Publications

Category: Environmental

Eduardo de Campos Ferreira, André Ferreira de Castilho, and Isabel Monteiro de Barros Alfano

MAPA Ordinance No. 42/20, published in February, submits for public consultation a new proposal for a decree regulating the National Seed and Seedling System (SNSM), established by Law No. 10,711/03. The public consultation is scheduled to take place by April 4. The draft of the new decree seeks to update the regulation of legislation on seeds to new technologies and market realities, following the trend of the current administration to seek simplification of procedures and speed up regulatory approvals, as we discussed in an article on this portal. There was a significant increase in the number of defined terms, from 22 to 56. Many of the changes in the proposal for a new regulation are related to these new terms, which gives the text more technical precision and updates it according to the new technologies applied to seeds.

The topics that presented the most changes were those related to the National Seed and Seedling Register (Renasem). Firstly, import and export activities no longer requires registration with Renasem. In addition, the intent is to extend the possibility of exemption from registration to people who multiply seeds or seedlings only for distribution, exchange, and marketing and sale, also covering those who do so to meet government programs. Also included is exemption from registration with the Renasem for those who market and sell or import seeds or seedlings exclusively for domestic use or for their own use on their property or on property they own. An amendment is also planned concerning the registration of persons with various units: the option would be introduced to register in Renasem only the head office of the legal entity or the main unit of the individual.

The validity of Renasem registrations will increase from three to five years, and may be renewed until the expiration date. It may be inferred from the proposed text that, once a request for renewal has been filed, it would be done automatically, but no express provision to that effect has been included in the proposal.

Other changes to the proposal concern audits. In the prior decree, only actions resulting from delegation of authority would be subject to regular audits. The draft of the new regulation provides for audit not only of processes, procedures, and activities of the entities receiving such delegation, but also of the persons registered or accredited with Renasem. It is noted that the new decree intends to give more relevance to regular audits, with emphasis on the process of reducing bureaucracy, in order to optimize the state inspection process. In any case, there are still specific situations where audits could be applied. Along the same lines, the proposed new wording expresses the flip side, that the certifying bodies take responsibility for issuing seed and seedling certificates.

In relation to the fines imposed in a proportional manner, a minimum percentage was established, and it is no longer possible to impose a fine of less than 5% of the commercial value of the product. Nevertheless, the supervisory body's margin of discretion in imposing fines was maintained. It is anticipated that if the product subject to the fine has not been sold, the applicable fine may be reduced by 20%. Also, in article 162 of the suggested draft, the minimum and maximum amounts of fines fixed for certain infractions were doubled with respect to the prior ones for the following ranges: (i) from R$ 1,000 to R$ 4,000, for minor infractions; (ii) from R$ 4,001 to R$ 12,000, for serious infractions; and (iii) from R$ 12,001 to R$ 36,000, for very serious infractions.

The draft decree seeks, mainly, to update concepts and technologies, in addition to simplifying the regulations, transferring to the administrative rules (normative instructions, ordinances, resolutions, etc.) the possibility of detailing procedural issues and skipping steps considered bureaucratic even in administrative procedures. On the other side of the coin, the time limits for submitting a defense and lodging an appeal, as well as for the competent authorities to conduct a review, have been extended.

After public consultation, the General Bureau of Seeds and Seedlings will evaluate the suggestions received and make the pertinent adjustments, taking into account compliance with other legal dictates and the relevance and positive impact of the suggestion to the implementation of the National Seeds and Seedlings System.

Category: Restructuring and insolvency

The covid-19 pandemic has severely affected the economy on a global scale. In Brazil, the expectation in this scenario is that a new cycle of judicial reorganizations and bankruptcies will break out. More than that, the cases in progress may be affected by the disturbances caused by the coronavirus.

For companies under judicial reorganization, the impacts of the pandemic make the debtor's situation even more delicate, due to the impediments caused by imports/exports, the decrease in domestic production, and the drop in consumption, in a real chain reaction.

Especially in the judicial reorganizations already initiated, it is noticeable that there are two main distinct groups: (i) reorganizations with judicial reorganization plans not yet approved, which are concerned about a possible delay in the proceeding due to the new crisis; and (ii) reorganizations with plans in force, which may face difficulties in fulfilling the obligations restructured.

For the first group, the problem arises essentially from the need for isolation during the quarantine period. How do you hold a General Meeting of Creditors (AGC) when health agencies and institutions around the world, including the World Health Organization (WHO) and the Brazilian Ministry of Health, recommend that people stay in their homes and avoid crowds?

In some cases, debtor companies requested an extension of the stay period and postponement of the AGC, due to the impossibility of holding it. An example is the case of the judicial reorganization of Laboratório Bioclínico Nasa, which is being processed in one of the specialized courts of the Judicial District of São Paulo/SP.[1] In that case, the judge granted the application for reorganization, with an express observation that the solution is in accordance with the measures to avoid the spread of the virus and that the situation is not a matter of the debtor's negligence.

In the judicial reorganization of the Odebrecht Group, currently the largest in Brazil,[2] Judge João de Oliveira Rodrigues Filho granted a continuation of the AGC through a digital platform, accepting the suggestion by the judicial trustee and the request by the debtors in possession. The virtual AGC is scheduled for March 31st, and the judicial trustee of the Odebrecht Group will be responsible for providing the appropriate IT solution for the meeting. It will also provide technical support to the participants, following all the necessary formalities for the holding a face-to-face AGC and guaranteeing to the creditors the right to speak and vote.

This is an innovation, which is even provided for in Bill No. 6,229/05 (called a "substitute"), presented by Deputy Hugo Leal to reform the Business Reorganization and Bankruptcy Law (Law No. 11,101/05). In fact, the substitute bill proposes, among various amendments and additions, the addition of paragraphs 4 to 7 to the current article 39 of the Business Reorganization and Bankruptcy Law, expressly providing for the possibility of holding AGCs by virtual means. This would greatly facilitate meetings of creditors and increase the quorum for meetings, avoiding travel costs, especially when we consider that sometimes various meetings are necessary until final approval of the plan is obtained.

However, as today there is no express provision of law regarding the possibility of a virtual AGC, there is still a clear preference for in-person AGCs, and the virtual modality has an exceptional nature, which can be inferred from the decision by the judge presiding over the Odebrecht Group's judicial reorganization. He himself, incidentally, for the time being, rejected the virtual AGC in the judicial reorganization of the Atvos Group, finding that the continuation of the AGC is scheduled for April 16, and the quarantine, in turn, is scheduled to end on April 7 (according to State Decree No. 64,881, of March 22, 2020). Therefore, "there is still the possibility of continuing the AGC in the traditional manner, and, at this moment, the need to impose the extraordinary virtual methodology for the work of the meeting has not been shown", as the judge stresses.

As for judicial reorganizations with plans already approved, the issue is somewhat more complex. With the abrupt slowdown of the world economy and the negative revision of economic growth prospects, compliance with obligations contained in some approved plans may be at risk, especially for the sectors most affected.

The JAC Motors Group's judicial reorganization[3] is an example of this, as the debtors in possession have claimed that they depend on importation of cars from China in order to conduct their business. According to them, the paralysis of imports from that country and the significant increase in the value of the U.S. dollar have worsened their financial situation. As a result, the JAC Motors Group, after having had its reorganization plan approved at the AGC held on September 5, 2019, requested the holding of a new AGC. The objective is to approve an addendum to the plan in order to reduce short-term payments, in particular obligations due in 2020. The holding of this new AGC was granted by the Court, but is suspended due to the covid-19 pandemic.

In other cases, the Judiciary has adopted a more protectionist, although controversial, stance regarding the business activity, granting new payment terms, releasing funds, or exonerating debtors from obligations for a certain period, regardless of creditor approval.

As an example, we cite the following cases: (i) Locadora de Caminhões Mônaco,[4] for which the 1st Civil Court of Itaquaquecetuba/SP granted its request to pay only 10% of the debt claims of the labor class scheduled for the months of April and May of 2020; (ii) Grupo Unidas,[5] for which the 2nd Civil Court of Caçador/SC granted withdrawal of funds arising from a sale of assets, previously allocated to the payment of debts with the Guarantee Fund for Time of Service (FGTS), for the payment of expenses with employees in April and May of this year; and (iii) Unigres Cerâmica,[6] which requested an injunction to guarantee the supply of gas and electricity by the respective concessionaires, regardless of the payment of the amounts in arrears, on the argument that a drop in sales has prevented the company from meeting its obligations. The in limine injunction was granted by the 3rd Civil Court of Limeira/SP, which granted the debtor in possession 45 days to pay the debts.

All these emergency and exceptional solutions are subject to questioning, running up against the limit of state interventionism and the Judiciary, especially because they involve matters for exclusive resolution by creditors or even because they concern obligations not subject to the judicial reorganization plan.

Thus, it seems to us that such extraordinary concessions should be adopted with parsimony and with clear restrictions (including time restrictions), under penalty of serious legal insecurity, which is often a factor that scares away resources and investments in Brazil, further aggravating the prospect of a recession.

In our view, it will be incumbent on legal professionals and the market to work towards an equalization, negotiating a true balance of the interests at stake in a bankruptcy proceeding, such as judicial reorganization. Furthermore, the debate on the reform of the Judicial Reorganization and Bankruptcy Law is urgently under way, with a view to adapting current legislation to current times, but always respecting the legal security necessary.

[1] Case No. 1026155-53.2019.8.26.0100.

[2] Case No. 1057756-77.2019.8.26.0100.

[3] Case No. 1113802-23.2018.8.26.0100.

[4] Case No. 1006707-50.2016.8.26.0278.

[5] Case No. 0301182-10.2016.8.24.0012.

[6] Case No. 1003714-05.2016.8.26.0320.

Category: Labor and employment

Executive Order No. 927/20 (MP 927/20), published on March 22 with a series of measures to preserve employment and income during the covid-19 pandemic, allows employers to grant early vacation (individual or company-wide) to workers in order to maintain employment during the current scenario of public emergency and reduce the impacts of the crisis on Brazil's economy.

Annual vacation is a fundamental right of the employee, but the choice of the time when it can be enjoyed is up to the employer, according to its needs (articles 2 and 134 of the Consolidated Labor Laws - CLT). The current scenario of social distancing and falling economic activity represents a period in which the granting of vacation meets the interests of the employer, in view of the need, in most cases, to keep all employees working as normal.

In addition, it is possible to predict that, in certain sectors, when activities return, the employer will need, more than ever, its entire workforce in order to try to minimize the negative impacts of the crisis, increasing its production and sales volume, among other actions. By granting vacation to their employees at this time, employers can count on having their entire staff for a long period, even 12 months, to return to work and try to reduce losses.

It is possible, however, that companies have not scheduled the granting of annual vacation at this time, which may have negative implications for cash flow. MP 927/20 then presents two alternatives to reduce the financial impacts of accelerating vacations: (i) extension of the deadline for payment of holidays until the 5th business day of the month following the beginning of the vacation period; and (ii) possibility of payment of the additional 1/3 premium on vacation until 12/20/2020.

Reflection on the advantages of granting vacation in the current period is valid, especially considering that companies may need to keep their workforce fully active when they resume their activities.

It is worth remembering that not granting vacation within 12 months from the date the employee acquired the right entails payment by the employer of double remuneration. Therefore, if it is necessary to keep all employees for a long period of time after resuming their activities, it is recommended that companies identify the accrual periods for vacations and evaluate the advantage of granting them now.

It is also important to keep in mind that employees may need to change their vacation plans, including rescheduling or canceling trips, due to the need for acceleration. When future vacations have already been approved by the employer, it is recommended that one analyze cancellation and acceleration thereof on a case-by-case basis in order to avoid possible material damage to employees.

The precedents of the Labor Courts, especially Normative Precedent No. 116 of the TST, are to the effect that, once an employee is informed of the period of an individual or company-wide vacation, the employer may only cancel or modify the start date reported if there is an overriding need and, even so, upon compensation for the proven financial losses of the employee.

Thus, although employers use force majeure to justify changes in the start dates of vacations already communicated to employees, prior case law points to the duty to reimburse losses incurred by employee as a result of such a decision. In any event, since this is a patent state of public emergency, it is possible that this jurisprudential position will be relaxed, depending on the review of the specific case.

It must also be taken into account that acceleration may lead to consecutive years of work without the employee taking a vacation. In addition to possible risks related to the employee's health, this may generate future debates regarding the validity of acceleration granted by means of an individual agreement, due to possible distortion of the purpose of the provision of "annual vacation", which is guaranteed by the Federal Constitution in its article 7, XVII.

From the legal point of view, when a condition of force majeure is established, there is no loss to the parties, because the fundamental right to annual vacation remains preserved, as does the employer's prerogative in particular, including via a reduction in bureaucratic procedures and an increase in the time frame for payment of remuneration (click here to see an e-book on the subject).

Category: Aviation and shipping

Since December of 2019, there has been talk about the spread of the coronavirus. The countries most affected initially were the first to feel the blow to the airline sector due to the cancellation of flights and the closure of airspace and borders. The situation quickly spread and, in a cascading effect, led to a scenario of calamity for this market on a global scale. Without a doubt, airlines are experiencing the worst crisis in their history, more serious, far-reaching, and long-lasting than that caused by 9/11 and the 2008 financial recession.

In the Brazilian scenario, it could not be otherwise. The increase in the value of the U.S. dollar, which in itself already raises the fixed operating costs of the industry, were combined with a rapid exponential drop in the demand for flights of all airlines and in movement of passengers in airport terminals. The result: airlines were forced to cancel numerous flights, relocate passengers, and leave their aircraft grounded.

In order to reduce the pernicious consequences of the covid-19 pandemic for the airline market, which may even culminate in the insolvency of companies in the industry, more than ever it will be necessary to rely on governments and other stakeholders to support the survival and rebuilding of the industry.

On March 18, the federal government published Executive Order No. 925/20, which provides for emergency measures for Brazilian civil aviation due to the covid-19 pandemic. Among them, the following are noteworthy: (i) extension of the deadline for payment of fixed and variable contributions in airport concession contracts until December 18, 2020; and (ii) establishment of a 12-month deadline for reimbursement of amounts paid to purchase airline tickets - consumers are exempt from contractual penalties if they accept the credit for use of the ticket within 12 months.

The measures are relevant to relieve airlines' cash flow in the short term, as they extend the deadline for payment of airport charges and compensation for cancelled flights, but they do not seem to be sufficient in view of the seriousness of the situation and the vagueness surrounding the industry’s return to regular operation.

Considering that the airline industry is complex, involves various players, namely financing companies, lessors, manufacturers, airlines, consumers, airport operators, and suffers the consequences of the volatility of oil prices and the value of the U.S. dollar, other initiatives likely need to be adopted in order for the industry to survive this period of crisis.

As it is one of the highest cost and lowest margin industries in the world, it may be anticipated that there will be an impact on aircraft leasing and financing arrangements and it will be necessary to renegotiate terms and conditions for such operations. In addition, the federal government will most probably have to intervene and provide assistance to airlines, both in financing and facilitating credit as well as in granting tax benefits and even possible reduction in applicable airport charges.

In the coming months, it is likely that the act of God and force majeure provisions of aircraft financing and leasing contracts will be triggered and the terms of such documents will have to be renegotiated.

This is an unprecedented global situation, which will require a joint effort of shareholders, airlines, financiers, consumers, and airport operators, in order to ensure continuity in the provision of a public service so relevant to the reduction of distances in today's society and to the development of various activities, such as tourism, medicine, cargo, and transportation of people, among others.

The announcement by BNDES of emergency credit lines for the industry on March 22 is therefore to be welcomed. This type of action, concrete and agile, may tip the scales between survival and disappearance of companies in Brazil.

Similar measures are being taken in other parts of the world, based on a shared view that the crisis is serious, but global economic activities will eventually return to normality and air transport will once again be essential, as always. Times of heavy turbulence must be crossed by looking at clear skies in the not-too-distant future.

Category: Corporate

State Decree 64,879/20, published on March 21, recognized a situation of public emergency in the state of São Paulo, and mandated additional restrictive measures to tackle it. Among other measures, in-person service at the São Paulo State Board of Trade (Jucesp) was suspended.

Between March 23 and April 30, 2020, Jucesp will act only through its online platform, which, in general terms, offers the following services:

• electronic opening of companies
• searching and looking up companies, registration forms, and company names
• obtaining certain certificates and copies of scanned documents.

Opening of a company in electronic form is only available to individual entrepreneurs, Eirelis, and limited liability companies, and requires the adoption of the standard Jucesp articles of association/instrument of incorporation (which may be amended and adjusted to specific needs later).

Although it is not possible to obtain a physical filing during the in-person restriction period, in principle there is no prohibition on having the other forms necessary for filing corporate acts in general to be issued as normal. This prevents them from accumulating pending the physical reopening of Jucesp and allows them to be presented and physically recorded as soon as service is fully restored.

Jucesp also extended the deadline for fulfilling requirements without the need to pays new fees, after 30 days of notice.

As a general rule, corporate acts and documents produce effects between the parties when they are signed. They must be filed with the respective board of trade within 30 days of signature in order to ensure retroactivity of such effects also in relation to third parties. If this time limit is not observed, the filing shall be effective vis-à-vis third parties only after the order granting it. In any case, for urgent acts, corporate acts will be valid upon signing at least between the parties.

We summarize below the information provided thus far by some boards of trade from other states regarding their arrangement for operation as a result of the covid-19 pandemic. Some of them already offer more comprehensive digital services.

Category: Competition

The covid-19 pandemic has had an impact on the actions of the Administrative Council for Economic Defense (CADE) in the application of Law No. 12,529/11 (the Antitrust Law). The agency has maintained its activities with some adaptations in routine. Much of the staff is working remotely, meetings and hearings have been held by video or teleconference, and the Administrative Tribunal is discussing the possibility of holding trial sessions virtually.

In view of Executive Order No. 928, of March 23, CADE has clarified that there will be no procedural deadlines to the detriment of parties investigated in Administrative Proceedings for Imposition of Sanctions for Violations of the Economic Order; Administrative Proceedings for Investigation of Mergers (Apac) and Administrative Proceedings for Imposition of Incidental Procedural Sanctions. However, the agency will continue its work in such cases, performing the procedural acts assigned to it.

The deadlines for merger review will continue to run as normal. Further, the deadlines in administrative inquiries; preparatory procedures; leniency agreements; Consent Decrees (TCC); Merger Control Agreements (ACC); Performance Commitment Agreements, and Consultations will run for CADE and the parties.

The president of the agency, Alexandre Barreto, clarified in a recent note that CADE is aware of the difficulties that all sectors are going through and will be reasonable in the review of specific claims brought to its attention, including requests for extension of deadlines. He also said that CADE will remain vigilant to prevent abuse and will be agile in helping reheat the economy as soon as possible.

In light of this scenario, we address below perspectives in the areas of control of antitrust practices and merger reviews.

Control of conduct

With respect to the control of antitrust practices, it is important to keep in mind that CADE’s statement does not imply relaxation of the application of the Antitrust Law, as has already occurred abroad. The British authorities, for example, have formally announced their intention to not take action against legitimate cooperation between companies, but they will not tolerate unscrupulous measures which use the crisis as an excuse for "non-essential collusive practices".

Competing companies that need to discuss cooperation mechanisms to face the crisis in Brazil, such as planning to increase production, buy inputs jointly, share production or distribution assets, or share certain operating costs, should seek specialized legal advice to assess both the risks involved in the plan, which will largely require a corresponding justification, and the absence of less harmful alternatives to competition, and the measures available to mitigate them.

In this context, it is possible to consider the execution of an "antitrust protocol", a common practice in M&A transactions, to clarify what can and cannot be discussed; to regulate the flow of sensitive information, such as costs, level of downtime, volume of products in stock, main suppliers and the terms of contracts entered with them; and restrict the set of executives or employees who may have access to such information, under confidentiality and non-disclosure agreements.

The crisis may be so deep in some industries, such as aviation, that lasting cooperation mechanisms between competitors may be needed. In situations of this nature, the need to submit such arrangements for prior approval by CADE should be assessed, understood as being those with a duration of two years or more and those that establish a common enterprise for conducting economic activity, provided that they establish sharing of risks and results from the economic activity for which it is intended.

It is also possible to assess the advisability of submitting a consultation to CADE's Administrative Tribunal regarding the legality of acts, contracts, or business strategies designed to get through the crisis. The maximum statutory time limit for adjudicating such cases is 120 days, counting from the assignment of the consultation to a commissioner for an opinion. However, the average review time for the most recent consultations is approximately 60 days, and there have been cases that were reviewed within only 14 days, an agility expected from CADE in similar proceedings in the context of the pandemic.

It should not be expected, however, that CADE will tolerate so-called "crisis cartels", that is, agreements between competitors in a specific market in order to restrict production and/or reduce capacity in response to a crisis in the industry caused by a national, global, or industry economic downturn, which involves decreased demand and excess capacity.

Nor should one expect CADE to assent to abusive practices. The agency does not have the power to regulate prices, but it can investigate companies that charge excessively high prices, even though it has traditionally shown greater concern with practices that involve creating difficulties for competitors rather than exploiting consumers. This is largely explained by the complexity of establishing a criterion for measuring what an abusive price would be, i.e. what percentage, margin, or final price charged could be considered abusive. However, faced with a sudden increase in demand for certain products related to the prevention of covid-19, which have seen an exponential increase in prices, CADE has already announced and begun an extensive investigation into the subject, and is collecting information from health departments, manufacturers of medical and pharmaceutical products, hospitals, distributors, and retailers. It is possible that similar investigations in other industries will be initiated.

The pandemic may also affect the progress of negotiations regarding leniency agreements and consent decrees (TCC), and even the fulfillment of agreements already entered into.

An internal investigation of companies may suffer delays due, for example, to the limitation on in-person meetings and access to files saved on equipment at the residence of employees working remotely. There may also be bottlenecks related to the delivery of documents to CADE, which occurs in person due to confidentiality concerns. Overcoming this obstacle, the review period for documents and reports submitted to CADE may also be longer than usual. In view of this, it is advisable to renegotiate terms with CADE or even request suspension of the negotiation progress.

Renegotiation may also be necessary in cases of TCCs already entered into and with monetary or behavioral obligations. Companies may be unable to make timely payment of installments for their contributions within the time period set, usually up to two years or, exceptionally, four years or more. They may also face unforeseen obstacles in fulfilling non-monetary obligations, such as the implementation of compliance programs, due to restrictions on in-person training, executive travel, for example, as stated by the companies Basso and Valbrás in a recent brief presented to CADE. In such cases, it is of utmost importance that the signatories of TCCs seek to negotiate with CADE in advance in order to avoid the risk of a daily fine for non-compliance with the agreement and ultimately losing the benefits of the TCC.

Merger Control

Current circumstances point to the possibility of increasing the time for approval of transactions and the need for careful reflection by CADE on the impact of its decisions.

The remote work adopted by many companies may affect the collection of data necessary for notices, briefs as an interested third party, and response to letters sent by CADE to customers, suppliers, and competitors of the parties to the transaction under review. It is expected that, despite these difficulties, CADE will prioritize mergers, will not allow the average review time to be extended and, especially, will be sensitive to the demands in transactions between companies that face extraordinary difficulties in maintaining their business.

It is likely that requests for authorization for parties to consummate a transaction before a final decision by CADE, in a conditional and preliminary manner, will become more frequent in the context of the crisis. Our law imposes strict criteria in this regard: interested parties need to demonstrate that (i) there is no risk of irreparable damage to competition; (ii) the measures are fully reversible; and (iii) there is an imminent risk of substantial and irreversible financial damage if the conditional authorization is not granted.

CADE has been very strict in deciding requests for conditional authorization thus far, granted in a single case (Merger Proceeding No. 08700.007756/2017-51, referring to the increase, from 40% to 100%, of Excelence B.V.'s stake in Rio de Janeiro Aeroporto S.A., holder of 51% of Concessionária Aeroporto Rio de Janeiro S.A., which operates the concession at Galeão Airport - CADE concluded that, in the absence of a conditional authorization, the concessionaire would not have financial conditions to make an imminently maturing payment of R$ 1.168 billion and should cease its activities, affecting the operation of the airport until a new bidding procedure could be conducted).

Another sensitive point that will require CADE's reflection concerns the possibility of the purchaser's interference in the target company's actions, during the period between signing and closing, in order to guarantee the survival of the business during an emergency situation. This can be done through changes in company management, the use of assets to accelerate synergies, or even full or partial advance of the purchase price. Such interference could be seen as prior and undue consummation of the operation, subjecting the parties to gun jumping penalties, notably a fine of up to R$ 60 million.

At an exceptional and challenging time like the present, it is expected that CADE will maintain an open, flexible, and reasonable stance towards mergers, helping to mitigate the effects of the crisis and improve the conditions for economic recovery by removing barriers that may prevent or delay this resumption.