Category: Litigation

At the end last year, the Superior Court of Appeals (STJ) changed its understanding on conflicts of jurisdiction presented by companies under judicial reorganization that have assets pledged in the scope of tax executions for payment of taxes.

The court began to hold that conflicts of jurisdiction should not even be considered in cases in which the judicial reorganization court has not yet ruled on the seizure of assets ordered by the tax foreclosure court. The change in understanding occurred after the 2nd Section of the STJ decided Conflict of Jurisdiction 181.190/AC (CC 181.190). Until then, the court accepted and decided all conflicts presented involving the courts of tax foreclosure and judicial reorganization, even if there was no actual conflict between these courts due to divergent decisions.

Companies under judicial reorganization frequently claimed conflicts of jurisdiction when they became aware of decisions handed down by a tax foreclosure court ordering attachment of their assets, without a prior ruling to the contrary from the judicial reorganization court. It was argued that the judicial reorganization court was the "universal court" that should decide on any and all issues related to the debtor company's assets.

According to the new position, in order for a conflict of jurisdiction between the judicial reorganization court and the tax foreclosure court to be cognizable and decided in the case of confiscation of essential assets of a company under judicial reorganization, it is necessary to have conflicting decisions handed down by the courts.

According to the reporting judge of CC 181.190, Justice Marco Aurélio Belizze, the reason why so many companies claimed a conflict of jurisdiction even before any ruling by the judicial reorganization court was lack of clarity regarding the delimitation of jurisdiction of the tax foreclosure court and the judicial reorganization court, a topic that was not clearly addressed by the Reorganization and Bankruptcy Law (LRF).

For the reporting Justice, however, the change brought about by Law 14,112/20, which included paragraph  7-B in article 6 of the LRF, seems to clarify the issue. The change establishes, on the one hand, the jurisdiction of the tax foreclosure court to order attachment of the debtor company's assets and, on the other hand, safeguards the jurisdiction of the judicial reorganization court to order substitution of the attachment acts that fall on the company's essential assets.

Law 14,112/20, however, according to the reporting Justice in his opinion, does not detail how these competencies are concretized in practice, and it is precisely the role of the STJ to give a direction so that conflict of jurisdiction stops being unduly used as a subterfuge for companies in crisis to suspend tax executions.

Given this situation, the reporting Justice determined that the tax foreclosure court can communicate the content of the decision on the seizure of assets directly to the judicial reorganization court, so that it has control over the assets considered essential to the seizure. The measure meets the principle of cooperation provided for in article 69 of the Code of Civil Procedure (CPC).

Thus, as highlighted in the opinion, for it to be possible to initiate a conflict of jurisdiction in situations such as the one dealt with in the decision, it is necessary that the tax foreclosure court have issued a decision that expressly opposes the decision issued by the judicial reorganization court on the matter.

The importance of the STJ's decision is indisputable because, besides guiding the behavior of companies under judicial reorganization with ongoing tax foreclosures, it directs the courts to act cooperatively, thus avoiding unnecessary conflicts of jurisdiction, which only burden the judicial system.

A search on the STJ website indicated that since 2005 (the year the LRF went into effect), more than seven thousand conflicts involving judicial reorganization and tax foreclosure judgments have been decided.

After the judgment of CC 181.190, several sole-judge decisions and judgments have already been rendered denying cognizance to the conflicts raised, when the absence of opposition by the tax foreclosure court to the order by the judicial reorganization court on the release of the seizure of an essential asset or substitution of the seizure for another asset is found.

Justice Marco Buzzi, when decided on February 24 of this year conflict of jurisdiction 186.196/RJ (CC 181.196), clearly clarified that:

"(...) to establish a conflict of jurisdiction before this Court of Appeals, it is necessary to demonstrate: i) an effective order for the constrictive act issued by the Tax Court to the detriment of the assets of the debtor in possession; ii) a decision by the Judicial Reorganization Court exercising the respective examination of control (maintenance and/or substitution) over the constrictive act issued by the Tax Court, making use of the judicial cooperation established in article 69 of the Code of Civil Procedure of 2015; iii) resolution of the Tax Enforcement Court opposing, concretely, the resolution of the Judicial Reorganization Court regarding the judicial constriction."

The idea of cooperation between different courts is already being applied by courts Brazil. In the judicial reorganization of the Oi Group, on September 13 of last year, for example, the judicial reorganization court created a mechanism to avoid the issuance of conflicting decisions and reduce the number of inquiries routinely addressed to it regarding constrictive acts originating in tax foreclosures.

Based on the principle of cooperation, it was ordered that a notice be sent to all federal regional court judges and state courts of appeal regarding the mechanism created, which allows in advance the attachment on certain Oi Group accounts for claims of up to R$20,000. Claims above this amount may be satisfied by attachment of assets that are not listed in the reorganization plan of the group under judicial reorganization.

However, even after the creation of this mechanism, it was found that it was necessary to instigate conflicts of jurisdiction (in total, we identified four), considering that the tax foreclosure courts were not following the system created by the judicial reorganization court for the Grupo Oi.

The first two conflicts of jurisdiction^[1] were heard before the judgment of CC 181.190, so that both were found cognizable. In CC 184.077/RJ, an injunction was granted to suspend the constrictive measures ordered by the tax foreclosure courts, while in CC 183.507/RJ there was a sole judge decision on the merits recognizing the jurisdiction of the judicial reorganization court, with the decision having already become final and unappealable.

The other two conflicts of jurisdiction^[2] identified were heard after the judgment of CC 181.190, and both were not found cognizable, as it was found that they did not meet the requirements set out in the judgment - the decision of the judicial reorganization court exercising control and the subsequent decision of the tax foreclosure court denying fulfillment of the control.

In one of the latter two cases, CC 186.196, a motion for clarification was filed against the decision to not recognize the aforementioned conflict, clarifying that:

• there was already a decision by the judicial reorganization court ordering the replacement of any and all encumbrances on the Oi Group in amounts exceeding R$ 20,000,000; and
• the tax foreclosure court was already aware of this decision.

Therefore, the system established by the STJ in the judgment of CC 181.190 was observed. A decision is currently pending on the motions for clarification filed in CC 186.196, which, in our opinion, should prevail in the face of the conflict expressed in the opposition of the tax foreclosure court to complying with the order of the judicial reorganization court.

It is expected that with the CC 181.190 decision other judicial reorganization courts will use their creativity, seeking solutions and mechanisms that effectively put into practice jurisdictional cooperation and assistance to unburden the judicial system. But it is also necessary for the STJ itself to mature in its understanding, detaching itself from excessive formalism, under penalty of making even access to justice unfeasible.  

^[1]Conflict of jurisdiction 183.507/RJ (CC 183.507), filed on October 13, 2021, of the authorship of Justice Marco Buzzi; and Conflict of Jurisdiction 184.077/RJ (CC 184.077), filed on November 3, 2021, of the authorship of Justice Marco Buzzi.

^[2] Conflict of jurisdiction 185.176/RJ (CC 185.176), of the authorship of Justice Marco Buzzi, decided on December 17, 2021; and CC 186.196.

Category: Tax

In line with the objective of bringing the tax authorities and taxpayers closer together, reducing tax litigation through the use of alternative or appropriate methods, PGE Resolutions 4826 and 4827, of March 16, 2022, were published in the Official Gazette of the State of Rio de Janeiro, regulating, respectively, procedural case settlements (NJP) and the procedure for voluntary settlement of disputes involving the State Public Authorities.

Procedural Case Settlements (NJP) - PGE Resolution 4,826/22

PGE Resolution 4,826/22 seeks to improve the execution of procedural case settlements within the Rio de Janeiro State Prosecutor's Office. It repeals Resolution 4,324/19, expanding the possibilities for negotiation and establishes a more detailed set of rules for the state and taxpayers to enter into NJPs.

The main goal of NJPs continues to be reduction of litigation, efficiency in the collection of outstanding debt, and stimulus to tax compliance, but the instrument also honors the autonomy of the parties' will, procedural cooperation, legal security, and the financial capacity of taxpayers with outstanding debts before the State Attorney's Office of Rio de Janeiro.

According to the new rule, all debt, whether or not registered as collectible debt (except amortization plans, in which case the debt must be registered), whether or not brought in court, are potentially subject to an NJP.

Among the various possibilities for entering into an NJP brought in by article 10 of Resolution 4,826, those that were not yet regulated draw attention:

• amortization plan;
• acceptance, evaluation, substitution, release, or execution of guarantees, including prior to the filing of a tax foreclosure;
• fiduciary guarantee from the officers and directors and/or partners of the debtor legal entity or third parties;
• extraordinary concurrent standing among managing partners;
• execution means;
• definition of the receiver in the attachment of billings, company, or establishment;
• inclusion, continuation, or exclusion of the right in credit protection networks or protest of outstanding debt certificate, when applicable, or submission of these acts to term or condition;
• scheduling of the case;
• new modalities of procedural communication, including by e-mail or messaging applications; and
• installment payment of fees for loss of suit.

Resolution 4,826 contains specific chapters dealing with the amortization plan, the timing of the proceeding, and acceleration of collateral.

For the execution of an NJP involving an amortization plan, the resolution states that only debts equal to or greater than 500 thousand UFIR-RJ can be negotiated, to be paid off within a maximum period of 120 months, with the mandatory provision of collateral.

There is the possibility of including non-judicial debts in the amortization plan, as long as the taxpayer expressly agrees with the filing of the tax foreclosure and the corresponding legal charges.

Without considering the peculiarities of each case, the taxpayer's duties are, in general terms: irrevocable and irreversible confession of the debts included in the NJP; commitment to guarantee or pay in installments, within 30 days, all the debts that may be recorded as collectible debt after the execution of the NJP; and the taxpayer's commitment to keep good standing with the State Treasury Department.

An NJP that deals with the debt repayment plan may also suspend constrictive acts in the corresponding execution proceedings, but it does not suspend the enforceability of tax debts. The concession of a tax regularity certificate is conditioned on fulfillment of the requirements set forth in articles 205 and 206 of the CTN^[1] and the offering of amortization plan clauses.

Scheduling of the case

Without further details on the subject, Resolution 4,826 only establishes that the parties may, by mutual agreement, establish a calendar for the performance of judicial procedural acts, pursuant to article 191 of the Code of Civil Procedure.^[2]

To enter into an NJP aiming at scheduling, the PGE should consider, besides the provisions of articles 2 and 3 of Resolution 4,826,^[3] the taxpayer's interest in reducing the costs spent with the maintenance of collateral, the impacts of the assumption of the burden provided for in article 191, paragraph 2, for administrative organization and the advantageousness arising from other provisions.

Acceleration of guarantee

Resolution 4826 also provides for the possibility of negotiation between the tax authorities and the taxpayer to offer a guarantee before the filing of a tax enforcement action or registration of the debt as outstanding.

In analyzing the guarantee offered, the PGE must consider the provisions of article 11 of Law 6,830/80 and article 835 of the Code of Civil Procedure, which establish the preferential order of attachment.

Voluntary settlement of disputes - PGE Resolution 4,827/22

PGE Resolution 4,827 regulates, within the State Attorney General's Office, the voluntary settlement procedure for disputes involving the State Public Administration and establishes measures for the reduction of administrative and judicial litigiousness.

With a very innovative text, the resolution presupposes the achievement of mutual benefits for those involved, obeying the constitutional principles (implicit and explicit) of legality, voluntariness, autonomy, verbal acknowledgement, good faith, cutting red tape, efficiency, and economy.

The definition of voluntary settlement is provided for in paragraph 3 of article 1 of the resolution as the “case in which the State presents a calculation memorandum, pursuant to article 509, paragraph 2, of the Code of Civil Procedure, and the creditor agrees to its terms in order to end the litigation, waiving any overpayment.”

Other interesting concepts addressed by the resolution are those of "negotiation" and "mediation". Negotiation is considered to be a "technique for solving disputes in or out of court, characterized by the search for voluntary settlement through direct dialogue between those involved, without any intervention by a third party as helper or facilitator.” The negotiation can be done in a preventive manner, as a way to avoid litigation that has not yet gone to court.

Mediation, in turn, is defined as a "consensual dispute resolution activity, in which the mediator, acting preferably in cases where there is a prior link between the parties, without decision-making power, will assist and encourage the interested parties to identify or develop, by themselves, consensual solutions to the dispute.

The resolution also provides for the possibility of reaching a court settlement, defined as any voluntary settlement signed when a lawsuit is in progress, at any procedural stage, including after the final and unappealable decision in the pre-trial phase, which can encompass the litigation in part or in full.

The execution of the terms of voluntary settlement with the objective of preventing or closing disputes will observe, among other criteria established in article 4 of the resolution, the probability of success of the arguments made by the parties, the legal feasibility, and the cost-effectiveness of the settlement for the state.

The procedure for signing the instruments of voluntary settlement must follow the rules established in PGE Resolution 4,710/21, which created the Voluntary Settlement Center of the State Attorney General's Office - NAC/PGE.

^[1] Article 205. The law may require that the proof of payment of a certain tax, when due, be made by means of a clearance certificate, issued upon request by the interested party, containing all the information necessary to identify his person, tax domicile, and branch of business or activity, and indicating the period to which the request refers.

Sole paragraph. The clearance certificate shall always be issued in the terms in which it was requested and shall be supplied within ten (10) days of the date the request is received at the office.

Article 206. The certificate stating the existence of debts not yet due, in the course of executive collection in which attachment has been performed, or whose enforceability is suspended, has the same effects as those provided for in the prior article.

^[2] Article 191. By mutual agreement, the judge and the parties may set a calendar for the performance of procedural acts, when applicable.

Paragraph 1. The calendar binds the parties and the judge, and the deadlines stated therein shall only be modified in exceptional, duly justified cases.

Paragraph 2. Notification of the parties for the performance of a procedural act or the holding of a hearing whose dates have been designated in the calendar is dispensed with.

^[3] Article 2. The execution of an NJP shall be oriented so as to promote:

I - reduction of litigiousness and less onerous collection instruments;

II - efficiency in the collection of outstanding debt;

III - stimulating tax compliance;

IV - the parties' autonomy of will;

V - procedural cooperation and legal security;

VI - adjustment of collection instruments to the financial capacity of the State's outstanding debt debt debtors;

VII - fair competition among debtors; and

VIII - publicity, impartiality, and public interest.

Article 3 - the execution of an NJP may be conditioned on a demonstration of interest of the public entity in the clauses of the deal, considering:

I - the economic and financial capacity of the debtor;

II - the debt profile;

III - the advantageousness to the Revenue Service, manifested, without prejudice to other cases, by means:

1. Of the provision of a fixed term for settlement of debts;
2. The offering of sufficient and liquid guarantees;
3. Comparison with the time, costs, and prospect of success with the usual administrative and judicial collection strategies; and
4. The prospect of the debtor's return to tax compliance including as to prior debts.

Category: M&A and private equity

Climate change and the growing concern of companies to foster sustainable practices and increasingly solid governance lead the financial and capital markets around the world to dedicate more and more attention to analysis and incorporation of ESG (environmental, social, and governance) aspects in risk assessment processes and/or investment opportunities.

The scenario is no different in Brazil. The Brazilian Association of Financial and Capital Markets Entities (Anbima), a self-regulatory entity and a spokesperson for the market, shows increasing concern with the topic, especially when applied to investment funds and their asset managers.

The first initiative in this direction is from January of 2020, when Anbima published the ESG Guide | Incorporation of ESG aspects in investment analysis. The publication governs ESG concepts and national and global performance indicators, outlined the panorama of the Brazilian and world industry, besides presenting recommendations of essential requirements to be observed in investment policies implemented by managers.

In this scenario, to prepare the ESG policy, Anbima recommends that managers observe, at least, the aspects below:

• The asset manager that wants to implement ESG aspects in its investment analysis must disclose, clearly and objectively, how the criteria are incorporated into the investment policy, containing the rules, procedures, and controls for the implementation and maintenance of this type of investment. It is recommended that the document contain at least the following information:

• list of funds that adhere to the ESG policy;
• total ESG assets under management;
• employees responsible for ESG analysis and management, as well as assignment of responsibilities;
• ESG factors that are considered relevant and are the focus of investments;
• indicators used to assess ESG issues;
• procedures adopted for the acquisition and monitoring of ESG assets;
• the governance adopted and procedures implemented, including the voting policy and the criteria for divestment of assets that do not meet the requirements of the ESG investment policy; and
• frequency of review of the manager's investment policy.

• Without prejudice to its responsibility, the asset manager may hire third parties to help in the evaluation or in the monitoring of the ESG issues of the assets under management.

• Also without prejudice to its responsibility, the asset manager may also set up a committee or body that is responsible for approving the acquisitions and monitoring of ESG assets for the investment funds under its management. In the event it is set up, the following is recommended:

• establish reporting, including hierarchy and authority;
• define the frequency with which the meetings will be held;
• document the decisions and resolutions passed; and
• file the documents on which the decisions were based.

• It is recommended that the institution responsible for implementing the ESG policy publish the document on its website and keep it updated, stating the effective date and the date of the last revision. In any case, the ESG policy should be reviewed periodically and, whenever the conditions, environment, and assumptions on which it is based change significantly and materially, its content should be readjusted.

Anbima recognized, however, that the investment strategies widespread in the market show that there is no specific pattern. Thus, the information listed in this first guide should serve only as a guideline. It is up to the manager to adapt them to its needs.

Rules for fixed income and equity funds published in January of 2022

On January 3 of this year, the self-regulatory body turned its attention to the investment fund industry specifically and issued the Rules and Procedures for Identifying Sustainable Investment Funds (SI) manual. The document establishes rules, criteria, and procedures to be mandatorily observed only by fixed income and equity funds, and their respective managers, that opt to:

• identify their funds as sustainable investment funds in Anbima's database (those that have sustainable investment as an objective); or

• disclose in publicity materials that the so-called "ESG Issues" are considered in their investment policies in achieving their various objectives (e.g. for better identification of risks in asset analysis).

The manual's determinations are effective as of the date of its publication and must be implemented by the participating institutions within 180 days.

In February of this year, Anbima published the ESG II Guide | ESG Aspects for Investment Fund Managers and for Investment Funds, with the double function of supplementing the first guide (with updated information on the market panorama and international references on the matter) and helping investment funds, from the equity and fixed income classes (at this first moment), identified or that intend to identify themselves as sustainable investment funds (and their respective managers) to interpret and comply with the determinations found within the rulebook.

The ESG II Guide emphasized that the manager's responsibility is given to the extent that the choice to work with sustainable products, or products that consider ESG issues, involves a process incorporated into management, unlike other types of funds whose characteristics are determined mainly by the asset classes that make up their portfolios. These criteria, however, are not related to the managers' (as companies) internal sustainability policies, but rather to their policies, procedures, and structure aimed at incorporating ESG factors into their investment analysis and management processes.

Anbima's second ESG guide also brings in specific rules applicable to the asset manager, such as the obligation to prepare and maintain on its website a document containing guidelines, rules, procedures, criteria, and controls that will be adopted by the institution (or, alternatively, by the entire conglomerate or economic group) on the integration of ESG and/or sustainable investment issues.

In addition to the criteria to be applied to the manager, the designation of a fund as sustainable (SI) depends on a set of requirements explained in the rulebook (to be checked with the fund itself), as detailed below:

• Regarding the fund's commitment to sustainable investment:

• include in its name the suffix “SI" (sustainable investment);
• make explicit in its bylaws a summary of the fund's sustainable investment objective; and
• demonstrate the alignment of the portfolio to the SI fund's sustainable investment objective and that the remaining or temporary investments "do no harm" to that purpose.

It is important to emphasize that Anbima has not determined prescriptive criteria, such as minimum percentages of composition or indication of acceptable methodology, because it understands that various combinations of portfolio and management can produce similar results in achieving a sustainable investment objective. In any case, the manager should establish parameters for assessing portfolio alignment and potential damage to the IS Fund's objective.

• Regarding the continued actions taken:

• adopt and disclose an investment strategy that includes, at a minimum: the methodology used to achieve the sustainable investment objective(s) of the SI fund; the reference source(s) of information used in accordance with that methodology and the manner in which it is processed; and other tools employed that complement or support that strategy;
• identify possible limitations in the methodologies used with a view to the SI fund's objectives, including those related to data processing and the tools used;
• adopt and disclose due diligence actions to ensure the investment objective(s) of the SI fund in relation to the constraints identified (e.g., the manager can explain how it protects itself against potentially damaging, or unaudited, information, and should disclose how it ensures conflict management in hiring ESG rating agencies, which may also provide advisory services to the companies or funds it targets for assessment);
• present what material actions, metrics, and/or indicators are used to monitor the SI fund's investment objective(s);
• adopt and disclose systematic engagement processes with the issuers of the assets comprising the portfolio on relevant issues, in order to achieve the SI fund's objective(s); depending on the strategy chosen, the manager may be required to play a prominent role as a driver of best social and environmental practices and governance in the investee companies (engagement that can be practiced by both equity investors and debt security holders); and
• if the asset manager has voting power in an investee's decision-making body, follow the "Rules and Procedures for Exercising Voting Rights at Meetings No. 02", of May 23, 2019, and adopt voting practices that are in harmony with the SI fund's objective(s) (proxy voting), remembering that Anbima's Third Party Asset Management Code has rules in this regard.

• In any case, the indicators and/or metrics defined for the purpose of verifying the performance of the SI fund regarding its sustainability objective, the limitations of its methodology, and/or the data used, and the verification of the "do no harm" principle on the allocation of resources of the portfolio must be registered and monitored over time.

• Disclose, in a clear, objective, and up-to-date manner, in the SI fund's advertising material, its sustainable investment objective(s), and the strategies and actions used to pursue and monitor that objective(s) to provide transparency to the investor.

• Ensure, if an index is used as a reference, that it is also aligned with the sustainable investment objective(s) of the SI fund. The manager may replicate indexes that incorporate sustainability criteria, refine an existing indicator, build a proprietary index, or actively engage with the companies in the index around sustainability issues. The methodology of the indicator or the one adopted must be formalized, and the performance of the index in relation to the fund's objective must be monitored, as well as the limitations previously identified.

• Have a resource manager that complies with the rules of the manual. The sustainable investment objectives of the SI manager and the SI fund, as well as the strategies and actions used to pursue and monitor this purpose, should be reported in a clear, objective, and up-to-date manner in the SI fund's documents.

Although the manual of Rules and Procedures for the Identification of Sustainable Investment Funds (SI) is intended only for fixed income and equity funds, it is possible that similar criteria will be published and applied by Anbima for other types of funds, such as multimarket and structured funds (equity investment funds - FIPs, credit rights investment funds - FIDCs, and real estate investment funds - FIIs), helping the segment and investors to advance in this agenda.

Category: Labor and employment

Decree 50,308/22 published on March 7 by the municipality of Rio de Janeiro removed the requirement to wear face masks to protect against covid-19 for access to and remaining in closed environments, extending the loosening started by the municipality in October of 2021, when the removal of this protection in open environments was authorized.

However, the change authorized by the city of Rio de Janeiro, the first capital to adopt the measure, does not necessarily mean the end of the obligation to wear protective masks in the workplace.

This is because the interministerial ordinance MTP/MS 14/22, which governs the use of face masks against covid-19 by employees in the work environment, remains in effect. Considering the Federal Government's exclusive competence to legislate on labor matters, and the Ministry of Labor and Employment's competence to regulate such matters, a municipal standard cannot override and alter a labor rule promulgated by the Federal Government, under penalty of direct violation of the Constitution.

It should be noted that the STF decided, in the analysis of a direct action of unconstitutionality, that the competence to take measures against covid-19 is concurrent, and the most restrictive measure must always prevail.

Considering the competence over labor issues and the prevalence of restrictive measures, we understand that employers should, until the states are aligned on the issue, maintain the use of masks in the workplace.

We also remind you that the costs related to the masks cannot be passed on. It is necessary to provide them to employees.

Category: Litigation

Administrative law has been going through an accelerated change in its paradigms. Once centered on classic (though not always tangible) concepts, such as the supremacy and inalienability of the public interest, the area has been bending to reality: there are facts of life, such as environmental crises and social dynamics, that directly impact on the lives of the entire community. The issues that arise from these facts demand complex answers, which cannot be solved by state impositions, but must be agreed upon among the most diverse segments of society, such as companies, civil society, and third sector entities, among others. This is the case with recent practices related to administrative consensus, whose limits and possibilities are still being defined by public-private interaction.

The concept of a "risk society", whose greatest exponent was the German sociologist Ulrich Beck, is a possible theoretical matrix to explain the change in the classic paradigms of administrative law. For this author, the accelerated technological development that marks our times brings, on one hand, improvements in the quality of life of citizens, but, on the other, it generates risks (especially environmental ones) whose consequences can assume a global scale. The capabilities for mitigating these risks go beyond the traditional attributions of institutions, such as the State, and conventional mechanisms for solving problems, such as the exercise of externalized power by the Public Administration. The production of large-scale consumer goods, the exploitation of nuclear energy, or mining activities deliver goods that are essential to life in society, but they carry potential or actual risks that can equally affect everyone, and with consequences that are not always properly addressed.

In this sense, it is increasingly common for the interests of the State and private parties to be concerted, with the loosening of principles such as the inalienability and supremacy of the public interest, which are classically used as grounds for submission of private parties to the interests held by the State, in order to (in an apparent paradox) maximize the pursuit of the public interest, whether in the prevention of damage (risk management), or in the search for solutions in the event such damage actually occurs (crisis management). The Public Administration loosens its inspection and sanctioning position in search of more participative and managerial roles in the effective solution of problems, especially for phenomena with great environmental and social repercussions.

Consensual action, characterized especially by the signing of bilateral or multilateral agreements that contemplate both the specific interests vested in the Public Administration and the legitimate individual interests protected by the legal system, has been present in the legal system for years, as in the case of Decree Law 3,365/41 (expropriation settlement), Decree 94,714/87 (execution of consent orders), and the micro-system of diffuse and collective rights (consent decrees), but has only recently reached its inflection point.

One example is Law 13,140/2015, which creates a legal framework on the voluntary settlement of conflicts within the Public Administration. It provides for the possibility for the Federal Government and states establishing chambers for the prevention and administrative resolution of disputes between agencies and entities of the Administration or between the Administration and private parties.

In the wake of this development in standards, recent changes to the text of the Law of Introduction to the Norms of Brazilian Law (Decree Law 4,657/42) consolidated the model of consensual control of the Public Administration, through the creation of bilateral mechanisms, such as the signing of "commitments with the interested parties", aimed at legal solutions that are proportional, equitable, efficient, and compatible with the general interests. The conclusion of these settlements has also proven to be an innovative tool in risk management and crisis management, as opposed to traditional litigation measures.

The legal discipline and the adoption of consensual mechanisms in administrative practices show the loosening of a rigidly hierarchical relationship between the Administration and the recipients. The consensual mechanisms for dispute resolution in the repair of major events create a locus for dialogue and the definition of attributions to the private parties responsible for repairing the damage, the needs of the Administration, and the public interest. An interesting example of these practices are the industry agreements for the reverse logistics of solid waste, such as plastic packaging for storing lubricating oil and fluorescent lamps, waste that contaminate water tables, and put the health of the entire community at risk. These agreement modalities reveal the importance of the State's role in defining and monitoring and evaluating the targets, as well as disseminating the settlement and practices to other sectors of society.

The management of large-scale risks demands close and transparent dialog with the other segments involved, in which the negotiation of bold solutions is an effective environmental policy instrument. And for operators of administrative law, whether in the public or private sector, it is essential to develop skills in reading and building dispute resolution scenarios and negotiation techniques in more cooperative and horizontal environments.

Category: Litigation

A pilot project designed to create a cooperation center to reduce the number of bankruptcy and judicial reorganization proceedings in Minas Gerais has been running since February. The initiative will enable greater specialization of judges and public servants and, with this, has the potential to increase productivity and speed up the review of cases in progress in the state,^[1] especially in the processing of business claims, which are admittedly complex.

The project was implemented by Judge Gilson Soares Lemes, chief judge of the Court of Appeals of Minas Gerais (TJMG), and shall be implemented, in a first moment, by the judges of the 1st and 2nd Business Courts in the Judicial District of Belo Horizonte, who will work together in the examination of bankruptcy and reorganization proceedings in progress in the judicial districts of the state. Other matters involving business law will be reviewed by auxiliary judges appointed by the court.

In the second stage, the bankruptcy and judicial reorganization proceedings filed in the state's judicial districts will be transferred to specialized judicial units in Minas Gerais. According to data gathered, there are currently about three thousand bankruptcy and court-supervised reorganization proceedings^[2] awaiting judgment in the 296 judicial districts of the state.

The Judiciary of Minas Gerais had already been implementing measures to make the provision of judicial services more efficient, effective, and accessible to society. Among them is Resolution 977/21, issued by the TJMG on November 16, 2021. The resolution approved the instatement of the 21st Civil Chamber which, together with the 16th Civil Chamber, will be responsible for processing and judging, on an exclusive basis, appeals and incidental proceedings related to:

• business law;
• public records;
• social security law in which the INSS is a party; and
• other matters described in Exhibit II of the aforementioned resolution.^[3]

The measures are in line with the assumptions established in the Justice 4.0 Program, launched by the National Council of Justice (CNJ) in January of 2021. The CNJ's goal is to promote the improvement of judicial policies, including implementation of technological innovations and increase of governance and transparency in the Judiciary.

The creation of courts and chambers specialized in business law has been a practice adopted for years by the Court of Appeals of the State of São Paulo (TJSP) and has helped to make the Judiciary more agile.

An important jurimetric study on the business courts of the judicial district of São Paulo^[4] done by the Brazilian Association of Jurimetrics (ABJ) analyzed more than 300,000 cases filed over three years (2013 to 2015) in the 44 civil courts and two bankruptcy courts of the Central Courts of São Paulo.^[5] In the study, the number of completed cases and the time spent by judges in reaching decisions were surveyed. It was found that bankruptcy and reorganization proceedings demand three times more time for review by the judges than ordinary civil proceedings. Other business claims, such as corporate litigation, demand more than twice as much work time.^[6] This data was used by the TJSP to justify the creation of regional courts specialized in business law in Greater São Paulo.^[7]

The changes promoted by the TJMG also show a willingness to foster the stability of business case law, which is positive and commendable. The increase in legal security and improvement in judicial decisions are intrinsically linked to increase in confidence of citizens, businessmen, and investors, determining factors to boost the local economy.

For all the proposed changes to be implemented, it will be necessary to carefully delimit the matters to be decided by the specialized courts and to determine as clearly as possible the jurisdiction of these bodies. This will avoid the annulment of decisions handed down by incompetent judges and the filing of conflicts of jurisdiction, which would unnecessarily overload the Judiciary.

The TJMG's initiative should be valued because, in the medium and long term, it will meet the constitutional guarantees related to the reasonable duration of the proceeding and the principle of efficiency, provided in article 5, LXXVIII, of the Federal Constitution (FC). We emphasize, however, that for the measure to be more effective, a review of the matters set out in article 3, subsection II, of TJMG Resolution 977/21 should be carried out in order to make some of its provisions clearer and, if necessary, further delimit the jurisdiction of the 16th and 21st Civil Chambers.

^[1] According to the CNJ, 67.5% of Brazilian judicial districts have only one court with no specialization. Furthermore, approximately 65% of the judicial units are courts of general jurisdiction or have exclusive civil or criminal jurisdiction. Source: https://www.cnj.jus.br/wp-content/uploads/2021/11/relatorio-justica-em-numeros2021-221121.pdf – p. 222. Accessed on February 21, 2022.

^[2] Source: https://www.tjmg.jus.br/portal-tjmg/noticias/tjmg-apresenta-projeto-para-dar-celeridade-a-tramitacao-processual.htm#; accessed on February 21, 2022

^[3] As per article 3, subsection II, of the Resolution. Full content: http://www8.tjmg.jus.br/institucional/at/pdf/re09772021.pdf; accessed on February 21, 2022

^[4] Source: https://abj.org.br/cases/varas-empresariais/ Accessed on February 21, 2022.

^[5] Although there is no news of a jurimetry study in the State of Minas Gerais similar to the one developed by ABJ in São Paulo, it can be noted that the productivity indicators of the judges and public servants in TJMG were lower than the national average in 2021. According to the CNJ, the TJMG had 1,471 cases cleared in 2021, while the national average was 1,672. Source: https://www.cnj.jus.br/wp-content/uploads/2021/11/relatorio-justica-em-numeros2021-221121.pdf - pp. 121 and 125. Accessed on February 22, 2022.

^[6] Source: https://abj.org.br/pdf/ABJ_varas_empresariais_tjsp.pdf Accessed on February 21, 2022.

^[7] Source: https://www.conjur.com.br/2019-dez-03/tj-sp-inaugura-varas-empresariais-regionais-grande-sao-paulo Accessed on February 23, 2022.

Category: Capital markets

The Securities and Exchange Commission of Brazil (CVM), in line with the movement to update, consolidate, and simplify the regulatory framework governing the Brazilian capital market that began in 2020, issued, on March 29, 2022, CVM Resolution 80, "which provides for the registration and provision of periodic and one-off  information from issuers of securities admitted for trading in regulated securities markets.” The resolution repeals several previous instructions, the most relevant of which are CVM Instruction 480 (which provides for the registration of securities issuers) and CVM Instruction 367 (which provides for the declaration to be provided by managers of publicly-traded companies upon their election).

With the revocation of ten prior instructions, CVM Resolution 80, in practice, consolidated in a single rule the rules relating to registration and the provision and disclosure of periodic information by issuers of securities, without significant changes to existing obligations. The exception was the institution of a new obligation applicable to publicly-traded companies registered in category "A", concerning the disclosure of information on corporate lawsuits involving the companies themselves, their shareholders, or their officers and directors, as parties.

The creation of this obligation is not new to participants, since the topic was put up for public hearing by the CVM in 2021, in which the agency highlighted the purpose of improving protection mechanisms for investors and minority shareholders, based, among other issues, on OECD recommendations in its report Private Enforcement of Shareholder Rights: A Comparison of Selected Jurisdictions and Policy Alternatives for Brazil, published in November of 2020.

In the reasons set out in the public hearing notice, the CVM contends that the communication duties existing today are not sufficient to give investors in publicly-traded companies adequate visibility on demands involving invested company, which often refer to discussions on issues that may, directly or indirectly, relate to rights dear to shareholders.

The corporate lawsuits that must be disclosed by publicly-traded companies registered in category A are all legal or arbitral proceedings whose prayers for relief are, in whole or in part, based on the corporate or securities market legislation, or on the rules issued by the CVM, provided that such lawsuits involve the companies themselves, their shareholders, or officers and directors and that, alternatively, involve diffuse, collective, or homogeneous individual rights or interests; or in which a decision may be handed down whose effects affect the company's legal sphere or other holders of securities issued by the issuer who are not parties to the lawsuit, such as a lawsuit for the annulment of a corporate resolution, a liability action against an officer or director, and a liability action against a controlling shareholder.

Annex I of CVM Resolution 80 establishes the minimum content that must be disclosed. It comes very close to the content that was already required in relation to material lawsuits, in items 4.3 to 4.7 of the reference form, which include parties to the lawsuit, the amounts, assets, or rights involved, and the main facts.

In addition to the information that would usually already be disclosed, the standard now requires that the following be expressly stated:

• In the case of lawsuits - claims or relief sought, decisions on requests for urgent relief and production of evidence, decisions on jurisdiction and competence, decisions on inclusion or exclusion of parties and judgments on the merits or extinguishing the case without a judgment on the merits, at any level of appeal; and
• In the case of arbitration - submission of an answer, execution of an arbitration agreement, or equivalent document that represents stabilization of the claim, decisions on interim or urgent measures, decisions on jurisdiction of arbitrators, decisions on inclusion or exclusion of parties, and partial or final arbitral awards. In relation to both types of corporate claims, the new obligation requires disclosure regarding the execution of any agreements made in such claims.

The new disclosure obligation does not interfere with the company's analysis regarding the need to disclose the same information by means of a material fact, under the terms of the applicable standard. In other words, regardless of the disclosure provided for in CVM Resolution 80, companies must make their own analysis to assess whether it is necessary to disclose the information by means of a material fact, being exempted from presenting the report, provided that the material fact contains all the information required by the resolution.

CVM Resolution 80 also establishes that the confidentiality obligations provided for in the arbitration chambers' rules should not override compliance with the new regulatory obligation, subject to the legally established rules regarding the confidentiality of such claims.

The disclosure of this kind of information is a controversial topic in itself. On several occasions, this type of claim is dealt with in institutional arbitration bodies that have strict rules regarding the confidentiality of claims. This can even be considered one of the reasons that lead companies to prefer this type of means to manage and solve corporate disputes, given the potential damage that a corporate lawsuit has to the companies' image.

In this regard, the CVM itself took care to include its arguments on the issue of secrecy in the public hearing notice, emphasizing that "the regulations of the clearinghouses cannot contradict legal and regulatory provisions" and "that the disclosure obligations reflect central concerns of the capital market regulations and cannot be set aside by arbitration agreements, rules of arbitration chambers, or by any other convention, subject to the applicable confidentiality limits provided for by law.

Regarding the topic, the statements of the participants, contained in the report of the public hearing which resulted in the creation of the obligation (in the sense that the confidentiality of arbitration also has legal support and that a smaller set of information should be required in confidential claims), already set the tone of the possible discussions regarding the normative conflict between the rules that establish the confidentiality of arbitration claims and the new obligation established by the CVM.

Despite the polemics surrounding the topic, which will certainly still give rise to discussions, CVM Resolution 80 will come into effect on May 2. The application of the new obligation to disclose corporate claims will be compulsory for corporate claims filed as of this date and optional for those initiated before the rule went into effect.

Category: Tax

The federal government published last March 22 three measures to encourage the production of biogas and biomethane, entered into jointly by the Ministry of Environment (MMA) and the Ministry of Mines and Energy (MME).

Decree 11,003/22 instituted the Federal Strategy to Encourage the Sustainable Use of Biogas and Biomethane, with the objective of encouraging programs to reduce methane emissions and promote the use of biogas and biomethane, establishing various guidelines for the sector, such as stimulating the preparation of plans and signing industry agreements; promoting the implementation of technologies that allow the use of biogas and biomethane as sources of energy and renewable fuel; and promoting the implementation of biodigesters, biogas purification systems, and biomethane production and compression systems.

These measures depend on specific regulations by the MMA and MME, but they already open the way for private sector negotiations with the federal government for the structuring of new projects.

Decree 627/GM/MME, of March 17, 2022, included non-associated natural gas and biomethane production projects as eligible for the Special Arrangement of Incentives for Infrastructure Development (Reidi), in accordance with Ordinance 19/GM/MME, of August 16, 2021.

This arrangement has the potential to stimulate new investments and implementation of new projects in the sector, ending the legal uncertainty regarding the application of Reidi and discussions regarding the need to equate operations with biomethane to those promoted with natural gas, already contemplated in the incentive.

The MMA has also instituted the National Program for the Reduction of Methane Emission (Zero Methane), which has among its guidelines fomentation of industry plans and agreements; the incentive to the carbon credit market; and the stimulus to the use of biogas and biomethane.

The program will be coordinated by the Environmental Quality Bureau, in coordination with the MMA's Climate and International Relations Bureau, aiming to develop partnerships with other governmental bodies, the private sector, and civil society for the implementation of its strategic objectives.

The measures are based on Law 14,134/21 (Gas Law), which also included biogas as part of the strategic plan for promoting the natural gas sector. The new Gas Law has authorized regulatory standards that encourage the development of natural gas-related projects to also apply to other types of gas, including biogas arising from the biological decomposition of organic matter.

In this sense, Decree 10,712/21, which regulated the new Gas Law, determines that, for all purposes, biomethane and other gases interchangeable with natural gas should have regulatory treatment equivalent to natural gas.

Category: Institutional

In an unprecedented decision, the 6th Panel of the Superior Court of Justice (STJ) decided, on April 5, that the Maria da Penha Law (Law 11.340/06) applies to cases in which the victims are transgender women. The decision was rendered in the trial of Special Appeal 1,977,124, referring to the case of a trans woman beaten by her own father, who did not accept the fact that she identified with another gender. The woman requested protective measures provided for in the Maria da Penha Law, including the removal of the aggressor from their home.

Although the appeal is not under Repetitive Regimen and, therefore, the understanding is valid only for the case in question, the position of the Supreme Court represents an important advance of the Judiciary System consolidating a more inclusive society.

The Maria da Penha Law came into force in August 2006 aiming at preventing and reducing domestic and family violence against women. Its creation is linked to the emblematic case of a pharmacist from Ceará called Maria da Penha, victim of a double attempt at feminicide by her ex-husband in 1983. Due to the assaults, Maria da Penha ended up becoming quadriplegic. Although her husband was convicted in two trials (in 1991 and 1996), the sentence was not executed due to procedural reasons.

Considering the Brazilian Justice’s neglect, the Inter-American Court of Human Rights convicted Brazil in 2001 of omission and negligence in relation to domestic violence committed against its female citizens. Under pressure,  the arrest of Maria da Penha's husband was finally ordered in 2002, 19 years after the crime was committed, and close to statute of limitations.

Since then, the scope of the Maria da Penha Law has been determined by the state courts of justice, which, as a rule, had been denying transgender women the possibility of using the prerogatives of the law for their protection, claiming that the legislation would not apply to them due to their biological sex.

In the present case, in the first instance, the judge denied the protective measures required because in his interpretation, the expression "gender" would only include female biological sex, and, therefore, it would not apply to the case. In judging the appeal filed by the Public Prosecutor's Office of São Paulo, the Court of Justice of São Paulo upheld the sentence, justifying that "woman" and "man" would be scientific and biological concepts, thus making it impossible to apply the Maria da Penha Law to trans women.

The Public Prosecutor's Office appealed to the STJ arguing that the Maria da Penha Law itself determines that it applies to the female gender and not to the female biological sex. It would therefore be up to the mere literal application of the law, in respect of its article 5, which constitutes as domestic and family violence against women any action or omission based on their gender that causes their death, injury, physical, sexual or psychological suffering and moral or property damage.

In an extremely well-reasoned vote, containing case laws, doctrines, statistical data and explanatory tables, the minister rapporteur of the appeal, Rogério Schietti, discusses the difference between gender, sex and gender identity, establishing as a premise: "a trans woman is in fact a woman".

The minister stressed the existence of transphobia in Brazilian society, emphasizing that Brazil is the record-breaking country in the rates of murders of trans people in the world. The information is confirmed by a study conducted by the National Association of Transvestites and Transsexuals (Antra), according to which at least 140 trans people were murdered last year in Brazil, 135 of them transvestites, numbers that make it the country where the most trans people are murdered in the world for the 13th consecutive year.

In his explanation, the rapporteur also explained that the trial dealt with the "vulnerability of a category of human beings", that cannot be summed up to the objectivity of an exact science. Human existence and relationships are complex, and the Law should not be based on shallow, simplistic and reductionist statements, especially in these times of naturalization of hate speeches against minorities".

To conclude, the Minister stressed that " the preponderance of a purely biological factor is unreasonable in light of what really matters for the incidence of the Maria da Penha Law, with all its protective framework, including jurisdiction to prosecute criminal proceedings arising from crimes perpetrated in situations of domestic, family or affective violence against women".

Following the rapporteur's understanding, the 6th Panel welcomed the appeal of the Public Prosecutor's Office, extending to trans women the application of the Maria da Penha Law and, therefore, its protective measures.

The Decision of the Supreme Court corroborates the constitutional principle of isonomy. It is an example of inclusion and gives new focus to the positioning of Justice in relation to violence against women and trans people. It is expected that this trial will serve as a reference for similar cases and allow trans women to effectively count on the protection of our legal system and Brazil will no longer occupy the shameful leadership among the countries that kill trans people the most in the world.

Sources:

Site Legal Advisor – Conjur: Vote of Minister Rogerio Schietti REsp 1,977,124

STJ website - Maria da Penha Law is applicable to violence against trans women, decides Sixth Class

Dossier Murders and violence against Transvestites and Transsexuals Brazilian in 2021

Law 11,340

Maria da Penha Institute website

Crumbs website: STJ: Maria da Penha Law can be applied for transgender women

Category: Capital markets

The Securities and Exchange Commission of Brazil (CVM) published, on February 24 of this year, the Annual Circular Letter 2022 CVM/SEP, which consolidates the guidelines of the Company Relations Bureau (SEP) to be observed by listed, foreign, and incentivized companies in complying with their regulatory obligations.

With the purpose of clarifying important issues regarding the procedures adopted in the day to day of the companies and in view of the recent changes in the law and regulations in force, the circular brings in updates on topics related to:

• Changing rules for mandatory publications required by Law 6,404/76, as amended (Brazilian Corporations Law);
• Call notices for general meetings;
• Proof of uninterrupted ownership of shares for separate election of board members;
• Explanatory notes and management report;
• Completing the reference form;
• Collection of inspection fee;
• Appeal and payment of punitive fines;
• Digital signature; and
• Queries

Changing rules for mandatory publications

On January 1st of this year, Law 13,818/19, which amended the Brazilian Corporations Law, came into effect. The changes exempt companies from mandatory publication in the Official Gazette and allow corporate acts and financial statements to be published in summary form.

Since the exclusion of the need for publication in the Official Gazette is a disclosure change resulting from a change in the law itself, the SEP believes it is not necessary to observe paragraph 3 of article 289 of the Brazilian Corporations Law, which provides that any change of newspaper must be preceded by a notice to shareholders in the excerpt of the minutes of the ordinary general meeting. Companies need only update their registration form and issue a notice to shareholders to communicate the decision.

Regarding summarized publications, we point out that the financial statements have a minimum content determined in subsection II of article 289 of the Brazilian Corporations Law. In addition, it is important that companies observe CVM Guidance Opinion 39, of December 20, 2021, which details the minimum content of summarized financial statements and indicates the warnings that must be included in the publication.

As far as the other publications, such as the management report, public notices, and minutes are concerned, there is no minimum mandatory content. SEP warns that companies must be careful not to omit or disclose incomplete or inaccurate material information, so as not to mislead investors. The summarized publications must contain a notice that the information provided has been summarized, in addition to indicating the electronic addresses where the documents can be accessed in full (website of a large circulation newspaper, of the CVM, and of B3, if the company is listed).

For more information about the new rules on publications required by the Brazilian Corporations Law, including for privately-held companies, and the guidelines set out in the circular in this regard, we suggest reading this article  published in our Legal Intelligence portal.

Call notices for general meetings

Although the change in the Brazilian Corporations Law allows for general meetings to be called at least 21 days in advance for first call, and 8 days in advance for second call, SEP advises companies to continue to adopt the 30-day advance notice, in order to encourage investor participation.

With this same purpose and with special attention to foreign investors, the SEP recommended that call notices highlight the importance of multiple vote requests being made in advance by shareholders; it also recommended, for companies with significant participation of foreign investors, that documents and information that will serve as support for the meetings be disclosed simultaneously in Portuguese and English.

Proof of uninterrupted ownership of shares for separate election of board members

Under the terms of article 141, paragraph 6, of the Brazilian Corporations Law, only those shareholders who prove uninterrupted ownership of the required shareholding during the minimum period of three months prior to the general meeting may exercise the right to elect a separate member of the board of directors.

Although it is not an obligation attributable to the shareholder by the Brazilian Corporations Law, the SEP, aiming to have companies encourage the participation of shareholders in their meetings and not create formalities that may burden or hinder the exercise of rights by shareholders, believes that:

• the best practice is that companies include in the set of services provided by the bookkeeping agents the control of the confirmation of the uninterrupted ownership of the shares in relation to all items involving the matter (request of separate election and choice of candidates), for the bookkeeping agent to forward to the issuer the information that includes an evaluation of this eligibility requirement;

• in the case of sending a remote voting ballot to the bookkeeper or custodian, the requirement to send documentation to prove uninterrupted ownership of the shares seems to create an unnecessary and onerous formality for the shareholder; and

• as to ballot papers sent directly to the company, in compliance with the provisions of article 21-F, paragraph 1, subsection IV, of CVM Instruction 481, it is incumbent on management to define procedures and formalities that are indispensable to guarantee the integrity of the voting process via ballot paper; any document requirements should not represent unnecessary obstacles to the shareholders' participation in the meetings.

Explanatory notes and management report

In this version of the circular letter, the SEP presented a study on financial statement requirements in applications for publicly-held company registration. The most common requirements were as follows:

• deficient disclosure of accounting policies applied to the company, mainly when it is found that the company mostly stopped at transcribing or paraphrasing the accounting standards, without observing CPC 23 and OCPC 07;
• disclosure of information regarding the relationship with the independent auditors, according to the provisions of article 31 of CVM Instruction 308/99 (currently CVM Resolution 23/21), in the management report;
• aspects concerning the loss of recoverable value of assets ( impairment test), pursuant to item 134 of CPC 01 (R1) and guidelines of item 3 of Circular Letter/CVM/SNC/SEP/No. 01/20);
• disclosure of the reconciliation of information of a non-accounting nature (Ebitda or adjusted Ebitda) in accordance with CVM Instruction 527/12; and taxes on profits, under the terms provided for in CVM Instruction 371/02.

SEP warns already registered companies and issuers in the process of registration to be attentive to correctly disclose the above items in the explanatory notes of their financial statements and management report, as the case may be.

Completing the reference form

Regarding the filing of the FY 2021 reference form, the main additional guidelines are:

• Item 12.6 "e” - Participation of members of the board of directors and the audit committee in meetings held by the respective body: in this item, the information must refer to the participation of officers and directors in meetings held after taking office in their respective positions. Thus, this information should be filled in based on their participation in the meetings that took place after their last election.

• Item 15 - It is not necessary to update the reference form in the event of a change in the number of treasury shares resulting from the execution of a buyback program. However, should the number of shares acquired during the program represent a change in the shareholding levels of 5%, 10%, 15%, and so on, due to the possibility of variation in the percentage of shareholders, we recommend that item 15.1/2 (treasury shares) of the reference form be updated.

• Item 16.2 - Related party transactions: the SEP has reinforced the need to make clear the purpose of related party transactions and the company's interest in maintaining them. In addition, the technical area clarified that, regarding the existing balance of the transactions with related parties (letter "g"), the value stated in this field must correspond to the remainder of the contract (the part that belongs to the related party). The completion of the field "Amount corresponding to the interest of such related party in the deal, if it can be gauged" should take into account that, generally, if the deal is entered directly with the related party, its interest in the deal is 100% of the amount involved, so that this value is repeated. In some cases, the related party may be a "co-interested party" if, for example, it owns part of the leased property. In this case, they should only enter the amount of their interest in the transaction.

Due to the enactment of CVM Resolution 59, which comes into effect in early 2023, the reference form will undergo several changes in its format and structure. We suggest, as a way of preparing for what is to come, reading this article  published in our Legal Intelligence portal.

Collection of inspection fee

Another important point dealt with in the circular concerns the CVM inspection fees, which underwent changes with the enactment of Executive Order 1,072/21.

In general terms, there was an increase in the number of events in which the fee is due, such as when an issuer applies for initial registration and when restricted efforts offerings are carried out without CVM registration. The frequency of the payment of the issuer registration fee, which was due quarterly, has been changed, as has the cap on the fee charged for public offerings of securities.

Below is a summary of the fees:

* Due only when there is no concomitant public offering.

Appeal and payment of punitive fines

Article 16 of CVM Resolution 47/21 states that the decision to impose punitive fines may be appealed to the review board, through the CVMWeb system, within ten days from the date of acknowledgement of receipt of the letter communicating the fine.

The due date of the fine, however, does not change due to the filing of an appeal, since it does not operate as supersedeas. Therefore, the company may choose to: (i) pay the fine on the due date and, if the appeal is granted, request reimbursement from the CVM; or (ii) not pay the fine and, if the appeal is not granted, pay the fine plus charges due to the delay in payment.

On this topic, the SEP also clarified that, as the punitive fines are not to be confused with the penalties provided for in the head paragraph and subsections I to VIII of article 11 of Law 6,385/76, as amended, it is not possible to transform a punitive fine into a warning.

Digital signature

In line with Decree 10,543/20, the circular also contains guidelines regarding the electronic signature of documents that must be forwarded by the CVM's digital filing, which must have an advanced or qualified signature (silver or gold level in the Digital Citizenship Platform.GOV.BR) in the following cases:

• application for registration as a securities issuer, in category A, under CVM Resolution 809/19;

• filing of an appeal from a fine;

• request for confidential treatment of information/documents provided in order to meet requirements made under CVM Instruction 480/09, as amended (article 56, paragraph 3);

• consultations with requests for confidential treatment;

• request for exception to the immediate disclosure of a material fact (article 7 of CVM Resolution 44/21); and

• execution of a consent order with the CVM.

For clarification purposes, advanced signature requires the signatory to use a digital certificate, but this does not necessarily need to be issued by ICP-Brasil (Brazilian Public Keys Infrastructure). An advanced electronic signature may be issued by another means of proving authorship and integrity of documents in electronic form, provided that it is admitted by the parties as valid or accepted by the person to against whom the document is submitted, with the following features:

• be uniquely associated with the signer;
• use data for the creation of electronic signatures whose signatory can, with a high level of confidence, operate under its exclusive control; and
• be related to the data associated with it so that any subsequent modification is detectable. Qualified signatures, on the other hand, necessarily involve the use of a digital certificate issued by ICP-Brasil.

More information about the use of signatures in the federal public administration can be found at the CVM’s website .

Queries

The CVM reinforces in the circular letter that queries from issuers forwarded directly to the e-mail addresses of management or the SEP will only be answered by e-mail if they involve low complexity issues that do not require the involvement of the managers or the superintendent. Other queries must be forwarded via digital protocol so that a specific administrative proceeding can be opened on the subject.

Category: Digital Law

Mauricio Tamer and Jade Stefanie

New guidelines on data processing and sharing have been discussed by the European Commission, which has adopted a proposed regulation to create a sound data-driven economy capable of monitoring the process of digital transformation in the European Union.

The action positions the European Union at the forefront of regulatory initiatives aimed at controlling data flow and digital economy models. It should be emphasized that data flow is a valuable step in a process of digital transformation, and keeping it in balance is as important as the protection of personal data.

The Data Act is part of the discussion of a set of actions and policies of the data strategy to chart Europe's digital future. The strategic plan aims to include measures to digital education and policies in the media to democratize the digital space.

The Regulation aims to consolidate and strengthen the European digital economy by making the sharing and processing of industrial data more fair and safer, stimulating competition in the data market and opening up opportunities for innovation.

Proposals for the Data Act are:

• Measures that enable users of connected devices to access the data they generate – often collected exclusively by manufacturers – and share it directly with third parties;
• Measures to rebalance the bargaining power over data sharing between companies with very unequal weights, including the adoption of contract models that allow for more equal sharing;
• Means for public sector bodies to be able to use data collected by the private sector in cases of emergencies and exceptional circumstances; and
• New rules that enable users to establish safeguards against illicit data transfers and
• cloud data processing service providers.

Among the main issues is also the control of the flow of data for commercial operations, whether in relation to companies and consumers or between companies involved in negotiations.

The inclusion of safeguards and the ability of the data subject to have greater autonomy and control of information about himself/herself directly impact the evaluation of projects and business strategies. Data are important assets that feed flexible production systems and decision-making. Therefore, delimiting the scope of ownership of these assets is a decisive factor in business relationships.

Category: Infrastructure and energy

I.    Introduction and assumptions

This article is intended to describe the legal framework and business environment of water and sanitation in Brazil. It does not comprise, therefore, specific and defined business opportunities, but rather an overall picture of selected relevant aspects of water and sanitation sector under a strictly legal and regulatory standpoint.

Brazil has approximately 5,000 municipalities and, therefore, potentially more than 5,000 incumbent authorities for water and sanitation services to the population in general. These authorities are not allowed to circumvent the main features of the general guidelines and the national framework discussed hereto, but particularities within the boundaries of the areas under their jurisdiction may arise, and they cannot be captured for this article, which intends not to reflect the local norms and practices existing throughout the country.

For ease of reference, this article is divided into the following sections: (i) Introduction and assumptions; (ii) Regulatory guidelines; and (iii) New Regulatory Framework.

II.  Regulatory guidelines

Water and sanitation services to the population in general are legally qualified as utilities (public services) in Brazil. It means that the rendering of such services is not open to competition under the free market, but rather an attribution of the government, which may delegate these services within certain boundaries set forth in the law. Brazilian law recognizes two types of governmental entities as the primary authorities over water and sanitation activities: municipalities and regions (such as metropolitan areas). They can deliver water and sanitation services for the users either directly or by means of operators, to whom the services may be delegated and consisting of state-owned companies (“SOC”) or privately held companies (“PHC”). When services are delegated, municipalities or regions reserve to themselves a role of Granting Authorities (“GA”), overseeing operators, but must engage governmental agencies of another federative entity (for example, a municipality may engage a state agency) to coordinate interests and resolve conflicts among operators, GA and users.

That is to say: water and sanitation utilities are highly regulated activities in Brazil. As it will be discussed in item III, below, this regulation has recently been positively impacted by the enactment of a new framework that establishes national standards fostering private participation in water and sanitation sector (“New Regulatory Framework”). Although New Regulatory Framework is not aimed at deregulating water and sanitation in Brazil, it improves the standards for GA, regulatory agencies and SOC to perform their roles in water and sanitation sector, bringing more transparency, rule of law and long-term policies that result in the enhancement of the business environment in the water and sanitation sector. For details on this enhancement, please refer to section III below.

• (a) Models of regulation
  

Brazilian governmental agencies implement regulation on water and sanitation utilities under two different models: the discretionary regulation, usually applicable to agreements executed by SOC, and the contractual regulation, which must be carried out in compliance with the formal agreements entered with PHC, as predefined in the bid notice. This difference originates predominantly from the proceeding adopted for delegation of services for each type of operator.

• (b) Programme Contracts

As a general rule, service agreements entered with SOC do not come from a competitive procurement procedure, but rather from a former statutory authorization, now removed by the New Regulatory Framework, whereby SOC, based only on their state-owned status, could negotiate directly with GA the tariffs, tenor extensions from time to time and other terms and conditions for rendering services to the users. Such service agreements entered by and between SOC and GA (and not preceded by a public bidding) are called “Programme Contracts”.

• (c) Concessions

In turn, service agreements granted for PHC are necessarily preceded by a competitive bidding procedure, initiated with the publication of a bid notice by a certain GA, containing a binding draft of the services agreement that will be entered into with the winning bidder. The criteria for choosing the winning bidder may vary from the lowest tariff/payments value up to the highest concession fee (signing bonus) offered by the bidders, under the conditions set forth by the bid notice and the attached services agreement. Service agreements derived from such competitive procurement procedure may have different legal regimes, such as common concessions and public-private partnerships (“PPP”). Most of such agreements are common concessions and will be referred hereto as “Concessions” or “Concession Agreements”, as opposed to the Programme Contracts.

In other words, while discretionary regulation applies to Programme Agreements, contractual regulation governs Concessions.

• (d) Tariff review under Programme Contracts

Overall, because they rely on a discretionary regulation, Programme Contracts executed between municipalities (or regions) and SOC do not provide for investments, key performance indicators (“KPI”) and/or goals for universalizing the access to water and sanitation services applicable to the whole timeframe of the agreement. Indeed, the terms of the obligations incumbent on SOC are determined from time to time by the governmental agency in charge of regulating the services delivered in a certain local or region. For such purpose, agencies periodically calculate tariff values valid for the next operation cycle (with a horizon of up to five years) by implementing specific methodologies for projecting values of WACC, CAPEX and OPEX applicable to that operation cycle. Few governmental agencies have detailed methodologies set forth in advance for water and sanitation services.

• (e) Tariff review, KPIs, universalization goals and investments under Concessions

On the other hand, Concessions go at the opposite direction: tariffs, obligations (including KPIs and universalization goals) and risk allocation between PHC and GA are predefined in the bid documents, resulting in the initial economic and financial balance of the agreement and, therefore, supporting the offer submitted by the winning bidder. By statutory definition, whenever such initial economic financial balance is affected (and to the extent that such risk has not been allocated to the PHC), the PHC has the right to rebalance the agreement aiming at the maintaining of that initial balance.

In addition, modifications agreed upon between PHC and GA during the Concession (as additional investments to include new neighborhoods as supervening obligations of PHC) may result in amendments that must also assure to PHC appropriate compensation to preserve the initial economic and financial balance of the agreement. Rules for rebalancing the Concession are laid down in detail by the agreement. Governmental agencies coordinate the procedure to rebalance Concessions and have the final word in the administrative level on the amounts and mechanisms for compensating PHC, in accordance with the terms and conditions established by the agreements. When the rebalancing claim is accepted by a governmental agency, the agreement is amended to reflect the compensation mechanism that settle the dispute, which is in most of the cases either a tenor extension of the Concession or an increase in the tariff value.

Economic and financial rebalances are also set forth in Programme Agreements. What makes the rebalancing procedure different for SOC and PHC is the fact that Concessions are not governed by a regulatory WACC. While the cost of capital under the discretionary regulation is arbitrated periodically for SOC, such cost is a market variable for PHC, which undertake interest rates as a risk usually fully allocated to private party under Concessions. Notwithstanding such risk allocation under Concessions, the financial data necessary to carry out rebalance procedures are predefined as a fix value in the bidding procedures.

Alongside the economic and financial rebalance of the Concession, the agreement provides for inflation protection mechanisms structured as an annual price readjustment. Either national indexes of prices, such as IPCA or IGPM, or methods specifically defined by the agreement, with parametric components that reflect price changes from time to time (“fómula paramétrica”), underlie such mechanisms.

• (f) Efficiency gains

One difference between discretionary and contractual regulation that warrants attention relates to the appropriation of efficiency gains by SOC and PHC. From one side, under Programme Contracts, tariff review procedures applicable to SOC arbitrate OPEX to calculate the tariff valid for the next cycle as being the OPEX value effectively incurred by SOC in the last cycle. This approach has the practical effect of reducing tariff value for the new cycle, in relation to OPEX, in the total amount of operational efficiency gains that SOC may have achieved during the previous cycle. In other words, SOC are not allowed to appropriate efficiency gains from reducing OPEX from time to time.

On the other side, Concessions go to the opposite direction. Differently from Programme Contracts, Concessions, as a rule, allow PHC not to share with users nor GA the reduction of estimated expenses. Specifically with regards to OPEX value, PHC are expected to have uncapped returns, since tariff review procedures applicable to Concessions do not capture potential efficiency gains that PHC might have achieved.

The difference on the approach to the efficiency gains under tariff review procedures between Programme Agreements and Concessions leads to potential opposite incentives to SOC and PHC to run their OPEX. Since for SOC efficiency will be fully captured for the reduction of the tariff (modicidade tarifária) and become the ceiling for the OPEX in the next operational cycle, such companies are expected to have in comparative terms less incentives as PHC have to carry on OPEX in the most efficient manner.

• (g) Intermediary Conclusion

All things considered, one may conclude under Brazilian law and regulatory practices that contractual regulation has relevant upsides when comparing it with the discretionary regulation:

1. under the discretionary regime, tariff review tends to be much less predictable. While the New Regulatory Framework may enhance the current scenario, since it assigned to Water National Agency (“ANA”) responsibilities on professionalizing and unifying water and sanitation regulation in Brazil, the actual enactment of such uniform rules applicable nationwide will still take time. On the other hand, contractual regulation does not offer so much leeway to agencies for tariff review purposes, considering that such rules are expressed in the agreements, thus bringing more stability for decision making in investing in the water and sanitation sector;

2. as anticipated, discretionary regulation offers less incentives for efficiency gains, which is the essence for the private participation in the sector. Concessions, in turn, usually allow the appropriation of efficiency gains by PHC. This circumstance fosters attraction to projects modelled under contractual regulation guidelines;

3. contractual regulation is more consistent with the legal regime of public procurement procedures in Brazil, whereby bidders must be granted with accurate and complete information to enable them to make their best offers.

For the ease of reference, please refer to the table below:

 III.       New Regulatory Framework

In July, 2020, the Federal Government enacted Law 14026, which modified Law 11445 of 2007 (known as Statute of National Policy on Basic Sanitation, comprising water and sanitation) among other statutory provisions by stablishing a new legal and regulatory framework on water and sanitation services. New Regulatory Framework results from the necessity of attracting private capital to accelerate the universalization access to water and sanitation services in Brazil.

Nowadays, 100 million people in Brazil (almost 40% of the total population) do not have sewage services and 30 million are deprived from drinking water in their homes. The policy makers behind New Regulatory Framework decided to overcome this scenario until 2033 (with some exceptions up until 2040) when it is expected that Brazilians become duly served with drinking water (99% of the population) and with collection and treatment of sewage (90% of the population). This timeframe brings financial constraints to SOC, which is why PHC are welcome to expand their participation in the sector. In this sense, New Regulatory Framework is essentially a private participation program. Its main features are listed below.

• (a) Compliance of SOC with universalization goals

Under New Regulatory Framework, all the agreements in force on the date of the enactment of the new law must be amended up until March 31st, 2022, to set forth explicit universalization goals. Most of Programme Contracts, because of their incompleteness typical of the discretionary regulation, were silent with respect to such goals. For embracing such goals on serious and viable terms, SOC have two basic alternatives to comply with New Regulatory Framework: either by their own financial means or privatization.

• (a.1) Evidence of funding capacity^[1]

For complying with New Regulatory Framework by their own financial means, SOC must evidence their funding capacity to meet the universalization goals through appropriating equity or debt funding. Decree regulating New Regulatory Framework determined December 31st, 2021 as a deadline for SOC to demonstrate before the governmental agency in charge of regulation of each Programme Agreement economic and financial means for enabling them to perform the obligations set forth in the new law. Governmental agencies have, on their turn, up until March 31st 2022 to review that information and make a decision. The agencies shall review the financial statements of SOC, feasibility studies and a funding plan. Under the funding plan, SOC must appoint relevant banks providing financing and present the respective engagement letters (not necessarily binding though), evidencing the SOC ability to raise sufficient funds up until December 31st, 2026.

Only the agreements deemed as being feasible under New Regulatory Framework and Decree requirements may be amended for providing the universalization goals in compliance with the new law. The agreements declared not feasible may be early terminated by decision of the respective GA or even judicially.

• (a.2) Incentives for privatization 
  

The other alternative for SOC to comply with New Regulatory Framework goals is privatization^[2].

New Regulatory Framework fosters privatization in two ways:

1. According to the New Regulatory Framework, privatization will no longer result in the early termination of the Programme Agreements held by the SOC being privatized, subject to certain conditions. Before the enactment of New Regulatory Framework, the change of control of a SOC would implicate the automatic forfeiture of Programme Contracts, rendering privatization of SOC unfeasible under the old legislation;

2. New Regulatory Framework allowed the extension of Programme Agreements if done as a step towards privatization, by converting them into Concessions. In these situations, consent of relevant GA is still mandatory, because of the extension of the agreement.

New Regulatory Framework does not exclude other private participation arrangements already regulated by previous regulation, such as PPP or even common concessions when combined with the redefinition of SOC role. For example, GA may commission SOC to commercialize treated water to PHC granted with a Concession Agreement, in such a way that SOC becomes solely an upstream operator while PHC is granted with all the other services, including all the relationship with end users.

• (b) Prohibition of new Programme Contracts

Aiming at the competitiveness and equal treatment among SOC and PHC, New Regulatory Framework prohibits the execution of new Programme Contracts and even the extension of Programme Contracts (other than as a step towards privatization). SOC may participate in auctions and other bidding procedures on the same terms as any other interested company, with no privileges or distinctions.

• (c) ANA: new assignments

Brazil has 27 states and over 5,000 municipalities. As above mentioned, municipalities alongside with regions, which are created by the states, are the incumbent authorities for water and sanitation services under Brazilian law, thus retaining the powers to delegate and regulate services.

Such federative organization on water and sanitation sector led Brazil to have dozens of governmental agencies in charge of regulating either Programme Contracts or Concessions. There are no uniformity and consistency among regulations enacted by each of those governmental agencies. In spite of the fact that each agreement has only one governmental agency in charge for its respective regulation, this multitude of authorities dealing with rules increases transactional costs and hampers the doing business.

Considering this scenario, New Regulatory Framework assigned to ANA roles for consolidating and harmonizing regulation and best practices in the sector by means of the enactment of national reference standards. Such standards do not directly bind the municipal and state regulatory agencies, but these subnational agencies have a strong incentive to adhere to them: when local and regional regulation is not conformed to the national standards, the respective operators and projects are prevented from receiving federal financial aids or even facility loans granted by banks controlled by the federal government, such as BNDES and CEF.

On water and sanitation, ANA has enacted only one national standard up until now, which regulates the applicable amendments to Programme Contracts and Concessions for conforming them to New Regulatory Framework.

• (d) Regionalization

Regionalization, under the New Legal Framework, consists of joining a number of different municipalities to act as a single block in delegating the services to a concessionaire in charge of providing water and sanitation services to the whole region. Such public policy aims at:

1. Sustaining water and sanitation services in municipalities with low populational density, in which water and sanitation services might not be economically viable by themselves, by combining their operational revenues with larger, more profitable municipalities;

2. Increasing state influence and attributions in the water and sanitation sector, since states tend to be more sophisticated and technically prepared to regulate these services;

3. Fostering private participation in the sector, since operators benefit from larger scale in the context of regionalization of water and sanitation services (as opposed to providing services to a single municipality).

The main tools set forth by the New Regulatory Framework that contribute to the regionalization of water and sanitation services are:

1. Creation, by the states, of metropolitan areas, urban agglomerations and micro regions, embracing a cluster of municipalities which must share with the state the granting authority on water and sanitation services to the relevant region, to the extent that the municipalities also need to share among themselves or with the state the infrastructure related to these public utilities. Under these regionalized structures and conditions, municipalities are automatically burdened with the obligation to share among themselves and the state where they are located the grating authority on water and sanitation services;

2. Besides creating metropolitan areas, urban agglomerations and micro regions, states may create regional unities for water and sanitation services. The adhesion of the municipalities to the regional units is not mandatory;

3. In the event that a particular state does not create the referred regions, federal government is entitled to set interfederative clusters for implementing the regionalization of these services (reference blocks) and adhesion of the municipalities to the reference blocks is not mandatory;

4. Municipalities may implement another alternatives for regionalizing water and sanitation services, such as by means of public consortia or mutual interest agreements entered into with other municipalities and/or the state where they are located;

In the absence of metropolitan region, urban agglomeration or micro region, with the characteristics summarized in number 1, above, municipalities are incentivized to adhere to/implement a non mandatory regionalized structure, since they are not automatically burdened with the obligation to share the grating authority on water and sanitation services under regional units, reference blocks, public consortia or mutual interest agreement (as opposed to metropolitan areas, urban agglomerations and micro regions, which are mandatory). The main incentive municipalities have by doing so is the access to federal funding for water and sanitation services. Municipalities non-compliant with regionalization requirements are prevented to benefit from federal financial resources otherwise available to water and sanitation.

As a general rule, after Federal Decree 11030/2023, most of municipalities that do not participate of a metropolitan area, urban agglomeration, micro regions, regional units, reference blocks, public consortia or mutual interest agreement have until March 31st, 2023, to adhere to/implement a regionalized structure for providing water and sanitation services. From this date, municipalities that are not regionalized will be prevented to access financial resources provided by Federal Government as explained above.

Prior to the enactment of New Regulatory Framework, the determination of the incumbent authority on water and sanitation services among the federative entities could be debatable. Interpreting our Federal Constitution, most scholars and court precedents deemed municipalities as the natural authorities (treating water and sanitation as local services), but there were doubts with regards to municipalities located in metropolitan areas. Brazilian Supreme Court (“STF”) had three relevant precedents prior to the New Regulatory Framework. Under these precedents, the creation of metropolitan areas, which is a decision reserved to the states only, results in the necessary sharing of powers among the municipalities comprised in the region and additionally with the respective state.

As presented above, New Regulatory Framework consolidated such case law and deepened the general understanding on the matter. According to New Regulatory Framework, all the regions created by states lead to such mandatory sharing^[3].. Accordingly, regions became authentic GA of water and sanitation services carried out in their territory. Moreover, considering the governance among the state and the municipalities comprised in the region, as far as region structures are adopted, state government tends to fulfill a predominant role among all the federative entities involved in the coordination and delegation of water and sanitation services.

That leadership of the state government is an upside for private participation in the sector. From a base case standpoint, it is easier for PHC to deal with only one government responsible for a whole region comprising dozens of municipalities. Additionally, as above mentioned, states tend to be a more sophisticated interlocutor for water and sanitation projects when comparing their administrative structure with those of municipalities.

• (e) Final Conclusion

Brazil faces an undeniable improvement in its business environment in the water and sanitation sector. The experience on contractual regulation as an alternative more friendly to private investment has been solidified for the last two decades. On the top of that, bidding procedures follow increasingly best practices for auctions and competitiveness, in terms of transparency, anti-corruption rules and equal treatment among national and foreign players. BNDES, since 2016, has been structuring bidding procedures for an increasing number of water and sanitation projects: aside from engaging highly skilled consultants for modelling bid notices and agreements, the bank capitalizes on its structure and reputation to materialize larger and challenging projects, as it was the recent case in Alagoas and Rio de Janeiro.

In parallel, New Regulatory Framework brings relevant keystones for doing water and sanitation business, promoting opportunities without threatening legal stability. Judicialization of certain projects and agreements may take place, although it is worth mentioning that STF, in a recent precedent which discussed the constitutionality of New Regulatory Framework, recognized that the new law is entirely conformed with the Brazilian legal system.

Considering the short-term needs for universalizing the access to water and sanitation services in favor of millions of Brazilians, it is expected a dynamic and legally robust pipeline of projects in the next few years.

^[1] To be updated in attention to the recent enactment of a new decree.

^[2] This provision does not prevent that specific laws at the state level must be enacted for authorizing the divestiture of the stockholding control. Since state governments are the controlling shareholders of SOC, New Regulatory Framework, as a federal legislation, could not have the effect of authorizing such a transaction on the benefit of another federative entity.

^[3] There are few exceptions in which municipalities may withdraw from sharing water and sanitation utilities assigment in regions. For example, when one municipality does not share any infrastructure of water and sanitation with another entity, the former may preserve its exclusive powers on the matter.

Category: Banking, insurance and finance

Changes in the Brazilian regulatory landscape have intensified in recent years mainly due to the process of social transformation that puts pressure on productive sectors, regulatory agencies and government institutions. After the Legal Framework of Startups and Innovative Entrepreneurship and the General Law for the Protection of Personal Data (LGPD), the wave of changes reaches the world of securitization through Provisional Measure (MP) 1.103/22, which creates the legal framework of securitization. Among other points, MP exponentially amplifies the chances of securitization of securities backed by credit rights.

The framework also fulfills the function of unifying the rules on securitization, until then laid down, mainly, in Law 9.514/97 – which regulates Certificates of Real Estate Receivables (CRI) and was later edited by Law 10.931/04 – and Law 11.076/04 – which regulates Agribusiness Receivables Certificates (CRA). These and other sparse norms left gaps on the subject. CVM Instruction 480/09, for example, does not present a specific treatment for securitizers, treating them only as other issuers of securities.

The discussion on a regulatory framework for securitizations was opened by the Public Hearing SDM 05/20, proposed by the Brazilian Securities and Exchange Commission (CVM), and implemented by the MP, which sought to define its own needs and obligations, aligned with the reality of the entities.

MP is insightful and welcome especially when bringing a clear definition about securitization operations. According to article 17, "securitization transactions are considered to be the issuance and placement of securities with investors, the payment of which is primarily conditional on the receipt of funds from the credit rights that support it".

We understand, therefore, that securitizations may use any credit rights as a ballast of receivables certificates (CR), which "are titles of nominar credits, issued in a book-entry form, issued exclusively by securitizations, free trading, and constitute a promise of payment in cash, preserved the possibility of payment, and extrajudicial executive title", according to art. 19 of the MP.

Until then, this prerogative was limited only to the credit rights arising from CRIs and CRAs. The update therefore expands the securitization market to all sectors.

The standard also raises discussions about the possibility of emissions with restricted efforts from securities other than CRIs and CRAs. Under CVM Instruction 476/09, only these two certificates of receivables can be the subject of public offering with restricted distribution efforts. Considering the new rules on CRs edited by the MP, however, it is possible to understand that securitizers can use debentures or commercial notes to enable these transactions.

Another unfolding of the standard refers to the fiduciary regime and separate assets.

In accordance with Article 24 of the MP, securitizations may institute the fiduciary regime for the purposes of payment of RCs or other securities representing securitization operations, which will allow the individualization of liabilities and assets of an operation. This will give more security to the business and enable the execution of simultaneous operations without risk dependence between them. This concept can be applied, for example, to the issuance of debentures based on financial credits, provided for by Resolution 2,686 of the National Monetary Council.

The standard also expressly establishes the possibility of aggregating new credit rights as a ballast of securitization operations, as provided for in the issuing instrument (Articles 21, X, and 26, §2). The measure can be used by different sectors of the economy, especially with regard to mitigating the risk of asset failure.

In addition, MP provides for the issuance of Letters of Insurance Risks (LRS) and the flexibilization of the requirement of exclusive provision, by financial institution, of the bookkeeping and custody of securities.

LRS is securities linked to a portfolio of insurance and reinsurance policies. With mp, the issuance of LRS will be made through Specific Purpose Insurance Companies (SSPE), whose sole purpose is to carry out operations of acceptance of insurance risks, supplementary pension, supplementary health, reinsurance or retrocession. The flexibility of the exclusive provision requirement, in turn, aims to encourage the development of new technologies and innovations in the Brazilian capital market, by allowing cvm to modulate the requirement and, eventually, to withdraw it in certain markets.

The changes of the Regulatory Framework of Securitization come at a time conducive to the emergence of new types of operations and products. We will continue to watch out for further developments.

Category: Infrastructure and energy

Coming into force on March 2, 2022, the National Mining Agency (ANM) Resolution 90/21 regulates Articles 43 and 44 of the Mining Code Regulation (Regulamento do Código de Mineração), providing the cases in which mining concessions (concessões minerárias) and mine manifests (manifestos de mina) can be offered as collateral for transactions aiming at financing mineral enterprises.

The new resolution is a result of contributions made by industry specialists, companies and other stakeholders under the public consultation (consulta pública) held on the second semester of 2020, and provides the requirements and conditions for the transfer of such mining rights in case of foreclosure.

The issue has long been the subject of debate. The possibility of granting mineral rights as collateral for financial transaction is a long-lasting request by players of the industry. Until the publication of the new resolution, the granting of mining assets as collaterals was regulated by Opinion JT-05 (Parecer JT-05), binding to the federal administration in light of its presidential approval.

In summary, such Opinion addressed exclusively the constitution of pledge over mineral rights and concluded that the encumbrance would be applied only to mining concessions (concessões de lavra). Furthermore, it provided that a prior approval by the National Defense Council (Conselho de Defesa Nacional) would be required for the registration of the encumbrances before ANM in relation to mining concessions located on border areas (área de faixa de fronteira). Given the precarious nature of the binding Opinion - the only instrument that regulated the subject -, the absence of sectoral regulation resulted in legal uncertainty for financiers, companies and the ANM itself.

The matter was  originally given prominence with the attempt to reform the Mining Code (Código Minerário) by the government of former President Michel Temer in 2017, by means of the Provisional Measure (Medida Provisória) 790/17, which expired after it ran its 120 days course without approval by the National Congress. The subject was later included in the reform of the Mining Code Regulation (Regulamento do Código de Mineração), concluded in 2018 with the enactment of Decree 9.406/18, which provided the possibility of granting mining concession as collateral for financing purposes, but stipulated that the regulation of its requirements and conditions would be provided by ANM resolutions.

Main innovations

ANM Resolution 90/21 (Resolução ANM 90/21) introduced important advances and clarifications, such as:

• The possibility of burdening mine manifests as a mining collateral, provided that it is constituted by means of a public instrument;
• The definition of the finance transactions that can be secured by mineral rights as fundraising transactions, under any legal modality, for the financing of mining enterprises, their installation, expansion or regularization, including finance within the national financial system, as well as other structured project financing transactions;
• The definition that the collateralization of mineral rights is materialized by means of the registration before ANM of the respective public or private instruments, as applicable, by and between the mineral right’s titleholder (concessionária) and the financier. These contractual instruments shall be deemed confidential and should not have their access released to the public in the Electronic Information System (SEI – Sistema Eletrônico de Informações). Any third party, however, may request a certificate of the encumbrance, which must inform the value of the credit, its term, interest rate, the purpose of the transaction, the names of the financing institution, the debtor and the holder of the collateral, the date of registration and its write-off;
• the obligation for ANM to maintain a public consultation platform by means of which interested parties may consult the existence of mining collaterals;
• Clarification that, during the period of validity of the collateral over mineral rights:
• titleholders of mineral rights may not waive the mining title or surrender it in whole or in part without the express consent of the creditor;
• titleholders of the mineral rights shall remain responsible for the fulfilment of the obligations inherent to the mineral right and for the exercise of all acts necessary for their regularity and maintenance, including the possibility of expiry of the mining right;
• the impossibility of practice of any act or measure, whether or not provided for in the security agreement, which may compromise or hinder the operationalization and continuity of the mining right. The financial institution may, nevertheless, perform acts in an exceptional basis in order to avoid the perishing of the mineral right granted as collateral, including during the period between the judicial or amicable foreclosure of the mining collateral and the registration, before the ANM, of the transfer of such mining right to the new titleholder.
• The effective transfer of the mineral right foreclosed may only be perfected with the prior consent by the ANM. The transferee pursuant to a foreclosing auction shall be an entity legally able to hold mineral rights, satisfying the criteria provided by the Brazilian Federal Constitution and the Mining Code.

The new regulation provides, in addition to the above, that the request to collateralize a mineral right must inform the amount of the debt secured, its payment term, interest rate, the information of the collateralized mineral right and the purpose of the financing transaction, observing the requirements for the effectiveness of pledges provided for in Article 1,424 of Law 10.406/02 (the Brazilian Civil Code).

The ANM Resolution 90/21 provided that the secured financier has the right to access, upon prior request to ANM, the information of the collateralized mineral right submitted to ANM by the titleholder regarding:

• its safety and integrity;
• its collection of taxes and royalties;
• the results of its mineral exploration; and
• its exploitation and mineral production information.

By preventing the practice of any act or measure that compromise or hinder the operationalization and continuity of the activities for the use of mineral resources authorized by the granting power in the mining title, the new ANM Resolution 90/21 embraces similar rules applicable to the oil and gas industry, provided by ANP Resolution 785/19, which prohibits the influence of the financier on the management or execution of the assets object of a public concession.

Although ANM Resolution 90/21 has set out that the resources must be allocated to mining ventures, there is no restriction for the resources obtained from finances to be reverted to the collateralized mineral right itself, bringing legal certainty and paving the way for new capital flows to be directed to the mineral industry overall.

Market expectations

ANM Resolution 90/21 did not address the possibility of constituting fiduciary collaterals over mineral rights. Although collaterals of this nature are part of the set of security for project finance transactions, the constitution of collaterals of such nature over mineral rights continues to be a controversy between experts and players in the sector.

ANM Resolution 90/21 also refrained from addressing the possibility of constituting collaterals on mineral exploration permits. The measure would be especially relevant for the promotion of smaller companies involved in greenfield projects (the so-called "junior companies") and who typically face greater restrictions to access traditional forms of credit.

Category: Infrastructure and energy

Por Rafael Vanzella, Debora Leal, Gabriel Rapoport Furtado and Gabriel Nagle

Law No. 14.286/21 (New Foreign Exchange Law), enacted on December 30, 2021, represents a milestone in Brazilian law regarding foreign currency transactions, including project financing on infrastructure sectors in Brazil. The new regulation is part of the “BC agenda”, promoted by the Central Bank of Brazil (BCB), which aims to rearrange Brazilian foreign exchange legislation in order to improve a formerly diffuse and anachronic legal framework and consolidate it in light of modern economic and commercial practices.

Therefore, such legal milestone plays the crucial role of consolidating a refined regulatory environment, based on contemporary international standards. It will come into force on December 30, 2022, after one year of its official enactment. In parallel, BCB and the National Monetary Council (CMN) will be responsible for the subsequent regulation of several topics aroused by the New Foreign Exchange Law.

Among the innovations carried out by the new law, it should be mentioned the facilitation of the circulation of the Brazilian Real abroad. Accordingly, Section 6 of the Law provides that banks authorized to operate in foreign exchange markets may "comply with payment orders in Brazilian Reais received from abroad or sent abroad", pursuant to future BCB regulations. Thus, the possibility of investing funds raised in Brazil in foreign operations is enabled, through the use of current accounts, denominated in Brazilian Reais, kept in banks by institutions domiciled or based abroad, subject to the regulation and financial supervision of the respective country of origin. As a possible effect, there is an increase in the circulation of Brazilian Reais in international markets, while mitigating the existing limitations for the application, abroad, of funds raised in Brazil.

From the perspective of infrastructure projects, there are also relevant changes, systematized under the guidelines of Section 13, which addresses the payment in foreign currency of obligations enforceable in the Brazilian territory. Initially, it is important to note that Law No. 14.286/21 entails, among other effects, the repeal of Decree-Law No. 857/69, which, although derived from a different macroeconomic reality, is still in force during the vacatio legis of the new regulation. The elements introduced by Section 13 of the New Foreign Exchange Law expand certain provisions formerly contained in said decree-law, providing for a broader range of possibilities and consolidating a new business environment, whose practical contours have been established through the interaction of market agents and financial institutions.

Hence, item VII of Section 13 introduces the possibility of payment in foreign currency of obligations enforceable in Brazil, in connection to "contracts concluded by exporters in which the counterpart is a concessionaire, permit holder, authorized entity or lessee in the infrastructure sectors". Accordingly, the amendment allows legal business between exporters and infrastructure project holders to be indexed directly in foreign currency, within the framework of contracts concluded in areas such as energy, logistics and transport in general, basic sanitation and facilities, government agencies, among others.

Current analyses of this subject have not given account of the extent of this novel legal instrument. There is a greater enthusiasm in the energy sector, given the possibility, now expressly permitted by law, that contracts for the purchase and sale of energy (Power Purchase Agreements – PPAs) are indexed in foreign currencies such as the US dollar and the euro. In the case of electricity generators, financed in foreign currency, as an imported equipment, their debt service is mostly tied to the dollar. Thus, the celebration of dollarized PPAs will allow an immediate upside, so that revenues can be backed by an equivalent indexer.

However, the wording of this new law provides for an even more comprehensive array of opportunities because several areas of infrastructure, besides the energy sector, could also benefit from the new perspectives. Transport contracts and other businesses related to cargo handling, for example, may also be concluded in foreign currency. Considering general market practices, which make large use of take or pay provisions in contractual arrangements within such sectors, the possibility of revenues denominated in foreign currency will facilitate the creation of guarantees for financing taken through the same indexer. In basic sanitation, likewise, it is expected that associated projects, aimed at meeting the needs of large consumers, usually the exporters themselves, will originate contracts denominated in foreign currency. This will allow water and sewage system operators to diversify their debt portfolio to include indexed financing, or even more complex swap operations, which will mitigate foreign exchange risks in the import of effluent treatment equipment and technologies.

The importance of the measure introduced by the New Foreign Exchange Law is, consequently, remarkable, since contracts under the new rules are directly related to investments in infrastructure and accurately capture the link between the infrastructure sector and the international trade, either by the provision of transportation services, the import of pivotal equipment, or by the operation of essential public services such as water and energy supply. In the impossibility of concluding contracts with the features mentioned in Section 13, holders of infrastructure projects not only have their access to the international credit market hampered, but also expose themselves to a greater amount of risks related to exchange rate variation, when indispensable inputs need to be imported. Under the New Foreign Exchange Law, those holders of infrastructure projects will have access to new sources of financing at a global level and will also be able to coordinate complex operations of revenues and expenses under the same exchange rate indexer, particularly when the transaction involves a counterpart qualified as an exporter.

The effect of mitigating foreign exchange risk on infrastructure projects was expressly contemplated by item VIII of the same Section 13 of the new law, by additionally enabling payments in foreign currency "in the situations provided for in the regulations issued by the National Monetary Council, when the stipulation in foreign currency can mitigate foreign exchange risk or increase the efficiency of the business".

In these respects, the New Foreign Exchange Law makes the regulatory approach to foreign exchange operations more flexible, by delegating the regulation of opportunities for exchange rate indexation of legal transactions governed by Brazilian law to BCB and CMN, which will allow greater agility in the provision of relevant standards to keep up with market dynamics. At the same time, the new law already contains, with regard to some opportunities in the infrastructure sector, objective parameters which, in principle, will not require further regulation from monetary authorities. In conclusion, real transformations of contractual modeling are expected, not only in consolidated sectors, such as energy, but also in more incipient ones, such as railways, ports and basic sanitation, to keep just a few examples.

Category: Restructuring and insolvency

The changes brought about by Law No. 14,112/20 to Law No. 11,101/05 (which deals with judicial reorganization, extrajudicial reorganization, and bankruptcy), Law No. 10,522/02 (which regulates the informational registry of unpaid debts of federal agencies and entities) and Law No. 8,929/94 (which institutes the Rural Product Note) came into effect at the end of January of 2021.

The president of Brazil had vetoed 14 points of Law No. 14,112/20, but on March 17, 2021, the Brazilian Congress overrode 12 of the 14 vetoes. The vetoes related to the provisions that governed (i) the possibility for the Ministry of Agriculture, Livestock, and Supply to define which events could be characterized as unforeseeable circumstances and force majeure for the purposes of any submission of debts and guarantees linked to Rural Product Notes (CPRs), with physical settlement, to judicial reorganization, and (ii) suspension of labor executions against co-obligors of debtors in possession were maintained.

In this article we present an updated comparison of the original wording of Law No. 11,101/05 with the new wording in force. The main changes relate to:

• legal certainty and “super priority” in relation to the granting of loans during judicial reorganization;
• legal certainty and modification of some of the asset sale rules;
• cross-border bankruptcy and cooperation between domestic and foreign courts in such cases;
• more expeditious bankruptcy in terms of sale of assets and extinguishment of obligations, with changes also to articles 83 and 84 of Law 11,101/05, which regulate the list of in bankruptcy and extra-bankruptcy creditors, respectively;
• impossibility of extending the effects of bankruptcy;
• general rules for extrajudicial reorganization, with the possibility of including labor claims and reducing the quorum required for approval of the plan;
• installment payment of debts with the Federal Government and other tax matters; and
• judicial reorganization of rural producers.

Besides the points above, among the vetoes rejected by the Brazilian Congress was the change in Law No. 8,929/94, more specifically in article 11, head paragraph, to expressly provide that claims and security interests linked to CPRs with physical settlement, in the event of partial or full advance of the price, or also representing an exchange operation for inputs (barter) shall not be subject to the effects of judicial reorganization. The new wording of the article also establishes that the creditor continues to be entitled to the restitution of such assets that are in the possession of the issuer of the note or any third party, except for reasons of unforeseeable circumstances or force majeure that can be proven to prevent the partial or total fulfillment of the delivery of the product.

In the event of doubt, Machado Meyer's debt restructuring and bankruptcy and tax teams are at your disposal.

Partners of the Restructuring team responsible for this newsletter: Renata Oliveira and Renato Maggio.

Partner of the Tax team responsible for this newsletter: Bruna Marrara.

^[1] At the time of drafting of this article, the resolution had not yet been published. According to information on the CNJ website, "the communications must be recorded and all parties involved should be aware of them. (...) Another novelty that the agreement will allow is for a court to authorize a party or interested parties to present their case and be heard by a foreign court, provided that the decision is endorsed by the court indicated. In addition, the judge may authorize the party or interested parties in proceedings taking place in another country to appear and be heard, without there being any change in the jurisdiction over the case.” https://www.cnj.jus.br/justica-internaliza-tratado-de-comunicacao-em-insolvencia-internacional/ (accessed on May 19, 2021)