Publications

Category: Capital markets

On April 15, The Brazilian Securities and Exchange Commission ("CVM") issued another rule to contain the impacts of the covid-19 crisis on publicly-traded companies and other companies under the agency's regulations. Resolution No. 852 extends to hotel developments subject to CVM Instruction No. 602 and to other issuers extension of deadlines already granted to publicly-traded companies for the disclosure of financial information prepared in accordance with the agency’s rules.

The other issuers benefited by the measure are business entities (other than publicly-traded companies) subject to specific obligations due to the fact that they conducted a public offering of securities under CVM Instruction No. 476 (offering with restricted distribution efforts, automatically exempted from registration with CVM).

The new resolution also improves the wording of the concessions made through CVM Resolution No. 849, especially so as to contemplate differences related to issuers with fiscal years that do not coincide with the calendar year. With the rule, the agency also revokes, as of April 20, the prerogative to request interruptions of requests for review of public offers in progress for an extended period of 180 business days (the maximum regulatory period of 60 business days of interruption will come into force).

The following is a summary of the extensions proposed in CVM Resolution 852:

1) Hotel developments subject to the provisions of ICVM 602

• Annual financial statements: 2-month extension

• Quarterly financial information: 45-day extension

2) Companies that are not publicly-traded companies and have conducted offers of securities with restricted placement efforts

• Annual financial statements: 2-month extension

For publicly-traded companies, this is the summary of the extensions proposed in CVM Resolution 849:

• Quarterly financial information: 45 days

• Annual financial statements: 2 months

• Standardized financial statements form (DFP): 2 months

• Fiduciary agent report: 2 months

• Registration form: 2 months

• Reference form: 2 months

• Report on the Brazilian Code of Corporate Governance: 2 months

The market is also awaiting the issuance by CVM of a resolution to regulate the holding of virtual meetings by publicly-traded companies. As we stated in advanced in this portal, the rules must follow the regulations already released by the DREI for privately-held companies and business entities.

Category: Infrastructure and energy

Alberto Faro and Felipe Baracat

On April 15^th, the Ministry of Economy, through the Special Bureau for Foreign Trade and International Affairs (Secint), published Resolution No. 02/2020 of the Committee on Foreign Financing (Cofiex), to amend Cofiex Resolution No. 4/2019, which deals with procedures for taking out financing with multilateral banks.

The measure is important because the financing of national and regional projects via the receipt of loans from international bodies has been seen as an alternative to confront the scarcity of funds in Brazil, especially public funds.

To give an idea, from 2014 to 2018, the volume of transactions of the CAF - Development Bank of Latin America for Brazil was US$ 7.2 billion, including financing to public banks, such as BNB and BNDES, and to states and municipalities. In 2019 alone, the CAF executive board approved lines of credit for Brazilian projects totalling US$516 million, and CAF's portfolio in Brazil currently exceeds US$1.7 billion. Fonplata - Fundo de Desenvolvimento da Bacia do Prata today has seven projects in Brazil and 13 others waiting for approval by the Brazilian government. They amount to more than US$ 200 million, which may be doubled by the year 2020.

The changes proposed by the government come at a good time, as a way to fight the covid-19 pandemic and the economic and fiscal difficulties that Brazil will face in the coming months. States and municipalities will need to have alternatives to finance policies to contain the crisis, and certainly external funding with multilateral bodies will be an important tool. At Machado Meyer, we are already assisting Brazilian entities in structuring some transactions with the specific purpose of financing projects related to the covid-19 pandemic, and the tendency is for this type of transaction to multiply in the coming months.

The objective of the changes, in force while the state of public calamity continues, is to speed up and simplify various procedures, such as evaluation and authorization of public sector projects to accelerate the raising of funds from multilateral bodies abroad by states and municipalities, public banks, and development agencies. The provisions of Resolution No. 02/2020 apply to projects using external financing guaranteed by the Federal Government.

During the term of Resolution No. 02/2020, Cofiex must review the projects and decide on approval thereof within 10 days from the receipt of each application. Previously, Cofiex decided on projects only three times per year. The criteria for review and requirements for approval have also been relaxed so as to focus on two issues: capacity for payment and technical suitability of the project.

With regard to the former, an important change is the possibility of approving projects of states and municipalities with payment capacity rated at levels C and D, considering that currently only ten states are in bands A and B. The measure favors states with major outbreaks of the disease or very affected by the crisis, such as Minas Gerais and Rio de Janeiro, which face a deep fiscal crisis, the only ones with level D, and another 14 states with level C.

The approval of the Minister of Economy for projects to restructure existing debts or improve revenue management is also waived. Before the entry into force of Resolution No. 02/2020, such authorization was necessary.

Cofiex also allowed the restructuring of transactions contracted by including more activities, provided that they contribute to the fight against covid-19 or to the softening of the situation of public calamity in Brazil. New applications must be based on a technical report and legal opinion, but will be admitted only in exceptional situations where there is a surplus of project funds.

It is worth remembering that the measures are extraordinary and will only be in force as long as the state of public calamity lasts.

Applications should be sent to the Executive Bureau of Cofiex, in the form of a letter of inquiry, via the Integrated Management System (SIGS) (www.sigs.planejamento.gov.br/sgs) of the Ministry of Economy, according to the specifications and requirements stated in the system.

Category: Capital markets

On April 17^th, the Brazilian Securities and Exchange Commission ("CVM") issued Instruction No. 622, which regulates the holding of digital general meetings for publicly-traded companies in Brazil, after a small but rich public hearing process and shortly after a similar initiative by the DREI (National Department of Business Registration and Integration) for unlisted companies.

The initiative is guided by technological neutrality and a duty of diligence on the part of companies in order to ensure the security of communications and identification of shareholders. The main differences between the standard and the draft initially proposed at the public hearing are:

• Provision for general meetings held in a partially digital manner.

• Exceptional possibility of holding general meetings outside the company's headquarters, provided that participation is provided to the shareholder at a distance (partially digital meeting).

• Possibility for the company to require prior submission of documentation by shareholders wishing to attend the meeting at a distance (the possibility of submitting the documentation at the time of the meeting in the event of a face-to-face meeting has been maintained) and the feasibility of digital filing for this purpose.

• Provision that the system used by companies enable communication between shareholders.

• Possibility of remote participation by officers and directors and other persons (e.g., auditors and audit committee) in meetings held partially or exclusively digitally.

• Record of attendance of shareholders participating at a distance by the chairman and secretary of the meeting.

The possibility of remote participation must be included in the notice calling the meeting, which must also detail the procedures for registration for, access to, and use of the system for participation in the meeting.

The use of ballot papers at a distance is still allowed in any type of general meeting. As was the case before, a subsequent submission by the shareholder via face-to-face or digital participation will replace the content of any ballot paper previously submitted.

As for the main technological requirements, companies should note that:

• the system allows shareholders to simultaneously access any documentation presented at the meeting and not presented before, as well as to provide the shareholders' submission.

• shareholders must have the means to communicate with each other.

• the meeting must be fully recorded.

The Company may also broadcast its general meeting in widely accessible means (such as investor relations websites and social networks), even if digital participation is not allowed.

Exceptionally, for meetings already called at the time of publication of the new regulations (a scenario in which various OGMs of publicly-traded companies fit), it will be allowed to hold them partially or fully digitally, by means of disclosure of a relevant fact with the information to access the meeting at least five days before the meeting (or one day before meetings held before April 30, 2020).

Machado Meyer has been interacting with companies that may provide these services to their clients.

Category: Tecnology

Bill No. 675/20, approved by the Brazilian Chamber of Deputies on April 9, inserts a transitional provision in Law No. 12,414/11 to prohibit the recording of credit history information of individuals or companies in a database during the covid-19 pandemic.

Authored by Denis Bezerra (PSB-CE) and Vilson da Fetaemg (PSB-MG), Bill 675/20 aims to prevent consumer credit reviews from being hampered by cash flow problems caused by the coronavirus crisis, which would lead to the rejection of applications for credit.

The Bill proposes the suspension of recording of negative consumer information and the effects of such information on records maintained by credit bureaus, which are responsible for conducting financial analysis and providing information for decisions on the granting of financing. However, recordings done after the decree of the state of public calamity may only be suspended through Legislative Decree No. 6 of March 20, 2020.

Due to the new scenario brought about by the covid-19 pandemic, which restricted the circulation of people, changed the functioning of various sectors of the economy, and affected workers and business owners, the Brazilian Chamber of Deputies considered the proposal advisable and timely. In this sense, the Bill prevents the history of "good payers" (those who have a positive credit score) from being harmed by any defaults occurring during the crisis period.

The Bill also provides that breach of the new measures by credit bureaus will be subject to the sanctions provided for in the Consumer Protection Code. The amounts collected with any fines will be allocated to combatting covid-19.

If the President of Brazil signs the Bill, the suspension of new records and the effects of records will be valid for 90 days, from March 20, 2020, and may be extended by an act of the National Bureau of the Consumer (Senacon), of the Ministry of Justice.

Category: Intellectual property

In order to facilitate access to financing and improve rural credit, Executive Order No. 897/19 (the Agro MP) was converted into law on April 7, with the publication of Law No. 13,986/20.

From the original text of the bill, five articles were vetoed by President Jair Bolsonaro, with emphasis on articles 55 to 60, which dealt with concessions of rebates, discounts, waivers, and changes to deadlines for debt renegotiations.

Law No. 13,986/20 has a very significant scope, encompassing various areas of agribusiness related to financing and rural credit. Among the main innovations brought about by the law, the following stand out:

• Establishment of the Solidarity Guarantee Fund (FGS). Through the FGS, credit transactions carried out by rural producers and financing for the implementation and operation of rural connectivity infrastructure are guaranteed by funds paid in by the participants. These funds, notwithstanding the nature of a debt or obligation, will not secure other debts or obligations, present or future, taken on by the participants. The objective is to facilitate the granting of guarantees to creditors and, consequently, to extend loans to agricultural producers.

• Creation of Segregated Rural Property. The owner of a rural property may submit it to segregated asset system, which will be the collateral for the issuance of Rural Product Notes (CPR) or in financial transactions taken on by it through the issuance of Rural Property Notes (CIR), mentioned below. The assets segregated (e.g.: land, additions, and improvements) cannot be accessed by various creditors, except in the case of labor, tax, or social security debts. Normally, assets and rights that are part of the segregated rural estate are not linked to the other assets, rights, and obligations of the owner's general assets or of other segregated rural assets created by it, and the owner may create the fund partially or totally over the rural property.

• Establishment of the Rural Property Note (CIR). The CIR is a book-entry, transferable, and freely traded credit instrument, representing: (i) a promise of payment in cash arising from a credit transaction and (ii) obligation of delivery to the rural property creditor (or fraction thereof) linked to the segregated rural asset, and that is a guarantee of the credit transaction mentioned above. Precisely because it is linked to the segregated rural asset, the CIR will be guaranteed by part or all of the asset. The clear objective of the CIR is to allow access to the regulated securities markets by expanding financing and credit transactions.

• Amendments to the Rural Product Note (CPR). The list of those permitted to issue CPRs has been expanded. According to article 2 of Law No. 8,929/94, the issuance may be done by rural producers (whether individuals or legal entities), cooperatives, and rural producer associations. Essential requirements have also been amended and added to the note, in accordance with article 3 of the law. The issuance of CPRs in card or book-entry form and securities in foreign currency was also permitted, which stimulates the entry of new investors into Brazil.

• Creation and execution of real guarantees. Attending to the longstanding wish of foreign companies or domestic companies equated to foreign companies, the final provisions of Law No. 13,986/20, paragraph 2, of article 1 of Law No. 5,709/71 was amended so as to allow a real guarantee to be created in favor of a foreign party (including fiduciary sale) having as its subject matter rural properties. The foreign party may also receive, in the settlement of transactions, rural property through a real guarantee, accord and satisfaction, or any other means.

The expectation is that the innovations brought in by the law will represent a transformation in the agricultural scenario, stimulate advances, attract investments (including foreign investments), and modernize the industry. Some industries, however, have provided criticisms of the text, including due to its breadth.

Category: Public and regulatory law

Decree No. 10,306/20, enacted on April 2, establishes the use of Building Information Modeling (BIM) in the direct or indirect execution of engineering works and services by the federal government. Although not immediately related to the covid-19 crisis, publication of the decree in the context of the pandemic deserves to be highlighted not only because of the importance of the issue for contracts relating to public works and other engineering services, but also because of the pressing need for emergency construction.

Our firm, represented by the authors of this article, has formally contributed to the technical and legal analyses that underpin the text of the decree during the works in cooperation between the former Ministry of Development (MDIC) and Unesco. This allows us to understand the application of BIM from the outset, both for more efficient construction of hospitals and other public health equipment, possibly as an important tool to fight the pandemic, and to accelerate a form of knowledge with truly transformative potential for the uses and customs in the engineering and construction markets.

What is BIM and what is its legal relevance

In the definition of the decree, the BIM, also called Building Information Modeling, consists of a "set of integrated technologies and processes that allows the creation, use, and updating of digital models for a construction, in a collaborative manner, that serves all the participants of the development, at any stage of the construction life cycle."

The application and requirement of BIM does not inaugurate new concepts and existing contracting arrangements. Building Information Modeling represents, in fact, an integrated way of designing and managing construction in all its phases. It prevents the segregation of information produced, for example, by designers and managers of the implementation, expansion, and rehabilitation of works. BIM promotes communication between the life cycles of construction, from the conception of the project, replacing the traditional forms of engineering and architectural design and making the implementation of public works more efficient in the long term.

The implementation of BIM in Brazil was idealized by the Executive Branch two years ago, with the institution of the National BIM Dissemination Strategy (Decree No. 9,377/18) and the BIM Strategy Management Committee (Decree 9,983/19). Although it becomes binding for some agencies and entities of the Federal Government, and even of states and municipalities contemplated with transfers of funds from these same agencies and entities, as will be seen below, the decree allows for the dissemination of knowledge and, above all, security so that managers may make immediate use of the tool without the fear of being questioned by the supervisory agencies.

Agencies and entities initially covered

The decree is based on the value of legal security: in addition to supporting the decisions of public agents regarding procurement of engineering works and services with the use of BIM, the federal government signals to the players in the engineering and construction industry staggered and long-term scenarios, since BIM will be required gradually, with progressive expansion of its uses for the purposes of direct and indirect execution of engineering works and services. Thus, the markets and the related Government entities themselves will have almost eight months to adapt to the possible effects of the mandate, avoiding surprises.

The first phase of the dissemination of BIM begins to have binding force on January 1, 2021, covering only a few agencies and entities. The decree establishes the effective requirement to adopt BIM for: (i) the Ministry of Defense, through the activities executed in the real estate jurisdictions of the Brazilian Army, the Brazilian Navy, and the Brazilian Air Force; and (ii) the Ministry of Infrastructure, through activities coordinated and executed by the National Bureau of Civil Aviation (for investments in regional airports) and the National Department of Transportation Infrastructure (DNIT), for the reinforcement and structural rehabilitation of special works of art.

In addition to the agencies and entities of the Federal Government directly covered, the gradual use and requirement of BIM will also have effects on agencies and entities of any sphere of government, public consortium, or non-profit entity that enters into, with the agencies and entities covered, instruments of transfer of funds from the fiscal budget and social security of the Federal Government. Thus, state and municipal agencies and entities that receive funds from the Ministry of Defense or the Ministry of Infrastructure (and their related agencies) should also start using BIM in early 2021.

In addition to these covered agencies and entities, and without prejudice to future decrees extending such class of addressees of the respective rules, the decree allows any agency or entity of the Government to apply BIM, in any of its uses, regardless of the stages of dissemination of the methodology.

Mandatory uses of BIM and escalation

The agencies and entities initially covered should publish, within 90 days, an act to qualify the developments, programs, and initiatives of medium and large relevance to the dissemination of BIM, detailing the specifications thereof and the other characteristics necessary for their application in the three phases of dissemination of BIM.

The first phase, which will begin on January 1, 2021, will cover only some uses of BIM, specifically related to the preparation of architectural and engineering plans and related matters concerning new construction, expansion, or rehabilitation considered of great relevance for the dissemination of BIM. This phase will involve: (i) the guidelines for structures, hydraulic installations, heating, ventilation and air conditioning installations, and electrical installations; (ii) the detection of physical and functional interferences between the various guidelines, and the review of architectural and engineering models, for compatibility purposes; (iii) the extraction of quantities; and (iv) the generation of graphic documentation, extracted from the models referred to in subsection I of article 4 of the decree.

On January 1, 2024, the second phase will begin, in which it will be mandatory to use BIM in the direct or indirect execution of architectural and engineering projects and in the management of works related to new constructions, renovations, extensions, or rehabillitations, when considered of great relevance for the dissemination of BIM. It will cover at least (i) the uses provided for in the first phase; (ii) the budgeting, planning, and control of the execution of works; and (iii) the updating of the model and its information as built for works whose architectural and engineering projects have been carried out or executed with application of BIM.

The third phase, to be started on January 1, 2028, also covers enterprises considered of medium relevance for the dissemination of BIM. For the uses provided for in the prior phases, the management and maintenance of the devleopment will be added after its construction, whose architecture and engineering plans and whose works have been developed or executed with the application of BIM.

The decree and procurement of projects and works

The requirement to use BIM in one or more stages of the life cycle of buildings, according to the decree, aims to achieve (i) the direct execution of engineering works and services, i.e., made by the agencies and entities of the Government, by their own means (article 6, VII, of Law No. 8,666/93); and (ii) the indirect execution of engineering works and services, in which the agency or entity contracts with third parties (article 6, VIII, of Law No. 8,666/1993). In the event of contracting with third parties, the respective notice and/or contract will impose on the contractor the obligation to apply BIM, in accordance with the requirements of the decree. In addition, the bid notice should clarify the level of detail of the work expected with the application of BIM.

The decree establishes minimum contractual obligations for third parties that are already usually required, especially in engineering services. The concern was to make it clear that adoption of the methodology does not diminish the obligations of the contractors, aside from demanding that the uses of BIM be effective and exclusively followed in the execution of the works.

The provisions of the decree reflect the normative content of the main laws on public procurement and administrative contracts, from the obligations of the contractors in the uses of BIM to the use of nomenclature and the level of detail and information required for the preparation of engineering and architectural plans. This care shown by the provisions of the decree contributes to its feasibility. It also improves the application of public law in the preparation of architectural and engineering plans, the execution of works, and the management and maintenance of completed developments, as it defines and standardizes the methodology, technology, or process required of public managers in these activities.

In addition to the engineering documents recognized by the laws and regulations in force (preliminary design, basic design, and executive design), BIM will now reach all other engineering documents that may be prepared by this methodology. This means that the provisions of the decree may be implemented in other stages or levels of detail for a work or design recognized by the best engineering practices and especially by the application of BIM, called by architects and engineers, among other specialists, a preliminary study, feasibility study, or legal design, among others. Considering the lack of legislative treatment in such cases, the decree provided that these other design levels, when contracted, should meet the minimum parameters established in the decree, the best practices for the execution of workflows with the use of BIM, and the provisions of the relevant technical standards.

In order to enable transition to a new model, when necessary, the decree allows agencies and entities covered by it to contract engineering services to adapt architecture and engineering plans to BIM (at any level of detail), previously prepared with the use of other processes or technologies.

The positive externalities of BIM for public works

The use of BIM allows one to virtually create an environment capable of simulating the construction in all its complexity: architecture, foundations and structure, ceilings and roofs, plumbing and electrical installations, among others. The interaction and coordination component helps to prevent and correct potential problems before the construction stage. In other words, the interaction activities of the agents involved allow any inconsistencies to be identified and corrected before the presentation of the necessary documents and, above all, before the implementation work is carried out.

Therefore, in the development of plans with the BIM methodology, the concentration of decisions takes place in the phase before the work stage. This process demands more action from complementary designers (of facilities, structures, interiors, etc.), assemblers, manufacturers, and suppliers in the initial stages of projects, which, in conjunction with the virtual simulation capacity through the BIM platform, allows greater cohesion and consistency after the initial stages. These, in turn, may require greater allocation of resources and investments with BIM than with current techniques. This characteristic facilitates, above all, qualitative changes in contracts and processes of economic and financial rebalancing, automating the relevant calculations and providing greater safety and protection against deviations and malfeasance in these processes.

Thus, the concentration of efforts in the initial phases allows for greater definition of the project, reducing uncertainties, interference, and rework, on the one hand, and increasing the accuracy of the development, on the other. In the BIM methodology, therefore, efforts are transferred to the initial stages, anticipating risks that could arise later in the execution stage of the works. Prior visualization of potential inconsistencies in the development of the work allows one to optimize the schedule and planning of the work, reducing the need for entering into addenda, in addition to efforts and costs (waste) in later phases.

The decree recognizes that the Government’s obsession with the lowest price as a criterion for selecting the best bid in public procurement must be overcome. A more complex cost-benefit analysis is proposed, which goes beyond the economic and financial disbursement at the time of procurement of the project to cover responsibility throughout the life cycle of the development contracted. In this new sense for cost savings, BIM contributes to enabling the Government to achieve a better cost-benefit ratio in procurement of engineering works and services.

In short, the aggregate efficiency with the use of BIM helps to confront this moment of crisis, when public works gain particular relevance: on the one hand, they may be executed in an emergency, which generates additional burdens and cautions for public managers and even for contractors, and on the other, they have the mandate to leverage the recovery of the economy, at a time when the State is exercising its purchasing power to generate jobs and disseminate new technologies and knowledge.

BIM also increases transparency, security, and compliance in the State's contractual relations with private parties, and can serve as a basis for rebalancing, rescheduling of investment, and renegotiation proceedings, which, if already natural in normal times in the engineering and construction markets, should increase with the effects of the covid-19 pandemic.