Beatriz
Girão Sinnes*
Victor
Augusto do Nascimento Silva**
Abstract
This article intends to examine the
existing conflict within the Brazilian legal framework concerning the
confidentiality in arbitration proceedings versus
the duty of disclosure that must be observed by directors of a company. It aims
to analyze Brazilian corporate law and its most relevant provisions regarding
the theme - as well as its recent proposed changes - in order to investigate
the origins of such conflict, its reasons, how it is viewed by regulators and
agents of the market, and potential solutions.
- Introduction: The Confidentiality of Arbitration
Proceedings and its Controversial Benefits
The choice of arbitration as the
preferred method for solving corporate disputes is a growing scenario in
Brazil.[1] The
benefits of such method (such as celerity of the proceeding when compared to
common judicial disputes, and the specialization of the arbitrators)[2] as
well as the relatively recent reforms in Brazilian law - which consolidated
arbitration as a solid, regulated and desirable method for dispute resolution[3] -
are, in most part, the reason for this escalating growth.
However, this scenario has also
brought a lot of doubts and regulatory problems, creating conflicts between
some characteristics of the proceeding - many times regarded as advantages -
and legal provisions that have been, for quite some time now, instituted with
the purpose of protecting stakeholders and agents affected directly or
indirectly by activities in the stock market.[4]
One of the main conflicts in this
sense - currently debated by regulators and specialists all over the country -
is that of the confidentiality of the arbitration proceeding versus the disclosure of information
given in order to protect investors that operate in the market. But, in order
to understand this antagonism, we first need to take a look at the way that
Brazilian regulation on the matter is established and how it impacts in this
specific conflict.
- Brazilian Corporate Regulation, Fiduciary Duties and
Their Impact on the Confidentiality of Arbitration Proceedings
The Brazilian legal framework to
which the activities of corporations are submitted is composed of a vast set of
rules. These rules, whether originated by laws or administrative acts,
constitute a system of corporate law aimed to protect all agents in the market;
i.e., shareholders, directors,
creditors and other stakeholders that are in any way related to business
activities - even the national community itself.[5]
The main source of norms regulating
operations in the stock market; corporation contracts; the relationship between
the board of directors, the company and its shareholders; and many other
matters can be identified as Brazil’s Corporations Law of 1976 (Lei das Sociedades por Ações or,
hereinafter, "LSA"). One of the most important determinations of this
law concerns the fiduciary duties of a company's directors - particularly, the duty of disclosure, which,
as it will be seen in the rest of this article, is directly related to the
release of information about companies involved in arbitration proceedings to
agents in the market.
The duty of disclosure is
materialized by article 157 of the LSA. But the most important aspect of this
duty, specifically in the matter of the disclosure of arbitration proceedings,
is stated in paragraph 4th of such article, which says that the directors of a
company are obliged to immediately disclose any Material Facts that might
impact on the decisions of investors to buy or sell shares of a company.
This is relevant because the
involvement of a certain company in an arbitration proceeding can be
interpreted as a very significant fact for the market[6], given the fact that it can
result in a serious impact on the company's financial activities or even its
reputation in the event of a condemnation. Thus, this would also provide a
direct impact on the investments made (or future investments to be made) by the
shareholders of a company or even its ability to raise credit.
Why not, then, disclose all the
details about the involvement of a company in an arbitration proceeding? The
answer to this question is exactly the problem, which regulators in Brazil are
currently facing (and which will be further discussed in this article): because
the great majority of the arbitration proceedings involving companies that
trade securities in the stock market are confidential. The confidentiality of
the proceeding is frequently established in arbitration clauses, as they are
usually present in contracts signed by companies in Brazil and in the whole
world.[7]
This, however, conflicts with LSA's provision in relation to the duty of
disclosure of a company's directors.
In the same regard, the
administrative regulation of Brazil does not solve the problem either. The
Brazilian Securities Commission (Comissão
de Valores Mobiliários, the "CVM"), responsible for stipulating
regulatory acts about the activities of corporations - called Instructions (Instruções CVM or, hereinafter
"ICVM") - is trying to find a way to reassure the enforcement of its
determinations related to the duty of disclosure. Even though there are two
main regulatory acts that must be observed, ICVM 358 and ICVM 480, the Brazilian
companies are not expressly obliged to inform a lot of details concerning
arbitration proceedings yet.
The first act related to the duty of
disclosure, ICVM 358, defines what facts should be considered Material Facts
and, therefore, necessarily disclosed by Brazilian companies. For that matter,
in accordance with article 2, a Material Fact is "any
political-administrative, technical, business or economic-financial act or fact
materialized or related to the company's business that might significantly
influence: (I) the value of the
securities; (II) the investors'
decision of buying, selling or maintaining their stock position; [and] (III) the decision of investors to
exercise any rights associated with the condition of shareholder of securities
issued by the company or referenced to them"[8]. Furthermore, the sole
paragraph of this article establishes a non-exhaustive list of examples which
expressly includes arbitration proceedings on item XXII.
However, this regulatory act remains
silent when it comes to specifying what is the extension of the duty of
disclosure, that is, how detailed the information disclosed should be, not to
mention the absence of indication on how companies should deal with disclosing
information about confidential disputes. Consequently, companies do not provide
sufficient information about arbitration proceedings in which they are
involved, supposingly in order to comply with the duty of confidentiality
established contractually.
On the second place, ICVM 480 - the
act regulating the registry of securities issuers on the stock markets - also
indicates the company's obligation of disclosing Material Facts,[9]
along with the obligation of describing if there are any limitations to the
payment of dividends policy due to arbitral or judicial award in the Reference
Form.[10]
When referring to the items that shall be contained in such document, though,
it explicitly determines that there is no obligation of delivering any
information regarding confidential disputes.[11]
This determination indirectly
contradicts the other two aforementioned provisions, for there is an obligation
to inform Material Facts instituted both by ICVM 358 and ICVM 480, including
arbitration proceedings - besides the existence (or not) of a confidentiality
clause. One might say that the duty of disclosing facts concerning arbitration
proceedings shall be accomplished through the publication of Material Facts,
not through the release of Reference Forms. Nevertheless, it must be taken into
consideration that it only discourages the compliance with the already
defaulted duty provided by ICVM 358 -
that is, the Reference Form should be considered as another opportunity for the
market to access information about arbitration proceedings in case the company
did not disclose the respective Material Fact. However, due to this
contradiction, companies tend to remain silent.
- Current Status
of the Problem and Proposition of (Still Incipient) Solutions by Legal
Experts and Regulators
In view of the numerous conflicts
and no solutions on how to enforce the complying with this important obligation
presented herein, the CVM decided to call for a public hearing about ICVM 480[12] in
order to change it according to the 2020 Report elaborated by the Organisation
for Economic Co-operation and Development ("OECD"), named
"Private Enforcement of Shareholder Rights: A Comparison of Selected
Jurisdictions and Policy Alternatives for Brazil".[13]
As explained in the Public Hearing
Notice SDM Nº 01/21, until April 14, 2021, the Brazilian Securities Commission
accepted commentaries on its proposal to specify the duty to inform corporate
disputes by including a new release that should be performed by the companies -
specifically with reference to proceedings in which (i) the company, its
controlling shareholders or its managers appear as parties and (ii) which
involve diffuse, collective or individual and homogeneous rights or interests;
or (iii) in which a decision may be issued whose effects may affect the legal
sphere of the company or other shareholders who are not parties in the
proceeding.
For that matter, suggestions were
made by the civil society, offered by arbitrations courts, law firms, the
Brazilian Stock Exchange (B3 - Bolsa de
Valores Brasileira), the Brazilian Central Bank and various brazilian
associations respecting business companies and the market stock.[14] The
overall impression of the market about the alteration proposed by the CVM
demonstrates the exact same aforementioned conflict: on the one hand, part of
the institutions fully agree with the proposition and even go further,
suggesting more items should be disclosed by companies; on the other hand,
there are approaches that intend to mitigate and reduce the scope of
information to be provided.
Although all these entities agree
that the duty of disclosure is clearly not being accomplished as it should and
believe the disclosure of information about corporate disputes will positively
impact the market, the remaining question is if companies are going to fully
comply with the suggested alterations when facing the actual consequences of
doing it - that is, the impact of a well-informed stock market. Furthermore,
CVM will have to take under consideration the costs of supervising the
compliance of the new ICVM 480 by companies, if this task is under its capacity
and what kind of penalty or encouragement it will have to establish in order to
assure the desired level of disclosure.
By changing the current ICVM 480,
there is an expectation that companies will have no more excuses towards the
obligation to disclose information on arbitration proceedings, confidential or
not. As we have seen, though, the
satisfactory disclosure of Material Facts regarding arbitration proceedings
remains a challenge for the authorities. What is left is hope for the best.
*Law student, São Paulo School of
Law of the Getulio Vargas Foundation (Escola de Direito de São Paulo da
Fundação Getulio Vargas). E-mail: biagsinnes@gmail.com
**Law
student, São Paulo School of Law of the Getulio Vargas Foundation (Escola de
Direito de São Paulo da Fundação Getulio Vargas). E-mail: victoransilva26@gmail.com
[1] FRANZONI, Diego.
"Arbitragem Societária: fundamentos para uma possível regulação".
Dissertação (Mestrado) - Curso de Direito, Universidade de São Paulo, São
Paulo, 2015, 189 pages, p. 5.
[2] OECD, “Private enforcement of shareholder rights: A
comparison of selected jurisdictions and policy alternatives for Brazil”, 2020,
p. 14. http://www.oecd.org/corporate/shareholder-rights-brazil.htm.
[3]
FRANZONI, Diego. "Arbitragem Societária: fundamentos para uma possível
regulação". Dissertação (Mestrado) - Curso de Direito, Universidade de São
Paulo, São Paulo, 2015, 189 pages, p.1.
[4] PITTA, André Grünspun. "O Regime de Informação
das Companhias Abertas". São Paulo: Quartier Latin,
2013, p. 67.
[5] STOUT,
Lynn A., "The Shareholder Value Myth" (2013). Cornell Law Faculty
Publications. Paper 771, pp. 7-8.
[6] GASPARINI, Nathalia Schwengber. "A
Confidencialidade na Arbitragem e o Dever de Informação nas Companhias Abertas
Listadas no Novo Mercado". TCC
(Graduação) - Curso de Direito, Fundação Getulio Vargas, Rio de Janeiro, 2019,
80 pages, p. 57.
[7] GASPARINI, Nathalia Schwengber. "A Confidencialidade
na Arbitragem e o Dever de Informação nas Companhias Abertas Listadas no Novo
Mercado". TCC (Graduação) - Curso
de Direito, Fundação Getulio Vargas, Rio de Janeiro, 2019, 80 pages, p. 46.
[8] CVM,
Instruction 358/2002, 2002.. http://conteudo.cvm.gov.br/legislacao/instrucoes/inst358.html.
[9] CVM,
Instruction 480/2009, 2009, Article 30, item X. http://conteudo.cvm.gov.br/legislacao/instrucoes/inst480.html.
[10] The Reference Form is a document mandatorily elaborated
annually by Brazilian Companies in order to inform the market and the CVM about
its activities, administration and management projects, finances and other
relevant information according to ICVM 480, Article 24. http://conteudo.cvm.gov.br/legislacao/instrucoes/inst480.html.
[11] CVM, Instruction 480/2009, 2009, Article 24 - Annex 24,
item 4.3. http://conteudo.cvm.gov.br/legislacao/instrucoes/inst480.html.
[12] CVM, Public Hearing Notice SDM Nº 01/21, 2021. http://conteudo.cvm.gov.br/audiencias_publicas/ap_sdm/2021/sdm0121.html.
[13] OECD, “Private enforcement of shareholder rights: A
comparison of selected jurisdictions and policy alternatives for Brazil”, 2020,
pp. 16-18. http://www.oecd.org/corporate/shareholder-rights-brazil.htm. The Report described the following suggestion made by
OECD: "A middle of-the-road solution
may be the most effective: CVM could create a form to be published on its
website listing which pieces of information the company would have to disclose
in different steps of the dispute (at least shortly after the filing, when the
terms of reference are signed, when a settlement is proposed and at the final
award). CVM has created a similar form for related parties’ transactions – for
which similar conflicts of interests exist – and, while good quality disclosure
will still depend on effective enforcement and market participants` oversight,
the form on arbitration proceedings will provide some guidance for companies
from the moment the regulation is enacted", p. 18.
[14] All commentaries submitted to the CVM in respect to the
proposed alteration to the ICVM 480 are available in the following website: http://conteudo.cvm.gov.br/audiencias_publicas/ap_sdm/2021/sdm0121.html.
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