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Board directors’ duties and ESG considerations in decision-making

Some may say sustainability is the ‘flavour of the month’. If that was ever the thinking pre COVID-19, the pandemic has certainly had an impact on corporates’ sustainability agendas – no longer a ‘nice to have’ but rather an operational and strategic imperative, at the heart of any business’s ability to compete and succeed in the long term.

Good governance, good decision making, is a cornerstone of good business. The double-headed health and financial crisis has accelerated the growing focus on both the purpose of the corporation and the role of the board in overseeing and leading in ways that promote sustainable business success. Alongside this, the push by investors has moved from talking purely of share price and returns to asking about resilience and long-term value creation. Put simply, society is forcing companies to focus on the link between values and value.

That is why we worked with the World Business Council for Sustainable Development (WBCSD) to finalise this paper on fiduciary duty which draws primarily upon perspectives and insights from UK and US legal and regulatory structures. We explain why sustainability matters and why it should be included by boards on their agendas as a matter within their remit. We consider how boards should address sustainability in the context of their company’s strategic objectives and business model.

Along with WBCSD, we are challenging directors to assess whether they are taking all relevant steps in the boardroom to ensure the company not only properly assesses and mitigates sustainability risks but also understands the opportunities that sustainability considerations can bring.

You can access the full report by clicking here.

White & Case advises Calastone on sale to The Carlyle Group

Global law firm White & Case LLP has advised the management team of Calastone on the acquisition by The Carlyle Group of a controlling interest in Calastone, the management team retaining a minority stake.

Founded in 2007, Calastone is the largest global funds network, connecting the world’s leading financial organisations with over 2,300 clients in 43 countries and territories and processing £200 billion of investment value each month. Calastone has helped to transform the funds industry by creating innovative new ways to automate and digitalise the global investment funds marketplace, reducing frictional costs and lowering operational risk to the benefit of all.

White & Case advised Calastone management on the sale process, as a result of which global investment firm The Carlyle Group agreed to acquire a controlling interest in Calastone from its current shareholders, including Octopus Ventures and Accel. Calastone management retains a minority stake.

The transaction is subject to regulatory approval. Financial terms of the transaction are not disclosed.

The White & Case team in London that advised on the transaction was led by partner Mike Weir and included partners David Goldberg and Daniel Turgel and associates James Turner and Josephine Levick.

Norton Rose Fulbright publishes COVID-19 report

A new report by global law firm Norton Rose Fulbright – “Global operational resilience and COVID-19” – reveals how international financial institutions are managing operational resilience in the wake of the COVID-19 pandemic.

A cross-section of senior executives and risk and compliance professionals from more than 50 international financial institutions responded to the survey, which focuses on seven headline areas:

  • Governance and oversight
  • Annual budgeting
  • People and important business services
  • Outsourcing and systems
  • Regulatory change and guidance
  • Key challenges and concerns
  • Lessons learned

Whilst 38% of respondents felt their institution had moderately comprehensive operational resilience frameworks before the pandemic, the same proportion confirmed their framework was either “in development” or “in place but required improvement”. Consequentially, the pandemic has prompted a robust response from the financial services industry with 80% of respondents stating that their institutions now has enhanced governance and oversight due to the crisis.

Managing external stakeholders and third parties, IT connectivity, business travel disruptions, and supervision and oversight were four areas in which respondents had experienced challenges during the earlier phase of the pandemic.

In addition, respondents have identified conduct risk, cyber and data security, cash flow and profitability, and the impact of loan loss provisions as primary areas of systemic concern.

Correspondingly, respondents expect greater regulatory scrutiny and enforcement action to focus on controls and risk management frameworks, technology and management information, accountability regimes and financial crime risks.

Given the ongoing disruption caused by the pandemic, more than 70% of respondents expect that their organisations will increase their operational resilience budgets in 2021.

Lisa Lee Lewis, head of advisory for risk consulting at Norton Rose Fulbright, commented: “The pandemic has prompted an institutional rethink on operational resilience. The question financial institutions need to ask themselves is: can the institution absorb operational shock when they do occur while continuing to provide the same level of services to its customers and relevant markets? Financial institutions will continually need to test their ability to remain within their impact tolerances through a range of severe but plausible disruption scenarios. These areas will be even more pertinent as and when new or enhanced rules come into force over the course of the year in countries across the globe.”

Jonathan Herbst, global head of financial services, Norton Rose Fulbright commented: “The current pandemic has meant that firms’ contingency plans are being tested in real-time. It has incidentally prompted firms around the world to begin mapping, testing and strengthening their operational resilience frameworks, often in advance of the new or revised rules coming into force. Those firms who have generally responded well in this crisis will find that the initial groundwork for operational resilience has been laid.”

Texas Super Lawyers recognises two Eversheds Sutherland partners

Eversheds Sutherland is pleased to announce that Partners Scott R. McLaughlin and Lino Mendiola III have been selected as top attorneys in the state by Super Lawyers. The designations are the result of an annual survey conducted by the publication, which focuses on professional achievement and peer recognition.

Mr. McLaughlin, a partner in the Houston office, is widely recognised as an authority for bet-the-company labour and employment cases. A “go-to” litigator for clients facing trade secret, fiduciary, discrimination, wage and hour, and “C-Suite” matters, he also has deep traditional labour experience, having handled litigation against unions, union elections supervised by the National Labour Relations Board, strikes and many labour arbitrations. Mr. McLaughlin regularly files lawsuits under the Computer Fraud and Abuse Act to recover information misappropriated by departing employees and has vast related experience in gathering, securing and preserving electronic evidence. He also has extensive experience in conducting internal sexual harassment, discrimination and fraud investigations, and provides day-to-day labour and employment advice and counsel to clients. With a national litigation practice, Mr. McLaughlin has a successful track record for defending Fortune 200 companies in multimillion-dollar claims before state and federal courts in numerous trials and arbitrations.

Mr. Mendiola, a partner in the Austin office and member of the US Executive Committee, advises clients in both litigation and transactional matters involving energy and regulatory law with a focus on the Texas electric energy market. With more than 24 years of commercial and regulatory litigation experience, Mr. Mendiola represents utilities, private equity investors and other clients in state and federal court and before the Public Utility Commission of Texas and other state agencies. He also advises clients on the regulatory aspects of complex energy transactions, including infrastructure development, asset sales and joint ownership arrangements. Additionally, Mr. Mendiola frequently counsels clients on state and federal contracting and procurement law, and advises governments and businesses on procurement and contracting matters, such as DBE/HUB/MBE/WBE regulatory compliance, supplier diversity program development, and issues relating to diversity, inclusion and affirmative action. He is nationally recognised in designing, implementing and defending affirmative action programs and routinely offers legal advice in disputes involving procurement policies.

Alternatives for restructuring of intercompany debts

The continued devaluation of the Real has increased the total indebtedness of Brazilian subsidiaries of foreign groups that incurred debts in foreign currency, particularly in relation to the U.S. dollar and the Euro, and these subsidiaries are now seeking ways of restructuring the debts to their parent companies. Such devaluation may cause very serious impacts, affecting financial results and possibly making the debts unpayable.

It is a fact that there has been a significant positive variation of the U.S. dollar in relation to the Real in the last few years. By way of example, the average annual dollar/real rate in 2015 was approximately R$ 3,34 and the average partial annual rate for 2020 calculated up to July 31, 2020 was R$ 4,98 , the rate today being more than R$ 5,60. In view of this scenario, the need has arisen to discover what action permissible under Brazilian law may be taken to restructure intercompany foreign currency debts, in order to reduce risks and negative impacts related to the exchange variation for the Brazilian subsidiaries.

For an analysis of such action, we have separated the debts, by their nature, into three groups: loans, importations and other types of debt.

As far as the first group is concerned, namely foreign currency loans, the principal amount and interest may be converted into a direct investment, whereby the total amount due will be converted into quotas or shares in the Brazilian debtor company, by establishment or increase of the creditor’s equity interest in the said company. However, in relation to this group it must be borne in mind that loans converted into direct investment in a period of less than 180 days from the date of entry of the funds will be subject to IOF (tax on financial operations) at the rate of 6%, plus penalty and interest from the date of entry of the funds into the country, whereas loans made and converted over longer periods will benefit from a zero rate for the same operation, pursuant to article 15-B, items XI and XII of Decree 6.306/07.

It is important to note that for any symbolic foreign exchange operation, whether of the type now referred to or any other described in the legislation such as those below, the rate of IOF on the exchange is also reduced to zero rather than the usual 0.38%, in accordance with article 15-B, item XVIII of Decree 6.306/07.

It must also be pointed out that the total amount of interest, if converted into capital, will be subject to the withholding income tax at the rate of 15%, since the conversion is regarded as being a form of payment of the obligation.

Also in relation to loans, if the conversion into capital is not a feasible alternative, but it is intended even so to avoid the risk of the foreign exchange variation, there is the possibility of switching to Reais the foreign currency applicable to the loan.

Another operation that merits attention for the purpose of restructuring debts in foreign currency involves importations, which may be converted into a loan, preferably with a change of currency into Reais, since the intention is to eliminate the risk of foreign exchange variation, or into direct investment.

For conversion of debts incurred on importation into a loan in local currency, it is necessary for the creditor formally to express its intention of doing so by means of a declaration, stating that the amount of the loan will be in Reais, to be calculated at the moment of the simultaneous exchange operations. Special attention should be paid to the incidence of IOF, the ideal solution being that the loan in question stipulate a repayment term of at least 181 days from the conversion, in which case a zero rate will be applied.

Conversion of the importation into direct investment may take place at any time by means of a declaration by the creditor and acceptance by the debtor, resulting in simultaneous symbolic foreign exchange operations.

As regards other foreign debts of an unspecified nature, these may be converted into a loan or direct investment, in the same way as importations, since any obligation that involves payment abroad may be converted, the only requirement being a formal statement by the creditor to that effect. However, it should be noted that some operations involving certain debts may give rise to the incidence of taxes as a result of their nature and must be considered specifically for the purpose of conversion. In this connection it must always be borne in mind that the exchange on sale of foreign currency on the conversion, the first leg of the symbolic operation, gives rise to the same effect as in the case of actual repayment.

It should be mentioned that the figures resulting from the conversions will be calculated in accordance with the exchange rates on the date of the symbolic operations for the conversion rather than the historic value of the debts in any of the cases above.

In relation to debts that are not capable of registration under the foreign exchange legislation, and cannot therefore be the subject-matter of a symbolic exchange operation for conversion, in accordance with Law no. 11.371/06, there is still the possibility of conversion into direct investment with the registration of so-called “contaminated” capital, which, although feasible, must be considered with great care.

Finally, before carrying out any restructuring of foreign currency debts, it is necessary to confirm that the information lodged with the Central Bank of Brazil is up to date, and also to consider from the group structural viewpoint the best option to be adopted.

Deborah Henriques Grasmann de Carvalho and Adolpho Smith de Vasconcellos Crippa

Associate lawyer and Partner in Company Law Area – São Paulo

[email protected] and [email protected]

Dentons triumphs at the jubilee edition of CEE Investment Awards

For the 10th time in a row, Dentons has won the “Law Firm of the Year” title at the 2020 edition of CEE Investment & Manufacturing Awards, organised by EuropaProperty. During the gala event held online on 29 October 2020 as a culmination of the CEO Networking Forum 2020, the awards were granted in 34 categories to companies and individuals that were the most successful in the investment market last year. Additionally, Judit Kővári, Head of Dentons’ Real Estate practice in Hungary, was shortlisted for the “Professional of the Year” award.

“CEE Investment & Manufacturing Awards is an important event for the entire real estate industry. Our victory at this year’s jubilee edition is unique for us because it recognises a leading position of Dentons’ Real Estate team in Poland and the entire Central and Eastern Europe region, and acknowledges our colleague from Budapest to be amongst top professionals in CEE” – said Paweł Dębowski, Co-Head of Dentons’ Europe Real Estate group.

CEE Investment & Manufacturing Awards is a highly prestigious event in the real estate sector, focused on investments and sustained growth opportunities in the CEE region. At each annual gala, awards are handed in to the largest and most interesting projects, best professionals and firms with record results in the previous year, all of the above done with a view to fostering continued market growth. The winners are selected by an international jury consisting of real estate market experts from Poland and the CEE region.