Alessandra de Souza Pinto, Clarissa Freitas, Rafael Costa Silva and Tathiana Litter Bussab

The board of the Brazilian Securities and Exchange Commission (CVM), unanimously, acquitted the defendants in the context of a sanctioning administrative proceeding initiated to determine the responsibility of members of the board of directors for breach of the diligence duty , provided for in article 153 of Law 6,404/76 (Corporation Law).

The trial, which occurred in May, had its origins in complaints filed before the exchange commissionby a minority shareholder of the company.

The accusation was formulated for alleged failure to comply with the aforementioned fiduciary duty in monitoring of the terms and conditions of the trademark license agreement entered into with vehicle of the company's controlling shareholders (license agreement).

Prior to the establishment of the sanctioning administrative proceeding, the use of the trademarks had already been analyzed by the technical area of CVM, in a process initiated to verify any violation of the fiduciary duties that should be observed by the company's managers during the licensing of the trademark.

Although, at the time, no elements were identified to support the initiation of a sanctioning proceeding, the technical area of CVM found the existence of an inconsistent information in the company's reference form. According to the document, the licensing agreement was commutative and had been negotiated under "market" conditions, without describing the procedure adopted by the company's management to reach this conclusion.

After further investigation arising from minority shareholder complaints, the technical area of CVM understood that the directors would not have observed their diligence duty. It was pointed out the insufficient periodic review of the licensing agreement, which, besides of having economic relevance, directly benefited the company's controlling shareholders and had not been approved by the other shareholders, different treatment from that given to other contracts entered into by the company.

The term of the indictment stated that:

  • it was responsibility of the directors to make efforts to monitor the terms of the contract on a routine and continuous basis;
  • the defendants, by choosing not to analyse alleged existing warning signs, neglected the responsibility to investigate, comprised in the diligence duty; and
  • the decision not to amend the licensing agreement and the consequent maintenance of the payment of royalties was taken without the necessary analyses having been carried out, as attested by the lack of evidence of sufficient discussions and studies on the subject.

For diverging from the arguments presented by the technical area, the reporter director of the sanctioning administrative proceeding voted for the acquittal of the defendants in relation to the accusation of breach of the duty of care. He did not identify any omission in the monitoring of the license agreement by the company's directors.

The reporter director considered that the accusation did not provide elements that evidenced that the information used by the company's board of directors was insufficient to guide the decisions regarding the licensing agreement. Thus, the duty to "inform one another", which is considered one of the underduties of the diligence duty, had also not been violated by the directors.

After analyzing the facts, the CVM board followed the vote of the reporter director of the sanctioning administrative proceeding and decided, unanimously, for the acquittal of all the defendants.