Considerations On The Sarbanes-Oxley Act And Its Effects To Brazilian Companies
In principle, the Sarbanes-Oxley Act of 2002 only applies to American publicly held corporations and to foreign companies that have their papers negotiated in the American Stock Market, as well as their respective directors, officers, in-house and independent auditors.
In 2003, only approximately thirty Brazilian companies were listed and had their stocks or securities negotiated in the American Stock Market. Although many international organizations requested to the American government a different treatment for foreign companies, especially when regarding the conflict of laws, the majority of the companies incorporated under Brazilian law do not posses stocks listed in the U.S. and, therefore, were not affected by the new regulation.
The responsibility of directors and officers of Brazilian companies is extensively regulated by the Brazilian legislation. The Brazilian Securities Exchange Commission (CVM) also has issued a regulation with several recommendations with regards to corporate governance, most of them published before the issuance of the Sarbanes-Oxley Act and the widely known scandals. Please see attached file with the mentioned recommendations.
The regulation over corporate governance issued by the Brazilian Securities Exchange Commission (CVM), in many aspects, is similar to what turned out to be mandatory in the United States.
Those recommendations, however, still do not legally bind the companies in Brazil, since the standards set forth on those recommendations are higher than what is required by law. In spite of that, CVM demands from all Brazilian publicly held companies the inclusion of the level of adoption of these recommendations on their annual reports and financial statements.
As a general rule in Brazil Directors and Officers shall not be held jointly liable for commitments they undertake on behalf of the company as a consequence of regular acts of management.
Article 150 of Law n. 6.404/76 (Corporations Law), sets forth the officers shall be deemed individually liable towards the company and third parties for their deceitful or negligent acts or for those acts practiced on disregard or against what is established on the law or on the corporate Bylaws. If the officer makes any false statement while performing his/her corporate obligations he/she could be deemed individually liable for resulting damages.
Such understanding was confirmed by Law n. 10.460/02 (Limited Liability Companies Regulation) that says on article 1.016 that officers shall be considered jointly liable towards the company and third parties for any negligence while performing their job.
However, Corporation Law and Limited Liability Companies Regulation establish exceptions to the limitation of the responsibility of the managers of companies. Tax, labor, consumer, environmental, antitrust and other specific legislations also establish exceptions to the limitation of responsibility of shareholders and managers of Brazilian companies.
In any circumstance, all responsibilities and liabilities can be discussed in courts and are subject to the due process of law. Also, Directors and Officers may be protected in Brazil by an Executive Liability Insurance to cover their liability for acts performed under their management, according to insurance available in the market.
In conclusion, the Sarbanes-Oxley Act has not affected the majority of the Brazilian companies. However, we notice that Brazilian companies, as well as all multinational companies, tend to accept, follow and fulfill either the U.S. requirements for corporate governance (mandatory for Brazilian companies that are listed in U.S. stock exchange) or the Brazilian Securities Exchange Commission (CVM) recommendations, in order to provide more confidence to the foreign and local investors.