Digital shareholder meetings in Brazil: the impact of Covid-19 on shareholder meeting season

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Mauricio Paschoal
Lefosse Advogados, São Paulo

Andre Calumby
Lefosse Advogados, São Paulo

Marcelo Tourinho
Lefosse Advogados, São Paulo


The Covid-19 pandemic has changed the way people interact and companies do business. Law and regulation in different areas have been revised and changed in order to adapt to the new reality. One of the most anticipated changes in corporate law was the possibility of Brazilian companies holding shareholder meetings online. This article provides  background on how shareholder meetings were held before the pandemic, the major changes made to regulations resulting from this scenario and some practical observations.

Shareholder meetings in Brazil

The Brazilian Corporations Law (BCL, Law No. 6,404) was enacted in 1976, when the idea of a virtual meeting of people in different locations belonged in science fiction novels. Accordingly, the whole ritual of physically gathering shareholders in a meeting was favoured over the idea of people casting votes remotely. Customs have changed and technology has evolved since then, but shareholder meetings continued to be essentially a physical meeting.

Most Brazilian publicly held corporations are controlled by a single shareholder, or by a group of shareholders, holding more than 50 per cent of the voting stock. The existence of majority shareholders who can decide on almost all the matters submitted to the shareholders’ meetings contributed to a tradition of retail investors’ lack of participation and mobilisation in Brazil. The efforts to increase dispersion of shares, such as the requirements imposed by the Brazilian Stock Exchange (B3) in its Novo Mercado listing segment – imposing minimum free float and mandatory allocation of shares to retail investors in public offerings – helped, but were not sufficient to effect real change. Apart from very limited exceptions, shareholder meetings are often attended by no more than a dozen of people who can be easily accommodated around a table. 

Aiming at (somehow) fostering shareholder participation in meetings, in 2015 the Brazilian Securities and Exchanges Commission (CVM) enacted rules that permitted shareholders to vote remotely – sending their votes in advance of the meeting by electronic systems or by mail. Distance voting soon became a popular choice for shareholders but permits only the casting of votes, not actual participation in the meetings.

In 2020, Covid-19 came and the ensuing pandemic forced rapid changes, hitting Brazil in the beginning of the season of annual (or ordinary) shareholder meetings, which are usually held before April 30. The necessity to avoid meetings and crowds due to the spread of Covid-19 brought different types of challenges to Brazilian companies, who may now adapt to allow online, real-time voting and participation in shareholders’ meetings.

As a result, in an incredibly short period of time, Brazilian companies found themselves not only having to adapt to a new voting system but also having to put in place a virtual environment to hold shareholders’ meetings. Even so, several Brazilian companies were not willing to bear the risk of holding a public meeting during Covid-19 times or were not yet prepared to convene its shareholders’ meeting in the new context.

In addition, while companies struggled to implement such changes, they also began to feel and anticipate, to the extent possible, the economic impacts of Covid-19. This resulted in the companies’ need to review their respective proposals for allocation of net income and consider alternative ways to retain part or all of their dividends. In some cases, this triggered intense discussions with independent auditors and minority shareholders, delaying the conclusion and publication of the 2019 financial statements.

Major changes in regulations

On 30 March 2020, the Brazilian government published Provisional Measure No. 931 ('MP 931'), which amended the BCL and Law No. 10,406/2002 (Brazilian Civil Code). The main changes applicable to companies introduced by MP 931 are:

• annual meetings of companies with fiscal years ending between 31 December 2019 and 31 March 2020 may be held within seven months from the end of the fiscal year;

• the terms of office of the management, members of the fiscal council and statutory committees is extended until the annual shareholder meeting to be held in 2020;

• contractual provisions requiring the annual shareholder meeting to be held in a period shorter than that determined by MP 931 will be exceptionally disregarded in the fiscal year of 2020;

• the board of directors may decide, ad referendum of the shareholder meeting, on urgent matters normally reserved by law to the shareholder meeting, except if otherwise set forth in the company’s bylaws;

• the board of directors or the officers may declare dividends before the annual shareholder meeting is held;

• the shareholders’ meeting may be held in a location other than the company’s head offices, but in the same municipality and subject to such information being clearly indicated in the call notice; and

• shareholders may participate in real time and vote remotely in a shareholders meeting.

On 17 April 2020, CVM issued Rule No. 622, amending Rule No 481 and authorising publicly held companies to hold partially or exclusively online shareholders’ meetings. According to Rule No. 622, shareholders’ meetings may be considered:

• exclusively online, when shareholders participate and vote exclusively through electronic systems; or

• partially online, when shareholders participate and vote both in person and remotely.

In both cases the shareholders are still allowed to cast their votes remotely through the electronic voting system or by mail.

Companies willing to hold digital meetings are required to include in the call notice detailed information on the rules and proceedings for shareholders’ participation and are entitled to request the shareholders to present documents listed in the call notice within two days in advance of the meeting.

The CVM has not regulated in detail the technical aspects of the meeting, giving companies ample discretion to define the platform and format to be used, provided that the meeting is recorded and participants of the meeting are:

• able to express their opinions;

• file documents with the company (eg, statements or dissenting votes);

• have access to documents; and

• communicate adequately with each other during the meeting.

Shareholders who vote remotely or register their presence in the electronic system for online participation will be considered as attending the meeting for legal purposes. The meetings’ president and secretary will certify the attendance and may sign the minutes of the shareholders’ meeting through digital certification or by other means that assure authorship and integrity.

Practical notes from experience – the 2020 shareholder meeting season

Despite the new possibilities, many companies preferred to keep the old-fashioned meetings, often concerned with the risk of trying new proceedings without preparation and in exceptional circumstances. Some of these companies anticipated its shareholder meetings and waived specific requirements for shareholders’ representation, such as the certification of copies, the notarisation of signatures and the presentation of sworn translations. Others encouraged distance voting and broadcast the meetings; a few chose to adopt precautionary measures to keep safe distancing, like holding the meetings in open places.

A significant number of companies, however, were bold enough to attempt digital meetings, and practice has shown they work. Companies had a hard time adapting and made difficult decisions regarding which procedures to adopt. A number of important questions arose. To what extent may companies be held liable for security breaches? How do they ensure that whoever is at the other end of the line is, in fact, the company’s shareholder? In addition, this type of meeting will certainly present new challenges and problems, especially in respect to meetings with complex matters in its agenda or involving contentious votes. The need to process a large number of votes cast during the meeting is still an open problem to be solved by Brazilian companies (as in other jurisdictions), since most of the digital platforms used still do not seem to have a system to process electronic votes in real time.

As discussed, the CVM regulation on the matter was open in terms of how to handle practical matters. We understand this flexibility was intentional, to give companies a broader array of options as long as the key principles were complied with. However, this flexibility does not affect the liability of managers for proper conduct of the meeting (whatever the form adopted). It is highly recommended that companies willing to embrace the new online alternative:

• run tests in its digital meeting platform to anticipate potential problems, as pursuant to the new regulation the company is responsible for the system (each shareholder is responsible for its own internet connection, of course);

• have in place practical guidelines and a contingency plan to deal with technical issues, such as a network or power outage or interferences that limit the ability of the shareholder to express its opinion (eg, by providing alternative means for connection);

• require prior registration as a condition to receive a password for the meeting, in order to ensure that only shareholders attend the meeting (which is a private gathering, not a public event);

• define rules to grant reasonable opportunities for the shareholders to participate and to ensure smooth conduction of the meeting; and

• define, prior to the meeting, whether the recording of the meeting will be made publicly available or if it will be streamed online. 

We are still awaiting CVM’s reaction to the measures adopted by companies during the extended season of annual meetings in Brazil. While we acknowledge that its enforcement activity is absolutely necessary to prevent abuses, we also expect it to be sensitive to circumstances. Online shareholders’ meetings are ‘corporate experiments’ prompted by Covid-19, sponsored by companies facing difficulties and, in many cases, severe disruption in their business. There was no playbook to be followed, either by companies or its legal advisors, both of whom had to rely on practical experience and common sense.