Publications

Category: Litigation

One of the biggest controversies under the Company Judicial Reorganization Act (LRE) is the limit on the Judiciary's role in controlling the legality of the judicial reorganization plan. Recently, this discussion has gained another chapter. In deciding Special Appeal No. 1.630.932/SP, filed by a São Paulo company in judicial reorganization, the Superior Court of Justice (STJ) ruled that the Referential Rate (TR) is valid as a criterion for correction of bankruptcy claims, if so approved by the creditors.

With this, the STJ modified a decision by the São Paulo Court of Appeals (TJSP), which had invalidated a provision in a judicial reorganization plan approved by the creditors, which provided for adjustment for inflation of the claim amounts based on the TR + 1% per year. The STJ considered that the most current case law limits judicial control over the reorganization plan to issues of the legality of the procedure, prohibiting the interference of the judge in the economic content of the provisions thereof.

Noting that the TR does not reflect the inflationary phenomenon (throughout 2018, the rate remained at 0%), the STJ argued that if the general meeting of creditors approves the use of the TR as an index for adjustment for inflation, it is not incumbent on the Judiciary, considering eminently economic content of the matter, to discuss the decision of the creditors. Regarding interest, the reporting judge, Justice Paulo Sanseverino, stressed that “there is no general rule in the Brazilian legal system that sets a minimum threshold, a floor, for the interest rate (whether default or remuneratory interest), nor is there a rule that prohibits annual frequency,” and so the 1% monthly adjustment ordered by the TJSP is not applicable.

With this precedent, the STJ is taking yet another step in consolidating case law involving judicial control of the provisions contained in judicial reorganization plans, conveying the message that the Judiciary is only allowed to review those issues that are strictly linked to the legality of the procedure and lawfulness of the content, such that what is approved by the meeting must control and drawing attention to the importance of negotiations and the dispute of forces preceding such approval.

This does not mean, however, the end of controversy in the context of judicial reorganizations. After all, since the concept of legality is open and elastic, there is always room for creditors to question points they consider to be of public order. Indeed, a brief analysis of case law shows that, until a few years ago, the TJSP, prompted by creditors, took the view that a discount over 80% proposed by the reorganization plans was illegal.^[1]

Currently, however, the Judiciary clearly has not annulled^[2] discounts even above the 80% mark, indicating a trend that judicial control in judicial reorganization plans should be limited to strictly public policy issues^[3] and cogent rules, such as the supervision period provided for in article 61 of the LRE. In any case, the precedent of the STJ is an important step towards consolidation of matters of bankruptcy law, aiming to provide greater legal certainty to all stakeholders in the judicial reorganization process.

^[1] TJSP. Interlocutory Appeal No. 055083-50.2013.8.26.0000. Reporting Judge Ricardo Negrão. Decided on July 25, 2014.

^[2] TJSP. Interlocutory Appeal No. 2192960-22.2018.8.26.0000. Reporting Judge Cesar Ciampolini. Decided on February 28, 2018.

^[3] TJSP. Interlocutory Appeal No. 2192960-22.2018.8.26.0000. Reporting Judge Grava Brazil. Decided on November 12, 2018.

Category: Infrastructure and energy

Created by Law No. 12,431/11 to promote the participation of private investment in financing the infrastructure sector in Brazil, infrastructure debentures have been gaining ever more force since 2016, with the reduction of the participation of the National Development Bank (BNDES) in the financing of new projects and the stabilization of Brazilian macroeconomic conditions.

According to information released by the Economic Policy Bureau of the Ministry of Economy, in 2018 the issuance of infrastructure debentures reached R$ 23.9 billion, compared to only R$ 9.1 billion in 2017 and R$ 4.4 billion in 2016.

In general, the main attraction of these instruments for investors is the levying of reduced income tax rates on the income earned.

They may benefit from the issuance of infrastructure debentures for investment projects developed in the sectors of logistics and transport, urban mobility, energy, telecommunications, broadcasting, basic sanitation and irrigation, provided that they are members of the Investment Partnership Program (IPP) or are considered priorities by the industry regulator under Decree No. 8,874/16.

In this context, the government has been looking into possible changes to the current regulations of infrastructure debentures in order to create an even more favorable environment for private investment, with particular attention to pension funds, fixed income funds, and foreign investors. To this end, a set of amendments to Law 12,431 and Decree 8,874 are under discussion related to the following topics:

• possibility of issuing a new type of “series 2” infrastructure debentures, which would not be exempt from income tax for individuals, but would offer higher returns to investors in general in consideration for the possibility that the issuer may deduct from taxes levied on its income more than 100% of the interest to be paid to investors. This change aims to improve the prospects of return for corporate investors, in particular by favoring the attraction of large pension funds, which, as a rule, are more concerned with the return on investments than with tax benefits related to investment results;

  income tax exemption for income earned by foreign investors, improving the attractiveness of infrastructure debentures and encouraging fundraising abroad to finance the infrastructure sector;

  increase, from 24 to 60 months, in the term of expenses reimbursable with funds raised through the issuance of infrastructure debentures. The purpose of this change is to ensure greater flexibility for the development of infrastructure projects, since, in order to partially mitigate project risks to be borne by investors, it is quite common to issue infrastructure debentures only after projects are more advanced and have already received much of the investment required for their implementation;

  change in the rules for classifying funds as infrastructure investment funds, which currently have two years to create a portfolio with at least 85% infrastructure debentures. As such a deadline may discourage the receipt of new contributions by such funds in order to avoid possible disruptions over time, the creation of a 6-month moving average to assess the composition of the funds is discussed, ensuring that managers have more flexibility in time limits to meet thee portfolio composition requirements defined by Law No. 12,431; and

  changes in the process for classifying investment projects as priority under Decree No. 8,874. In short, the proposal would be to establish a simplified procedure for the analysis and classification process, so that, once certain relevance requirements are met, projects no longer need to be screened by the responsible ministry, as is the case today with those that are included in the Investment Partnership Program (PPI).

The amendments are still being discussed by the government and were not per se subject to a bill submitted to Congress thus far, but it is unquestionable that we are facing a new chapter in the history of infrastructure project financing in Brazil. Addressing much of the current market demands regarding infrastructure debentures, the changes under discussion may make it possible to create better conditions for the private sector to assume a dominant position as a long-term financier of infrastructure projects in Brazil.

Category: Tax

With the main objective of combating delinquent debtors and strengthening the collection of outstanding debt within the federal tax administration, the Ministry of Economy presented to the Chamber of Deputies, in March, Bill No. 1,646/19. Some aspects of the text deserve special attention, such as the extrajudicial procedures applicable to delinquent debtors, defined in the Bill as “taxpayers whose tax behavior is characterized by substantial and repeated tax delinquency.”

The first point to be highlighted concerns the characterization of “substantial and repeated tax delinquency,” defined in paragraph 1 of article 2 as the existence of debts in the name of the debtor or related individuals or legal entities, whether or not recorded as outstanding debt and in the amount of R$ 15 million or more, in an irregular situation^[1] for a period of one year or more. The wording of this article may give rise to misinterpretation, since the text does not identify the nature of the legal relationship between the debtor and the individual and legal entity that may justify the calculation of their private debts in order to characterize their repeated default.

The only interpretation compatible with the Federal Constitution and the national tax system, in our view, is that which restricts the possibility of considering the debt of third parties in the calculation of the debtor's debt to the effective existence of a legal scenario for joint and several liability or tax liability of these third parties. In fact, the National Tax Code strictly defines the circumstances in which persons other than the taxpayers themselves may be held liable for tax debts, precisely in articles 124 and 128 to 135.^[2]

Any other interpretation will violate the autonomy of the legal entity with respect to its partners, shareholders, or related companies and will be unconstitutional. This is because the Federal Constitution reserves for complementary law, in this case, the National Tax Code, the competence to establish provisions of law governing tax obligations (article 146). An ordinary law cannot therefore create a scenario for presumed legal liability.

The Bill also provides that the bodies of the federal tax administration may institute administrative proceedings against delinquent debtors in order to impose administrative restrictions which, if applied, consist of (i) cancellation of tax registration - CNPJ or CPF; and (ii) prohibition on enjoyment of any tax benefits for a period of ten years.

To initiate the procedure, the Bill is very clear in requiring not only the characterization of the taxpayer as a delinquent debtor but also the presence of evidence of the commission of an unlawful act (willful, fraudulent, or feigned). This is another aspect that deserves attention: it is not the characterization of debtors as delinquent that authorizes the establishment and subsequent application of administrative restrictions, but the existence of effectively inappropriate behavior by them. Incidentally, this is the tonic of the Bill, expressed in its explanatory memorandum: the objective is to reach taxpayers who perform unlawful acts, not those who have only tax debts.

Although the opening of the procedure requires only the presence of indicia, the effective application of restrictions requires proof of the performance of the unlawful acts described in the rule.^[3] Despite this provision, it is of doubtful constitutionality to apply such severe administrative sanctions that may prevent individuals or legal entities from exercising their professional or corporate activity without prior judicial control. This seems to use to be clear violation of due process of law. There is no way to consider, in satisfactory compliance with the right to a full defense and adversarial proceeding, a procedure, especially when it involves drastic limitation of rights, in which the judge is not vested with jurisdictional powers and is not impartial precisely because he is an interested party.

Moreover, the measure seems to us disproportionate to the purposes intended. If the idea is to create mechanisms that make receipt of the taxable amount more effective, it is not via the cancellation of the tax identification (CPF and CNPJ) of individuals and legal entities that this objective will be achieved. Quite to the contrary: the creation of restrictions on the exercise of corporate and economic activity prevents the production of wealth and, consequently, the payment of taxes.

It is quite true that alleged exercise of economic activities cannot lend itself to covering up the commission of unlawful acts, which must be stopped. For this, however, the Public Treasury already has very effective mechanisms in the current legal system, such as the tax motion for preliminary injunctive relief, which the Bill itself, in other provisions, seeks to strengthen.^[4]

It would be better if the procedure to establish administrative restrictions constituted a preparatory mechanism for the collection of evidence to justify the future filing of a judicial measure against the debtor, even if it is intended to cancel a tax identification (CPF or CNPJ), if deviation of purpose in the exercise of the economic activity is proven in court, used as a subterfuge for the commission of tax offenses.

The Bill also allows the Office of the Attorney General of the National Treasury (PGFN) to offer differentiated conditions for the settlement of debts recorded as outstanding debt and classified by the tax authority as irrecoverable or difficult to recover. In these cases, provided that there is no evidence of a loss of equity, discounts of up to 50% of the consolidated amount of the debt may be granted. Discounts may be applied on fines and interest, for payment in cash or payment within up to 60 installments. Discounts shall not apply to (i) fines that, in the opening of an assessment, are intended to punish tax evasion, fraud, and collusion, as provided for in Law No. 4,502/64;^[5] (ii) payable taxes related to the Simples Nacional or FGTS; (iii) payable taxes registered as outstanding debt for less than ten years.

The PGFN is responsible for regulating the setting of discounts, including based on the recoverability of the payable taxes and the term for the repayment thereof.

The proposal here seems reasonable and effectively intended to receive the tax debt. It contemplates the possibility of entering into extrajudicial settlements between the Public Treasury and taxpayers, in the midst of modern and effective alternative means for dispute resolution.

The main criticism concerns the minimum time for which the debt must be enrolled as outstanding debt (ten years) before it may be submitted to an extra-procedural legal settlement. If the objective is to resolve the tax dispute, and if the tax authority is already free to classify the payable tax as unrecoverable or difficult to recover, as well as to set discount percentages based on the degree of recoverability and the time to receive the amounts, this time period may make actual satisfaction of the tax debt unfeasible, even if partially.

It is hoped that during the democratic debate that should permeate the legislative process, these and other aspects will be the subject of greater reflection, so that the collection and receipt of tax debts meet the public’s wishes without violating taxpayers' fundamental rights.

^[1] Debts the enforceability of which is not suspended.

^[2] Participation in the taxable event, succession, link with the taxable event, responsibility of managers for acts committed in violation of the law or the statutes or with excess of powers, among other situations expressly provided for.

^[3] Article 2 of the Bill allows the establishment of an administrative proceeding to establish and apply administrative restrictions in the event that there are indicia that: (i) the legal entity has been established for the commission of structured tax fraud, including for the benefit of third parties; (ii) the legal entity is organized by intermediaries other than the true partners or shareholders or the real owner, in the case of a sole proprietorship; (iii) the legal entity participates in an organization formed for the purpose of not paying taxes or circumventing tax debt collection mechanisms; and (iv) the individual, principal or co-responsible debtor, deliberately conceals assets, revenue, or rights for the purpose of not collecting taxes or circumventing tax debt collection mechanisms.

^[4]The purpose of this article is not the part of the Bill dedicated to changes in Law No. 8,397/92, which regulates the tax motion for preliminary injunctive relief. In any case, it is important to clarify that this instrument, as currently regulated, already confers sufficient (perhaps excessive protection for payable taxes. Some of the proposed new rules are clearly unconstitutional, as they once again confuse the person of the alleged debtor with third parties, creating rules of liability for mere non-payment of the tax.

^[5] Articles 71, 72, and 73.

Category: Tax

There are two main forms of defense in tax foreclosures: the pre-foreclosure  exception and the motion to stay enforcement. The first is presented in the record, without the need to guarantee the tax debt under debate, that is to say, it is less costly for the taxpayer. However, its scope is limited to situations that do not require production of evidence or where the issues may be heard by the judge ex officio, pursuant to Precedent No. 393 of the Superior Court of Appeals (STJ).

Given this restriction, taxpayers/debtors have as the sole means of defense, in the vast majority of cases, the motion to stay tax enforcement. The requirement for them to be admitted is the provision of collateral under Law No. 6,830/80 (the Tax Foreclosure Law - LEF), which is more expensive for taxpayers.

With the promulgation of Law No. 13,043/14, which gave new wording to article 9, II, of the LEF so as to provide to judgment debtors the possibility of “offering a bank guarantee or performance bond,” and with the STJ's understanding that both guarantees are equated with a judicial deposit, such means have become the most common forms of guarantees in tax enforcements, precisely because they are less costly for taxpayers than full deposits of the amount in dispute.

Nevertheless, in the event that the taxpayer's appeal or motion does not have supersedeas effect, the tax authorities are increasingly requesting that the guarantee or bond be converted into a judicial deposit by issuing a official letter to the taxpayer’s financial institution or insurer to immediately deposit the amounts in dispute.

As a rule, these requests by the tax authorities are based on Precedent No. 317 of the STJ, according to which execution of an extrajudicial enforceable instrument is definitive, even if the appeal against the judgment that dismisses the motion is pending, and based on decisions by the 2nd Panel of the STJ^[1] that admit the settlement of the guarantee or the bond, conditioning the withdrawal of the amount deposited on the final and unappealable judgment.

This condition results from the interpretation of paragraph 2 of article 32 of the LEF: “After the decision has become final and unappealable, the deposit, monetarily adjusted for inflation, shall be returned to the depositor or delivered to the Public Treasury, by order of the competent court.”

Only a hasty reading of this provision could lead to the conclusion that only deposits, and not other guarantees, are effective pending a final and unappealable judgment and that, therefore, a plea by the treasury to execute the bond or guarantee is legitimate when the appeal or motion to stay execution by the taxpayer has no supersedeas effect.

However, from the systematic reading of articles 9, paragraph 3, 15, I, and 32 of the LEF and an analysis of the STJ's understanding, it is concluded that  both the guarantee and the bond have a legal status equivalent to that of a cash deposit, and settlement thereof (conversion into deposit) is only legitimate after the final judgment and unappealable judgment on the dispute.

The 1st Panel of the STJ reached this same conclusion^[2] when it stated that the execution of the bank guarantee offered as a guarantee of the tax execution is also conditional on the final and unappealable judgment on the definitive action, under the terms of the same paragraph 2, of article 32 of the LEF.

As with the deposit, the guarantee and bond are instruments for rapid settlement and bring security for the satisfaction of the judgment creditor's interest, since they are automatically convertible into cash at the end of the execution phase. They are also not subject to depreciation, as there is a provision to have the amount guaranteed automatically updated for inflation following the same parameters as the debt being executed.

From a legal or economic point of view, it makes no sense to give separate treatment to the types of guarantee. For the judgment creditor, in the case of the Public Treasury, there is no difference. Therefore, the position of the tax authorities, named the “Guarantee Project,”^[3] is a measure that is incompatible with the applicable laws and regulations and the case law of the STJ, clearly in breach of the principles of reasonableness, proportionality, and continuity of the business activity. The sole objective of the judgment creditor in such cases is to use the amounts deposited in court to settle its commitments.

That is because the amounts deposited are transferred to the single account of the public entity, entirely at the federal level and partially at the state and municipal level,^[4] being used in the budget financial activity to pay expenses.

It is certain that tax foreclosure should be operated in the manner least burdensome for the judgment debtor, but also that its purpose is to satisfy the interest of the judgment creditor. As recognized by the 3rd Panel of the STJ,^[5] the guarantee and bond represent the perfect harmonization between the principle of effectiveness of protection in execution for the judgment creditor and the principle of the smallest burden for the judgment debtor, giving greater proportionality to the means of satisfaction of the judgment debt for the judgment creditor.

Premature settlement of the letter of guarantee or guarantee only brings harm for taxpayers/judgment debtors, who must immediately repay amounts that may have been spent by the financial institution or make a deposit in response to contractual obligations.

The conversion of the guarantee or bond into a judicial deposit is equivalent to conversion into income of deposits for the satisfaction of the judgment debtor’s debt, a measure applicable only after the final and unappealable judgment. This is what was decided by the 2nd Panel of the STJ,^[6] in view of the specificity of article 32, paragraph 2, of the LEF.

It is worth remember further that article 19, II, of the LEF only admits the summons of the financial institution to pay the judgment debt when the motion to stay execution has been definitively rejected, that is, the judgment has become final and unappealable.

To allow premature settlement of guarantees such as a letter of guarantee or bond goes against the intent of the legislature, which provided the taxpayer with less costly measures to secure the tax debt without compromising the company's cash flow and regular activity, in line with the principles of access to justice, an adversarial proceeding, and a full defense.

Justice Ayres Britto,^[7] specifically addressing the issue of settlement of bank guarantees, stated that “the lack of a definitive ruling by the court cannot, however, pose a threat to taxpayers' legal certainty, especially when it entails a serious risk of potentially undue constraint on assets. It is evident that the danger of damage in this case runs against the taxpayer.”

To allow premature settlement of appropriate guarantees in an indiscriminate and unjustified manner, in the final analysis, has an impact on the financial system, as insurers and banks will offer higher-interest letters of guarantee and security, depleting these institutes and further burdening the taxpayers.

Despite the absence of prejudice for the Public Treasury and the irreversibility of conversion of guarantees into judicial deposits, the application or non-application of article 32, paragraph 2, of the LEF to guarantees and bonds generates divergence of understandings among the circuit courts and causes insecurity for taxpayers.

Because it affects many taxpayers, the issue requires a definitive ruling from the STJ on these questions, as this Court is the highest interpreter of infraconstitutional laws and regulations, in view of its function as the harmonizer of Brazilian case law. The establishment of the most correct and reasonable interpretation of article 32, paragraph 2, of the LEF is essential for application of the principles of maximum effectiveness of the execution and lowest burden for the judgment debtor.

^[1] (AgRg na MC 18.155/RJ, Opinion drafted by Justice Castro Meira, Second Panel, DJe 8/16/2011; RCDESP na MC 15.208/RS, Opinion drafted by Justice Mauro Campbell Marques, Second Panel, published in the Electronic Gazette of the Judiciary on April 16, 2009)

^[2] (REsp 1033545/RJ, Opinion drafted by Justice Luiz Fux, First Panel, decided on April 28, 2009, published in the Electronic Gazette of the Judiciary on May 28, 2009)

^[3] Companies are required to exchange bond for deposit in foreclosures. Valor Econômico, 2019, available at: <https://www.valor.com.br/legislacao/6376875/empresas-sao-obrigadas-trocar-seguro-por-deposito-em-execucoes>. Accessed on: August 05, 2019.

^[4] At the federal level, the discipline is provided in Law No. 9,703/98, article 1, paragraph 2. In the state of São Paulo, the transfer to the Treasury’s single account is 75%, as per Decree No. 62,411/17, article 1, I

^[5] (REsp 1691748/PR, Opinion drafted by Justice Ricardo Villas Bôas Cueva, Third Panel, decided on November 7, 2017, published in the Electronic Gazette of the Judiciary on November 17, 2017)

^[6](AgRg no AREsp 123.976/RS, Opinion drafted by Justice Herman Benjamin, Second Panel, decided on June 26, 2012, published in the Electronic Gazette of the Judiciary on August 1, 2012)

^[7] (AC 1776 AgR, Opinion drafted by Justice Ayres Britto, Published in the Electronic Gazette of the Judiciary DJe-113 on October 1, 2007)

Category: Intellectual property

The Central Bank and the National Monetary Council (CMN) approved the missing rules^[1] in order to regulate the Clean Record Law (Law No. 12,414/11), the wording of which was amended by Supplementary Law No. 166/19. Despite the regulations, there are still doubts about the implications of these laws for the privacy and security of personal data of Brazilian citizens, a topic that requires special attention because of the General Data Protection Law (LGPD). The interface between the Clean Record Law and the LGPD, considering its convergent and divergent aspects, is analyzed in this article.

CONVERGENCES

Effective July 9 of this year, the new wording of the Clean Record Law changes the system for data inclusion for the formation of credit history of Brazilian consumers, which is now automated. This means that the data subject will no longer have to expressly consent to the inclusion. The data will be processed to generate consumers’ credit score based on their history, which will help to inform how much of a “good payer” they are.

The system of the express consent to authorize and legitimize the processing of personal data was taken by many as the golden rule, including for the purpose of the Positive Record, according to the original model of the standard. It so happens that, from a practical point of view, having prior consent as the sole legal basis for processing personal data may end up making important economic activities unfeasible.

For this reason, and as was done in the General Data Protection Regulation of the European Union (GDPR), the legislator softened the leading role of consent in the LGPD by listing, in article 7 of the law, other legal scenarios for the processing of personal data (legal bases), necessarily linking them to the observance of bases (article 2) and principles (article 6). In such cases, the processing of personal data without the consent of the respective owners does not necessarily imply breach of the LGPD.

One of these legal scenarios is protection of credit, established in article 7, X, of the LGPD. According to this article, the processing of personal data without the consent of the holder would be authorized by the LGPD in view of the purposes established in article 7 of the Clean Record Law: i) perform credit risk analysis of the registrant (holder of the personal data); and ii) support the granting or extension of credit and installment sales or other commercial and business transactions that entail risk to the consultant.

The Clean Record Law also provides for the possibility of deleting the information entered in the register upon request by the registrant. The registration system, therefore, ceases to be opt-in, by removing the need for consent, and becomes opt-out, allowing registrants to request their exclusion at any time, in line with the LGPD.

There are other aspects of the Clean Record Law that show the legislator's concern with the principles of the LGPD's purpose, adequacy, necessity, and transparency, such as: i) the guarantee to the registrants that they may demand the correction or cancellation of the registration (article 5, I and III); ii) the possibility of access by registrants to their information in the database (article 5, II); iii) information to registrants on the criteria considered for the credit risk analysis (article 5, IV); and iv) the need for prior information to registrants regarding the identity of the manager responsible for the data and regarding the storage and the purpose of the processing of the personal data (article 5, V), which must be in accordance with fulfillment of the purpose for which the personal data were collected (article 5, VII).

DIVERGENCES

Although the legal basis of article 7, X, of the LGPD supports the format for collection of personal data proposed by the new Clean Record Law, there was no concern in this latest legal text with following the definitions of the LGPD, which, because they are general in nature in relation to the specific laws for protection of data, should be observed.

This is what happens, for example, with the term “sensitive personal data,” defined in article 5, II, of the LGPD, which has the same meaning as the expression “sensitive information,” article 3, paragraph 3, II, of the Clean Record Law:

Another mismatch occurs as to the legal basis for joint and several liability of the database, the source, and the consultant for damages caused to the registrant. Although the LGPD expressly establishes the possibility for controllers and operators to be jointly and severally liable for damages caused to data subjects, the new wording of the Clean Record Law does not refer to the LGPD, but only to the Consumer Defense Code.

In addition, the new Clean Record Law has some gaps in its text regarding how its obligations should be fulfilled, which may lead to confusion about responsibility for processing personal data.

The first of these concerns the absence of further details about the operation of the channel for cancelling the registration, which must mandatorily be provided by all managers. Nor is there sufficient information about the right of data owners to have easy access to information about the processing of their personal data. According to the LGPD, this processing includes all operations carried out with personal data, such as those relating to the collection, production, reception, classification, use, access, reproduction, transmission, distribution, processing, filing, storage, discarding, assessment, or control of the information, modification, dissemination, transfer, diffusion, or extraction.

In this sense, although the Clean Record Law provides for the obligation to clarify which elements and criteria will be used to make the credit score, which is also a form of data processing, there is no obligation to provide transparent information about the life flow of the personal data of the owner.

And that is not all. The lack of designation of a single competent authority to oversee compliance with the Clean Record Law is another problem.

Although many of the legal relationships of registrants consist of consumer relationships, which attracts the oversight of the bodies of the Brazilian Consumer Protection System, the central body in this process should be the National Data Protection Authority (ANPD), responsible for ensuring for the protection of personal data.

The figure of the ANPD was created by Presidential Decree No. 869/18, which was recently converted into Law No. 13,853/19. Among the new features included by the law in the text of the LGPD, it was established that the rules on the ANPD have been in force since December 28 last year, while the other provisions of the LGPD enter into force in August of 2020.

In this sense, the legislator was inattentive with respect to the provisions on the ANPD, as it could have used them in the drafting of the Clean Record Law, published in the Official Gazette on April 9 of this year.

Even if the new Clean Record Law enters into effect almost a year before the LGPD's entrance into force, the designation of the ANPD would undoubtedly demonstrate a more effective concern by the legislator regarding the protection of Brazilian consumer data in the process of formation of credit history. Even so, considering that it will be incumbent on the ANPD to supervise data processing operations and promulgate supplementary norms on the subject, it will probably be incumbent upon it to impose additional measures of care and transparency to clarify the legality or illegality of certain conduct under the new Clean Record Law.

CONCLUSIONS

Interestingly, among the laws dealing with personal data protection around the world, Brazil is the only one to provide for protection of credit as one of its legal bases for the processing of data.

This provision has allowed the new Clean Record Law to be in line with the LGPD, as it is no longer necessary to obtain the consent of the data subject/registrant to use the data in accordance with the purposes of the law. In this respect, the two texts converge and talk to each other.

However, this conversation could be clearer. Even if the LGPD were not in force when the new Clean Record Law was enacted, it could have used concepts from the LGPD without any prejudice.

After all, the adjective “general” contained in the LGPD should not be overlooked: this law is the normative basis for the Brazilian personal data protection microsystem, which can lead to debates regarding the legal regime applicable to the Clean Record in which the two laws otherwise conflict or are not perfectly harmonized.

^[1] Resolution No. 4,737 and Circular No. 3,955 regulate the operation of the system for registration with the Central Bank and the formation of the registration form.

Category: M&A and private equity

It is undeniable that technology is increasingly becoming a part of our routine. Who would have said ten years ago that we would pay our bills, invest, hail a cab, or shop with just a tap on a smartphone? These habits are so commonplace today that the next novelty is no longer greeted as a big surprise.

These innovative companies, with great potential for growth in a market that seeks disruptive ideas all the time (and that, therefore, require funding), are increasingly attractive to large investors. In 2018, according to ABStartups research, five Brazilian technology companies exceeded the US$ 1 billion appraisal value: iFood, 99, Nubank, PagSeguros, and Stone. They are the Brazilian unicorns.

This growth has attracted the attention of local and international investors eager to allocate their resources to innovative projects with the potential to generate fast and robust returns. This move has resulted in a staggering growth of M&A transactions in the sector.

Following the logic of the international market and the typical dynamism of this segment, technology entrepreneurs are looking for “cheap” and, perhaps more importantly, investing capital that does not impose too many restrictions and obligations. This desire, however, is confronted with a codified legal system like the Brazilian one, where interpretation must be carried out according to the established rules, and this system cannot be quickly adjusted to the new way of doing things brought about by these companies. The approval process for changes in law is bureaucratic and time consuming. As examples, we have recently seen extensive discussions on how to classify the activities performed by app car drivers and a heated debate about the regulations on scooter and bicycle sharing.

Aside from the regulatory debates arising from the activities performed, issues related to tax and labor contingencies (with the corresponding risks of contamination not only of the target companies, but also of the investors themselves) remain one of the major focuses of discussion and negotiation in investments in technology companies (among others, such as data privacy and protection). There is often a "clash" between the dynamism and speed of technology entrepreneurs and a more rigorous process of doing due diligence for and negotiating an indemnity package that protects investors against potential losses and contamination.

Thus, the challenge of securing protection of investors while securing financing for technology companies without hindering long-term negotiations creates some mismatch in M&A’s in the industry. Investors with more risk appetite tend to take a “less demanding” stance and often obtain an advantage over their peers in the increasingly competitive Brazilian market.

On the other hand, the structuring of M&A transactions involving technology companies gains new weight in order to provide greater shielding of investors from the risks associated with the investment. In this context, investment structures based on convertible debt or investments made through foreign holding companies are common.

It is undeniable that each transaction has its own peculiarity, which is why it is even more fundamental to analyze the specific aspects of each investment. In any case, the market has developed alternatives so that the security desired by investors does not prevent the financing of these new platforms, which operate with a peculiar dynamism. Over time, the market will settle the right measure between such dynamism and the typical conservatism of M&A transactions.