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Brazil: The path to growth

Rodrigo de Campos VieiraRicardo Mastropasqua
On June 25 2014, the Brazilian Exchange Securities Commission (CVM) issued CVM Instruction 549. This instruction partially amends CVM Instruction 409, which governs the organisation, management, operation, and disclosure of information regarding investment funds in Brazil and also creates the Share Investment Funds – Access Market, or FMA (Fundo de Investimento em Ações – Mercado de Acesso).

The creation of the FMA is the result of the CVM's efforts to improve the Brazilian regulatory environment for smaller companies, enabling them to access capital markets and finance themselves by means of public offerings of shares. The FMA has features aimed at allowing investors to participate in the transition process from the pre- to post-initial public offering phases.

As an investment policy, FMAs (either in the form of open-ended or closed-ended condominiums) must invest at least two-thirds of their net worth on shares issued by companies that are listed on the securities trading segment focused on the access market, established by a stock exchange or by an entity of the organised over-the-counter market that ensures, through contractual agreements, distinguished corporate governance practices.

The FMA incorporated in the form of closed-ended condominium will be allowed to invest up to a third of its net worth on shares, debentures, subscription bonuses or other securities convertible or exchangeable into shares issued by closely-held companies. The FMA must have certain levels of effective influence on the decision-making process and management of investee companies, by adopting mechanisms such as: (i) appointment of members to the board of directors; (ii) holding shares of the controlling stake; or (iii) execution of shareholders' agreements. For accounting purposes, the participation of the FMA in closely-held companies should be evaluated annually, at fair price, in accordance with the accounting standards approved by the CVM regarding fair value assessment.

The FMA must only invest in closely-held companies that comply with the following corporate governance requirements: (i) prohibition of issuing participation certificates and of such securities available on the market; (ii) establishment of a unified term of office of up to two years to all members of the board of directors; (iii) obligation to make available shareholders' agreements and programmes regarding the acquisition of shares or other securities issued by the investee company and also disclosure of information related to agreements entered into by related parties in the form required by CVM's regulations regarding issuers registered in category A (comprised of issuers authorised to trade any securities in any regulated securities' markets); (iv) resolution of corporate disputes through arbitration; (v) in case the investee company goes public, it must be bound, before the FMA, to join a special listing segment of a stock exchange or organised over-the-counter market which ensures at least all corporate governance practices provided in the items above; (vi) annual audit of financial statements by independent auditors registered before the CVM; and, (vii) equal treatment in the event of a transfer of the shareholding control through the put option of all shares issued by the company to the controlling purchaser at the same price paid to the controller.

CVM Instruction 549 also partially amends CVM Instruction 391, which governs the organisation, administration, and operation of equity investment funds in Brazil, allowing the incorporation of funds to invest in: (i) private equity funds; (ii) venture capital funds; and (iii) FMAs under the name of Investment Funds in Quotas of Private Equity Funds (Fundos de Investimento em Cotas de Fundos de Investimento em Participações). Such Investment Funds in Quotas of Private Equity Funds must invest at least 90% of their net worth in quotas of private equity funds, venture capital funds or FMAs.

Rodrigo de Campos Vieira and Ricardo Mastropasqua

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