CVM Orienting Opinion No. 8

CVM ORIENTING OPINION NO. 8, OF AUGUST 4, 1981.

SUMMARY: The homologation of a capital increase on bases different from those originally stipulated at the time of its authorization is inadmissible.

The CVM considers the capital increase invalid whenever the placement of all securities referred to in the issuance has not occurred (Information Disclosure Policies), therefore granting subscribers the right to review their decision.

If the full subscription of the capital increase is impossible, it will be necessary to adopt a solution that ensures the maintenance of the bilateral nature of the transaction, through a corporate resolution, that guarantees the right of subscribers to re-examine their initial investment decision, given the new circumstances.

1. The present Orienting Opinion questions the legitimacy of the homologation of a capital increase not entirely subscribed.

2. Section 6 of Article 170 of the Corporation Law (Law No. 6,404 of December 15, 1976) establishes that "the provisions on the incorporation of the company shall apply, insofar as applicable, to the capital increase," which is equivalent to making applicable to capital increase scenarios, insofar as compatible, the rules on the regulation of the incorporation of companies provided for in all of Chapter VII of the Law.

3. Among the norms that regulate the incorporation of companies, it is worth highlighting, because of its specific interest to the matter now under analysis, the rule that determines that it is only possible to incorporate a company after its capital has been fully subscribed (in this sense, see mainly the provisions in art. 80, item I, and in the caput of art. 86 of LAW No. 6,404/76).

4. Now, since there is no legal possibility for a company to be incorporated with only partial subscription of its capital, and since this provision is not incompatible with capital increases eventually carried out during the life of the company, it is to be applied to such scenarios. Consequently, since a company cannot be incorporated with its capital partially subscribed, a capital increase that is also only partially subscribed cannot be homologated.

5. It should also be remembered that the law, when dealing with the prospectus to be used in public subscriptions, expressly imposed the existence of rules applicable to scenarios involving an excess of subscriptions, admitting such occurrences as possible (art. 84, item IX). However, regarding the insufficiency of subscriptions, the Law remained silent. Such silence undoubtedly appears as an indicator that this possibility cannot be considered as capable of any other solution other than the finding that, since the capital increase corresponding to the project disclosed to shareholders and third parties has not been consummated, it cannot, for this very reason, be homologated.

CVM ORIENTING OPINION NO. 8, OF AUGUST 4, 1981.
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6. Apart from the legal approach above, the conclusion appears logical, because the homologation of a capital increase that, in essence, would present itself as distinct from the one originally authorized would be inappropriate. One cannot deny the character of a true adhesion transaction to the act of the subscriber who becomes part of a society. Now, all modern legal thought inclines towards interpreting adhesion transactions restrictively, so as not to place the contracting party, from whom all contractual freedom has been withdrawn, in terms less favorable than those accepted by him. This would be clearly forgotten if the subscriber were compelled to participate in a capital increase under conditions different from those originally considered by him.

7. On the other hand, it cannot be forgotten that the fact that, often, a subscriber of a capital increase, already a shareholder of the company and holder of a corporate participation whose size ensures him a series of political rights, subscribes to the increase precisely to see such rights maintained. Now, if the homologation of a partially subscribed increase were admitted, in this case, such subscriber would have disbursed an amount greater than necessary for the maintenance of those rights. In whose name would such excess subscription be justified?

8. The situation of the shareholder who, due to the inability to follow the capital increase in order to maintain his corporate participation at the same percentage levels, fails to exercise his preemptive right, not making any subscription, is not different. How to justify the irreparable prejudice to his political rights if the increase is homologated on bases lower than those originally proposed, and based on which the decision taken by the investor, in the sense of not following the increase, then already irreversible, would have a different content?

9. In the same line of reasoning, one must consider the hypothesis of those investors who are regulated to a certain maximum participation in the capital of a company, such as certain institutional investors, for example. How to manage the hypothesis of an institutional investor who, having subscribed to a capital increase an amount compatible with his regulatory participation limits, is surprised to find himself holding a participation higher than that limit he had in mind when making his subscription, due to the homologation of the capital increase for a value lower than originally planned and authorized?

10. It should also be emphasized that, in the case of a capital increase by public subscription, admitting the partial homologation of the capital increase would mean recognizing that the information contained in the CVM registry, including regarding the application to be given to the resources resulting from the issuance (Law No. 6,385/76, art. 19, § 5º, II, b), are not reliable, and the subscriber who had them in mind, when accepting to participate in an undertaking (that contained in the prospectus), may find himself, from one moment to the next, definitively linked to a different undertaking.

11. Another aspect to be recalled concerns the role of intermediaries, in the case of public subscriptions. The same systematic analysis developed in this Orienting Opinion demonstrates that the reliability intended to be given to their performance, based on the requirement of responsible behavior that contributes to the expansion and efficient functioning of the securities market, would be seriously prejudiced if the possibility of homologating the increase not fully subscribed were admitted.

CVM ORIENTING OPINION NO. 8, OF AUGUST 4, 1981.
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Indeed, one of the primary functions of the intermediary is precisely to analyze, at the time of the launch of a securities issuance, the absorption capacity existing for that particular security or, in other words, the possibility of the successful completion of the launch on the terms originally conceived, which he must do with the responsibility and criteria derived from the technical qualification possessed by him, the intermediary.

Such a function would be seriously prejudiced, and with it a significant segment of CVM's attention, if this intermediary's responsibility for the correct sizing of the capital increase value were diluted to the point where the assembly to verify the actually subscribed value could be held.

12. On the other hand, we understand that the situation does not change even when admitting the possibility that there is a minimum limit for homologation. In other words: authorized an increase of 100, the assembly would mention the possibility that the increase could be homologated, at minimum, at 50.

One cannot accept that the feasibility studies of the project related to the increase, as well as the proposal for the destination of resources, represent a mere attempt, subject to correction according to the better or worse result of the launch.

Within the entire normative system based on the regularity and precision of the information transmitted by the company to the investing public, it is not possible to admit that the proposal for the destination of resources represents a mere attempt, subject to rectification according to the better or worse result of the issuance.

Still in this context, the arguments referred to in items 7 to 9, above, regarding investors interested in maintaining certain political rights, conditioned to a certain percentage participation, and institutional investors, remain valid. It is not possible, in such circumstances, for the investor to make the decision most compatible with his interests if he does not have the exact notion of the volume of the company's capital, at the end of the increase (which could, in the figurative example, be located at any intermediate point between 50 and 100, depending on the success of the subscription).

Finally, even by a matter of logic, the bilateral nature inherent in the legal transaction of subscription, if it were permitted that the company could carry out the increase informed that the homologation will occur for any value between x and y, should also justify that the subscriber manifest the intention to condition the bases of his decision and investment to the final result of the subscription process. This would create, jumps to the eye, absolutely insoluble situations, and which would compromise the regularity of the capital increase process.

13. The homologation, it is worth insisting, when only part of the increase approved in the general assembly was subscribed, involves, besides everything, a grave injustice towards the subscriber who, precisely because the general assembly to verify the increase has not taken place, is not yet a shareholder and cannot manifest himself on the resolution, and, for this reason, will not have, in principle, the opportunity to go back on his manifestation of will.

CVM ORIENTING OPINION NO. 8, OF AUGUST 4, 1981.
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However, if a capital increase is found whose full subscription appears impossible, due to any circumstance unrelated to the prediction of the administrators at the time of their planning, the only legitimate solution, since it ensures the right of subscribers to review their initial investment decision, based on premises overcome over time, will be the re-ratification of the entire process, through the holding of a new assembly resolution (or of the board of directors, in the case provided for in art. 168).

For this, the increase on the bases that have proven viable must be approved and subject to a new registration at the CVM, in the case of public subscription, opening a new period for the exercise of the preemptive right, if applicable, and allowing subscribers of the frustrated increase, shareholders or not, to ratify their manifestation of will, on terms compatible with the new bases of the increase, or receive, in the contrary case, in return, the entries made, if they revoke such manifestation of will.

Signed Original by
PAULO CEZAR ARAGÃO
Legal Superintendent
Approved By The Collegiate Body On 04.08.81.
Publish.
Signed Original by
HERCULANO BORGES DA FONSECA
President