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COVID-19 | Banking and Financial Operations - Distribution of proceeds

April 07, 2020

COVID-19 | Banking and Financial Operations - Distribution of proceeds

Banking and Finance Operations - updated on Apr 07 at 05:58 pm

BRAZILIAN CENTRAL BANK TEMPORARILY PROHIBITS FINANCIAL INSTITUTIONS TO MAKE DISTRIBUTION OF PROCEEDS AND ANY INCREASES IN MANAGEMENT COMPENSATION IN ORDER TO SOFTEN IMPACTS OF COVID-19

The Brazilian Central Bank (BACEN) published on Monday, April 6, 2020, with immediate effect, the Resolution No. 4,797, which establishes restrictions on the distribution of proceeds and on the increase in management compensation to be observed by financial institutions and other institutions authorized to operate by BACEN.

The measure aims to mitigate the effects of the crisis caused by the COVID-19 pandemic and is implemented on a transitory basis, with the objective of ensuring the solidity, stability and regular functioning of the National Financial System. 

According to the Resolution, it is expressly forbidden until September 30, 2020:

  1. The payment of interest on capital stock and dividends above the mandatory minimum established in the bylaws; 
  2.  The repurchase of own shares, except if carried out through stock exchanges or an organized over-the-counter market, to remain in treasury and later sale, up to the limit of 5% of the issued shares, including the shares accounted for in treasury at the entry into force of the Resolution, with authorization from BACEN;
  3. The reduction of capital stock, when legally possible;
  4. The increase in the remuneration, fixed or variable, of administrators and members of the board of directors, in the case of corporations, and of directors, in the case of limited liability companies, including bonuses, profit sharing and any deferred remuneration installments and other remuneration incentives associated with performance; and
  5. The payment in advance of any of the previous items.

The imposed prohibitions are applicable to all payments to be made from April 6 to September 30, 2020, as well as those calculated on the base date included in that period. In addition, the amounts retained as a result of the imposed prohibition cannot be subject of a future obligation or be linked to any dividend payments in the future.

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