Publications
- Category: Real estate
Brazil's Attorney-General has requested the full suspension of the law dealing, inter alia, with urban and rural land regularization (Law No. 13,465/2017), arising from Provisional Presidential Decree No. 759/2016 and addressed in the e-book "Inovação, celeridade e aumento de eficiência: o que muda no mercado imobiliário com a Lei nº 13.465/17" ["Innovation, speed, and increased efficiency: what changes in the real estate market with Law No. 13,465/17"]. The petition for an injunction was filed in Direct Action of Unconstitutionality ADI No. 5,771, filed on September 1.
The argument for requesting a declaration of unconstitutionality is that Law No. 13,465/17, (i) although converted into ordinary law, originates from a provisional presidential decree devoid of the constitutional requirements of relevance and urgency; (ii) it defies the right to housing, the right to property, the fulfillment of its social function, the protection of the environment, urban development policy, the duty to make the allocation of public and vacant lands compatible with agricultural policy and the National Plan for Agrarian Reform, all fundamental objectives of Brazil, the prohibition on retrocession, the existential minimum, the principle of proportionality, the provision that the payment of indemnities under the agrarian reform will be done via agrarian debt securities, the requirement of popular participation in municipal planning, and the constitutional rules of special urban and rural adverse possession; and (iii) it does not follow the jurisdiction constitutionally reserved for complementary laws and the jurisdiction of the Federal Government to legislate on Civil Procedure Law.
Is possible to affirm that the action has a clear focus on the provisions relating to agrarian reform and the discussions held during the process of conversion of Provisional Presidential Decree No. 759/2016 into law. These provisions are related to the possibility that the legislation may have the effect of facilitating the regularization of land occupancy based on illegal titles, also known as "landgrabbing."
In addition, although Law No. 13,465/2017 remains in full force until a final decision to the contrary is rendered, Brazil's Attorney-General Recommendation No. 1/2017, included in the record of the Direct Action of Unconstitutionality, states that the chairman of the National Institute for Colonization and Agrarian Reform (INCRA) and the Undersecretary of the Terra Legal Program, in general and from now on, should refrain from adopting the provisions of Law No. 13,465/2017 as a basis for determining the values of titles relating to rural property regularization.
- Category: Competition
Companies involved in asset acquisitions need to assess whether or not the transaction should be reported to Cade (the Brazilian antitrust agency). Recent decisions issued by the agency have provided very useful guidelines to conduct this evaluation, which is not always trivial, in view of the vague language of the Antitrust Law (Law No. 12,529/2011) and the lack of specific regulations.
The Antitrust Law that has been in force since 2012 improved Cade's merger control system, including listing the scenarios that constitute economic concentration, such as acquisition of shares or assets and the execution of joint ventures, consortia, or association agreements.
In order to give greater legal certainty to companies, Cade published Resolutions No. 2/2012 and No. 17/2016, which clarify, respectively, in which situations acquisitions of minority shareholdings and associative agreements should be reported.
However, Cade has not yet regulated the scope of the legal rule on the acquisition of assets (Article 90, II, of the Antitrust Law), according to which there is a duty to file the acquisition of control or parts of an undertaking through the acquisition of tangible or intangible assets, by contract or by any other means or form.
Questions on whether the assets are competitively significant for the transaction to merit merger review often arise, especially when dealing with acquisitions of real estate or limited assets.
Since 2012, Cade has reviewed more than 200 merger filings on a vast array of asset deals: assets that comprised a production line; intellectual property rights; mining rights; customer portfolio; communication towers; concession contracts for oil and gas exploration; movable property such as vehicles, storage tanks and vaporizers; urban or rural properties such as land, commercial buildings, quarries, warehouses, planted forests, etc.
In almost all of these cases, Cade understood that filing was indeed mandatory, without elaborating on the reasons for such conclusions.
However, in three recent precedents, in which the parties argued that there was no economic concentration and asked for dismissal of the transactions, Cade provided very useful guidance for assessing the need to file acquisitions of assets.
In one of them, which dealt with the acquisition of land with civil construction, which could be adapted for any purpose, Cade expressed the understanding that acquisition of real estate assets only constitutes concentration when the real estate is a productive asset or an asset that is minimally related to the economic activity to be conducted there by the buyer. In an operation involving the acquisition of a less than 5% stake in real estate assets that make up a shopping mall by a company that already owned more than 51% of these assets and, in addition, acted as administrator of the development, Cade understood that the transaction could be assimilated to a shareholding acquisition since the enterprise resembled a business company. Thus, Cade applied by analogy one of the rules found in Resolution No. 2/2012, according to which it is not mandatory to file with Cade the acquisition of equity interests by the shareholder that already has sole control. In both cases, Cade agreed with the parties and concluded that the transactions were not reportable.
In the third precedent, Cade disagreed with the parties and understood that the acquisition of isolated assets (concrete-mix trucks) relevant to the seller's economic activity, but which had never been used by it, constituted concentration because such assets represented an increase in the buyer's productive capacity. In a conservative and questionable decision, Cade concluded that the purchase of trucks by a cement manufacturer from a competitor) was different from the purchase of trucks from a dealer.
In such cases, therefore, Cade has indicated when an asset acquisition should be subject to its review, provided that the parties meet the legal turnover criteria: when the transferred assets are essential to the activities of the parties; have a minimum relation with the economic activity to be carried out by the buyer; or represent acquisition or increase of productive capacity for the buyer.
In addition, the agency indicated that in some cases it is possible to equate partial acquisitions of assets with acquisitions of minority shareholdings and to guide the analysis based on CADE’s rules established in Resolution No. 2/2012.
- Category: Labor and employment
Among its main pillars, the Labor Reform sought to a) clarify controversies regarding the concept of time at the disposal of the employer; b) give greater autonomy to workers; c) debureaucratize some mandatory procedures for companies; and d) strengthen and encourage collective bargaining, the much-publicized principle of "negotiations over legislative mandates”.
With respect to the first point, there was much controversy over what were considered working hours, due to the broad concept of "time at the disposal of the employer", brought in by article 4 of the Consolidated Labor Laws - CLT. There was no clarity about some activities, such as breakfast offered by companies and the time spent changing uniforms.
The new legislation narrowed down the concept of time at the disposal of the employer, stating that minutes spent on activities carried out at the company's premises, at the employee's personal option, are not a part of working hours. Breakfast and changing uniforms will be a part of work hours only if employees are unable to perform these activities at home. That is to say, if there are work meetings during breakfast or uniforms require special hygiene, for example, these periods will be computed as a part of employees' working hours. If not, then they are not.
Regarding the autonomy of workers, the second pillar of the Labor Reform, the new legislation stated that employees in general are able to negotiate with employers with respect to some issues relating to their day to day work. And it identified a select group of employees, namely those with a university education and a salary greater than two times the ceiling of the highest Social Security benefit level, as being able to negotiate a more comprehensive level of working conditions, given their greater discernment and higher level of education.
This is a recognition of the maturity of employment relations, which removes the presumption of invalidity attributed to agreements and commitments made individually between workers and employers. This recognition relates mainly to issues of working hours, authorizing, for example, individual negotiation of monthly compensation schemes and semiannual or annual, as the case may be, compensatory hours banking.
With regard to the debureaucratization of procedures, the third pillar of the Reform, it is worth highlighting the computerized delivery of documents related to unemployment insurance and FGTS account activity and the end of the requirement of ratification of terminations of employment contracts by the trade union of the professional category.
The application of the new rules to the daily life of workers and employers based on the three abovementioned pillars of the Labor Reform depends on a careful evaluation of the collective rules that guide this relationship within the professional and economic categories or within the scope of the companies.
This is because the fourth pillar of the new legislation seeks to encourage collective bargaining. And the principle of negotiations over legislative mandates is not restricted only to contractual provisions that seek to relax or modernize employment relations. It also extends to those contractual provisions that aim to bureaucratize them or make them more antiquated, including to apply the previous labor law.
A good number of collective bargaining agreements contain contractual provisions that repeat texts of law or recognize concepts of limitations on individual negotiations that were then integrated into employment relations. If these conditions are integrated into collective rules, they will probably be understood as prevailing, even if they are at odds with what was sought with the Labor Reform. Hence, negotiations over legislative mandates.
Below we will cite some contractual provisions commonly identified in collective bargaining agreements that may contradict the new labor legislation and prevail over it:
- "The companies undertake to ratify with the union terminations of employment contracts with their employees who have more than one (1) year of service."
- "Companies may establish an hours bank, provided that it is approved by a general meeting of employees."
- "Regardless of whether public transport is available or the workplace is easily accessible, commuting time is set at one hour per day, which will be computed into the employees’ working hours."
- "The company will provide breakfast to the first shift, the time for which is set by the parties at ten (10) minutes a day and will be a part of the employees’ working hours."
- “Companies in the economic category may only outsource activities not related to the core business, and the use of outsourced labor is prohibited for activities relating to the core business.”
- “Vacation will be granted, by the act of the employer, in a single period. Only in exceptional cases shall vacations be dividied into two (2) separate periods, one of which shall always be equal to or greater than ten (10) days.”
- “The minimum limit of six (6) hours per day and thirty-six (36) hours of work per week is established for employees of companies of the economic category."
- "In any continuous work, whose duration exceeds six (6) hours, it is mandatory to grant a break of at least one (1) hour. If the employee does not fully enjoy the break, he shall be entitled to one (1) hour of overtime."
- "The provisions of this collective agreement are a part of individual employment contracts and can only be modified or abolished through collective bargaining."
Thus, decisions such as establishing individual hours bank agreements for semiannual hours or not considering breakfast as being within the employees' workday can generate undesirable labor liabilities if the agreement or collective bargaining agreement requires different behavior.
For this reason, it is essential that employers' unions and employers carefully analyze their collective rules to find any conflicts with the new text of the law and identify opportunities to revise the contractual provisions in order to adapt them to the new reality brought about by the Labor Reform.
- Category: Banking, insurance and finance
On August 30, the Central Bank of Brazil (Bacen) published Public Consultation Notice No. 55/2017 to receive comments on a proposed resolution on the establishment and operation of two new types of financial institutions specialized in loan transactions through the medium of an electronic platform: direct lending companies (SCD) and interpersonal lending companies (SEP). The new regulation is expected to be issued by early 2018.
The rule is part of the BC+ Agenda, the “Cheaper Credit" pillar, and aims to increase legal certainty in the industry, increase competition among financial institutions, and broaden opportunities for access to the credit market. In addition, it is aimed at financial startups that intensively employ technology in the credit market, known as credit fintechs. We will cover in this article the main characteristics and the most relevant activities that can be conducted by these two new types of financial institutions.
First of all, SCDs will have the purpose of lending exclusively through an electronic platform and with their own equity. Unlike banks, SCDs will not be able to raise funds from the public. However, they may be public companies and, thus, raise funds through the offering of shares in the capital markets.
SCDs may also provide the following services:
- credit analysis for third parties;
- acting as an agent of insurance brokers in the distribution of insurance related to loan transactions through electronic platforms, under the terms of the regulations in force (for this specific activity, it seems to us that the SCDs would act as insurance representatives rather than as agents, since, according to the Federal Insurance Commissioner (SUSEP) regulations, only individuals can act as brokers' agents); and
- issuance of electronic money, in accordance with the regulations in force. By allowing them to act as electronic money issuing payment institutions, the new rule seems to enable funds borrowed to be disbursed into payment accounts managed by the SCDs themselves.
SEPs, in turn, will have the purpose of conducting interpersonal loans between people through an electronic platform, while being forbidden from conducting transactions with their own resources or any type of retention of risks.
The notice defines interpersonal loans through electronic platforms as intermediation operations in which financial resources collected from creditors (individuals or legal entities, as well as investment funds) are directed to debtors (individuals or legal entities, resident or domiciled in Brazil) after negotiation on an electronic platform. It should be noted, therefore, that this is the legal framework that is intended to be given to companies that, through an electronic platform, enable the conducting of loans currently known as peer-to-peer, except that, in the manner set forth in the notice, the SEPs will grant or endorse the lending instrument (that is to say, it is not directly between creditor and borrower).
In addition to interpersonal lending transactions, SEPs may also provide the following services: (i) credit analysis for clients and third parties; (ii) collection relating to interpersonal lending transactions; (iii) acting as an agent of insurance brokers in the distribution of insurance related to their loan transactions, in accordance with the regulations in force; and (iv) issuance of electronic money, in accordance with the regulations in force.
Interpersonal lending transactions shall be processed in the following successive steps: (i) unequivocal manifestation of consent by potential creditors and debtors, in an electronic platform, to enter into the loan transaction; (ii) availability of funds by creditors; (iii) issuance or conclusion of the instrument evidencing the loan (which may be issued by SEPs or in in their name, or entered into with the SEP as a party); (iv) assignment or endorsement to the creditor of the instrument evidencing the loan (assignment or endorsement by SEPs without co-obligation or any type of guarantee and immediately after the issuance or conclusion of the instrument representing the loan) or the instrument evidencing it; and (v) transfer of the funds to the debtors by the SEP within one business day of their availability.
The notice also provides that SEPs should segregate their funds from the funds of creditors and debtors. In addition, SEPs must establish limits on amounts and quantities (for creditors and debtors) relating to interpersonal lending transactions.
In this sense, prior to finalization of the loan, SEPs shall ensure that the total exposure of a single creditor, considering the sum of the debt balances of the transactions carried out through SEPs, is a maximum of R$ 50,000 (creditors who are qualified investors, as defined in the regulations of the Brazilian Securities and Exchange Commission, will not be subject to this ceiling). This limit must be verified by SEPs through a formal declaration by the creditor and consultation of the Credit Information System of the Central Bank (SCR).
According to the notice, SEPs are obliged to provide information to their clients and users about the nature and complexity of the contractual transactions and services offered, in clear and objective language, in order to allow for full understanding of the flow of financial resources and risks incurred. This information must be disclosed and kept up to date in a visible place and legible format on the institution's website, accessible on the homepage, as well as in other channels of access to the electronic platform. It should also be included contracts, advertising, and publicity materials and other documents intended for customers and users. In addition, the information should include a warning, with emphasis, that interpersonal lending transactions constitute risky investments, without any guarantee from the Credit Guarantee Fund (FGC).
Both SCDs and the SEPs will not be able to raise funds from the public and must be formed as a corporation, publicly-held or privately-held, and must also permanently observe the minimum limit of R$ 1,000,000 for paid-in capital and liquid assets. In addition, the two types of institutions may be controlled by Brazilian or foreign investment funds.
Interested parties will be able to access the notice on the Bacen website (www.bcb.gov.br) and send suggestions and comments by November 17, 2017, through (i) the link contained in the notice published on the Bacen electronic address; (ii) the e-mail address denor
- Category: Tax
- Category: Infrastructure and energy
On July 25, Brazil’s federal government sent to the National Congress three provisional presidential decrees that reform the mining sector in Brazil. The proposal is to adopt a model that adjusts the reality of this industry in Brazil to the current global economic context and to stimulate revitalization of the sector, seeking greater competitiveness and sharing of mining proceeds. Even so, the initiative has been subject to harsh criticism, especially regarding its burdening of an industry that has been suffering economic slowdown in recent years.
In previous years, the federal government, still under the presidency of Dilma Rousseff, expressed interest in reformulating the regulatory framework of the industry, considering it outdated and unable to leverage the mineralogical potential of Brazil. However, without a consensus on a new model accepted by the industry, the measure did not move forward.
Under the leadership of President Temer, the federal government sought to resume part of the reforms. In this context, provisional presidential decrees nos. 789/17, 790/17, and 791/17 address different issues, seeking to segment the reform and dilute the debates in the National Congress. The aim is to avoid discussions on controversial points from delaying approval of less controversial issues.
By their very nature, provisional presidential decrees must be immediately submitted to the National Congress in order to be converted, or not, into law. This process must occur within 60 days, extendable for the same period. If the matter is not reviewed within 45 days of its submission, the provisional presidential decree enters into an urgency regime, overriding all legislative decisions of the legislative body where it is pending until it is voted on.
At the moment, the three provisional presidential decrees are under review by mixed committees. They should be in force until September 29, 2017 (and are renewable for another 60 days), but with the start of the urgency regime on September 15, 2017.
We seek to summarize below the changes proposed by the federal government that modify more sharply the previous rules and the panorama of the industry.
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