Category: Capital markets

On April 15, The Brazilian Securities and Exchange Commission ("CVM") issued another rule to contain the impacts of the covid-19 crisis on publicly-traded companies and other companies under the agency's regulations. Resolution No. 852 extends to hotel developments subject to CVM Instruction No. 602 and to other issuers extension of deadlines already granted to publicly-traded companies for the disclosure of financial information prepared in accordance with the agency’s rules.

The other issuers benefited by the measure are business entities (other than publicly-traded companies) subject to specific obligations due to the fact that they conducted a public offering of securities under CVM Instruction No. 476 (offering with restricted distribution efforts, automatically exempted from registration with CVM).

The new resolution also improves the wording of the concessions made through CVM Resolution No. 849, especially so as to contemplate differences related to issuers with fiscal years that do not coincide with the calendar year. With the rule, the agency also revokes, as of April 20, the prerogative to request interruptions of requests for review of public offers in progress for an extended period of 180 business days (the maximum regulatory period of 60 business days of interruption will come into force).

The following is a summary of the extensions proposed in CVM Resolution 852:

1) Hotel developments subject to the provisions of ICVM 602

• Annual financial statements: 2-month extension

• Quarterly financial information: 45-day extension

2) Companies that are not publicly-traded companies and have conducted offers of securities with restricted placement efforts

• Annual financial statements: 2-month extension

For publicly-traded companies, this is the summary of the extensions proposed in CVM Resolution 849:

• Quarterly financial information: 45 days

• Annual financial statements: 2 months

• Standardized financial statements form (DFP): 2 months

• Fiduciary agent report: 2 months

• Registration form: 2 months

• Reference form: 2 months

• Report on the Brazilian Code of Corporate Governance: 2 months

The market is also awaiting the issuance by CVM of a resolution to regulate the holding of virtual meetings by publicly-traded companies. As we stated in advanced in this portal, the rules must follow the regulations already released by the DREI for privately-held companies and business entities.

Category: Infrastructure and energy

Alberto Faro and Felipe Baracat

On April 15^th, the Ministry of Economy, through the Special Bureau for Foreign Trade and International Affairs (Secint), published Resolution No. 02/2020 of the Committee on Foreign Financing (Cofiex), to amend Cofiex Resolution No. 4/2019, which deals with procedures for taking out financing with multilateral banks.

The measure is important because the financing of national and regional projects via the receipt of loans from international bodies has been seen as an alternative to confront the scarcity of funds in Brazil, especially public funds.

To give an idea, from 2014 to 2018, the volume of transactions of the CAF - Development Bank of Latin America for Brazil was US$ 7.2 billion, including financing to public banks, such as BNB and BNDES, and to states and municipalities. In 2019 alone, the CAF executive board approved lines of credit for Brazilian projects totalling US$516 million, and CAF's portfolio in Brazil currently exceeds US$1.7 billion. Fonplata - Fundo de Desenvolvimento da Bacia do Prata today has seven projects in Brazil and 13 others waiting for approval by the Brazilian government. They amount to more than US$ 200 million, which may be doubled by the year 2020.

The changes proposed by the government come at a good time, as a way to fight the covid-19 pandemic and the economic and fiscal difficulties that Brazil will face in the coming months. States and municipalities will need to have alternatives to finance policies to contain the crisis, and certainly external funding with multilateral bodies will be an important tool. At Machado Meyer, we are already assisting Brazilian entities in structuring some transactions with the specific purpose of financing projects related to the covid-19 pandemic, and the tendency is for this type of transaction to multiply in the coming months.

The objective of the changes, in force while the state of public calamity continues, is to speed up and simplify various procedures, such as evaluation and authorization of public sector projects to accelerate the raising of funds from multilateral bodies abroad by states and municipalities, public banks, and development agencies. The provisions of Resolution No. 02/2020 apply to projects using external financing guaranteed by the Federal Government.

During the term of Resolution No. 02/2020, Cofiex must review the projects and decide on approval thereof within 10 days from the receipt of each application. Previously, Cofiex decided on projects only three times per year. The criteria for review and requirements for approval have also been relaxed so as to focus on two issues: capacity for payment and technical suitability of the project.

With regard to the former, an important change is the possibility of approving projects of states and municipalities with payment capacity rated at levels C and D, considering that currently only ten states are in bands A and B. The measure favors states with major outbreaks of the disease or very affected by the crisis, such as Minas Gerais and Rio de Janeiro, which face a deep fiscal crisis, the only ones with level D, and another 14 states with level C.

The approval of the Minister of Economy for projects to restructure existing debts or improve revenue management is also waived. Before the entry into force of Resolution No. 02/2020, such authorization was necessary.

Cofiex also allowed the restructuring of transactions contracted by including more activities, provided that they contribute to the fight against covid-19 or to the softening of the situation of public calamity in Brazil. New applications must be based on a technical report and legal opinion, but will be admitted only in exceptional situations where there is a surplus of project funds.

It is worth remembering that the measures are extraordinary and will only be in force as long as the state of public calamity lasts.

Applications should be sent to the Executive Bureau of Cofiex, in the form of a letter of inquiry, via the Integrated Management System (SIGS) (www.sigs.planejamento.gov.br/sgs) of the Ministry of Economy, according to the specifications and requirements stated in the system.

Category: Capital markets

On April 17^th, the Brazilian Securities and Exchange Commission ("CVM") issued Instruction No. 622, which regulates the holding of digital general meetings for publicly-traded companies in Brazil, after a small but rich public hearing process and shortly after a similar initiative by the DREI (National Department of Business Registration and Integration) for unlisted companies.

The initiative is guided by technological neutrality and a duty of diligence on the part of companies in order to ensure the security of communications and identification of shareholders. The main differences between the standard and the draft initially proposed at the public hearing are:

• Provision for general meetings held in a partially digital manner.

• Exceptional possibility of holding general meetings outside the company's headquarters, provided that participation is provided to the shareholder at a distance (partially digital meeting).

• Possibility for the company to require prior submission of documentation by shareholders wishing to attend the meeting at a distance (the possibility of submitting the documentation at the time of the meeting in the event of a face-to-face meeting has been maintained) and the feasibility of digital filing for this purpose.

• Provision that the system used by companies enable communication between shareholders.

• Possibility of remote participation by officers and directors and other persons (e.g., auditors and audit committee) in meetings held partially or exclusively digitally.

• Record of attendance of shareholders participating at a distance by the chairman and secretary of the meeting.

The possibility of remote participation must be included in the notice calling the meeting, which must also detail the procedures for registration for, access to, and use of the system for participation in the meeting.

The use of ballot papers at a distance is still allowed in any type of general meeting. As was the case before, a subsequent submission by the shareholder via face-to-face or digital participation will replace the content of any ballot paper previously submitted.

As for the main technological requirements, companies should note that:

• the system allows shareholders to simultaneously access any documentation presented at the meeting and not presented before, as well as to provide the shareholders' submission.

• shareholders must have the means to communicate with each other.

• the meeting must be fully recorded.

The Company may also broadcast its general meeting in widely accessible means (such as investor relations websites and social networks), even if digital participation is not allowed.

Exceptionally, for meetings already called at the time of publication of the new regulations (a scenario in which various OGMs of publicly-traded companies fit), it will be allowed to hold them partially or fully digitally, by means of disclosure of a relevant fact with the information to access the meeting at least five days before the meeting (or one day before meetings held before April 30, 2020).

Machado Meyer has been interacting with companies that may provide these services to their clients.

Category: Tecnology

Bill No. 675/20, approved by the Brazilian Chamber of Deputies on April 9, inserts a transitional provision in Law No. 12,414/11 to prohibit the recording of credit history information of individuals or companies in a database during the covid-19 pandemic.

Authored by Denis Bezerra (PSB-CE) and Vilson da Fetaemg (PSB-MG), Bill 675/20 aims to prevent consumer credit reviews from being hampered by cash flow problems caused by the coronavirus crisis, which would lead to the rejection of applications for credit.

The Bill proposes the suspension of recording of negative consumer information and the effects of such information on records maintained by credit bureaus, which are responsible for conducting financial analysis and providing information for decisions on the granting of financing. However, recordings done after the decree of the state of public calamity may only be suspended through Legislative Decree No. 6 of March 20, 2020.

Due to the new scenario brought about by the covid-19 pandemic, which restricted the circulation of people, changed the functioning of various sectors of the economy, and affected workers and business owners, the Brazilian Chamber of Deputies considered the proposal advisable and timely. In this sense, the Bill prevents the history of "good payers" (those who have a positive credit score) from being harmed by any defaults occurring during the crisis period.

The Bill also provides that breach of the new measures by credit bureaus will be subject to the sanctions provided for in the Consumer Protection Code. The amounts collected with any fines will be allocated to combatting covid-19.

If the President of Brazil signs the Bill, the suspension of new records and the effects of records will be valid for 90 days, from March 20, 2020, and may be extended by an act of the National Bureau of the Consumer (Senacon), of the Ministry of Justice.

Category: Intellectual property

In order to facilitate access to financing and improve rural credit, Executive Order No. 897/19 (the Agro MP) was converted into law on April 7, with the publication of Law No. 13,986/20.

From the original text of the bill, five articles were vetoed by President Jair Bolsonaro, with emphasis on articles 55 to 60, which dealt with concessions of rebates, discounts, waivers, and changes to deadlines for debt renegotiations.

Law No. 13,986/20 has a very significant scope, encompassing various areas of agribusiness related to financing and rural credit. Among the main innovations brought about by the law, the following stand out:

• Establishment of the Solidarity Guarantee Fund (FGS). Through the FGS, credit transactions carried out by rural producers and financing for the implementation and operation of rural connectivity infrastructure are guaranteed by funds paid in by the participants. These funds, notwithstanding the nature of a debt or obligation, will not secure other debts or obligations, present or future, taken on by the participants. The objective is to facilitate the granting of guarantees to creditors and, consequently, to extend loans to agricultural producers.

• Creation of Segregated Rural Property. The owner of a rural property may submit it to segregated asset system, which will be the collateral for the issuance of Rural Product Notes (CPR) or in financial transactions taken on by it through the issuance of Rural Property Notes (CIR), mentioned below. The assets segregated (e.g.: land, additions, and improvements) cannot be accessed by various creditors, except in the case of labor, tax, or social security debts. Normally, assets and rights that are part of the segregated rural estate are not linked to the other assets, rights, and obligations of the owner's general assets or of other segregated rural assets created by it, and the owner may create the fund partially or totally over the rural property.

• Establishment of the Rural Property Note (CIR). The CIR is a book-entry, transferable, and freely traded credit instrument, representing: (i) a promise of payment in cash arising from a credit transaction and (ii) obligation of delivery to the rural property creditor (or fraction thereof) linked to the segregated rural asset, and that is a guarantee of the credit transaction mentioned above. Precisely because it is linked to the segregated rural asset, the CIR will be guaranteed by part or all of the asset. The clear objective of the CIR is to allow access to the regulated securities markets by expanding financing and credit transactions.

• Amendments to the Rural Product Note (CPR). The list of those permitted to issue CPRs has been expanded. According to article 2 of Law No. 8,929/94, the issuance may be done by rural producers (whether individuals or legal entities), cooperatives, and rural producer associations. Essential requirements have also been amended and added to the note, in accordance with article 3 of the law. The issuance of CPRs in card or book-entry form and securities in foreign currency was also permitted, which stimulates the entry of new investors into Brazil.

• Creation and execution of real guarantees. Attending to the longstanding wish of foreign companies or domestic companies equated to foreign companies, the final provisions of Law No. 13,986/20, paragraph 2, of article 1 of Law No. 5,709/71 was amended so as to allow a real guarantee to be created in favor of a foreign party (including fiduciary sale) having as its subject matter rural properties. The foreign party may also receive, in the settlement of transactions, rural property through a real guarantee, accord and satisfaction, or any other means.

The expectation is that the innovations brought in by the law will represent a transformation in the agricultural scenario, stimulate advances, attract investments (including foreign investments), and modernize the industry. Some industries, however, have provided criticisms of the text, including due to its breadth.

Category: Public and regulatory law

Decree No. 10,306/20, enacted on April 2, establishes the use of Building Information Modeling (BIM) in the direct or indirect execution of engineering works and services by the federal government. Although not immediately related to the covid-19 crisis, publication of the decree in the context of the pandemic deserves to be highlighted not only because of the importance of the issue for contracts relating to public works and other engineering services, but also because of the pressing need for emergency construction.

Our firm, represented by the authors of this article, has formally contributed to the technical and legal analyses that underpin the text of the decree during the works in cooperation between the former Ministry of Development (MDIC) and Unesco. This allows us to understand the application of BIM from the outset, both for more efficient construction of hospitals and other public health equipment, possibly as an important tool to fight the pandemic, and to accelerate a form of knowledge with truly transformative potential for the uses and customs in the engineering and construction markets.

What is BIM and what is its legal relevance

In the definition of the decree, the BIM, also called Building Information Modeling, consists of a "set of integrated technologies and processes that allows the creation, use, and updating of digital models for a construction, in a collaborative manner, that serves all the participants of the development, at any stage of the construction life cycle."

The application and requirement of BIM does not inaugurate new concepts and existing contracting arrangements. Building Information Modeling represents, in fact, an integrated way of designing and managing construction in all its phases. It prevents the segregation of information produced, for example, by designers and managers of the implementation, expansion, and rehabilitation of works. BIM promotes communication between the life cycles of construction, from the conception of the project, replacing the traditional forms of engineering and architectural design and making the implementation of public works more efficient in the long term.

The implementation of BIM in Brazil was idealized by the Executive Branch two years ago, with the institution of the National BIM Dissemination Strategy (Decree No. 9,377/18) and the BIM Strategy Management Committee (Decree 9,983/19). Although it becomes binding for some agencies and entities of the Federal Government, and even of states and municipalities contemplated with transfers of funds from these same agencies and entities, as will be seen below, the decree allows for the dissemination of knowledge and, above all, security so that managers may make immediate use of the tool without the fear of being questioned by the supervisory agencies.

Agencies and entities initially covered

The decree is based on the value of legal security: in addition to supporting the decisions of public agents regarding procurement of engineering works and services with the use of BIM, the federal government signals to the players in the engineering and construction industry staggered and long-term scenarios, since BIM will be required gradually, with progressive expansion of its uses for the purposes of direct and indirect execution of engineering works and services. Thus, the markets and the related Government entities themselves will have almost eight months to adapt to the possible effects of the mandate, avoiding surprises.

The first phase of the dissemination of BIM begins to have binding force on January 1, 2021, covering only a few agencies and entities. The decree establishes the effective requirement to adopt BIM for: (i) the Ministry of Defense, through the activities executed in the real estate jurisdictions of the Brazilian Army, the Brazilian Navy, and the Brazilian Air Force; and (ii) the Ministry of Infrastructure, through activities coordinated and executed by the National Bureau of Civil Aviation (for investments in regional airports) and the National Department of Transportation Infrastructure (DNIT), for the reinforcement and structural rehabilitation of special works of art.

In addition to the agencies and entities of the Federal Government directly covered, the gradual use and requirement of BIM will also have effects on agencies and entities of any sphere of government, public consortium, or non-profit entity that enters into, with the agencies and entities covered, instruments of transfer of funds from the fiscal budget and social security of the Federal Government. Thus, state and municipal agencies and entities that receive funds from the Ministry of Defense or the Ministry of Infrastructure (and their related agencies) should also start using BIM in early 2021.

In addition to these covered agencies and entities, and without prejudice to future decrees extending such class of addressees of the respective rules, the decree allows any agency or entity of the Government to apply BIM, in any of its uses, regardless of the stages of dissemination of the methodology.

Mandatory uses of BIM and escalation

The agencies and entities initially covered should publish, within 90 days, an act to qualify the developments, programs, and initiatives of medium and large relevance to the dissemination of BIM, detailing the specifications thereof and the other characteristics necessary for their application in the three phases of dissemination of BIM.

The first phase, which will begin on January 1, 2021, will cover only some uses of BIM, specifically related to the preparation of architectural and engineering plans and related matters concerning new construction, expansion, or rehabilitation considered of great relevance for the dissemination of BIM. This phase will involve: (i) the guidelines for structures, hydraulic installations, heating, ventilation and air conditioning installations, and electrical installations; (ii) the detection of physical and functional interferences between the various guidelines, and the review of architectural and engineering models, for compatibility purposes; (iii) the extraction of quantities; and (iv) the generation of graphic documentation, extracted from the models referred to in subsection I of article 4 of the decree.

On January 1, 2024, the second phase will begin, in which it will be mandatory to use BIM in the direct or indirect execution of architectural and engineering projects and in the management of works related to new constructions, renovations, extensions, or rehabillitations, when considered of great relevance for the dissemination of BIM. It will cover at least (i) the uses provided for in the first phase; (ii) the budgeting, planning, and control of the execution of works; and (iii) the updating of the model and its information as built for works whose architectural and engineering projects have been carried out or executed with application of BIM.

The third phase, to be started on January 1, 2028, also covers enterprises considered of medium relevance for the dissemination of BIM. For the uses provided for in the prior phases, the management and maintenance of the devleopment will be added after its construction, whose architecture and engineering plans and whose works have been developed or executed with the application of BIM.

The decree and procurement of projects and works

The requirement to use BIM in one or more stages of the life cycle of buildings, according to the decree, aims to achieve (i) the direct execution of engineering works and services, i.e., made by the agencies and entities of the Government, by their own means (article 6, VII, of Law No. 8,666/93); and (ii) the indirect execution of engineering works and services, in which the agency or entity contracts with third parties (article 6, VIII, of Law No. 8,666/1993). In the event of contracting with third parties, the respective notice and/or contract will impose on the contractor the obligation to apply BIM, in accordance with the requirements of the decree. In addition, the bid notice should clarify the level of detail of the work expected with the application of BIM.

The decree establishes minimum contractual obligations for third parties that are already usually required, especially in engineering services. The concern was to make it clear that adoption of the methodology does not diminish the obligations of the contractors, aside from demanding that the uses of BIM be effective and exclusively followed in the execution of the works.

The provisions of the decree reflect the normative content of the main laws on public procurement and administrative contracts, from the obligations of the contractors in the uses of BIM to the use of nomenclature and the level of detail and information required for the preparation of engineering and architectural plans. This care shown by the provisions of the decree contributes to its feasibility. It also improves the application of public law in the preparation of architectural and engineering plans, the execution of works, and the management and maintenance of completed developments, as it defines and standardizes the methodology, technology, or process required of public managers in these activities.

In addition to the engineering documents recognized by the laws and regulations in force (preliminary design, basic design, and executive design), BIM will now reach all other engineering documents that may be prepared by this methodology. This means that the provisions of the decree may be implemented in other stages or levels of detail for a work or design recognized by the best engineering practices and especially by the application of BIM, called by architects and engineers, among other specialists, a preliminary study, feasibility study, or legal design, among others. Considering the lack of legislative treatment in such cases, the decree provided that these other design levels, when contracted, should meet the minimum parameters established in the decree, the best practices for the execution of workflows with the use of BIM, and the provisions of the relevant technical standards.

In order to enable transition to a new model, when necessary, the decree allows agencies and entities covered by it to contract engineering services to adapt architecture and engineering plans to BIM (at any level of detail), previously prepared with the use of other processes or technologies.

The positive externalities of BIM for public works

The use of BIM allows one to virtually create an environment capable of simulating the construction in all its complexity: architecture, foundations and structure, ceilings and roofs, plumbing and electrical installations, among others. The interaction and coordination component helps to prevent and correct potential problems before the construction stage. In other words, the interaction activities of the agents involved allow any inconsistencies to be identified and corrected before the presentation of the necessary documents and, above all, before the implementation work is carried out.

Therefore, in the development of plans with the BIM methodology, the concentration of decisions takes place in the phase before the work stage. This process demands more action from complementary designers (of facilities, structures, interiors, etc.), assemblers, manufacturers, and suppliers in the initial stages of projects, which, in conjunction with the virtual simulation capacity through the BIM platform, allows greater cohesion and consistency after the initial stages. These, in turn, may require greater allocation of resources and investments with BIM than with current techniques. This characteristic facilitates, above all, qualitative changes in contracts and processes of economic and financial rebalancing, automating the relevant calculations and providing greater safety and protection against deviations and malfeasance in these processes.

Thus, the concentration of efforts in the initial phases allows for greater definition of the project, reducing uncertainties, interference, and rework, on the one hand, and increasing the accuracy of the development, on the other. In the BIM methodology, therefore, efforts are transferred to the initial stages, anticipating risks that could arise later in the execution stage of the works. Prior visualization of potential inconsistencies in the development of the work allows one to optimize the schedule and planning of the work, reducing the need for entering into addenda, in addition to efforts and costs (waste) in later phases.

The decree recognizes that the Government’s obsession with the lowest price as a criterion for selecting the best bid in public procurement must be overcome. A more complex cost-benefit analysis is proposed, which goes beyond the economic and financial disbursement at the time of procurement of the project to cover responsibility throughout the life cycle of the development contracted. In this new sense for cost savings, BIM contributes to enabling the Government to achieve a better cost-benefit ratio in procurement of engineering works and services.

In short, the aggregate efficiency with the use of BIM helps to confront this moment of crisis, when public works gain particular relevance: on the one hand, they may be executed in an emergency, which generates additional burdens and cautions for public managers and even for contractors, and on the other, they have the mandate to leverage the recovery of the economy, at a time when the State is exercising its purchasing power to generate jobs and disseminate new technologies and knowledge.

BIM also increases transparency, security, and compliance in the State's contractual relations with private parties, and can serve as a basis for rebalancing, rescheduling of investment, and renegotiation proceedings, which, if already natural in normal times in the engineering and construction markets, should increase with the effects of the covid-19 pandemic.

Category: Infrastructure and energy

On April 8, the Executive Branch published two executive orders to alleviate the impacts of the covid-19 crisis on the electricity sector. MP 949 opens an extraordinary credit of R$ 900 million in favor of the Ministry of Mines and Energy (MME). MP 950, on the other hand, provides for temporary emergency measures for the sector to tackle the state of public calamity resulting from the coronavirus pandemic, recognized by Legislative Decree No. 6/20.

The funds from MP 949 are allocated to the Energy Development Account (CDE) to cover the rate discounts provided for in Law No. 12,212/10. They refer to the rate for the supply of electricity to final consumers who are members of the Low Income Residential Subclass, introduced by MP 950.

MP 950 amends some laws concerning the electrical sector. Law 12,212/10 now contains article 1-A so as to provide that, from April 1 to June 30, 2020, a 100% discount will be given for the portion of electricity consumption less than or equal to 220 kWh/month for final consumers belonging to the Low Income Residential Subclass. For the portion of electricity consumption exceeding 220 kWh/month there will be no discount.

Article 13 of Law No. 10,438/02 comes into force with a new item, which includes among the CDE's objectives the promotion of funds exclusively by means of a rate charge and permission for the amortization of financial transactions linked to measures to confront the impacts of the state of public calamity in the electricity sector, recognized as provided for in article 65 of Complementary Law No. 101/2000, to assist electricity distributors.

The same article 13 of Law No. 10,438/02 is amended in its paragraph 1, which now also includes the items paragraph 1-D and paragraph 1-E. The first item authorizes the Federal Government to allocate to the CDE funds limited to R$ 900 million to cover the rate discounts provided for in article 1-A of Law No. 12,212/10. The second item indicates that the Executive Branch may establish conditions and requirements for structuring the financial operations and for making available and collecting the funds. The objective is to allow the amortization of financial operations linked to measures to confront the impacts of the state of public calamity on the electricity sector.

MP 950/2020 also establishes, in its article 4, that the consumers of the regulated market environment who exercise the options provided for in paragraph 5 of article 26 of Law No. 9,427/96 and in articles 15 and 16 of Law No. 9,774/95 must pay (by means of a rate charged in proportion to the consumption of electricity) the remaining costs of such measures. This charge will be regulated by the Executive Branch and may be moved by the Electric Energy Trading Chamber (CCEE).

The executive orders seek to mitigate the effects of the coronavirus pandemic and preserve the sustainability of the electricity sector, given the drop in revenue for distributors caused by the increase in consumer defaults and decrease in consumption of electricity.

Category: Litigation

The world has been facing various challenges in the fight against the new coronavirus (the cause of  covid-19), which has resulted in different preventive measures in an attempt to mitigate the proliferation of the virus. One of the main ones is the removal of employees from the workplace and the implementation of work from home policies (remote work). In this scenario, companies need to adapt quickly to the physical absence of people and find remote solutions for the continuity of business. Considering the importance, necessity (and even the fast pace of certain projects) and the impossibility of holding face-to-face meetings, many companies have sought to confirm the legal validity of electronically signed documents.

In Brazil, Provisional Measure No. 2,200-2, of August 24, 2001 (MP 2200)[1] guarantees the validity and effectiveness of documents signed electronically through certification processes provided for by the Brazilian Public Keys Infrastructure (ICP-Brasil). Article 10, paragraph 2, of MP 2200 also allows the use of other means of proving the authorship and integrity of electronic documents, including those using certificates not issued in accordance with ICP-Brasil, provided that this is agreed upon between the parties and that these certificates are expressly accepted by them as valid.[2]

Brazilian case law has recognized the legal validity and the possibility of registration of electronic documents produced pursuant to MP 2200.[3] Going further, the Superior Court of Justice (STJ) has already recognized the enforceability of a contract signed electronically by means of a digital certificate without the signature of witnesses. The Court found that the authenticity of the parties' signatures conferred by the certification body, as a disinterested and trustworthy third party, would make up for this absence.[4] However, although there is precedent issued by a higher court, some judges insist on denying the enforceability of electronic documents without the signature of witnesses because of the absence of an essential element[5] (as required under article 784, subsection III, of the Code of Civil Procedure).[6]

Therefore, a more conservative approach recommends that, even in contracts signed electronically, two witnesses should sign the contract (also in electronic form) in order to avoid challenges regarding the enforceability of the contract. Witnesses must be civilly competent and have no financial interest in the agreement between the parties.

Thus, it is concluded that contracts signed electronically in accordance with MP 2200 are endowed with legal validity and qualify as extrajudicially enforceable instruments, in the same way as contracts physically signed by the parties, provided that they do not refer to legal transactions for which the law explicitly requires a public instrument/deed. This is the case, for example, of contracts that seek to transfer in rem rights in real estate.

In the event that the parties choose to use mechanisms not certified by ICP-Brasil, however, it is recommended that the document expressly state the form of signature adopted and that the parties recognize it as fully valid and effective.

Electronically signed documents are widely accepted in the judiciary as documentary evidence, either because they have legal validity under the law (as described above) or because judicial proceedings themselves are on their way to being fully digital. This is what is stated in article 441 of the Code of Civil Procedure[7], which admits the use of electronic documents as evidence, and Law No. 11,419/06, which provides for the digitalization of judicial proceedings.

It is important to emphasize that the considerations of this article are valid only from a Brazilian law perspective and, therefore, if the document involves the jurisdiction of other countries (as in international M&A transactions), the legal validity of the electronic signature should be confirmed and certified by professionals qualified in the applicable jurisdictions.

[1] MP 2200 had its effectiveness deferred by Constitutional Amendment No. 32/2001 and remains in force and fully applicable until (i) it is expressly revoked or (ii) there is a definitive resolution by the Brazilian Congress on the matter.

[2] Item 13 on the following webpage https://www.iti.gov.br/perguntas-frequentes/41-perguntas-frequentes/112-sobre-certificacao-digital.

[3] STF, REsp No. 1.495.920/DF, opinion drafted by Justice Paulo de Tarso Sanseverino, decided on June 7, 2018.

STF, Motion for In Limine Injunctive Relief in ADI No. 5.108/DF, opinion drafted by Justice Dias Toffoli, decided on April 20, 2016.

TJSP, Appeal No. 0002493-07.2011.8.26.0699, opinion drafted by Appellate Judge J. Martins, decided on February 13, 2014.

TJPR, Interlocutory Appeal No. 937059-8, opinion drafted by Appellate Judge Jurandyr Souza Junior, decided on July 23, 2012.

[4] STJ, REsp No. 1.495.920/DF, opinion drafted by Justice Paulo de Tarso Sanseverino, decided on May 15, 2018.

[5] TJSP, Appeal No. 1011898-10.2016.8.26.0009, opinion drafted by Appellate Judge Tasso Duarte de Melo, decided on November 13, 2019.

[6] Article 784. Extrajudicially enforceable instruments are: (...) III - the private document signed by the debtor and by two (2) witnesses.

[7] Article 441. Electronic documents produced and kept in compliance with the specific laws and regulations shall be accepted.

Category: Public and regulatory law

Federal Decree No. 10,314/20, published on April 7, implemented a significant update of the procedures applicable to donations from individuals to the Federal Government, especially at a time when the government needs goods and services to support the fight against the covid-19 pandemic. This regulatory update included a new rule in Federal Decree No. 9,764/19 that authorizes the Federal Government to reduce or even eliminate the time limit for acceptance or expression of interest in the donation, at the initiative of private individuals, of objects necessary for emergency or calamitous situations.

Originally, Federal Decree No. 9,764/19 dealt only with donations free of conditions (i.e., that do not generate, for the donee, restrictions or obligations linked to the good or service donated). However, because of the changes introduced by Federal Decree No. 10,314/2020, it now also regulates donations with conditions and other topics that we will describe below.

The conditions that may be assumed by the Government are restrictions on the donated good or service or mandatory or prohibitory obligations in favor of the donor, the donee, third parties, or the public interest. Financial contributions to the donor are prohibited by Federal Decree No. 9,764/19, of course, because they are incompatible with the concept of a donation (free by nature).

Donation without conditions, if at the initiative of the Federal Government, must necessarily occur via public call and is conditioned on the inexistence of goods or services available in the digital platform reuse.gov.br (technological solution of the Ministry of Economy that offers, to the Federal Government, goods and services made available by the government agencies themselves or donated by private parties).

The Ministry of Economy is responsible for publishing the public call notice on its website. The notice must contain the characteristics, rules, and conditions applicable to the donation sought by the Federal Government, including a draft of the donation agreement, among other information. Following this, interested private parties must submit their proposals in a public session. In the end, the proposals most suited to the interests of the Federal Government will be selected, according to the criteria in the call notice. In the event of a tie, the proposals will be chosen by lot. More than one proposal may be accepted by the Government if there is sufficient demand for the desired good or service.

In the new system of donations to the Federal Government introduced by Federal Decree No. 10,314/20, there is no provision for donations with conditions via public call. This is the right decision because it is not reasonable, from the perspective of public managers, to fix beforehand the conditions linked to the donation desired, bearing in mind that there is always the possibility (even if theoretical) of receiving this donation free of conditions (or with less onerous conditions). Thus, it is incumbent on the private individual interested in the public call to assess whether to propose a donation with conditions and what they will be, if this is the approach chosen by the offeror.

On the other hand, donation at the initiative of the private individual, with or without conditions, must occur through expression of interest submitted through the digital platform reuse.gov.br. The event should contain information relevant to the donation (description of the goods and services donated and any conditions, their market value, specifications, and quantity, among other data). Private parties may or may not indicate the donee(s) (entities of the Federal Government) to whom their donation is intended. The information submitted by the private party will then be reviewed by the Central Purchasing Department of the Ministry of Economy.

In the case of donations free of conditions, if approved, the Central Purchasing Office will publish the announcement of the donation, which will be available for ten days on the platform reuse.gov.br. Within this period, it will be up to the donee(s) to decide whether or not to accept the donation. If private party has chosen not to indicate specific donees in its expression of interest, any interested entities or bodies may apply to receive the donation.

Proposals for donations free of conditions submitted by private parties through the platform reuse.gov.br which have the same subject matter as public calls with an open deadline for submission of proposals will be received by the Central Purchasing Department as proposals for these calls, if the registration rules have been met.

On the other hand, in the case of donations with conditions at the initiative of the private party, after the approval of the Central Purchasing Department and the availability of the announcement of the donation on the platform reuse.gov.br, other interested donors may submit proposals for related donations within ten days. Without prejudice, during this period, the donee(s) may also accept or not accept the donation, under the terms proposed by the private party. Alternatively, interested agencies and entities may apply to receive the donation if it has not been directed to specific donees by the donor. However, if other proposals for donations are submitted within this period, it will be up to the interested donee(s) to evaluate and select the proposal(s) most advantageous to the Government (i.e. with the least conditions).

Once these procedures have been overcome and the final approval of the donee(s) has been obtained, the donation at the initiative of the private party (with or without conditions) will then be formalized through an agreement between the private party and the Government. For donations of goods, this agreement will take the form of an instrument of donation, if there are no conditions. If there are conditions, it will be a donation contract. In the case of donations of services, the arrangement should always be formalized by means of an adhesion or accession instrument.

The regulation of the procedures applicable to donations with conditions to the direct Federal Government, federal agencies, and federal foundations is, without a doubt, the main innovation introduced in Federal Decree No. 9,764/19 with the recent promulgation of Federal Decree No. 10,314/20. However, there are other rules introduced in Federal Decree No. 9,764/19 that also deserve attention.

One of them is the prohibition on receiving donations that generate future obligations from direct contracting of the private party for the supply of goods, inputs, and parts of an exclusive brand or services due to unenforceability of bidding. This prohibition is intended to prevent the donation from directing future contracts of the Government in favor of the private party, which would artificially create a situation of unfeasibility of competition and subversion of the duty to follow public procurement guidelines.

Another relevant rule is the prohibition on receiving donations capable of generating additional expenses for the Government, whether present or future, certain or potential, such as expenses arising from its secondary liability, recovery of assets, or other circumstances that make the donation uneconomical. This same logic is found in another related rule introduced by Federal Decree No. 10,314/20: the prohibition on receiving donations with conditions disproportionate to the good or service offered in a donation to such an extent that it becomes disadvantageous to the Government.

Federal Decree No. 10,314/20 also introduced a provision to prohibit individuals who have made a donation free of conditions to the Federal Government from using the donated goods or services for advertising purposes. Exceptions are made for the possibilities, after the delivery of the goods or the beginning of the rendering of services, of mentioning the donation on the donor's website and mentioning the donor by name on the website of the agency or entity that donates to the Federal Government. If the private party is interested in obtaining advertising advantages as a result of the donation, this intention should be formalized in the donation proposal as a condition associated with the donated good or service.

It was also established that the non-performance or delay in the fulfillment of the condition (if any) by the Federal Government will cause reversal of the donation. In practice, all donations made by individuals will be subject, regardless of an express provision in the instrument or contract formalizing the donation, to a reversal provision. Breach of the condition, therefore, will result in the return of the donated asset to the equity of the donor, according to article 547 of the Civil Code (or interruption of the service provided to the donee, by analogical interpretation of this provision).

Measures such as those described above were already being adopted in response to the pandemic even before the recent promulgation of Federal Decree No. 10,314/20. The Ministry of Economy, for example, had already published, in March, public call notices to receive donations of goods such as gloves, masks, sanitizer, and equipment to support the telework of public servants.

However, under the prior wording of Federal Decree No. 9,764/19, the Federal Government was not authorized, for example, to receive donations with conditions (often necessary or desirable by private parties, for practical reasons, or other issues) or to speed up procedures for the receipt of urgently needed goods and services (such as those intended to combat the pandemic).

Now, with the updates made to its wording, Federal Decree No. 9,764/19 now provides more comprehensive, safe, and effective legal instruments to coordinate and execute the fight against the coronavirus pandemic through donations from private parties to the direct Federal Government, federal agencies, and federal foundations. This is a commendable effort that, in addition to meeting Brazil’s needs in the current state of public calamity, institutes more modern, practical, and sophisticated regulations on this issue.

Category: Public and regulatory law

A recurring topic in times of the coronavirus has been the repercussions of the covid-19 pandemic on the most varied types of contracts: commercial, labor, financial, real estate, consumer, etc. Various authors have produced robust summaries of the legal, doctrinal, and case law treatment of the widest range of institutes involved in remedying the effects of the outbreak on the underlying contractual relationships, among which are unforeseeable circumstances and force majeure, excessive burdensomeness, undue hardship, and the theory of unpredictability.

With regard to administrative contracts, requests for economic and financial rebalancing, which are based on numerous regulations spread throughout the Constitution, ordinary legislation, and the regulations of specific infrastructure sectors, should gain particular strength. Constitutionally, for example, the "effective conditions of the proposal" are guaranteed to those who enter into contracts with the public authorities (article 37, XXI). At the legal level, the maintenance of the balance in proportion to the risks, burdens, and compensation stipulated by the parties to the administrative contract is manifested in the General Public Procurement Law (Law 8,666/93, article 65, II, "d"; paragraphs 5 and 6), in the Concessions Law (Law 8,987/95, article 9, paragraphs 2 and 4), in the Public-Private Partnerships Law (Law 11,079/04, article 4, VI, and article 5, III), among others. The institute is also subject to treatment by industry, with regulations by different agencies, such as the port sector (according to ANTAQ Resolution 3,220/14), the road sector (according to ANTT Resolution 5,850/19), or the airport sector (according to ANAC Resolution 528/19).

As a rule, the economic and financial balance of administrative contracts may be restored by application of various methodologies, one of the most common being that of construction of a marginal cash flow (which runs parallel to the financial equation structuring the contract and intended to neutralize the effects of supervening and specific events) via the use of several instruments, such as (i) increase or reduction of the financial values of the contract (such as the rate charged for the availability of the service); (ii) modification of contractual obligations (such as projected investments); (iii) extension or reduction of the term of the contract; or (iv) payment of compensation for amounts exceeding the original calculation of the instrument.

It is against this backdrop of regulatory means aimed at achieving a predetermined end (restoration of the economic and financial balance of the contract), that the current pandemic, considering the administrative measures proposed to contain it, the effects of social isolation, and the economic crisis that will follow, seems to impose new challenges on the infrastructure sector.

This is because the coronavirus outbreak, it seems, on the one hand, differs from all the pandemics faced in the recent past and, on the other, could lead to a global economic crisis with unique characteristics, possibly distinct from the last great shock faced by capitalism in 2008.

Initially, this epidemic differs from other health crises that have struck the world in the recent past for a number of reasons: (i) it is a new virus, about which there is very little information and, therefore, a lot of uncertainty; (ii) its capacity for spreading is exponential, with a lethality rate (not yet completely mapped) that is significant; and (iii) for which there are still no concrete prospects for the emergence of a vaccine or drug with sufficient effectiveness and scale.

The sum of these factors paints a disturbing picture for Brazilian policies. It cannot be overlooked that such a formula could result in much more than public health crises. One of the fields most affected by the outbreak will be the economic ecosystem, whose fate is viscerally linked to the resolution of the humanitarian tragedy. In terms of public services, it seems certain that processes of economic and financial rebalancing will proliferate in the coming months and years, seeking to restore the conditions necessary for providers to sustainably maintain their activities without impacts on the population that needs them.

In a scenario such as the one described, what will be the feasibility of restoring the balance by increasing the rates charged for the public service provided, which will affect a poor population with runaway unemployment and explosive informality? The risk of demand for this new cash flow will have reached levels that are potentially unprecedented in Brazil.

The same goes for the possibility of extending contract terms. The combination of aggregate demand weakened by the recession and supply compromised by the pandemic suggests that resumption of the economic cycle may take place in a less steep curve than has been seen in previous recoveries. There is no guarantee, therefore, that operation of the activity for an additional period of time, given the time restrictions on the extensions contained in the instruments themselves and in the call for bids that gave rise to them, will be able to balance contractual relations and maintain the hygiene of the services provided.

What, then, about the alternative of compensation for restoring the balance? Global efforts to remedy the effects of the covid-19 outbreak, involving the application of trillions of dollars to expand social safety nets, implementation of basic income plans, rescue of industries especially affected, and promotion of investments (combined, in Brazil, with a public budget already under stress), make it unlikely that the Brazilian State will be able to cope with all the requests that will be directed to it.

There is still the possibility of abolishing compulsory investments or rescheduling the investments planned, which we have already addressed in another article. If, on the one hand, the crisis may make certain investments economically irrecoverable, or even useless for the maintenance of contractually defined service levels, on the other hand, the cancellation of investments, from a macroeconomic perspective, will have an impact on the resumption of aggregate demand, thus backfeeding the effects of the crisis.

Finally, there is room for a reduction in the grant amounts still due. The measure has a limited impact, since most contracts stipulate as a condition for their execution fixed concessions paid in the first years of the concession or even before it is entered into. In turn, variable grants, invariably linked to the concessionaire's revenues, usually represent insufficient percentages to allow effective aid to cash flows severely compromised by the sharp drop in demand. All help is welcome, but along with the impacts on revenue, especially when the Government already counted on these funds in some way, it does not seem that an allowance or exemption from payment of the grant will bring effective conditions for continuity of the provision of essential services.

In the face of all this, the deep gravity and emergence of the scenario envisioned, with a myriad of actors simultaneously making demands on the public power for their survival, it will be imperative that the Brazilian State competently exercise its role as planner, adopting a clear strategy of intervention and incentives for the Brazilian economy, coordinating the corresponding instruments and prudently employing scarce public resources, so that the eventual impacts for the providers of essential public services (as long as not properly addressed in the risk matrix of the respective contracts) are mitigated and the population can continue to benefit from them ,even after the end of the quarantine, for many years.

Category: Labor and employment

Aiming to regulate the granting of loans to employers in order to enable the payment of the payroll for their employees, on April 3, the federal government published Executive Order No. 944/20 ("MP 944"), which launches the Emergency Job Support Program.

Considered to be another way to tackle the state of public calamity caused by the covid-19 pandemic, the program encompasses business companies and cooperatives, with the exception of credit companies with annual gross revenues exceeding R$ 360 thousand and equal to or less than R$ 10 million in 2019.

For two months, employers will be granted credit to cover the entirety of their payroll, limited to an amount equivalent to up to twice the minimum wage per employee.

With low interest rate (3.75% per year), 36 months for payment, and an initial grace period of six months, the measure aims to relieve employers of part of the costs with payroll. MP 944 requires employers to provide truthful information and not to use the funds granted for purposes other than the payment of their employees.

In addition to economic and financial consequences, the measure has important labor impacts. In order to preserve employment relationships, it guarantees stability to the employees by linking the granting of the loan to the company's obligation not to terminate, without cause, the employment agreements of all employees during the period between the date the line of credit is taken out and 60 days after receiving the last installment.

Failure by employers to meet any of the obligations will cause the debt to mature immediately.

MP 944 does not provide for the possibility of indemnities for the period of stability. This leads to the conclusion that any termination before the end of the period may give rise, in addition to early maturity of the obligation, to a claim for reinstatement of employment by employees who have been terminated.

Category: Labor and employment

Executive Order No. 936 (MP 926/20), published on April 1, instituted the Emergency Program for Maintenance of Employment and Income, with the objective of reducing the social impact of the public calamity declared after the covid-19 pandemic.

One of the measures brought in by MP 936/20 is the federal government's supplementation of the income of workers in the private sector, through the payment of the Emergency Benefit for Preservation of Employment and Income, in the cases of proportional reduction of work hours and salary or temporary suspension of the employment contract.

Employees who have received the emergency benefit will have temporary job security for as long as the reduction in work hours and salary, or suspension of employment, lasts, and for the same period after the reestablishment of work hours or resumption of the employment contract.

As an example, employees who have their work hours and salary reduced for three months cannot be dismissed without cause during the reduction period and the following three months, totaling a guarantee of six months.

The temporary employment guarantee does not apply to employees who resign or are dismissed for cause due to the commission of any of the serious forms of conduct described in article 482 of the Consolidated Labor Laws (CLT).

In the event of dismissal without cause during the period of stability, the employer must pay severance pay and compensation for the remaining period of the guarantee, in the following percentages of the salary to which the employee would be entitled:

• 50%: reductions in work hours and wages of 25% or more and less than 50%;

• 75%: reductions in work hours and wages of 50% or more and less than 75%; or

• 100%: reductions in work hours and wages of more than 75% or temporary suspension of the employment contract.

The provisional guarantee is initially aimed at maintaining existing jobs, since the increase in the unemployment rate is one of the inevitable repercussions of the coronavirus crisis in the Brazilian market.

The government estimates that layoffs could reach 12 million people without the measures provided for in MP 936/20, while, as a result of the emergency program instituted, the official estimate is that this number will be reduced to 3.2 million workers.

Moreover, the protection against dismissal without cause is a true counterpart to the sacrifice of the worker. After all, the proportional reduction of work hours and salary or temporary suspension of the employment contract, even with the receipt of the Emergency Benefit for Preservation of Employment and Income, will lead to a reduction in remuneration, which may prevent employees from honoring their personal commitments.

The government's objective with the payment of compensation in lieu of the provisional guarantee period is also to inhibit the unrestricted use of proportional reduction in work hours and salary and temporary suspension of employment contracts, since there will be considerable costs with dismissing employees who are fit within these two scenarios.

On the other hand, the setting of percentages that limit the replacement compensation by MP 936/20 may be seen as a way to prevent companies from feeling discouraged from adopting the measures instituted in the government's emergency program, unlike the other provisional employment guarantees, such as those arising from workplace accidents or those to which pregnant employees are entitled: both guarantee employees full payment of the remuneration that would be due.

Considering the economic impacts of the coronavirus and the uncertainties regarding the normalization of activities in Brazil, it is likely that imposition of a single form of compensation would lead companies to lose interest in implementing even the most moderate alternatives provided for in MP 936/20, due to fear of receiving such an aggressive penalty.

With the relaxing of the compensation according to the percentages of the reduction in salary and work hours or temporary suspension of employment contracts, companies may structure their contingency plan according to their capacity to bear the consequences of any dismissal without cause during the course of the provisional guarantee period.

It is important to mention that the CLT, in paragraph 3 of article 611-A, already established the need to provide for the protection of employees against dismissal without cause during the term of the collective bargaining agreement when a provision is agreed upon that reduces salary or work hours. However, in the event of a reduction in work hours and salary through collective bargaining, with the supplementation of salary through the receipt of the Emergency Benefit for Preservation of Employment and Income, the provisional guarantee provided for in MP 936/20 should be observed, as it is a more specific and more beneficial rule for the worker, which extends the protection ensured in the CLT for the same period of time after the term of the collective bargaining agreement.

Category: Banking, insurance and finance

Given the unprecedented high volatility of the Brazilian capital markets and the restrictions imposed by governments on the movement of people due to the coronavirus pandemic, the Brazilian Securities Commission (CVM) has adopted several measures to foster the economy and provide more flexibility for market participants to comply with the rules governing the Brazilian capital markets.

To help companies navigate the various measures introduced by CVM in this context, we present below a brief analysis of the main rules concerning the Brazilian investment funds industry issued since the beginning of the covid-19 pandemic crisis:

Public offering of quotas issued by investment funds

• Quotas of investment funds can be publicly offered to investors pursuant to either (i) the regular procedure set forth in CVM Instruction No. 400/03, as amended, which requires prior registration with CVM, or (ii) the restricted efforts procedure set forth in CVM Instruction No. 476/09, as amended. Under the latter, a public offering exempt from registration with CVM could be directed to up to 75 professional investors, provided that only 50 of them would be able to subscribe or acquire the quotas issued by the relevant investment fund.

• CVM Instruction No. 400/03: CVM introduced the following flexibilization rules concerning public offerings of investment funds implemented pursuant to CVM Instruction No. 400/03:

• Changes to public offerings already registered with CVM: as a rule, changes to public offerings that have already been registered but not yet liquidated require prior approval from CVM according to article 25 of CVM Instruction No. 400/03. As an exception, CVM issued Circular Letter Nº 2/2020-CVM/SRE, on February 28, 2020, pursuant to which the autarchy will automatically approve requests that fulfill the following requirements, extending the distribution of the offering for an additional 90-days period: (i) the requests are filed with CVM during 30 days as of March 13, 2020, and (ii) the requests are justified by the proven deterioration and volatility of the investment scenario. In the latter case, the modifications of public offerings could be immediately implemented by submitting the amended documentation to CVM and issuing a communication to investors in this regard. If the change is implemented under the exception described, investors shall be given an opportunity to withdraw from the investment commitment within 5 days as from the receipt of the communication on this regard.

• Interruption of the analysis period by CVM: according to article 10 of CVM Instruction No. 400/03, the issuer and the leading bookrunner of a public offering could request the interruption of the analysis of a public offering for a period of up to 60 business days. Upon the issuance of CVM Deliberation No. 846, on March 16, 2020, however, the interruption period of a particular public offering could be extended to up to 180 business days. CVM will monthly review the effectiveness of the provisions of Deliberation No. 846, including such possible extended interruption period.

• Quiet period and limitation on the trade of quotas: article 48 of CVM Instruction No. 400/03 sets forth limitations for issuers, bookrunners and individuals involved in the relevant offering on (i) the disclosure and use of certain information until the offering is formally disclosed to the market, and (ii) the trade of the securities that will be publicly offered until a notice informing the end of the public offering is issued to the market. As an exception to such general rule, Circular Letter No. 3/2020-CVM/SRE, issued on March 18, 2020, sets forth that, during the interruption of a public offering based on CVM Deliberation No. 846, those agents will not be required to comply with such general limitations until the issuer and the bookrunners decide to resume the analysis of the public offering request by CVM.

• CVM Instruction No. 476/09: CVM introduced the following flexibilization rules regarding public offerings with restricted efforts implemented under CVM Instruction No. 476/09:

• Restriction on public offerings with restricted efforts of the same type of securities: article 9 of CVM Instruction 476/09 prevents the issuer or the person offering securities from carrying out public offerings with restricted efforts of the same type of securities under CVM Instruction 476/09 for four months as of the end or cancellation of the preceding offering. Pursuant to item IV of CVM Deliberation No 848, issued on March 25, 2020, the effectiveness of the provisions setting forth the restriction on the implementation of public offerings with restricted efforts of the same type of securities under CVM Instruction 476/09 was interrupted for four months, as from March 27, 2020 to July 27, 2020. CVM clarifies, under item 3 of Circular Letter No. 4/2020-CVM/SRE, issued on April 9, 2020, that such interruption applies to all public offerings of securities distributed with restricted efforts initiated during the period mentioned above, provided that there is no other offering with restricted efforts of the same type of securities outstanding.

• Restriction on the trade of securities: article 13 of CVM Instruction 476/09 sets forth that investors acquiring investment fund quotas in the context of a public offering with restricted efforts are prevented from trading those securities on regulated markets for 90 days as from the date of the relevant acquisition or subscription. As an exception to such general rule, CVM Deliberation No. 849, issued on March 31, 2020, interrupts the effectiveness of the provisions setting forth such lock-up for 4 months period as from April 1, 2020. CVM also clarifies, under item 4 of Circular Letter No. 4/2020-CVM/SRE, that such interruption shall apply to securities subject to public offerings distributed with restricted efforts subscribed or acquired (i) before the validity of CVM Deliberation No. 849, or (ii) during the validity of CVM Deliberation No. 849, which is April 4, 2020 to August 1, 2020, even if the relevant 90-days lockup goes beyond August 1, 2020. In this context, it is worth mentioning that the subscription or acquisition of securities under a particular public offer with restricted efforts can take place during a certain period, in the sense that subscriptions or acquisitions could occur after the August 1, 2020 deadline. In this case, provided that the investment fund quotas are subscribed or acquired during the validity of CVM Deliberation No. 849, the interruption will apply even if the lock-up restriction theoretically goes beyond August 1, 2020.

General Meetings

• Virtual general meetings: item VI of CVM Deliberation No. 849 authorizes all types of investment funds to hold virtual ordinary or extraordinary general meetings to approve any matters during 2020, regardless of the existence of a provision in their bylaws on this subject, provided that all investment fund's quotaholders are duly informed and given the opportunity to participate in such meetings within the deadlines required under the applicable regulations.

• Cancellation or adjournment of general meetings: considering that physical general meetings conflict with the determinations of the Brazilian Ministry of Health and the recommendations of the World Health Organization regarding social distancing, CVM clarifies, under item 4 of Circular Letter No. 6/2020/CVM/SIN, issued on March 26, 2020, that, in the light of the public interest and given the current circumstances, it is justified to cancel or adjourn general meetings, even if they have already been called, in cases in which it is not possible to hold them remotely, either through virtual meetings or formal consultations, provided that the deadlines set forth in the applicable regulations, as extended by CVM Deliberation No. 848 (as we will explain below), are complied with.

Fulfillment of regulatory obligations

• Submission of financial statements to CVM: item IV of CVM Deliberation No. 848 extended for an additional 30-days period, as of March 25, 2020, the deadline for submission to CVM of audited financial statements of all types of investment funds.

• Approval of financial statements by general meetings

• Deadline for approval of financial statements: CVM extended for an additional 3-months period the deadline for general meetings of credit rights investment funds (FIDCs), hedge funds (ICVM 555 funds), and private equity funds (FIPs) to approve their financial statements, according to subitems (c), (k), and (m), respectively, of item VII of CVM Deliberation No. 848.

• Automatic approval of financial statements: as an exception to the general rule, item VII of CVM Resolution No. 849 authorizes the automatic approval of financial statements of all types of investment funds, for the fiscal years ended between December 31, 2019 and March 31, 2020, provided that (i) a virtual meeting is called pursuant to item VI of CVM Deliberation No. 849 (as explained above) and is not installed due to the absence of investors, and (ii) the corresponding audit report does not contain a modified opinion.

• Confirmation and update of the enrollment of market participants with CVM: items VII, (g), and VIII, (m), of CVM Deliberation No. 849 extended the deadline for market participants (including administrators of investment funds) to (i) confirm that the information contained in their enrollment with CVM continues to be valid, which usually needs to be done by March 31 of each year, for an additional 3-months period, and (ii) update their enrollment with CVM in case there is any change in the information previously provided (which usually needs to be done in 7 business day) for an additional 7-business days period.

• Submission of internal controls and procedures report: subitems (f), (h), (i), (j) and (l) of item VII of CVM Deliberation No. 848 extended for an additional 3-months period the deadline for the submission of assessment and recommendation reports by the executive officers responsible for internal controls and procedures of intermediary institutions (companies authorized to participate in the Brazilian securities distribution system), centralized depositary agents (companies rendering services of centralized deposit of securities), custodians, bookkeepers, as well as administrators and portfolio managers of investment funds to their management bodies.

• Submission of reference form: subitem (l) of item VII of CVM Deliberation No. 848 extended for an additional 3-months period the deadline for investment funds’ administrators and portfolio managers submitting their reference forms to CVM.

• Concentration and diversification requirements: as a general rule and subject to the penalties that may be imposed by CVM in case of non-compliance, investment funds’ administrator and portfolio managers are required to follow the concentration and diversification rules outlined in the applicable legislation and in the investment funds’ bylaws. In response to market participants’ concerns to the compliance of such rule in view of the current high volatility of the market and the lack of liquidity of certain assets, CVM clarified that the timeframe for adjusting investment funds’ portfolios could be relaxed depending on the circumstances. In this regard, CVM expressed the understanding, under item 2 of Circular Letter No. 6/2020/CVM/SIN, that, in situations in which the unpredictability and materiality of the market conditions make it impossible to adopt measures to adjust the investment funds’ portfolio during the timeframe normally required under the applicable regulations, CVM could decide, based on the assessment of circumstances on a case-by-case basis, not to apply penalties to investment funds’ administrators and portfolio managers if: (i) the non-compliance results from abrupt exogenous facts causing unpredictable and material changes to the capital markets conditions (e.g., passive market conditions), and (ii) timeframe required for the adjustment of the investment fund’s portfolio is considered reasonable, taking in consideration for that purpose (a) the nature and liquidity of the investment fund’s assets, and (b) the best efforts adopted by the portfolio managers, in line with their fiduciary duties, to solve the problem.

• Temporary substitution of time reference for calculating the value of quotas issued by hedge funds: some of the hedge funds offering intraday liquidity governed by CVM Instruction No. 555/14, as amended, may opt in their bylaws to calculate the value of their quotas based on their reference in the opening of the market. Due to unprecedented high volatility of the capital markets caused by the covid-19 pandemic crisis, several hedge funds that made such option have been experiencing operational hurdles to maintain such time reference. In response to investment funds` administrators concerns in this regard, CVM clarified, in item 3 of Circular Letter No. 6/2020/CVM/SIN, that it is admissible for hedge funds offering intraday liquidity to, exceptionally and during the peak of adverse, extreme and unpredictable market conditions, to replace the opening of the market for its closing as a reference for calculating the value of quotas, for purposes of making payments and redemptions to investors. This rule only applies, however, if the hedge fund in this situation informs the market, through a material fact notice, about its operational hurdles and the decision to temporarily make use of such alternate time reference for calculation of quotas.

• Provision for doubtful debts by credit rights investment funds (FIDCs): in response to investment funds’ administrators questions in this regard, CVM clarified, under item 6 of Circular Letter No. 6/2020/CVM/SIN, that the delay in payment or the need of negotiation in connection with a certain credit does not necessarily require the investment fund to make a provision for doubtful debt if its administrator concludes that those events do not represent evidence, per se, of a reduction in the recoverable value of the asset, but are rather a result of an exceptional and temporary market situation. However, CVM alerts investment funds’ administrators that such interpretation shall not be used as an excuse to avoid creating a provision when the other facts and circumstances indicate a material deterioration in the recovery capacity of the relevant credit.

• Exchange of documentation among investment funds’ service providers: in response to market participants’ questions in this regard, CVM clarifies, under item 5 of Circular Letter No. 6/2020/CVM/SIN, that the exchange of information and/or documents among administrators, portfolio managers, custodians and distributors of investment fund’s quotas do not necessarily have to be done physically or in person in accordance with the applicable regulations. Therefore, from a regulatory standpoint, there is no limitation on the exchange of documents and information among those market participants remotely and in a virtual manner.

Category: Labor and employment

On April 1, 2020, the Federal Government published Executive Order No. 936/20 ("MP 936"), providing for two (2) mechanisms for confronting the coronavirus (covid-19): proportional reduction in work hours and salary and temporary suspension of employment contracts.

As a way to facilitate adoption of the measures, MP 936 expressly authorized negotiation of those measures directly with employees, therefore, without the labor union's intervention, except for suspension of employment contracts and reductions in salary and work hours of more than 25% for employees who receive salaries between R$ 3,135.01 and R$ 12,202.11, in which case collective bargaining should be adopted.

The Sustainability Network ("REDE") filed Direct Action of Unconstitutionality No. 6,363/DF ("ADI") with the Federal Supreme Court, requesting a declaration of unconstitutionality of MP 936, due to violation of, among others, article 7, VI, of the Federal Constitution, which allows for reduction of salary only through collective bargaining.

On the evening of April 6, the reporting judge for the ADI, Justice Ricardo Lewandowski, granted preliminary injunctive relief to REDE, ordering that, once the individual agreement for salary reduction or contractual suspension under MP 936 is signed, “it will only be co-validated, that is, it will only have full legal effects after a response by the employees' labor unions."

He also considered that, in the absence of a response by the labor union in the manner and within the time limits provided for in the laws and regulations, "it will be permissible for interested parties to proceed directly with the negotiation until its end."

So the consequences could be:

As pointed out above, if the labor union expresses its agreement or remains silent, the Individual Agreement shall be co-validated and its effects will be retroactive to the date of signature of the document between the company and employee.

However, in the event of opposition from the labor union, we believe that if the employer maintains the effects of the Individual Agreement after the disagreement has been expressed, it will eventually be subject to:

a) Filing a collective or individual suit, seeking to have the company, including via in limine injunctive relief, reinstate the employment contracts and pay salaries;

b) Invalidation of individual agreements that are not ratified collectively, with full payment of salaries and any damages arising from cancellation of priority payments; and

c) Enrollment as outstanding debt of amounts unduly paid by the Ministry of Economy, as an Emergency Benefit for the Preservation of Employment and Income to employees submitted to reduction or suspension of contract.

The in limine injunctive relief granted by Justice Ricardo Lewandowski, although it may still be reviewed by the STF, not only deprived the issue of the urgency and agility that gave rise to the issuance of MP 936/20, but it will also require companies to review their strategy for implementing the alternatives provided for in the MP, especially in light of their financial conditions for dealing with the crisis and the track record of the labor union representing their employees.

[1] Article 617 of the CLT, with a reduction by half in light of article 17, III, of MP 936.

Category: Tecnology

On April 3, the Federal Senate passed via floor vote Bill No. 1,179/20,[i] which provides for the Emergency and Transitional Legal Framework for private law legal relations during the covid-19 pandemic. Among other provisions, the final version of the bill, proposed by Senator Antonio Anastasia (PSD/MG), changes the entry into force of the General Data Protection Law (LGPD) to January 1, 2021, with the exception that the articles on administrative sanctions (article 52 to 54) can only be applied as of August 1^st of next year.

With the approval of the Senate, the text will be forwarded to the Chamber of Deputies for revision, which may approve it in its entirety or make adjustments.

In addition to this bill, the proposal to postpone the LGPD was the subject of three other bills previously referred to the Senate. At the end of 2019, Bill No. 5,762/19 proposed changing the entrance into force of the LGPD from August of 2020 to August of 2022. The justification was the lack of installation of the National Data Protection Agency (ANPD) and the small number of large companies with plans to adapt to the law.

It is important to clarify that the ANPD's scope will not be restricted to the role of an oversight and sanctions agency. It will also be responsible for conducting studies and promulgating regulations and guidelines on best data protection practices, ideally in coordination with regulatory agencies and economic sectors, to provide guidance on the impacts of LGPD. In this sense, the Executive Branch's slowness in providing for its installation has always been worrying.

The context in which we live is evidence of this, since the lack of safeguards for fundamental rights and legal certainty for companies makes it extremely difficult for public bodies to coordinate the processing and sharing of personal data with the private sector.

With the establishment of the new coronavirus pandemic (covid-19), the movement for the postponement of the LGPD, which had low accession, gained strength and resulted in the publication of two other bills in the Senate.[ii] They were appended to the bill and, consequently, prejudiced with the approval of their final version by the Senate.

In the current scenario, with the ANPD still to be installed and most public and private entities far from the implementation of governance programs in privacy (article 50, 2, I, LGPD), there is a good chance that the delay of the law will be approved.

The urgency to install the ANPD is, more than ever, patent. Although the entry into force of the LGPD is postponed, the promulgation of official guidelines would enable Brazil not only to act more efficiently in terms of processing personal data in the context of the pandemic, but would also bring about greater legal security to public and private sector adaptation processes.

[i] https://legis.senado.leg.br/sdleg-getter/documento?dm=8081779&ts=1585615400034&disposition=inline

[ii] Bill No. 1,027/2020, by Senator Otto Alencar (PSD/BA), and Bill No. 1,164/2020, proposed by Senator Álvaro Dias (Podemos-PR), which, respectively, proposed postponing the entry into force to February of 2022; postponing the application of sanctions to 12 months after the entry into force currently provided for (August of 2020) and not extending them to the other provisions of the law.

Category: Tax

Executive Order No. 930/20, published on March 30 (MP 930), provides for the tax treatment applicable to exchange variations in investments made by financial institutions and other institutions authorized to operate by the Central Bank of Brazil (Bacen) in a foreign controlled company.

The purpose is to mitigate the influence of these transactions on the Brazilian foreign exchange market and reduce operating costs, especially those related to margin deposits. To this end, MP 930 seeks to reduce the asymmetry between the tax treatment applicable to foreign exchange variations related to investments made by Brazilian financial institutions in foreign controlled companies and the effects of hedge transactions implemented to cover exposure in foreign currency.

As a practice, domestic banks that hold investments in foreign controlled companies contract hedge transactions in order to neutralize the effects of the foreign exchange variation of these investments on their assets. Normally, these transactions are carried out through dollar futures contracts.

The results of the foreign exchange variation of the investment abroad do not affect the taxation by the Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL). However, the result of the hedge transaction is included in the calculation basis for these taxes. This asymmetry in tax treatment imposes on banks the need to contract for excess protection (overhedge).

According to the explanatory memorandum for MP 930, this asymmetry in tax treatment produces various undesirable effects, with increased transaction costs and impact on tax collection. These effects are worsened at times of greater volatility in the foreign exchange market, as in the current scenario. Considering that the financial institution may, at some point, decide to divest itself of its investments abroad, the dismantling of foreign exchange positions in Brazil could exert unwanted influence on the foreign exchange market.

In order to eliminate the need to contract for an overhedge, MP 930 proposes equity in the tax treatment: both the foreign exchange variation of the portion of the investment in a foreign controlled company covered by the hedge and the foreign exchange variation itself from the respective hedge will now be considered in the calculation basis of the IRPJ and CSLL due.

Thus, as of the fiscal year of 2021, the foreign exchange variation of the portion of the amount of the investment made by financial institutions and by other institutions authorized to operate by Bacen in a foreign controlled company with coverage of risk (hedge) shall be computed in the determination of the IRPJ and CSLL of the controlling legal entity domiciled in Brazil, in the proportion of:

1. 50% in the fiscal year 2021; and
2. 100% from the fiscal year 2022 onwards.

MP 930 also dealt with the presumed credit calculated by financial institutions whose extrajudicial liquidation or bankruptcy has been declared (pursuant to article 3 to article 9 of Law No. 12,838/13). According to MP 930, this presumed credit will be applied, until December 31, 2022, to the balance of credits arising from tax losses and negative social contribution basis arising from foreign exchange risk hedging transactions of the investment in a foreign controlled company, originated in the period from January 1, 2018, to December 31, 2020.

The presumed credit shall be calculated only by financial institutions whose extrajudicial liquidation or bankruptcy has been declared after publication of the executive order.