Publications

Category: Infrastructure and energy

The legalization of cannabis sativa for medicinal purposes is a controversial topic that has been debated for a long time in Brazil and in other countries. Despite criticism, some favorable points of the measure need to be considered, especially at this time when bills on the subject are pending before Congress and Anvisa (National Health Surveillance Agency) is spearheading public consultations on the regulation of controlled cultivation of the plant for medicinal use.

The Cannabis sativa market moves billions of dollars annually in countries where regulations are already in place. According to Beau Whitney, vice president and economist at New Frontier Data, an American data analysis firm specializing in this industry, Cannabis sativa trade has moved $ US10.4 billion and created at least 250,000 jobs in 2018.

-In addition, use of the plant for medicinal purposes has provided benefits to numerous patients, such as people suffering from diseases such as schizophrenia, multiple sclerosis, seizures, and not responding to conventional treatments.

Uruguay and Mexico, in Latin America, treat the issue more liberally, attracting the attention of companies in the field. Many have already expressed public interest in investing in these countries, although neither has a broad internal market.

Brazil, in turn, has 3.4 million potential consumers of this type of medicine. A market of this size could move about US$ 1.4 billion a year, which makes it very attractive.

In an economic scenario of low economic activity such as the present one, numbers like these are in favor of investments in the Cannabis sativa-based pharmaceutical industry, not only for the financial return, but also for the reduction of treatment costs and the generation of the jobs that it may provide.

To date, legislative and judicial delays placed some obstacles for investment plans. This, however, may change, among other factors, due to the existence of three bills pending before the National Congress and ongoing lawsuits.

We highlight bills No. 7,187/2014, No. 7,270/2014, and No. 10,549/2018, which aim to regulate the use of Cannabis sativa for medicinal or recreational purposes, and Direct Unconstitutionality Action (ADI) No. 5,708, pending before the Federal Supreme Court (STF) and filed by political parties that defend decriminalization of the plant for therapeutic uses.

On another front, pressure from patients to release Cannabis sativa-based medicines has led the Federal Council of Medicine to authorize neurologists and psychiatrists to prescribe them. Anvisa has implemented registration and control for access to these pharmaceuticals, which currently need to be imported, thus considerably increasing the cost of treatment.

Recent government initiatives to regulate the use of cannabis sativa for medicinal purposes show that the opportunities for opening this market in Brazil are real. In June of 2019, Anvisa's collegiate board approved two public consultations regarding the regulation of controlled cultivation of Cannabis sativa for medicinal and scientific use.

The purpose of the initiative is to make room for the population, other government agencies, the pharmaceutical industry, and society in general to give their opinions on two proposed resolutions.

Public Consultation No. 654, of June 13, 2019, aims to discuss the proposal for a specific procedure for the registration and monitoring of Cannabis sativa-based medicines, its derivatives, and synthetic analogues. Public Consultation No. 655, of the same date, deals with the technical and administrative requirements for cultivation of the plant for medicinal and scientific purposes.

Both are open to receive contributions until today (August 19th). It is an important opportunity for the public as a whole to contribute to the debate and to regulate the controlled cultivation of cannabis sativa for medicinal and scientific use to standards that protect public health and at the same time meet the needs of the market.

Category: Infrastructure and energy

The Federal Government published on, August 7, Decree No. 9,957/19, which regulates the procedure for the rebidding of partnership contracts in the highway, railway, and airport sectors. The rules complement the provisions of Chapter III of Law No. 13,448/17, which already provided for the possibility of rebidding, but lacked specific regulations, a fact that had been causing concern for various market players, especially those linked to the highway and airport sectors.

The new decree details the requirements that need to be met by those interested in requesting the rebidding, which in practice is the return of the venture to the Government, which will undertake a new bidding procedure to maintain the regularity of the provision of services.

The request must be accompanied by a series of technical information and documents. The government’s objective is to collect justifications and elements that allow one to identify the real need for and viability of the rebidding procedure. Details to be provided by interested parties include:

1. information regarding the property to be returned;
2. financing instruments;
3. contracts in force with third parties;
4. ownership status of the areas affected by the venture; and
5. any judicial, administrative, or arbitral disputes involving the contractor and the granting authority.

In addition to this information, interested parties should demonstrate in a justified manner the conditions proposed in order to ensure continuity and security in the services until the completion of the rebidding procedure and transfer of the venture to the new contractor.

The detailed description of the information and documents that will support the application is not repeated in the articles that address how the information will be evaluated by the granting authority and its bodies. Section II of the decree is limited to addressing the powers of each of the bodies, leaving a certain degree of subjectivity regarding the process of granting or denying the application.

For example, a request for rebidding will be examined in advance by the regulatory agency responsible for the sector, which will be responsible for ascertaining the technical and legal feasibility of the request. Following the response of the regulatory agency, the request will be sent to the Ministry of Infrastructure, tasked with analyzing the compatibility between the request for rebidding and the scope of the public policy formulated for the corresponding sector. It is specifically in this passage that the wording makes room for different interpretations, because it is missing clear identification of criteria to be observed by the Government to deliver its decisions, whether granting or denying the right to rebid.

Following the response by the Ministry of Infrastructure, the proceeding will be forwarded for deliberation by the Investment Partnership Committee of the Federal Executive, which will be charged with opining, before the President's decision, on the appropriateness and advisability of the rebidding, in a clear exercise of the discretionary power conferred on the Government.

Once the rebidding is found to be viable, the granting authority will suspend any forfeiture proceedings and enter into an addendum with the rebidder that will regulate all its activities until the completion of the rebidding process and the execution of a new contract.

The addendum will contain a series of requirements that must be complied with by the rebidder, under penalty of disqualification of the venture, a fact that would entail the immediate initiation or resumption of the forfeiture proceeding and restoration of the existing charges and obligations before the execution of the addendum. Mandatory requirements of the addendum include:

1. not reduce capital stock;
2. offer no new guarantees on behalf of third parties except those proven to be essential and after approval by the regulatory agency;
3. not alienate, assign, transfer, dispose of, or create any encumbrances on the assets and rights linked to the venture, except those that are justified, and after approval by the regulatory agency; and
4. not apply for bankruptcy or judicial or extrajudicial reorganization of the special purpose entity.

It is undeniable that the decree represents a significant change and will have practical consequences, especially in the discussions regarding the judicial reorganization process for the Aeroportos Brasil Viracopos concessionaire and others in the highway sector that have already expressed their intention to return ventures. The consequences are still uncertain, but the market players in the highway, railway, and airport sectors will certainly find a new legal and, especially, economic scenario over the next few years.

Category: Labor and employment

Share-based incentive plans are long-term mechanisms that allow employees to participate in the valuation of the company according to previously established criteria. As a rule, implementing these plans results in greater alignment of interests between employees and the company, which helps retain talent, boosts workforce performance and, consequently, business performance, and indirectly leads to company valuation.

Among the stock-based incentives, in addition to stockoptions plans, which were already discussed in a prior article, it is worth mentioning restricted stocks and/or stock units (commonly called RSUs), restricted shares, phantom shares, and phantom stock options.

Each of these incentives has specific characteristics that may be more or less appropriate for the timing and situation of each startup. The definition of which incentive best fits the reality and daily life of a startup depends precisely on an analysis of these characteristics. There is no correct formula, much less a recipe that fits for all companies. We shall review each of these incentives below.

Restricted stock or restricted stock unit plans consist of a commitment to issue or transfer shares (or units, as the case may be) to the beneficiary, provided that certain conditions are met, especially maintenance of the employment relationship during the vesting period. Once all these conditions are met, the shares (or units, as the case may be) are transferred to the beneficiary employees.

As the transfer is free of charge, the majority understanding^[1] is that this type of incentive is remunerative in nature. By virtue of this, the value of the shares or units, on the date of transfer, must be considered for the payment of labor and social security charges by the company and income tax by the employees.

Performance share plans consist of a commitment to issue or transfer shares on behalf of the employee, provided that certain performance conditions (individual, group, or corporate) are met and the employment relationship is maintained throughout the vesting period.

The nature of these plans follows the same logic as RSUs. Since the shares are transferred free of charge and the delivery of the shares is directly or indirectly dependent on employee performance, the majority understanding^[2] is that this type of incentive is also remunerative in nature for labor, social security, and tax purposes.

Both in the RSUs and in the performance shares plans, there is an effective transfer of shares to the beneficiaries, who, therefore, become partners of the company at the end of the plan vesting period. Once partners, these beneficiaries are entitled to vote and to receive any dividends that may be distributed. The rights and payments arising from the status of shareholder, however, are not to be confused with the employment relationship (that is to say, just because an employee has become a partner does not mean that the employee loses an employment link with the company). In any case, dividends are not included in employee compensation for any purpose.

The phantom shares plans, in turn, allows the granting of “virtual” shares that guarantee to beneficiaries the right to a cash payment in the future equivalent to the value of one share multiplied by the number of virtual shares granted, provided that the employment relationship is maintained throughout vesting period.

Technically, this payment is a kind of adjusted bonus linked to the value of the shares. Thus, it is also remunerative in nature and, therefore, makes up the compensation of beneficiaries for labor, social security, and tax purposes.

Phantom stock options plans, finally, combine two incentives already discussed, stock options and phantom shares. Phantom stock options are “virtual” stock options. Through this incentive, if the beneficiary elects to exercise the virtual options after the vesting period, the company will make a cash payment to the beneficiary equivalent to the difference between the exercise price of the virtual options and the value of one share of the company, multiplied by the number of virtual options exercised.

As with phantom shares, this payment is a kind of agreed-upon bonus linked to the appreciation of shares during the vesting period. If the share appreciates, the employee shall be entitled to receive an amount to be paid by the company. Similarly, this payment is also remunerative in nature.

In both phantom share and phantom stock option plans there is no actual transfer of shares to beneficiaries, but only cash payments. These plans therefore do not allow employees to become partners of the companies, which is why they differ from RSUs and performance share plans.

Although all the incentives discussed here are included in employee compensation, each has its own peculiarities and may be more or less recommendable depending on the timing of each startup. Mistaken definitions of the characteristics of the plans may create considerable liabilities, causing financial impacts, and even alienating investors. The choice of incentive and its mode of implementation and treatment are therefore essential and should be done with caution.

^[1] However, there are already decisions to the contrary: Application for Mandamus No. 5002951-79.2017.4.03.6105.

^[2] Idem.

Category: Labor and employment

Even without the consent of the trade union, the Superior Labor Court (TST) approved requests for withdrawal by employees in a collective suit filed against two companies. The recent decision was delivered in Case No. 0010795-82.2015.5.03.0179.

The Trade Union of Employees in Data Processing Companies, Computer Services, and Similar Services of the State of Minas Gerais (Sindados/MG) filed collective suits seeking enforcement of provisions of collective bargaining agreements. In defense, the companies submitted requests for withdrawal made by the employees, which were ratified by the trial court, resulting, consequently, in extinguishment of the case against them.

In accepting the trade union's appeal, the Court of Labor Appeals (TRT) for the 3^rd Circuit annulled the ratification of the withdrawals, on the grounds that the waiver of the rights claimed in the suit for enforcement is ineffective due to the principle of inalienability of labor rights by employees.

The companies appealed against this decision to the TST, which found that the trade union has extraordinary standing to defend the collective and individual interests of the category as a procedural substitute. However, the employees continue to be the holders of the substantive right and, as a result, may have the right to sue, that is, withdraw from the claim regardless of the agreement of the trade union.

The TST stated that the owner of the right is assured the right to bring an individual suit or benefit from the effects of the decision on the collective suit, pursuant to article 104 of the Consumer Protection Code. The court also clarified that there was no evidence in the record that the declarations of withdrawal had any defect in consent or were the result of pressure, ruling out any possibility of recognition of invalidity of these documents.

In times of repercussion of the effects of the Labor Reform, the relevance of this decision is accentuated, since it exalts the concept of the autonomy of the will of the parties and the prevalence of the interest of the holder of the right, in this case, the employees. This concept was even highlighted by the Labor Reform, especially considering the provisions of article 444 of the CLT.

Category: Infrastructure and energy

Law No. 13,848/19, enacted in June, established the new framework for regulatory agencies in Brazil. Originating from Bill No. 52/13, the text signed into law differs very little from what was initially approved by the Senate, in spite of a few presidential vetoes and specific changes introduced by congressmen.

With regard to the vetoes, the Presidency rejected the application of a public pre-selection process for candidates to the boards of commissioners and the commissions of regulatory agencies, as well as extended the rule that members of these bodies (with very few exceptions) may not be reappointed for terms of office that started before the law entered into force. It also excluded the prohibition on having a person linked to a company that carries out activities regulated by the agency be appointed to its top position.

Among the pointed changes to the original bill introduced in Congress, the following stand out:

• The inclusion of the National Mining Agency (ANM), which was created to replace the former DNPM, in December of 2017;

  The assimilation of the Administrative Council for Economic Defense (Cade) to a regulatory agency for certain purposes, such as recognition of its functional, decision-making, administrative, and financial autonomy; the subjection to external control by the National Congress, with the assistance of the Federal Audit Court; the obligation to prepare strategic plan, annual management plan, and regulatory agenda; and

• 
  In line with the State-Enterprises Law is the obligation for regulatory agencies to implement their own internal compliance and corporate governance programs.

During the legislative process, the Chamber of Deputies had attempted to remove the prohibition on appointing party leaders and relatives of politicians to both the governing posts of regulatory agencies and to the management and boards of state-owned enterprises. The amendment even affected the State-Enterprises Law in this sense. The Senate, in approving the final text, rejected the amendment, so that the prohibitions on appointment under the State-Enterprises Law were unchanged and were repeated and even extended to regulatory agencies.

Congress also added reinforcement to the rule against simultaneous terms of office of agency leaders, stating that those who fail to be filled in the same year as their vacancy will be shortened. The congressmen also extended the list of scenarios for loss of office for the leaders of agencies, increasing the number of situations that objectively constitute a conflict of interests, compliance obligations, and professional duties.

As may be seen, the main foundations of the original bill, characterized by a commitment to modernization, standardization, and professionalization of regulatory techniques, were preserved in the Regulatory Agencies Law. Some pending issues have not yet been resolved, but the enactment of this important new law will provide encouragement to investors and financiers of companies operating in regulated sectors.

Category: Environmental

Federal Decree No. 9,760, published in April of this year, amends certain provisions of Federal Decree No. 6,514/08, which deals with environmental infractions and sanctions and establishes the federal administrative procedure to investigate them.

Effective as of next October 8 (180 days after its publication), the text provides for the creation of the Environmental Conciliation Center (NCA) and modifies the Environmental Fines Conversion Program.

The first big change presented was a summons for the defendant to appear at the establishment of the responsible environmental agency in order to participate in an environmental conciliation hearing. This summons will be sent after the preparation of an infraction notice and preferably by electronic means (when there is express agreement by the defendant and technology available confirming the receipt thereof). With the ultimate goal of closing administrative proceedings quickly, the defendant should attend a single hearing.

It is important to note that the 20-day time limit for filing a defense against the infraction notice is stayed until the date of the conciliation hearing. Only if the hearing is unsuccessful will the time limit be counted per the terms of Decree No. 6,514/08.

The NCA was created precisely to conduct a preliminary review of assessments and to hold environmental conciliation hearings. The body will be composed of at least two permanent public servants, at least one of them being part of the federal environmental Public Administration entity responsible for drawing up the assessment in question. On the date of the hearing, the NCA will: present the reasons of fact and law that led to the issuance of the infraction notice; explain the possible legal solutions for termination of the proceeding (for example, discounts on payment, payment via installments, or conversion of the fine into rendering of services, improvement, and recovery of environmental quality); and carry out any approval of detailed consent orders indicating the choice made by the defendant.

Detailed consent order resulting from conciliation hearings shall contain the solution chosen and the commitments assumed by the defendant to fulfill the obligation. It is the responsibility of the defendant to file a request for termination of the proceeding, with a resolution on the merits against any lawsuits filed within 15 days of the hearing.

In the event that a hearing is not held, either due to non-attendance by the defendant or lack of interest in environmental conciliation, the defendant may opt for legal remedies through the website of the responsible entity of the federal administration.

Under the Environmental Fines Conversion Program, the decree establishes the possibility of converting simple fines into the rendering of services, improvement, and recovery of environmental quality. An exception is fines resulting from violations that have caused human deaths.

If a defendant chooses to convert a fine, the procedure may be requested of the NCA during the environmental conciliation hearing, as mentioned above. The request may also be made to the adjudicating authority (until the issuance of the trial level decision) or to higher authority (until the appellate level decision is issued).

Discounts from the fine will be staggered according to the phase of the proceeding in which conversion of the penalty was requested. If the request is made during the environmental conciliation hearing, the discount will be 60%; if it is referred to the adjudicatory authority, it will be 50%; and if addressed to the higher authority, it will be 40%.

The taxpayer may also adhere to the conversion of fines through the implementation of a project for services for the preservation, improvement, and recovery of environmental quality or by joining a project previously prepared by another public or private body, as may be decided by the environmental body.

Finally, defendants who have requested the conversion of a fine under Decree No. 9,179/17, in any of its modalities, may request adjustment of the request for conversion, guaranteeing the 60% discount, or report withdrawal of the request, whereupon they may opt for one of the other alternatives in order to terminate the proceeding by the cut-off date of January 6, 2020. If the defendant does not submit a request by that date, the environmental agency will consider it to constitute tacit waiver of the request for conversion of a fine and notify it of the regular continuation of the administrative proceeding.

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