By on November 11th, 2014. This post currently has no responses.

Brazil’s Associative Contract Conundrum

Robert Connolly’s Cartel Capers:

Today’s guest post is from Mauro Grinberg, a former Cade Commissioner in Brazil.  Mr Grinberg heads the law firm Grinberg e Cordovil Advogados.

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Do you know what an associative contract is? Can you find a good definition for it? No? Do not worry, in Brazil a lot of people are trying to do it, and we still have more questions than answers. In the meantime we have to deal with a law in force that requests merger control for such kind of agreements.

Going a little back, the well-known Brazilian antitrust law, enacted in 1994, created two conditions for a transaction to have to be notified: (i) one of the parties should have revenues, in the year before the signing of the transaction, of R$ 400 million and (ii) the transaction would result in a market share of 20%. It goes without saying that free competition and/or market dominance should be verified but, strangely enough, this condition did not mean much for most of the time.

A new law, enacted in 2011 and which came into force in 2012, when establishing the requirements for merger control, left the market share criterion aside; it was celebrated with a lot of relief because we know that we can use this definition in different ways. So, the big requirement was for (i) one of the parties to have revenues, in the year before the signing of the contract, of R$ 750 million and (ii) another party to have revenues, also in the same year, of R$ 75 million.  

The objective criterion was said to be very easy to understand and it would not oblige a big company that acquires a ma and pa business to bother with merger control. On the other hand, it would leave alone some transactions that, although dealing with low revenues, would affect local communities, like bakeries, delis, gas stations and the like. The authorities realized that some important transactions were easily – and legally – passing under the table.

Going back to the new law, it tried to define what a reportable transaction is, as if definitions of merger, acquisition (including acquisition of assets) or joint venture were needed. In the middle of it, associative contracts – and these without definition – were included. It took lawyers and bureaucrats a lot of thinking until the authority came out with a resolution trying to define the term. It just happens that, whenever a law brings definitions, new definitions will be needed to clarify the former definition.

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