Category: Litigation

Eduardo Perazza, Débora Chaves Martines Fernandes, Bruna Godoy Marques das Neves and Danielle Siebra Pereira

Predatory litigation is a concept with many names and still without a clear definition. In a synthetic form, vexatious litigation, oppressive litigation or, in the expression of American law, sham litigation, is the behavior of the one who, using his legitimate right of action and access to justice, makes abusive use of it to make it difficult for third parties to exercise their rights, and not (or not only) in order to safeguard their own right.

Initially developed by U.S. doctrine and jurisprudence according to the logic of competition law, predatory litigation began to be mapped and defined in lawsuits filed without grounds and with the intention of harming the business of competitors. The criteria adopted by U.S. jurisprudence to detect this type of abuse of rights are mainly:

• the purpose of the application of claims without legal grounds;
• the action of actions with intent to harm competitors (anticompetitive purposes); and
• the identification of a pattern of conduct of the author that litigated in a predatory way – since the analysis of an isolated demand may not let us see the anticompetitive character of a litigation strategy.^[1]

The first two points are called the PRE test^[2] and the last Posco test.^{[3] and [4]}

Derived from the environment of competition law, the concept of predatory litigation was initially employed in Brazil in administrative decisions of the Administrative Council for Economic Defense (Cade), which first pointed to the abuse of procedural law for anticompetitive purposes in the judgment of the Sinpetro case in 2004^[5]. Since then, the municipality has been applying the criteria established by the North American jurisprudence, duly formatted for the Brazilian legal landscape, to analyze this type of conduct – as in the case of the Union of Cargo Transport Companies of São Paulo and Region versus Brazilian Post and Telegraph Company (PA 08700.009588/2013-04).^[6]

Although the origin of the concept and its first application in national territory took place in the context of competition law, the abuse of this prerogative may occur in other areas, because the right of action is constitutionally guaranteed to all (Article 5, XXXV of the Federal Constitution) in the most diverse situations of violation or threat to law. In Brazil, the concept of predatory litigation was dismayed from the abusive procedural practice directed against competitors, from a competitive perspective, and began to be adopted in other situations, due to the breadth of the right of action in the Brazilian legal system and the absence of clear mechanisms to control its abuse.

Brazilian courts have begun to come across practices such as:

• the determination of numerous actions with the same request and the same cause of asking, in various regions, in order to hinder the defense of the defendant and / or constitute a threat to freedom of expression – consolidated, for example, in the massive determination of claims against journalists, for the purpose of intimidation;^[7]
• the purpose of shares with fractional applications, which could be gathered in a single demand, in order to multiply the payment of fees^[8] (predatory advocacy); and
• the management of actions to hinder the fulfillment of court orders and that third parties enjoy their rights, among other forms of abuse.

As the possibilities of abuse  – including of the right of action – are as numerous as human creativity allows, the jurisprudential and even legislative framework must be redesigned with more general contours, to prevent procedural fraud of this nature from finding room to develop.

It was exactly in this sense that the Superior Court of Justice (STJ) walked in judging special appeal 1,817,845/MS,^[9] in a judgment reported by Minister Nancy Andrighi. In its decision, the court recognized the abuse of procedural law committed by individuals who, since the beginning of the 1980s, filed four lawsuits and an administrative proceeding to prevent the fulfillment of a court order and the enjoyment of the right to property by third parties, who filed an action seeking compensation for moral and material damages resulting from the unlawful conduct practiced by procedural means. In judging the case, the rapporteur minister defined the following thesis to recognize liability for damages arising from the abuse of procedural law: "The prosecution of successive lawsuits, devoid of proper reasoning and brought with a purpose of intent, may constitute an unlawful act of abuse of the right of action or defense, the so-called procedural harassment".

While the decision seems simple and straightforward – and not particularly innovative in relation to the criteria for the measurement of predatory litigation (or procedural harassment, as Defined by Minister Nancy Andrighi) – its importance is paramount. In considering predatory litigation as an unlawful act (Article 187 of the Civil Code), it remains unequivocal to indemnify the party for the resulting material and moral damages, in amounts that promote effective reparation and not limited to the penalties imposed on litigation in bad faith. The reasoning that associates procedural harassment with the litigation of bad faith was developed by Minister Paulo de Tarso Sanseverino, in the vote that diverged from the understanding of the majority in the judgment of this appeal. For the minister, procedural abuse would be determined only in the process in which it is practiced, and not from a macro view of several issues.

In parallel to the recognition of predatory litigation as an unlawful act by the Supreme Court, two bills on the subject are being processed, PL 90/21 and PL 3.818/20. The latter aims to characterize as an infringement of the economic order the act of exercising the right to petition or action in an anticompetitive manner, regardless of the determination of guilt. On the other hand, PL 90/21 proposes procedural mechanisms that allow the victim of predatory litigation to request the meeting of cases (with the same cause of request) filed against her in an abusive manner, for joint judgment. The measure aims to ensure the full exercise of the adversarial and broad defence (Article 2). This same PL, in addition to pointing out techniques to correct the distortions of the abuse of the right of action, establishes the duty to redress the damages caused by the oppressive litigation (Article 1, §1 and Article 5), in addition to providing for the conviction of the author of such demands in costs and attorneys' fees – even in actions filed in special civil proceedings.

In its efforts against the abuse of procedural law, the National Council of Justice (CNJ) also recommended that Brazilian courts take measures to curb predatory judicialization, a practice capable of ceding defense and limiting freedom of expression. Authored by Minister Luiz Fux, Normative Act 0000092-36.2022.2.00.0000 – approved on February 8 of this year – classifies as predatory judicialization the mass filing of actions in the national territory with similar claims and causes against a specific person or group of people, in order to inhibit full freedom of expression.

The CNJ guides the courts to adopt measures aimed at expediting the analysis of the occurrence of prevention, the connection between actions and possible bad faith of the plaintiffs – among other elements that allow the wide defense of the defendant – in terms analogous to those proposed in PL 90/21, which is cited by Minister Fux in justifying the recommendation. The cases that preceded the manifestation of the CNJ were presented within the framework of the Observatory of Human Rights of the Judiciary, based on a complaint filed by the Brazilian Press Association (ABI) on the filed against a journalist throughout Brazil due to publications on the social network Twitter.

The repression of predatory litigation is fundamental to ensure objective good faith in the civil process. By purging fraudulent behaviors, it seeks to reinforce the hygiene of the entire Brazilian procedural system. Moreover, from a managerial point of view, increased judicial surveillance of the abuse of the right of action is highly desirable in an environment of massive litigation such as the one that currently plagues our courts^[10] and gives judges tools to reject frivolous claims – and adequately punish their perpetrators. Thus, magistrates will be able to focus on demands that effectively require judicial provision.

The concern with access to justice must continue to permeate all initiatives that, in some way, impose filters on the right of action. The concern of the Legislature and the Judiciary to curb predatory litigation in a firm, structured and joint manner is positive and relevant. The ultimate objective is to qualify access to courts and remove frivolous claims, which restrict the exercise of fundamental rights of procedural dimension – such as contradictory and broad defense – and material – as property and free expression.

^[1] OAK, Angela Silver. "The abuse of the right of action in the Brazilian civil procedure - theoretical and practical contours of procedural harassment from the analysis of special appeal 1,817,845". Process ReviewVol. 319 p.339-357, Editora Revista dos Tribunais, 2021. p. 9.

^[2] Real Estate Investors Inc. x Columbia Pictures Industries Inc.

^[3] USS-Posco Industries vs. Costa County Building.

^[4] The "tests", proper to the common law, are parameters standardized by the case-law to identify similar conducts and relate the specific case to the hypothesis already judged, in line with the precedents of a given court.

^[5] A case in which Cade observed and considered illegal the coordinated action of gas stations in the city of Brasilia to try to prevent the Carrefour group from operating gas stations. This decision of Cade was later reformed by the Federal Court (TRF1) and the practice of gas stations was considered legitimate.

^[6] All in all the main requirements adopted by Cade to characterize predatory litigation are (i) unjustified proceedings – with an anti-competitive purpose and result; (ii) the action against competitors with low probability of favorable provision – generating anticompetitive effects on the market; (iii) falsehood presented to the Judiciary or to some administrative agent in order to obtain state provision; and (iv) legal settlement or other actions aimed at causing anticompetitive practices.

^[7] On the subject, see the mapping of the Brazilian Association of Investigative Journalism, available in https://www.abraji.org.br/entenda-o-que-e-assedio-judicial.

^[8] On the subject, the following judgments of the Court of Justice of São Paulo: Civil Appeal 1010920 05.2021.8.26.0576, des. Rel. Maurício Campos da Silva Velho; Instrument Injury 2005467-91.2021.8.26.0000, des. Rel. Clara Maria Araújo Xavier.

^[9] STJ, Resp 1.817.845, rapporteur for judgment min. Nancy Andrighi, Third Class j. 10.10.2019.

^[10] As of December 2020, there were 75.4 million pending cases, down 2.7%, or 2.1 million fewer cases, compared to 2019, but it is still a very significant number (report Justice in Numbers, National Council of Justice, 2021, available in https://www.cnj.jus.br/wp-content/uploads/2021/09/relatorio-justica-em-numeros2021-12.pdf, consulted on 11.02.2022).

Category: Infrastructure and energy

Fabio Falkenburger and Julia Souza Torres

Amidst controversy, the National Civil Aviation Agency (ANAC) published, on February 23, the final adjustments to the draft of the bid notice for the 7th round of airport concessions.

The first draft was published in September 2021, but the layout of airports blocks to be tendered has undergone some changes since then. Initially, Santos Dumont airport in Rio de Janeiro (RJ), considered one of the crown jewels of this bid, would be auctioned in RJ-MG block, together with the Jacarepaguá airport, also in the city of Rio de Janeiro, and three other airports in Minas Gerais. Under intense scrutiny from the state and municipal governments of Rio de Janeiro, who argued that the block’s configuration would weaken the Galeão airport and accentuate Santos Dumont’s overcapacity operations, the Ministry of Infrastructure decided to bid Santos Dumont airport separately.

In February 2022, the Ministry of Infrastructure revisited the concession format once again and decided to tender the main Rio terminals, Santos Dumont and Galeão, together in the same block in the 8th round, which is scheduled only for 2023. The Minister of Infrastructure, Tarcísio de Freitas, stated that this change was due to concerns about possible predatory competition between the two airports, should the bidding be continued with the old configuration. Galeão airport is already facing difficulties with the reduction of passenger and cargo traffic caused by the economic crisis and aggravated by the Covid-19 pandemic. These difficulties led to a deficit of R$ 7.5 billion in the operation and resulted in the return of the concession by the Singaporean operator Changi Airports International.

The 7th round, despite not having a set date, is scheduled to take place at the end of the first half of 2022. The modeling of the concession of the 15 airports in three blocks, and the respective minimum initial contributions, is as follows:

• The General Aviation Block will be composed of the airports of Campo de Marte/SP and Jacarepaguá/RJ. The minimum initial contribution is R$ 138.3 million.
• The North Block II will be composed of the airports of Belém/PA and Macapá/AP. The minimum initial contribution is R$ 56.6 million.
• The Block SP/MS/PA/MG will be composed of the airports of Congonhas/SP, Campo Grande/MS, Ponta Porã/MS, Santarém/PA, Marabá/PA, Parauapebas/PA, Altamira/PA, Montes Claros/MG, Uberlândia/MG, and Uberaba/MG. The minimum initial contribution is R$ 255.2 million.

The concession contract will be valid for 30 years for all blocks. The extension of such a contract will be admitted in extraordinary circumstances for five years only.

The investments to be made over the three decades of the concession are expected to total R$ 25 billion, with almost half of this amount corresponding to the investments to be made in the block that includes Congonhas airport, one of the most profitable in the country. According to Anac, the airports of this round correspond to 26% of the paid passengers that circulate in the country's air transport market.

The draft of the bid notice allows the participation of Brazilian or foreign legal entities, complementary pension entities, and investment funds, alone or in a consortium. However, it does not allow a legal entity, or its subsidiaries and parent companies, to participate in more than one consortium to submit a proposal for the same block. It also does not allow the participation of airlines in the auction, except as a consortium member with less than 2%, considering the sum of their holdings.

As in the last round, the draft also allows the hiring of a technical assistant, in other words, if the winning bidder does not meet the technical qualifications required by the Agency, it must submit a commitment to hiring technical assistance to ensure the effective realization of the project. On the other hand, the tender notice requires that the single bidder company or one of the members to be an airport operator which has operated, in at least one of the last five years, an airport that has processed, in that year, at least:

• For the General Aviation Block, 200,000 passengers or 17,000 aircraft movements (landings and takeoffs).
• For the North Block II, 1 million passengers.
• For the Block SP/MS/PA/MG, 5 million passengers.

The published draft will be reviewed by the Federal Accounting Court (TCU) and then returns to ANAC to set the date and publish the final bid notice.

It is expected that, as with the previous rounds, the auction will move the aviation sector, which slowly recovers from the economic crisis of recent years.

Category: Tax

What is the time of taxation, for the purposes of Corporate Income Tax (IRPJ) and the Social Contribution on Net Income (CSLL), of the tax credit recognized in court and subject to compensation? Answer to Advance Ruling Request183/21, published at the end of last year, was a late response to this recurring question from taxpayers, but did not completely address the divergence.

The previous understanding of the Federal Revenue Service of Brazil (RFB), expressed through the Interpretative Declaratory Act SRF 25/03, was that, when the court decision already defines the amount to be paid, it is enough to make the final judgment that recognizes the amount to be refunded to attract the incidence of IRPJ and CSLL. The premise is that, in such situations, already from the final transit, the taxpayer acquires legal availability on the amounts with the configuration of an increase in assets, a fact that generates irpj and CSLL, as provided for in article 43 of the National Tax Code (CTN). But in cases where decisions only recognize a right to repayment claim there was no clear manifestation of the IRS.

This was precisely the situation dealt with in Answer to Advance Ruling Request183/21. The Irs has defined that the date of submission of the first statement of compensation (mother statement) will be the time frame to attract the incidence of IRPJ and CSLL of the recognized credits. As shown in SC 183/21, it is at this time that one has a "right right, which arises from the final judgment of the decision – and quantifiable, by reason of the identification of the full amount to which it is entitled".

The answer already represents a small advance, because the Irs expressly ruled out the possibility of incidence of IRPJ and CSLL when:

• of the final judgment of an inliquid decision, which declared only the right of claim liable to compensation;
• accounting recognition of credits; and
• application for the qualification of the claim in the administrative context (formality necessary for the purposes of credit compensation arising from legal proceedings).

In this respect, the response of the Irs was late, but welcome, since these three moments, in fact, do not matter in the acquisition of legal availability and, therefore, do not justify the incidence of IRPJ and CSLL.

However, the fact that the Irs defines as a time frame the date of sending the first statement of compensation for the taxation of all credit arising from the lawsuit, regardless of the actual use, is questionable.

If the understanding of the Answer to Advance Ruling Requestprevails – and is effectively practiced – the financial impact on taxpayers' cash will be drastic and contemporary to the delivery of the first DCOMP, since the incidence of IRPJ and CSLL will fall on the total value of the credit arising from the final lawsuit, regardless of confirmation of the amounts by the Internal Revenue Service (approval of the declaration) or even the use of the other portions of the credit,  transmission of the other compensations.

In our view, the position of the Internal Revenue Service in relation to taxation at the time of the first statement of compensation, in which the full amount to be compensated is declared, does not represent the actual moment of the equity increase and economic and legal availability. There is no sign of wealth or contributory capacity, and an attempt by the Tax Authorities to tax the values at this time should be rejected by the judiciary.

Far from being a purely theoretical situation, this positioning of the Irs represents a potential risk for several taxpayers who, after long years of battle with the Tax Office, finally obtained in court the recognition of a higher amount collected, and that could be compensated. In this group, there are taxpayers who guaranteed their right to recover the value of ICMS unduly included in the calculation base of PIS and Cofins and those who had the recognition of non-taxation by IRPJ and CSLL of selic values on undue payment. These discussions moved great values and, with this understanding exposed in the Consultation Solution, the Irs seems to intend to mitigate its defeat, reaching precisely part of the undue payment recognized by the Judiciary.

In the same Consultation Solution, the Irs provides that the interest on late payment due on the tax undue payment must comprise the calculation bases of IRPJ, CSLL, Cofins and PIS/Pasep in the period in which the main debt is recognized.

This position of the Internal Revenue Service is in direct confrontation with the recent position of the Supreme Federal Court (STF) in Extraordinary Appeal 1.063.187, submitted to the regime of general repercussion, in which was fixed the thesis that "it is unconstitutional the incidence of IRPJ and CSLL on the amounts related to the Selic rate received due to the repetition of tax undue payment".

The Supreme Court thus expressed itself, recognizing the legal nature of interest on late payment, which aim to remake effective losses, decreases, not characterizing the increase in equity. Consequently, they are outside the field of incidence of IR and CSLL. The trial is not closed. The analysis of the opposing declaration embargoes by the Union in Extraordinary Appeal 1,063,187 requiring the modulation of the effects of the judgment remain pending, leaving the issue partially open.

Anyway, all this movement of the IRS seems to want to demonstrate an absolute irresignation with the limits of the legal relationship in the way it was delimited by the judiciary and an attempt, hopefully frustrated, to decrease the taxpayer's earnings.

It is important to follow the consequences of ongoing lawsuits that discuss the issue and anticipate any restrictive measure imposed by the Internal Revenue Service, seeking, for this, the protection of the Judiciary.

Category: Environmental

Federal Law 14,285, published on December 30, 2021, promoted changes in the Forest Code (Federal Law 12,651/12), the Land Use and Parcelling Act (Federal Law 6,766/79) and the law dealing with land regularization of occupations on Federal land in the Legal Amazon (Federal Law 11,952/09). The changes specifically affect the Permanent Preservation Areas (APPs) located around watercourses in consolidated urban areas. Among the main changes, municipalities are now entitled to enact local laws to establish extensions of marginal bands of APP differently from those provided for in the Forest Code, taking into account local characteristics.

The newly sanctioned federal standard modified Article 3, item XXVI, of the Forest Code and defines a new concept for consolidated urban area.^[1] In addition to being included in the area or in the urban perimeter of the municipality (defined in the master plan or in specific municipal law), the area must meet the following criteria:

• have a road system in place;
• be organized in predominantly built blocks and lots; and
• have predominantly urban use, characterized by the existence of residential, commercial, industrial, institutional, mixed or directed buildings to the provision of services.

In addition to meeting these requirements, consolidated urban areas will be defined by the existence of at least two of the following urban infrastructure equipment/systems deployed: rainwater drainage; sanitary sewage; drinking water supply; electricity distribution and street lighting; and urban cleaning, collection and management of solid waste.

An even more significant modification was made in Article 4 of the Forest Code, with the inclusion of § 10:

"§ 10. In consolidated urban areas, after hearing the state, municipal or district environmental councils, municipal or district law may define marginal bands distinct from those established in item I of the caput of this article, with rules that establish:

I – the non-occupation of disaster-risk areas;

II – compliance with the guidelines of the water resources plan, the basin plan, the drainage plan or the basic sanitation plan, if any; and

III – the provision that the activities or enterprises to be installed in the areas of permanent urban preservation should observe the cases of public utility, social interest or low environmental impact set out in this Law."

Law 14.285/21 included § 5 in article 22 of Law 11.952/09, to establish that the master plans and municipal laws of land use and parceling must determine the limits of the riparian APPs of natural watercourses located in urban areas, with the condition that the state and municipal environmental councils be heard.

Art. 4 of Law 6,766/79 was also amended. With the new wording, the extension of non-buildable areas resulting from natural water bodies in consolidated urban areas (considering the new definition set in the XXVI section of Article 3 of the Forest Code, highlighted above) will be established from its own environmental diagnostic studies, prepared by the municipality, and should also keep in line with the municipal or district laws responsible for the territorial planning of the municipality.

Before Law 14.285/21, there was a controversy involving the treatment of urban APPs. The question is whether it would be appropriate to apply to these cases the Forest Code, with minimum distance fixation ranging from 30 to 500 meters from the edge of the gutter of the regular bed of the water bodies – according to the width of the body of water – or the Land Parceling Law, which seals buildings at distances of less than 15 meters from each of the banks of the watercourse. The controversy was pacified by the thesis signed by the Superior Court of Justice (STJ) in Repetitive Theme 1.010, in which the understanding of the prevalence of the Forest Code was established to set the non-building extension in the APPs of any perennial or intermittent watercourse, in stretches characterized as a consolidated urban area.

From now on, with the edition of Law 14.285/21, each municipality must elaborate a socio-environmental diagnosis, with defined technical criteria, to determine which land extension from the banks of the watercourses in the urban perimeter must be considered app range.

It is worth following the discussions and developments of the theme in the higher courts, even to verify if there will be questions about the constitutionality of Law 14.285/21.

^[1] Before the issue of Federal Law 14.285/21, the Forest Code used the definition of consolidated urban area established in Federal Law 11.977/09, which deals with the My House, My Life Program (PMCMV) and land regularization of settlements located in urban areas, among other measures.

Category: Tax

The 1st Section of the Superior Court of Justice (STJ) recently ended a debate that had lasted for more than 20 years in the courts. In judging the embargoes of divergence in the Special Appeal (EREsp) 1.213.143/RS, the 1st Section recognized the right of the taxpayer to keep the IPI credit, even in the face of outflows of products not subject to the tax.

The IPI is a tax subject to the non-cumulative regime and, pursuant to Article 153 of the Federal Constitution, "will be non-cumulative, offsetting what is due in each transaction with the amount charged in the previous ones".

In the case of IPI, the non-cumulative is unrestricted, unlike that established for the ICMS, in which there is a need to reverse the credit in non-taxed outflows.

Also, Article 150, paragraph 6, of the CF/88 allows that a specific law grants  the right of credit in other hypotheses.^[1]

Non-cumulative as a technique includes distinct systematics. This, moreover, is the reason for different constitutional treatments to deal with the non-cumulative of IPI and  ICMS.

In this context, and based on the prerogative set out in Article 150, paragraph 6, of the CF/88, the National Congress issued Law 9.779/99 to make explicit the right of taxpayers to maintain the IPI credit, including in case of outflows of final products not subject to the tax:

"Art. 11. The creditor balance of the Tax on Industrialized Products – IPI, accumulated in each calendar quarter, resulting from the acquisition of raw material, intermediate product and packaging material, applied in industrialization, including a product exempt ed or taxed at the zero rate, which the taxpayer cannot compensate with the IPI due on the outflow of other products, may be used in accordance with the provisions of the arts. 73 and 74 of Law No. 9,430 of December 27, 1996, observed standards issued by the Federal Revenue Office of the Ministry of Finance."

With the publication of Law 9.779/99, the Federal Revenue of the 7th Region came to recognize the possibility of the taxpayer maintaining the IPI credit from the acquisition of ipi-taxed goods applied to the final product not subject to the tax:

"IMMUNE END PRODUCT. CREDITING. POSSIBILITY.

According to the dominant administrative view, the provisions of Article 11 of Law 9.779/99 generally defers to the industrial of immune products the right of credit to the products and their use to, successively, compensate with IPI perhaps due, compensate with another tax or obtain reimbursement in kind, obeying the relevant formalities. Legal Provisions: CF, art. 150, VI, "d", art. 153, §3, II and III, art. 155, §3; Law 9.779/99, art. 11; IN 33/99, AND COSIT 00/17."^[2]

However, further, the IRS revised its position by the edition of the Interpretative Declaratory Act (ADI) 05/06 and began to apply it. As provided in this ADI, it would not be allowed to maintain the IPI credit when the materials were applied in a final product with NT rating (not taxed).

Under the framework of Brazilian Taxpayers Council (Carf), on some occasions it was recognized the right to maintain the IPI credit, including in case of outflows not subject to the tax:

"IPI. COMPENSATION BAD CREDIT, INTERMEDIATE PRODUCT AND PACKAGING MATERIAL. IMMUNE PRODUCT. The products listed in TIPI as non-taxable under constitutional immunity and which are not excluded from the concept of industrialization of Art. 3 of the RIPI/98 shall enjoy the right to reimbursement of claims related to the materials used in the production process, as available in Article 11 of Law No. 9,779/99. Appeal provided in part."^[3]

But after the fixing of the theme in Stare decisis  Carf 20, the right to maintain IPI credit on outflows not subject to the tax had been recognized only in case of exportation:

"There is no right to IPI credits acquisitions of insums applied in the manufacture of products classified in TIPI as NT."^[4]

As the Supreme Court (STF) ruled that the discussion on the possibility of maintaining the IPI credit provided for in Law 9.779/99 would be of an infraconstitutional order,^[5] the Superior Court of Justice had the final word on the subject.

The leading case was the EREsp 1.213.143/RS, reported by Justice Assusete Magalhães, who voted not to recognize the right to maintain the IPI credit in outflows not subject to the tax. Justice Regina Helena Costa asked for a view and voted to recognize the right to maintain the IPI credit, including in the outflows not subject to the tax.

After the debate on the subject between the Justice of the 1st Section, it was established the understanding that it is legitimate to maintain the IPI credit, including in outflows of final product not subject to the tax:

"CIVIL AND TAX PROCEDURE. DIVERGENCE EMBARGOES ON SPECIAL APPEAL. 2015 CIVIL PROCEDURE CODE. APPLICABILITY. TAX ON INDUSTRIALIZED PRODUCTS - IPI. GRANTING CREDIT THROUGH ART. 11 OF LAW No. 9,779/1999. AUTONOMOUS CREDITING. UNTYING OF THE NON-CUMULATION RULE - DISTINGUISHING. USE OF THE IPI CREDITOR BALANCE IN THE UNFEASIBILITY OF COMPENSATION WITH THE MENTIONED TAX INCIDENT ON EXIT. HYPOTHESIS OF UNTAXED PRODUCT. POSSIBILITY.

(...)

III – Law No. 9,779/1999 established the use of IPI credits as an autonomous tax benefit, since it does not translate merely the explicitness of the rule of non-cumulation.

IV – Because it is the use of IPI credits as an autonomous benefit, directly granted by law for the dishonored exit, the discussion returned by the Embargoes of Divergence distances itself from the core of the controversy involving the non-cumulation of this tax - need for distinguishing -, even taking care of eminently infraconstitutional matters.

V – Art. 11 of Law No. 9,779/1999 confers ipi credit when it is impossible for the taxpayer to compensate for this amount with the aforementioned tax levied on the outflow of other products. In the impossibility of using the sum resulting from the onerated entry, the pointed article opportunistizes the consolidated way of the arts. 73 and 74 of Law No. 9,430/1996. Authorized, therefore, the use of the value released in the tax writing, precisely with the output "of other products". It should be reiterated that other products in this context may be exempted, subject to the zero or untaxed rate.

VI – Unacceptable to restrict, by an infralegal act, the tax benefit granted to the productive sector, especially when the three situations – exempt, subject to the zero rate and not taxed – are equivalent as to the practical result outlined by the Benefit Law.

VII – Therefore, it finds legal shelter to take advantage of the ipi balance arising from purchases of raw materials, intermediate products and taxed packaging materials, in the outflows of products not taxed in the period after the validity of Art. 11 of Law No. 9,779/1999.

(...)

IX - Embargoes of Divergence improvised."^[6]

In order to standardize the jurisprudence on the right to maintain IPI credit, including outflows not subject to the tax, Stare decisis Carf 20 became obsolete. For this reason, and as stated in Article 19 of Law 10,522/02,^[7] Carf's judges should realign their jurisprudence on the subject and proceed to follow the understanding signed by the Superior Court of Justice.

^[1]"Art. 150. Without prejudice to other guarantees guaranteed to the taxpayer, the Union, the States, the Federal District and the Municipalities are delimited:

(...)

• 6 - Any subsidy or exemption, reduction of calculation basis, granting of presumed credit, amnesty or remission, relating to taxes, fees or contributions, may only be granted by specific law, federal, state or municipal, which regulates exclusively the matters listed above or the corresponding tax or contribution, without prejudice to the provisions of Article 155, § 2, XII, g."

^[2] SRRF/7ª RF/DISIT 248/2000 Consultation Solution

^[3] Judgment 202-16.984, rapporteur-designate: Maria Cristina Roza da Costa, DOU of 21/08/2007

^[4] Summation Carf 20. Binding, according to Ordinance MF 277, of 07/06/2018, DOU of 06/08/2018

^[5] "ACCORDING TO REGIMENTAL PERFORMANCE IN EXTRAORDINARY APPEAL. TAX LAW. TAX ON INDUSTRIALIZED PRODUCTS - IPI. PRINCIPLE OF NON-CUMULATION. PRODUCTS WITH UNTAXED OUTPUTS. RETRACTION JUDGMENT. 1. The legal regime of the IPI was completed with Art. 11 of Law 9.779/1999, so that the right to credit exempt, untaxed or subject to the zero rate is only possible with the advent of said legal law. Previous. 2. Although they have different legal natures, there is no differentiation in situations where products are subject to exempt, untaxed or reduced exits at zero rate, because the legal consequence is the same within the production chain, due to the tax exemption of the final product. (...) 4. The verification of the scope of the tax benefit established by Article 11 of Law 9.779/1999 is limited to the infraconstitutional scope. Previous. 5. Regimental grievance to which it is dismissed." (STF, 2nd Class, AgR in The AgR at RE 379.843, DJU of 27/03/2017)"

^[6] DJU of 01/02/2022

^[7] "Art. 19. The Attorney General's Office of the National Treasury is exempt from contesting, offering counter-reasons and appeals, and is authorized to give up appeals already brought, provided that there is no other relevant basis, in the event that the action or the judicial or administrative decision deals with:

(...)

VI – the meth decided by the Supreme Federal Court, in constitutional matters, or by the Superior Court of Justice, the Superior Labor Court, the Superior Electoral Court or the National Class of Standardization of Jurisprudence, within the scope of its powers, when:

(a) is defined as a general repercussion or repetitive resource; or

b) there is no feasibility of reversal of the thesis signed in a sense unfavorable to the National Treasury, according to criteria defined in the act of the Attorney General of the National Treasury;"

Category: Capital markets

The year 2022 has been a year of much news for Brazilian companies, and it should continue to be. We live in an environment of uncertainty in the market caused by the approaching presidential election and the unfolding of the conflict in Ukraine, associated with the downturn  of the covid-19 pandemic. In scenarios like this, the market becomes more selective for equity transactions, which should lead to a reduction in the number of IPO and follow-on transactions in 2022 compared to 2021.

On the other hand, companies still need resources to finance their investment and growth needs, just as investors need to allocate their resources in search of good returns for their portfolios. We can therefore expect an increase in borrowing activity via debt in the capital markets. In line with this trend is the measure recently announced by the federal government to exempt capital gains for foreigners who invest in debt securities of Brazilian companies (the date of publication of the measure is still awaited).

From the regulatory point of view, the year began with waiving the need for corporations to publish legal publications in the official gazettes. It now suffices to carry out abridged publications in a large circulation newspaper, with full disclosure in the digital environment. The measure, challenged in court by the Brazilian Association of Official Press (Abio) through a direct action of unconstitutionality in the Federal Supreme Court, came into force in January of this year and was even the subject of guidelines from the CVM in its annual guidance letter to public companies.

Furthermore, CVM Resolution 60, which consolidates the rules regarding securitization companies and the operations of issuing CRIs and CRAs, enters into force in May. Among the news already disclosed and not yet in effect, the one with the greatest impact, however, is CVM Resolution 59, which amends CVM Instruction 480. This resolution comes into effect in January of 2023 and will impose a profound reform in the content of the reference form, one of the main instruments of disclosure of companies to the market. The document will become more objective and up-to-date, including, as a new feature, a specific section on the issuer's ESG practices.

Also expected for 2022 are the new CVM rules that will consolidate the public offering framework in Brazil, the object of a public hearing that ended in July of 2021 (see notice), which will also mean an important change in the framework currently in force. New rules are also expected for Brazilian Depositary Receipts (BDRs), which have recently undergone specific regulatory reforms (see notice).

All this news points to the need for publicly traded companies to prepare for changes in the short-term horizon. To help them in this process, they can count on Machado Meyer's team of specialized professionals.

Category: Litigation

From the edition of the new Code of Civil Procedure (CPC) and especially by the positiveity of fundamental norms of the civil procedure, there is no room for the technique of defensive jurisprudence^[1] continue to be applied by the higher courts – especially the Superior Court of Justice (STJ) – as a way of inadmitting appeals, preventing a case from reaching the just and effective solution of the merits of the case.

Defensive jurisprudence is the practice adopted by the higher courts, in particular the Supreme Court, of not knowing resources by overvaluing the formal admissibility requirements.^[2] Often, this measure undermines the constitutional guarantee of access to justice, understood as the right to a just and effective solution to the merits of the case.

The new procedural system inaugurated by the CPC privileges, in its articles 4th and 6th, the principle of the primacy of judgment on merit, which reinforces the constitutional guarantee of access to justice.^[3]

Despite the effort and normative advance of the CPC, the technique of defensive jurisprudence persists in the day-to-day of the courts, with the application of sums of jurisprudence that impose misplaced decisions of inadmission of appeals.

Among these summations stands out the 182 of the Supreme Court, which recommends that "it is unfeasible the aggravation of Art. 545 of the CPC that ceases to specifically attack the grounds of the aggravated decision". Edited still under the old CPC, this summary continues to be applied by the STJ. In a trial of embargoes occurred in 2019, the 4th Tuma of the Supreme Court reaffirmed the "need for the party, in internal injury brought against the rapporteur's monocratic decision given in special appeal, imposes all the foundations of the aggravated decision".^[4]

According to Summary 182, the applicant has the procedural burden of challenging all the grounds of the aggravated decision, which does not entail any exception. Based on this understanding, the Special Court of the Supreme Court, in the judgment of EAREsp 746.775/PR, on 11/30/2018, decided that the special appeal injury must contest all the grounds of the decision of recursal default, even if the grounds are autonomous.

However, after this trial, there was no consensus among the ministers on what would be the fate of possible internal injury brought against the monocratic decision of inadmission given in the grievance on special appeal.

In view of this, two currents were formed: the first understood that the "party could, in the case of internal injury, fail to challenge an autonomous foundation of the aggravated decision, so that the matter would only be included by the preclusion";^[5] for the second current, the same orientation applied to the disease on a special appeal should be adopted in the internal injury.^[6]

On 10/20/2021, the Special Court of the Supreme Court again addressed the subject, in judging REsp 1.424.404/SP, and acknowledged that "the jurisprudence of this Court must prevail in the sense that the absence of challenge, in the internal grievance, of an autonomous chapter and/or independent of the rapporteur's monocratic decision — given when assessing special appeal or grievance on a special appeal — only entails the preclusion of the uncontested matter,  not attracting the incidence of Summary 182 of the STJ".^[7] Therefore, the understanding of the first current was adopted.

According to the Special Court of the Supreme Court, "the decision that does not admit the Special Appeal has as its exclusive scope the assessment of the assumptions of recursive admissibility. Your device is unique." ^[8] In other words, even if the statement of reasons make it possible to conclude that one or more causes prevent the judgment of the merits are not autonomous chapters, which is why it is necessary to challenge all its grounds.

On the other hand, it was concluded that , "when the rapporteur decides monocratically the Special Appeal or its Grievance, he does so by examining each plea in isolation, giving rise to autonomous chapters, which allows the party the freedom to define which grounds will be challenged, so that the omission entails only the preclusion of the matter, but does not prevent its knowledge by application of Summary No. 182/STJ".^[9]

The conclusion of the trial is a encouragement for those who advocate a lower formalism and expect, increasingly, decisions of the Supreme Court that corroborate the constitutional guarantee of access to justice.

^[1] BARBOSA MOREIRA, José Carlos. Illegitimate restrictions on knowledge of resources. In: BARBOSA MOREIRA, José Carlos. Procedural Law Issues. Ninth grade. São Paulo: Saraiva, 2007, p. 280-281. The renowned jurist also asserted that: "the travo of dissatisfaction left by decisions of not knowledge is inevitable; they resemble meals in which, after the appetizers and the hors d'oeuvre, if they said the guests without the announced main dish" (In BARBOSA MOREIRA, José Carlos. Illegitimate restrictions on knowledge of resources. Revista Forense, Rio de Janeiro, v. 386, year 102, 2006, p. 155).

According to the jurist, this is the technique of "overvaluing formal requirements to derail the assessment of recursal merit", which should not be tolerated from the new code of essentially instrumental character, modern and concerned with fending off excessive and uncommitting formalisms.

^[2] Part of the doctrine adopts a more severe position, such as José Rogério Cruz and Tucci, who points out: "It is true that certain obstacles to the admission of resources to the higher courts are the result of ingenious construction, which maintain some hermeneutic coherence with the procedural rules in force. However, there are, in significant numbers, other barriers that are most identified to 'Praetorian perversity', which have no plausible reason to subsist in the framework of a civilized legal system, committed to the effectiveness of judicial protection. (...) It should be emphasized that this orientation, as is the case in the general ity of the so-called defensive case-law, shows that the applicant's substandright does not have the slightest relevance to the court. I understand, with due respect, that such a position represents an inably undisputed denial of jurisdiction. Indeed, with regard to the Supreme Court – the self-styled 'Citizenship Court' – despite some flexibility observed in recent times, it continues to use questions and stratagems, in the effort of ruling out the judgment of the merits of the appeal, to the detriment of its constitutional mission in favor of the unity of the application of federal law" (CRUZ and TUCCI,  Jose Rogério. One suffices to perversity of defensive jurisprudence. São Paulo, 2014. Available in: www.conjur.com.br/2014-jun-24/basta-perversidade-jurisprudencia-defensiva. Accessed: 3/2/2022.

^[3] THEODORO JUNIOR, Humberto. Code of Civil Procedure Annotated, 22nd edition, Rio de Janeiro: Forense, 2019, p. 8).

^[4] See news published on the STJ website about the application of the summary, available at: https://www.stj.jus.br/sites/portalp/Paginas/Comunicacao/Noticias/Em-agravo-interno--parte-deve-impugnar-todos-os-fundamentos-da-decisao-agravada-.aspx. Accessed: 17/12/2021.

^[5] Crumbs, "Victory of the law and defeat of the defensive jurisprudence in the Supreme Court!". Available in: https://www.migalhas.com.br/depeso/353646/vitoria-da-advocacia-e-derrota-da-jurisprudencia-defensiva-no-stj

^[6] FELÍCIO, Gabriel Bartolomeu and ADAMEK, Daniela Pina von. Victory of the law and defeat of the defensive jurisprudence in the Supreme Court! Crumbs website. Available in: https://www.migalhas.com.br/depeso/353646/vitoria-da-advocacia-e-derrota-da-jurisprudencia-defensiva-no-stj

^[7] See decision in full content on the jusbrasil website. Available in: https://stj.jusbrasil.com.br/jurisprudencia/1317326990/embargos-de-divergencia-em-recurso-especial-eresp-1424404-sp-2013-0230570-3/inteiro-teor-1317327025

^[8] ditto

^[9] Ditto

Category: Digital Law

The National Data Protection Authority (ANPD) published on January 28 resolution CD/ANPD 02, which approved the regulation of application of the General Law on the Protection of Personal Data (LGPD or Federal Law 13.709/18), the text of which is immediately valid for organizations classified as small processing agents, which includes Startups.

Startup is a nascent business organization or in recent operation, whose performance is characterized by innovation applied to business models or to products or services offered. The company does not need to be in the technology segment to be considered startup, but innovation, inseparable from this type of business, is usually tied to digital technologies. Frequently the digital business of Startups around data, including personal data, which is why the intersection of the themes startup and data protection is so important. The ANPD Regulation, when conceptualizing startup in paragraph III of Article 2, recalls the framework of the Supplementary Law 182/21 itself (Legal Framework of Startups).

In Brazil, the LGPD provides for differentiated treatment for Startups data processing agents, which has been regulated by the ANPD not only to Startups, but also for innovation companies, small businesses and micro-enterprises. Submitted to public consultation on August 27, 2021, the regulation went through several stages until its final deliberation and unanimous approval by the Board of Directors on January 24 of this year.^[1]

The ANPD expressly acknowledged that reducing regulatory burden and stimulating innovation are key factors for the development of Startups and, consequently, for the growth of the country itself (Order 41/2021/SG/ANPD). In this regard, a study conducted by the Brazilian Association of Startups and Deloitte^[2] revealed that of the 2,486 Startups analyzed throughout the national territory, 83% have annual revenues of less than R$ 1 million, i.e., the majority did not reach a minimum level of maturation, much less the breakeven. This means that any reduction in compliance costs, including data processing obligations, will certainly contribute to fostering the Startups.

However, there are limits for such benefits, which exclude those who perform high-risk treatment for holders or those who received gross revenue spree sofa exceeding R$ 16 million in the previous calendar year – or a new amount of R$ 1,333,334, multiplied by the number of months of activity in the previous calendar year, when less than 12 months, regardless of the corporate form adopted.

The processing of high-risk personal data shall be deemed to meet, cumulatively, at least one general criterion and a specific criterion. The Regulation lists as general criteria:

• the processing of personal data on a large scale, i.e. when covering a significant number of data subjects, also considering the volume of data involved, as well as the duration, frequency and geographical extent of the processing carried out; and
• the processing of personal data which may significantly affect the interests and fundamental rights of the holders, which shall be characterized, inter may other situations, in those where the processing activity may prevent the exercise of rights or the use of a service, in addition to causing material or moral damage to the holders, such as discrimination, violation of physical integrity, the right to image and reputation, financial fraud or identity theft.

As specific criteria, four hypotheses are foreseen:

• the use of emerging or innovative technologies;
• surveillance or control of publicly accessible areas;
• decisions taken solely on the basis of automated processing of personal data, including those intended to define the personal, professional, health, consumer and credit profile or aspects of the personality of the holder; and
• the use of sensitive personal data or personal data of children, adolescents and the elderly.

Still on the subject of high risk, as this is a complex issue, the Regulation itself provides that the ANPD will be able to provide guides and guidance in the future, with the aim of assisting small treatment agents in the assessment of high-risk treatment.

Measures bring cost reduction

Another relevant mitigation in the regulatory burden concerns the obligation to record transactions involving the processing of personal data (ROPA – record of processing activities). Under the new regulation, small agents can record personal data processing operations in a simplified manner, according to a model yet to be provided by the ANPD.

In relation to the person in charge of personal data, by many known as DPO (Data Protection Officer), small agents, such as Startups they will no longer be obliged to indicate that figure, as required by Article 41 of the LGPD. However, this exemption does not exempt them from providing a communication channel with the data subject to comply with the provisions of Article 41, § 2, I, of the LGPD, which provides as the activity of the person in charge "accepting complaints and communications of the data subjects, providing clarifications and adopting measures".

The ANPD has also relaxed the safety incident communication by indicating that it will have the issue in simplified procedure under specific regulations.

Regarding deadlines, there is flexibility for small-sized agents, including Startups. The regulation grants them double term in cases provided for by law, in clear recognition of their condition and smaller service structure.

In addition, small processing agents may establish a simplified information security policy, which includes essential requirements for the processing of personal data, in order to protect themselves from unauthorized access and accidental or unlawful situations of destruction, loss, alteration, communication or any form of improper or unlawful processing.

No less important is the permission granted to small treatment agents and Startups, including those who carry out high-risk treatment, to organize themselves through entities representing the business activity, legal entities or natural persons for the purposes of negotiation, mediation and reconciliation of complaints submitted by data subjects.

The ANPD may ask the entrepreneur to prove the framework of his company. In other words, the data protection authority may require proof that business activity is a startup (or small business in general). The deadline is 15 days to meet the requirement.

Privacy by design

Although not expressly mentioned in the new ANPD Regulation, the concept of privacy by design is an important tool at the disposal of Startups for risk management and compliance with personal data protection standards. Although not explicitly mentioned in the regulation, it reflects the need to incorporate the culture of data protection into the business, including those in the pre-operational phase, since the design of the technology.

This is even more relevant in the innovation environment of Startups, considering that decisions made during the design of the business can have long-term impacts, impairing the company's ability to generate value, project repetition and gain scale. Implementing data protection from the design of the project, therefore, should be a priority, mainly because of the growing wave of cyber-attacks that affects from large corporations, such as companies with stock exchanges, to small companies and Startups.

^[1] Nthe terms of Order 41/2021/SG/ANPD.

^[2] Mapping of the Brazilian Startup Ecosystem 2021.

Category: Capital markets

As part of its work of revision and consolidation of regulatory acts, the Brazilian Securities and Exchange Commission (CVM) promulgated Resolution 62, on January 19 of this year, fully replacing the former CVM Instruction 8/79, which dealt with unlawful acts in the securities market. Maintaining the lean wording of the instruction repealed, the new resolution does not bring in changes of merit, but only adjustments to the wording that became effective last February 1st.

Without conceptual changes, the resolution reiterates the provisions of the previous rule by providing for the prohibition on creating artificial conditions of demand, supply, or price of securities, price manipulation, fraudulent transactions, and use of unfair practices.

Since the origin of the regulatory act, one opted for a description of the conduct that resembles open criminal acts, in relation to which it is up to the interpreter of the law, as an integrating agent of the rule, to classify behaviors and artifices that, despite not being expressly described, represent conduct that fits within the prohibition via interpretation.

Over the years, many have questioned the need for greater detail on the crimes described in Instruction 8/79, but the broadness of the wording is part of the regulatory technique with the objective of ensuring flexibility to the CVM's sanctioning action and its adaptation to any changes and modernization of the characterization of unlawful acts.

Each of the prohibited practices is discussed briefly below.

Creating artificial demand conditions

According to the resolution, artificial demand conditions are created "as a result of trades by which their participants or intermediaries, by malicious action or omission, cause, directly or indirectly, changes in the flow of orders to buy or sell securities. In short, the following are elements for the establishment of the unlawful act:

• the execution of trades that change the order flow; and
• the agent's malicious action or omission.

Unlike price manipulation, there is no need to induce third parties to trade. It suffices to create any process that maliciously changes the order flow.

One of the known forms of artificial demand creation is called money pass. The agent's objective is to take advantage of the organized securities market to obtain some benefit not from the trade itself, but from the disguise of a certain factual situation supported by the trading of the asset. In such cases, it is common for agents to try to mask money laundering (creation of profit) or tax planning (creation of loss).

Unlike price manipulation, in which the agent uses the order book to make the trade with an advantage, in money passing the advantage is not related to the trade itself, but to the result it produces for the agent. The harm to third parties is not so evident, but depending on the magnitude of the practice, it is possible that the asset might have its quotation altered with the consequent inducement of third parties to trade with it.

Price Manipulation

Subsection II of article 2 of the new resolution describes price manipulation as the "use of any process or artifice intended, directly or indirectly, to raise, maintain, or lower the price of a security, inducing third parties to buy or sell it.” The following are elements for the establishment of the unlawful act:

• the use of a process or artifice;
• the intention to affect the quotation of securities; and
• the influence on third parties to trade with the securities.

Two recognized forms of price manipulation are  layering and spoofing practices. In both, the agent issues buy and sell orders for an asset, which, by the dynamics of the organized market, are registered on opposite sides of the order book. The objective is to arbitrate the value of the asset and complete the trade at the price created by the agent, and not at the asset price under market conditions. Such practices create an unrealistic price, inducing third parties to trade in assets whose values have been manipulated. They were recognized as irregular by the joint committee in CVM PAS 19957.006019/2018-26 and RJ 2016/7192.

In the first case, of layering, the CVM found that the accused inserted, without legitimate economic motivation, orders that he did not intend to execute just to create a "false impression of supply and demand". As a result, there was pressure from the buyer or seller side that led third parties to trade the securities based on the false condition created by the accused. To find willful misconduct, the reporting judge highlighted the pattern of the offers and the recurrence of the conduct. The agent was sentenced to pay a fine equivalent to one and a half times the economic advantage obtained, totaling more than R$2.2 million. In the second case mentioned, of spoofing, the accused inserted buy or sell offers with large lots of shares and options that were cancelled thereafter, in a short period of time, in order to attract counterparties. A monetary fine totaling approximately R$2.3 million was imposed on the accused.

Fraudulent Transaction

It is the transaction that uses "a ruse or artifice intended to induce or maintain third parties in error, with the purpose of obtaining an unlawful advantage of an asset nature for the parties to the transaction, for the intermediary, or for third parties. It is established based on the following elements:

• use of a particular artifice;
• intent to mislead third parties in securities transactions; and
• objective of obtaining an asset advantage.

It is very similar to the misappropriation provided for in article 171 of the Penal Code, the fraudulent transaction has as its main objective to maintain or induce third parties into error.

In PAS CVM SP 2014/0465, a fraud modality known as churning was discussed, in which people with control of third-party funds conduct a high volume of trades on behalf of a client in order to generate fees and commissions for themselves or third parties. In this case, the investor, having established a relationship of trust with the person responsible for his funds, is misled and ends up authorizing transactions that are not in his best interests. The accused was ordered to pay a monetary fine of R$250,000.

Unfair practice

Subsection IV describes an unfair practice as one "that results, directly or indirectly, actually or potentially, in treatment of any party in securities trading that places it in an unbalanced or unequal position vis-à-vis other participants in the transaction.” According to the CVM's case law, the following are necessary elements for the establishment of the unlawful act:

• the securities transaction;
• the unbalanced or unequal position of the party to the transaction in relation to the market; and
• the improper nature of such imbalance (CVM administrative sanctioning proceedings CVM SP 2017/315, CVM 03/2015, and CVM 04/2010).

One recognized development is so-called front running. In Portuguese translation, the practice represents the act of "running ahead" and occurs, for example, when a broker has access to information about a client's order and tries to take advantage of this by making an early move. Given the characteristics of the unlawful practice, the agents that are usually most likely to commit the practice are brokers, managers, analysts, and other agents that manage funds.

The unfair practice is also related to the prohibition on insider trading, which is regulated by Law 6,404/1976, the Securities Law, and CVM Resolution 44/2021, which prohibit trading based on material information not disclosed to the public. The rules establish penalties of a civil, criminal, and administrative nature and include preventive and repressive rules.

In practice, the difference between the two situations is the fact that the agent of insider trading is usually present at the origin and formation of the inside information, while in front running and other unfair practices, the agent usually receives the information. In the CVM's case law, however, the accusation of insider trading cases has already been based on the specific paragraph of Instruction 8/79.

All the offenses mentioned are considered serious by the Securities Market Law, and the conduct can be punished with the penalties of temporary disqualification, suspension of authorization, or registration, and temporary prohibition, in addition, of course, to fines and warnings.

Category: Banking, insurance and finance

Nei Zelmanovits, Bruno Racy, Adriano Schnur, Matheus Wassano Ishigaki and Antonio Mesquita

Aligned with the trend of promoting the reduction of obstacles to exports and imports of goods and services and promoting productive investments and the free circulation of capital, the new legal framework of the foreign exchange market, established by Law 14.286/21 (New Foreign Exchange Law), consolidates several of regulations on the subject, also changing various provisions and revoking several regulations in this regard.

In this article, we provide a summary of the main changes that should be implemented once the New Foreign Exchange Law comes into force, which will take place on December 30, 2022, one year after the date of its publication. That being said, we do not intend to dissect all the changes promoted by the upcoming law, but to describe those with the greatest potential of impact and their possible repercussions. Please note that some of the provisions  listed below are not self-applicable and shall be implemented in accordance with the relevant regulations and regulatory requirements established by the National Monetary Council (CMN) and the Brazilian Central Bank (Bacen).

Payment in foreign currency (Article 13)

Previously consolidated in Decree-Law 857/69 and Law 8.880/94, the events in which the fixing of payment in foreign currency of enforceable obligations in Brazil were admitted was expanded by the New Foreign Exchange Law.

In addition to those historically provided for in the preceding regulations (e.g. in the case of assignment, transfer, delegation, assumption or modification of obligations arising from export contracts or which in a way involve a non-resident creditor or debtor), new events have been included, such as:

• contracts executed by exporters in which the counterpart is an entity responsible for granting a concession, permission, authorization or lease in relation to the infrastructure sectors; and
• contracts relating to indirect export, in the terms of Law 9,529/97.

The CMN may authorize the stipulation of payments in foreign currency, if this measure has the potential to mitigate the foreign exchange risk or increase the efficiency of the business. The payments in foreign currency of enforceable obligations in Brazil which do not comply with the new regulation shall be considered null and void in full, as provided for in the previous regulations.

The new events are well-known aspirations in the market. By expressly allowing the indexation of contracts related to indirect export, the new regulation seeks to lay the foundation for the ascension of a market of dollarized operations that may be exploited by companies operating in the export chain.

By determining that contracts executed by exporters in which the counterpart is an entity responsible for granting a concession, permission, authorization or lease in relation to the infrastructure sectors may be paid in foreign currency, the New Foreign Exchange Law eliminates doubts and mitigates risks on an ample range of transactions currently carried out, especially in the energy sector, with Power Purchase Agreements (PPAs) indexed to the US dollar, which constitute a booming market in recent years.

Export (Article 26)

The New Foreign Exchange Law also eliminated the restriction on the use of proceeds held abroad. According to the new law, Brazilian exporters continue to have the prerogative of maintaining proceeds arising from their exports abroad. However, the application of such proceeds is no longer limited to the exporter's own investments, financial applications or obligation payments. In the same direction, the new law also eliminates the prohibition of using these resources for loan or mutual of any nature apply.

Application of funds raised in Brazil and abroad (Article 15)

As an indication of a major change in the legal regime in force since the mid-1960s, the New Foreign Exchange Law expressly provides for the possibility of financial institutions and other institutions authorized to operate by Bacen to allocate, invest and destinate, for credit and financing operations, locally and abroad, the funds raised in Brazil and abroad. This provision is not self-applicable and shall comply with the relevant regulations and regulatory and prudential requirements established by CMN and Bacen to be valid. The expectation generated by such disposition is that Brazilian financial institutions may allocate funds raised in Brazil to credit and financing operations abroad, respecting the specific activities of each institution.

Payment orders in Brazilian Reais (article 6)

In another change in relation to the former legislation, the New Foreign Exchange Law stipulates that banks authorized to operate in the foreign exchange market may send payment orders in Brazilian reais from third parties abroad, by means of accounts in Brazilian reais held in banks controlled by institutions domiciled or based abroad and that are subject to financial regulation and supervision in their country of origin. Such rule is not self-applicable. For it to be effective, the terms of the regulation to be edited by Bacen shall be complied with. Previously, this matter was discussed in Article 126 of Circular 3,691/13, which limited this possibility to residents, individuals domiciled abroad temporarily in the country and to Brazilians residing or domiciled abroad.

This measure aims to encourage the use of the real in international transactions, since it allows the receipt, from third parties abroad, of payment orders from accounts in Brazilian reais held in Brazil through foreign banks. It will be important to develop the international banking correspondence market of the real and will even allow foreign banks directed to Brazilian companies or their partners abroad, to diversify the offer of products and services in Brazilian reais, even those related to investments in the country and the settlement of obligations directly in national currency.

Entry and exit of national and foreign currency from Brazil (Article 14 and Article 19)

In order to expand the flexibility in the flow of resources between individuals, with the creation of a foreign exchange peer-to-peer market up to the transactional limit and conditions mentioned, the limit of cash that each individual can bear when leaving or entering Brazil was increased from R$ 10,000 to US$ 10,000, or its equivalent in other currencies. The New Foreign Exchange Law also admits the purchase and sale of foreign currency in cash, in the amount of up to US$ 500 (or equivalent), in an eventual and non-professional manner, between individuals.

Private compensation (Article 12)

The New Foreign Exchange Law provides authorization for the private compensation of credits or amounts between residents and non-residents. However, once again, this regulation is not self-applicable, as this possibility is restricted to the events regulated by the Bacen. Such measure takes down the previous prohibition on private compensation  derived from Decree-Law 9,025/46.

Prevention of money laundering and combating terrorism (Article 4, §1)

Aligned with the imperatives of prevention and opposition against money laundering and terrorist financing, the New Foreign Exchange Law provides for the adoption of measures and controls aimed at preventing the execution of transactions in the foreign exchange market for the practice of illicit acts, such as money laundering and terrorist financing, adopting precautions regarding enrollment, registration and monitoring, in compliance with the regulations to be edited by Bacen.

The inclusion of money laundering control measures and the fight against terrorism follow the market patterns pursued by financial institutions, which use very strict controls when analyzing their transactions.

Remittances abroad (Article 9)

In response to an long-standing market expectation, the New Foreign Exchange Law establishes that remittances abroad as profits, dividends, interest, amortization, Royalties, scientific, administrative and similar technical assistance are exempt from prior registration in the Bacen, although they remain subject to the presentation of proof of payment of the due income tax, as the case may be.

The exemption from the registration of these remittances has the potential to directly impact companies with foreign shareholders and partners, bringing more operational facilities related to its financial aspects, especially in accountability.

Bank account in foreign currency (Article 5, IX)

One of the most anticipated measures by the financial market, with major impacts on transactions involving investors in Brazil and abroad, the New Foreign Exchange Law also innovated by determining, yet again in an indirect manner, the possibility of opening a foreign currency bank account in Brazil, delegating to Bacen the duty to regulate and implement the requirements for its legitimation.

This change has the potential to generate important impacts on transactions involving investors in Brazil and abroad, as it can mitigate the risk of exchange variation and reduce transactional costs with derivative transactions and exchange closing.

Foreign domiciled account (Article 5, §4)

The accounts in Brazilian reais of non-residents will have the same treatment of the accounts in Brazilian reais of residents, without prejudice to the requirements and procedures that the Bacen will establish, including those with respect to payment orders in Brazilian reais abroad.

As described above, it is expected and, in some cases, necessary that CMN and Bacen regulations are published in the future to regulate some of the provisions stipulated in the New Foreign Exchange Law. Since it is a law that consolidates a series of changes and innovations which is currently in a period of vacancy, new changes can be implemented until its entry into force, to reflect any needs that the various market agents and participants may identify.

Category: Tax

Enacted by CAMEX Executive Management Committee (Gecex) at the end of last year, Resolution n. 291/21 extended the term of the Ex-tariffs listed in Section 1^st of that document to April 30, 2022. The same Resolution authorized the Secretariat for The Development of Industry, Trade, Services and Innovation, of the Special Secretariat of Productivity and Competitiveness, of the Ministry of Economy to set forth a simplified proceeding for additional extension of the deadline, extending the term to December 31, 2025.

Those interested in requesting such additional extension shall present their manifestation by February 28, 2022. Within the same period, representatives of the national industry may also present a manifestation against the extension of the regime.

The Ex-tariff regime allows the temporary reduction of the Import Duty rate to up to 0% for capital goods (BK) and IT and telecommunications goods (BIT), in cases in which there is no similar in national industry.

This regime is relevant because it contributes to increase innovation and the use of new technologies in Brazil, enabling advances in various sectors of the economy.

The Ex-tariff regime directly impacts the cost of projects and the cash flow of companies, since the Import Duty is not recoverable and is included in the taxable basis of other customs taxes, such as IPI and ICMS.

It is important to highlight that the Ex-tariffs to which the additional extension of the term until February 28 is not requested will be revoked, requiring the submission of a new claim subject to the entire regular process of analysis and approval.

Category: Litigation

In order to encourage the use of out-of-court mechanisms for dispute resolution, the Federal Judiciary Board (CJF) held the II Working Group for the Prevention and Out-of-Court Dispute Resolution in the second half of last year.

Among the 143 precedents approved, one should emphasize the recognition that social and environmental, collective, and complex disputes can and should be solved by more adequate methods than the usual state adjudication, as stated in two precedents:

• Precedent 178: "It is recommended that studies and research be conducted, within the scope of the Judiciary, in partnership with universities and professionals with expertise in the environmental area, for the preparation of guidelines aimed at the use of appropriate methods of solving complex environmental disputes, without prejudice to any specialization of CEJUSCs in environmental matters."

• Precedent 225: "The use of mediation is recommended for the resolution of social and environmental disputes, notably to make viable, in the manner set forth in article 3, paragraph 2, of the Mediation Law, access to justice and the satisfaction of waivable and unwaivable transactable rights, including preventive, repressive, and restorative measures for damages to the environment and the public."

This is a relevant position of the CJF. For those who work in the field, it is evident that judicial litigation alone is usually not enough to resolve disputes of this magnitude.

Going beyond the provisions of Precedent 225, we believes that it is not necessary to limit ourselves to mediation, which will not always be the ideal means. If the intention is to seek a more adequate method to resolve a dispute, there is no reason to stick to just one mechanism. It is possible to combine this with other mechanisms and guarantee a procedure that ensures access to justice, fundamental rights, and satisfaction of waivable and non-waivable transactable rights.

Reparation programs, a growing trend over the last few years in Brazil, are prepared from the design of a customized procedure for each specific case, through the combination of several mechanisms (mediation, conciliation, and negotiation, for example) as gears of a single system.

In addition to being able to quickly deliver repair that is better suited to the reality of those who have suffered damage, reparation programs increase the chances of maintaining business. They also distinguish themselves by involving the community and making it an active part of the reparation process, including the social component in the equation and taking the affected people out of the condition of mere spectators in the resolution of their disputes.

They are, in short, an organized, coordinated procedure focused on obtaining full reparation in an effective and expeditious manner. The amounts involved in the process are directed to the reparation itself, and not to expenses related to excessive judicialization and/or exacerbated bureaucracy. To this end, dialogue is sought with the most diverse of stakeholders, such as institutions of the Judiciary, those affected, companies, advisors, and regulatory agencies, among others. As they pursue the same result (full and expeditious reparation), all should seek a constructive solution, considering technical, legal, social, and economic issues.

The heavy rains that reached record levels in January and caused social and environmental damage, especially in the state of Minas Gerais, show that the dialogue between the various stakeholders is even more necessary. The guidance of the CJF, with its incentive for out-of-court resolution of complex environmental disputes, is extremely salutary and important, especially considering the State Dam Safety Policy (Pesb) instituted in 2021, which increased the demand for faster and more assertive responses to environmental crises.

Category: Real estate

In progress at the House of Representatives, in an emergency regime, is the Bill of Law 4.188/21, so called the new Legal Framework of Guarantees. The proposal consists of a short- and long-term strategy of the Ministry of Economy to boost the financial market, facilitating the obtaining of credits with reduced rates through the provision of guarantees.

The first and relevant change introduced by the project is the creation of the specialized management service of guarantees, real or personal. The service will be carried out by the Guarantee Management Institutions (in Portuguese, IGG), legal entities of private law regulated by the National Monetary Council and whose operation is authorized and supervised by the Central Bank.

The expectation of the federal government is that, with the separation of the management activity of guarantees, the operational costs will become the responsibility of the IGGs. Once contracted for this purpose, these institutions shall act on their own behalf with "exclusive power to constitute, record, manage and plead for the execution of the guarantees transferred to their ownership by means of the collateral management contract".^[1] They will be prohibited from performing any typical activity of a financial institution.

The expectation is that due diligences and analyses of the legal and legal viability of the assets dealing with the collateral migrate from creditors to IGGs. Naturally, including by assuming the responsibilities for valuations, representations and guarantees, IGGs are expected to act with outstanding criteria in the exercise of their asset analysis functions.

There is also room for the increasing of the insurance and reinsurance markets, as ultimately the market – and operating costs – will be regulated by the assessment and division of the risks inherent in the assets that are subject to the collateral.

To act, IGGs need to enter into a management contract with the warranty provider. The Bill of Law also provides for the requirements that must be provided for in the contract, mainly:

• maximum amount of credit that may be linked to the guarantee;
• term of validity; and
• types of operation expressly authorized by the warranty provider, including in favor of third parties.

In addition, the contract must provide for the authorization for, in the event of default, IGG to consider the other transactions linked to the guarantee due in advance, regardless of notice or judicial challenge, which allows the execution of the entire debt (cross default).

For greater legal certainty, the Bill of Law provides for the separation of the assets of the IGGs from the rights corresponding to the guarantees of the debtors, also segregating the fruits and income, in addition to the possible product of the execution. The adjudication of bankruptcy or dissolution of the IGG will not prejudice the effectiveness of the guarantees.

Another major change provided for in the Bill of Law is the change in the rules of guarantees, especially in the property execution. Considering the objective of giving greater speed in case of default, modifications were proposed in Law 9,514/1997, especially regarding extrajudicial execution.

As for fiduciary lien, the main innovation of the Bill of Law is the possibility of the same property guaranteeing more than one credit operation, allowing subsequent degrees of fiduciary guarantee. There are two requirements for the extension of the guarantee: that the new credit be granted by the same financial institution holding the fiduciary property and that there are no obligations with other creditors that are guaranteed by the same property.

Another guarantee that received special attention from the Bill of Law was the mortgage, a institute practically in disuse in the financial market. The proposal aims to bring back the prestige of this guarantee – used in only 6% of real estate credit operations^[2] – equating it to the faster procedures of fiduciary alienation, with the possibility of its extrajudicial enforcement, regardless of contractual provision.

In addition, the project also clarifies one of the main gaps that permeate the theme of the execution of guarantees, with the definition of the price considered vile. The proposal establishes an objective criterion: in the event of a public auction for disposal of the property given in guarantee, the value of the auction may not be less than 50% of the value of the property.

Regarding the new rules for guarantees, there are provisions for the out-of-court enforcement of the real estate guarantee in the event of multiple creditors. To this end, registrations must be made in the respective competent enrollment certificate at the Real Estate Registry Office, which, in case of execution, will simultaneously notify all competing creditors to enable their claims within 15 days.

In addition to the above provisions, the Bill of Law provides for changes to the Brazilian Civil Code, including the figure of the warranty agent, responsible for constituting, registering, managing and even executing the debt – in or out of court. The agent may be one of the creditors or any third party appointed by them. According to the Federal Government, the measure will result in "efficiency and professionalization in the management, registration and execution of guarantees".^[3]

The Bill of Law also proposes changes to Law 8,009/1990, that regulates the impenhorability of the homestead right. Currently, the impenhorability is oppoable in any execution process, except for foreclosure on property offered by the couple or the family entity. The current situation is criticized by financial institutions because the execution of the property is restricted to cases in which the property is offered by the family entity to constitute a mortgage. With the proposal, the impenhorability will not be apply to the execution of property offered as a real guarantee, regardless of the guaranteed obligation or the allocation of resources, even when the debt is incurred in favor of third parties.

The project was well received by the Brazilian Federation of Banks (Febraban), which published a note in favor of legislative change on November 25, 2021. In note, Febraban reiterates that the process of recovering guarantees is too time-consuming for financial entities, stating that the "current legal framework provides little effectiveness of guarantees", so that the expectation is "to have an expansion of the supply of credit and at lower rates".

If the Bill of Law is approved, the prospect is that the new dynamic will enable other configurations in the market with advantages for the borrower, who will have access to lower interest rates and greater credit, with the reduction of underutilization of guarantees. This will allow small businesses and families to access to investment credit. The change can also bring advantages for financial institutions, with the lower costs related to warranty management, which allows more institutions to actively participate in the market, such as Fintechs, medium-sized banks and credit unions.

REFERENCES:

SIDNEY, Isaac. Note from the President of the Brazilian Federation of Banks. Febraban. Published on November 25, 2021. Available in: <https://portal.febraban.org.br/noticia/3717/pt-br/>.

Financial market supports project that creates new milestone of guarantees. InfoMoney. Posted on November 27, 2021. Available in: <https://www.infomoney.com.br/economia/mercado-financeiro-apoia-projeto-que-cria-novo-marco-de-garantias/>.

Milestone guarantees is a big advantage for consumers, he tells CNN. CNN Brazil. Published on November 25, 2021. Available in: <https://www.cnnbrasil.com.br/business/marco-de-garantias-e-grande-vantagem-para-o-consumidor-diz-secretario-a-cnn/>

MENDES, William. Legal Framework of Guarantees is filed in the House of Representatives. Congress in Focus. Published on November 29, 2021. Available in: <https://congressoemfoco.uol.com.br/area/congresso-nacional/marco-legal-das-garantias-e-protocolado-na-camara-dos-deputados/>

MOREIRA, Talita. New Guarantee Framework may expand credit supply at lower rates, says Febraban. Economic Value. Published on November 25, 2021. Available in: <https://valor.globo.com/financas/noticia/2021/11/25/novo-marco-de-garantias-pode-ampliar-oferta-de-crdito-a-taxas-mais-baixas-diz-febraban.ghtml>.

^[1] According to the explanation memorandum of Bill of Law 4.188/21.

^[2] According to the explanation memorandum of Bill of Law 4.188/21.

^[3] Justification of Bill of Law 4.188/21.

Category: Capital markets

In order to carry out a reform of the informational regime which publicly-held companies are subject due to the issuance of securities, the Brazilian Securities and Exchange Commission (CVM) issued the CVM Resolution 59, which promotes several changes in CVM Instructions 480 and 481.

The purpose of the new rule is to reduce costs involved in regulatory compliance and to eliminate provisions requiring for repeated information, especially in the Reference Form. In addition, aligned with the international movement and the greater engagement of investors with environmental, social and corporate governance matters, commonly known as ESG, the new rule also deals with the report of certain information related to these matters.

The following amendments are some of the more general changes brought by CVM Resolution 59:

• The obligation to keep the eventual and periodic information available on the company’s official website for three years, as well as the obligation to deliver the report on the Brazilian Code of Corporate Governance, are now applicable only to issuers which, cumulatively: (i) are registered in category A; (ii) have securities admitted to trading on the stock market; and (iii) have shares or certificates of deposit of shares in circulation;

• The update of the Reference Form within seven working days is also required in the case of: (i) bankruptcy, judicial recovery, liquidation or out-of-court reorganization; (ii) replacement of the independent auditor; (iii) conviction of a member of the management or the fiscal council in criminal proceedings, in administrative proceedings within the competence of the CVM, Central Bank (Bacen) and Superintendence of Private Insurance (Susep), or any final conviction that determines the suspension or incapacity for the practice of any professional or commercial activity; and
• The rules and procedures for remote voting, according to CVM Instruction 481, must be provided in the call notice prior to the shareholders’ meeting, and no longer in the reference form.

The Reference Form has undergone a major change in terms of organization, besides the addition of new requirements and the streamlining of some of its items. For example, information related to the company's activities and key corporate transactions is now included at the beginning of the document, requiring new information on ESG matters and the explanation for the possible non-adoption of certain practices, such as materiality matrix, key ESG performance indicators and greenhouse gas emission inventories.

The other main changes regarding the content of the Reference Form are:

• It will no longer be necessary to include the last three fiscal years in the annual presentation of the Reference Form, except for the last fiscal year, unless when submitted to apply for registration as a publicly-held company or in some other cases specified in the regulation, such as compensation of the managers. In the context of public offerings of securities, the company remains obliged to disclose the latest accounting information, in addition to the last fiscal year;
• To fill out fields not structured in the reference form, it is now allowed to include information by way of reference to other documents made available by the issuer, provided that they have been previously sent to the CVM and that the investor is informed about the complete way to access these documents;
• Limitation of the requirement for management comments only to significant changes in items related to the statements of income and cash flow, replacing the previously required comments on each item of the financial statements;
• As required in prospectuses of public offerings of securities, the issuer shall indicate the five main risk factors among those listed in each of the specific risk categories;
• In the item related to the management, it must be included, if any, specific objectives that the issuer has with respect to the diversity of gender, color or race or other attributes in the composition of its management bodies and its fiscal council;
• In the same item, the role of management bodies in the assessment, management and supervision of climate-related opportunities and risks should also be explained;
• Information on the number of employees now requires indicators of diversity, such as gender identity, color or race, age group and other diversity indicators that the issuer considers relevant;
• The ratio between the highest individual compensation, including directors, and the average individual remuneration of the issuer's employees in Brazil should be informed, disregarding the highest individual compensation, as recognized in its results in the last fiscal year;
• Information on the current item 12.2, which deals with the description of the rules, policies and practices relating to the shareholders’ general meetings, will not be required in the new Reference Form;
• It will no longer be necessary to individually detail transactions with related parties involving the issuer and its subsidiaries and transactions between its subsidiaries, unless when there is the participation of the issuer's direct or indirect controlling shareholders, its directors or persons linked to them.

CVM Resolution No. 59 also brought new rules for the announcement on transactions between related parties provided for in Annex 30-XXXIIII of CVM Instruction 480:

• The issuer is now exempted from communicating new transactions related to a previous transaction already reported to the CVM, provided that they are routine and related to the normal course of the company's business, always following the same negotiation and approval process, and provided that the issuer has indicated, in a previous statement and in the same fiscal year, the routine character and the total estimated value of these operations until the end of the fiscal year; and
• The definition of transactions with related parties excludes credit operations and financial services provided by an institution authorized to operate by the Central Bank, in the normal course of business of the parties involved and under similar conditions to those carried out by them with unrelated parties, in addition to transactions preceded by bids or other public pricing procedures.

CVM Resolution 59 will come into effect on January 2, 2023, so that issuers have time to prepare for the compliance with the new rules. However, as the information to be disclosed in 2023 relates to the fiscal year ended in 2022, CVM advises that issuers be attentive and prepared to disclose the information, especially involving ESG matters, before the new resolution is effective.

Category: Capital markets

The joint committee of the Brazilian Securities and Exchange Commission (CVM) approved, on January 25, 2022, the execution of a settlement agreement within the scope of an administrative sanctions proceeding (PAS CVM SEI 19957.011341/2018-77) filed against officers and directors ofa company in the pulp and paper sector. The charge was for breach of duty of care, as per article 153 of Law 6,404/76 (the Brazilian Corporations Law - LSA), and misuse of power, pursuant to article 154, paragraph 2, due to the fact that the accused had signed loan agreements, representing the company, to transfer funds to its CEO.

The proposal of a settlement agreement was made by the accused jointly and after the expiration of the statutory period to submit it or even for an expression of interest in submitting it (that is, during the 30 days after the service of process). The Federal Attorney General's Office Specialized in the CVM (PFE-CVM) found that it was possible to accept the proposal after the deadline, given the authorization granted by the regulations,^[1]which was ratified by the Settlement Agreement Committee and by the joint committee of the CVM.

The company's bylaws and shareholders' agreement mandated that the execution, amendment, or extinguishment of contracts with related parties be previously approved by the Board of Directors (BD), an approval that was not obtained by the officers who signed the loan agreements for the transfer of funds to the CEO, in the amount of R$24.5 million, according to the explanatory notes in the financial statements.

The signing of the contracts is said to have been attended by the CEO (beneficiary of the funds), the chairman of the BD, and two other corporate officers (chief commercial officer and chief forestry officer). Once the investigation carried out by means of an administrative inquiry was completed, the technical area proposed to hold the chief executive officer and the chairman of the BD responsible for misuse of power,^[2] by lending the company's funds without the authorization of the competent bodies. The other officers were accused of breaching the duty of care^[3] by failing to check whether the requirements necessary for signing the loan agreements had been met.

Initially, the proposed settlement agreement contemplated payments of R$350,000 for the CEO and the Chairman of the BD, and R$100,000 for each of the other officers. In commenting on the initial proposal, the PFE-CVM considered that there was no legal impediment to the execution of the settlement instrument, since the requirements to cease the irregular practice and correct the irregularities had been met. However, it reinforced that the analysis of the sufficiency of the proposed amounts would be up to the Settlement Agreement Committee, which is responsible for deciding on the advisability and expedience of entering into the settlement agreement.

In a first opinion, the committee believed it would be possible to evolve in the negotiations with the corporate officers as a way of terminating the PAS, by means of a settlement agreement, increasing the initial proposal to R$ 350 thousand to be paid by each proponent in a single installment. On the same occasion, it deemed it inadvisable to accept the individual payment of R$350 thousand proposed by the CEO and the chairman of the BD, considering the difference in relation to the amount that the committee believed to be reasonable in view, also, of the background of the accused.

During the negotiation, the corporate officers tried to maintain the amount proposed by the committee, but with payment in installments, which was denied by the body, maintaining its initial decision on its own grounds. In the negotiation with the CEO and the chairman of the BD, it was argued, in a meeting with the committee members, that the loan contracts were remunerated at rates higher than those contracted under market conditions, the funds had already been repaid to the company, and that, while in effect, the loans were duly recorded in the financial statements. Even so, the fine proposed was raised to R$1.050 million in a new proposal by the CEO and the chairman of the BD.

At the last meeting, the committee reexamined the case in light of the new proposal and found that the enhancement met the necessary sufficiency of values in deciding on advisability and expedience, since "the facts are prior to the entry into force of Law n. 13,506, of November 14, 2017" and there was "representativeness of the amount offered, equivalent to three (3) times the amount negotiated with each of the other two proponents in the case," justifying the "appropriate and sufficient outcome to discourage similar practices, in compliance with the preventive purpose of the settlement in question, including because CVM has, among its legal objectives, promotion of expansion and efficient operation of the capital market.”  The joint committee followed the committee and accepted the settlement.

^[1] Article 84, CVM Resolution 45: "In exceptional cases, in which it is found that the public interest favors the analysis of a proposal for the execution of a settlement agreement submitted after the deadline referred to in article 82, such as those of offering full compensation to those harmed by the conduct that is the subject of the proceeding and of modifying the factual situation existing at the expiration of said deadline, the analysis and negotiation of the proposal may be carried out by the Reporting Board Member."

^[2] Article 154, paragraph 2, b and c: “Officers are prohibited from: b) without prior authorization from the general meeting or the board of directors, borrowing funds or assets from the company, or using, for their own benefit, from a company in which they have an interest, or from third parties, its assets, services, or credit; c) receiving from third parties, without authorization in the by-laws or from the general meeting, any type of personal advantage, direct or indirect, due to the exercise of their position.”

^[3] Article 153: “Officers and directors of the company must employ, in the exercise of their functions, the care and diligence that every active and upright man usually employs in the administration of his own affairs.”

Category: Litigation

The Third Panel of the Superior Court of Justice (STJ) recently set an important precedent for litigants in arbitration proceedings, judging special appeal 1.900.136-SP, whose opinion was written by Minister Nancy Andrighi.^[1] At the time, the STJ confirmed (unanimously) judgment of the Court of Justice of São Paulo (TJSP) that rejected the challenge to enforcement of arbitration award, recognizing that the right of action had expired. The challenge, although based on a hypothesis of nullity set out in article 32 of Law 9307/96 (Arbitration Law - LArb) and filed within the defense period provided for in article 525 of the Code of Civil Procedure (CPC), was filed after the 90-day statute of limitations for filing an action for annulment of an arbitration award.

In September 2021, the findinding was ratified by the same panel in the judgment of Special Appeal 1.862.147-MG, under the rapporteurship of Justice Marco Aurélio Belizze.^[2] The judgment confirmed the decision of the Court of Appeals of Minas Gerais - rendered before the judgment reported by Justice Nancy Andrighi - by rejecting the appellants' challenges to the enforcement of the arbitration award on the grounds of statute of limitations.

The debate arose from by the lack of express reference to the limitation in § 3 of Article 33 of the LArb, which deals with the declaration of nullity of the arbitral award in the context of challenge to the enforcement of judgment. The LArb indicated the period of 90 days only in § 1 of the same Article 33, regarding the "claim for the declaration of nullity of the arbitral award". This made room for the interpretation that this nullity could be alleged in defense of the enforcement of judgment, regardless of when the creditor filed the execution. However, according to the perspective adopted in the judgments of the Third Panel of the STJ, there is no such differentiation.

The judgment whose opinion was written by Justice Marco Aurélio Belizze was didactic when he explained that the 90-day statute of limitations for filing an action for annulment of an arbitration award should also be observed in the event of a request for declaration of nullity of the award in the event of an challenge to enforcement of the award, which is made possible by § 3 of the same article 33. Also in this sense, the Justice noted that the defense to the enforcement of an arbitration award based on one of the circumstances set out in Article 32 of the LArb must observe, in addition to the period of 15 days designated by the CPC for the presentation of the challenge to the enforcement of the award (from the subpoena in the file of enforcement of the award), the period of 90 days, counted from the notification of the respective judgment or the decision of the request for clarification.

As grounds for the decision, Justice Marco Aurélio Belizze pointed out that "the claim for annulment of the arbitral award must be filed immediately", in respect of celerity, effectiveness and legal certainty, objectives dear to the parties who choose to submit their dispute to arbitration. He also said that there is no legal support to support a distinction between the procedures provided for by law to obtain the declaration of nullity of an arbitral award, in order to allow only the annulment action to be subject to a statute of limitations for its filing. Justice Marco Aurélio Belizze had already formulated on previous occasions some of the concepts that led to his conviction. In the judgments of Special Appeal 1.519.041-RJ, on September 1, 2015, and Special Appeal No. 1.543.564-SP, on September 25, 2018, both under its rapporteurship, the Third Panel of the STJ rejected the theory that the declaration of nullity of a partial arbitral award by annulment action could only be obtained after the rendering of the final arbitral award. On the contrary, it held that the action for annulment of a partial arbitral award must be brought within the limitation period counted from the date of notification of the award. In those opportunities, the rapporteur's vote wrote, as in the recent decision, that the annulment action must be filed immediately and that the parties to the arbitration agreement deserve to have ensured speed, effectiveness and legal certainty.

In the judgment under the rapporteurship of Justice Nancy Andrighi, it was highlighted that the statute of limitations only prohibits only the challenge to the enforcement of an arbitration award based on the hypotheses defined by Article 32 of LArb, and that the defendant remains fully able to defend itself against the enforcement of an arbitration award as to the matters strictly specified in Article 525, § 1, CPC.The STJ seems to have established an understanding on the conformity of the 90-day statute of limitations, confirming a position that had already been defended by the state courts. The aforementioned STJ rulings upheld the lower court rulings with an identical interpretation of Article 33 of LArb and its paragraphs.^[3]

The plaintiff's prerogative to choose the date to file the enforcement of the arbitral award, provided that the applicable statute of limitations is respected, is not mirrored for the debtor and defeated party of the arbitration proceeding. If the execution is distributed after the 90 days provided for in the LArb, the debtor will not have the possibility to argue the nullity of the arbitral award to defend itself against the enforcement of the award. Despite the two ways provided by LArb to challenge the validity of the arbitral award, in practice, it will only be ensured by filing an annulment action, since the date of the filing of the compliance with the award is not under the control of the losing party.

^[1]Trial on April 6, 2021, published on April 15, 2021.

^[2] Trial on September 15, 2021, published on September 20, 2021.

^[3] In a research, it is possible to find judgments to the contrary, by not applying the statute of limitations period to the challenge to enforcement of award. However, they contain certain particularities, in addition to having been uttered in previous years. For example, in a decision of the TJSP, it was understood that the debtor was not aware of the arbitration award, which is why the statute of limitations period could not have started (AI 2224065-17.2018.8.26.0000, Judge Antonio Rigolin, Thirty-First Chamber of Private Law, judged on 29/04/2019, DJe 02/05/2019). In a decision issued by the Court of Justice of Paraná (TJPR), the statute of limitations was ruled out on the understanding that the challenge to enforcement of an arbitral award had been based on one of the hypotheses provided for in the CPC, of non-enforceability of the award (Article 475-L, II, of the CPC/73, then in force), although the lack of enforceability, in turn,  resulting from the alleged nullity of the arbitral award (Apl Civ 0016842-46.2014.8.16.0001, Eleventh Civil Chamber, Judge Eduardo Novacki, tried on 03/08/2020).