Publications
- Category: Labor and employment
The need to control workers' workdays in Brazil is established by article 74, paragraph 2, of the Consolidated Labor Laws - CLT, according to which the recording of arrival and departure, also known as time cards, is mandatory in establishments with more than ten employees. Control of workdays can be manual, mechanical, or electronic, according to the CLT and instructions from the Ministry of Labor.
With the evolution of technology, which has altered different aspects of personal and work relationships, this control has become a much simpler, more modern and effective procedure with time card recording methods including biometrics, electronic records, and even cell phone applications. Even so, much is still discussed regarding the need to get the employee's signature on the time cards in order to validate control of workdays. There are several factors to consider in relation to this topic.
It is unquestionable that there is no obligation in the Brazilian legal system to sign time cards, regardless of the time tracking system used by the employer. It may be argued that, under the terms of article 5, item II of the Federal Constitution ("No one shall be obliged to do something or refrain from doing something other than by law"), the employee's signature would be dispensed with to validate the time cards due to lack of corresponding legal provision in article 74, paragraph 2, of the CLT.
In this sense, the Superior Labor Court (TST) has taken the majority position that the mere absence of signature on the time cards does not invalidate the documents as evidence. This understanding is shared by the Labor Appellate Court (TRT) of the 2nd Circuit - São Paulo, which even issued a circuit-wide binding restatement in this sense, thereby assigning to the employee the burden of disproving the time cards, even those without a signature, as a means of evidence.
However, there are still decisions in Brazilian courts to the opposite effect, often in the TRT of the 1st Circuit, Rio de Janeiro, which are based on conjectures regarding the inability of employees to check the electronic control records pertaining to them. It is therefore certain that the matter is not settled among Brazilian courts.
It is important to emphasize that the submission of records proving controls of workdays is the burden of the employer, as established in Precedent 338 of the TST. But, once the time cards have been submitted to the Judiciary, it is the employee's burden to disprove these documents as evidence.
In order to protect against possible allegations of time card fraud, the employer must use the Electronic Time Registration System (SREP), established in Ministerial Ordinance No. 1,510/2009 of the Ministry of Labor and Employment. It may also use the means of recording working hours authorized in collective bargaining agreements, as was approved in the Labor Reform.
In this context, it is possible to say that signatures on time cards have fallen into disuse, thanks to the modern means of recording time now accepted, and signatures may now be dispensed with in validating controls of workdays, a situation that is coming to be accepted by the majority of Brazilian courts.
- Category: Capital markets
In July, the Brazilian Securities and Exchange Commission (CVM) issued regulations pertaining to public offerings of securities on crowdfunding platforms (collaborative financing). As a result of Public Hearing SDM 06/2016, CVM Instruction No. 588/2017 governs "public offers for distribution of securities issued by small businesses conducted with exemption from registration through an electronic investment platform."
In addition to representing a major willingness on the part of the Brazilian capital markets regulator to innovate, the regulation provides more certainty for the various stakeholders and, in the long run, should contribute to the development of this kind of fundraising mechanism.
The new rules for the so-called equity crowdfunding and investment crowdfunding in Brazil expressly exclude from their scope the activity of loans granted by individuals to individuals or legal entities, through the internet, without the issuance of securities (peer-to-peer loans). However, the regulation did not limit the type of security to be offered. That being the case, small businesses may issue shares, debentures, or other securities, as long as legally available.
A small business must be registered with the competent public registry and not be registered with the CVM as a securities issuer. It must have gross annual revenues of no more than R$ 10 million, calculated in the fiscal year immediately prior to the public offering (or a proportional amount when it has been in operation for less than 12 months). If the issuer is controlled by another legal entity or investment fund, the aforementioned amount must be calculated on an aggregated basis.
The public offering must take place through an electronic platform duly incorporated in Brazil and registered with the CVM. The platform will be the entity responsible for verifying compliance by the issuer and the offering with the requirements of CVM Instruction No. 588.
In attendance to the requests of market agents, the CVM established 180 days as the maximum period for raising funds via platforms. This is the time frame, for example, for public offerings with restricted distribution efforts. The draft regulation submitted for public consultation provided 90 days, but the time frame was extended in order to mitigate the risk of failure of this type of offer, which may depend on a longer offering period in order to reach the issuer’s funding objectives.
The offers are intended for any investor, provided that the investment limit of R$ 10,000 per calendar year is observed for securities offered under the regime created by this instruction. The exceptions are the offering’s lead investor (type of angel investor with prior experience recognized by the platform), qualified investors (as per applicable regulations), and investors who have annual gross revenues or financial investments exceeding R$ 100,000. In the latter case, the annual investment limit may be increased by up to 10% of the higher of these two amounts, per calendar year.
After an investor's expression of interest in participating in the public offering on the platform, a minimum period of seven days must be guaranteed for withdrawal, without the application of any fines or penalties.
The platforms may admit into their electronic environment the grouping of investors supporting a lead investor in so-called "participatory investment syndicates." The creation of an investment vehicle for the syndicate is acceptable, provided that each vehicle only participates in one public offering and does not expose the supporting investors to risks other than those they would be subject to, had they invested individually in the same public offering.
The maximum amount of funding for the public offering will be R$ 5 million, a limit that must also be observed for all the public offerings made by the same issuer based on CVM Instruction No. 588 within the same calendar year. It is possible to make a partial distribution of the offering, provided that the offeror establishes the minimum and maximum funding target amounts (the minimum must be equal to or greater than 2/3 of the maximum).
Once the public offering is closed, the platform will have five business days to arrange for the transfer of the total amount raised to the issuer or to return the amounts to the investors if the offer has not been able to reach the minimum funding target amount.
Although the regulations of equity crowdfunding by the CVM are new and have brought in a number of new elements and requirements for those who intend to use this framework for public distribution of securities, this type of investment had already been taking place in Brazil for approximately three years at a considerable level of sophistication. The first equity crowdfunding offer in Brazil was made in June of 2014, through the Broota platform, with the objective of raising funds to finance the start-up of the platform's own activities. The transaction was structured by Broota and counted on the legal advice of Machado Meyer.
- Category: Real estate
The real estate market received a large - and very welcome - legal stimulus on last July 11 due to the conversion of Provisional Presidential Decree No. 759, in effect since December 2016, into Federal Law No. 13,465/2017.
In the midst of many criticisms of its approach to some issues, especially those related to land regularization, the fact is that the new legislation has covered all at once a series of issues that may affect contracts and business transactions involving, directly or indirectly, urban or rural properties.
The prospect of practical results is quite positive, especially the adjustments to the concept of out-of-court procedure for adverse possession, the increased speed expected in land regularization procedures, improvement in the execution of fiduciary alienation guarantees, and transactions involving the direito de laje (“slab rights” i.e., the severability of titles when one or more floors are added as an autonomous unit to a previously existing dwelling).
It will be important to monitor judicial interpretation of these provisions and the practical application of these new instruments and rules in market transactions. Undoubtedly, the vast majority of the changes were designed to boost the real estate sector. The expectation is that computerized systems, safer procedures for the execution of security interests in real estate, and more effective procedures to facilitate real estate regularization will bring in very favorable responses.
Out-of-court procedure for Adverse Possession
The amendment to the Public Registers Law (Law No. 6,015/1973) promises to leverage the use of out-of-court procedures for adverse possession in Brazil. Initially envisaged to relieve the Judiciary through non-litigious proceedings, out-of-court procedures for adverse possession had been instituted with a requirement that caused a major bottleneck: express consent of the holders of real property rights registered in the recording of the property.
After being in effect for a little more than a year without having seen much application in practice, the legislature seems to have realized that this requirement is incompatible with acquisition by adverse possession. Except in cases where it is difficult to obtain documents to complete an already negotiated sale and purchase process, it would be difficult for people to agree to dispose of a right in favor of a squatter.
In this sense, the new law provides that holders of real property rights will still have the opportunity to express their opposition to the proceeding, but, if they do not submit an opposition, they are presumed to agree with the procedure. If they oppose, the procedure will be referred to the Judiciary and will follow the general procedural path of adverse possession. Also, in order to guarantee greater efficiency in this process, the new law does away with the consent of the owners of the contiguous autonomous units and, if the contiguous property is a condominium building, the consent of the condominium association will suffice (instead of the consent of all the owners of all units).
Fiduciary alienation of real property
Considered one of the most efficient forms of real estate collateral in business transactions, the fiduciary alienation underwent a small reform and "modernization", with changes that promise to boost out-of-court foreclosure and avoid procedures aimed only at delaying the public auction or at avoiding payment of the guaranteed obligations.
Among the novelties, we highlight the establishment of the market value appraised by the municipality (for urban properties) or the value of the bare land (for rural properties) as the basis for sale in the first out-of-court auction; the recognition of validity of notices given by means of a building condominium posting; and the possibility of communicating dates, times, and locations of the auctions by means of an electronic address in the contract.
For the benefit of the owner, the rule establishes preemptive rights in the acquisition of the property until the date of the second auction. The legislator also clarified that the creditor could also charge a legal penalty in the event of refusal by the owner to vacate the property, covering the period between the consolidation of the property and actual vacancy.
The most celebrated change, however, relates to real estate financing transactions. It was established that discussions with respect to the terms of the contract or the enforcement procedure could no longer impede the continuation of the auctions and should be resolved in damages. This should put an end to the dilatory actions that are used to hinder real estate foreclosures. It is important to note, however, that, according to the text of the law, such improvements are restricted to "real estate financing transactions."
The legislature did not enter into the area of fiduciary alienations in guarantee of loans other than real estate financing transactions. In this sense, it also did not slip in a provision to avoid automatic extinction of secured debt when the sum offered in the second auction is below the sum of the principal of the debt plus charges and expenses (provided in paragraph 5, of article 27 of Law No. 9,514/1997). This provision is clearly focused on the real estate financing system, but its applicability to other types of debt generates much discussions.
Land regularization
The issue of land regularization is controversial in Brazil. MP 759 made the rules for the regularization of rural properties more flexible and, during the process of its conversion into law, gained the nickname “the fraudsters MP" in the media. This is because it increased the area limit subject to regularization in occupations of rural lands owned by the Federal Government in the legal limits of the Amazon from 1,500 to 2,500 hectares.
As for the urban areas, that are less controversial, the new legislation has a clear focus: to facilitate the regularization of informal urban centers and to guarantee legal certainty for property owners located in these areas. The main tool will be Reurb, which constitutes a more flexible regime of urban land regularization of social interest aimed at low-income populations (Reurb-S) and, for other cases, land regularization of a specific interest (Reurb-E).
The greatest flexibility, undeniably, is the possibility of not applying some of the general land subdivision rules contained in Federal Law No. 6,766/1979, such as the exemption of requirements regarding the minimum size of lots to be regularized or flexibility of the percentage and dimensions of areas intended for public use.
Direito de Laje ("Slab Rights")
In the real estate legislation package, the rule also establishes a new real property right in the Brazilian Civil Code. This is the “direito de laje” or “slab right", a real and autonomous right to the upper or lower surface of a base-construction (the "slab"). It will be subject to a separate recording with the Real Estate Registry, and may be sold to third parties and even be subject to a security interest.
A new slab may be constructed over the slab. That is, the slab holder may assign the surface of his construction for the constitution of a new real property right, to third parties, provided that he obtains consent from the owner of the base construction and from the holders of the other overlapping slabs, if applicable. In the event of sale of the slab, the owner of the base-construction slab is granted a preemptive right and, subsequently, the owners of the other overlapping slabs, if any.
Collective organizations: condominiums and closed subdivisions
In relation to the regulation of developments for collective use, the law expressly allows condominiums by lots, controlled access housing subdivisions, and simple urban condominiums.
The first is composed of private lots with exclusive ownership and private common areas for the use of all condominium owners, unlike a common housing subdivision, where the common areas are donated to the municipality and therefore become public.
The controlled access housing subdivision, in turn, is nothing more than a “closed housing subdivision." According to the new regulations and subject to the supplementary regulations of the municipalities, it will only be partially closed, as it is prohibited to prevent access to properly identified or registered non-residents.
Condominiums by lots and the closed housing subdivisions were already in some manner allowed and regulated, case by case, but not expressly in federal legislation. The big novelty in relation to this topic is the simple urban condominium, applicable to the constructions of houses or rooms belonging to the same property. In the process of conversion of MP 759 into law, this provision was restricted to situations of urban land regularization of social interest or specific interest. In the final phase of the discussions, however, the legislator thought it best to expand it to any real estate situation.
With the simple urban condominium, it is expected that regularization of situations of division of autonomous units built on the same property will be faster and less bureaucratic. This will be possible with the delimitation of the common areas (apart from each private autonomous unit, which will have its own recordings with the Real Estate Registry Office) and with the individualization and independence of the private autonomous units in relation to the other units expressed and recorded with the Real Estate Registry Office.
Properties owned by the Federal Government
The legislation dispensed with the prior list of properties that can be acquired by individuals or companies, expressly provided for in the regulations in force since the end of 2015 as a necessary requirement for acquisition of federal owned properties. The objective was to facilitate transactions with real estate owned by the Federal Government that are not tied to a public purpose, including marine land. Any interested party may submit a proposal for acquisition to the Federal Government for properties falling within this category.
Other relevant novelties include the use of the water surface for nautical structures installed by the ocean, rivers, and lakes in the Federal Government's domain. The new legislation establishes a discount for those who occupy these areas in an irregular manner and request their regularization by December 31, 2018. The discount will be 50% of the amount of the public price for the private use of the area relating to the period prior to December 22, 2016. This provision may affect developments that use public water to operate, such as private port terminals and cargo transfer stations.
National Recording Code (CNM)
Finally, Brazil will have a single and unified real estate registry numbering system for properties located in its territory. The new law establishes the National Recording Code (CNM), with exclusive numbering for each real estate recording. It is also expected that the Electronic Property Recording System (SREI) will be effectively implemented at the national level. The implementation of the CNM still depends on a regulatory act of the National Judiciary Oversight Board of the National Council of Justice (CNJ).
Abandonment of Property
The new law regulates the procedure for collection in the event of abandonment of property. The absence of a response by the owner against the proceeding will be interpreted as agreement. In order for the property collected to meet the social objectives for which it is intended, the municipality or the Federal District, as the case may be, may make the investments necessary directly or through third parties. These properties may be assigned to the Reurb-S or to civil entities that have philanthropic, charitable, educational, sports, or related purposes.
- Category: Labor and employment
In considering the use of the application WhatsApp for procedural summons as valid, the National Justice Council (CNJ) has set an important precedent for using this tool for communication in all courts in Brazil. The decision was reached in the judgment of an Administrative Control Procedure[1] filed against Ordinance No. 01/2015, adopted by the Special Civil and Criminal Court of the District of Piracanjuba (GO).
According to the ordinance, WhatsApp may be used for procedural summons, subpoenas, and other communications in an optional manner by the Court, when the parties voluntarily adhere to the terms established. In addition, for the summons to be valid, it is also necessary that the receipt of the message be confirmed on the same day that it is sent. If this does not occur, the summons must be served in the conventional manner (postal service or process server).
In its decision, the CNJ understood that procedural communications via WhatsApp are in accordance with article 19 of Law No. 9,999/1995, which stipulated that notices, subpoenas, and summons shall be served in the manner provided for in them, or by any other suitable means of communication.
The CNJ also relied on Law No. 11,419/2006, which provides for the computerization of judicial process and, in the opinion of the council, has made technological innovation an important ally of the Judiciary.
Based on the guarantee of procedural speed and efficiency, the decision represents an incentive for procedural communication via electronic application to be adopted by all courts in Brazil. Considering the principles governing labor procedure, especially the principles of speed, simplicity of forms, and procedural economy, the application of this measure by the regional courts of labor appeals will certainly be well received. It is worth remembering that labor procedure substantially resembles the procedure of courts with special subject-matter jurisdiction, mainly due to its focus on simplicity and informality.
Accompanying this technological advance, the 5th Labor Court of São Bernardo do Campo (SP) held, in May of this year, attempts at settlement via WhatsApp. The physical hearing only occurred in order to ratify the settlement agreement entered into in the electronic application.
Before this, a labor judge on the Labor Court of Plácido de Castro, in the State of Acre, had already opted to use of WhatsApp in summoning the parties, alleging reduction in deadlines and costs in resolving cases.
The same was done by a judge on the Labor Court of Tucuruí, in the State of Pará, who after several attempts at service of process, contacts by email, and even by telephone, used WhatsApp to serve the respondent and finally got the company to respond to the claim.
These examples demonstrate how technology can contribute to improvement in the Brazilian Judiciary. It is certain that the use of WhatsApp in communications between the parties and the Court in the course of judicial proceedings is coming to be a constant, legal, and effective practice in the near future.
- Category: Banking, insurance and finance
Provisional Measure No. 784, published on June 8 ("MP 784"), brought in profound changes to the administrative disciplinary process in the Brazilian financial system and capital markets, within the sphere of action of the Central Bank of Brazil ("Bacen") and the Brazilian Securities and Exchange Commission ("CVM").
Innovative in relation to various topics, the promulgation of this MP784 sparkled great controversy, to the point that 97 amendments were submitted to its original text and even a direct action of unconstitutionality (ADI) was filed challenging the mechanism of issuance of the rule and some of its provisions. In large part for this reason, there is still much uncertainty about the actual extent of the new disciplinary regime. In some points, the text awaits regulations from the National Monetary Council ("CMN"), Bacen, and the CVM. In the view of the authorities, the new rule, which took effect immediately, aims to ensure:- greater effectiveness to disciplinary administrative proceedings in order to improve them as an effective instrument of guidance to the subjects of the regulatory activity;
- expansion of alternative sanctions and regulatory instruments to deal with various types of irregularities in a more adequate and proportionate manner;
- creation of conditions for authorities to obtain faster and more effective results in supervisory actions, thereby strengthening their role of deterrence of commissions of infractions;
- standardization of the parameters used to apply penalties to the various segments overseen by Bacen; and
- improvement of the criteria for grading and applying penalties by Bacen.
- up to R$ 500 million (previously it was R$ 500 thousand);
- up to twice the value of the irregular issuance or transaction (previously it was 50%);
- up to three times the amount of the economic advantage obtained or the loss avoided as a result of the wrongful act; or
- up to 20% of the total individual or aggregate turnover of the economic group obtained in the fiscal year prior to the institution of the administrative disciplinary proceeding in the case of a legal entity.
- Category: Banking, insurance and finance
The House of Representatives will discuss in a public hearing the Draft Law No. 2,303/2015, which proposes the inclusion of virtual currencies, such as bitcoin, and air mileage programs in the definition of payment arrangements under the supervision of the Central Bank of Brazil (Bacen). To this end, the draft bill provides for amendments to Law No. 12,865/13 and Law No. 9,613/98.
According to the draft bill's justification, "both Bacen and the Financial Activities Oversight Council (COAF) and the consumer agencies are already charged with overseeing and regulating virtual currencies." However, there are still some legal and regulatory challenges with regard to the regulation of virtual currencies.
In 2014, Bacen expressed its views on the subject in Statement No. 25,306, which states, in sum, that:
- virtual currencies are not issued or guaranteed by a monetary authority;
- virtual currencies are not guaranteed conversion into the official currency;
- because of the low volume of transactions with virtual currencies, variation in their prices can be very large and fast;
- any application of prudential, coercive, or punitive measures on the use of virtual currencies by monetary authorities of any country may significantly affect the price of such currencies or even the ability to trade them;
- virtual currencies may be used for illicit activities; and
- by storing virtual currencies in so-called electronic wallets, the holder of these assets runs the risk of suffering losses due to attacks by criminals operating in cyberspace.
Also, according to the statement, although virtual currencies have not yet shown themselves capable of posing risks to the National Financial System, Bacen is monitoring the evolution of the use of these instruments and, if necessary, will adopt measures within its purview. However, to date there has been no conclusive position on the part of Bacen with respect to the feasibility and risks of adopting virtual currencies in Brazil.
The main difficulty in regulating these instruments (despite their designation as "currencies") is in defining their legal nature. In fact, they have some characteristics that resemble currencies, among them: use and acceptance as a means of payment (thus having the fiduciary character of currencies), high liquidity, reserve of value (even if subject to fluctuations), and ease of movement and storage. However, there are other parameters that, from a legal point of view, impede this characterization, such as the reserve of authority granted by the Constitution to Bacen to issue currency in Brazil and the mandatory legal tender of the Brazilian real established in Law No. 9,069/95 (the Brazilian Currency Plan, or “Plano Real”).
There are also problems in classifying virtual currencies as securities in accordance with the definition established in Law No. 6,385/76 (Capital Markets Law). This is due to the fact that the value of these instruments does not depend on variables related to a determinable person or entity, but predominantly to their supply and demand and exogenous factors of a political and economic nature. Therefore, it would be difficult to classify virtual currencies as a security or collective investment agreement, as mentioned in article 2 of the law.
Accordingly, another alternative would be to classify them merely as assets, of an intangible nature and of high liquidity, in line with the understanding already expressed by the Federal Revenue Service. However, their final classification for the purpose of establishing payment arrangements is still pending.
A second difficulty in regulating virtual currencies is related to Brazilian exchange legislation. Considering its high liquidity, ease of movement, and difficulty in determining its location and its owners, there is a risk of questioning by Bacen in cases where virtual currencies are used as an indirect means to place funds in foreign currency abroad, without closing a corresponding exchange transaction. In addition, international transactions with virtual currencies could also set up illegitimate foreign exchange transactions or even private offsets of international credits, in view of the non-involvement of banks authorized to trade in exchange.
Finally, a third difficulty is related to the legislation on customer identification and prevention of money laundering crimes, since transactions with virtual currencies could present obstacles to proper identification of the parties involved. There are also some notable cases of illicit activities involving bitcoins, such as the Silk Road black market site and the Costa Rican centralized Liberty Reserve.
The recent increase in activities involving bitcoins and other virtual currencies, their economic potential, and the growth of their acceptance among consumers makes a discussion of their regulations increasingly necessary. However, this discussion presents relevant challenges related to analysis of the impacts of virtual currencies on the economy, their potential risks for consumers, and their harmonization with the other rules of the National Financial System.