CVM Orienting Opinion No. 16 of November 17, 1988

CVM ORIENTING OPINION NO. 16, OF NOVEMBER 17, 1988.

SUMMARY: In cases where the dividend of preferred shares of an open company is established as a percentage of the nominal or unit value (social capital), its calculation base must include the monetary correction of the social capital. Correction of the dividend until the month of its effective payment.

LAW 6.404/76 determined that, in financial statements, the effects of the modification of the purchasing power of the national currency on the value of the elements of shareholders' equity and the results of the fiscal year must be considered, based on the devaluation indices recognized by federal authorities.

Consequently, the correction of the contributed capital is imposed with repercussions on the financial statements of open companies and, especially, on the rights of shareholders whose preferred stock dividends are established as a percentage of the nominal value (social capital). This occurs because the capitalization of monetary correction in those companies is done without modifying the number of issued shares and with an increase in the nominal value, which is equivalent to correcting the dividend annually, based on those same indices.

The impact of the new guideline on open companies, even at a time when inflation did not reach the current high levels, led the legislator to allow existing companies, with dividends established as a percentage of capital, to avail themselves of the temporary postponement of capitalization, under the conditions established in article 297 of the aforementioned law, as well as to allow them to issue new bonus shares, as an alternative to increasing the nominal value.

Companies constituted from the new law, alerted to the problem, could avoid it by fixing the dividend according to other criteria, as the law allows in § 1 of article 202.

Many open companies did not avail themselves of the option provided in article 297, so that today there exists, for some who took advantage of it in due time, a true situation of privilege in relation to the first ones, a situation of inequality arising from the literal provision of the law and the objective that informed it.

The existence of this privileged situation does not invalidate, but rather reaffirms, the inescapable principle that, when dealing with the update of monetary value, in the case of the mentioned shares, the percentage must be applied to the nominal value of the share (or social capital) after the annual correction approved by the ordinary general assembly.

This conclusion is imposed intuitively by the very purpose of the update itself, which is to bring, to the balance sheet date, in a corrected form, the various monetary units that make up the company's equity, as well as to ensure that the financial statements reflect, as close to reality as possible, the economic-financial situation of the company vis-à-vis third-party creditors and shareholders.

In legal terms, to dispel doubts that may arise from the legal system that considers capital reserve the result of the monetary correction of contributed capital, while not capitalized, one must remember that:

a) The aforementioned account already integrates social capital, since it has a transitory nature and cannot be given a different destination. CVM Orienting Opinion No. 2 states: "the very creation of the aforementioned capital reserve already represents, by the way, an artifice intended to preserve the purity of the legal system, according to which social capital can only be modified by deliberation or with the authorization of the general assembly";

b) the balance sheet becomes a legal act existing only after it is approved by the general assembly of shareholders, up to four months after the end of the social fiscal year. Exactly for this reason, the approved balance sheet constitutes the basis on which the rights and duties of the parties are regulated; the project presented to the ordinary general assembly retains the character of a proposal by the administrators, assuming its approval;

c) the deliberation of the ordinary general assembly to approve the balance sheet presented by the administrators constitutes an authentic declaration of will, and not a simple declaration of knowledge. Its effects operate ex tunc, from the moment the fact to which the declaration of will is linked occurred.

Thus, from a legal point of view, the retroactive nature of the approval of the balance sheet, which will affect the situation as of the date of the end of the social fiscal year, prevents the company from delaying, for one (1) year, the correction of dividends established as a percentage of social capital, which would happen if it disregarded the already corrected capital for the attribution of these dividends.

From an economic and financial point of view, monetary correction must apply for the entire period in which a money application or investment has been made. Grace periods, subsidies, or favors are legal elements that will be added in view of an express and unequivocal clause, which does not exist in this case, except for companies benefiting from adaptation under the terms of article 297, already cited. Moreover, the system of full correction - CVM INSTRUCTION NO. 64/87 - has already definitively demonstrated that monetary correction is an integral element of the result of the fiscal year and not a separate and autonomous item without financial significance. The monetary correction of social capital is nothing more than the monetary update of its expression, with all the financial effects resulting therefrom.

Companies are recommended, although the system of LAW 6.404/76 already imposes the aforementioned correction, that, for better clarification, they include in the bylaws the express provision that the dividend stipulated as a percentage of social capital be attributed with this percentage applied to the value of the capital after the annual correction, approved by the ordinary general assembly.

In addition to a didactic function, the clause will prevent the frustration of shareholders' interests and will induce administrators to practice planning, so that resources necessary for the payment of dividends obligatorily attributed to shareholders are reserved.

So far, we have dealt with matters related to the calculation base of dividends established as a percentage of the nominal value, which must be the social capital already corrected, by capitalization, in the ordinary general assembly, of the monetary correction registered as capital reserve up to that date. The procedure is mandatory for companies, as a result of the legal system itself.

Regarding the issue of monetary correction in the payment of the proposed dividend (integral or complementary), this regulatory agency initially manifested itself in INSTRUCTION NO. 72, of November 30, 1987, in the sense that the measure is optional for the company, and disciplined its treatment from an accounting point of view. In the Explanatory Note to the aforementioned Instruction, it stated that "this correction is extremely fair, almost to the point of being said necessary".

In fact, given the current inflationary scenario, the absence of monetary correction would correspond to unlawful enrichment on the part of the company and would translate into a factor that discourages investor participation and hinders the capitalization of the company through the raising of savings in the primary market.

Reasons of strict justice and those resulting from its functions as an agent of the development of the securities market therefore lead the Commission to recommend to open companies that they adopt, as soon as possible, the practice of monetary correction of declared dividends, by applying the official Government index (OTN) from the month of the end of the social fiscal year until effective payment, regardless of the calculation base adopted by statute for fixing the dividend.

An identical recommendation is made regarding the inclusion of the procedure with a statutory clause, for the purpose of clarification and planning by the company.

Original signed by
MARIA APARECIDA CUNHA LANA
Lawyer
IN AGREEMENT,
Original signed by
MARIA ISABEL PRADO BOCATER
Legal Superintendent

CVM ORIENTING OPINION NO. 16, OF NOVEMBER 17, 1988.
4
Approved By the Collegiate Body on November 17, 1988.
Publish.
Original signed by
ARNOLDO WALD
President