Law 10,303 of October 31 2001, which amends Corporation Law 6,404/76, was published on November 1 2001. It applies to companies incorporated after that date and will apply retroactively from March 5 2002. The purpose of the reform is to modernize domestic capital markets through the increased protection of minority shareholders and the inclusion of corporate governance rules.
Key changes affecting the telecommunications sector are as follows.
Privatized holding companies and their respective telecommunications operators that are publicly held companies may not make new issues of shares without assigning the equity rights conferred by the amending law.
The voting rights of preferred shares in the following resolutions of annual shareholders meetings must be maintained in the bylaws of the privatized holding companies, as well as those concerning the amendment or revocation of the respective bylaw provisions:
- prior approval for the execution of any long-term contracts between the privatized holding companies or their controlled companies, and the controlling shareholder or related controlled companies (subject to the latter's common control);
- first call for an annual shareholders meeting with at least 30 days' prior notice for the resolution of the matters listed in Article 136 of the Corporation Law and second call with at least 10 days' advance notice; and
- approval by the privatized holding companies (through their representatives) of their subsidiaries' consolidation, spin-off, merger or dissolution, which must be preceded by an independent financial analysis confirming that all interested companies are being treated fairly. The analysis must be available to shareholders.
Unless allowed by the annual shareholders meeting, an individual who occupies a position in a rival company may not be elected to the board of directors. Resolution 101/99 applies, which requires prior approval by the Brazilian Telecommunications Agency (ANATEL) for the election of an officer of a telecommunications company who occupies a management position in another company in the sector, or who has been nominated thereby.
From August 4 2003 control of privatized holding companies can be transferred and their operation will be subject to the prior approval of ANATEL and the Brazilian Antitrust Agency. An acquirer must comply with certain legal requirements and the sector's rules concerning market concentration. According to the new rules an acquirer must make a public offer for the acquisition of common shares held by minority shareholders at a price that is at least equivalent to 80% of the amount paid per voting share integrating the control block. Furthermore, the acquirer will be able to offer minority shareholders the option of continuing in the company by means of payment of a premium that is equivalent to the difference between the market value of the shares and the amount paid per share integrating the control block.
The new rules for changing a publicly held corporation into a closely held corporation do not apply to telecommunications companies since their controlling holding companies must continue to be publicly held.
The reduction of the maximum percentage for the issue of preferred shares from two-thirds to one-half does not affect privatized holdings which had issued more than 50% of the shares representative of their capital stock as preferred shares, since the new law determines that publicly held companies existing prior to November 1 2001 may maintain the previously adopted ratio between preferred and common shares. Moreover, operators that were closely held corporations prior to November 1 2001 will continue to be regulated by the former rules unless they decide to go public.
For further information on this topic please contact Ricardo Barretto or Nair Veras Saldanha at Barretto Ferreira, Kujawski, Brancher e Gonçalves – Sociedade de Advogados by telephone (+55 11 3066 5999) or by fax (+55 11 3167 4735) or by email ([email protected] or [email protected]).