Publications

Category: Banking, insurance and finance

The subject of a public hearing between December of 2020 and April of this year, the new regulatory framework for investment funds in Brazil will implement the innovations brought in by the Economic Freedom Law (Law No. 13,874/19), modernizing the regulation of the industry and bringing the local market closer to the best international practices.

The resolution by the Brazilian Securities and Exchange Commission (CVM) on the subject, which is about to be published, brings in common rules for all investment funds and proposes others specific to certain categories of funds: initially, the financial investment fund (new nomenclature for funds focused on investments in stocks, foreign exchange, multimarket, and fixed income) and the credit rights investment fund (FIDC).

Among the innovations in the regulations of the FiDC, the possibility of labeling it as social and environmental stands out, as long as it invests preponderantly in credit rights arising from activities that generate social and environmental benefits. The origin of these benefits also needs to be verified by a second opinion report or through certification, in both cases based on methodologies internationally recognized for this purpose.

The requirement for an external opinion or certification on the classification of the FIDC quotas as social and environmental is aligned with the guidelines for the issuance of environmental bonds (green bonds) and social bonds (social bonds) issued by the Climate Bond Initiative and the International Capital Market Association, respectively. Both are best practice manuals adopted by the international market in this area and used by second opinion and/or certification entities to support their opinions. The objective of the insertion of requirements for the use of social and environmental labeling is to provide investors with greater security in relation to the externalities of their investment, through independent verification linked to international standards.

The requirement is necessary in view of the risk of creating social and environmental assets without clear criteria, the much feared greenwashing, due to growing investor interest in assets related to environmental, social, and governance (ESG) factors.

The CVM justified the labeling of a fund as social and environmental, targeting the fostering of the green bond market, to encourage managers of projects that offer social and environmental benefits to seek them out.

However, this labelling has the potential to also promote impact businesses, those that are profit-driven and have a mission to solve social and/or environmental problems, with a commitment to monitor their impact and financial performance.

Green bonds are issued in the capital market, the funds of which are used in projects with positive environmental aspects, which substantially contribute to the low carbon economy (such as wind power plants and solar energy generation), or projects currently with high emissions, but which are important for the migration from a high to low carbon economy, through the adoption of more sustainable practices (agricultural or transportation sectors).

Securitization of social and environmental receivables is a great opportunity for impact businesses to finance themselves, proliferate, and scale their operations.

The proposed regulation does not make it clear whether it would be possible to create FIDCs focused on exclusively environmental or exclusively social receivables. The text should be more generic in expressly including the possibility that the Social and environmental FIDC acquiring credit rights of an exclusively social, exclusively environmental, or exclusively social and environmental nature in order to cover all the activities conducted by impact businesses.

According to a recent report published by Social Progress Imperative, if we continue on current trends, the UN's 17 sustainable development goals, the 2030 Agenda, would only be achieved in 2082 (2092, considering the effects of the pandemic). Impact business is an important tool to accelerate this process.

The increased supply of financial products aimed at the low carbon economy and impact businesses contributes to the growth of the sector and, consequently, to addressing the social and environmental challenges of Brazil.

Category: M&A and private equity

The Covid-19 pandemic has caused an expected impact on M&A transactions during 2020. Despite the relative uncertainty regarding the extent of the pandemic and its effects in 2021, a strong recovery in transactional activities and, in particular, in M&A transactions has been observed since the end of last year: from a total of 615^[1] transactions in the first half of 2020, the M&A sector recorded a total of 916 transactions in the same period of 2021, an increase of 48%.

This increase has been supported by an increase in various M&A modalities, whether via direct foreign investments, acquisitions by private equity funds, or bilateral operations between Brazilian companies (many of them capitalized by recently completed IPOs) that seek to consolidate their market position via acquisitions. The healthcare, retail, real estate, and education sectors have been some of the most active, but the technology sector continues to lead in number of transactions and amounts involved, bringing in some innovation for the usually rigid M&A contracts.

Among the technology companies that have attracted the attention of investors are SaaS (Software as a Service), e-commerce companies, information technology, big data, artificial intelligence, and "tech" companies in general (fintechs, proptechs, insurtechs, techfins, among others). This attractiveness is due to various vectors: digital transformation of life in general, greater scalability and density in the consumer market, less dependence on the public sector, potential for higher margins, and a "buyer's market" for investors who want to dispose of their assets.

From the point of view of innovation in operating structures, it is worth mentioning the dynamism that business in the technology sector has imposed on market players. It is not uncommon for investors in the sector to adopt an approach very similar to that of aggressive venture capital funds, even if the asset in question is not necessarily embryonic: due diligence of reduced scope, limited indemnity and, sometimes, structuring of the transaction via an offshore holding company, with the adoption of standardized contracts (either the purchase and sale agreement or the shareholders' agreement), all in preparation for new funding rounds for the target asset, or even a possible IPO in possibly more liquid markets.

Even with this dynamism, however, issues such as compliance with the General Data Protection Law are always a major point of attention for transactions in the sector, given the access that technology companies generally have to the personal data of a large number of users.

Audits focused on verifying compliance with the law and on whether the company adopts programs and codes for its employees have been increasingly frequent. The question is whether the new molds for transactions involving technology companies will impose themselves on more traditional M&As as well.

^[1] https://blog.ttrecord.com/informe-mensal-brasil-2t-2021/

Category: Labor and employment

The use of algorithms by companies to achieve a certain result has become increasingly common. This is the case of Facebook's algorithm, for example, which is one of the best known for defining what will be displayed in each user's feed. Little has been discussed, however, regarding the liability of companies and the consequences of the use of algorithms.

Recently, the Section Specialized in Individual Disputes (Subsection II) of the Court of Labor Appeals for the 1st Circuit granted the performance of an expert examination in the source code of an application to determine the existence or lack thereof of an employment relationship between the company and the driver for the application.

The intention is to identify the artificial intelligence data that influence the employment relationship, such as the distribution of calls, the definition of values of services, the preterition and/or preference of some workers as a result of the ratings provided by consumers, and even possible application of sanctions, such as blocking of the worker himself.

Although the result of the expert report is not yet available, the mere granting of the plaintiff's request is enough for some reflections on the impact of algorithms on the employment relationship, this time as the very evidence of the employment relationship.

According to the judge drafting the appellate decision that granted the performance of the expert examination, one could not fail to consider information deposited in technological instruments with rigorous records, to the detriment of other more "weak" means of proof, such as oral evidence, in view of the fallibility of human memory, and the variability of perception of the facts, which allows for various different narratives about the same reality.

In other words, although the legislation provides that there is no hierarchy among forms of evidence, one of the grounds that supported authorization of the expert opinion refers to the alleged robustness of the expert evidence in detriment of the others. However, when it comes to algorithms, this premise could easily be disproved.

The purpose of the algorithm is dissociated from the purpose of the Labor Courts, which is why it is possible that the number of hours the driver was logged on does not correspond to the number of hours he was actually working, for example.

In addition, we cannot forget that, in order to obtain data by the algorithm, it is essential to have a person responsible for defining the structure of the basis on which the data will be stored and a person responsible for supplying it, even based on virtual sensors. This means that algorithms are easily manipulated, since they necessarily involve human participation, whether for the definition of applicable guidelines or for the organization, development, and governance of information, such that they also present fallibility.

That is where the second discussion on the subject comes in: the liability of developers and companies. By accepting as a means of proof an expert examination done on algorithms as though it were something absolutely automated and safe, the Labor Courts themselves create a distance between programmers who build algorithmic systems and companies.

The distance created by the Labor Courts weaken the very accountability of programmers, who tend not to feel morally and legally responsible for the negative effects of the algorithm, among them the use of biased databases that may originate even in data collection, triggering the problem of algorithmic discrimination, for example. For this reason, the Labor Prosecutor's Office has set up a group against algorithmic discrimination in order to investigate companies that use biased algorithms. It is called machine bias or algorithm bias.

Although the distance between programmers and companies may denote an apparent absence of liability of these professionals, every employee, like every individual, is subject to the general rule of civil liability provided for in article 927 of the Civil Code, according to which those who, through an unlawful act, cause damage to another are obliged to repair it.

The company itself may also be held liable, as controller of the data subjects' personal data, pursuant to article 42 of Law No. 13,709/18 (LGPD), according to which the controller who, due to the exercise of personal data processing activity, causes to another person property damage, non-economic, individual or collective, in violation of personal data protection legislation, is obliged to repair it.

Thus, it will be incumbent on the companies to take the precautions necessary to avoid this liability, including in relation to the programmers, who make the algorithmic system as fallible as testimonial evidence, for example.

To this end, it is important that the creation of innovation areas in companies be accompanied by the execution of specific employment contracts with these professionals, with express provisions relating to cases of employee liability, as well as the creation of their own internal policies that must be observed for this purpose.

This means that, with the implementation of innovation areas to optimize the business model of companies, certain labor precautions are required, the observance of which can even prevent the liability of companies and programmers for the algorithmic system used, which, more often than not, may go unnoticed in internal policies.

Category: Competition

The General Superintendence of the Administrative Council of Economic Defense (Cade) established a new understanding in a recent decision, in line with two other precedents from the end of last year, regarding the turnover calculation applicable to economic groups when assessing whether a transaction is subject to mandatory merger filing with Cade.

According to the Brazilian Competition Law (Law No. 12,529/11), transactions that entail an economic concentration with effects in Brazil must be subject to Cade’s review and prior approval when one of the economic groups involved in the transaction has registered annual gross turnover or volume of sales in Brazil of at least BRL 750 million in the year before the transaction, and another group involved in the transaction has registered annual gross turnover or volume of sale in Brazil of at least BRL 75 million in the same period. The parties shall follow the criteria provided by Cade’s Resolution No. 02/2012 in order to identify which companies shall be considered as part of their economic groups.

In such context, it is important to determine when is the right moment to identify the companies of an economic group and, as a second step, calculate their turnover in the previous year. Should it be on the last day of the year before the transaction? On the transaction agreement signing date? Sometime before closing the transaction?

In the past, the turnover of an economic group was calculated based on its composition at the end of the year before the transaction. A few years ago, Cade’s General Superintendence had reviewed its interpretation and started to consider the composition of the economic group on the date of the transaction, i.e., the signing date of the agreement to be potentially notified to Cade. However, Cade’s General Superintendence has recently stated that the date of submission of the transaction to Cade is the relevant moment to be considered in order to identify the composition of the economic groups to then calculate their turnover.

Whereas, under the applicable rules, the notification may be submitted at any time before closing, it is necessary to be aware of situations in which the turnover threshold in the previous year is not met at signing but may be met before closing - either by the increase in turnover of companies that were already part of the economic group, or by the acquisition of new companies.

For instance, in a transaction between Group A and Group B with the signing in October 2021, both groups will consider their turnover on December 31, 2020. If Group A met the turnover of BRL 750 million, but Group B did not meet the turnover of BRL 75 million that year, the submission of the transaction to Cade is not required. However, if closing occurs only in February 2022, it is recommended to additionally check the economic groups’ turnover in 2021. If, throughout 2021, the companies that were part of Group B in 2020 increased their turnover or the parent of such group bought a new company whose turnover, added to the other companies of the group, reaches the threshold of BRL 75 million, the merger filing will be considered mandatory by Cade, according to the current understanding.

Thus, although the understanding of Cade’s General Superintendence may be questioned or even reviewed in future cases, it is recommended to carry out the assessment of the need to submit the transaction to Cade’s review both at signing and sometime before closing, if such measures do not take place simultaneously or in a short period of time.

Category: Infrastructure and energy

The Brazilian mining sector has undergoing several changes in recent years. These are changes that seek to bring more dynamism and legal certainty to the sector, filling old gaps related to mining practice and addressing social and environmental issues in a more responsible way, with clearer standards and in line with international best practices. The goal is to make the Brazilian mining market more attractive to new investors and the development of new projects, with more tools to enable the fundraising needed to do so.

Significant changes were introduced with the creation of the National Mining Agency (ANM) in 2017 and the replacement of the old mining code regulation in 2018, through Decree No. 9,406/18, which brought stricter rules on mine closure and accountability in relation to dams and recovery of degraded areas, as well as new rules on the term of mineral exploration authorizations,  encouraging the economic use of mining waste and the introduction of public offerings and electronic auctions for the areas availability procedures.

The rules of supervision and safety of dams also underwent relevant changes, among them the criteria of risk assessment, the guidelines for the elaboration of the flood map and the deadlines for presentation of the map based on the classification of the Associated Potential Damage (DPA) of each dam.

Several rules have already been enacted and others still need to be enacted to increase supervision and requirements on dam safety. Among those already enacted, we have Law No. 14,066/20, which amended the National Dam Safety Policy and ANM Resolutions No. 32/20, 51/20 and 56/21, which provide for safety and supervision of tailings dams and conformity and operational assessment of the Emergency Action Plan for Mining Dams (PAEBM).

In the same vein, RESOLUTIONS ANM No. 59/21 and 71/21 deal with technical cooperation agreements between the ANM, states, federal district and municipalities for mutual cooperation in the performance of actions and activities complementary to the supervision of mining activity provided for by the new mining code.

All this revised legal framework follows the efforts of the federal government released by the Ministry of Mines and Energy under the Mining and Development Program published in September 2020. One of the program's goals is to improve parameters for dam safety, observing points such as regulation, control, supervision, monitoring and responsibilities.

In compliance with Law No. 13,848/19 on management, organization, decision-making and social control of regulatory agencies, ANM disclosed its regulatory agenda^[1] with the topics it understands as priorities and has been periodically disclosing the progress of these regulations.

ANM's 2020-2021 Regulatory Agenda was divided into six thematic axes:

• Transverse
• Sustainability
• Mineral research
• Production
• Mineral water
• Financial Compensation for the Exploration of Mineral Resources (CFEM)

Axis 1 – Transversal comprises themes that are a recurring target of questioning the ANM and are intrinsically related to the development of mining activity, such as conflicts arising from mining, availability of areas, guarantees for financing purposes and alternative means for conflict resolution.

The analysis of mediation, conciliation and administrative arbitration as alternative means for conflict resolution stemming from mining activity is in the preliminary phase of ANM studies. The idea is to make up a specific body of the ANM to assist in the resolution of conflicts in accordance with article 2 item XIV and Article 17 of Law No. 13,575/17. These are issues such as conflicts of mining blockades, dismemberment and overlap of areas, conflicts between holders of mining rights and illegal prospectors, quilombolas, indigenous, environmental agencies and other agents with conflicting interests.

On the other hand, the project of collaterals for financing, one of the most relevant of Axis 1 and even of the mineral sector, aims to regulate Articles 43 and 44 of Decree No. 9,406/18. The objective is to reduce transactional costs for private agents and for the administrative activity of the ANM, favoring the autonomy of the parties in the negotiation, contracting and structuring of fundraising operations. The project is in the advanced stage. Preliminary studies and public consultation on the draft resolution have already been completed. However, in February of this year, the Specialized Federal Prosecutor's Office with the National Mining Agency (PFE/ANM) delivered an opinion limiting the issue of the title in the initial research phase, which again delayed the publication of the resolution.

With regard to Axis 2 – Sustainability, the projects being discussed refer to the mine closure plan (which was completed and transformed into ANM Resolution No. 68/21), as well as financial guarantees to cover risks of mining activities – which is still in the intermediate phase, seeking contributions and subsidies for a new normative act. There is a third project that refers to the use of waste pile and tailings and is a matter of great relevance for mining. The public consultation ended in January 2021, and has already had the project forwarded to the General Secretariat of the ANM for PFE /ANM to prepare the final opinion before the completion of the process by the collegiate board of ANM and consequent publication.

Axis 3 - Mineral Research presents two projects, one focused on the system of certification of resources and reserves and the other to the standardization of criteria for application and evaluation of aerophotogrammetry products. The latter (still in the initial phase) aims to standardize the receipt of information obtained from Drones and regulate the use of such devices. The project that discusses the system of certification of resources and reserves is in advanced stage. The draft resolution was presented and the opinion issued by PFE/ANM, leaving only to make the final adjustments of the draft and forward it to the board of directors of the ANM for final deliberation.

Axis 4 - Production has several projects. One of the most relevant is what discusses certification in dams. The project is advanced and is divided into two steps. The first was completed by publishing ANM Resolution No. 56/21 (which amended Resolution 51/20 to (i) determine that the technical responsible for issuing the Declaration of Conformity and Operability of the PAEBM should be different from the technical responsible for the preparation of the PAEBM and (ii) dispose of the study of hypothetical ruptures in force of the dam). The second stage plans to consolidate in a single regulation the legislation today applicable to the safety of dams – which includes Ordinance DNPM No. 70,389/17, ANM Resolution No. 13/19, ANM Resolution No. 32/20, ANM Resolution No. 40/20, ANM Resolution No. 51/20 and ANM Resolution No. 56/21. In addition, it is also expected to include the regulation of innovations brought by Law No. 14,066/20, which changed the requirements for the certification of dams.

One of the several projects of Axis 5 – Mineral Water deals with the telemetry system for monitoring mineral water mining, an important tool to help manage the information of this resource. The public consultation to receive contributions to specify the application of telemetry was closed on August 17 of this year.

Finally, Axis 6 - Supervision and CFEM presents four projects: the regulation of Law No. 13,540/17, which provides for CFEM; the inclusion of new substances in the reference value system; economic and fiscal information of the CFEM; and the national register of the first purchaser of mineral goods from the artisanal mining permit regime.

The draft regulation of Law No. 13,540/17 waits for pfe/anm to express itself and issue its opinion. The project aimed at the inclusion of new substances in the reference value system is at the initial level. It has been impacted by the departure of some team members, and is expected to be included in the 2022 and 2023 regulatory agenda.

The project that deals with the economic and fiscal information of the CFEM is with the collegiate board of ANM for evaluation and approval of the opening of public consultation on new standard. The team responsible for the project has been working on the development of an electronic system focused on the declaration of economic and fiscal information of the CFEM.

The project referring to the national register of first acquirer of mineral goods from the mining permit scheme is in advanced stage and already has draft resolution. The public consultation process was closed in June this year, and the contributions report is in the final stages.

^[1] In September 2020, an extraordinary review of the Regulatory Agenda 20-21 was carried out, inserting new themes and changing the schedule of some of the projects already foreseen by the agenda.

Category: Restructuring and insolvency

One of the pillars of every company in judicial reorganization is the search for the best and most efficient means of recovery, in order to achieve both the approval of the reorganization plan by creditors and its organized implementation, consistent with its economic and financial planning and maximum valuation of assets and activities.

One of the most traditional means available to support a company in judicial reorganization is precisely the sale of assets, a process that has undergone profound and important changes in its regulation stemming from the enactment of Law No. 14,112/20, which changed the Law on Recovery of Companies and Bankruptcies (Law No. 11.101/05 – LRF).

The first and important step taken by the legislator was to create, through the reform carried out by Law No. 14,112/20, the legal definition of an isolated production unit (UPI), which includes assets, rights or assets of any nature, tangible or intangible, isolated or jointly considered, including equity interests. Prior to the recent reform, the LRF did not clearly establish which assets could qualify as UPI. In practice, operations of this nature ended up covering the most diverse forms and types of assets.

The legislator was very keen to include in this modality the complete disposal of the debtor (art. 50, item xviii of the LRF), further expanding the range of possibilities to promote the recovery and satisfaction of creditors. However, the article in question states that non-submitted or non-acceding creditors must be guaranteed conditions at least equivalent to those they would have in bankruptcy. At this point, it is also worth mentioning the new provision of the LRF that authorizes the Treasury to request the convolation of the judicial recovery in bankruptcy, when it finds emptying of the debtor's assets or in cases of non-compliance with special tax installments during the judicial recovery process.

In the event of bankruptcy by substantial liquidation of the company, the disposals carried out shall be preserved and considered effective, so as not to harm the third acquirer in good faith. The proceeds of these disposals, on the other hand, should be blocked, with the consequent return to the debtor of the amounts already distributed to any creditors, which will be available to the court.

It is also noteworthy the innovation of making the sales process of UPI and branches more flexible, which no longer needs to be implemented necessarily through auction, trading or presentation of closed proposals. This made the process faster and more objective, benefiting the parties involved. Law No. 14.112/20 has expressly allowed the conduct of the process of selling assets through electronic auction (face-to-face or hybrid) and through competitive process promoted by specialized agent and of unblemily reputed reputation (in addition to any other modalities approved by the LRF). Thus, the procedure was adapted to the new reality of social distancing imposed by the pandemic of covid-19, without affecting the efficiency of the process.

The reform of the LRF also sought to bring greater legal certainty to the process of selling assets and, thus, to promote this means of recovery, by indicating that, provided that the sale of an asset by the recoverer observes the provisions of § 1 of art. 141 and art. 142, this asset will be free of any burden and there will be no succession of the acquirer in the debtor's obligations,  including, but not exclusively, those of an environmental, regulatory, administrative, criminal, anti-corruption, tax and labor nature.

In other words, the investor will be exempt from the liability and risks of succession of the recoverer in some way linked to the asset, which aims not only to increase the interest of creditors in general but, consequently, to increase the price and value the acquisition of the asset.

In any of the means permitted by the LRF, however, the Public Prosecutor's Office and public treasury shall be subpoenaed, electronicly, in accordance with current legislation and respect ing the respective functional prerogatives, under penalty of nullity. It will be interesting to follow the position adopted by the Public Treasury in the analysis of the disposal of an asset that is directly linked to a certain tax liability and/or is the subject of attachment or offered as collateral in tax liabilities.

It is not yet clear whether the previous analysis made by the Public Treasury may delay and even derail the completion of the disposal of assets, if it itself questions the disposal, coming to consider it an act of asset emptying and even, in the future, a fraud to execution, pursuant to Article 185 of the National Tax Code.^[1]

In the case of the liquidation of assets in bankruptcy situations, pursuant to Article 143 of the LRF, the right of creditors and the Public Prosecutor's Office to challenge the sale process has been preserved. If the measure is based on in the sale value of the good, only the challenges of the creditors accompanied by a firm offer of the contestor or third party for the acquisition of the good, respecting the terms of the notice, at present value higher than the value of sale, and of a deposit equivalent to 10% of the value offered will be processed.

In conclusion, the LRF, reformed by Law No. 14,112/20, brought important changes in the rules of disposal of assets in order to stimulate its realization, especially by creating a more famous and more flexible procedure and endowed with the necessary legal certainty.

^[1] Art. 185. The disposal or burden of assets or rents, or its beginning, by a taxable person in debt to the Public Treasury, is presumed fraudulent by a tax credit regularly entered as active debt.