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Bankruptcy Law Reform and COVID-19-related measures for insolvency

In order to deal with the COVID-19 pandemic scenario and to keep the economy stable during the crisis, Brazil has adopted some measures to protect businesses against insolvency and bankruptcy. Whether such measures are pandemic-related or not, they integrate Brazil in a worldwide effort to avoid damages.

In April 2020, the State Courts of Justice of both Sao Paulo and Parana created projects for out-of-court dispute resolution. The first developed a conciliation and mediation project for pre-litigation business disputes and the latter implemented a Judicial Center for Conflict Resolution and Citizenship (CEJUSC) for reorganisation.

The Brazilian National Council of Justice (CNJ) recommended in early August 2020 the creation of CEJUSCs for any business disputes to be settled by ways of negotiation, mediation or conciliation either in out-of-court or court processes. Before that, in March, the CNJ recommended the adoption of measures to mitigate the impact of COVID-19 in reorganisation and bankruptcy processes, e. g. stay period extension in the case the creditor’s meeting needed to be postponed.  However, these recommendations are not mandatory.

The provisions of out-of-court mediation and reorganisation are similar to the Chinese instructions for civil cases involving COVID-19 released in May 2020, which has key content on bankruptcy cases.

Irrespective of its transitory character, the Emergency and Transitional Legal Framework for Private Law Relations (RJET), established by Federal Law No. 14,010/2020, did not regard insolvency, but rather some general provisions, e.g., on statute of limitations and contractual issues.

Although there have been no provisional changes to federal insolvency law facing the COVID-19 pandemic so far, on November 25, 2020, the Brazilian Federal Senate approved the Bill of Law (“Bill”) 4,458/2020 which reforms the Brazilian Bankruptcy Law (Federal Law No. 11,105/2005). The Bill had previously been voted by the Chamber of Deputies and now awaits presidential sanction.

The main objectives of the Bill are, inter alia, to support the economic recovery of businesses, to reduce litigation and court proceedings, to reduce the duration of a proceeding and to stimulate out-of-court processes, such as extrajudicial reorganisation and pre-litigation dispute resolution.

The following topics are the major changes in Brazilian bankruptcy law in connection with the current legislation of other jurisdictions:

   a) Conciliation and mediation on extrajudicial and judicial reorganisation

According to novel articles to be inserted in bankruptcy law, conciliation and mediation shall be encouraged in any court, including superior courts, both before and after the request for judicial reorganisation. These methods are specially recommended when, among others, (i) the dispute involves partners and shareholders of a business in financial distress or in a current judicial reorganisation proceeding; and (ii) the business in financial distress and its creditors are able to renegotiate the debts, before the filling for judicial reorganisation.

Regarding COVID-19 and public calamity, the Bill encourages conciliation and mediation during the judicial reorganisation proceeding in the cases there are “extraconcursais” credits.

   b) Creditors can provide the judicial reorganisation plan

In the case the judicial reorganisation plan submitted to creditors approval is rejected, the judicial administrator puts the proposition to the creditors’ meeting vote. If the creditors do not agree to provide a reorganisation plan or the creditors’ plan is rejected, the judicial reorganisation will be converted into bankruptcy.

   c) The adoption of transnational insolvency

The Bill integrates to Brazilian legal framework the possibility of transnational insolvency based on UNCITRAL Model Law on Cross-Border Insolvency, seeking for international cooperation, uniformity of application and respect to good faith.

Among several and detailed provisions, there are sections to regulate the recognition of foreign processes, the cooperation with foreign authorities and representatives and the concurrent processes. The latter is related to the extrajudicial and judicial reorganisation or bankruptcy proceedings to commence after the recognition of a foreign main process.

The Brazilian Prosecutors Office will also intervene in such processes.

   e) The possibility to consolidate group estates

The Bill innovates by authorising debtors under common corporate control to request for judicial reorganisation by means of procedural consolidation. Exceptionally, the judge can also authorise substantial consolidation if there is interconnection or confusion of assets or liabilities among the debtors plus at least two other situations. In this case, assets and liabilities are considered to be of a single debtor.

   f) The judicial reorganisation of the rural producers

This topic puts an end in a great discussion among state courts in Brazil. The rural producers can request for judicial reorganisation even if their commercial register does not meet the required period of registry. Such period may be proved by using the documents of the activities performed, including, e.g., Digital Cash Book and balance sheet.

g) General novelties: regulation of dip financing (debtor in possession financing); broader cases of bankruptcy declaration; increase number of outstanding tax debt instalments; stay period extension.

Once sanctioned by Brazilian President, the Bill will enter into force in thirty days after publication on the Official Gazette.

Referências:

“CEJUSC Recuperação Empresarial” é implantado na comarca de Francisco Beltrão. Tribunal de Justiça do Paraná. Disponível em: https://www.tjpr.jus.br/noticias/-/asset_publisher/9jZB/content/id/35253519

COVID-19 and the Current State of Insolvency in China. The University of Melbourne. Disponível em: https://law.unimelb.edu.au/centres/alc/engagement/asian-legal-conversations-covid-19/alc-original-articles/covid-19-and-the-current-state-of-insolvency-in-china

Guiding Opinions of the Supreme People’s Court on Several Issues Concerning the Proper Trial of Civil Cases Involving the New Coronary Pneumonia Epidemic Situation (2). The Supreme People’s Court of the People’s Republic of China. Disponível em: http://www.court.gov.cn/fabu-xiangqing-230181.html

Nova Lei de Falências é aprovada pelo Congresso Nacional. Ministério da Economia. Disponível em: https://www.gov.br/economia/pt-br/assuntos/noticias/2020/novembro/nova-lei-de-falencias-e-aprovada-pelo-congresso-nacional

Provimento CG nº 11/2020. Tribunal de Justiça de São Paulo. Disponível em: https://www.tjsp.jus.br/Download/Portal/Coronavirus/Comunicados/Provimento_CG_N11-2020.pdf

Recomendação Nº 63 de 31/03/2020. Conselho Nacional de Justiça. Disponível em: https://atos.cnj.jus.br/atos/detalhar/3261

Recomendação nº 71 de 05/08/2020. Conselho Nacional de Justiça. Disponível em: https://atos.cnj.jus.br/atos/detalhar/3434

Tabela de principais mudanças do PL nº 4.458/2020. Ministério da Economia. Disponível em: https://www.gov.br/economia/pt-br/assuntos/noticias/2020/novembro/arquivos/TabelaLeide_Falencias.docx.pdf

A matter of suitability: the CIArb Guidelines on Witness Conferencing

In April 2019, the Chartered Institute of Arbitrators released its Guidelines for Witness Conferencing in International Arbitration. The document was developed for use by parties, arbitrators and experts when preparing and presenting evidence in such a conference.

   1. The Witnesses Conferencing: overview

Witnesses conferencing is an evidence-taking process by which two or more witnesses give their evidence concurrently before the arbitral tribunal. According to the Guidelines, it is not a single process, so it can assume different forms in order to assure the efficiency and effectiveness of taking of evidence and procedural orders.

The conferences concern the presentation of evidence of both factual and expert witnesses, although they have been more adopted for the latter. The tribunal, the parties’ or witnesses’ counsel or a combination of these may be responsible for the conduction of the process.

The CIArb document lists some advantages of the adoption of witnesses conferencing. Some examples are the effectiveness brought by conference when receiving the evidence, in comparison with consecutive examination; the improvement of the quality of evidence; and the efficiency brought by an evidentiary hearing, when the tribunal can hear the witnesses at the same time.

It is important to emphasise that the parties and the tribunal need to determine whether this evidence-taking process is the best option for their case. Even though the witness conferencing is adopted, its procedures shall be analysed and suited to the circumstances of the dispute.

   2. The Guidelines

The Guidelines contain as main sections the Checklist, the Standard Directions and the Specific Directions, besides Explanatory Notes with detailed information regarding the Checklist and the two groups of directions.

The Checklist sets out matters to be considered by the parties and the tribunal when determining if the witness conference may be adopted and, in such case, what form the conference may take. A matter of logistics, e.g. if “one or more witnesses is to give evidence by video conference”, refers to both questions of the suitability of the process and the form it should take at the same time. However, the Guidelines warn that “not all of the items […] will be relevant in all cases”.

The Standard Directions are a framework intended to be part of an initial procedural order issued by the arbitral tribunal. It sets principles to be applied when the tribunal “subsequently orders some of the witness evidence to be taken concurrently”. Nevertheless, it does not mean that the taking of consecutive evidence is dispensed.

The Specific Directions apply once the parties and the tribunal decided to adopt the process of taking evidence concurrently. It provides three different procedural frameworks: Tribunal-led Conference, Witness-led Conference and Counsel-led Conference. The Guidelines also allow the tribunal to combine these frameworks, to draw on different directions and to incorporate other directions. The aim of this section is to point which direction may be the most suitable for the case.

The CIArb Guidelines are an important document to assist the parties and the tribunal due to their flexibility and precise information. Once the suitability of the witness conferencing is carefully analysed, the Guidelines may help the international arbitration players even after the adoption of the process.

The Chartered Institute of Arbitrators received this year the Global Arbitration Review Award in Bert Innovation by an organisation for the Witness Conferencing Guidelines.

Digital justice in Brazil

The National Justice Council (www.cnj.jus.br) of Brazil has just approved the adoption of a totally remote system of Justice by the Judiciary instances. Known as “100% digital Justice”, it will be an option to the parties in a judicial procedure.

For the moment, the system, when adopted by the Brazilian courts, will be facultative. However, the CNJ understands that it will bring more efficiency to the proceedings, meeting the constitutional principle of the reasonable duration of the judicial process, a fundamental right, according to the Brazilian Constitution.

The decision was made considering the successful experience that the courts had with the remote proceedings adopted during the COVID-19 pandemic.

Brazil implemented the electronic process system in 20**. Since then, many measures are being taken to eliminate paper based process. Now, the digital era is covering all the system, including hearings and judgement sessions.

It seems that Brazilian Justice maybe very close to the on line courts model, in the words of Richard Susskind, strengthening the idea that Justice is a service, and not a venue.

Singapore Convention enforcement

In this 9/12 the United Nations Convention on International Settlement Agreements Resulting from Mediation, known as the Singapore Mediation Convention, came into force. This is a remarkable day for the international scenario of dispute resolution.

Article 14 of the Convention provides that it would enter into force six months after three of its signatories had ratified it into their domestic law, what happened in the 12 March this year, when Qatar became the third state to ratify the Convention.

The goal of UNCITRAL Working Group dedicated to the draft of the Convention was to create an international regime for the enforcement of mediation settlements that would contribute to increase the use of mediation as a conflict resolution method in international trade. With the Singapore Convention the role of mediation is strengthened and the reached agreements enforcements will be simplified.

The Singapore Convention applies to commercial cross border mediation. An important issue to pay attention at is the fact that Singapore Convention is not based in reciprocity between member states, as its “sister” New York Convention.

And what does it mean? It means that a member state shall enforce mediated settlement agreements even if it comes from a non member state. For example, if an international mediation was located in Brazil (a non signatories) it might be enforced in Saudi Arabia (a member state).

On the other hand, under the Convention, the states may adopt a reservation provision, which allows them to declare that they will apply it only to the extent that the parties to the relevant settlement agreement have agreed that the Convention will apply.

Thus, international mediation players from all nationalities should from now bear in mind that Singapore Convention matters.

It is never too soon to deal with privacy by design under Brazilian LGPD

Data protection has definitively remarked the discussions during the last years. The European experience in its General Data Protection Regulation (GDPR) spread over many countries and has inspired legislation regarding such matter.

Brazilian General Data Protection Law (LGPD) passed in 2018 will enter into force soon, after a postponement caused by the current pandemic. It is expected that the law will bring more security for data subjects under the Brazilian legal framework.

Although LGPD will take effect only next year, both business and organisation need to prepare their data management and processes since now to avoid fines and, a little worst, loss of consumer trust.

Regarding measures to start the compliance program, the Privacy by Design (PbD) principles are likely a good way to ensure end-to-end privacy during data processing. The concept of PbD was developed in the 90’s by the former information and privacy commissioner of Ontario, Canada, Ann Cavoukian.

Several studies in such field aims to prove that Cavoukian’s 7 foundational principles are paramount to protect privacy, from IT systems and physical design to business practices. Both GDPR and LGPD have similarities, which may make it easier to develop PbD.

Cavoukian’s principles such as privacy as something proactive and preventive, transparent, and that is developed to guarantee end-to-end security (i.e. during the full data lifecycle) match some of the LGPD articles and provisions, although in an unexpressed manner.

On the other hand, GDPR has adopted the “data protection by design and by default” in its article 25, with reference to technical and organisational measures to implement data protection principles. It ensures privacy requirement from the very first moment of data collect until the erasure of the information.

Therefore, PbD deals with privacy and respect for the user from “cradle to grave”, in Ann Cavoukian’s words. However, that does not mean that business and organisation’s reputation and credibility need to follow the same way. Data protection legislation are not just a framework to comply with. Instead, if the business does not respect its user’s privacy, more than receiving fines, it will bury its image before the activity sector.

To sum up, the 90’s bring to us many technological and legal advances, such as the World Wide Web, Directive 95/46/EC of the European Parliament and of the Council and, of course, the PbD. But what it really teaches us is that it is never too soon to discuss and implement privacy as an organisational default.

The next 90’s lesson is still unclear, but for now we are more than experts to start seeing privacy as benefit, not as an issue.

Is there a relationship between PVP Law and agribusiness?

In the field of intellectual property, it is common to think in trademarks, patents and computer programs as its great representatives. Although that is true, there is a specific area that are both agribusiness and IP subject we are required to understand: the cultivated variety, or just “cultivar”.

Brazilian IP Law bars the protection of natural living beings, in whole or in part, and biological material, when found in nature or isolated, from patent system. Such provision was an option for each signatory of both Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement) and International Convention for the Protection of New Varieties of Plants (the UPOV Convention from 1978). In this regard, plant variety such as sugarcane, cotton, banana, orange and corn, whose harvests were particularly responsible for increase in 3,81% the Brazilian agrobusiness GDP in 2019, have a sui generis protection system.

The Brazilian Plant Variety Protection Law (Law No. 9,456/1997) regards several criteria in order to distinguish the cultivar use and reproduce from another kind of plant. To do so, the article 10 presents actions that are not deemed to be breeder’s right infringement. For instance, a person who stores and plants seeds for his/her own use on his/her premises or on the premises of third parties shall not be considered a PVP infringer. Using the plant as a source of variation in genetic improvement or in scientific research is another exception.

A special treatment is given to small rural producers (familiar agriculture), who are allowed to multiply seeds for donation or exchange in dealings exclusively with other small rural producers, under programs of financing or support authorised by the Government.

But such general provisions do not apply to the cultivation of sugarcane. A specific list of provisions regulates cultivar. The producer who wants to multiply vegetative propagating material, for example, is obliged to secure authorisation from the owner of the right to the plant variety, even for his/her own use. It does not apply just in case the rural property the producer has possession or ownership has less than four modules, according to Law No. 4,504/1964.

To regulate and manage applications for protection, Brazilian PVP Law established the National Plant Varieties Protection Service (SNPC), under the authority of the Ministry of Agriculture, Livestock and Food Supply (MAPA). All responsibilities of this agency are listed at article 3 of Decree No. 2,366/1997, that implements regulations of the Plant Variety Protection Law.

Under article 9 of UPOV Convention, Brazilian PVP Law provides restrictions in the exercise of breeder’s right in two main cases: compulsory license and restricted public use.

The first restriction ensures the availability of the plant variety on the market, at reasonable prices, when the maintenance of a regular supply is being unduly hampered by the title holder. Any part having legitimate interest may request this measure if there is evidence that the requester has attempted, unsuccessfully, to obtain a voluntary license from the holder of the cultivar.

Conversely, the second restriction is declared ex officio by the MAPA, based on a technical opinion issued by the competent agencies. Article 36 of Brazilian PVP Law allows restricted public use declaration in case of national emergency, abuse of economic power or other circumstances of extreme urgency. The cultivar may be exploited directly by the Federal Union or by third parties designed by it.

According to article 6 of the law its provisions also applies to applications for PVP originating abroad and filed within the country by a natural or legal person whose protection is ensured by a treaty effective in Brazil. It is important to note that the person domiciled abroad shall appoint and maintain an agent with power of attorney domiciled in Brazil to represent him/her in dealings with the SNPC.

In addition, the term of protection under Brazilian law is basically the minimum settled at UPOV Convention: fifteen years. For vines and fruit, forest and ornamental trees, including their rootstock, the period is eighteen years. Both periods begin in the date of grant of the Provisional Certificate of Protection issued by SNPC, and at the end of such term the cultivar shall pass into the public domain.

The law also ensures that any person who infringes the rights of a protected plant variety shall be bound to indemnify the title holder as well as shall be deemed guilty of the crime of infringement of the rights of the breeder.

The increasing of agricultural activities depends on plant variety protection for planting and harvesting. Consequentially, nowadays intellectual property has a tight relationship and is becoming a more and more important issue for agribusiness.