Executive Order Sheds Light on Brazilian Business Landscape

May 6, 2019

Executive Order Sheds Light on Brazilian Business Landscape

Following his campaign promise to reduce local bureaucracy — Brazil is # 109 of 190 countries in the “Ease of Doing Business Rank” — President Jair Bolsonaro signed on April 30th Executive Order # 881 (“EO”), enacting the Economic Liberty Bill of Rights.  The EO gives effectiveness to the principle of free initiative (Art. 170, Brazilian Constitution); and sets forth limits to the Government’s duty to supervise and rule economic activities (Art. 174, Brazilian Constitution).

It brings about some important improvements: (i) setting forth the concept of “abuse of regulatory power”, as to avoid barriers to the entry of international players in certain markets; obstacles to the implementation of new technologies; creation of unnecessary technical requirements; or increase transaction costs without demonstrated benefits (art. 4); (ii)analysis of the economic impact in any amendments to regulations applicable to economic agents or public in general (art. 5); (iii) right to exercise any new business model, when the current laws become outdated due to tech innovation consolidated abroad (art. 3, VI); (iv) freedom to define prices in non-regulated markets — except in situations of public disaster (art. 3, III and § 4); and (v) guaranteeing the parties’ autonomy in business to business transactions, being public interest rules not applicable against the contracting parties (art. 3, VIII).

The EO also provides for fast-track licensing of “low risk activities” — a list of which yet to be determined, but not considered as a nuisance or breach of environmental laws; for the record keeping of documents in electronic files; and discourages the artificial or compulsory demand of certain occupations or services, such as notarization or enrollments.

In addition, the EO amends the Brazilian Civil Code (Law # 10,406 of 2002), specifying the cases in which the “piercing of the corporate veil” should apply; the principle of the minimal government intervention in contracts; and the limited liability of investment funds and fiduciary agents. It also updates Brazilian Corporations Law (Law # 6,404 of 1976), setting forth that the Brazilian Securities Exchange Commission (“CVM”) may waive some legal requirements or small and medium entities, in order to enable their access to capital markets.

On the other hand, the EO expressly excludes national security, public health or sanitary licenses (art. 3, §1); and provides several exceptions and “carve-outs”, such as the exclusion to the “parties’ autonomy principle” to government controlled entities, companies or mixed capital corporations, or the limitation of “freedom to define prices” in view of competition, tax or consumer laws. Yet, in some instances, the governmental authority has the burden to demonstrate why a certain restriction is imperative (art. 3 § 1º).

Despite its limitations, the EO should positively impact licensing proceedings in Brazil; the clearance of innovative business models; avoid unreasonable discretion by the government; and provide legal certainty to local and international investors.

The EO became effective upon its publication on April 30, 2019. It will be valid for a 120-day term, during which it is analyzed by the Congress, which can: (i) totally approve the EO and enact it into law; (ii) amend the EO and submit a Bill of Conversion to the president – who may either approve or reject the Bill of Conversion; or (iii) reject the EO.

We’ll be pleased to provide you with any clarifications on the impacts of the Executive Order #881 for your business. Please contact us at info@lickslegal.com.