Amec requests CVM to review Guidance Statement 35 and Instruction 361

In a letter sent to the Brazilian Securities and Exchange Commission on November 23, Amec – the Association of Capital Market Investors – requests the regulator to review the Guidance Statement 35, of 2008, and to start discussions to revise the Instruction 361 to modernize the structure of IPOs. The requests derive from successive mergers, especially those involving stock mergers, which meet the form of the provisions established by the regulatory authority but do not comply with the essence that led to their creation – the protection of minority shareholders. The most recent transaction of this type is the corporate reorganization announced by Gol Linhas Aéreas and its controlled company Smiles.
The transaction will follow the Guidance Statement 35, which sets forth the fiduciary duties of directors in reorganizations involving the controlling company and its controlled companies or companies under common control. In practical terms, the Statement recommends two solutions to mitigate possible conflicts of interests: the creation of an independent committee that negotiates the transaction and submits its recommendations to the board of directors or the approval of the transaction by the majority of the minority of non-controlling shareholders.
In Amec’s opinion, the Gol-Smiles case shows, once again, the fragile nature of the Statement. When it has to choose between creating an independent committee or upholding the decision of the “majority of the minority,” the market traditionally adopts the first option – whose independence is many times questionable and enforceability is difficult to apply. Based on that, Amec requests that the CVM make a change to the Statement 35 to be in line with the international practice and adopt only the “majority of the minority” as the basic rule to allow the presumption of validity of transactions involving common control.
Amec also suggests that the CVM establish that “not only the controlling shareholders but also the members they nominate to participate in the independent committee be prohibited from voting in the shareholders’ meeting called to deliberate on the merger.” In the Gol-Smiles case, it’s been said that the controlling shareholder intends not only to participate in the shareholders’ meeting that will deliberate about the merger, but also request that the members elected by it call a meeting to change the bylaws to include a provision for the creation of an Independent Committee consisted of members to be selected by them.
In the same letter, Amec requests that the CVM issue a regulation “to prevent the consolidation of the distorted use of redeemable preferred shares as a mechanism that damages minority shareholders” and start a discussion to modernize the Instruction 361, which regulates the OPAs.
The President Letter 16/2018 is available here.