On 9.21.2023, the Brazilian Securities and Exchange Commission ("CVM" or "Federal Autarchy") initiated Public Consultation SDM No. 01/2023 ("Public Consultation") to address the amendment of CVM Resolution n° 81 ("Resolution"), the current regulation-governing shareholders' meetings.

The initiation of the Public Consultation by the Federal Autarchy aims primarily at receiving contributions from market participants regarding aspects related to the reform of the rules for remote participation and voting in general shareholders’ meetings, as currently provided in the Resolution.

Since April 2015, with the introduction of CVM Instruction n°. 561, the Federal Autarchy introduced the opportunity for shareholders to participate through remote voting. However, CVM acknowledges that its objectives for reform were not fully achieved through CVM Instruction n°. 561.

As a matter of fact, under the current regulations, shareholders still encounter certain problems that hinder or even prevent the exercise of their voting rights in the general shareholders' meetings of the companies they are part of. Among the key issues raised by the Autarchy, the current costs incurred by shareholders for voting practices stands out as a primary concern. Currently, investors need to appoint attorneys, prepare documentation, such as the power of attorney instrument itself, translate and notarize documents, in addition to incurring in other administrative expenses like accommodations, technical support, and training to properly exercise voting rights in the general shareholder’s meetings. In addition to the financial costs, another negative aspect highlighted by the Federal Autarchy is the fact that the computation and registration of in-person votes are subject to errors, indicating a vulnerability in the procedure that may result in uncounted votes.

CVM further emphasized that the 7 (seven) day advance notice period for sending the voting bulletin to shareholders, as currently outlined in the Resolution, is not suitable for current market practices. This is because the final days leading up to the actual voting can be particularly crucial for shareholders to coordinate and form their voting decisions. According to CVM, the earlier the deadline for submitting the voting bulletin, the less time shareholders have to engage in voting articulations.

In practice, there is a lower level of participation by local investors in remote voting, which is predominantly used by non-resident investors in Brazil. According to the Federal Autarchy, the predominant participation of non-resident investors is expected due to the higher costs they incur when voting in person at shareholders' meetings, compared to local investors. However, the expectation was that the introduction of remote voting would be more appealing to local investors, which has not materialized. Through the new instruction, the Federal Autarchy aims at making remote voting more effective.

In summary, CVM has submitted the following proposals for consideration in the Public Consultation:

1. Expansion of the requirement for the provision of remote voting bulletins for all types of shareholders' meetings, with the aim of reducing costs.
2. Mandating the provision of remote voting transmission services by custodians. Currently, it is mandatory only for registrars and central depositories.
3. Restructuring the transmission flow of voting instructions to prevent the loss of votes.
4. Non-action. In other words, not amending the Resolution and other regulations on the subject.

The deadline for responses to the Public Consultation is scheduled to terminate on November 24, 2023.

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