Publications
- Category: Infrastructure and energy
Concessions and permits for the following public services, works, and assets are authorized: (i) a system for collecting urban passenger transportation fares; (ii) Paulista Municipal Market - Mercadão and the Kinjo Yamato Market; (iii) parks, squares, and planetariums; and (iv) removal and lots for vehicle parking. Some of these projects are already under study via expression of interest proceedings conducted by the municipality.
There was concern in predicting some conditions for the authorized granting. As an example, charging for admission to open areas of public parks is prohibited, as are any encumbrances to those organizing peaceful meetings held there. A right of preference, under equal conditions, is also assured to current licensees that operate at municipal markets and stores.
At the same time, the law provides for privatization modalities that may be adopted for other projects, which will in due time be authorized through other municipal laws. Among the modalities are atypical scenarios, such as cooperation and management of activities, goods or services, and, in a more generic and indefinite manner, other forms of partnerships and associations, corporate, and contractual relationships.
The plan authorized inversion of the phases for qualification and winning bids in public tender procedures for privatization, therein referencing the National Privatization Plan (Federal Law No. 9,491/1997). As a result, it was determined that the auction modality would be adopted when the privatizations involved the divestiture of an equity interest, sale or lease of assets, total or partial dissolution of companies, concession, permits, or authorization of public services, as well as encumbrances on municipal real estate.
In the process of structuring privatizations, receipt of contributions from interested parties is authorized, including through public hearings and consultations and expression of interest procedures from the private initiative.
In spite of the fact that the instruments of privatization thus far authorized do not impose any burden on the municipality, the law authorized the creation of accounting funds, restricted accounts, or other financial instruments seeking to provide public guarantees and any remuneration due to private partners. In addition, funds may be contributed to municipal companies or investment funds that have as their specific purpose the provision of guarantees of the monetary obligations assumed by the municipality as a result of partnerships created with private initiatives.
Permits will be formalized by means of the appropriate instrument. Although, at least at the municipal level, the debate regarding the nature of the act granting the permits has not been resolved, the law sought to mitigate its precariousness. In this sense, it was provided that, when a permit is revoked, the permit holder is entitled to compensation. Under the law, this indemnity corresponds to the portion of investments linked to the activity not amortized or depreciated according to an act or permit agreement instrument and the schedule previously approved by the municipality.
With regard to supervision of contracts signed to follow the plan, the municipality may engage auditing assistance, such as an independent verifier or other specialized persons. The novelty of the law, in this regard, was its provision that private partners in projects may directly contract the independent verifier, as long as the municipality gives its assent.
The intent to provide efficiency and align with best practices in the management of public services is especially demonstrated by the provision for an evaluation of the concessionaire's performance, as well as the permission to adopt guidelines, standards, and procedures for multilateral agencies or international financial organizations, when supported by financing instruments entered into with these entities.
The law also ratifies the application of alternative means of dispute resolution, such as mediation and arbitration, for concession agreements and other understandings entered into under the plan.
It is worth mentioning, finally, the changes introduced in Law No. 16,211/2015, which governs bus terminal concessions in the municipality. In addition to changes in the duration of concessions, terminal concessionaires are required to build social housing to be donated to the municipality for the purpose of social leasing. They will occupy the equivalent 5% of the computable constructed area of the terminal or lot awarded, even if in a location outside the concession. For licensing the construction works or expansion of the terminals, the use of the Urban Intervention Project (PIU), a new urban policy instrument set forth in the Strategic Master Plan of 2014, is extended and replaces the specific urban development plan, thereby confirming the strategic role of PIU in municipal urban planning.
In short, the Privatization Plan reinforces the active role that the City Council also exercises in programs for private participation in municipal infrastructure and public services. Despite the Executive's leading role in structuring, bidding, hiring, and inspecting the projects, the law only confirms that, in São Paulo, some of these initiatives simply cannot do without special authorizations and legislative guidelines.
- Category: Corporate
Limited liability companies are finally expressly authorized to issue preferred quotas. Normative Instruction No. 38/2017 of the Department of Corporate Registration and Integration (DREI), among other innovations, changed the wording of item 1.4, II, letter "b", of the Manual for the Registration of Limited Liability Companies to ensure this. The change should favor the structuring of certain businesses and assure to limited liability companies other investment and financing modalities for their activities, which will increase the preference given to the use of this corporate type, which has less legal formalities than a corporation. Preferred quotas are those that confer on their holders equity advantages and/or special privileges not attributed to other quotas, accompanied, in most cases, by limitations on voting rights. The possibility of issuing preferred quotas in limited liability companies has been controversial since the entry into force of the new Civil Code on January 10, 2002. Although the Civil Code is silent as to the possibility of issuing these quotas, some legal scholars have come to understand that the issuance of preferred quotas should not be compatible with the intuitu personae nature of limited liability companies. Responsible in the past for providing the guidelines to be followed by the boards of trade, the National Trade Registration Department (DNRC), upon issuing Normative Instruction No. 98/2003, expressly prohibited the issuance of preferred quotas by limited liability companies and as a result it used to be common practice to have the registration of corporate acts involving the issuance of these quotas by limited liability companies denied by the boards of trade. Only recently, with the issuance of Normative Instruction No. 38/2017 by the DREI, which replaced the DNRC, this understanding was modified. Said instruction also admitted, in limited liability companies, the possibility of quotas held in treasury, among others institutes previously restricted to corporations.
It is worth mentioning, however, that the DREI expressly established the supplementary regulation of limited liability companies by Law No. 6,404/76 (Brazilian Corporations Law), in the event of adoption of any institute specific to corporations, whether or not the company’s articles of association so provide. For the DREI is sufficient the existence of preferred quotas to characterize the supplementary regulation by the Brazilian Corporations Law.
- Category: Labor and employment
- Category: Real estate
Federal Law No. 13,476/17, published on August 29, may have a major impact on the relationship between creditors and debtors in default when the asset is subject to a secured fiduciary sale in guarantee (alienação fiduciária em garantia). A result of the conversion of Provisional Presidential Decree No. 775/15, the new law amended the rules of Federal Law No. 9,514/97, which governs the Real Estate Financing System (Sistema de Financiamento Imobiliário) and established the fiduciary sale in guarantee of real estate in Brazil (AFG).
In its article 9, Law 13,476 is exhaustive in excluding the applicability of paragraphs 5 and 6 of article 27 of Law No. 9,514 in the case of properties given in guarantee in transactions resulting from credit line contracts. As a result, in cases of foreclosure on an AFG in transactions resulting from such contracts, if the amount raised after the second auction of the property is not sufficient to pay off the secured debt, the debtor will continue to be obliged to pay the remaining balance.
The credit line contract is used for transactions in which there is not only a single disbursement linked to a given loan/financing, as occurs in a conventional housing finance mortgage. Disbursements are carried out by means of releases (referred to in Law 13,476 as "derivative transactions") that are only given by the creditor if and when requested by the debtor. The debtor has a certain pre-approved credit line and decides whether or not to use it in its entirety. In addition, the conditions stipulated in the agreement must be complied with, for example, by issuing instruments (such as bank credit certificates - CCBs) representing each release of credit from the credit line, after the due establishment of security interests, including an AFG.
In turn, under a common real estate financing agreement the release of the amount the loan is carried out in a single disbursement to the debtor so that he can acquire a given real estate. The amount released by the financial institution is used as a means to pay off a transaction previously agreed upon with a third party (a purchase and sale, for example). On the other hand, in credit line agreements, the AFG is given as a means of securing new releases, without them being necessarily linked to the acquisition of a specific property or previously defined project.
The AFG was introduced in Brazil with a focus on housing finance. However, Federal Law No. 10,931/04 extended the scope of Law No. 9,514 to contractual obligations in general, which could also be secured through the use of AFGs. Because of its origin, therefore, Law No. 9,514 aimed at protecting the purchasers of properties for housing purposes, which is why paragraphs 5 and 6 of article 27 remained intact, as they protects the debtor since they guarantee the complete discharge of the debt, even if the amount raised after the second auction of the property is not enough to settle all of it.
The debate on the applicability of paragraphs 5 and 6 of Law No. 9,514 is not recent. The issue was already debated in a more direct and extended manner with the change introduced to the Civil Code by Law No. 13,043/14, which defined fiduciary property as collateral for real estate subject to the general rules applicable to pledges, mortgages, and antichreses. Included among such rules is the liability of the debtor for payment of the remaining balance of the debt in the event of "insufficient" funds raised in an auction. However, Law No. 13,043 noted that special legislation (for example, Law No. 9,514) would continue to apply when it was specific, as in the circumstance discussed here. This final provision for differentiated treatment in specific situations has generated such conflict with Law No. 9,514, in view of the possibility that that law continues to be applied due to its specificity.
Therefore, due to the recent novelty brought in by Law No. 13,476 and its express statement of applicability to credit line contracts, in addition to the conflict between Law No. 9,514 and Law No. 13,043, it is still not possible to determine whether it will eventually be applied extensively in cases where the credit line contracts and the respective AFG result from an instrument which is distinct from the one effectively opening the credit line.
In our understanding, the amendments to Law No. 9,514 brought in by Law No. 13,476 apply strictly to credit line agreements, and not to other types of financing agreements, especially real estate financing. In any case, it is important to assess the behavior and interpretation of the new rule by the courts in order to identify the practical scope of the new law.
- Category: Competition
This year, the Administrative Court of the Administrative Council for Economic Defense (Cade) has already rejected 50% more M&A transactions than in the almost five-year period between 2012, when the current Antitrust Law entered into force, and 2016. This increase is a clear sign of the greater rigor the agency is using in the exercise of its function of controlling market structures.
Between 2012 and 2016, Cade rejected only the acquisition of Solvay Indupa by Braskem in 2014 and the acquisition of Condor Pincéis by Tigre in 2015. This year, three other transactions have already been rejected because, in the opinion of the agency, they raised competitive concerns that could not be ruled out by any measure proposed by the parties involved.
The first of these was the acquisition of Estácio Participações by Kroton Educacional. The transaction represented the union of two of Brazil's largest private higher education institutions, thereby resulting in a high level of concentration in the distance and face-to-face higher education market in various cities. In this case, Cade highlighted the growing movement towards concentration in the education sector since, in the last five years, Kroton alone had reported 19 transactions and Estácio reported 7.
The second was the acquisition of the fuel distributor Alesat by Ipiranga. Cade concluded that merging companies would impact on regional fuel distribution markets and would also create concerns in the resale market that would require a remedy that would result in divestiture of all of Alesat's assets in problem markets. The decision was influenced by the characteristics of the distribution and resale markets, which might induce coordination between companies, a fact reflected in the history of cartel investigations in the sector.
The third transaction rejectedwas the acquisition of JBJ Agropecuária by Mataboi Alimentos. According to Cade, the transaction would result in high levels of concentration in the markets for cattle processing and wholesale trade in raw bovine meat in Brazil and would generate significant risks to competition. This conclusion was based on the relationship of the JBJ's owner and partner with JBS’s controlling shareholders (a leader in the market affected by the transaction). In Cade's view, companies could be seen as being part of the same de facto economic group, which market power would be expanded by virtue of the transaction.
Also under review by the Cade's Court are three other transactions challenged by the agency’s General Superintendency with a recommendation for rejection. In the cases of the acquisition of Liquigás Distribuidora S.A. by Companhia Ultragaz S.A. and Votorantim Siderurgia S.A. by ArcelorMittal Brasil S.A., the main concerns are again related to the incentives that the acquisitions could generate for coordinated practices, due to the history of conduct already found in the past by Cade in the Liquefied Petroleum Gas (LPG) and steel distribution sectors, respectively. In turn, in the case of Bayer's acquisition of Monsanto, the risks would include, among others, the high levels of concentration generated in the market for transgenic soybeans and cotton (biotechnology), possible reduction of rivalry in the development of transgenic events in the world, and reduction of incentives for innovation in the industry.
These precedents indicate the need for companies involved in complex transactions to, from the outset of the negotiations, assess the "Cade risk" and possible measures to ensure conditional approval of the deal. According to recent Cade signaling, the remedies proposed by the parties must be well-defined, effective, and easily implemented and enforced.
- Category: Litigation
International transactions, especially those carried out en masse through electronic commerce, and Brazilians’ interactions with foreigners nowadays occur with a similar level of ease as domestic transactions. As a consequence, controversies resulting from these deals and interactions arise at a speed never experienced before. The number of international disputes, which is to say, disputes involving individuals or legal entities from different countries and/or obligations executed or enforceable abroad, have grown not only in number but also in complexity. Thus, the advance of globalization stresses the need to modernize the procedural rules in Brazil that govern international conflicts. Until the new Code of Civil Procedure (NCPC) came into force in March 2016, international civil proceedings were governed by the Rules of Introduction to Brazilian Law - LINDB (Decree No. 4,657/1942) and by the former Code of Civil Procedure of 1973. These rules, however, did not contain clear answers for all situations, and the case law on the subject was contradictory, which created an environment of legal uncertainty for foreign parties doing business in Brazil. In order to keep up with developments in transnational disputes, the NCPC brought in some innovations that, although belated, help to systematize and consolidate sparse rules and judicial rulings on this matter. Among the innovations brought in, one of the most relevant concerns the possibility for Brazilian parties to choose a foreign court to settle disputes arising from their contractual relations. The choice of the court that will have jurisdiction over disputes arising under an international contract is certainly one of the most controversial issues in International Procedural Law. Historically, Brazilian courts have been reluctant to accept that parties to a contract, in the exercise of their private autonomy, may opt out of Brazilian jurisdiction, in favor of a foreign jurisdiction. The prevalence of the parties' will in the choice of a foreign court was, for decades, understood in Brazilian case law as an offense to the sovereignty of the Brazilian State, an understanding that fortunately fell apart with the enactment of the NCPC. With the NCPC, the legislator expressly provided in article 25 for the possibility that the parties may choose a foreign court to adjudicate disputes arising from international contracts, the wording of which is clear in providing that "the Brazilian judicial authority does not have jurisdiction to hear and adjudicate suits when there is a contractual provision in an international contract choosing the exclusive jurisdiction of a foreign court, argued by the respondent in its defense". In other words, as of the entry into force of the NCPC, the existence of a choice of foreign forum clause may be raised by the respondent in its defense to support a motion to dismiss the matter without a resolution on the merits due to lack of jurisdiction of the Brazilian Judiciary. This provision does not apply, however, to cases in which the law establishes the exclusive jurisdiction of the Brazilian Judiciary: lawsuits involving (i) real estate in Brazil; and (ii) succession or division of assets (arising from divorce, separation, or dissolution of a stable union) in relation to goods located in Brazil. Finally, it should be emphasized that this innovation also ended an important inconsistency of the 1973 Code of Civil Procedure, which, simultaneously provided for the dismissal of a proceeding without a judgment on the merits in case an arbitration agreement is argued by any of the parties in their defenses (article 267, VII) but had no provisions with respect to the dismissal of the lawsuit based on a foreign forum clause. Thus, the innovation brought in by the NCPC has remedied an important gap in legislation, thereby bringing Brazilian International Procedural Law closer to international trends and, therefore, introducing greater legal certainty for foreign investors in the Brazilian business environment.