The Brazilian Securities and Exchange Commission – CVM, the body responsible for regulating and supervising the securities market, in a series of related decisions published in June 2018[1], understood that the responsibility for the proper maintenance of corporate books lies with the management of said company, and noncompliance is punishable. Under the terms of these decisions, the company’s directors were held responsible for the faithful maintenance and due updating of these books, indicating the directors’ responsibility in the inspection of the books, observing their respective duties of diligence.
On the one hand, the Brazilian Corporate Law (Law No. 6,404/76) lists the corporate books that companies must keep, in addition to establishing the duty to update them and the duty of inspection through articles 103 and 104, caption, e 104 caption and sole paragraph of the same legal provision. These include the register of registered shares, the transfer of registered shares, and the books of minutes of general meetings. These are the books that, of a corporate nature, must minimally be kept by the company in order to evidence the ownership of the shares issued by it and organize the corporate resolutions taken by the deliberative bodies.
On the other hand, article 153 of the Brazilian Corporation Law, which establishes the duty of diligence to directors, determines that in the exercise of their duties, directors shall take “the care and diligence which every active and upright man is wont to employ in the management of his own affairs“and, specifically, in its article 142, item III, establishes that it is the duty of the members of the board of directors to supervise the management of the directors, including the company’s books. In this sense, the responsibility of both functions for the proper maintenance and updating of the books is clear.
Based on these legal obligations, the CVM inspection verified several inconsistencies in the companies that are the object of the above-mentioned sanctioning administrative proceedings – inconsistencies regarding corporate and accounting books were verified, among them, the outdatedness of their information and the incoherence between the information in the corporate and accounting books. For this reason, and considering the duty of diligence provided by the Brazilian Corporation Law, the CVM had no doubts as to the joint and several liability of the officers and directors, ordering them to pay fines of up to R$100,000.00 each.
Even though the decisions of the administrative sanctioning processes in question have considered aggravating factors for the dosimetry of the fine, such decisions serve as a warning to company managers in Brazil, since they have resulted in the application of a monetary fine.
It is also worth pointing out that this discussion is applicable both to publicly or privately-held companies, since both are subject to the Brazilian Corporation Law, so that the correct recording in the accounting and corporate books of the company’s factual reality is not a mere formality, and must be treated with seriousness and care.
[1] CVM Sanctioning Administrative Proceedings No. SEI 19957.006239/2016-98, No. SEI 19957.000101/2017-66, No. SEI 19957.009535/2016-41, No. SEI 19957.003775/2017-12, No. 19957.006972/2017-93 and No. 19957.006974/2017-82.