Cvm Releases Guidance Opinion On Saf And Their Role In Capital Markets

The Brazilian Securities and Exchange Commission clarifies its position regarding its role as a regulator and the rules applicable to SAF

In order to provide guidance to investors and market participants on the use of instruments that enable access to the capital markets by corporate entities for Brazilian football (soccer) clubs (Sociedades Anônimas de Futebol – “SAF”), the Brazilian Securities and Exchange Commission (“CVM”) published Guidance Opinion No. 41, of August 21, 2023 (“Guidance Opinion 41”), which outlines the CVM’s position on the rules applicable to SAF, as well as the CVM’s role as a regulator.

SAF is a company whose main activity is the practice of football, both female and male, in professional competitions, and is governed primarily by Law No. 14,193, of August 06, 2021 (“SAF Law”), with subsidiary application of Law No. 6,404, of December 15, 1976 (the “Brazilian Corporations Law”).

The first point raised by the CVM concerns its activities. While the Brazilian Corporations Law applies to SAF, it will not be automatically subject to the CVM’s inspection and oversight, nor to compliance with the regulatory requirements of the capital markets. Thus, only SAF that (a) applies for registration as publicly traded companies; or (b) accesses the capital markets in order to finance their activities are subject to the CVM’s authority.

In addition, the CVM clarified questions on topics concerning SAF that accesses the capital markets, as described below.

The formation of the SAF’s share capital

The first point concerns the possibilities for setting up SAF, which, under the terms of the SAF Law, must be achieved through:

(A) the conversion of the original club or legal entity into a SAF;

(b) the spin-off of the football department of the original club or legal entity and the transfer of its football-related assets; or

(c) the initiative of an individual or legal entity, or an investment fund.

Regardless of the method chosen, the formation of a SAF’s share capital must comply with the provisions of the Brazilian Corporations Law, such as the contribution to be carried out only by means of cash or assets of any kind that can be valued in cash, and provisions on trademark rights, use of a stadium, arena or facilities dedicated to training athletes. The assessment of such assets must be carried out by three experts or by a specialized company, under the terms of the Brazilian Corporations Law.

Shares issued by SAF

The SAF Law provides for an exception to the Brazilian Corporations Law, since the general rule prohibits the issuance and maintenance of more than one class of common shares for publicly traded companies, with the exception of the possibility of plural voting, which was recently introduced into the legislation. A SAF interested in registering with the CVM will issue the following shares, as applicable:

• Specific class ordinary shares: the SAF must have a specific class of ordinary shares, referred to in its own legislation as “Class A“, for subscription exclusively by the club or original legal entity that constitutes the respective SAF, which has special privileges, as well as specific rights, under the terms of the SAF Law.
• Ordinary shares of other classes: if a SAF intends to issue ordinary shares for subscription by other subscribers that would not fit the description mentioned above, the SAF can do so by means of another class of ordinary shares, with (or without) the possibility of plural voting, which must always be different from Class A shares.
• Preferred shares: a SAF can hold only Class A common shares and the remaining shares can be preferred shares, subject to the requirement of the Brazilian Corporations Law that preferred shares without voting rights or with restricted voting rights do not exceed 50% of the total number of shares issued by such SAF.

In addition, the CVM believes that rights under Class A shares are strictly personal in nature and, therefore, the acquisition of such rights by a third party will imply the conversion of these shares into another class of common or preferred shares. In any case, the acquirer will not be the holder of the exclusive rights provided for in the SAF Law, which are assigned exclusively to the club.

Controlling power and corporate governance

The SAF Law provides for a basic governance structure, with main characteristics and elements, thus allowing the respective bylaws to establish the complementary structure. As such, the CVM clarifies key aspects to be considered, as listed below:

• Controlling shareholder: the CVM recommends that internal mechanisms be implemented to replicate the legal prohibition on the controlling shareholder of a SAF from holding a stake, including indirectly, in another SAF, including through regular requirements, such as the submission of a compliance statement by shareholders.
• Shareholder with more than 10% of the voting shares: under the terms of article 4 of the SAF Law, a shareholder who holds more than 10% of the voting shares of a SAF and simultaneously holds any number of shares in another SAF, will not have the right to speak or vote at shareholders’ meetings. This shareholder may only attend the meetings, without taking part in the management of these companies.
• Exceptions for audit committees: the prohibition mentioned above applies to the board of directors and the executive board; therefore, it is possible for this shareholder to take part in the audit committee, but it is important to comply with the rules established in the Brazilian Corporations Law.
• Essential shareholders’ rights: in line with the Brazilian Corporations Law, the holder of preferred shares without voting rights, or with restricted voting rights, can reacquire this right in the event that fixed or minimum dividends are not paid, which does not imply the elimination of the need for an affirmative vote by holders of Class A shares on the matters provided for by law. In addition, those shareholders who do not have the right to speak or who are prohibited from voting are entitled to the essential rights listed in the Brazilian Corporations Law, such as the rights provided for in article 109 of this law.
• Shareholders’ agreement: the shareholders’ agreement cannot establish rights or duties that violate the prohibitive rules in the SAF Law, as well as the possibility for the controlling shareholder of a SAF to form a quorum to request multiple votes or separate elections, even if the shareholder does not influence the other votes, under the terms of article 4 of the SAF Law.
• Management bodies: unlike the Brazilian Corporations Law, the SAF Law establishes that the implementation of a Board of Directors and an Audit Committee are subject to mandatory tenure. Therefore, since there is no specific law governing these bodies, a subsidiary interpretation of the Brazilian Corporations Law is necessary, especially with regard to requirements, impediments, duties and responsibilities. In the case of SAF registered with the CVM, the positions of chairman and chief executive officer, both integrating the Board of Directors, cannot be held simultaneously, except for in small companies. In addition, the participation of independent members on the SAF’s Board of Directors is mandatory.
• Disclosure requirements Finally, Guideline Opinion 41 establishes some disclosure requirements:
• Legal entity with a stake equal to or greater than 5%: in this case, the legal entity must report to the company and to the Brazilian sports authority the information on the individual who exercises its control or who is its beneficiary. Considering the similarity between this requirement and the one provided for in article 12 of CVM Resolution No. 44, of August 23, 2021 (“CVM Resolution 44”), the CVM understands that, although these obligations are not the same, they can be met in a single document, as long as the requirements established in both provisions are met.
• Material fact and reference form: if a SAF is a publicly traded company, it is required to comply with the information duties provided for in CVM Resolution 80, of March 29, 2022 (“CVM Resolution 80”), and CVM Resolution 44, such as updating the reference form, and publishing a material fact or notice to the market, as applicable.

Access to the market

Guidance Opinion 41 clarifies that SAF, as other companies, has multiple instruments to raise capital in the capital markets, as shown below:

• Offering of shares: if SAF decides to carry out an initial offering of shares, the CVM emphasizes the need to comply with CVM Resolution 80, as well as CVM Resolution 160 of July 13, 2022 (“CVM Resolution 160”), not only when submitting the offering, but also in the company’s subsequent relationship with its investors and the CVM.
• Debt instrument: in line with the provisions of CVM Resolution 160, it is possible for companies that are not registered with the CVM as issuers of securities to carry out public offerings of debt instruments, with varied remuneration options provided for by law or regulation, including debentures-fut, aimed at professional investors. Also, under the terms of the SAF Law, if a SAF issues debentures regulated exclusively by the Brazilian Corporations Law, the content of such debenture-fut will not be applied.
• Debentures-Fut: these are securities issued exclusively by SAF, whose resources must be allocated to the development of activities or the payment of expenses relating to the SAF’s typical activities, for which the Brazilian Corporations Law is applicable on a subsidiary basis.

One of the aspects highlighted by the CVM is the repurchase ban on debentures-fut by a SAF or by a related party, early settlement through redemption, or pre-payment of debentures-fut by SAF, except as subsequently regulated by the CVM. In this sense, the CVM understood that SAF are already authorized to repurchase publicly offered debentures-fut from their own issuance, provided that SAF complies with the applicable regulations, in particular with CVM Resolutions 77 and 81, both of March 29, 2022. However, this authorization does not apply to the other situations mentioned above, since, to date, there is no specific regulation in the market beyond the reporting requirements. Nonetheless, the CVM can still publish specific rules for the acquisition of debentures-fut, as well as regulate the removal of the prohibition on the early settlement of debentures-fut by means of redemption or prepayment of such securities, depending on the experience and compliance with market practices;

• Crowdfunding: the CVM does not prohibit the use of this type of mechanism by SAF that are not registered with the CVM, provided that the other regulatory requirements are met. The CVM also does not prohibit access to the capital markets through the issuance of tokenized securities, which are commonly used on crowdfunding platforms.
• Investment Funds: the CVM recommends that funds operate in compliance with capital market regulations and their respective regulations. It is important to highlight that the CVM believes that there is a synergy between the needs of the SAF market and the creation of investment funds, especially Equity Investment Funds, Real Estate Investment Funds, Credit Rights Investment Funds, as well as with securitization activities, making these vehicles capable of providing the financing expected by SAF.

Investor protection

As a result of the unusual structure of SAF, which can bring together, as investors, people with different profiles and levels of knowledge, as well as supporters, who could be influenced to invest because they are passionate about their team, the CVM has highlighted some precautions to protect investors from potential unreasonable decisions.

• Offering-related documents: attention to the description of the risk factors attached to the offerings and issuers, as well as the use of clear, concise, objective and balanced language in the offering-related documents.
• Suitability: the CVM recommends that intermediaries and other distributors allocate products according to the investor’s profile, without exploiting the investor’s passion for sports in favor of the public offering.
• Notice to the market and material facts: CVM clarifies that, while it recognizes the SAF’s challenge in defining what should be disclosed to the market, by observing the praxis applied in other jurisdictions, the CVM does not expect the SAF and its managers to express themselves in response to any news or rumors. However, the CVM will demand that the acts and facts that may generate the effects, provided for in CVM Resolution 44, be carefully assessed and that the appropriate notices to the market be carried out.

Responsibilities of the CVM

Finally, the CVM emphasizes that its responsibility is restricted to the offering of securities; therefore, the CVM cannot intervene in the offering of instruments that are not of this nature, such as fan tokens and sports betting.

Guidance Opinion 41 also clarifies that, due to the provisions of the Brazilian Educational and Social Development Program (“PDE”), which aims to create a mandatory agreement to be signed with a public educational institution in order to foster measures in favor of education, it is important that SAF:

(a) ensure transparency regarding the commitments assumed and executed; and

(b) as publicly traded companies, stipulate internally the maximum annual amounts to be spent on the agreement, and report such amounts.

Additionally, the CVM highlights that SAF can incorporate the PDE as an ESG measure within the company, given its social importance.

For more information, Guidance Opinion 41 can be accessed through the CVM website.

Demarest’s Capital Markets, M&A and Corporate teams are available to provide any further clarifications that may be necessary.