Brazil: Public Companies General Law

The interim Brazilian President sanctioned last Friday (07/01/2016), Law No. 13,303/2016 - Public Companies General Law - that provides for the statute of state-owned and state-controlled companies, as well as their subsidiaries.

According to what was repeatedly announced by the Government, the goal of the new Law is to modernize the management of public companies and avoid corruption, creating distance from political influences.

We will have the opportunity to further discuss the impacts of the Public Companies General Law in an event hosted by this office on August 3rd, for which we extend an early invitation to all. Please find below a few of the relevant changes that will be discussed:

Administration and Management Rules 

  • State-owned and state-controlled companies will be submitted to the rules of Law No. 6,404/76 (Corporation Law) and to CVM (Comissão de Valores Mobiliários – Brazilian equivalent to  Securities and Exchange Commission) regarding bookkeeping and financial statements.
  • The administrative boards must include at least 25% of independent members (people linked only through participation in the capital), with their participation also ensured in the audit committees.
  • New requirements were introduced for occupying positions in the administrative boards and board of directors:
    • an academic education that is compatible with the position to which one was nominated; and
    • 10 years of prior experience in the same area of activity, or a related one, of the company; or
    • 4 years in leadership positions in a company of equal size or with similar corporate activities; or
    • 4 years in positions of commission/trust in the public sector; or
    • 4 years in a teaching/research position in the same field of activity of the company or as a professional in the area.
  • Will not be able to take on positions in the administrative board and board of directors:
    • ministers;
    • officers of regulatory bodies;
    • state and municipal secretaries;
    • those with mandates on the Legislative Power;
    • occupants of superior positions in the public administration that are not public employees; and
      leaders of or those who have relevant roles in political parties;
  • State-owned and state-controlled companies will have create specific compliance areas and statutory audit committees.
  • Expenditures with publicity and sponsorships can not exceed 0.5% of the prior fiscal year's gross revenue (this limit can be extended to up to 2%). In election years, such values cannot exceed the average expenditure verified in the last three years prior to the election.

Public Procurement and Contracts Rules

  • The law determines the preferential application of the Differentiated Regime of Public Procurement (Regime Diferenciado de Contratações Públicas - RDC) in public procurement procedures conducted by the public companies. The pros and cons of such regime regarding the public companies will be hot issues for discussions in the following months.
  • The public procurement modality must preferably be the semi-integrated one for contracting of civil engineering and related services.
  • Some of the maximum amounts for waiving public procurement were raised: for civil engineering and related services the limit was raised to BRL 100,000 and for other services and purchases it was raised to BRL 50,000, which can be changed due to deliberation of the administrative council in order to reflect the variation of costs.
  • The state-owned and state-controlled companies have up to 24 months to adapt to the determinations of the Public Companies General Law. Such deadline has been generating controversies, due to the lack of precision in regards to the extension of this "adaptation" and what can and can not be done by the companies in this timeframe.

The impact of the changes brought by the State-owned Companies General Law will go beyond the day-to-day management of own and state-controlled companies, directly affecting all those with whom they hire or relate in any way.

The Public Companies General Law will also affect the plan announced by the President of "privatize everything possible."

Considering all of the issues above and other aspects, the study and analysis of the new Law will be of capital importance, reason why we invite all to discuss them in our event " Public Companies General Law - Controversial Aspects and Opportunities", that will be hosted in our office on August 3rd.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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