March, 2014 - Lior Pinsky and Marcelo Shima
NEW CVM DECISION SIMPLIFIES TRANSACTIONS INVOLVING PRIVATE
INVESTMENT IN PUBLIC EQUITY (PIPEs)
At a meeting held on January 7, 2014, the majority of the Brazilian Securities and
Exchange Commission (“CVM”) Board (Colegiado) accepted the appeal lodged by João
Fortes Engenharia S.A., within the context of CVM Proceeding No. RJ2013/6295 (“João
Fortes Case”), focusing on the requirement mandating a public auction for apportionment
of unsubscribed shares relating to capital increases with private subscription (article 171,
paragraph 7, item b, of Law No. 6,404/76, as amended - “Brazilian Corporations Law”).
The CVM Board decided that it is possible to partially subscribe for capital increases
through private placement (commonly known as PIPE transactions) without pursuing the
procedures set forth in article 171, paragraph 7 of the Brazilian Corporations Law, provided
that certain requirements and procedures are observed.
The decision in the João Fortes Case alters CVM’s conclusion in the case known as “Gol
Case” (CVM Proceeding No. RJ2012/4172, decided on July 10, 2012). In the Gol Case,
CVM decided that companies were authorized to cancel unsubscribed shares and
partially homologate capital increases without pursuing public auctions only when an
auction would not to achieve the company’s goal – for instance, when the subscription
value was greater than the market value of the shares.
However, in arriving at the João Fortes Case decision, the CVM Board concluded that the
Brazilian Corporations Law does not prohibit the partial subscription of capital increases,
so long as the transaction complies with certain legal requirements – in particular, article
80, item I, and article 171, paragraph 7, of the Brazilian Corporations Law. To this end, the
partial subscription would require that:
i. the deliberation regarding the capital increase (as well as the information
disclosed to the shareholders, as determined by the CVM Ruling No. 481/09, as
amended, regarding those situations in which the shareholders‘ general meeting is
responsible to decide) expressly:
(a) foresees the possibility of partially subscribing for the capital increase;
(b) explicitly states the minimum amount of securities to be subscribed (or
the minimum amount of funds to be provided) for the capital increase
to achieve its purposes; and
(c) explicitly states the maximum amount of securities to be subscribed (or
the maximum amount of funds to be provided) within the capital
increase;
ii. the company discloses all relevant information required for the shareholders to
evaluate the capital increase features and its various outcomes, including,
among others, information regarding:
(a) the use of proceeds, as set forth in the article 30, paragraph 1, of CVM
Ruling No. 400/03, as amended;
(b) potential dilution of shareholders, by considering all scenarios possibly
deriving from the proposed transaction; and
(c) subscription commitments made by investors before the resolution as
to the capital increase;
iii. it is granted to shareholders the right to subscribe for shares conditioned upon
the fulfillment of certain conditions (article 31 of CVM Ruling No. 400/03, as
amended);
iv. by the end of the preemptive rights term, at least the minimum amount indicated
in the resolution is subscribed; and
v. pursuant to the article 80, item I, and article 170, item IV, of the Brazilian
Corporations Law, the capital increase admitting partial subscription may not be
accomplished if the subscribed amount does not reach the minimum amount
indicated in the resolution approving the transaction. In this case (and only in
this case), there would be unsubscribed shares which must be apportioned
according to article 171, paragraph 7, of the Brazilian Corporations Law.
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