Note the Market Nº 07/2017

On June 28, 2017, the National Financial System Appeals Council (CRSFN) decided, by majority (after a 4-4 tie, prevailing the casting vote of the Council Chair), to absolve the Federal Government of Brazil (Federal Government), in the ambit of the enforcement proceeding CVM Nº RJ2013/6635.

The trial occurred at second instance, analyzing an appeal brought by the Federal Union after a conviction, at first instance, by the Securities and Exchange Commission of Brazil (CVM).

During the trial at the CRSFN, the CVM (represented by the Office of Public Company Supervision - SEP, and the Office of the Chief Counselor - PFE-CVM), argued against the appeal brought by the Federal Government, presenting arguments to support the CVM’s decision taken at first instance on May 26, 2015.

In that occasion, the CVM’s Board of Commissioners had sentenced the Federal Government to a maximum fine penalty in the amount of R$ 500.000, due to a violation of Article 115, First Paragraph, of the Federal Law 6404/76. Such provision prohibits shareholders to vote in general meetings on resolutions: (i) that might grant them a particular benefit; or (ii) in which there are conflicting interests between the company and the shareholder.

Based on the evidence produced and the applicable norms, the CVM’s Board of Commissioners considered that the Federal Government, controlling shareholder of Centrais Elétricas Brasileiras S.A. (Eletrobras), voted with a conflicting interest in the Eletrobras’ Shareholders Meeting held in December 3^rd, 2012. In such Meeting, the Federal Government approved an anticipated renewal of concession agreements executed between Eletrobras and the Federal Government. In practical terms, it implied a waiver of the Eletrobras’ right to demand compensation for non-amortized assets object of such agreements.

In this new decision, however, the CRSFN considered that the Federal Government, in accordance with Article 238 of the Federal Law 6.404/76, was allowed to vote in the Eletrobras’ Shareholders Meeting that approved the renewal of the agreements.

The CVM respects the CRSFN’s trial and the final result of the proceedings, which fully observed the due process. Nevertheless, the CVM reasserts the opinion expressed by its Board of Commissioners’ at first instance.