months for corporations with fiscal years ending from 31 December 31 2019 to 31 March 2020 by Provisional Measure No. 931/2020.^[20]

Even so, many publicly held corporations decided to have their general shareholder meetings during the turmoil of the pandemic. Some corporations held traditional physical meetings, but several decided to conduct fully virtual or hybrid ones. Despite a couple of previous attempts from specific companies in recent years, we can say that this was the first season of virtual shareholder meetings in Brazilian securities market history.

The regulation was explicitly neutral on technology, so any platform could be used by the corporations to conducting virtual shareholder meetings as long as it met the minimum criteria. Virtual or hybrid meetings were optional. In practice, video conferences held through different platforms, were the most common method for enabling the meetings, but some corporations opted for conference calls by phone, sometimes accompanied by a live broadcast of the shareholder meeting.

Overall, the experience with virtual meetings was uneventful. Some aspects of the conduct of virtual meetings (for instance, the method for confirming of presence of each shareholder, the order of acts, the voting procedure of each item included in the agenda, the revision and approval of the minutes by present shareholders and the presentation of identification documents) and some technical issues may naturally be improved, especially for fostering shareholders’ effective participation in the meetings.

Prospects for virtual shareholder meetings

The emergence of virtual shareholder meetings caused by the pandemic and the quick reaction from legislators and regulators, particularly in publicly held corporations, has broken new grounds on how to conduct shareholder meetings in Brazil. It has also accelerated the implementation of further technology in the corporate routines. Notwithstanding its origins, it seems to have promising long-term prospects for both publicly held corporations and the generality of companies.

The first season of virtual shareholder meetings has proved that they are feasible, inexpensive and that available technology is more than enough to permit their implementation. It has also stood as a useful technique for modernising corporate practices and for incentivising shareholders’ participation in general meetings, expanding its potential horizons in Brazilian market.

It is now up to all agents involved in shareholder meetings to foster such expansion and the improvement of related practices. In this endeavour, the extension of multifaceted dimensions of shareholders’ rights to participate, to vote and to speak in general meetings should be a cornerstone aim that should remain in focus.