Publications

Category: Banking, insurance and finance

The Central Bank of Brazil (Bacen) has completed the regulations necessary for the issuance of Secured Real Estate Letters (LIG), with the issuance of Circular No. 3,895/18, on May 4. The norm provides for the procedures for a centralized deposit of LIGs and for a centralized registration or deposit of the assets that make up the asset-backed portfolio securing the issuance of that instrument.

Created by Law No. 13,097/15 (resulting from the conversion of Provisional Measure No. 656/14), LIGs ​meet the objectives of real estate development set forth in the BC+ Agenda, Bacen’s Credit Pillar. They present themselves as an advantageous alternative for real estate financing since they are instruments secured both by the issuing institution's equity (as are, as a rule, the Letters of Real Estate Credit - LCIs, commonly issued without collateral) as well as by a portfolio of assets (which endow the LIGs with a kind of backing constituted as equity, similar to the Real Estate Receivables Certificates - CRIs). Fiduciary and/or real guarantees for issuances of LIGs may also be established.

Some of the main features of the regulation on the issuance of LIGs are summarized below:

General characteristics of LIGs: nominative, transferable, and freely negotiable instrument secured by a portfolio of assets, which in turn is constituted as a segregate estate (that is, such asset portfolio is not subject to attachment or any other type of restriction, and will not be affected in cases of insolvency, intervention, extrajudicial liquidation, or bankruptcy of the issuing institution).

Remuneration: based on fixed and/or floating interest rates, as well as other rates, as long as publicly known and regularly calculated.

Issuing institutions: multiple banks, commercial banks, investment banks, credit, financing and investment companies, savings banks, mortgage companies, and savings and loan associations. Among other conditions, issuing institutions must fully comply with regulatory capital rules and must (together with the fiduciary agent) indicate to the Bacen an officer responsible for the LIG issuance transaction.

Special amortization regime: in the event of a decree of intervention, extrajudicial liquidation, bankruptcy of the issuing institution, or recognition of its insolvency by the Bacen, LIGs shall be subject to a special amortization regime, provided that the payment of the principal amount of the LIG is not made at maturity.

Repurchase and early redemption: as a rule, the issuing institution is not allowed to redeem in advance or to repurchase the LIG, in whole or in part, within 12 months of its issuance date.

Early maturity: the early maturity of LIGs is forbidden, except in the event of recognition of insolvency of the asset portfolio, in which case the conditions of payment of the obligations related to the LIG must be established according to the criteria defined in the special amortization regime.

LIG issuance program: issuing institutions may establish a LIG issuance program, thereby making series issuances, composed of one or more LIGs secured by the same portfolio of assets.

Asset portfolio composition: the asset portfolio can only be composed by (i) real estate loans (those consisting of financing for the acquisition or construction of residential or non-residential property, corporate financing for the construction of residential or non-residential real estate and loans to individuals with a mortgage guarantee or clause for sale of residential real estate); (ii) bonds issued by the National Treasury; (iii) derivative instruments (provided that they are exclusively intended to hedge); and (iv) cash and cash equivalents from the assets included in the asset portfolio. The sum of the updated nominal values ​​of the real estate credits, including the value of the derivative instruments, shall represent at least 80% of the total updated face value of the asset portfolio.

Eligibility of real estate credits: real estate loans may only be included in the asset portfolio if they fulfill the eligibility conditions set forth under the regulations, among which are that they: (i) must be performing; (ii) must be free of any type of liens, except those related to the guarantee of the rights of the holders of the LIGs; (iii) must be secured by a first mortgage or fiduciary sale of immovable property (except in cases of credits arising from financing for a legal entity for the construction of residential or non-residential real estate); (iv) in the cases of financing for a legal entity for the construction of residential or non-residential real estate, the real estate development underlying the transaction must be subject to the applicable regime; (v) the credit risk classification of the transaction must not be less than "B"; and (vii) there must be insurance coverage, under the terms of the regulations, in cases of a transaction with an individual for acquisition or construction of residential or non-residential property and a transaction for construction of residential or non-residential property by a legal entity.

Fiduciary agent: the following may act as fiduciary agent: (i) institutions authorized to issue LIGs; (ii) real estate securitization companies; (iii) securities brokerage companies; and (iv) securities distribution companies. The fiduciary agent shall be vested with a mandate to administer the asset portfolio in the event of intervention, extrajudicial liquidation, or bankruptcy of the issuing institution, or recognition of its insolvency by the Bacen.

Deposit and registration: the issuance of the LIGs must be registered with a central depository authorized by the Bacen, under the terms of Law No. 12,810/13, and the assets that make up the asset portfolio must be deposited or registered with an entity authorized by the Bacen.

Notwithstanding the expectation that supplementary regulations will be issued in the coming weeks (mainly related to accounting rules), as of now authorized institutions may issue LIGs, and the market may have one more source of funds for the encouragement and development of the real estate segment in Brazil.

Category: Public and regulatory law

After a presidential signature with few vetoes, on April 26, Federal Law No. 13,655 was published, which establishes rules on the creation and application of public law. Known as the Legal Certainty Law, it includes new principles, applicable mainly to the practices of administrative law in the former Law of Introduction to the Civil Code, renamed in 2010 as Law of Introduction to the Norms of Brazilian Law (LINDB). These principles have enormous potential to reduce the arbitrariness of the decisions by public agents, therein including public servants of the most varied of agencies and entities of the Public Administration, representatives of the Public Prosecutor's Office, as well as members of audit courts and judges.

In this sense, the personal liability which those agents now have for their decisions or technical opinions in case of fraud or gross error is emblematic. This new legal precept alone brings in a great innovation: public agents no longer respond personally only in the cases of civil damages, harm to the treasury, illicit enrichment, undue granting of financial or tax benefits, violation of the principles of public administration or crimes against the public administration, which are already covered by civil laws on administrative impropriety, disciplinary, or criminal procedure, as the case may be; they may also be subject to sanctions when they issue fraudulent instruments or opinions, for example, that would not necessarily fit within the former scenarios.

If, on the one hand, the provision could make public servants, especially in the administrative sphere, even more reluctant to reach certain impactful decisions (formulating a new public policy or signing a contract with an innovative purpose, for example), on the other hand, the new law ensured that the scrutiny of their decision was also linked, in the sphere of public oversight, to considerations regarding the manager’s real obstacles and difficulties, as well as the requirements of the public policies in their charge: in practice, the agents may be exempt from liability when limitations of the most varied of natures, including budgetary constraints, do not allow for different conduct.

At the same time, the Legal Certainty Law has recognized and created remedies for dysfunctional customs in the exercise of oversight powers, which have long contaminated the public-private business environment and thus scared investors away from the unpredictability inherent in current practices of interpretation and invalidation of contracts. In such regard, the new law prohibited decisions which are based on abstract legal values ​​that disregard the practical consequences thereof and the annulment of legal acts without specifying the legal consequences of the decision. These are impositions as to the grounds for decisions , which require decisionmakers, in a judgment on necessity and suitability, to evaluate the alternatives of their decision, therein preferring those that are the least burdensome and as much as possible those that may enable the regularization of the contested act, thereby giving it effect.

At the same time, administrative, oversight, or judicial decisions that establish a new interpretation or guideline for a rule of undetermined content, thereby imposing a new duty or new condition on a right, should provide for a transition framework: the objective is to avoid surprise on the part affected by some decisions, despite their being supported by specific rules of administrative or jurisprudential creation when they participated in the contested act. For the same reason, a declaration of invalidity of fully constituted situations is forbidden when the general guideline in force at the time of the conclusion of the contested act is later reviewed: oversight and judicial functions cannot, therefore, act anachronistically, that is, interpret based on current guidelines contracts celebrated at the time in which other understandings on the same matter governed decisionmakers.

The institute of the settlement has gained new depth in the Legal Certainty Law: administrative authorities, including licensing bodies, are now authorized to enter into a commitment to eliminate irregularity, legal uncertainty, or contentious situations in the application of public law. The measure is salutary because it does not condition the commitment, at least per the letter of the law, on the alienability or patrimonial nature of the rights potentially impacted. The same authorization extends to offsetting: the rule here is broad enough to allow alternative forms of compliance with sanctions or payment of debts by regulated parties. This is, in a sense, a general authorization for substitutive agreements, including leniency, in the administrative, oversight, and judicial spheres.

The new law ends up imposing a general duty on public authorities to act to increase legal certainty in the application of rules, including through regulations, administrative precedents, and answers to queries. Once published, these instruments will bind, until further review, the agencies or entities that enacted them.

Taking stock of any newborn law is an extremely challenging task, especially when it comes to a law that is designed to govern activities of prevailing law, that is, rules that bind the drafting of other rules. The greatest difficulty, at this initial stage, is identifying objective parameters by which the main intended parties of the rules, namely public agents, engage noncompliance with the new normative precepts. More than that, to come up with the sanction applicable to a representative of the oversight or judiciary agencies that fails to act in accordance with the newly promulgated legal standards is nearly impossible.

These limitations do not negate the breakthrough that the Legal Certainty Law will most likely represent in the medium to long term. What is expected is a change in the legal culture: a new normative fact never goes unnoticed by the generations of jurists who end up spreading a new way of implementing the law, thereby demanding more responsibility from choices made by public decisionmakers.

Category: Labor and employment

Diseases that give rise to social stigma are a subject that is not much debated but which is extremely delicate and relevant. In 2012, the Superior Labor Court (TST) issued the precedent No. 443, which states as follows: "The dismissal of an employee that is HIV-positive or has other serious illness that causes stigma or prejudice is presumed to be discriminatory. If the act is invalid, the employee has the right to reintegration into employment."

Various elements of this precedent deserve to be analyzed. The first is procedural and consists of the shifting of the burden of proof established by article 818 of the Consolidated Labor Laws, with the introduction of the relative presumption of discrimination in the dismissal.

As one finds in recent decisions by the TST, it is the employer's burden "to prove, in a robust manner, that it dismissed a claimant with a serious illness for some plausible, reasonable, and socially justifiable reason in order to rule out the discriminatory nature of the employment termination" (Interlocutory Appeal in Bill of Review AIRR 2438-55.2013. 5.15.0016).

Such a presumption, in some specific cases, has repercussions for the employer's difficulty in proving that no discriminatory dismissal occurred. This is because the Brazilian legal system allows for the possibility of dismissal without just cause. So, if the employer exercises its right of dismissal without just cause, how could it prove that it did not know the state of health of the employee? It would be impossible to prove.

Precisely for this reason, some recent decisions by the TST rule out the application of precedent 443 when there is no proof of the severity of the condition and, especially, when there is no proof of the employer’s knowledge of the disease. In this sense, in a recent opinion authored by Justice Mauricio Godinho Delgado of the 3rd Panel of the TST with respect to a worker with melanoma (skin cancer), dismissal of an employee was not considered discriminatory because (i) the disease was not ruled to be severe and (ii) there was no unequivocal evidence in the record of knowledge of the disease on the part of the respondent. (Interlocutory Appeal in Bill of Review AIRR 2225-36.2014.5.02.0029).

The opinion by the TST was emphatic in stating that "the presumption of unlawfulness of the dismissal of an employee suffering from a serious illness, resounding in labor case law, can in no manner be absolute, lest a new kind of employment stability dissociated from its discriminatory nature be created that does not even repress discrimination."

In fact, it is impossible to conclude that there is stigma or prejudice when there is not even knowledge of the issue capable of giving rise to such prejudice (this question was also reviewed by the TST in the following decision: Bill of Review RR 113900-71.2011.5.17.0132).

In this case, the plaintiff was a carrier of the HIV virus and, even then, the TST ruled that dismissal was not discriminatory since neither the employee nor the employer was aware of the condition: “Now, there is no way to imagine that anyone acts with prejudice in relation to another human being when he or she does not even know of any factor that could lead to such an attitude."

In addition, it is important to note that article 2 of the Ministry of Labor and Employment’s Ordinance No. 1,246/2010 prohibits the conducting of examinations upon hiring, during employment, or upon termination in order to determine whether employees are HIV-positive. Thus, it is only possible for the employer to learn about the employee’s HIV-positive status in the event that the employee voluntarily reports being a carrier of the disease.

What is taken from the text of the precedent, with the caveats already mentioned, is the attempt to have the right given to employers to terminate their employees without just cause to be outweighed by protection of the social purposes of the employment relationship. Precedent No. 443 ends up creating, in trial practice and based on the assignment of the burden of proof, a kind of job security not provided for by law.

In addition, the precedent also merits review from the point of view of substantive law: that it is discriminatory to dismiss employees suffering from a serious illness that cause stigma or prejudice.

The reason for this precedent lies in the constitutional protection of the dignity of persons and in the prohibition of discriminatory practices. ILO Convention 111, ratified by Brazil in 1965, also prohibits discrimination in matters of employment and occupation.

Similarly, ILO Recommendation No. 200 of 2010 states that "when there is no stigma or discrimination against workers on the basis of their actual or suspected HIV status, they themselves and their dependents enjoy better access to HIV education, information, treatment, care, and support services at the national and workplace levels."

TST's precedent No. 443 used the open term "serious illness that causes stigma or prejudice”, whose interpretation is not exhaustive, thus leaving the task of interpretation to the judge. Thus, it is understood that, besides AIDS, diseases such as leprosy, malignant neoplasia, multiple sclerosis, lupus, and even cancer are also included precisely because they cause social stigma or prejudice.

Because there is no objective definition of what a "serious illness that causes stigma or prejudice" would be, some decisions by appellate panels overruled judgments in cases of heart disease, cancer, or diabetes, on the understanding that they do not give rise to stigma or prejudice, precisely because of the impossibility of contagion and absence of visible symptoms.^[1]

In view of the above, it is concluded that, although the subject is of social relevance, it was addressed only superficially by the legislator and by the Superior Labor Court in the promulgation of Precedent No. 443. However, more recent decisions have demonstrated an effort by the TST to not undertake a purist application of the precedent, but rather to specify the issues in detail, especially in relation to the disease, its severity, and its effects.

---

1. For example: (i) Superior Labor Court, 8th Panel. Bill of Review RR-1379-81.2016.5.21.0041. Opinion drafted by Justice Dora Maria da Costa. Date Published: November 10, 2017 and (ii) Superior Labor Court, 4th Panel, Bill of Review RR-2551-38.2012.5.02.0070, Opinion drafted by MARIA DE ASSIS CALSING, Date Published: March 4, 2016.

Category: Competition

The Antitrust Law (Law No. 12,529/2011) establishes three objective criteria that determine whether a corporate transaction must be filed with the Administrative Council for Economic Defense (Cade), namely whether it produces effects in Brazil, characterizes economic concentration and meets the turnover threshold. The turnover threshold is met when one of the economic groups involved in the transaction has registered annual gross turnover or volume of business in Brazil equal to or greater than R$ 750 million on the balance sheet of the fiscal year prior to the transaction, and another group involved in the transaction has registered annual gross turnover or volume of business in Brazil equal to or greater than R$ 75 million in the same period. According to the interpretation traditionally adopted by Cade, in order to calculate group turnover each of the parties involved in the transaction should first identify which companies were part of the group, pursuant to Cade Resolution No. 02/2012, at the end of the fiscal year prior to the transaction. Based on this information, the gross turnover of the companies established in Brazil and the volume of business of the foreign companies with sales to Brazil were added together. This practice was modified after the interpretation adopted by Cade's General Superintendence in three merger filings in which the parties questioned which companies should be included in their economic group, namely whether they should be only those that were part of the group at the end of the previous fiscal year or at the moment immediately prior to the transaction submitted to Cade’s review. In those cases, the configuration of at least one of the groups involved in the transaction had changed from one year to another year. If the companies that belonged to the economic group at the end of the last fiscal year weretaken into account, the turnover threshold would be met. On the contrary, if the companies that belonged to the economic group immediately before the transaction were taken into account, the threshold would not be met due to the divestment of group companies during that period. Cade's General Superintendence decided to dismiss those filings on the grounds that one of the criteria for mandatory filing was not met, and clarified that the composition of the economic groups of the buyer(s) and seller(s) to be taken into account for turnover calculation purposes should be the one at the date of the transaction, which in practical terms would be the date of execution of the agreement that formalized the transaction to be potentially filed with Cade. Therefore, in order to calculate the gross turnover of an economic group for Cade's purposes, one should disregard the turnover of the companies that were part of that group in the year prior to the transaction, but which were sold before the date of execution of the transaction agreement; and take into account the turnover in the last fiscal year of companies that were not part of the group in the year prior to the transaction but were acquired by the group before the date of execution of the transaction agreement. Considering the constant changes in the composition of economic groups due to the dynamics of buying and selling companies in the market, attorneys and businesspeople involved in M&A transactions that produce effects in Brazil and entail economic concentration should rely on these guidelines when calculating group turnover and assessing the need to submit the transaction for Cade’s review.

Category: Capital markets

The new version of the Issuer Manual approved by the Brazilian Securities and Exchange Commission (CVM) aligns mechanisms for disclosure of material facts with the changes introduced in CVM Instruction No. 358/2002 by CVM Instruction No. 590/2017, which amended paragraph 2 of article 5 of the previous text, now in force with the following wording:

Paragraph 2. If it is imperative that the disclosure of a material act or fact occur during trading hours, the Investor Relations Officer may request, always simultaneously with the stock exchanges and organized over-the-counter market entities, both Brazilian and foreign, in which the securities issued by the company are admitted for trading, suspension of the trading of the securities issued by the publicly-held company, or relating to them, for the time necessary for proper dissemination of the material information, in accordance with the procedures set forth in the regulations issued by the securities exchanges and organized over-the-counter market entities on the subject.

According to the new version of the manual, since May 2, 2018, the following procedures must be observed by issuers of securities in disclosing material facts:

1. the issuer must disclose material acts or facts to B3 (Brasil, Bolsa, Balcão) and to the market at least (i) 30 minutes in advance of the opening of the trading session; or (ii) after its closure, without prejudice to the provisions of item (ii) below;

2. in exceptional cases where it is absolutely necessary to disclose a material act or fact during trading hours, including in the event of loss of control over the secrecy of the information, the issuer should contact B3 prior to the actual disclosure to the market of the material act or fact, in accordance with applicable legislation; and

3.    the contact mentioned in item (ii) above must be made by the issuer via telephone call to B3’s Board of Issuers, at +55 11 2565-6063.

Depending on the information provided by the issuer in the telephone call mentioned in item (iii) above, B3 may not suspend the trading of the issuer's securities if it finds that suspension may impair the efficient functioning of the market.

If B3 decides to suspend trading of the securities, this fact will be communicated to the issuer in the same telephone call. Thereafter, the suspension shall be disclosed to the market. In this case, the issuer shall disclose the material act or fact to the market in accordance with applicable legislation, within 10 minutes of the suspension.

Category: Environmental

Decision No. 076/2018/C by the Board of Directors of the Environmental Agency of the State of São Paulo (Cetesb), which conditions the issuance or renewal of environmental licenses on the structuring and implementation of reverse logistics systems, accordance with the procedures set forth in the rule, will enter into force on June 4th.

The National Solid Waste Policy, instituted by Law No. 12305/2010, established shared responsibility for the product life cycle, thus defined: "A set of individualized and linked attributions of manufacturers, importers, distributors and traders, consumers, and owners of public urban sanitation and solid waste management services to minimize the volume of solid wastes and rejects generated, as well as to reduce the impacts resulting from the product life cycle on human health and environmental quality."

The idea of ​​sharing responsibility for the management of solid waste to ensure its proper disposal was already introduced by São Paulo’s state legislation. In Article 5, item IV, of Law No. 12,300/2006 (establishing the State Policy on Solid Waste), shared waste management is understood as the "way of designing, implementing, and managing waste systems, with the participation of the sectors of society with the perspective of sustainable development." In this sense, Decree No. 54,645/2009 establishes that solid waste management is the "set of linked and articulated actions applied to the processes of segregation, collection, characterization, classification, manipulation, packaging, transportation, storage, recovery, reuse, recycling, treatment, and final disposal of solid waste."

It is within this set of individualized and linked assignments that reverse logistics is being implemented, defined by law as an “instrument of economic and social development characterized by a set of actions, procedures, and means to enable the collection and restitution of solid wastes from the business sector for reuse in its cycle or in other productive cycles, or another appropriate final environmental destination”.

According to article 33 of Law No. 12,305/2010, the manufacturers, importers, distributors, and dealers of agrochemicals; batteries; tires; lubricating oils; fluorescent lamps, sodium and mercury vapor and mixed lights; and electrical and electronic products should perform independently, that is, without mandate by the public service of urban cleaning and solid waste management, the structuring and implementation of the reverse logistics system after the product returns from the consumer.

According to article 15 of Decree No. 7,404/2010, which regulates the issue, there are three ways in which reverse logistics systems can be implemented and operationalized: (i) sectoral agreements, which are acts of a contractual nature signed among the Government and manufacturers, importers, or traders; (ii) regulations issued by the Government, which should be preceded by public consultation; or (iii) terms of commitment entered into by the Government with the manufacturers, importers, or distributors.

In view of the importance of reverse logistics systems for the effective management of solid waste, Cetesb established, through Board Decision No. 076/2018/C, that its structuring and implementation is a conditional factor for environmental licensing carried out by the agency. The measure complies with SMA Resolution No. 45/2015, which defines the guidelines for implementing and operationalizing post-consumer responsibility in the state of São Paulo.

Producers or persons responsible for the importation, distribution, or commercialization of products that, after consumption, result in wastes considered of significant environmental impact will be subject to the procedure; whose packaging is considered to have a significant environmental impact or compose the dry fraction of municipal solid waste or equivalent, according to the list of products and packaging marketed in the state of São Paulo, contained in Article 2, sole paragraph of SMA Resolution No. 45/2015, and wall paints, provided that the project is subject to the ordinary environmental licensing of Cetesb.

In its decision, Cetesb defined manufacturers as "the holders of the brands of the products, those who carry out the packaging, assembly, or manufacture of the products." But those who do not fit within the classification of manufacturer should ensure that the product is placed within a reverse logistics system.

Information on the structuring and implementation of the system should be provided by means of registration, a Logistics Plan, and operational results of the enterprise, an Annual Report. The forms for meeting the two requirements will be available in the Reverse Logistics Module of the State System for On-line Management of Solid Waste (Sigor), which will be made available by Cetesb.

The information will be given in a gradual manner, divided between the stages of structuring, implementation, and operation, each one having specific cut-offs and goals for the enterprise. Decision No. 076/2018/C regulates the first stage, with a duration scheduled until December 31, 2021.

Finally, the decision provides for gradual adaptation to the procedure and establishes minimum levels ​that should be reached in solid waste management by the end of 2021. The final goal, however, is that reverse logistics systems implemented in the state of São Paulo have an environmentally appropriate destination for 100% of the post-consumer products or packaging received in their systems.