Most securities disputes involving corporations listed in Brazil go to arbitration. For instance, to be listed at the “New Market” (the listing segment of corporations with the best corporate governance) at B3 (Brazilian largest stock exchange), the by-laws of such corporations shall provide for arbitration as the conflict resolution venue. As a result, there has been increasingly usual over time for minority shareholders to file arbitrations against corporations for abuse of power and/or provision of inaccurate information to the market, on grounds similar to US securities class actions.
It used to be highly controversial whether the corporation should disclose to the market any information on those “securities class arbitrations”, especially if the agreement to arbitration provide for confidentiality. Moreover, some minority shareholders used to complain that the private nature of arbitral proceedings prevented them from been aware the existence of certain corporate disputes which they would have asked to join, if they knew it.
The Brazilian Securities and Exchange Commission (CVM) published on March 30, 2022 Resolution CVM 80, which established a whole new regulatory framework for listed corporation and issuers of publicly traded securities on disclosure of information to the market.
To address the concerns with the “securities class arbitrations”, Schedule I of Resolution CVM 80 specifically dealt with disclosure to the market of information on “corporate disputes”, including arbitrations, meaning judicial or arbitral proceedings to which listed corporation and/or its shareholders and/or its officers are a party, provided that they are based on corporate law, capital market rules or CVM regulation; and
(i) either involve collective rights or rights that shall be uniformly decided for a certain group of securities holders; or
(ii) whose decision could affect the corporation or securities holders which are not a party to the dispute, such as lawsuits to annul a corporate resolution, lawsuits on officers’ and/or directors’ liability and lawsuits against shareholders for abuse of control.
Resolution CVM 80 specifically states that the fact that the arbitration clause, any other arbitral agreement or the applicable arbitral rules provide for confidentiality shall not justify the failure to disclose the information regarding an existing arbitration, provided that such information is deemed to be relevant according to the Brazilian Corporations Law and/or CVM regulation.
The corporation shall disclose to the market the following information on the corporate disputes, including arbitrations:
1. Notice on the commencement of the proceeding, within 7 (seven) business days from the filing of the arbitration (in case of claimant) or receipt of the request for arbitration (in case of respondent), with the following information
a) the parties;
b) the values, assets and rights at stake;
c) summary of the main facts; and
d) the request and relief sought.
2. Within 7 (seven) business days from knowledge of the relevant act:
a) the execution of terms of reference or equivalent document;
b) any decision on requests for injunctive or urgent reliefs;
c) any decision on the arbitrators’ jurisdiction;
d) any decision on inclusion of additional parties or exclusion of existing parties; and
e) any award, whether partial or final.
3. Any settlement, within 7 (seven) business days from its execution, including value, parties and other aspects that can be relevant to the shareholders.
The corporation is not required to put at the public disposal the whole wording of the documents referred to in the disclosure to the market.
The shareholders and officers that are parties to the corporate dispute shall timely provide to the corporation’s officer responsible for investors’ relations any information and documents necessary for the corporation to comply with its disclosure obligations.
Schedule I of Resolution CVM 80 is a step in the right direction, as it provided legal guidance for corporations listed in Brazil on which information they are required to disclose to the market on relevant corporate litigation, including arbitration. Moreover, it opened the door for more minority shareholders to participate in “securities class arbitrations”. The trend is to increase the quantity and complexity of such arbitrations, thereby imposing challenges especially to the arbitration institutions, which will have to deal with complex issues such as joinder of a great number of additional parties and requests for consolidation of related arbitral proceedings.
This article was contributed by Trench Rossi Watanabe, a Brazilian firm. Trench Rossi Watanabe and Baker McKenzie have executed a strategic cooperation agreement for consulting on foreign law.