Recents in Beach

header ads

Brazilian Corporate Law and the Confidentiality of Arbitration Proceedings - an Advantage for Companies or a Disadvantage for Investors?


Beatriz Girão Sinnes*

Victor Augusto do Nascimento Silva**




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. 


  1. 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.


  1. 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.


  1. 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:

**Law student, São Paulo School of Law of the Getulio Vargas Foundation (Escola de Direito de São Paulo da Fundação Getulio Vargas). E-mail:


[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.

[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.

[9] CVM, Instruction 480/2009, 2009, Article 30, item X.

[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.

[11] CVM, Instruction 480/2009, 2009, Article 24 - Annex 24, item 4.3.

[12] CVM, Public Hearing Notice SDM Nº 01/21, 2021.

[13] OECD, “Private enforcement of shareholder rights: A comparison of selected jurisdictions and policy alternatives for Brazil”, 2020, pp. 16-18. 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:

Publicar un comentario

0 Comentarios