Indemnity Contracts - Advisory Opinion of the Securities Exchange Commission ("CVM")

October / 2018

At the end of September, the Securities Commission ("CVM") issued an Opinion (Parecer de Orientação nº 38) relating to the Indemnity Contracts celebrated between the Companies and their officers.

These contracts are used to guarantee the payment, redemption or advance of funds in cases of arbitration, judicial or administrative proceedings involving acts practiced by the officers in the exercise of their duties.

The CVM's concern arises from the impossibility to determinate the exact impact of its results in the Company’s resources, in case of execution thereof.

This is because, contrary to what happens in "D&O" insurance contracts, in which the expenses occur within a fixed amount stipulated as a premium, in the Indemnity Contracts the Companies assume the financial risk of the officers. These risks range from investigation, prosecution and/or accountability of acts.

CVM understands that the impact on the equity of the Companies incurred by the Indemnity Contracts requires a wide disclosure, so that the stakeholders can evaluate the consequences arising in the Company. To this end, it is recommended that at least the following information must be disclosed by the Company:

1. Bylaws provision on the subject;

2. Limit value in case of indemnity;

3. Period of coverage;

4. Competence to enter into Indemnity Contracts;

5. Hypotheses excluding the right to indemnity;

6. List of expenses that may be paid, advanced or reimbursed based on the Indemnity Contract; and

7. Procedures for decision-making on the payment, reimbursement or advance payment of expenses arising from the commitment to the Indemnity Contract.

The CVM also recommends that the Indemnity Contracts shall be made available on CVM’s website system, within 07 (seven) business days from the date of its signature. This is also applied to any other documents that reflect the terms and conditions included in the indemnity regime, such as addendums, minutes, etc.

We are to stress that there is no specific regulation yet, and this should be issued by the Superintendency of Corporate Relations (Superintendência de Relações com Empresas) soon.

It is important to emphasize that the CVM recognizes the benefit incurred by Indemnity Contracts as a tool for attracting and retaining qualified professionals, but it is categorical that officers must, foremost, exercise the fiduciary duties of Law 6.404/1976.

Vernalha, Di Lascio, Mesquita & Associados is at the disposal of its clients for more information on the subject.