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                                                                    Newsletter
                                                                            01452-904 São Paulo, SP, Brasil
                                                           Tel: (55 11) 3094-7810 Fax: (55 11) 3094-7820
                                                                                          www.mhmk.com.br
                                                           Edition 01 | November 2005
                                                                     Newsletter
                                                                    Edition 01 | June 2005




                          In this Edition




                  General Overview of the New Brazilian Restructuring Law
                  By Antonio Carlos C. Mazzuco and Marcos Antonio Kawamura


                  Brazilian Public-Private Partnerships – Decree 5,385 and the Steering
                  Committee
                  By Antonio Carlos C. Mazzuco


                  Brazilian Public-Private Partnerships – Decree 5,411
                  By Mariana Kauche Maldonado


                  Unification of the Exchange Markets
                  By Marcos Antonio Kawamura




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                                                                                                         Newsletter
                                                                                          Edition 01 | November 2005




General Overview of New Brazilian Restructuring
Law
By Antonio Carlos Mazzuco and Marcos Antonio Kawamura



Law 11,101 was                          enacted               last    Nevertheless, during a period of 180 days as
February 09,2005                                                      of     the    court’s      approval     of       the    judicial
The      new      Brazilian       restructuring         law     was   restructuring processing, the above creditors
enacted last February 09 as Law 11,101 and                            will not be able to take possession of the

will     be    effective on June         9,    2005           (“Law   respective         assets     if    they      are      deemed
11,101”). Law 11,101 revokes Decree-Law                               essential for the          performance           of    debtor’s
7,661/45, which for many years has been the                           activities.

main bankruptcy statute in Brazil.
                                                                      To request a judicial restructuring a debtor
The main change introduced by Law 11,101 is                           must be in operation for at least 2 years and

the creation of restructuring procedures not                          cannot have been declared bankrupt, or
contemplated under previous legislation: (i)                          requested a judicial restructuring within the
Judicial restructuring; and (ii) Extra-judicial                       previous          5-year    period,     or       have        been

restructuring. Legal remedies afforded under                          condemned for any crime under Law 11,101.
Law       11,101       are        available        to     private
companies undergoing financial difficulties,                          A judicial restructuring applies to almost all

including airline companies.                                          credits existing on the date the request was
                                                                      submitted to the court (matured or not).
A      judicial    restructuring consists                  in    an   Therefore, the stay-of-execution will affect

arrangement approved by the creditors and                             also     contracts         providing       for    installment
by      the   court    and        involves    all       creditors,    payments. Except for the stay-of-execution,
including those holding security or any kind of                       creditors should keep all rights against the

special       privilege.      A    judicial    restructuring          debtor       as    originally      provided      for    in    the
excludes,         however:        a)   tax    liabilities;       b)   respective contracts, unless otherwise agreed
credits secured by fiduciary ownership of real                        in the restructuring plan.

or personal property; c) commercial leasing
credits; d) credits from sale of property which                       The procedure of a judicial restructuring could
contract contains an irrevocability clause; e)                        be summarized as follows:

creditors secured by title retention; and f)
credits       from     anticipation           of        exchange      •    The debtor submits a petition to a court
contracts for exportations.                                                (at the jurisdiction of the debtor’s “main”



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                                                                                           Edition 01 | November 2005



    establishment). The petition will indicate                              •   Once     the    processing        of   the        court
    the financial situation and the reason for                                  restructuring     is    determined         (following
    the financial crisis. Financial statements                                  submission        of      allegally         required
    and reports must be attached, along with                                    documents       and    information),        creditors
    a list of creditors, employees, corporate                                   may request the calling of a creditor’s
    documents,          assets        of      the        controlling            meeting for purposes of nominating a
    shareholders as well as of managers, bank                                   creditors committee. The request will be
    account      statements,            protest            clearance            submitted to the court manager.
    certificates, and a list of lawsuits with
    indication of the contingent amounts.                                   •   The suspension of lawsuits will last for no
                                                                                longer than 180 days as of the court order
•   If the above documents are properly                                         for the processing of the restructuring
    submitted,         the         judge      will       order        the       (note    that    the    court     order     for    the
    processing of the judicial restructuring and                                processing is a preliminary step for the
    will, among others actions, appoint a court                                 granting of the court protection). After
    manager       (whose             role     will       be      of    a        such term, lawsuits will be resumed and
    supervisor,             since           the          company’s              new lawsuits might be brought. According
    management              will     continue            under        the       to Article 52 of Law 11,101 all creditors
    control of its shareholders), determine the                                 not affected by the stay-of-execution may
    suspension of all lawsuits against the                                      exercise their rights under the respective
    company           as       well         as       a      monthly             agreements.
    presentation              of      debtor’s              financial
    statements          during          all       the         judicial      •   The restructuring plan must be submitted
    restructuring procedure; the publication of                                 within 60 days as of publication of the
    a general notice (Public Notice - “Edital”)                                 court decision         that      approved          the
    in the official gazette and in a newspaper                                  processing of the judicial restructuring.
    of large circulation. The Edital will contain                               Once the plan is submitted, the judge
    a summary of the claim and of the court                                     shall determine the publication of a new
    order,      the    list    of     creditors            (including           Edital to inform creditors and fix a term
    amount and classification in order of                                       for creditors to raise possible objections.
    priority), a definition of the term for
    submission         of     credits       and       for     raising       •   The     plan    must      include      a    detailed
    objections to the restructuring plan.                                       description of all restructuring alternatives
                                                                                to    be adopted.      Such     alternatives      may
•   Following         publication           of       the      list     of       include renegotiation of payment terms
    creditors, a parallel procedure will be                                     and conditions, corporate restructuring
    initiated     by          the court           manager              to       (spin-off, merger or other restructuring),
    determinate the exactitude of the credits.



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    change       of     control,      replacement           of       with the approval of the debtor and
    management, granting creditors rights to                         changes cannot be detrimental to the
    appoint managers as well as veto rights                          rights of any creditor not attending the
    regarding         specific      matters,        capital          meeting.
    increase,         business       transfer,         salary
    reduction          and         alternative           labor   •   If the plan is rejected in the creditors’
    arrangements          negotiated         with        labor       meeting,        the     judge     will    declare    the
    unions,     in-kind      payment        or   liabilities,        company’ bankruptcy.
    formation of a new company by creditors,
    sale and transfer of assets, equalization of                 •   If the plan is approved in the creditors’
    financial     conditions        among        creditors,          meeting         or     by     expiration,         without
    usufruct of the company or of assets,                            opposition, of the term for manifestations,
    sharing      management           with       creditors,          then      the    debtor      must        submit     court
    issuance of securities, among others. In                         clearance            certificates.       Only       after
    addition, upon submitting the plan, the                          submission of such clearance certificates,
    debtor      must    provide      evidence       of    the        the judge will grant the court benefit.
    financial feasibility of the operation. The
    law does not detail what kind of evidence                    •   According to Article 57 of Law 11,101 the
    should be provided, though. However, one                         debtor       must        submit      tax     clearance
    may anticipate that evidence will consist                        certificates to        the court evidencing its
    on market and expert reports, cash flow                          good standing regarding tax obligations
    projections,       among        other    documents,              following the approval of the plan by the
    confirming the reliability of information                        creditors.
    provided.
                                                                 •   For meeting purposes, creditors will be
•   Any      creditor        may     object       to      the        classified as follows: (i) labor credits or
    restructuring plan within 30 days as of                          credits resulting from labor accidents; (ii)
    publication of the Edital or of publication                      credits secured by an “in rem” guarantee;
    of the list of creditors, whatever happens                       and (iii) ordinary credits, credits with
    last.                                                            special         or     general       privilege       and
                                                                     subordinated credits.
•   If a creditor objects to the plan, then the
    judge will call a creditors’ meeting to                      •   A restructuring plan may be approved,
    deliberate on the plan. This meeting must                        rejected or modified. It will be considered
    be scheduled for not later than 150 days                         approved (in what regards credits referred
    as of the court order approving the                              to in items (ii) and (iii) above), with the
    processing of the judicial restructuring.                        favorable vote of creditors representing
    The plan may be modified in the meeting



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                                                                                Newsletter
                                                                     Edition 01 | November 2005

                                                    •   Until 2 years after the court decision that
    cumulatively more than half of total value          had approved the plan and granted the
    of credits attending the meeting and by             judicial restructuring benefit, disobedience
    the majority of the creditors attending the         of any obligation under the plan will result
    meeting; and (in what regards credits               in bankruptcy. In addition, the company
    referred to in item (i) above), with the            may also be declared bankrupt in the
    vote of the majority of the creditors               event of default of any obligation that is
    attending the meeting, regardless of the            not subject to the judicial restructuring.
    value of their respective credits.
                                                    In what regards a non-judicial restructuring
•   Nevertheless, a judge may at his/her            main differences are: (i) it does not create
    discretion approve a plan – given the plan      the 180-day stay-of-execution, (ii) it does not
    does not provide a different treatment for      avoid succession in the sale of assets, and
    the class of creditors that may have            (iii) it does not cover tax and labor credits, as
    rejected the plan – if the plan has             well as credits resulting from labor accidents.
    cumulatively received the favorable vote        A   non-judicial    restructuring    plan   in    only
    of: (i) creditors representing more than        binding (upon the creditors subject to it) if
    half of all credits attending the meeting,      approved by 3/5 of all credits of each class
    regardless of the classes; (ii) at least two    covered by the plan. Differently from a
    classes of creditors or, if there are only      judicial restructuring, non-approval of the
    two classes, of at least one of the classes;    extra-judicial     by   creditors   could   not    be
    and (iii) of more than 1/3 of the creditors     overruled by a court.
    in   the    classes   which   rejected    the
    proposal.




Brazilian Public-Private Partnerships
Antonio Carlos C. Mazzuco




Decree 5,385 and the Steering                       On December 30th, 2004 Law 11,079 set forth
Committee                                           the basic rules for Public-Private     Partnership


                                                    (PPP) agreement creating a new relationship
The      Steering         Committee          will   model for contracts between the government
                                                    and privately-owned companies. Article 14 of
establish        criteria      and       select
                                                    Law 11,079 determined that, by a Presidential
priority PPP projects                               decree, a committee should be created to



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                                                                                        Edition 01 | November 2005



develop the federal government program of                              authorize the opening of bid procedures and
PPP contracts.                                                         approve the invitation to bid to be prepared
                                                                       by the federal government agency in charge
               th
On March 4 , 2005, Decree 5,385 created the                            of the project.
Steering Committee for the Federal Public-
Private      Partnership               (the     “Committee”).          The Steering Committee will annually report
According to Article Second of Decree 5,385                            to the National Congress and to the Federal
the   Committee             will        be     formed      of     a    Court of Accounts on the performance of PPP
representative         of     each        of    the     following      agreements and such information will be
ministries:     (i)       Ministry        of    Planning;       (ii)   available in the Internet.
Ministry of Finance; and (iii) Ministry of Civil
Affairs    (“Casa         Civil”).           Members     of     the    Meetings of the Committee will be called and
Committee           are      actually          the    respective       conducted by a Coordinator indicated by the
Ministers in charge. Decree 5,385 created                              Ministry of   Planning,        and    will    occur    at
also a Technical Commission of the Public-                             least once    every      month.       Whenever        the
Private Partnership, composed by members of                            agenda includes the analysis of a project a
the       Ministries         of         Planning,       Finance,       member of the federal public administration’s
Development, Transports, Mines and Energy,                             body in charge of the project will participate
National      Integration               and      Environment,          in the meeting. Members of the public and
besides Civil Affairs, BNDES, Banco do Brasil                          private sectors, as well as of the Legislative
and   the      Federal            Savings        Bank     (CEF),       and Judiciary branches may attend meetings
indicating a multidisciplinary approach by the                         by invitation.
Federal Government towards PPP projects.
                                                                       Deliberations on the approval or amendment
The main purpose of the Steering Committee                             of   the   Committee’s         Internal      Regulation,
is establishing criteria and selecting priority                        authorizations     for    the     opening       of    bid
projects to be implemented in the form of PPP                          procedures and approval of invitations to bid
contracts. The Committee is also responsible                           or    agreements         and      their       respective
for   the     approval            of     the     Public-Private        amendments will be made by unanimous
Partnership’s Plan, which must include an                              votes. Except for the aforementioned matters,
implementation schedule as well as basic                               The Coordinator may deliberate on any urgent
procedures for following-up and evaluating                             or relevant matter ad referendum of the
contracts,     as      well       for     approving      project       collegiate.
evaluation made by various other Ministries
responsible for the projects.                    The Steering          The Technical Commission in turn, will be
Committee shall further define the procedures                          responsible        for          the          elaboration
required for the execution of the agreements,                          of recommendations and proposals to the




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                                                                          Edition 01 | November 2005

Committee, regarding the definition of priority           Composition of the Technical Commission was
services and procedures for entering into PPP             criticized by the private sector that was
contracts.    The    Technical       Commission    will   excluded from the commission. The formation
further prepare a draft of the follow-up and              of the Steering Committee’s regulation, and
evaluation    reports.    The     Commission       will   the creation of the Guarantor Fund by Decree
therefore     be    responsible        for   providing    5,411,     completed     the    regulation      of    Law
technical     information       to     support     the    11,079.
Committee’s analysis and decisions.




Brazilian Public-Private Partnerships
Mariana Kauche Maldonado




Decree 5,411 and the Guarantor Fund                       companies, including certain blue-chips such
                                                          as Petrobras, Vale do Rio Doce (CVRD) and


The Guarantor Fund will provide                           Embraer,      and     others   such       as   Usiminas,
                                                          Companhia de Transmissão de Energia
security           for    private             credits
resulting from PPP contracts                              Elétrica      Paulista    (CTEEP),         Eletropaulo,
                                                          Eletrobras,     Eletrobrás     and    Gerdau.        Other
On April 7th, 2005, the Federal Official Gazette
                                                          shares and other assets (real property, for
published     Decree      5,411/2005          (“Decree
                                                          instance) may be deposited in the fund from
5,411/05”),    which     created      the    Guarantor
                                                          time     to   time.   According      to    government
Fund   of     the    Public-Private      Partnerships
                                                          estimates, shares so far deposited are worth
(“Guarantor Fund”). The fund will consist of
                                                          from R$4 billion to R$6 billion.
shares held by the Federal Government in
mixed-capital companies (those companies
                                                          The purpose of the Guarantor Fund is to
which capital is held part by the Federal
                                                          provide security for private credits resulting
Government and part by private companies).
                                                          from PPP contracts. The Guarantor Fund also
Decree 5,411 was enacted to regulate Article
                                                          set a limit for security to be provided by
16 of Law 11,079/04, which is the law that
                                                          the Federal Government since the value of
created the PPP.
                                                          guarantees provided by the fund cannot
                                                          exceed the total amount of the equity of the
The Guarantor Fund will include shares held
                                                          fund.
by the Federal Government in fifteen




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The Guarantor        Fund     may        also   provide   In addition to the manager, the Federal
counter-guarantees to insurance companies,                Government must also define the By-Laws of
financial     institutions,    and        international   the fund. The By-laws shall be approved in
agencies that could guarantee performance of              the     quotaholders’        meeting       of    the      fund.
the     pecuniary    obligations    of    the   Federal   According to applicable law, the Federal
government on PPP contracts.
                                                          Government         and       entities   of      the    federal
According to Law 11,079/04, guarantees may                indirect administration may also participate in
be demanded by private partner as of the                  the     fund.     The      quotaholders          have        the
                                                          prerogative to decide the nature of the
45th day from the due date of the credit and              guarantees        to    be     provided         among        the
in case of debts arising from invoices not yet            following:      (a)     surety     (“fiança”),         without
accepted by the governmental entity, the                  benefit of order for the guarantor; (b) pledge
private partner may demand the guarantees                 of movable assets or rights; (c) mortgage of
after    90   days    from    the    maturity     date,   real estate held by the fund; (d) conditional
provided the public partner has not rejected              sale of assets held by the fund; (e) other
the invoice on reasonable grounds.                        contracts       that     generate        the        effect    of
                                                          guarantee, as long as property or direct
The manager of the Guarantor Fund has not                 possession of the assets it not transferred to
yet been selected. The manager will be in                 the private agent prior to foreclosure; and (f)
charge of managing and representing the                   guarantee, personal or “in rem” with the
Fund in and out of court, and will be subject             creation of a priority of certain credits over
to the rules issued by the National Monetary              specific assets (“patrimônio de afetação”) by
Council (CMN), pursuant to Article 4, XXII of             means of allocation of such assets to secure
Law 4,595/64. According to Law 11,079/04,                 specific credits.
only federal public financial institutions may
serve as manager, which means that such                   Law 11,079/04 allows the establishment, by the Guarantor

position will be attributed to the Federal                Fund,   of seggregated equity (“patrimônio      de    afetação”),

Savings Bank (“Caixa Econômica Federal”),                 which means that certain assets owned by the fund may, at

the Bank of Brazil (“Banco do Brasil”) or the             the discretion of the fund, be separated from the total equity

National Development Bank (“BNDES”).                      of the fund for the purpose of securing/guaranteeing specific

                                                          credits. Such assets could not be subject to pledge or seizure

                                                          in connection with other obligations of the fund.




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                                                                          Edition 01 | November 2005


Unification of the Exchange Markets
Marcos Antonio Kawamura


Central           Bank            Circular-Letter           •   Obligation to register operations with the
                                                                Central       Bank       system              (Sisbacen),
3,280 of March 9,2005                                           regardless of the amount, exception made
                 th
Last March 9 , 2005, the Central Bank of                        to bank accounts maintained in Brazil by
Brazil published Circular-Letter No. 3,280                      individuals     or    legal       entities    domiciled
which approved the New Brazilian Exchange                       abroad.        Registration           of        financial
Market and International Capitals Regulation                    transactions made with such accounts is
(“Exchange Market Regulation”). The newly                       only mandatory whenever the amount
enacted rule regulates Resolution 3,265, of                     exceeds R$ 10,000.00 (present exchange
                 th
last March 4 , of the National Monetary                         rate is of US$1.00 / R$2.50);
Council (“CMN”).
                                                            •   Linkage of export and import financial
The Exchange Market Regulation introduced                       transactions to the Integrated System of
important modifications to the exchange and                     Foreign   Commerce            –    Siscomex       which
financial     markets     once     it    simplifies   the       registers all foreign trade transactions
exchange rules and strives for a greater                        coursed in Brazil;
transparence in the flow of capital.
                                                            •   Linkage   of     the    Electronic           Declaratory
The    new      exchange         model      maintained,         Registry of the Central Bank (RDE-IED,
however, the predicted premises of current                      RDE-PORTOFOLIO            and         RDE-ROF)        to
legislation such as: the forced course of the                   exchange contracts or to transactions of
national     currency,     operations       subject    to       international        transfers         in      Brazilian
registration within the Central Bank, the                       currency (“TIR”);
formalization of operations through exchange
contracts,     mandatory         national    inflow    of   •   Maintenance      of    the restriction to the
resources obtained abroad, events subject to                    opening of accounts in foreign currency,
registration treated by Law nº 4,131, the                       except for specific situations authorized by
mandatory             exchange          coverage       of       the law, by the CMN or those previously
exportations, the compulsory payment of                         provided for in the Floating Rate Exchange
importations, and the prohibition to privately                  Market;
off-setting     exchange         transactions.        The
following rules were, therefore, maintained                 •   Maintenance of rules related to receipt of
amongst others:                                                 payment for exportations and payment of
                                                                importations;




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                                                                                            Newsletter
                                                                            Edition 01 | November 2005


•   Maintenance of rules related to foreign                 •   Brazilian capitals abroad: individuals and
    capital in the country;                                     corporations will be able to sell and buy
                                                                foreign currency in the banking market for
•   Among the main modifications on the                         purposes of investing abroad, without
    exchange and capital markets are:                           limitation of value, except for limitations
                                                                provided for in specific regulations.
•   Unification     of   the    exchange         markets:
    There are no more normative differences                 •   Settlement in foreign currency of liabilities
    between the free rate and the floating rate                 of any nature whatsoever denominated in
    exchange markets. There is now a single                     national        currency,        between    Brazilian
    normative group to regulate both markets                    domiciled         and        foreign        domiciled
    as well as TIRs and gold- instrumented                      individuals or legal entities is allowed
    exchanges.                                                  regardless of any prior approval of the
                                                                Central Bank.
•   End     of      restrictions      to     exchange
    operations: individuals        and     corporations     Foreign exchange transactions entered into by
    may buy and sell foreign currency or                    Brazilian   companies           should     be   carefully
    perform TIR transactions of any nature,                 reviewed       in     light     of     newly     enacted
    without limitation of value and provided                regulations.
    the           transaction            has economic
    fundaments.


•   International Transfers of Reais - TIR: the
    utilization    of    non-resident      accounts    is
    forbidden for the purpose of carrying out
    transfers to the benefit of third parties.
    This prohibition also affects accounts of
    foreign financial institutions located in the
    country       (the    formerly       named       CC5
    accounts).      By    the   new      rule,    foreign
    financial institutions, as well as foreign
    individuals and corporations may freely
    convert and remit abroad the balance of
    funds in Brazilian currency existing on
    CC5 accounts by means of a regular
    exchange transactions.




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