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.