Category: Real estate

Roberta Danelon Leonhardt, Ivana Coelho Bomfim, Juan Danniel Torres Y. R. Braga, and Mariana Rodrigues da Silva

In expropriation actions brought by the public authorities for the expropriation of rural properties that have vegetation coverage areas, the amount of fair compensation for expropriation of the environmentally protected area is still subject to questions by the public authorities.

The payment of prior, fair, and cash compensation to the owner or possessor of the property expropriated is a condition for effective expropriation of the property, as established in article 32 of Decree-Law No. 3,365/41 (or the Expropriation Law). Nevertheless, in expropriations of rural properties doubts arise regarding the inclusion of some areas of vegetation coverage in the calculation of compensation for expropriation. Should compensation be calculated based only on the value of the bare land, or should the area of vegetation coverage also be appraised, considering the environmental restrictions that fall on it and that prevent its economic use?

Regarding expropriations for agrarian reform purposes, Law 8,269/93, in its article. 12, exhaustively establishes, when dealing with compensation for expropriation for land reform purposes, that one considers “fair compensation that reflects the current market price of the property in its entirety, including the land and natural access, forests, and woods" and, in its paragraph 2, provides that "natural forests, native forests, and any other type of natural vegetation are included in the price of the land [...]." Therefore, it would be possible to assume that vegetation, forests, and woodlands are susceptible to market economic valuation for the purpose of calculating the compensation due in the expropriation of rural properties for agrarian reform.

However, the Superior Court of Justice (STJ) and the Federal Supreme Court (STF) has expressed diverging opinions regarding compensation for areas of vegetation coverage where there are permanent preservation areas (PPAs). APPs are protected spaces, whether or not covered by native vegetation, with the environmental function of preserving water resources, landscape, geological stability, and biodiversity, facilitating the gene flow of fauna and flora, protecting the soil, and ensuring the well-being of human populations, such as river banks and hilltops.

It is important to emphasize that APPs are covered by a special protection arrangement, provided for in Chapter II, Section II, of the Forest Code (Federal Law No. 12,651/2012). For example, the vegetation in an APA should be maintained by the owner, possessor, or occupier of the area on any account, be it an individual or legal entity, public or private. The intervention or suppression of native vegetation in the area is allowed only in cases of public utility, social interest, or low environmental impact, as provided for in environmental laws and regulations.

The STJ has already decided that the amount of the compensation is decided after a technical expert examination that should appraise the property and its economic exploitation potential, so that the amount to be paid does not cause financial loss to the expropriated party, provided that the exploitation is prior and lawful (REsp 1.298.315 and REsp 443.669) and the values of the compensation relevant to the bare land, improvements, forest cover, and commercial exploitation of the property are appraised. However, when assessing the compensation for land coverage classified as an APA, in REsp 1.732,757 - RO (2018/0009937-9), the Court took a position against the compensation of the vegetation coverage component of the APP, on the argument that "it is not possible to compensate, separately, the area of permanent preservation where it is not possible to have economic exploitation of the plant source by the expropriated party.” The STJ believes that the compensation in such cases should be limited to the bare land.

In turn, the STF, in an en banc session held on December 14, 2011, when deciding on the inclusion of areas of permanent preservation and legal reserve in the calculation of areas expropriated for characterization of the property as unproductive latifundium (without entering into the debate on the price of the compensation), settled the understanding that areas not subject to economic use should in fact be included, based on article 12 of Law No. 8,269/93 (RE 603.862). In addition, in a single judge decision handed down by Justice Gilmar Mendes in October of 2019 in the record of Complaint 34.301, it was held that the lower court decision that ordered the "exclusion of any compensation for forest and woodland coverage in areas of permanent preservation and already existing administrative limitations (...) affronts the decision handed down by this Court when deciding RE 248.052 AgR." Therefore, the current position of the STF is that even plant coverage of APPs should be compensated in expropriation actions.

Another parameter that has been considered by the courts when assessing the compensation due in these cases is the legality of the activity carried out by the expropriated party in the vegetation cover area. The Federal Court of Appeal for the 2nd Circuit, in a case of indirect expropriation brought for the creation of a Conservation Unit (UC),[1] modified a trial decision that ordered the Federal Government and IBAMA to compensate expropriated parties for areas destined for the extraction of hardwood and charcoal, since the practice was forbidden by the Forest Codes of 1934 and 1965, in force before the property was titled to the expropriated parties (Case No. 0257765-78.1900.4.02.5101).

In addition to the applicability of economic use as a requirement for fair compensation for expropriation in specially protected areas, the rules for expropriation for the creation or expansion of UCs impose new challenges, which are still under debate today.

It should be noted that the Expropriation Law provides that expropriation must occur by agreement (direct expropriation) or judicially (indirect expropriation and common practice in cases of creation and expansion of UCs) within five years from the date of issuance of the respective decree, which will expire once this period is over (article 10). Thus, once the declaratory decree has been issued and the expropriation of private properties found in UCs in the public domain has not been implemented after five years, the declaration of public utility becomes invalid.

In view of the debates on the subject,[2] the Federal Public Prosecutor's Office (MPF) issued Technical Note 4 No. 8/2017, which states that UCs are created by the government by virtue of a regulatory act and, therefore, can only be amended by means of a issuance of a law. In this sense, the MPF argues that administrative limitations on the use of private property derive from the law, regardless of any expiry of the declaration of public utility of the area. This fact would not constitute confiscation of the private property, since the private individual could request regularization of the land situation with the Chico Mendes Institute for Biodiversity Conservation (ICMBio).

In addition, the same technical note takes up the arguments raised by the Specialized Prosecutor's Office of ICMBio, which argues that expiry of the declaration of public utility does not extend to the creation of UCs, as follows:

"(i) The restrictions on the enjoyment of property emanate not from the declaration of public utility, but from environmental laws and regulations, lasting in time regardless of its expiry;

(ii) The expiry of the decree of expropriation, in the case of real estate found in conservation units, appears to private parties not as a guarantee, as occurs in expropriations in general, but as a penalty;

(iii) The expropriation of private areas within certain classes of protected areas is not based on an administrative act of convenience and opportunity, but on a legal imposition;

(iv) Article 225, paragraph 1, subsection III, of the Federal Constitution established the principle of the reserve of law for amendment or suppression of a conservation unit;

(v) There is no legal support for tacit extinguishment of a conservation unit; and

(vi) A declaration of public utility is independent of and ancillary to the scope of the act of creation of the conservation unit."

The MPF argues that the Forest Code allows donation to the government of an area located within the UC of a public domain pending land regularization by a private party who wants to offset the legal reserve area of its property (article 66, III and paragraph 5, III). If the scenario provided for in the Forest Code were accepted, by analogy, admissibility of UCs with non-appropriated areas would be demonstrated, regardless of the period or date of creation of the UC.

On the other hand, the STJ's position corroborates the provisions of the Expropriation Law, by understanding that, after the five-year period provided for in the legislation has elapsed without a declaration of public utility having been given effect, it would lapse under article 10 of the Expropriation Law (REsp. No. 191.656, 2nd Panel, opinion drafted by Justice João Otávio Noronha, published in the Electronic Gazette of the Judiciary on February 27, 2009).

From the judgements on gleans that, in order to avoid, on the one hand, the practice of confiscation of assets by the government and, on the other hand, unjust enrichment of the expropriated party, one must essentially inquire into the economic content of the property and the real financial loss suffered by the expropriated party due to the prevention of exploitation of economic activity in line with permitted environmental uses. The law and the case law of the higher courts has repeatedly recognized claims for compensation for expropriation of rural property that economically exploits environmentally protected areas in a lawful manner and prior to the expropriation.

In the face of this scenario, owners who have the public utility of their rural properties decreed must pay attention to the form of composition of the compensation amount to be paid by the expropriating power. The calculation should reflect, among other factors, the market value of the property, including the areas destined for legal reserve, forest areas, vegetation coverage, and other possible areas of environmental protection.

[1] According to the Law on the National System for Nature Conservation Units (SNUC) (Federal Law No. 9,985/2000), conservation units are defined as territorial spaces and their environmental resources, including jurisdictional waters, with relevant natural characteristics, legally established by the government, with conservation objectives and defined limits, under a special administration system, to which adequate protection guarantees apply. UCs are divided into: (i) integral protection units, which include ecological stations, biological reserves, national parks, natural monuments, and wildlife refuges; and (ii) sustainable use units, which include environmental protection areas, areas of relevant ecological interest, national forests, extractive reserves, fauna reserves, sustainable development reserves, and private Natural Heritage reserves.

[2] In 2015, Federal Representative Toninho Pinheiro (PP/MG) drafted Bill No. 3,751/15 to insert in the SNUC Law a provision to mandate expiration of the act of creation of an UC, after five years, when expropriation of private property within public domain UCs has not been applied for.

Category: Infrastructure and energy

ANP Resolution 817/2020, published on April 27, establishes rules for the decommissioning of oil and natural gas exploration and production facilities and procedures for returning areas to ANP (National Agency of Petroleum, Natural Gas, and Biofuels), disposal and reversion of assets.¹

This was an important step by the agency in the broader effort to make the Brazilian regulatory framework more robust and detailed in the final stage of the E&P cycle, which begins with asset disposal and preparation of the activities necessary for decommissioning, goes through investment by companies focused on buying and (re)developing these assets, and culminates in the decommissioning itself. In more mature markets, such as the North Sea and Gulf of Mexico, this stage of the E&P chain is an important segment for the industry, ranging from providing specialized services to transferring mature assets from large producers (IOCs and NOCs) to smaller and/or companies specialized in the acquisition of assets of this profile. In the case of the latter, this process often takes place on the basis of financing raised with the assets themselves as collateral.

One of the most relevant aspects of ANP Resolution 817/20 is the consolidation, into a single regulation, of the main rules regarding the abandonment of fields and decommissioning of facilities. The resolution also establishes detailed roadmaps for the preparation and execution of studies and programs related to decommissioning, setting clearer timeframes for the presentation of these instruments to the ANP.

The resolution represents the first part of a set of two regulations that ANP will publish on the subject. The second part (for which public consultation is currently suspended due to the Covid-19 pandemic) will specifically address the criteria for submission and approval of abandonment guarantees, a relevant issue as it represents an important financial impact for E&P companies, as well as its relevance in the context of M&A transactions involving assets in production.

We highlight below some of the main topics and innovations brought about by ANP Resolution 817/20:

• Facility Decommissioning Program: the resolution initially provides for the presentation of a conceptual Facility Decommissioning Program (PDI), which should provide for the general scope of the decommissioning actions proposed. After this document is approved by ANP, the company must prepare and submit for the approval of the agency an executive PDI, with effective planning of actions, including information, projects, and studies for execution of decommissioning. The resolution mandates that the PDIs must be made publicly available and may, if ANP deems it necessary, be submitted for public consultation.

• Decommissioning Rationale Study: the resolution creates the process for the Decommissioning Rationale Study (EJD), an instrument that must be presented together with the conceptual PDI and contain information that will allow ANP to evaluate the reasons for abandonment and the decommissioning options studied. Among the most relevant information required for this study, the parties should demonstrate that they have analyzed the possibility of increasing the recovery factor in the field by extending the useful life of equipment, replacing it with more modern equipment or implementing other improved recovery techniques. For each possibility studied, a technical and economic feasibility study (EVTE) must be presented. The EJD will only apply to maritime fields, however, it may be required for onshore fields upon formal request from ANP.

• Technical regulation for decommissioning: the resolution approves a technical regulation with instructions for the decommissioning of offshore and onshore facilities, with a series of principles and rules to be observed by parties throughout the planning and execution of activities.

• Decommissioning in the assignment of contracts: one of the main innovations brought about by the resolution is the possibility that, in the course of an E&P contract assignment process, the assignor retains the obligation to decommission part of the facilities, with the consent of ANP. In this way, a clearer timeframe would be established, removing the joint liability of the assignee for activities that have been retained by the assignor.

• Bidding for fields in production: another important innovation brought in by the resolution allows ANP to bid for onshore fields in production that are already close to the decommissioning stage, in order to enable their acquisition by other companies that have an interest in extending their useful life. In this context, should the area be auctioned, ANP would enter into a new concession agreement, and there would be no assignment procedure between the old and the new concessionaires (which would rule out joint liability between assignor and assignee). However, the resolution provides for a negotiation stage between the old and the new concessionaire for the transfer of operations, a procedure that may present significant complexities for the regulation of interests and allocation of risks between the buyer of the assets and the current operator.

ANP Resolution 817/20 entered into force on May 4, 2020. The E&P contracts intended for decommissioning in a period shorter than those established for presentation of a PDI and EJD will be analyzed individually, based on a proposed schedule to be presented by the parties and approved by ANP.

¹ With the entry into force of ANP Resolution 817/20, the former ANP Resolutions 06/25, 06/27, and 06/28, which for many years regulated the procedures related to return of areas and reversion of assets, will be revoked.

Category: Real estate

When transferring real estate in which purchasers have plans to develop future constructions, such as land sold for the construction of buildings, it is common for city governments to calculate the value of the Property Transfer Tax (ITBI) considering as the calculation basis the value corresponding to both the land and the buildings not yet developed. There are judicial discussions regarding these charges in municipalities in the State of São Paulo, Rio de Janeiro, Rio Grande do Norte, and Rio Grande do Sul.

However, the Judiciary has been adopting the position that the calculation basis of the ITBI in these cases would be the assessed value of the ideal fraction of the land, without considering future construction. The understanding is that the ITBI should only be levied on what was actually acquired at the time of the sale, and no improvements that do not exist at the time of transmission, which is the taxable event, may be included.

This understanding is in line with the federal legislation regarding the ITBI - article 156, II, of the Federal Constitution and articles 35 and 38 of the National Tax Code. These provisions establish that the definition of the amount of the ITBI should occur based on the assessed value of the asset actually transferred, as calculated on the date of occurrence of the taxable event.

The Judiciary also bases in its decisions on Precedents 110 and 470 of the Federal Supreme Court (STF), whose rulings establish that the ITBI may only be charged on buildings existing at the time of sale of the land. Therefore, the calculation basis does not include the value of what is built after the purchase and sale transaction.

Precedent 470

The "inter vivos" transfer tax is not levied on the construction, or part of it, carried out, unequivocally, by the committed purchaser, but on the value of what has been built before the promise of sale.

Precedent 110

The “inter vivos" transfer tax is not levied on the construction, or part of it, carried out by the purchaser, but on what was built at the time of the sale of the land.

To try to prevent litigation with municipal tax authorities, it is recommended that the deed of purchase and sale or exchange of real estate expressly state that future construction, if and when it occurs, will be carried out by the purchaser at its own expense. In the case of construction carried out between the signing of the promise of sale and the definitive deed, the recommendation is that the parties make it absolutely clear that the ownership of the property was already in the purchaser's possession since the signing of the initial contract and that the construction was carried out by the committed purchaser.

Thus, in view of the above-mentioned precedents, including from the STJ,¹ it is possible to question in court the value of the ITBI when its calculation basis considers the value of future constructions to be carried out by the purchaser, so that the tax will be calculated based only on the assessed value of the ideal fraction of the land. The objective is to avoid payment of an amount greater than that which is due since, on the date of occurrence of the triggering event, only the ideal fraction of the land is subject to transmission.

^1.Processual civil e tributário [“Civil and tax procedure”]. Appeal per internal rules of court in special appeal. Offense to article 535 of the Code of Civil Procedure. Deficient reasoning.

Precedent 284/STF. ITBI. Calculation basis. Unbuilt land, with subsequent construction. Violation of article 1,227 of the Civil Code of 2002 and article 38 of the National Tax Code. Non-occurrence. Absence of sufficient normative authority to rebut the grounds of the appellate decision subject to appeal. Application of Precedent 284/STF. Definition of the time aspect of the triggering event. Issue not previously raised. Precedent 211/STJ.

(...)

1. Moreover, even if all obstacles are overcome, the Federal Supreme Court consolidated its understanding that the Inter Vivos Transfer Tax (ITBI) is not levied on the construction, or part thereof, carried out by the purchaser, but on what was built at the time of sale of the land, pursuant to Precedents 110 and 470 of the STF.
2. In the case at bar, the factual situation is uncontroversial, consisting of an exchange between a non-built property, for four rooms, later built by the purchaser of the land, and the Municipality seeks to have the value of the ITBI be calculated considering the value of the property with the buildings built after the legal transaction.

VII. Appeal per internal rules of court denied relief.

(AgRg no REsp 1244921/RN, Opinion drafted by Justice Assusete Magalhães, Second Panel, decided on September 18, 2014, published in the Electronic Gazette of the Judiciary on September 30, 2014)

Category: Infrastructure and energy

Alberto Faro and Felipe Baracat

The economic impacts of covid-19 on the infrastructure sector can already be felt in Brazil, especially as relates to demand, considering the slowdown in economic activity caused by social isolation measures, and as relates to the financial stability of projects. At this time especially the availability of investments for the sector is a challenge.

With this in mind, new proposals for legislative changes are being discussed with the aim of combating the short-term economic effects of the pandemic and addressing the recurrent problems of lack of investment in infrastructure that will be accentuated in the post-crisis period. The focus will be on leveraging the participation of private players through access to the capital markets.

Congressmen João Maia and Arnaldo Jardim, respectively chairman and rapporteur for the special committee for the new General Law on Concessions and PPP (LGC), recently released to the market a draft bill which will be presented to the House of Representatives proposing the creation of infrastructure debentures, which should grant tax benefits directly to issuing legal entities, and amending the legislation relating to incentivized debentures and funds for investment in infrastructure and in research, development, and innovation.

The debate initially arose at the end of 2019, under the LGC committee, with the proposal to update the regulatory framework of the infrastructure sector in Brazil. The new LGC bill, which has over 220 articles, was approved by the committee in early 2020, and will proceed for a floor vote.

However, in the last week of April and as an emergency measure to combat the covid-19 pandemic, Congressman Arnaldo Jardim presented the market with a new draft bill, the text of which was highlighted by the LGC and which includes specific provisions on debentures and infrastructure investment funds. This new bill will be presented to the House of Representatives very soon, as a matter of urgency, such that the separate procedure will speed up the debate.

We have had access to the draft of the new bill and we have advanced below some of the main proposals, which will still be debated in Congress:

• Creation of a new kind of debentures, infrastructure debentures, which will grant tax benefits directly to the issuers and which have many similarities with the incentivized debentures, but with which they should not be confused.

• Expansion of the list of infrastructure projects that can be prioritized.

• Independence of a ministerial act for evaluation and classification of the projects, it being sufficient that the ventures be included in the sectors listed. These measures are applicable to both incentivized debentures and infrastructure debentures.

• Express provision for FIP-IE (Infrastructure Investment Funds) and FIP-PD&I (Investment Funds for Participation in Intensive Economic Production in Research, Development, and Innovation) to be able to invest in re-bidded or postponed projects, including those started before Law No. 11,478/07.

• For FIP-IE and FIP-PD&I, (i) extension of the period for payment of shares and the period for classification of the minimum investment percentage to 36 months; and (ii) revocation of the parameters for a minimum stake and maximum concentration of shareholder and/or income earned.

• Extension of the period for demonstration of costs, expenses, or debts repayable, from the public offer of debentures, from the current 24 months in a staggered manner up to 60 months;

• Elimination of the requirement to create segregated projects for the expansion of existing projects, whether already implemented or those in the process of implementation. This should considerably reduce bureaucracy and facilitate fundraising for projects to expand existing infrastructure.

• Possibility of remuneration of debentures per pre-fixed interest rates, including linked to price indexes, foreign exchange rate variation, Interbank Deposit Rate (DI), or the Reference Rate (TR).

Creation of the new infrastructure debentures

The Plan proposes the creation of infrastructure debentures, financial instruments that have similarities with the incentivized debentures, regulated by Law No. 12,431/11, but with which they should not be confused.

We call your attention to the fact that debt instruments deriving from Law No. 12,431/11 are usually known in the market as infrastructure debentures, which requires increased attention given the nomenclature of the different kinds of debentures as of the bill's proposal.

The main innovation of the infrastructure debentures will be to encourage greater participation of corporate investors in infrastructure projects, especially institutional investors. The incentivized debentures of Law No. 12,431/11 centralize their tax benefits in the figure of the individual investor.

As with the incentivized debentures, the concessionaires, permissionaires, or licensors of the public services defined, as well as lessees, incorporated for a specific purpose and in the form of a corporation, or their direct or indirect controlling companies, may issue infrastructure debentures, provided that the allocation of funds complies with the legal guidelines. The funds raised through public distribution of the debentures shall be allocated to investment projects in the area of infrastructure or intensive economic production in research, development, and innovation considered a priority, pursuant to Law No. 11,478/07.

The bill proposes significant changes in article 1 of Law No. 11,478/07, which establishes FIP-IE and FIP-PD&I, considerably expanding the list of infrastructure projects, as indicated below.

According to the congressmen, the most efficient way to attract legal entities and institutional investors would be precisely through the tax incentive to the issuers, which could pass it on through the payment of better remuneration to investors. The result is that infrastructure debentures may be issued with more attractive interest rates than other capital market papers.

Therefore, pursuant to article 3, the bill proposes taxation on income from the issuance of infrastructure debentures by means of withholding income tax at the rates provided for in Law No. 11,033/04, and with the possibility of deduction in the case of legal entities taxed on the basis of actual, presumed, or pre-set profit.

The applicable rates would therefore be 22.5%, 20%, 17.5%, and 15%, considering the maturities of the debentures, respectively: less than 180 days; between 181 and 360 days; between 361 and 720 days; and more than 720 days. Unlike incentivized debentures, there no zero percent rate will apply to income earned on infrastructure debentures.

According to article 6, legal entities that issue infrastructure debentures may deduct, for purposes of calculating net profit, the amount corresponding to the sum of interest paid in a given fiscal year and also exclude from the profit, in calculating the actual profit, and from the calculation basis of the Social Contribution on Net Profit, an amount corresponding to 30% of the sum of interest paid in a given fiscal year. This deduction may be increased to 50% of the amounts raised by the issuer if the debentures are intended to finance sustainable development projects (greenbonds).

Greenbonds, duly certified according to international standards, refer to projects for: (i) sustainable energy, including production of products and supplies; (ii) energy efficiency; (iii) pollution prevention and control; (iv) biodiversity conservation; (v) clean transportation; (vi) sustainable water management, including wastewater treatment and drainage systems; (vi) sewage and solid waste management; (ix) adaptation to climate change; (x) eco-efficient products and technologies; and (xi) green buildings.

The withholding tax rule will also apply to investments in debentures made by FIP-IE, FIP-PD&I, and FI-Infra (Infrastructure Investment Funds). The objective is to encourage investment by capital market player, without, however, granting a double tax benefit to these investors, that is, to the issuer and final investor. This avoids relinquishment of tax by the Brazilian government.

Changes in Law No. 11,478/07

The bill amends article 1, head paragraph, of Law No. 11,478/07 to include, alongside infrastructure projects, social infrastructure projects. It also proposes to include infrastructure projects implemented in the areas of public lighting, energy efficiency, solid waste, prisons, socio-educational units, educational units, health units, oil and natural gas, telecommunications, environmental conservation units, housing, urban mobility and logistics, in addition to energy, transportation, water and basic sanitation, irrigation, and other areas considered a priority by the Federal Executive Branch, already mentioned in the original draft, as amended by Law No. 12,431/11.

Another important change proposed by the bill is removal of the requirement to create segregated projects for the expansion of existing projects, be they those already implemented or those in the process of being implemented, which would considerably reduce bureaucracy and facilitate fundraising for projects to expand existing infrastructure.

There are also other proposals regarding the possibility of FIP-IE and FI-Infra investing in projects subject to re-bidding, extended, or initiated before the enactment of Law No. 11,478/07, regarding extension of the period for payment of shares and classification of funds, and regarding change in the reference value applicable to FI-Infra.

Changes in Law No. 12,431/11

The creation of infrastructure debentures does not prevent the issuance of the incentivized debentures, which remain valid, but the bill proposes the following changes in the rules for issuing incentivized debentures:

• Amend paragraph 1 of article 1 of Law No. 12,431/11 to expressly state the possibility of remuneration of incentivized debentures per pre-fixed interest rates, including linked to price indexes, foreign exchange rate variation, Interbank Deposit Rate (DI), or the Reference Rate (TR). This provision removes legal uncertainties related to the remuneration of debentures, such as those generated by the subsistence of Precedent 176 of the STJ: “Contractual provisions subjecting debtors to the interest rate disclosed by Anbid/Cetip are null and void."

• Paragraph 1-C of Law No. 12,431/11 would now consider all projects listed in article 1 of Law No. 11,478/07 as being priorities. Paragraph 1-D would include in this list partnership agreements that are subject to extension or bidding, pursuant to Law No. 13,488/17. The measure would help to cut the red tape for procedures for financing the expansion of Brazilian infrastructure.

• Still with regard to the classification of infrastructure projects as priorities, article 14 of the bill stipulates that the issuance of incentivized debentures, referred to in article 2 of Law No. 12,431/11, will not require a ministerial act to evaluate the projects, it being sufficient for the venture to be carried out in one of the sectors listed in article 1, paragraph 1, of Law No. 11,478/07.

Other legislative changes

Among other changes, the bill also proposes amendments: (i) in article 8 of Law 11,079/04 (PPP Law), with the possibility of providing security for financing by financial institutions that are controlled by the public authorities, provided that such financial institutions are not dependent on the public budget; and (ii) in article 32 of Law No. 11,712/12, in order to increase the limit of participation of the Federal Government’s guarantee fund to the amount of R$ 16 billion, for coverage of risk from operations dealt with in article 33 of the same law.

Category: Banking, insurance and finance

More than three years after discussions began on reforming the regulations regarding the prevention of money laundering and financing of terrorism (AML/FT) within the national financial system,[1] the new rules have a definite date of entry into force: July 1, 2020.

On that date, Bacen Circular No. 3978, which revokes Bacen Circular No. 3461, and CVM Instruction No. 617, which revokes CVM Instruction No. 301, take effect.

Taken together, the new regulations bring in important changes in AML/FT rules. We move from a model based on a filing approach, with standard rules and procedures (Bacen Circular No. 3461 and CVM Instruction No. 301), to a new, more flexible model, based on internal risk assessment (Bacen Circular No. 3978 and CVM Instruction No. 617).

With the entry into force of the new rules, the institutions authorized to operate by Bacen and the main service providers of the securities market[2] will be obliged to assess internally the risk not only for their clients, but also themselves, their operations, employees, partners, and service providers, also mandating the adoption of reinforced or simplified controls, according to the level of risk ascertained.

It is not yet clear, however, how the risk models of each institution will be assessed. Explaining further, under Bacen Circular No. 3461 and CVM Instruction No. 301, the obligations imposed on covered parties had a well-defined profile, so that any non-conformities could be easily characterized. In Bacen Circular No. 3978 and CVM Instruction No. 617, however, controls and procedures required of the institution are defined based on an internal risk assessment. In this manner, situations which, according to the old rules, could constitute irregularities may not be in accordance with the new rules.

In this scenario, the adoption of "best practices" and "standardized procedures" within certain markets may be an interesting alternative to eliminate risks and uncertainties. In the case of institutions regulated by the Bacen, however, there is a mitigating factor, which is the updating of the circular letter[3] that discloses the list of transactions and situations that may constitute evidence of AML/FT crimes.

Among the other novelties of AML/FT regulations for the Brazilian financial market, the following is also worth mentioning:

1) Bacen Circular No. 3978:

• Strengthening governance requirements: in addition to being obliged to evaluate from time to time the quality and effectiveness of their internal procedures, institutions should detail the roles and responsibilities of the professionals appointed to work in AML/FT-related functions.

• The reinforcement of know your client (KYC) procedures: institutions are now obliged to compare their internal data with that coming from public databases.

• The increase in controls of cash transactions: it is now mandatory to identify the bearer in any cash transactions with a value exceeding R$ 2,000. More information will be required in the case of deposits in cash in an amount exceeding R$ 50,000.

• The requirement to have access to information on final beneficiaries: the rule provides for the obligation for sub-purchasers to grant paying institutions access to information on final beneficiaries of payments.

• Longer deadline for analysis of transactions: 30 to 45 days.

2) CVM Instruction No. 617:

• The provision for specific duties to the responsible officer and to the senior management of the institutions.

• The requirement that the AML/FT policy must establish mechanisms for the exchange of information between companies in the same conglomerate.

• The obligation for the responsible officer to prepare an annual report to senior management regarding the internal AML/FT risk assessment.

• The duty to identify, analyze, understand, and mitigate AML/FT risks inherent to their respective activity, even for institutions that have no direct relationship with the investor.

• Detailed regulations regarding the duties arising from Law No. 13,810/19, which provide for the obligation to comply with sanctions imposed by resolutions of the United Nations Security Council.

[1] The discussions began on November 17, 2016, with the publication by the Brazilian Securities and Exchange Commission (CVM) of Public Hearing Notice SDM No. 09/2016, and were intensified after Public Consultation Notice No. 70/2019, released by the Central Bank of Brazil (Bacen) on January 17, 2019.

[2] More specifically, the following are subject to the CVM rule: (i) individuals or legal entities that provide services related to the distribution, custody, brokerage, or portfolio management of securities, (ii) organized market management entities and financial market infrastructure operators, (iii) independent auditors that operate within the scope of the securities market, and (iv) other persons referred to in specific regulations that provide services in the securities market, with the exception of publicly-held companies and securities analysts that do not perform any other of these activities.

[3] This is Bacen Circular Letter No. 4001, which also takes effect on July 1, 2020, and revokes Bacen Circular Letter No. 3542.

Category: Tecnology

There is still uncertainty relating to Bill 1,179/20, which provides for a different postponement period.

Executive Order (MP) No. 959/20, published on April 29, extended the entry into force of the General Data Protection Law (LGPD) to May 3, 2021. The MP is subject to approval by the Brazilian Congress to become definitive law, but its effects are valid as of publication.

Postponement of the entry into force of the LGPD was already under discussion in the legislature last year, and last month it gained momentum with the publication of Bill No. 1,179/20, due to the declaration of the covid-19 pandemic. Currently, the Bill is under discussion in the House of Representatives, after approval in the Senate.

Although the pandemic scenario is the same, the date proposed by the MP is different from the solution adopted by the Senate in the Bill: postponement of entry into force to January 1, 2021, except for the provisions dealing with administrative sanctions by the National Personal Data Protection Authority (ANPD), which would be August 1, 2021.

A second point that can be questioned in the MP is the relevance, affinity, and connection of the matter dealt with in this instrument. This is because it mainly addresses the emergency benefit proposed by the government, but in its article 4 and last paragraph, the MP changes the subject and changes the date for entrance into force of the LGPD. The fact is that the position on postponement of the LGPD seems settled, and it is up to Congress to resolve the impasse regarding the deadlines.

In addition, there are still no clear signs regarding actual creation of the ANPD by the federal government, which is increasingly necessary both to regulate the law and to guide the debate around issues on the agenda of personal data protection.

What to do

Regardless of the context, it is notable that privacy and data protection issues will continue to attract the attention of authorities and the general public. The recent discussion surrounding MP 954/20, which provides for the sharing of user data by telecommunications service providers with the Brazilian Institute of Geography and Statistics (IBGE) and ended up being suspended by the Federal Supreme Court (STF), is evidence of this. Various measures taken against companies in recent months by consumer protection associations or the Federal Public Prosecutor's Office, related to the issue of privacy and data protection, also corroborate this scenario.

Those who have not started their adaptation projects should take the opportunity to structure their plans and start the processes as soon as possible. For those who are already carrying out their projects, it is advisable to continue the work and monitor more closely the political and regulatory situation of the law.

Category: Capital markets

The Brazilian Securities and Exchange Commission (CVM) has initiated the process of a public hearing for the preparation of a new regulatory instruction whose objective is to establish rules for holding of general meetings of debentureholders (AGD) by digital means.

The rule covers only debentureholders' meetings related to public issues and held by publicly-held companies. Private debentures and public offerings conducted by companies that are not registered with CVM are not included, even if such issues were done with restricted placement efforts, pursuant to CVM Instruction 476. The instruction does not address other publicly distributed real estate securities, such as CRIs (Real Estate Receivables Certificates), CRAs (Agribusiness Receivables Certificates), and promissory notes.

The approach of the new rule proposed is similar to that of CVM Instruction No. 622, which regulated the holding of digital meetings for publicly-traded companies in Brazil and whose main aspects were dealt with here on the Legal Intelligence portal.

Such measures are part of the package of rules issued by CVM to tackle some of the challenges imposed by the covid-19 pandemic. The public hearing notice highlights that the wording proposed is preliminary and that both the new instruction and CVM Instruction 622 will be subject to a broader review within CVM's planning to promote improvements to the changes implemented by them. The objective is to promote an evolution towards the adoption of digital mechanisms that had already been demanded by the market and were accelerated by the pandemic.

As determined by CVM Instruction 622 for the notices convening shareholders' meetings, the draft of the new instruction provides that notices convening shareholders' meetings must contain guidelines for debentureholders regarding the procedures for participation and voting through digital means. Also in the same line of CVM Instruction 622, the draft proposed by CVM provides that the company may require prior submission of documentation from debentureholders who wish to participate in the AGD remotely and that a digital protocol be made available for this purpose (another possibility is to submit the documentation at the time of the AGD, in the event of participation in person).

Seeking to incorporate a mechanism similar to the ballot paper used by publicly-traded companies in their shareholders’ meetings, as provided for in CVM Instruction 481, the agency proposes in the draft of the new rule that the debentureholders' vote may also be exercised by means of the sending of a vote instruction. In this case, the company or the fiduciary agent of the issuance shall make the template document available to send the vote instruction, so that the debentureholder may exercise it using already known options such as "approve", "reject", or "abstain".

Both the issuer and the fiduciary agent, as applicable, shall be responsible for providing the means for remote voting. On this point, it is worth highlighting article 10 of the draft instruction, which provides for the responsibility of the issuer's Investor Relations director, or the fiduciary agent, as the case may be, for the information and documents made available to debentureholders for the exercise of their voting rights.

Also similar to CVM Instruction 622, a provision was inserted into the draft that, exceptionally, AGDs convened before the entrance into force of the new instruction may be held digitally, provided that the remote voting procedure is described in a material fact released by the company, in the case of meetings convened by the issuer, or in a release by the fiduciary agent addressed to all debentureholders, at least five days in advance of the holding of the AGD.

Comments from those interested in participating in the public hearing may be sent to the CVM by May 4, 2020, to the e-mail This email address is being protected from spambots. You need JavaScript enabled to view it.. CVM estimates that the new instruction will be issued by May 14, 2020.

Category: Real estate

In order to guarantee the maintenance of essential services during the period of social distancing imposed in response to the covid-19 pandemic, the São Paulo State Department of Justice approved, on April 28th, CG Ordinance No. 12/20, which regulates the procedure for drawing up public deeds by videoconference and electronic signature.

The measure covers the most varied of types of public deeds, including the purchase and sale of real estate, notarial acts, public powers of attorney, and mortgage guarantees. Based on the existence of more specific provisions and formalities for such acts in the Brazilian Civil Code, it was expressly prohibited, however, to perform notarial acts for the drawing up of a public will and approval of a sealed will. During the pandemic, such acts may still be carried out in person, respecting the exceptional operating arrangement for notary publics.

For the approval of this ordinance, which has an initial validity of 30 days from its publication, special consideration was given to the peculiarities relating to the territorial jurisdiction of the notary public and the security in identifying the signatory parties of the deeds. In sum, the main rules are as follows:

1) As for territorial jurisdiction:

• Acts of acquisition or creation of real property rights must be executed by the notary public of the district where the property is located.

• Acts that do not comprise acquisition or creation of real property rights must be drawn up by a notary public of the district of the residence of one of the parties to the legal deal.

• Public powers of attorney shall be drawn up by the notary public of the district of the granting party's domicile.

2) As for formalities:

• The capacity and expression of will of the parties shall be verified by remote means, via image and sound transmission (videoconference). The notary public should preserve the recording of this content. The videoconference can be done simultaneously with all the parties or individually with each of them.

• The identity of the parties shall be verified remotely by means of presentation of a digital identification document or, failing that, of documents that have been filed for the opening of signatures at the notary office itself or at another notary office.

• If the signature card has been opened before another notary, the person in charge of the other service will have 24 hours to send it to the notary who will draw up the act a scanned copy of the card and the party’s documents.

• The parties must sign via a digital certificate with the ICP infrastructure standard.

In addition to the performance of notarial acts via electronic media, notaries public linked to a registration authority may also issue digital certificates by videoconference during the state of public health emergency. This flexibility originates from Executive Order No. 951/20, of April 15, regulated by Resolution No. 170/20, of April 23, of the Public Keys Infrastructure Management Committee, which, by allowing videoconferencing for this purpose, waives the collection of fingerprints from interested parties.

The state of São Paulo is not, however, the first to regulate the performance of notarial acts by electronic means. The Rio de Janeiro Justice Department, through the CGJ Ordinance No. 31/20, of March 25, had already allowed the performance of acts in electronic form in the state without, however, providing rules in such detail.

In São Paulo, some notaries are already moving to offer the service as soon as possible. On the other hand, some notaries still have doubts about the practical application of the rules, for example, regarding the need for an individual digital certificate for representatives of legal entities.

Without prejudice to any procedural shortcomings that may exist, the measures announced have the potential to greatly facilitate the drawing up of public deeds during the pandemic, for which they were proposed, in addition to perhaps contributing to modernizing the Brazilian notarial system, boosting the economy and real estate businesses that require the services of notaries.

Category: Banking, insurance and finance

On May 4, after some months of public consultation, the National Monetary Council (CMN) and the Central Bank (BC) published a regulation[1] that governs the open banking in Brazil, one of the priority topics on what has been presented as the BC# Agenda.

At a press conference held on the same date, representatives of the Central Bank stated that the objective of open banking in Brazil is to empower financial consumers. In this sense, and in line with the General Data Protection Law (LGPD) and other rules on the subject, the new regulation is based on the principle that registration data and information on products and services provided belong to the customer and it is up to them to decide whether or not to share with third parties participating in the ecosystem. The bill also aims to increase efficiency and competitiveness within the National Financial System and encourage financial innovation.

Open banking is a concept of standardized sharing of data and services provided by financial institutions through the opening and integration, via Application Programming Interface (API), of their online platforms with other information system infrastructures. As an example, let us imagine that a customer of financial institution X already uses internet banking (through an application developed internally by institution X) to look up balances, make transfers etc. This same customer has another account at financial institution Y, also using the application developed internally by this institution to manage investments, check balances, payments made, etc. After implementing open banking it will be possible to look up the financial activities of both accounts through the use of a single application integrated via API to the financial institution's platform (since the participating institutions would have a standardized and integrated data sharing format).

Open banking enables financial institutions to dedicate themselves to their core activities, i.e., to the creation of new financial products and activities inherent to this segment, by encouraging other participants to enter the market to offer technological solutions focused on the customer's experience. It is assumed, in a way, that the data is the property of the customer and that, in fact, institutions should focus their energies on the purely financial market activities. This concept is attractive because it represents a great leap forward in the availability and provision of banking services. It has been discussed and/or implemented in various countries, such as Canada, Mexico, United States, Hong Kong, Japan, Singapore, Australia, New Zealand, Russia, and the United Kingdom.[2]

In Brazil, according to the new regulations issued, institutions authorized to operate by BC may participate in open banking. Large banks within Segments 1 (S1) and 2 (S2)[3] must participate. The other authorized institutions may participate if they wish and non-authorized institutions may participate through partnerships with authorized participating institutions. Any participation must follow the principle of reciprocity, i.e. the recipient must also share information.

In addition to sharing data and information, open banking in Brazil also involves sharing services and for those the obligation to participate is different. In the case of sharing of a payment transaction initiation service, participation is mandatory for (i) institutions holding an account;[4] and (ii) institutions initiating payment transactions.[5] In the case of sharing of a credit proposal forwarding service, participation is mandatory for institutions that have signed a correspondent contract in Brazil, the purpose of which contemplates receipt and forwarding of proposals for credit and leasing operations granted by the contracting institution, as well as other services provided for the monitoring of the operation, by electronic means.

The regulator divided the implementation of the project into four phases. First, participants should disclose less sensitive data about the institution itself that is easily available, such as data about customer service channels (divided into own facilities, banking correspondents, and electronic channels) and, for each channel, the form of access by customers and the services provided in each of them. In the first phase, data on products and services offered by the institution should also be shared, including cash and savings accounts, prepaid and postpaid payment accounts (such as credit card data made available) and credit transactions.[6] Such information should be disclosed in an organized and standardized manner, so that it can be looked up in a simple way by third parties, which can make comparisons between the various products and services offered. This phase should be implemented by November 30, 2020.

The second phase, the implementation of which must be completed by May 31, 2021, provides for the sharing of data and transactions involving the customers themselves, in a manner previously authorized by them. The objective of the second phase is to share both customer registration data and information on transactions carried out through a checking account or savings accounts, prepaid and postpaid payment accounts (including credit card transactions), and credit operations entered into by them. This is expected to encourage healthy competition, as a third-party bank will be able to offer customers the same product in a more advantageous, cheaper, and customized way.

The third phase, the implementation of which must be completed by August 30, 2021, involves the sharing of services of (i) initiation of payment transactions[7] and (ii) forwarding of credit proposals. Under the terms of Joint Resolution No. 1/2020, in relation to this sharing, institutions that do not fall under segments S1 and S2, but which hold accounts (deposit or prepaid) or provide payment transaction initiation services, in the case of the service mentioned in item "i", or which have signed a correspondent agreement in Brazil to receive and forward proposals for credit or leasing transactions, in the case of the service mentioned in item "ii", must also join open banking.

Finally, in the fourth phase, the regulator intends to expand the scope of open banking to include data and transactions involving foreign exchange services and transactions, insurance, private supplementary pensions, and investments. Here coordination with other regulators, such as the Bureau of Private Insurance (Susep) and the Brazilian Securities and Exchange Commission (CVM), is expected. This last phase must be completed by October 25, 2021.

The regulation also presents essential issues for the development and consolidation of open banking in Brazil, such as: (i) the requirements for sharing customer data; (ii) the responsibilities of the parties involved in data sharing; and (iii) the obligation for participating institutions to enter into a convention regarding issues related to:

• technological standards and operating procedures;

• standardization of data and service layout;

• channels for forwarding customer claims;

• procedures and mechanisms for handling and resolving disputes between participating institutions;

• reimbursement among the participants;

• participant repository;

• rights and obligations of participants; and

• other issues deemed necessary for compliance with the regulations.

Regardless of the regulations and the approach of the regulator, the perception of insecurity behind the sharing of data and information is high, especially in the case of financial information that is also protected by banking secrecy. Therefore, BC established the obligation of institutions to conduct their activities with ethics and responsibility, in compliance with the laws and regulations in force, as well as the principles of transparency, data security and privacy, data quality, non-discriminatory treatment, and interoperability.

With respect to business continuity, the regulations require institutions to ensure that their risk management policies cover:

• procedures to follow in the event of unavailability of the interfaces used for sharing;

• deadline for restarting or normalizing the availability of the interface;

• handling of incidents related to customer data breaches and the measures taken to prevent and remedy them; and

• results of business continuity tests, considering the scenarios of unavailability of interfaces.

In addition to the regulations published by CMN and BC, open banking will also have a self-regulation structure. As mentioned above, the rules provide for the existence of a convention to be discussed and prepared by a governance structure representing the market itself.[8] The self-regulation structure will mainly deal with putting open banking into operation, including technology standardization and communication and security protocols, as well as dispute resolution and reimbursements among participants.

Since it enables the reduction of information asymmetry among the various financial service providers, open banking promises structural changes in the supply of financial products and services in Brazil, transforming the experience of customers and institutions and fostering competition, innovation, and financial inclusion in the local market.

[1] CMN/BC Joint Resolution No. 01/2020 and BC Circular 4,015/2020.

[2] The United Kingdom pioneered the development of this concept as public policy. That country's experience is widely regarded as a reference, having been publicly mentioned by interlocutors of BC as a source of inspiration. To learn more about how this initiative is developing in the UK and possible paths for the Brazilian experience, we recommend accessing: https://www.openbanking.org.uk/

[3] Institutions belonging to prudential conglomerates that do not provide the services referred to in customer transaction data shall be exempt from the compulsory participation requirement.

[4] These are defined as those that maintain a customer's checking account or savings account or prepaid payment account.

[5] They are the authorized institutions that, within the scope of open banking, will provide payment transaction initiation services, without holding at any time the funds transferred in the provision of the service. A payment transaction initiation service is a service that enables the initiation of a payment transaction instruction, ordered by the customer, regarding a deposit or prepaid payment account.

[6] The information should cover, for example, fees charged, packages of services made available and their amounts, minimum balance requirement in accounts, procedures for closing accounts, income rates, reward programs, interest charged (both on credit cards and other credit transactions), and types of collateral required for credit transactions, among others.

[7] The aforementioned institutions may be hired by other open banking participants to provide these services, which should include, at a minimum, account debit services, transfer of funds between accounts at the institution itself (book transfer), electronic transfer of available funds (TED), instant payment transaction (PIX), credit document (DOC), and bank invoice payment.

[8] In early March of this year, BC published an ordinance setting up a working group to propose a structure responsible for the governance of the process of implementing open banking in Brazil. This group completed its activities on April 30, 2020, and delivered a report on a number of governance topics to the BC’s Director of Regulations. It is expected that the governance structure to be determined by BC will follow the recommendations of this report and will be published in the coming days.

Category: Litigation

We recently wrote about the initiative of the São Paulo State Court of Appeals (TJ-SP) to create a pilot project for pre-trial conciliation and mediation for business disputes arising from the effects of the pandemic (CG Resolution No. 11/2020, of April 17). On that occasion, we drew attention to the fact that the covid-19 crisis, despite its dramatic consequences, established a context conducive to the emergence of new forms of dispute resolution by the judiciary. Now we observe the same situation in the special civil courts, with the creation of the “conciliation not in person" or virtual conciliation.

In the special courts, the actions are brought by the plaintiff itself (or through an attorney, for cases with a value between 20 and 40 minimum wages). It is then called a conciliation attempt hearing, chaired by a conciliator. If there is a settlement, its terms are systematized by the conciliator and, later, ratified by the judge, so that the parties are bound. In the absence of a settlement, the case proceeds to a pre-trial hearing presided over by a judge. There, the respondent presents its answer and the parties may request the hearing of witnesses. Finally, the judgment is handed down.

Under Law No. 9,099/90 (the Special Courts Law), if the respondent is duly summoned to the conciliation attempt hearing and fails to appear, the penalty of default judgment applies. This means that the facts alleged by the plaintiff will be presumed to be true and the case must proceed for a decision to be handed down by the competent judge. If the plaintiff does not appear, the case is extinguished.

These are very serious penalties, implemented precisely in order to stimulate appearance at the conciliation attempt hearings and settlement of disputes submitted to the Judiciary. However, the situation generated by the covid-19 pandemic, in which despite the effort of the laws and regulations to encourage conciliation, has created an impasse due to the need for the parties to attend the conciliation hearing.

To resolve the situation, Law No. 13,994/20 brings in an important innovation to the Special Courts Law, expressly establishing the appropriateness of “conciliation not in person" with the use of the technological resources available to the courts. What we see is an effort to maintain operation of the judiciary in times of crisis.

The legislative amendment also maintained the imposition of the penalty of default judgment if the respondent does not participate in the virtual conciliation session or even refuses to participate. In other words, once summoned, the respondent does not have the option to state its disinterest in this type of conciliation, precisely as occurs in relation to the in-person type.

Therefore, virtual conciliation has been widely instituted in the Brazilian special courts, which demonstrates the admirable movement of the Judiciary towards the adoption of new technologies in its activities, especially with regard to the protection of citizens' rights and stimulus for the resolution of disputes through settlement.

The world is going through an unprecedented crisis. Even if numerous misfortunes arise from it, it is to a certain extent hopeful to see it as an opportunity for the introduction of technological innovations in the day-to-day provision of judicial services.

Category: Infrastructure and energy

The National Health Surveillance Agency (Anvisa) has been publishing resolutions with the objective of adapting the health sector to the changes resulting from the covid-19 pandemic. Only in the month of March resolutions by the Board of Directors (RDCs) under numbers 348, 349, 350, and 356, were published in the Official Federal Gazette (DOU), all valid for 180 days. They provide for extraordinary and temporary measures concerning medicines, sanitizers, equipment, and medical devices.

RDC No. 348, of March 17, establishes extraordinary and temporary criteria and procedures for the treatment of applications for registration of drugs, biological products, and products for in vitro diagnosis, and post-registration changes for drugs and biological products. Through RDC 348, priority access to the registration of these products is possible, especially those for in vitro diagnosis. The purpose is not to assess and approve products automatically, but to provide dexterity to the regulatory agency's application review process.

RDC No. 349, of March 19, aims at regulating the criteria and procedures related to application for regularization of personal protective equipment, pulmonary ventilator-type medical equipment, and other devices recognized as strategic by Anvisa at this time. The measure speeds up the procedures for approval of medical equipment, such as substitution of the presentation of the Good Manufacturing Practices Certification by the Medical Device Single Audit Program (MDSAP) or Quality Management System Certification ISO 13485, among other simplified processes.

RDC No. 350, of March 19, determines the criteria and procedures for the manufacture and sale of antiseptic or sanitizing preparations, exceptionally without prior authorization from Anvisa. Provided that the technical quality criteria established in other Anvisa resolutions are followed, companies regularized may manufacture and sell products such as 70% ethyl alcohol, 80% glycerin ethyl alcohol, 75% glycerin isopropyl alcohol, and 0.5% chlorhexidine diglyconate.

The companies regularized must have an Operating Permit (AFE) issued by Anvisa and a health license or permit issued by the competent health agency from the states, Federal District, and municipalities, as well as other operating permits, including for manufacturing and storing flammable substances.

RDC No. 350 also establishes that companies manufacturing cosmetics and sanitizers can manufacture and sell 70% alcohol in its various forms of presentation. On the other hand, companies that manufacture drugs, sanitizers, or cosmetics may receive donations of raw materials used in the manufacture of antiseptic or sanitizing preparations, provided they meet the technical requirements of quality and safety defined by the manufacturer of the finished product.

Finally, RDC No. 356, of March 23, sets forth the requirements for the manufacture, import, and purchase of medical devices identified as priorities for use in health services. To facilitate the supply of such products in the domestic market, the resolution also waives the need for an AFE and other health regulatory authorizations for the manufacture and import of the following products for use in health services: surgical masks, N95, PFF2, or equivalent particulate respirators, goggles, facial protectors, disposable hospital clothing (waterproof and non-waterproof aprons/caps), caps and head coverings, valves, circuits, and respiratory connections.

The strategic actions adopted by Anvisa seek to mitigate the effects of the covid-19 pandemic, making access possible and increasing the volume of regularized products that can be used to tackle the pandemic. As mentioned before, such measures are extraordinary and temporary, since the resolutions are valid for 180 days.

Category: Banking, insurance and finance

The National Department of Business Registration and Integration (DREI), of the Ministry of Economy, published on April 15 Normative Instruction No. 79 regarding participation in and remote voting at meetings and assemblies of privately-held corporations, limited liability companies, and cooperatives, in response to the crisis caused by covid-19.

IN No. 79 regulates the holding of meetings and assemblies by digital means - when shareholders, partners, or associates can only participate and vote at a distance (in which case they will not take place in any physical location), or even in a semi-in-person manner - in which participation and voting are allowed in person, at the physical location of the meeting, and also at a distance. Meetings held fully in-person are not subject to this rule.

Participation and remote voting may take place by sending a ballot paper remotely and/or through an electronic system accessible to all partners, shareholders, or associates, which guarantees, among other requirements, the security, reliability, and transparency of the meeting, as well as registration of the presence of the partners, shareholders, or associates.

The call notice shall state, prominently, that the meeting or assembly shall be semi-in-person or digital, as the case may be, detailing how shareholders, partners, or members may participate and vote remotely, and listing the documents required for them, or their representatives, to be admitted.

Related documents must be made available in advance by secure digital means, observing the disclosure mechanisms provided for by law for each type of company. They can also be presented in summary form in the call notice, indicating the website where the complete information will be available.

The ballot paper, in turn, shall be made available by the company in a version for printing and completion by hand, containing: all matters on the agenda; guidelines on how to send it back to the company; indication of the documents that must accompany it in order to verify the identity of the shareholder, partner, associate, or any representative; and guidelines on the formalities required for the vote to be considered valid. The ballot must be sent by the company/company/cooperative on the same date as publication of the call notice and returned at least five days before the meeting. The document may even be rectified and sent back, provided that the deadline is respected. This submission does not prevent the partner or associate from participating and voting at the meeting, in which case the document sent shall be disregarded.

The company may hire third parties to manage, on its behalf, the processing of information at meetings or assemblies, but it will be responsible for filing the documents associated with the event and recording it in its entirety, keeping these records for the period in which it is possible to request annulment.

In the specific case of cooperatives, the electronic system adopted shall ensure the anonymous nature of the vote on those matters where the bylaws provide for secret voting.

The minutes of the assemblies or meetings shall indicate the model adopted and the manner in which participation and remote voting were permitted. The chairman and secretary shall sign it and consolidate the attendance list in a single document. The same signature and attendance certification procedure may be used for the respective corporate books. In the case of digital minutes, the signatures of the chairman and secretary shall be made by means of a digital certificate issued by an entity accredited by ICP-Brasil or any other means of proving the authorship and integrity of documents in electronic form. Means shall be provided for the minutes to be printed on paper, legibly and at any time by any partners. The chairman or secretary shall expressly declare that all the requirements for holding the meeting have been met, especially those set forth in IN No. 79.

In-person meetings or assemblies already called and not yet held due to restrictions resulting from the covid-19 pandemic may take place semi-in-person or digitally, provided that all shareholders, partners, or associates are present or expressly declare their agreement to such procedure.

Category: Litigation

The need to resolve conflicts arising from the economic impacts of the covid-19 pandemic declared by the World Health Organization (WHO) and government measures adopted to contain the spread of the virus will demand, as it has been demanding, a response from the Brazilian judiciary.

On the one hand, the situation challenges the conventional framework aimed at dispute resolution and its modus operandi, which is considerably in person. On the other hand, it creates the opportunity to develop methods of resolution which, although not culturally valued in Brazil, can avoid overloading the courts and allow a faster and more effective response to disputes.

One example is the initiative of the São Paulo Court of Appeals (TJ-SP) to create a pilot project for pre-trial conciliation and mediation for business disputes arising from the effects of the pandemic (CG Resolution No. 11/2020, of April 17).

The resolution presents an alternative to the traditional way of filing an action, the solution of which could take some years to arrive. This time would be incompatible with the urgency of the present moment and the impossibility of conducting activities in the conventional manner, which would require the physical presence of the parties involved.

Thus, TJ-SP presents an option that is unusual in Brazil, but very successful in various other countries, which the court itself describes in the resolution as a “pre-trial means of settlement, in a manner complementary to the existing ones ('multiport' system), adapted to the specific profile of the business demands and of fully remote operation."

Before explaining the procedure itself, it is important to point out that it does not apply to all, nor to any kind of dispute. Only businessmen, business companies, and "other economic agents" may appear as plaintiffs (although the court has not yet defined the scope of this term).

The dispute must be (i) about legal deals related to the production and circulation of goods and services; and (ii) the claim and cause of action must be related to the consequences of the covid-19 pandemic, i.e. the final claim and the facts and grounds for that claim must derive from a situation caused by the pandemic.

In procedural terms, in particular determining the parties involved and suitability vis-à-vis the terms of the resolution, the interested party must submit an application by e-mail, containing the claim and the cause of action in the terms already mentioned. Although there is no express provision in the resolution as to the obligation to be represented by attorneys, given that their presence is mandatory in judicial mediations (Law No. 13,140/15), it seems reasonable to us to say that the resolution followed the law as to this obligation.

Upon receipt of the claim, a digital conciliation hearing shall be scheduled, via a system made available by the court, within a maximum of seven days. The conciliation will be presided over by a judge of law participating in the pilot project. At this point, the limited time for the hearing and the innovative role of the judges in the pre-trial phase stand out.

If conciliation is unsuccessful, the proceeding shall be referred to a mediator, chosen by the parties or, if there is no consensus, appointed by the judge, for mediation to proceed under the procedural terms of Law No. 13,140/15.

If a consensus is reached between the parties, either through the conciliation hearing or the mediation session, the settlement shall be approved by the presiding judge and made available to the parties within three days of the hearing. In cases where there is no consensus, the parties are may file the respective legal actions.

The TJ-SP’s initiative with the pilot project, anchored in the existing legal mechanisms, highlights the gradual recognition of the institute of mediation as an important alternative method of dispute resolution. Other states have prepared interesting proposals to this effect, such as the creation, by the Paraná State Court of Appeals, of roundtable discussion Judicial Centers for Dispute Resolution (Cejusc) to act in the conciliation and mediation of land disputes, debts of residential mortgage debtors, and judicial reorganization of companies.

The crisis caused by the pandemic represents an opportunity for the development of the institute of mediation in Brazil as a rapid alternative to mitigate its economic impacts, allowing a faster and more stable resumption of business activities under dispute.

Category: Litigation

Various articles and news pieces have appeared in the specialized media in relation to Bill No. 1,397/20, which contemplates emergency measures to deal with the effects of the covid-19 pandemic, including amendments to Law No. 11,101/05 (Bankruptcy and Corporate Reorganization Law - LFR). The debate became more relevant on April 15, when the bill received an urgent request, according to article 155 of the Internal Rules of the Chamber of Deputies. This urgency is assigned to issues that aim, among other things, to address public calamities (article 153 of the internal rules).

Bill 1,397/20 allows successive periods of suspension of the exercise of creditors' rights provided for by law and by contract. Despite the pressing need for measures to remedy (or prevent, to use the term adopted by the bill) the crisis, the provisions in question deserve consideration, given the legal uncertainty that abuses in measures such as these may generate.

The first measure aims to create a general and legal stay period of 60 days, from the effective date of the law, for all companies and all businessmen. During this period, creditors of any and all economic players may not judicially collect on the obligations against the defaulting debtor after March 20, 2020, except for any guarantees that may have been given or unilaterally terminate contracts, even if based on a contractual or legal provision.

The idea may seem positive at first, but it does not take into account that many economic players and companies, without great economic justification and without regard for the counterpart, can stop any type of payment to their creditors knowing that, for two months, they will be immune to judicial measures provided for in the legal system and in contracts. In other words, the measure may stimulate situations where parties to contracts, instead of acting with the cooperation and good faith expected, adopt selfish measures, provisionally supported by law, generating a domino effect of defaults. More than that, this cascading effect may favor those who should already be out of the market, given a situation of prior insolvency, or parties that are opportunistic and unconcerned with the counterparty.

Under the terms of Bill 1,397/20, after the stay period, the same opportunistic and/or insolvent economic players may submit claims in the Judiciary to initiate the voluntary judicial procedure known as preventive negotiation, on the allegation that they are going through an economic and financial crisis, with a reduction in revenues equal to or greater than 30% of the average for the last quarter. This procedure will have a new 60-day, non-extendable stay period (under the terms of the bill), during which creditors will also not be able to exercise their contractual and legal rights, nor will they be able to present arguments on the appropriateness and merits of the claim for collective negotiation itself.

This second measure, like the first, in addition to fighting the financial economic crisis felt in Brazil, aims to bypass potential bottlenecks in the judiciary caused by an exponential increase in the number of claims. Although such concerns are commendable, it is certain that Bill 1,397/20 runs counter to the logic of assigning a power to creditors, provided in the Brazilian bankruptcy system, without also assigning due and proportional consideration to debtors. Thus, it can be affirmed that Bill 1,397/20 does not correctly address the prohibition with the abuse of rights in the adoption of the voluntary procedure, nor does it open the opportunity for creditors to exercise their adversarial rights in a broad manner. Therefore, the stage is once again set for the use of potentially dilatory and abusive measures by those who were already in a situation of insolvency before the pandemic, postponing the fated bankruptcy and bringing, once again, legal insecurity, which should always be avoided.

Although it is merely a possibility for creditors to submit their claims to collective negotiation, it should be taken into account that this procedure entails the impossibility of unilaterally terminating the contract in any situation, which hollows out the power of choice and even takes away any advantage in negotiation.

Moreover, in practice, small economic players (over 90% of the market) would find it difficult to hire specialized advisors or professional mediators to engage in appropriate and professional dialogue with creditors. The larger players, on the other hand, are already the ones who most benefit from the existing mechanisms, mainly in the LRF. In other words, it is valid to question the real effectiveness of the measures provided for in Bill 1,397/20 and for whom they are actually intended.

In any case, if the result of the collective negotiation is not the result sought by the debtor, companies (and not any economic player) may resort to the bankruptcy proceedings provided for in the LFR, the requirements of which will be relaxed during the pandemic pursuant to Bill 1,397/2020, in order to facilitate the use thereof.

In order to do justice, the advantage for the debtor, under the terms of the bill, is that, in the case of judicial reorganization proceedings, a 180-day stay period if granted, from which, if applicable, the 60-day period for collective negotiation must be deducted. However, the 180-day stay period provided for in the LFR, although it cannot be extended by provision of law, has been extended by the Brazilian courts whenever the debtor in possession is able to prove that, for reasons beyond its control, it was unable to hold a general meeting of creditors to resolve on the judicial reorganization plan it offered. It is hoped that this case law understanding will not prevail in the scenario dealt with here.

Specifically with regard to out-of-court reorganization, Bill 1,397/20 seeks to amend the LFR to expressly provide for the possibility of granting the stay period, which had already been permitted by the case law. In the draft presented to the Chamber of Deputies, the bill is not very clear about what that period would be. It is believed to be 180 days.[1]

Still in relation to judicial and extrajudicial reorganization proceedings in progress, another type of stay period was created, in which the obligations assumed in the plans approved will not be due for 120 days. During this period the possibility of conversion of the reorganization into bankruptcy due to noncompliance with the obligation established in the plan is suspended. In addition, debtors will be able to submit a new plan including claims which are subsequent to the assignment of the reorganization claim (normally excluded from these cases). The bill also stipulates that debtors will be entitled to a new stay period, under the LFR, in order to allow discussion with creditors and, perhaps, a vote on the plan at a general meeting of creditors.

This point in the Bill 1,397/20 is perhaps the most critical, since another 300 days of stay can be given, without any concern for effective compliance with the plan and without giving creditors the immediate right to decide whether to revise it or resort to bankruptcy in a timely manner. Worse still, a review of the text of the bill shows that creditors who have done business with the company under judicial reorganization and who would have priority treatment, provided for in article 67 of the LFR, may have their claims submitted to a new reorganization plan in a case, which, in principle, was not applicable to them. This is definitely a further risk to legal certainty, which generally scares off new investments and, in this sense, may compromise the effectiveness of legal instruments capable of preventing and remedying bankruptcy.

Finally, and far from this article having the pretension of exhausting the subject, the reality is only as follows: businesses will be deeply impacted by the coronavirus pandemic and, for better or worse, the market must absorb this blow in some way. The bill seems to have chosen to place much of this responsibility on the shoulders of creditors. Based on the points raised in this text, however, creditors may prepare themselves to make the business decisions most appropriate to the current reality in their negotiations by resorting to creative legal solutions, based on extensive information on the subject and the extent of the measures proposed.

[1] In fact, article 6 referred to in paragraph 2 of article 10 of Bill 1,397/20 does not provide for any time limit. This leads to the belief that this paragraph would actually be referring to article 6 of the LFR and, therefore, to the time limit of 180 days.

Category: Labor and employment

With the revocation of Executive Order No. 905/2019 by Executive Order No. 955, published on April 20, the changes and innovations it promoted, such as the institution of the Green and Yellow Employment Contract, were lost. According to a statement by President Jair Bolsonaro himself on the social media, the revocation was due to the imminent expiry of Executive Order No. 905/2019. Companies that had already made adjustments in their practices, procedures, and policies based on Executive Order No. 905 should adapt them.

In any case, the president advanced that he will issue a new executive order to deal specifically with the Green and Yellow Employment Contract to encourage job creation.

The original text of Executive Order No. 905, published on November 12, 2019, had implemented various changes and innovations in social security, labor, and tax laws and regulations, among which we highlight (more details here):

• The possibility of hiring employees through the Green and Yellow Employment Contract, with a significant reduction in the charges levied on the remuneration of these individuals, stimulating the generation of employment and income.

• Changes in the rules on Profit Sharing (PLR), bringing about greater clarity regarding existing provisions in the law and modifying points of its application, including waiving some formalities, such as participation of the labor union in negotiations through an employee commission.

• Changes in the rules for granting food vouchers to expressly clarify that the provision of food to employees, whether in natura or through vouchers, coupons, checks, electronic cards intended for the purchase of meals or food, is not of the nature of salary and that no social security contributions, FGTS, and IRRF is levied on it

• Changes to bonus payment rules to resolve the controversy over the "liberality" requirement created by Cosit Solution of Consultation No. 151/19. However, the changes restricted the frequency payment of bonuses to four times in the same calendar year and once in the same quarter.

• Changes in the rules regarding work on Sundays and public holidays and paid weekly rest to allow work on Sundays and public holidays, in short, authorizing only the right to weekly rest of 24 hours, preferably on Sundays. With the changes, it was also provided that enjoyment of the weekly paid break schedule on Sundays must be (i) one Sunday every for four weeks of work for the retail and services sector; and (ii) one Sunday every seven work weeks for industry.

• Changes in the work hours of bank employees that increased them from six to eight hours per day, except for bank employees working as cashiers.

• Changes in the index for adjustment for inflation and in the interest applicable to labor debts, which would be based, respectively, on the IPCA-E (and not on the TR) and on the interest applicable to savings accounts (instead of 1% per month).

• Changes related to stop work and shutdown orders, in order to adjust outdated names, change the deadline for filing appeals such orders, and revoke (i) article 160 of the Consolidated Labor Laws, which required new establishments to undergo an inspection and approval of their facilities by the competent regional occupational safety and medicine authority before commencing their activities; and (ii) the obligation for companies to notify the Regional Labor Office in advance of substantial changes in facilities for a new inspection.

• Changes in the rules regarding inspection by labor inspectors and the imposition of administrative fines related to labor laws and regulations, especially related to the criteria for the application of double visits and the application of administrative fines according to the nature of the offense (light, medium, severe, or very severe).

We will continue to monitor the evolution of this topic and any developments.

Category: Infrastructure and energy

Among so many areas of law already deeply affected by the crisis, it seems that it is now the regulating of public finances, that is, finance law, that is subject to the most intense transformations. This is because in Brazil, as in the rest of the world, the public budget is called to turn the mill of anti-cyclical policies against the impetuous stream of successive falls in tax revenues, typical of a shaken world economy in which, moreover, for the first time in history, the price of oil has fallen to a negative number.

In view of this framework, the legal regime aimed at fighting the pandemic, initiated by Legislative Decree No. 6 of March 20, 2020, the declaration of public calamity for the purpose of compliance with the Fiscal Responsibility Law (LRF), comes into force. It was the first time Brazil made use of the provisions of article 65 of that law. With the declaration, the government is exempted from achieving the fiscal results established and from complying with the performance limitations provided for in the LRF, and may, until the end of the year, allocate resources to combat the coronavirus more easily.

The public fiscal calamity decree was followed by an injunction issued by STF Justice Alexandre de Moraes under ADI No. 6357-DF, which exceptionally ruled out the application of articles 14, 16, 17, and 24 of the LRF and 114, head paragraph, and paragraph 14, of the Budget Guidelines Law of 2020 (LDO 2020). With the injunction, the requirement of estimates of budgetary and financial impact and compatibility with the LDO is waived. The requirement to demonstrate the origin of resources and to weigh the financial effects of the increase on indirect tax expenses and continuing compulsory expenses is also eliminated.

In the context of the formation of this financial right of exception, there is also some reticence on the part of the Federal Audit Court (TCU) in relation to the Continuous Payment Benefit (BPC), paid to the elderly and low income people. On March 13, Justice Bruno Dantas had ordered via injunctive relief that expansion of the BPC be suspended, established by Congress a few days earlier. In his order, the Justice pointed out the need to link the increase of an obligatory expense to the respective source of funds (by increasing taxes or reallocating other expenses). However, on March 18, the TCU en banc revoked the measure, with Justice Bruno Dantas himself recognizing that "the framework of emergency and unpredictability presented after the coronavirus crisis could give rise to some kind of relaxation of the parameters of the LRF.” Thus, to better examine the issue, the TCU requested detailed information from the Executive, reinforcing that the court will continue to exercise its role of monitoring the expenditures announced in order to combat the effects of the pandemic.

Even with all the relaxation in the requirements of the ordinary arrangements of the Brazilian finance law, some obstacles to the administration of tax policy continued to be insurmountable, such as (i) those provided in article 164 and (ii) the provisions of article 167, III, both of the Federal Constitution. The head paragraph of article 164 ensures the exclusivity of the Central Bank of Brazil (Bacen) for the issuance of currency in the Brazilian territory, with the first paragraph preventing the entity from carrying out credit operations with the National Treasury (TN), even though the second paragraph enables the acquisition and sale of securities issued by the TN for the regulation of market liquidity level and interest rate calibration. In addition, article 167, III, crystallizes the so-called "golden rule", which prohibits the carrying out of credit operations in excess of the capital expenditure expected, i.e., the use of resources derived from public debt for the payment of current expenditures, although such an impediment may be waived, even in normal times, by means of supplementary, special, or extraordinary credits, which are dealt with in article 167, III, and third paragraph.

To eliminate the last of the walls of the bull’s pin containing the Brazilian public debt, the proposal by the chairman of the Chamber of Deputies, Rodrigo Maia, stands out: PEC 10/2020. It seeks to insert provisions into the Transitory Constitutional Provisions Act (ADCT) that institute an "extraordinary fiscal, financial, and procurement arrangement to address the national public calamity resulting from the international pandemic. Known as the "War Budget PEC", the proposal, among other provisions, aims to create a parallel budget piece, running during the current state of calamity. Under the proposal, the government is authorized, for example, to violate the "golden rule" to use resources (obtained from the issuance of securities) originally earmarked for rolling over public debt (refinancing of principal) to pay its interest and charges.

The War Budget PEC also allows Brazil to perform what has already been established by foreign monetary authorities, namely quantitative easing. It is an instrument that allows a central bank to expand the money supply in the economy beyond the limits known by traditional monetary policy. With quantitative easing (provided for by PEC 10/2020), Bacen is authorized to buy and sell, directly in the secondary markets, credit rights and private securities with a risk classification equal to or greater than BB-. This will allow, for example, the authority to acquire: (i) non-convertible debentures; (ii) real estate credit notes; (iii) real estate receivables certificates; (iv) agribusiness receivables certificates; (v) commercial paper; and (vi) bank credit notes. The objective is to ensure greater liquidity for these institutions and increase the supply of credit in the markets.

Such operations, of course, are not risk-free. Although the US Fed has already reported hundreds of billions of dollars in profits derived from the securities acquired during the quantitative easing that followed the 2008 crisis (due both to the income from the securities and increase in their market value), Bacen is now exposed to risk of default and devaluation in the securities that will be part of its portfolio.

In order to avoid some of the risks arising from the War Budget PEC, the Senate, after the approval by the Chamber of Deputies, promoted some changes in the text of the proposal, prohibiting, for example, (i) acquisition of securities directly from non-financial companies, without the brokerage of banks; or (ii) financial institutions involved in the sale of securities to Bacen, for example, from increasing the remuneration and bonuses of their executives, and also preventing them from paying dividends above the mandatory minimum established by law. The prohibition mirrors the provisions of the recent National Monetary Council (CMN) Resolution No. 4,797/20, which, in the use of its economic regulatory capacity, and seeking "to avoid the consumption of important resources for the maintenance of credit and for any absorption of losses," establishes prudential transitory requirements for the Brazilian financial system, preventing authorized financial institutions from: (i) paying interest on equity and dividends above the mandatory minimum; (ii) carrying out share buyback operations; (iii) reducing capital stock; (iv) increasing the remuneration of their executives; and (v) accelerating any of these payments. With the changes to the PEC 10/2020 promoted by the Senate, the text now returns to the Chamber of Deputies.

This metamorphosis of Brazilian finance law highlights its peculiarity in relation to other legal disciplines; it lies at a point of intersection between structural stability and the imperatives that emerge from specific conjunctures. The rigidity typically expected from other fields of law, which is necessary to ensure legal security and predictability for conducting business, is opposed to the fluidity of the public finance system, which must provide the instruments necessary for acting in cyclical situations.

The institutional openness to the vertiginous expansion of the use of public credit is neither good nor bad in isolation, since it is not an end in itself. Public debt can be a real blessing, as pioneered by the American founding father Alexander Hamilton, or a sword of Damocles. It will all depend on the quality of the interventions that will be financed by it.