The advance of the use of arbitration in Brazil for the resolution of complex matters involving large-sized corporations is well known. This is the result of the vast amount of legislation on the theme produced by the Brazilian arbitral community, supported by the Securities and Exchange Commission of Brazil (CVM) and the eagerness of investors for technical, however speedy, unfortunately, solutions not necessarily occurring within the traditional judicial system – despite the good understanding of the specialized courts and reserved chambers of the São Paulo Judiciary now gaining ground.
Due to the exponential growth of arbitration proceedings involving large-sized corporations, certain questions intrinsic to the arbitral institution put in check those vital to the development of capital market protection mechanisms. This is the case, for example, of confidentiality, an inherent characteristic of arbitrations however conflicting with the shareholder`s right to information and the duty to disclose of administrators of corporations with pulverized control.
Although not addressing a new legal topic, a recent Petrobras communication to the market clarified the partial sentencing of the Arbitral Court in a matter concerning the investment funds PETROS and PREVI, rekindling the flames with respect to this question, which certainly demands special attention from legislators and the arbitral community towards the drafting of mechanisms allowing for the continued use of arbitration in situations involving the capital market while at the same time attending to the disclosure of the terms of the arbitration to the market, fundamental to healthy coexistence between shareholders and corporations.
The disclosure of relevant facts is the cornerstone of securities market regulation regimes, which basis stems exactly from the principle of full and fair disclosure. It is, however, essential that the duty to inform imposed on securities issuers and securities market participants be rational and operational, avoiding both scarcity and overabundance in information disclosure.
With respect to arbitration proceedings, which are regulated by the CVM, Article 2, XXII of CVM Normative Instruction n. 358 [1] establishes that large-sized corporations must disclose relevant facts to the market whenever an arbitral proceeding is initiated which final determination could affect their economic-financial situation.
CVM Administrative Proceeding decision has applied this disclosure requirement,[2] most recently finding a corporation`s investor relations director culpable for the non-disclosure of a relevant fact with respect to an arbitration proceeding`s final determination.[3]
In practice, however, one can note enormous indifference of corporate administrators as to the disclosure of trustworthy and transparent information to minority shareholders on arbitration proceedings. Many unduly employ the veil of confidentiality to conceal information that would otherwise be of the greatest interest to the shareholder community and the market in general.
In light of these considerations and observing the recurrent practice of disclosure of relevant facts to shareholders containing irrelevant information, the recent communication to the market by Petrobras stands out as pertinent with respect to arbitration final determination, a positioning that in fact runs counter to its previous conduct of omitting the disclosure of relative information to its shareholders, both Brazilian and foreign. In U.S. Class Action n. 14-CV-9662, brought by Petrobras minority shareholders against the company, it was alleged that Petrobras did not truthfully disclose to its investors, which true information when revealed caused drastic share price drop both in the Brazilian and U.S. markets, and its result was an exorbitant USD 2.95 billion settlement, avoidable should transparent disclosure had taken place all along.
Correct and precise disclosure of relevant facts and communications to the market not only contributes to the debate being amplified and greater legislative protection being sought for guaranteed and effective full disclosure of arbitration proceeding final determinations to the market, but also serves as signal of the fact that large-sized corporations, like in the case of Petrobras, for example, now realize that the only possible road to corporate success is to maintain its community of investors apprised with respect to company legal proceedings, whether they be judicial or arbitral, as well to necessarily precisely demonstrate their financial results, assets and liabilities.
Almeida Advogados has amongst its ranks professionals with vast experience in the defense of minority shareholder interests and is prepared to continue to contribute to the creation of norms and regulations intending uniformity of procedure relative to arbitration proceeding-related information disclosure, as well as to the adoption of measures assuring the interests of those that find themselves to be disadvantaged by the lack of arbitration proceeding-related information and detail.
[1] Available at http://www.cvm.gov.br/legislacao/instrucoes/inst358.html (accessed on August 14, 2020 at 10:27am).
[2] See CVM Administrative Proceeding n. RJ2012/13700, involving an appeal brought by Torque Fundo de Investimento Multimercado against Companhia Brasileira de Distribuição, holding that “SEP [CVM’s Companies Monitoring Superintendence] notified the Company to observe CVM Instruction n. 358/2002, underscoring that given the handling of the disclosure of the arbitration dispute by the Company, the final determination of the same is also relevant, for reason of symmetry. It is clear that the Company should disclose the final determination of the arbitration by relevant fact as well.” [3] CVM Sanctioning Administrative Proceeding n. 2016/7190 (dated July 9, 2019).
Written by: André de Almeida and EDUARDO MACHADO TORTORELLA