Middle Market Companies and Startups to Benefit from New Exemptions for Fundraising in the Brazilian Capital Markets through the FÁCIL Regime – Facilitating Access to Capital and Incentivizing Listings.

By  Luiz Rafael de Vargas Maluf and Luiz Gustavo Panizza Brandão Britts

On September 11, 2024, the Brazilian Securities and Exchange Commission (CVM) published Public Consultation Notice SDM No. 01/24, proposing the creation of an experimental environment called Facilitating Access to Capital and Incentivizing Listings – “FÁCIL.” This proposal is part of the CVM 2024 Regulatory Agenda, in line with the provisions of Articles 294-A and B of the Brazilian Corporate Law, and aims to simplify and encourage access to the capital markets for companies with consolidated annual gross revenue of up to R$500 million a year (defined as Smaller Companies – SMPs), offering a more simplified regime with a series of regulatory flexibilities aimed at reducing costs and bureaucracy.

The FÁCIL regime aims to address a gap in the Brazilian capital markets by creating an intermediate regulatory environment between the investment crowdfunding under CVM Resolution No. 88 of April 27, 2022 (for companies with gross revenue of up to R$40 million and a fundraising limit of up to R$15 million per year)^([1]), and the traditional fundraising regime through public offerings registered under CVM Resolution No. 160 of July 13, 2022, used by all other companies.

Today, many companies in these segments are limited to financing via traditional bank loan operations (i.e., CCBs) or are even unaware of differentiated mechanisms through the capital markets for this type of funding. The establishment of the FÁCIL regime is one of the CVM boldest initiatives, aimed precisely at making it feasible and democratic for companies of this size to raise funds on the Brazilian capital markets, with more simplified rules, and allowing real access for companies that today do not qualify either for crowdfunding or for traditional public offerings.

Among the main topics highlighted in the aforementioned Public Consultation Notice are:

FACILITATION THE GRANTING OF ISSUER REGISTRATION

One of the main innovations is the possibility of granting securities issuer registration automatically for SMPs, eliminating the traditional process with the CVM and relying on the analysis of entities managing organized markets (e.g., B3), which will reduce costs and make the process faster and less bureaucratic.

• Classification as a Smaller Company (SMP):

To be classified as an SMP, the company must meet the following requirements:

• Consolidated Annual Gross Revenue: less than R$500 million, based on the financial statements for the last fiscal year (the verification point will be the approval of the financial statements at the Annual General Meeting),
• Listing on an Organized Market: must be listed on an organized securities market (e.g., B3),
• Operational Stage: must be in operation, and
• Investor Consent (only for issuers already registered and with outstanding securities): must obtain prior consent from holders of outstanding securities to be classified as an SMP (since this could reduce the informational obligations currently assumed with these investors).

This classification does not overlap with the current registration categories (“A” – issuance of shares and other securities, and “B” – issuance of debt securities) set forth in CVM Resolution No. 80, of March 29, 2022. The CVM will maintain such segmentation but will include the SMP classification if the issuer qualifies as such (i.e., the company may have its issuer registration with the CVM as category A – SMP, or category B – SMP). Companies already registered with the CVM may opt to change their classification if they meet the requirements as a smaller company.

• Loss of SMP Classification:

The issuer may lose the SMP classification in the following situations:

• by request and at its own initiative,
• if the consolidated annual gross revenue exceeds R$500 million (if this situation is seen only on the last day of the fiscal year, the issuer will have until the following Annual General Meeting to comply with the new obligations),
• delisting from the organized market, or
• failure to carry out a public offering of securities within 24 months of being classified as an SMP when obtained concurrently with the issuer’s registration.

In these cases, the issuer must update its registration form and begin to fully comply with the applicable regulatory obligations within 60 days of the notification sent by the CVM, unless within this period it demonstrates that the reasons for the loss of SMP classification no longer exist.

SIMPLIFICATION OF REGULATORY OBLIGATIONS

To encourage the entry of SMPs into the capital markets, the FÁCIL regime eases a series of regulatory obligations currently imposed on all publicly held companies, allowing smaller companies to adapt more easily.

• FÁCIL Form:

Companies classified as SMPs may replace the reference form, prospectus, and public offering summary (usually lengthy documents with a higher level of information) with a single simplified document called the FÁCIL Form, which must be presented annually or on the occasion of public offerings.

• Financial Information:

Instead of the quarterly financial disclosures currently required for companies registered as issuers with the CVM, companies classified as SMPs will be able to disclose these financial reports every six months through the Semiannual Information Form (ISEM).

• Securities Bookkeeping:

Entities managing organized markets may act as securities bookkeepers for the respective SMPs listed there.

• Flexibility in Takeover bid rules:

If the issuer wants to cancel its registration with the CVM and has outstanding shares, it must carry out a takeover bid and obtain approval from half of the outstanding shares (instead of the current two-thirds requirement in CVM Resolution No. 85). Additionally, the issuer will be exempt from hiring a financial institution to guarantee the settlement of the takeover bid, if the organized market management entity guarantees the settlement, and the appraisal report may be produced by appraisers accredited by the market management entity.

• Exemptions:

SMPs will also be exempt from the following obligations:

• adopting a disclosure policy for relevant acts or facts,
• adopting share trading and information disclosure policies,
• distributing the mandatory dividends under Article 202 of the Brazilian Corporate Law, unless otherwise stated in the bylaws,
• maintaining a website with updated information,
• disclosing monthly reports on ownership and trading of their issued shares,
• submitting summaries of decisions made at general meetings to the CVM, and
• submitting the report on the Brazilian Code of Corporate Governance – Public Companies to the CVM.

DIRECT PUBLIC OFFERINGS

One of the main innovations of the FÁCIL regime is the introduction of the “Direct Offering,” which allows SMPs to carry out public offerings of securities without the mandatory intermediation of a financial institution acting as the lead underwriter, making the process of issuing securities on the Brazilian capital markets less costly.

• Fundraising Limit:

The Direct Offering allows the offering of shares and debt securities without any restriction on the target audience but is limited to R$300 million per 12-month period, ensuring that SMPs can raise funds in the capital markets without the stringent requirements typically applied to traditional offering regimes.

• Main Characteristics of Direct Offering:

• Special Procedure: the direct offering will occur through a special procedure, with operational rules defined by the organized market administrator. Purchase offers will be collected by intermediaries on behalf of investors.
• Objective Allocation: limitation of discretion in the allocation of securities, following pre-established criteria.
• Prohibition on Participation by Affiliated Persons: affiliated persons are prohibited from participating in the direct offering.
• Transparency: ensures the uniform dissemination of information regarding demand for the offered securities.
• Revocation Right: investors may revoke their purchases up to 24 hours before the end of the special procedure.
• Preliminary Review: the offering documentation will undergo a preliminary review by the organized market administrator.
• Disclosure of Information: the organized market administrator’s website must present the FÁCIL Form, supporting documents, and updates, along with information about the success or failure of the offering after its conclusion (including the number of participating investors, price or rate, and total funds raised).
• Quiet Period: similar provisions to those already applicable under CVM Resolution 160 will apply, though with greater flexibility, while still maintaining mechanisms to mitigate risks related to the uneven dissemination of information in the market.

CONCLUSION

The implementation of the FÁCIL regime does not undermine the current governance instruments adopted by companies. Instead, it serves as a regulatory incentive for smaller companies to access the Brazilian capital markets by simplifying processes and offering other mechanisms to raise funds. This is expected to increase competitiveness and reduce the spread charged for fundraising.

The FÁCIL regime will be launched on an experimental basis, with the intention of being evaluated and adjusted as results are observed. There is no indication of how long this new regime will remain in place, as this will depend on the entry of new issuers and the success of public offerings under this model. However, as an experimental regime, the CVM may, after this period, incorporate the FÁCIL regime permanently into the regulatory framework of the Brazilian capital markets, adapt it based on experiences and feedback from market participants, or even revoke it.

The draft proposal for the FÁCIL regime is currently under public consultation and open for comments from all market participants. Comments and suggestions can be sent to the CVM until December 6, 2024, at the email address conpublicaSDM0124@cvm.gov.br.

CGM Advogados has a specialized team in Capital Markets and will be submitting contributions to the CVM as part of this public consultation. If you are interested in participating, our team will be ready to assist you in drafting and submitting contributions and will be available to answer any questions you may have, gathering our clients’ insights to ensure a more efficient and structured participation process.

 

Authors:

Luiz Rafael de Vargas Maluf – Partner in the Capital Markets practice area
(rafael.maluf@cgmlaw.com.br)

Luiz Gustavo Panizza Brandão Britts – Associate in the Capital Markets practice area (gustavo.brandao@cgmlaw.com.br)

[1] Regarding crowdfunding regulated by CVM Resolution 88, we recommend reading our firm’s recent article entitled “Real Estate Crowdfunding as an Alternative for Fundraising”, which can be accessed at the following link: https://www.cgmlaw.com.br/crowdfunding-imobiliario-como-alternativa-para-captacao-de-recursos/