Category: Labor and employment

Health professionals are at the forefront of fighting the covid-19 pandemic and treating people affected by the coronavirus. Decree No. 10,282/20 reinforced the role of these workers by recognizing health care (including medical and hospital services) as an essential and indispensable activity to meet the unavoidable needs of the community.

The state of public health emergency will impact the routine of these professionals, with the growing hospital demand predicted for the coming weeks, which may even culminate in collapse of the health system in Brazil.

Aware of the possible repercussions of the pandemic, the federal government published Executive Order No. 927/20 (MP 927) to introduce changes in the work hours of these workers. During the state of public calamity (until December 31, 2020) health facilities will be allowed, even for hazardous activities and for 12-hour work days per 36 hours of rest (12x36):

• to extend the work day beyond the legal or contractual limit, under the terms of article 61 of the Consolidated Labor Laws (CLT); and

• to adopt overtime shifts between the 13th and 24th hour of the break during the work day, without any administrative penalty, guaranteeing paid weekly rest.

In short, MP 927 authorized professionals working in health facilities to work overtime beyond the agreed-upon/legal limit (10 or 12 hours depending on the type of work day), including during the period reserved for the break between work days (11 or 36 hours depending on the work day). However, weekly paid rest (24 hours) must be respected for this practice to not constitute an administrative infraction.

MP 927 also assured that, in the current calamity situation, overtime may be paid by the employer or may be offset within up to 18 months after the end of the disaster period (hours bank), thus minimizing possible financial impacts for health facilities due to extended work days in order to meet increased demand.

For the extension of the work day and adoption of shifts, MP 927 requires only an individual written agreement entered into between the health facility and the employee. With regard to this agreement, it is recommended that it state, at the outset:

• whether and when overtime will be paid; or

• whether overtime will be offset and how this offsetting will occur, including the way in which each hour worked and offset will be determined.

The lack of an individual agreement with the employee to regulate overtime worked beyond the legal and collective bargaining limits may prevent the offsetting of these hours within the period authorized by MP 927 after the end of the public emergency. This will force the healthcare facility to pay additional hours as overtime. In addition, once the period of 180 days is exceeded during which labor inspectors will have their function limited to providing guidance (article 31 of MP 927), health facilities will be subject to fines for noncompliance with work hours rules (extension beyond the legal limit and violation of breaks between work days).

Category: Capital markets

Executive Order No. 931/20 (MP 931/20) has just been issued, with measures related to the holding of general meetings of corporations and meetings of partners of limited liability companies, in response to complaints by publicly-held companies and class entities such as Abrasca and IBRI regarding the difficulties caused by the coronavirus pandemic.

With the text of MP 931/20, the Brazilian Corporations Law is amended in order to, essentially:

• Authorize, in the 2020 fiscal year, ordinary general meetings (AGO) of corporations (including publicly- and privately-held companies, government-owned companies, and government-controlled companies and their subsidiaries) to take place within the first seven months of the following fiscal year, by July 31, 2020;

• Exceptionally during the 2020 fiscal year, authorize the Brazilian Securities and Exchange Commission (CVM) to extend the deadlines established in the Brazilian Corporations Law for publicly-traded companies, including the date for presentation of financial statements;

• Authorize the board of directors to resolve, ad referendum of the AGO, on urgent matters within the competence of the General Meeting (unless expressly prohibited in the bylaws); and

• Authorize general meetings to be held outside the address of the company's headquarters, but in the same municipality, in the case of publicly-traded companies, give CVM the power to authorize the holding of digital meetings and at locations outside the municipality of the company's headquarters.

CVM is expected to issue a resolution or other regulation on the points whose competence has been assigned to the authority (in particular with regard to the deadlines for disclosure of financial information), which should occur soon.

The measures are optional, that is, companies may maintain their original schedule for disclosing information and holding ordinary general meetings. In such cases, encouragement of participation by means of remote voting is recommended. It is up to each company's management to evaluate the options offered by the new regulations, based on its specific situation and history of participation in meetings.

Among the practical consequences of the measures for companies choosing to postpone the meeting are:

• Postponement of approval of the annual financial statements and allocation of profit and loss for the year ended December 31, 2019, in which case it is up to the management of the companies that so desire to evaluate other possibilities for distribution of profit and loss, such as interim or intermediate dividends or interest on equity. There may also be a mismatch between the disclosure of the financial statements and their approval, for those companies that choose to disclose their annual financial statements within the usual timeframe, but postpone the ordinary general meeting;

• Extension of the terms of office of the members of the board of directors that expire on the date of the annual general meeting, as well as of the audit committees that have been set up, as determined by the Brazilian Corporations Law;

• For companies without an established and non-permanent audit committee, postponement of the possibility of setting up the committee and electing its members, with the risk that there may some damage to its work, considering that by the time the committee is set up, the financial statements will have already been disclosed;

• Postponement of approval of the overall compensation of officers and directors and audit committee members (the latter, provided that the audit committee has been set up) to the 2020 fiscal year.

The measures are exceptional and mean recognition of the practical difficulties that companies face in meeting their regulatory obligations, either due to the unavailability of professionals and officers and directors of the company itself and of third parties involved (such as independent auditors), or due to the inability to ascertain the concrete and estimated effects of the pandemic on their profit and loss and operations.

Category: Public and regulatory law

It is still too early to diagnose and, above all, predict all the effects that the covid-19 pandemic will have on concession contracts, under common or public-private partnership arrangements. It seems certain, however, that this event of cataclysmic proportions will bring back the practice of rescheduling investments in these contracts.

In Brazil, the issue had appeared in 2017 through Executive Order No. 800 (MP 800), establishing guidelines for the rescheduling of investments in federal highway concessions. That situation was, in comparison to the current one, simpler: it was a case of deterioration of macroeconomic variables in relation to the years 2012 to 2014, when the 3^rd stage of the Federal Highway Concession Program (Procrofe) had been bid. The explanatory memorandum for MP 800 argued that the scenario for concessionaires from 2015 onwards was one of difficulties in obtaining long-term loans, given the "financial liquidity constraint", and in generating revenue, due to a fall in the volume of general road traffic, especially when related to heavy vehicles, as they have greater elasticity as a function of GDP and greater impact on fare multipliers.

The remedy that MP 800 offered to concessionaires was de-concentration of investments in the initial years of the contract, contrary to the original modeling, which sought precisely to accelerate the economy by implementing infrastructure in the short and medium term, such as additional lanes and works of art. However, the immediate application of the rebalancing discount ("factor D") or any other contractual sanction was removed. The indirect assistance to the concessionaires was found, in fact, in the possibility of maintaining the economic and financial balance of the contract, as related to the investments delayed, unbalanced in favor of the companies, until the end of the performance of the new schedule, which could occur within up to 14 years. Only then would the rebalancing discount be applied (considering all prior financial effect, one should acknowledge).

Regardless of the merits of the reasons and the legal arrangement of the remedy, the fact is that the rule lost its effectiveness, since it was not converted into law, and, except for a single contract, all the other concessions of the 3^rd phase of Procrofe incurred significant delays in their schedule for investments, which resulted in the expiry of some contracts or in the rebidding of others (sometimes still in an embryonic phase), under the framework of Law No. 13,448/17.

Similar consequences have been seen in other sectors, leading to the design of innovative contract provisions to be introduced in future instruments. An example is that of airports: even before MP 800 (which would naturally be applicable to contracts in force at the time of its promulgation), the modeling of the 4^th Stage of Anac Concessions (Fortaleza, Salvador, Porto Alegre, and Florianópolis) had already considered, for the new contracts, investment triggers linked to demand. The contractual mechanism was defined as an event indicated in the Infrastructure Management Program in which the expected demand would give rise to the obligation of the concessionaire to begin investments in order to maintain the service level. Its purpose was to establish a balance between investment and demand, expenditure and revenue, in order to oblige the concessionaire to deploy certain infrastructure components in the event of a consistent and corresponding increase in the number of users.

The solution was well received by the market, to the point of being replicated in the contractual instruments of the 5^th Stage of Anac Concessions (the first one that followed the model of slots/blocks of airports), and, based on all appearances, it will also be adopted in the contracts for the 6^th Stage (currently in public consultation phase). More than that, the model was exported to the highway sector and renamed a volumetric trigger in the concession contracts for the South Integration Highway - RIS and BR 364/365, which defined application thereof in the Highway Operation Program.

It has become a general guideline to use the consecrated legal category of article 24 of the Law of Introduction to the Rules of Brazilian Law (LINDB), in public law governing transport and logistics infrastructure to balance the investment obligation of concessionaires with (i) maintenance of the service level (distancing itself, therefore, from the old guideline of the Logistics Investment Program, of 2012, to generate externalities in potential detriment to funds inherent to the concession itself) and (ii) the capacity to generate fare revenues. There is a commutativity between the terms of this relationship (investment and demand, expense and revenue), the disruption of which has legal consequences. And that is where the effects of covid-19 come into play, because they have the potential to cause this disruption.

A significant part of the legal understandings on this discussion would tend to lead to a scenario of economic and financial rebalancing of the contract (a subject that we discussed, in a very introductory manner, in another article on this portal, and that we will analyze with the necessary details soon). At a first glance, however, the subject seems to deserve a separate legal framework.

In fact, the rescheduling of investments in concessions does not suggest a remedy to restore the concessionaire due to the materialization of a risk allocated to the granting authority. Moreover, the contractual allocation of risks itself, depending on each specific and concrete provision, could indicate an unrestricted absorption of the risk of demand by the concessionaire (except for scenarios of an extraordinary nature and without prejudice, moreover, to an evaluation of the overlapping or prevalence of acts of God and force majeure provisions, events normally absorbed by the Government in contractual instruments).

In cases of breaking of the balance between investment and demand, what is at stake is not exactly compensation to the concessionaire for a financial loss it has incurred, when, contractually, it would be up to the granting authority to bear such a loss. It is basically a question of avoiding an even greater loss to the detriment of proper performance of the contract itself: the rescheduling of investments is a measure that is necessary to release the concessionaire from making an investment that has become economically unrecoverable, a sunk cost, in the expression of the project financing literature. It is not, therefore, a case of revision of the schedule for investments as a measure to restore a contractual imbalance, but a qualitative renegotiation of investments that, after the agreement, became useless, that is, they will not serve, at least at that moment originally conceived, to maintain the contractually defined levels of service. For example, why add another lane to a stretch of road if there is evidence that there will be no traffic to justify it? Why expand the handling capacity of a port terminal if there will be no increase in cargo? What good is a new runway at an airport if the airlines will not use it?

The discussion of rebalancing, in terms of rescheduling investments, becomes relevant as a measure for possible compensation of the granting authority or of the users: after all, a certain investment by the concessionaire will no longer be made. It would be expected that the economic and financial balance of the contract would be restored in their favor, through, for example, reduction in the amount of the fare, increase in the value of the grant, or shortening of the contract term. However, such restoration measures would have the same financial effect for the concessionaire as would the performance of the investment itself. There is no difference between obliging the concessionaire to incur an unrecoverable or useless investment and rebalancing the contract because such an investment, in spite of its inefficiencies, has not materialized.

In this sense, if we start from the premise that certain investments have become economically irrecoverable, or useless for the maintenance of contractually defined service levels, economic and financial rebalancing of the contract to the detriment of the concessionaire would be equivalent to potential unfeasibility of the concession, since we would be promoting an uneconomical and irrational contract from the point of view of allocative decisions. It would then be up to the granting authority to assess whether the reasons that led it to proceed with the concession continue on the objective contractual basis or whether, on the contrary, they have disappeared. In the second case, there would be no legally acceptable solution for the Government, except early termination of the contract, with due compensation to the concessionaire. In the first case, that is, concluding that those reasons remain, although certain investments cannot be made, at least in the schedule originally devised, rescheduling without contractual rebalancing is justified.

Of course, the issue will bring in a number of challenges, both for the Government and for concessionaires, in order for the rescheduling of investments to be effectively applied. The lack of a contractual provision does not seem, however, to be sufficient reason to avoid  facing them, nor does absence of express legal permission, in which we recognize the good time for the government to rethink the re-promulgation of MP 800 or its equivalent, duly perfected and adapted to the complexity of the current crisis.

Along these lines, the bill for the General Concessions Law (PL 7063/17), for which the rapporteur's opinion was approved by the Chamber of Deputies at the end of 2019, even provides that a provision for ordinary review of concessions may cover adaptation of investment plans and their respective schedules, without, however, detailing the relevant rights, obligations, constraints, and procedures. Therefore, it should not be esteemed to be a sufficient legislative effort to set a regulation at the same legal level as those challenges.

In addition, there are tendencies, also during the planning stage, to make it difficult to reschedule investments in concessions, and this point deserves attention: if we do not understand that legal permissiveness on the subject is indispensable, a prohibition on implementing rescheduling, or even an unreasonable legislative constraint thereon, could repel the measure from the legal system, possibly absolutely. The provisions of PL 2711/19, which seek to amend Law No. 8,987/95, seem to provide, for example, for an almost automatic reduction in the contractual term due to delays in the delivery of works, without opening room for potential discussions.

From the point of view of the legal experience, it will be especially important to establish rescheduling of investments as a self-executive measure, to be applied directly by the concessionaire, even if with the subsequent consent of the granting authority, and to what extent economic and financial rebalancing of the contract, in favor of the latter or the users, will be unauthorized (and, if not, when and how it will occur).

There are many technical and legal grounds to support rescheduling of investments, even more so under the strong effects of covid-19 on the variables of the investment and demand equation of concessions, under a common or public-private partnership arrangement. If the most recommended alternative in each case is to preserve the concession, the rescheduling of investments will serve to turn a measure used in the best legal technique into a general guideline of public law regarding transport and logistics infrastructure.

Category: Labor and employment

After the promulgation of Executive Order No. 927 (MP 927), Caixa Econômica Federal (CEF) published Circular No. 893, on March 25, to regulate the temporary suspension of the mandatory payment of FGTS for the periods of March, April, and May of 2020, in addition to guiding employers on the subject.

Referring to the text of MP 927, the circular reinforces that all employers may use the prerogative of temporary suspension, including families hiring domestic workers, regardless of prior adhesion. However, the requirement to declare the information by the 7th of each month (April, May, and June) was maintained through the Conectividade Social [“Social Connectivity”] or eSocial systems, as the case may be.

In order to declare the information, the circular guides employers who use the Sefip (Company FGTS Payment and Social Security Information System) to follow the guidelines contained in the GFIP/Sefip Manual for Sefip 8.4 Users in its chapter I, item 7.

Employers who use this platform must select mode 1 (Declaration to the FGTS and Social Security), which is intended for situations in which the FGTS due in the accrual month is not paid, so as acknowledge the FGTS debt.

The circular also instructs families hiring domestic workers who are eSocial users to observe the guidelines contained in the Domestic Employer ESocial Guidance Manual in its item 4, subitem 4.3. This means that they must issue the eSocial Collection Document (DAE) payment form, but they are exempted from printing it and settling it.

In the event that the employer does not provide the FGTS with the information by the 7th of each month of accrual, the employer must do so no later than June 20, 2020. If these deadlines are duly observed and met, no fines and charges shall be levied due in the manner set forth in article 22 of Law No. 8,036/90. Otherwise, the accruals relating to the months of March, April, and May of 2020 will be considered to be arrears and will be subject to fines and charges, in addition to other penalties provided for by applicable law and regulations.

Reinforcing the text of MP 927, the circular published by the CEF highlights that the information provided constitutes a declaration and recognition of the resulting credits, constitutes an acknowledgment of debt, and constitutes an adequate and sufficient instrument for the payment of the FGTS debt.

Once the period for suspension of the obligation to pay the FGTS is over, employers may opt for installment payment of the amount due within up to six payments, that is to say, December of 2020, as already provided for in MP 927. However, no minimum amount may be applied to the installments: the full amount must be divided equally and the interest of the employer (domestic or otherwise) may be accelerated.

If the employment contract is terminated during the period of suspension of payment or payment in installments, the deferment of payment forfeits its effects and the employer is obliged to pay the amounts, including any outstanding installments. In both cases, no fines and charges are levied, as long as the payment is made within the legal deadline established.

MP 927 had already pointed out that default on installments resulting from an ongoing Debt Instalment Agreement that would mature in March, April, and May of 2020 does not constitute an impediment to the issuance of a certificate of good FGTS standing. However, the circular clarified that these installments were not covered by the prerogative of deferment in payment - default thereon will result in the collection of the fines and charges provided for in article 22 of Law No. 8,036/90.

The operational procedures for payment and installment plans dealt with in the circular will be detailed in the operational manuals that regulate them.

Category: Environmental

Eduardo de Campos Ferreira, André Ferreira de Castilho, and Isabel Monteiro de Barros Alfano

MAPA Ordinance No. 42/20, published in February, submits for public consultation a new proposal for a decree regulating the National Seed and Seedling System (SNSM), established by Law No. 10,711/03. The public consultation is scheduled to take place by April 4. The draft of the new decree seeks to update the regulation of legislation on seeds to new technologies and market realities, following the trend of the current administration to seek simplification of procedures and speed up regulatory approvals, as we discussed in an article on this portal. There was a significant increase in the number of defined terms, from 22 to 56. Many of the changes in the proposal for a new regulation are related to these new terms, which gives the text more technical precision and updates it according to the new technologies applied to seeds.

The topics that presented the most changes were those related to the National Seed and Seedling Register (Renasem). Firstly, import and export activities no longer requires registration with Renasem. In addition, the intent is to extend the possibility of exemption from registration to people who multiply seeds or seedlings only for distribution, exchange, and marketing and sale, also covering those who do so to meet government programs. Also included is exemption from registration with the Renasem for those who market and sell or import seeds or seedlings exclusively for domestic use or for their own use on their property or on property they own. An amendment is also planned concerning the registration of persons with various units: the option would be introduced to register in Renasem only the head office of the legal entity or the main unit of the individual.

The validity of Renasem registrations will increase from three to five years, and may be renewed until the expiration date. It may be inferred from the proposed text that, once a request for renewal has been filed, it would be done automatically, but no express provision to that effect has been included in the proposal.

Other changes to the proposal concern audits. In the prior decree, only actions resulting from delegation of authority would be subject to regular audits. The draft of the new regulation provides for audit not only of processes, procedures, and activities of the entities receiving such delegation, but also of the persons registered or accredited with Renasem. It is noted that the new decree intends to give more relevance to regular audits, with emphasis on the process of reducing bureaucracy, in order to optimize the state inspection process. In any case, there are still specific situations where audits could be applied. Along the same lines, the proposed new wording expresses the flip side, that the certifying bodies take responsibility for issuing seed and seedling certificates.

In relation to the fines imposed in a proportional manner, a minimum percentage was established, and it is no longer possible to impose a fine of less than 5% of the commercial value of the product. Nevertheless, the supervisory body's margin of discretion in imposing fines was maintained. It is anticipated that if the product subject to the fine has not been sold, the applicable fine may be reduced by 20%. Also, in article 162 of the suggested draft, the minimum and maximum amounts of fines fixed for certain infractions were doubled with respect to the prior ones for the following ranges: (i) from R$ 1,000 to R$ 4,000, for minor infractions; (ii) from R$ 4,001 to R$ 12,000, for serious infractions; and (iii) from R$ 12,001 to R$ 36,000, for very serious infractions.

The draft decree seeks, mainly, to update concepts and technologies, in addition to simplifying the regulations, transferring to the administrative rules (normative instructions, ordinances, resolutions, etc.) the possibility of detailing procedural issues and skipping steps considered bureaucratic even in administrative procedures. On the other side of the coin, the time limits for submitting a defense and lodging an appeal, as well as for the competent authorities to conduct a review, have been extended.

After public consultation, the General Bureau of Seeds and Seedlings will evaluate the suggestions received and make the pertinent adjustments, taking into account compliance with other legal dictates and the relevance and positive impact of the suggestion to the implementation of the National Seeds and Seedlings System.

Category: Restructuring and insolvency

The covid-19 pandemic has severely affected the economy on a global scale. In Brazil, the expectation in this scenario is that a new cycle of judicial reorganizations and bankruptcies will break out. More than that, the cases in progress may be affected by the disturbances caused by the coronavirus.

For companies under judicial reorganization, the impacts of the pandemic make the debtor's situation even more delicate, due to the impediments caused by imports/exports, the decrease in domestic production, and the drop in consumption, in a real chain reaction.

Especially in the judicial reorganizations already initiated, it is noticeable that there are two main distinct groups: (i) reorganizations with judicial reorganization plans not yet approved, which are concerned about a possible delay in the proceeding due to the new crisis; and (ii) reorganizations with plans in force, which may face difficulties in fulfilling the obligations restructured.

For the first group, the problem arises essentially from the need for isolation during the quarantine period. How do you hold a General Meeting of Creditors (AGC) when health agencies and institutions around the world, including the World Health Organization (WHO) and the Brazilian Ministry of Health, recommend that people stay in their homes and avoid crowds?

In some cases, debtor companies requested an extension of the stay period and postponement of the AGC, due to the impossibility of holding it. An example is the case of the judicial reorganization of Laboratório Bioclínico Nasa, which is being processed in one of the specialized courts of the Judicial District of São Paulo/SP.[1] In that case, the judge granted the application for reorganization, with an express observation that the solution is in accordance with the measures to avoid the spread of the virus and that the situation is not a matter of the debtor's negligence.

In the judicial reorganization of the Odebrecht Group, currently the largest in Brazil,[2] Judge João de Oliveira Rodrigues Filho granted a continuation of the AGC through a digital platform, accepting the suggestion by the judicial trustee and the request by the debtors in possession. The virtual AGC is scheduled for March 31st, and the judicial trustee of the Odebrecht Group will be responsible for providing the appropriate IT solution for the meeting. It will also provide technical support to the participants, following all the necessary formalities for the holding a face-to-face AGC and guaranteeing to the creditors the right to speak and vote.

This is an innovation, which is even provided for in Bill No. 6,229/05 (called a "substitute"), presented by Deputy Hugo Leal to reform the Business Reorganization and Bankruptcy Law (Law No. 11,101/05). In fact, the substitute bill proposes, among various amendments and additions, the addition of paragraphs 4 to 7 to the current article 39 of the Business Reorganization and Bankruptcy Law, expressly providing for the possibility of holding AGCs by virtual means. This would greatly facilitate meetings of creditors and increase the quorum for meetings, avoiding travel costs, especially when we consider that sometimes various meetings are necessary until final approval of the plan is obtained.

However, as today there is no express provision of law regarding the possibility of a virtual AGC, there is still a clear preference for in-person AGCs, and the virtual modality has an exceptional nature, which can be inferred from the decision by the judge presiding over the Odebrecht Group's judicial reorganization. He himself, incidentally, for the time being, rejected the virtual AGC in the judicial reorganization of the Atvos Group, finding that the continuation of the AGC is scheduled for April 16, and the quarantine, in turn, is scheduled to end on April 7 (according to State Decree No. 64,881, of March 22, 2020). Therefore, "there is still the possibility of continuing the AGC in the traditional manner, and, at this moment, the need to impose the extraordinary virtual methodology for the work of the meeting has not been shown", as the judge stresses.

As for judicial reorganizations with plans already approved, the issue is somewhat more complex. With the abrupt slowdown of the world economy and the negative revision of economic growth prospects, compliance with obligations contained in some approved plans may be at risk, especially for the sectors most affected.

The JAC Motors Group's judicial reorganization[3] is an example of this, as the debtors in possession have claimed that they depend on importation of cars from China in order to conduct their business. According to them, the paralysis of imports from that country and the significant increase in the value of the U.S. dollar have worsened their financial situation. As a result, the JAC Motors Group, after having had its reorganization plan approved at the AGC held on September 5, 2019, requested the holding of a new AGC. The objective is to approve an addendum to the plan in order to reduce short-term payments, in particular obligations due in 2020. The holding of this new AGC was granted by the Court, but is suspended due to the covid-19 pandemic.

In other cases, the Judiciary has adopted a more protectionist, although controversial, stance regarding the business activity, granting new payment terms, releasing funds, or exonerating debtors from obligations for a certain period, regardless of creditor approval.

As an example, we cite the following cases: (i) Locadora de Caminhões Mônaco,[4] for which the 1st Civil Court of Itaquaquecetuba/SP granted its request to pay only 10% of the debt claims of the labor class scheduled for the months of April and May of 2020; (ii) Grupo Unidas,[5] for which the 2nd Civil Court of Caçador/SC granted withdrawal of funds arising from a sale of assets, previously allocated to the payment of debts with the Guarantee Fund for Time of Service (FGTS), for the payment of expenses with employees in April and May of this year; and (iii) Unigres Cerâmica,[6] which requested an injunction to guarantee the supply of gas and electricity by the respective concessionaires, regardless of the payment of the amounts in arrears, on the argument that a drop in sales has prevented the company from meeting its obligations. The in limine injunction was granted by the 3rd Civil Court of Limeira/SP, which granted the debtor in possession 45 days to pay the debts.

All these emergency and exceptional solutions are subject to questioning, running up against the limit of state interventionism and the Judiciary, especially because they involve matters for exclusive resolution by creditors or even because they concern obligations not subject to the judicial reorganization plan.

Thus, it seems to us that such extraordinary concessions should be adopted with parsimony and with clear restrictions (including time restrictions), under penalty of serious legal insecurity, which is often a factor that scares away resources and investments in Brazil, further aggravating the prospect of a recession.

In our view, it will be incumbent on legal professionals and the market to work towards an equalization, negotiating a true balance of the interests at stake in a bankruptcy proceeding, such as judicial reorganization. Furthermore, the debate on the reform of the Judicial Reorganization and Bankruptcy Law is urgently under way, with a view to adapting current legislation to current times, but always respecting the legal security necessary.

[1] Case No. 1026155-53.2019.8.26.0100.

[2] Case No. 1057756-77.2019.8.26.0100.

[3] Case No. 1113802-23.2018.8.26.0100.

[4] Case No. 1006707-50.2016.8.26.0278.

[5] Case No. 0301182-10.2016.8.24.0012.

[6] Case No. 1003714-05.2016.8.26.0320.

Category: Labor and employment

Executive Order No. 927/20 (MP 927/20), published on March 22 with a series of measures to preserve employment and income during the covid-19 pandemic, allows employers to grant early vacation (individual or company-wide) to workers in order to maintain employment during the current scenario of public emergency and reduce the impacts of the crisis on Brazil's economy.

Annual vacation is a fundamental right of the employee, but the choice of the time when it can be enjoyed is up to the employer, according to its needs (articles 2 and 134 of the Consolidated Labor Laws - CLT). The current scenario of social distancing and falling economic activity represents a period in which the granting of vacation meets the interests of the employer, in view of the need, in most cases, to keep all employees working as normal.

In addition, it is possible to predict that, in certain sectors, when activities return, the employer will need, more than ever, its entire workforce in order to try to minimize the negative impacts of the crisis, increasing its production and sales volume, among other actions. By granting vacation to their employees at this time, employers can count on having their entire staff for a long period, even 12 months, to return to work and try to reduce losses.

It is possible, however, that companies have not scheduled the granting of annual vacation at this time, which may have negative implications for cash flow. MP 927/20 then presents two alternatives to reduce the financial impacts of accelerating vacations: (i) extension of the deadline for payment of holidays until the 5th business day of the month following the beginning of the vacation period; and (ii) possibility of payment of the additional 1/3 premium on vacation until 12/20/2020.

Reflection on the advantages of granting vacation in the current period is valid, especially considering that companies may need to keep their workforce fully active when they resume their activities.

It is worth remembering that not granting vacation within 12 months from the date the employee acquired the right entails payment by the employer of double remuneration. Therefore, if it is necessary to keep all employees for a long period of time after resuming their activities, it is recommended that companies identify the accrual periods for vacations and evaluate the advantage of granting them now.

It is also important to keep in mind that employees may need to change their vacation plans, including rescheduling or canceling trips, due to the need for acceleration. When future vacations have already been approved by the employer, it is recommended that one analyze cancellation and acceleration thereof on a case-by-case basis in order to avoid possible material damage to employees.

The precedents of the Labor Courts, especially Normative Precedent No. 116 of the TST, are to the effect that, once an employee is informed of the period of an individual or company-wide vacation, the employer may only cancel or modify the start date reported if there is an overriding need and, even so, upon compensation for the proven financial losses of the employee.

Thus, although employers use force majeure to justify changes in the start dates of vacations already communicated to employees, prior case law points to the duty to reimburse losses incurred by employee as a result of such a decision. In any event, since this is a patent state of public emergency, it is possible that this jurisprudential position will be relaxed, depending on the review of the specific case.

It must also be taken into account that acceleration may lead to consecutive years of work without the employee taking a vacation. In addition to possible risks related to the employee's health, this may generate future debates regarding the validity of acceleration granted by means of an individual agreement, due to possible distortion of the purpose of the provision of "annual vacation", which is guaranteed by the Federal Constitution in its article 7, XVII.

From the legal point of view, when a condition of force majeure is established, there is no loss to the parties, because the fundamental right to annual vacation remains preserved, as does the employer's prerogative in particular, including via a reduction in bureaucratic procedures and an increase in the time frame for payment of remuneration (click here to see an e-book on the subject).

Category: Aviation and shipping

Since December of 2019, there has been talk about the spread of the coronavirus. The countries most affected initially were the first to feel the blow to the airline sector due to the cancellation of flights and the closure of airspace and borders. The situation quickly spread and, in a cascading effect, led to a scenario of calamity for this market on a global scale. Without a doubt, airlines are experiencing the worst crisis in their history, more serious, far-reaching, and long-lasting than that caused by 9/11 and the 2008 financial recession.

In the Brazilian scenario, it could not be otherwise. The increase in the value of the U.S. dollar, which in itself already raises the fixed operating costs of the industry, were combined with a rapid exponential drop in the demand for flights of all airlines and in movement of passengers in airport terminals. The result: airlines were forced to cancel numerous flights, relocate passengers, and leave their aircraft grounded.

In order to reduce the pernicious consequences of the covid-19 pandemic for the airline market, which may even culminate in the insolvency of companies in the industry, more than ever it will be necessary to rely on governments and other stakeholders to support the survival and rebuilding of the industry.

On March 18, the federal government published Executive Order No. 925/20, which provides for emergency measures for Brazilian civil aviation due to the covid-19 pandemic. Among them, the following are noteworthy: (i) extension of the deadline for payment of fixed and variable contributions in airport concession contracts until December 18, 2020; and (ii) establishment of a 12-month deadline for reimbursement of amounts paid to purchase airline tickets - consumers are exempt from contractual penalties if they accept the credit for use of the ticket within 12 months.

The measures are relevant to relieve airlines' cash flow in the short term, as they extend the deadline for payment of airport charges and compensation for cancelled flights, but they do not seem to be sufficient in view of the seriousness of the situation and the vagueness surrounding the industry’s return to regular operation.

Considering that the airline industry is complex, involves various players, namely financing companies, lessors, manufacturers, airlines, consumers, airport operators, and suffers the consequences of the volatility of oil prices and the value of the U.S. dollar, other initiatives likely need to be adopted in order for the industry to survive this period of crisis.

As it is one of the highest cost and lowest margin industries in the world, it may be anticipated that there will be an impact on aircraft leasing and financing arrangements and it will be necessary to renegotiate terms and conditions for such operations. In addition, the federal government will most probably have to intervene and provide assistance to airlines, both in financing and facilitating credit as well as in granting tax benefits and even possible reduction in applicable airport charges.

In the coming months, it is likely that the act of God and force majeure provisions of aircraft financing and leasing contracts will be triggered and the terms of such documents will have to be renegotiated.

This is an unprecedented global situation, which will require a joint effort of shareholders, airlines, financiers, consumers, and airport operators, in order to ensure continuity in the provision of a public service so relevant to the reduction of distances in today's society and to the development of various activities, such as tourism, medicine, cargo, and transportation of people, among others.

The announcement by BNDES of emergency credit lines for the industry on March 22 is therefore to be welcomed. This type of action, concrete and agile, may tip the scales between survival and disappearance of companies in Brazil.

Similar measures are being taken in other parts of the world, based on a shared view that the crisis is serious, but global economic activities will eventually return to normality and air transport will once again be essential, as always. Times of heavy turbulence must be crossed by looking at clear skies in the not-too-distant future.

Category: Corporate

State Decree 64,879/20, published on March 21, recognized a situation of public emergency in the state of São Paulo, and mandated additional restrictive measures to tackle it. Among other measures, in-person service at the São Paulo State Board of Trade (Jucesp) was suspended.

Between March 23 and April 30, 2020, Jucesp will act only through its online platform, which, in general terms, offers the following services:

• electronic opening of companies
• searching and looking up companies, registration forms, and company names
• obtaining certain certificates and copies of scanned documents.

Opening of a company in electronic form is only available to individual entrepreneurs, Eirelis, and limited liability companies, and requires the adoption of the standard Jucesp articles of association/instrument of incorporation (which may be amended and adjusted to specific needs later).

Although it is not possible to obtain a physical filing during the in-person restriction period, in principle there is no prohibition on having the other forms necessary for filing corporate acts in general to be issued as normal. This prevents them from accumulating pending the physical reopening of Jucesp and allows them to be presented and physically recorded as soon as service is fully restored.

Jucesp also extended the deadline for fulfilling requirements without the need to pays new fees, after 30 days of notice.

As a general rule, corporate acts and documents produce effects between the parties when they are signed. They must be filed with the respective board of trade within 30 days of signature in order to ensure retroactivity of such effects also in relation to third parties. If this time limit is not observed, the filing shall be effective vis-à-vis third parties only after the order granting it. In any case, for urgent acts, corporate acts will be valid upon signing at least between the parties.

We summarize below the information provided thus far by some boards of trade from other states regarding their arrangement for operation as a result of the covid-19 pandemic. Some of them already offer more comprehensive digital services.

Category: Competition

The covid-19 pandemic has had an impact on the actions of the Administrative Council for Economic Defense (CADE) in the application of Law No. 12,529/11 (the Antitrust Law). The agency has maintained its activities with some adaptations in routine. Much of the staff is working remotely, meetings and hearings have been held by video or teleconference, and the Administrative Tribunal is discussing the possibility of holding trial sessions virtually.

In view of Executive Order No. 928, of March 23, CADE has clarified that there will be no procedural deadlines to the detriment of parties investigated in Administrative Proceedings for Imposition of Sanctions for Violations of the Economic Order; Administrative Proceedings for Investigation of Mergers (Apac) and Administrative Proceedings for Imposition of Incidental Procedural Sanctions. However, the agency will continue its work in such cases, performing the procedural acts assigned to it.

The deadlines for merger review will continue to run as normal. Further, the deadlines in administrative inquiries; preparatory procedures; leniency agreements; Consent Decrees (TCC); Merger Control Agreements (ACC); Performance Commitment Agreements, and Consultations will run for CADE and the parties.

The president of the agency, Alexandre Barreto, clarified in a recent note that CADE is aware of the difficulties that all sectors are going through and will be reasonable in the review of specific claims brought to its attention, including requests for extension of deadlines. He also said that CADE will remain vigilant to prevent abuse and will be agile in helping reheat the economy as soon as possible.

In light of this scenario, we address below perspectives in the areas of control of antitrust practices and merger reviews.

Control of conduct

With respect to the control of antitrust practices, it is important to keep in mind that CADE’s statement does not imply relaxation of the application of the Antitrust Law, as has already occurred abroad. The British authorities, for example, have formally announced their intention to not take action against legitimate cooperation between companies, but they will not tolerate unscrupulous measures which use the crisis as an excuse for "non-essential collusive practices".

Competing companies that need to discuss cooperation mechanisms to face the crisis in Brazil, such as planning to increase production, buy inputs jointly, share production or distribution assets, or share certain operating costs, should seek specialized legal advice to assess both the risks involved in the plan, which will largely require a corresponding justification, and the absence of less harmful alternatives to competition, and the measures available to mitigate them.

In this context, it is possible to consider the execution of an "antitrust protocol", a common practice in M&A transactions, to clarify what can and cannot be discussed; to regulate the flow of sensitive information, such as costs, level of downtime, volume of products in stock, main suppliers and the terms of contracts entered with them; and restrict the set of executives or employees who may have access to such information, under confidentiality and non-disclosure agreements.

The crisis may be so deep in some industries, such as aviation, that lasting cooperation mechanisms between competitors may be needed. In situations of this nature, the need to submit such arrangements for prior approval by CADE should be assessed, understood as being those with a duration of two years or more and those that establish a common enterprise for conducting economic activity, provided that they establish sharing of risks and results from the economic activity for which it is intended.

It is also possible to assess the advisability of submitting a consultation to CADE's Administrative Tribunal regarding the legality of acts, contracts, or business strategies designed to get through the crisis. The maximum statutory time limit for adjudicating such cases is 120 days, counting from the assignment of the consultation to a commissioner for an opinion. However, the average review time for the most recent consultations is approximately 60 days, and there have been cases that were reviewed within only 14 days, an agility expected from CADE in similar proceedings in the context of the pandemic.

It should not be expected, however, that CADE will tolerate so-called "crisis cartels", that is, agreements between competitors in a specific market in order to restrict production and/or reduce capacity in response to a crisis in the industry caused by a national, global, or industry economic downturn, which involves decreased demand and excess capacity.

Nor should one expect CADE to assent to abusive practices. The agency does not have the power to regulate prices, but it can investigate companies that charge excessively high prices, even though it has traditionally shown greater concern with practices that involve creating difficulties for competitors rather than exploiting consumers. This is largely explained by the complexity of establishing a criterion for measuring what an abusive price would be, i.e. what percentage, margin, or final price charged could be considered abusive. However, faced with a sudden increase in demand for certain products related to the prevention of covid-19, which have seen an exponential increase in prices, CADE has already announced and begun an extensive investigation into the subject, and is collecting information from health departments, manufacturers of medical and pharmaceutical products, hospitals, distributors, and retailers. It is possible that similar investigations in other industries will be initiated.

The pandemic may also affect the progress of negotiations regarding leniency agreements and consent decrees (TCC), and even the fulfillment of agreements already entered into.

An internal investigation of companies may suffer delays due, for example, to the limitation on in-person meetings and access to files saved on equipment at the residence of employees working remotely. There may also be bottlenecks related to the delivery of documents to CADE, which occurs in person due to confidentiality concerns. Overcoming this obstacle, the review period for documents and reports submitted to CADE may also be longer than usual. In view of this, it is advisable to renegotiate terms with CADE or even request suspension of the negotiation progress.

Renegotiation may also be necessary in cases of TCCs already entered into and with monetary or behavioral obligations. Companies may be unable to make timely payment of installments for their contributions within the time period set, usually up to two years or, exceptionally, four years or more. They may also face unforeseen obstacles in fulfilling non-monetary obligations, such as the implementation of compliance programs, due to restrictions on in-person training, executive travel, for example, as stated by the companies Basso and Valbrás in a recent brief presented to CADE. In such cases, it is of utmost importance that the signatories of TCCs seek to negotiate with CADE in advance in order to avoid the risk of a daily fine for non-compliance with the agreement and ultimately losing the benefits of the TCC.

Merger Control

Current circumstances point to the possibility of increasing the time for approval of transactions and the need for careful reflection by CADE on the impact of its decisions.

The remote work adopted by many companies may affect the collection of data necessary for notices, briefs as an interested third party, and response to letters sent by CADE to customers, suppliers, and competitors of the parties to the transaction under review. It is expected that, despite these difficulties, CADE will prioritize mergers, will not allow the average review time to be extended and, especially, will be sensitive to the demands in transactions between companies that face extraordinary difficulties in maintaining their business.

It is likely that requests for authorization for parties to consummate a transaction before a final decision by CADE, in a conditional and preliminary manner, will become more frequent in the context of the crisis. Our law imposes strict criteria in this regard: interested parties need to demonstrate that (i) there is no risk of irreparable damage to competition; (ii) the measures are fully reversible; and (iii) there is an imminent risk of substantial and irreversible financial damage if the conditional authorization is not granted.

CADE has been very strict in deciding requests for conditional authorization thus far, granted in a single case (Merger Proceeding No. 08700.007756/2017-51, referring to the increase, from 40% to 100%, of Excelence B.V.'s stake in Rio de Janeiro Aeroporto S.A., holder of 51% of Concessionária Aeroporto Rio de Janeiro S.A., which operates the concession at Galeão Airport - CADE concluded that, in the absence of a conditional authorization, the concessionaire would not have financial conditions to make an imminently maturing payment of R$ 1.168 billion and should cease its activities, affecting the operation of the airport until a new bidding procedure could be conducted).

Another sensitive point that will require CADE's reflection concerns the possibility of the purchaser's interference in the target company's actions, during the period between signing and closing, in order to guarantee the survival of the business during an emergency situation. This can be done through changes in company management, the use of assets to accelerate synergies, or even full or partial advance of the purchase price. Such interference could be seen as prior and undue consummation of the operation, subjecting the parties to gun jumping penalties, notably a fine of up to R$ 60 million.

At an exceptional and challenging time like the present, it is expected that CADE will maintain an open, flexible, and reasonable stance towards mergers, helping to mitigate the effects of the crisis and improve the conditions for economic recovery by removing barriers that may prevent or delay this resumption.

Category: Labor and employment

Published with the objective of mitigating the economic losses resulting from the covid-19 pandemic, Executive Order No. 927/20, of March 22 (MP 927/20), also sought to ensure compliance with the constitutional principles of a broad defense and adversarial proceeding to companies, established in article 5, subsection LV, of the Federal Constitution of 1988.[1]

In its article 28, MP 927/20 provides for the suspension of procedural deadlines for filing defenses and filing appeals in administrative proceedings arising from labor assessments during the 180-day period. The suspension order covers administrative proceedings arising from labor infraction notices and FGTS (Guarantee Fund for Time of Service) deficiency notices under the purview of the Ministry of Economy.

The measure ensures compliance with the rule set forth in subsection LV of article 5 of the Federal Constitution of 1988, which is fully applicable to administrative proceedings, in which the parties have the right to a broad presentation of evidence, regardless of which type, and may even request the designation of a hearing for oral evidence.

Moreover, according to the changes introduced in the Consolidated Labor Laws (CLT) by Executive Order No. 905/19, which instituted the Green and Yellow Employment Contract, the review of defenses and administrative appeals must be performed by a different federative unit from the one that issued the infraction notice, per the criterion of deterritorialization.

It should also be noted that the Ministry of Economy does not have an electronic filing system for sending defenses and administrative appeals, such that the filing of briefs must be done in person by the company, preferably at the office responsible for the assessment, or by sending correspondence through the Post Office.

For the filing of briefs, it is necessary to travel, either to go to the office of the Ministry of Economy, or to go to a branch of the Post Office. In the latter case, considering the measures adopted to contain the disease, there are post offices that are not even operating.

Faced with the current situation of social distancing and considering the decree of public emergency due to the coronavirus pandemic, it is extremely difficult to guarantee the regular processing of administrative proceedings, such that the applicable procedures and constitutional guarantees assured to the companies assessed are observed.

For this reason, suspension of the procedural deadlines for filing a defense and lodging appeals in administrative proceedings arising from labor assessments and FGTS deficiency notices is of paramount importance.

However, MP 927/2020 does not set forth situations to be observed in the case of ongoing inspections under the purview of the Ministry of Economy. It is necessary for companies to enter directly into contact with the respective labor inspectors to determine what position will be adopted on a case-by-case basis. Despite this circumstance, which has not been adequately addressed by the executive order, assessments arising from the ongoing inspections are suspended.

In addition, MP 927/20 also promotes changes in the conduct of labor inspectors with the Ministry of Economy within 180 days of its publication. In accordance with article  31 of MP 927/20, it shall be incumbent upon these public officials to provide guidance regarding the irregularities found during this period. This means that if any irregularity is found, the tax auditors should advise the companies on how to remedy it before an assessment is issued.

The exceptions to this rule, which allow the issuance of infraction notices within 180 days after the plan, are provided for in subsections I to IV of the same provision: (i) lack of employee registration, based on complaints; (ii) situations of serious and imminent risk, only for the irregularities immediately related to establishing the situation; (iii) occurrence of a fatal work accident as a result of an inspection procedure performing accident analysis, only for the irregularities immediately related to the causes of the accident; and (iv) work in conditions analogous to slavery or child labor.

Such a determination is of extreme importance, considering that, in the current circumstance, companies are facing innumerable difficulties in conducting their activities, focusing, in the first place, on the health of their employees to the detriment of attending to legal formalities that may be considered unnecessary or put in second place at least at this moment.

Thus, given that the current situation may make it impossible for companies to comply with certain rules as a result of force majeure, the provision set forth in article 31 of MP 927/20 is extremely reasonable, especially in view of the fact that serious infringements committed by companies will continue to be monitored by the Ministry of Economy and will lead to the issuance of infraction notices.

[1] “LV - to litigants, in judicial or administrative proceedings, as well as defendants in general, are guaranteed the right to an adversarial proceeding and a broad defense, along with the means and appeal inherent thereto;”

Category: Public and regulatory law

“We have before us an ordeal of the most grievous kind.
We have before us many, many long months of struggle and of suffering.”
Winston Churchill

A comparative analysis of the curves of the number of infected and the mortality of the new coronavirus (causing covid-19) allows for no other conclusion than that Brazil will be one of the countries most seriously impacted by the pandemic. The effects will be potentially devastating for the affected populations, for the Brazilian economy and, above all, for the Unified Health System (SUS) and its capacity to absorb new patients, which, judging by the official authorities' statements, may collapse within the next few weeks.

In the face of such exceptional circumstances, public law will play a central role, on the one hand, in the treatment of the public health crisis and, on the other, in tackling the economic crisis.

As for the fight against the virus, the main legal document conceived thus far is Law No. 13,979, of February 6, 2020 (the Coronavirus Law). With the escalation of the outbreak, however, the instruments provided for in it had to be revised, standardizing guidelines for application throughout Brazil and expanding its scope.

The amendment to the Coronavirus Law came through Executive Order No. 926, of March 20, 2020 (MP 926), and its constitutionality has even been recently confirmed in limine, under ADIn 6.341/DF. Among other provisions, MP 926 introduced paragraph 8 to article 3 of the law, ensuring that any measures adopted within the scope of combating and tackling covid-19 should safeguard the exercise and functioning of public services and essential activities.

The provision was simultaneously regulated by Decree No. 10,282, also of March 20, 2020 (the Coronavirus Decree). The regulation determines that the containment actions established in the Coronavirus Law may not impact on essential public services, activities that are essential and indispensable to meet the unavoidable needs of the community, that is, without which the survival, health, and safety of the population are in danger, including the respective chains of related, supporting, and ancillary activities.

The list of activities qualified under the decree involves, among others: (i) health assistance; (ii) social assistance; (iii) public and private security; (iv) national and civil defense; (v) passenger transport, including apps; (vi) telecommunications and internet; (vii) sanitation; (viii) energy generation, transmission, and distribution; (ix) public lighting; (x) cargo transport, including delivery services through electronic commerce; (xi) air, water, and land traffic control; and (xii) capital and insurance markets; without prejudice to other activities that the Crisis Committee for Supervision and Monitoring of Covid-19's Impacts may define as essential.

The decree comes at a good time, inasmuch as the profusion of normative acts promulgated at the three levels of the Federation, aimed at declaring public health emergencies, encouraging social isolation, restricting public activities, and services, threatened to stifle private providers of essential activities with regulatory uncertainties that, at the limit, threatened to paralyze providers mesmerized by such regulatory hypertrophy.

As a general rule, the Coronavirus Law now provides that "limitations on public services and essential activities, including those regulated, granted, or authorized may only be adopted via a specific act and provided that it is in prior coordination with the regulatory agency or the Granting or Authorizing Power" (article 3, paragraph 6).

MP 926 also qualified the bidding waiver arrangement provided for in the law for purchases related to the pandemic, (i) clarifying that the goods acquired need not be new, provided that their conditions of use are guaranteed by the supplier; (ii) dispensing with the preparation of preliminary studies, in the case of common goods and services, and allowing the submission of a simplified reference term sheet or basic plan, in the case of more complex goods and services; (iii) reducing by half the terms for the acquisition of goods and services by electronic or in-person auction; and (iv) increasing the margin for the Government to provide for additions or deletions to the subject matter contractually agreed upon up to 50% of the initial value.

In addition, the scope of the exemption from bidding provided for in the law was extended to include engineering services, including suppliers who are declared to be unfit to contract with the Government (provided that they are, demonstrably, the only possible suppliers for the goods or services to be acquired), or even those that cannot prove good tax or labor standing or other requirements to qualify for the public bidding process, in the event that there is restriction on possible suppliers.

The measure opens the path for contract engagements with contractors for the construction, renovation, and expansion of hospitals, adaptation of other public equipment for the creation of new beds, and other measures to remedy or mitigate the imminent collapse of the SUS. Waiver will also be essential for the purchase of ventilators (even if used), reagents for testing, personal protective equipment, drugs, R&D inputs for vaccines, new drugs, or even for the secondary use of existing drugs.

Another important, albeit delicate, instrument provided for in the Coronavirus Law is administrative requests, which may support, as long as the crisis continues, the use by the Government of private initiative resources, such as hospitals, beds, hotels, cruise ships, stadiums, clubs, and sports venues, in addition to surgical masks, hospital aprons, or antiseptics for hygiene. Services such as technical training for the use of new equipment and medical/hospital services in general may also be subject to administrative request. It is essential to emphasize that the measure must be justified, strictly linked to the fight against the pandemic, and must guarantee subsequent compensation to those from whom the goods or services were requested, even if the valuation of this compensation is a potential source of future conflicts.

Other instruments are gradually being designed against the economic aspects of the crisis. The first sector to receive emergency treatment was civil aviation, for which Executive Order No. 925 (MP 925), of March 18, 2020, was promulgated. The measure sought, on the one hand, to guarantee some financial relief to airports subject to concession by the federal government, allowing any fixed and variable contributions (particularly the amounts due by way of a concession), due throughout 2020, to be paid by the end of the year. On the other hand, MP 925 guaranteed airlines the possibility of reimbursement within 12 months for tickets impacted by the pandemic.

Other measures have already taken shape, such as deferment of payment of federal taxes (especially under the Simples tax arrangement, under the terms of Resolution 152 of the Simples Nacional Management Committee) or the plan to combat the crisis conducted by BNDES, involving the full suspension, for six months, of payment of interest and principal on direct and indirect transactions with the bank or expansion of credit for working capital for micro, small, and medium-sized enterprises.

Another relevant measure was the publication of Legislative Decree No. 6/20, which, according to article 65 of the Tax Responsibility Law, recognizes the state of national public emergency, with the objective of relaxing budgetary rules and attaining tax results in order to boost the strategic allocation of public resources against the crisis.

It is clear that the government’s medicine toolbox is gaining strength to combat covid-19 in all its respects. It is imperative, however, that the remedies be managed well, effectively, vigorously, and wisely. The undersizing of the dosage, as much as the abuse thereof, will have disastrous consequences. Beating the virus is now a national priority, however long and arduous the path to victory may be. As Winston Churchill recalled in his first speech as Prime Minister, having been appointed precisely to combat a colossal threat to world civilization, "without victory, there is no survival."

Category: Labor and employment

Executive Order No. 927/20 (MP 927/20) provided in its article 13 that, during the state of public emergency in Brazil due to the covid-19 pandemic, employers may accelerate federal, state, district, and municipal non-religious holidays, upon written or electronic notice to employees, at least 48 hours in advance. The holidays advanced must be expressly stated in the notice.

In order to accelerate religious holidays, the employee's agreement is required, as its formalization by a written individual agreement.

The discussion regarding possibility of accelerating holidays and the impact this may have on the economy is not new. According to data released in 2014 by the U.S. human resources consultancy Mercer (and used until today for statistical purposes), Brazil is the seventh country in the world with the most holidays, along with South Africa, Peru, and Greece, totaling 12 national holidays. First are Colombia and India, with 18 national holidays each, and second are Thailand, Lebanon, and South Korea, with 16 national holidays each.

Also according to Mercer, a country's productivity is directly linked to the number of holidays it has: the higher the number of holidays, the lower the productivity. Given the possible impacts that holidays may have on the economy, Brazil has already put the issue on the agenda on several occasions.

In 1985, the government of President José Sarney published Law No. 7,320, mandating the acceleration, to Mondays, of holidays that fall on other days of the week. The exception were those on Saturdays and Sundays and on January 1 (Universal Brotherhood), September 7 (Independence), December 25 (Christmas), Good Friday, and Corpus Christi. The law was repealed in 1990, under the Collor government, by Law No. 8,087.

Almost 35 years later, in 2019, the Education, Culture and Sports Commission approved a bill proposed by the Senate, PLS 389/16, mandating the commemoration, via acceleration, on Mondays, of holidays that appear on the other days of the week, with the exception of those that occur on Saturdays and Sundays and on January 1 (Universal Brotherhood), Carnaval, Good Friday, May 1 (Labor Day), Corpus Christi, September 7 (Independence Day), October 12 (Our Lady of Aparecida, Patroness of Brazil), and December 25 (Christmas), that is, basically in the same terms provided for by Law No. 7,320/85. The explanatory memorandum on PLS 389/16 has been forwarded to the Chamber of Deputies, where it awaits consideration.

The justification for acceleration of holidays in the three measures is the same: to minimize the impact on the functioning of companies, to the employment of workers, and to the collection of taxes, bearing in mind that holidays lead to a reduction in work days for the production and marketing and sale of goods and services, especially in a pandemic situation, when a great part of the activities were interrupted and/or readapted to minimize the risk of contagion and spread of covid-19.

This is an advantageous measure for companies, especially those waiting for a significant increase in the volume of work after the period of public emergency, as in the case of replenishment of inventories, provided that the acceleration of holidays is strictly observed by both employees and employers, avoiding the lack of double work.

Category: M&A and private equity

The covid-19 pandemic is becoming more and more perplexing as society and market players realize the extension of its effects on the economy and the business environment globally. This article seeks to address the impacts caused by this crisis on the group of merger and acquisition transactions apparently most affected, to wit those for which contracts have been signed, but the deal itself has not yet been completed. These are transactions in the so-called interim period, which begins with the signing of the share purchase agreement and ends with the closing of the deal, by transferring the shares of the target company to the purchaser and paying the purchase price for the shares to the seller.

If, on the one hand, the transactions still in the negotiation phase allow the parties to mitigate, allocate, and price the risks in accordance with the new economic conjuncture in order to make the business viable, on the other hand, the transactions that are between execution and closing are in a more delicate situation. The parties are already contractually committed, but have not yet closed the deal. This means that funds have to be disbursed and risks have to be assumed that are no longer compatible with the current reality. In this context, the provisions on conducting business and the provisions on material adverse changes (MAC) become even more relevant and deserve closer analysis.

The conduct of business provisions essentially seek to ensure preservation of the asset and ensure that the seller’s management does not adopt measures that affect fundamentals and destroy value of the target business. Such provisions establish that the conduct of business during the interim period must occur within the limits of the ordinary course of operations. The first issue that arises is whether, in a disruptive pandemic scenario like the current one, preservation of the business by the target company might depend on measures that could be classified as outside the ordinary course of business. The crisis will probably require much more than everyday measures.

In this case, a literal interpretation of these provisions would limit the seller and the management of the target company to taking only day-to-day measures, which could be fatal for the business and therefore insufficient to achieve the parties’ purpose. On the other hand, a contextual analysis of the provision allows management to adopt extraordinary measures, outside the ordinary course of business, as long as they are justified as necessary for the continuity of the business and preservation of the value of the target company.

At first, it could be argued that it would be sufficient for the seller and the management of the target company to seek the prior consent of the purchaser in order to adopt such extraordinary measures. However, the reality of a crisis requires agility in decision-making. Submitting such decisions without limitations to the purchaser would increase the risk of gun jumping, which is an element that receives constant attention in the drafting of these clauses. This is because there is always the concern with avoiding that such restrictions, vetoes, and rights granted to the purchaser in the interim period represent effective interference in the business, exchange of sensitive information, or other circumstances deemed harmful from a competition law standpoint.

However, faced with an extraordinary scenario like the current one, in which the company’s management must make difficult and perhaps unprecedented decisions in order to preserve it, it would make sense for the purchaser to participate more actively in these decisions. In this sense, just as the Brazilian Securities and Exchange Commission (CVM) relaxed some rules provided for in the capital market regulations in order to reduce the economic impacts of the pandemic on public offerings of securities, an action by the competition authorities to limit the scenarios where gun jumping will be found in these extraordinary circumstances would be welcome.

At the opposite extreme of the efforts to preserve transactions between signing and closing, it is necessary to consider the right of the acquiring party to not complete the transaction in the case of events that adversely affect the business. This right is usually provided for in the so-called MAC clauses, related to what is defined in the purchase and sale contract as being a materially adverse change, the occurrence of which, between the signing and the closing of the transaction, allows the purchasing party to choose not to close the deal.

These clauses often establish objective criteria to establish MAC, as a value or percentage of the purchase price as a reference for the losses incurred, above which the purchaser may exercise the right not to close the deal. In the same manner, exceptions to this right are often made in cases such as war, cataclysm, and natural disasters, among others. In such cases, the risks are allocated on the purchaser's side, who will not have the right to withdraw from the deal should any of these exceptional events occur. The qualification of the covid-19 pandemic as a scenario or exception to the MAC clause should be examined on a case-by-case basis. If there is deadlock, the parties should ideally seek a consensual solution, avoiding the transaction to be left on hold until the end of judicial or arbitral litigation. Given the seriousness of the economic crisis ahead, the target company itself may not survive a long period of judicial or arbitral dispute between purchaser and seller.

Among the impacts of covid-19 on contractual relations in general, it is possible to anticipate an intense debate regarding the occurrence of acts of God or force majeure, as well as claims for excessive burdensomeness or economic rebalancing of the contract. In the universe of merger and acquisition transactions, MAC clauses give a very particular tone to these debates, when inserted into share purchase and sale contracts. Undoubtedly, the wording of each MAC clause will be crucial for each specific debate. However, it is important to remember that the Civil Code exempts debtors from damages resulting from acts of God or force majeure, as long as the debtor has not expressly assumed liability for them (article 393). The Civil Code also limits termination of contract due to excessive burdensomeness to contracts of continuous or deferred performance (article 478).

It is also important to briefly examine the possible impacts of covid-19 on the transfer of control of publicly-trade companies, especially in relation to the obligation to carry out a public tender offer (OPA) to minority shareholders. An OPA is a condition for the effectiveness of the transaction to transfer control and seeks to give equal or equitable treatment to minority shareholders as to sharing the control premium. Therefore, transactions for transfer of control that were entered into before the impacts of covid-19, but that still require the performance of an OPA to minority shareholders impose a very challenging situation on the purchasers, since they will have to pay to the minority shareholders a price per share between 80% and 100% of the amount paid to the controlling shareholders in a scenario of acute deterioration of the values of the assets.

It is important to emphasize that the application for registration of the OPA with CVM must be submitted within a maximum period of 30 days from the execution of the contract related to the transfer of shareholding control (IN CVM 361, article 29, paragraph 2). This deadline prevents fulfillment of the condition from being implemented in a more prolonged manner, which is ideal in the current situation of widespread uncertainty. In the case of transactions in which the OPA has already been published, CVM regulations allow for modification thereof, without the need for authorization from the agency, provided that it is for the benefit of the recipients. Any other change requires prior authorization from CVM (CVM IN 361, article 5). These are examples of situations that will require sensitivity from the regulator, and it is advisable to make the rules more flexible, as has already occurred in relation to other rules.

In the current crisis scenario, full of uncertainties, it is essential that all those involved in mergers and acquisitions be aware of the actual and potential impacts on each transaction. Efforts to minimize them depend not only on authorities and regulators, but also and above all on common sense, creativity, and legal intelligence applied by the parties and their advisors until normality is restored.

Category: Labor and employment

Within the package of measures promulgated by the federal government on March 22 (Executive Order No. 927/20 (MP 927/20) to change labor relations guidelines in Brazil during the covid-19 pandemic, three articles directly amend the rules on workplace health and safety.

According to article 15 of MP 927/20, the obligation to conduct occupational, clinical, and complementary medical examinations is suspended during the state of public emergency referred to in article 1 of the order. They should be carried out, however, within 60 days after the end of the emergency period. Examinations upon dismissal, in turn, will be maintained in all cases of dismissal without cause and performed within ten days of the date of termination. The exception is workers who have undergone a periodic examination within 180 days prior to the date of dismissal. The previous period was 90 days for companies in risk groups 3 and 4 of Regulatory Standard (NR) 4 and 135 days for risk groups 1 and 2 of that same standard.

According to paragraph 2 of article 15, the doctor responsible for the company's Occupational Health Program may ask workers to undergo such examinations, in cases where he finds that extension of deadlines may pose a risk to their health.

This is a common sense measure, in line with the other measures contained in MP 927/20, since the current situation demands social distancing and it would not be prudent to maintain the obligation to undergo non-urgent examinations during a period of public emergency.

Another point of special attention changed by MP 927/20 was suspension of the requirement for mandatory training for some activities, such as the training provided for in NR-12, 13, 18, 20, 23, 33, 35, and 36, which we cite as examples. During the exception period, therefore, specific training for working at heights, in confined spaces, with combustibles and flammables, in boilers, or with pressure vessels, as well as the mandatory training on fire prevention measures, are suspended. Employers may, however, provide distance learning courses on these subjects, as long as they confirm the relevance of the programs, as required by paragraph 2 of article 16 of MP 927/20.

Any accidents in activities considered to be "risk activities" may generate strict liability on the part of employers, and it is incumbent on them to prove the exclusive fault of the victim. In such cases, lack of mandatory training during the calamity period cannot be used as an argument for exemption from liability.

Therefore, it is advisable to review this article of MP 927/20 with caution: employers must confirm which training courses they will not be able to offer remotely and perform them within 90 days of the end of the public emergency period, as provided for in paragraph 1 of article 16 of MP 927/20.

Finally, in the chapter of MP 927/20 that deals with suspension of administrative requirements in occupational safety and health, the passage that may give rise to more doubts for employers is article 17. Per its wording, internal accident prevention committees (CIPAs) may be maintained until the end of the state of public emergency (i.e., terms of office that would end during that period may be maintained until it ends), and ongoing electoral processes may be suspended.

The first possible point of doubt relates to when job security begins and ends in processes that have already begun and in commissions that would end during the public emergency. This is because employees elected to the CIPA by their peers have job security from the moment of their candidacy until one year after the end of their investiture in the position.

Suspension of the electoral process does not invalidate it and is not a cause for interruption, that is, at the end of the period of the public emergency it will resume from the point where it was suspended. If candidacies have already been formalized, applicants may be considered to have job security throughout the public emergency period. In the same sense, the security of current members should be extended until the end of the public emergency period, even if their terms of office end earlier.

In an extreme situation, it is possible that, in the same period, there may be employees with job security because they are members of CIPA, with security because they are candidates in elections whose process has already begun, in addition to those who have security for the period after their term of office. This is an unusual situation that cannot be overlooked by companies.

The second doubt is generated by the word "may", since it may cause future discussion to leave it up to the employer to decide whether or not to maintain a CIPA when it would have its validity end during the emergency period and suspend the electoral process.

Numerous claims for discriminatory dismissal brought by employees before the beginning of the electoral process are nothing new. Assigning to the employer the power to suspend a new process may generate this type of claim if candidacies have not yet been registered.

The three articles are in line with the other measures of the federal government for this moment of crisis, but the doubts they raise may end up jeopardizing their adoption by employers.

Category: Labor and employment

Faced with the state of public emergency recognized by Legislative Decree No. 6, of March 20, and the public health emergency of international importance due to the rapid spread of the coronavirus (covid-19), the federal government published Executive Order No. 927/20 on March 22 (MP 927/20) to establish labor alternatives that may be implemented by employers to preserve jobs and income.

One of the measures brought in by MP 927/20 is suspension of the requirement for employers to withhold the FGTS for March, April, and May of 2020, for wages in April, May, and June of 2020, respectively. According to the new rule, companies will be able to pay these amounts starting in July of 2020.

This suspension of FGTS payment and deferral of payment reveals a concern on the part of the federal government with giving more flexibility to the cash flow of companies, not least in order to avoid the closing of their activities and mass layoffs. The measure applies to any employer regardless of:

• number of employees
• tax system
• legal nature
• branch of economic activity
• prior adhesion

In anticipation of the potential difficulty companies may have in paying the total amount at the end of the period of suspension of enforceability, MP 927/20 authorizes payment of the FGTS for the periods of March, April, and May of 2020 in up to six monthly installments. In this case, companies must observe the due date of the installments, which will coincide with the seventh day of each month, starting in July of 2020.

As it does not arise from default, but rather from a suspension of enforceability, the amount to be paid via installments will not be subject to the adjustment for inflation, penalties, and charges provided for in article 22 of Law No. 8,036/90.

The installment plan is available, in principle, to all employers, but, in order to enjoy this prerogative, they must necessarily declare, by June 20th of this year, information on the triggering events, calculation base, and amounts due as social security contribution.

The information provided will constitute a declaration and recognition of the debts arising therefrom, will constitute an acknowledgement of debt, and will constitute an adequate and sufficient instrument for the payment of the FGTS debt. In turn, amounts not declared shall be considered to be in arrears and shall be subject to the levying of a penalty and charges as per article 22 of Law No. 8,036/90.

Should termination of employment occur, the suspension of the enforceability of the FGTS payment will be understood to be terminated, and the employer will be obliged to proceed with payment of the corresponding amounts, without imposition of the penalty and charges set forth in article 22 of Law No. 8,036/90, provided that it is made within the legal period established for performance thereof, by the 7th day of the month subsequent to the month of accrual.

In the event of termination of employment during the installment payment period, any outstanding installments will have their maturity date advanced to the period applicable to the payment of the amounts for the month of termination and the month immediately preceding the one in which it has not yet been paid.

In an attempt to ensure that FGTS payments are effectively made upon the end of the suspension of enforceability thereof, MP 927/20 clarified that any default will result in the imposition of penalties and charges set forth in article 22 of Law No. 8,036/90, in addition to the blocking of the FGTS certificate of good standing, a document issued exclusively by Caixa Econômica Federal that proves the employer’s good standing.

Although MP 927/20 is not explicit regarding the starting date for the assessment of penalties and charges, we believe that it cannot have retroactive to the month in which the FGTS is due (March, April, or May), bearing in mind that, in view of the authorized suspension of enforceability, the obligation to pay the penalty only begins to exist after the deferment period.

Exceptionally, MP 927/20 also suspends the counting of the statute of limitations for FGTS contributions for a period of 120 days, counting from the date of entry into force of the executive order. This means that, during this period, the employee's five-year right to claim, in labor courts, differences arising from non-payment of FGTS contributions will be suspended.

Certificates of good standing issued before the effective date of MP 927/20 will have their terms extended by 90 days, and the current FGTS debt installment payments that have payments due in March, April, and May will not prevent the issuance of a certificate of good standing.