Archivos de la categoría: Berke Report (en)

BKM BERKEMEYER provided legal advice to the Indian firm Bajaj in their expansion of business into Paraguay, offering support in the process of unloading of goods in Paraguay, identifying and negotiating with their local strategic partner, advising on regulatory matters, and the legal and contractual structuring of the business in the country.

The offered counseling included analysis and interpretation of the applicable regulation to the business (Law No. 4838 National Automotive Policy PAN), which specially focuses on the processing of motorcycles, application of the Distribution Law (No. 194/93), which regulates the legal regime of contractual relations between foreign manufacturers and companies and natural and legal persons domiciled in Paraguay, identification of legal risks, and due diligence for the business’ implementation.

Furthermore, BKM took part in the negotiation and drafting of the distribution agreement with the local firm Asunción Motor Sport S.A. (AMS), member of JBB group.

The counseling was conducted jointly with an Argentinian firm, First Corporate Advisors S.A., which is dedicated to offering corporate and financial services.

According to recently published statements by Eng. Jose Ayala, general manager of AMS S.A., the Bajaj brand has ample experience working to develop high-end technology, delivering quality products, under the highest safety and innovation standards, and in competitive prices globally.[1]

The counselors were BKM partners Drs. Jose Figueredo Klein and Martin Carlevaro.

[1] [1] http://economiavirtual.com.py/web/pagina-general.php?codigo=21201

BKM – Berkemeyer reports that since the entry into force of Law No. 5895/17, new rules have been introduced to provide transparency to the regime of companies constituted by shares and some rules of the Civil Code have been modified. Said legislation implies the disappearance of bearer shares, specifying by means of regulations, certain obligations that both companies and shareholders must comply with.    

Prior to the effect of said law, although there were certain obligations that companies must comply with, they were not followed due to the lack of sanctions, which is why the application of heavy economic sanctions has been envisaged, with fines from 100 day’s minimum wages (Gs. 8,125,000) to 500 day’s minimum wages (Gs. 40,626,000), and even RUC (Unique Registry of Taxpayer) blocking. 

Some of the non-compliances sanctioned by said regulations are the lack of formalization and registration of the regulatory actions in substitution of the bearer shares, lack of notification of assemblies made to the Treasury Department, failure to notify the transfer of shares from shareholders to the company or from the company to the Treasury Department, among other faults.  

Due to various reasons, the application of sanctions was postponed through resolutions, the last being Resolution No. 150/18, through which the application of sanctions (fines) and non-sanctioning measures (RUC blocking and suspension of economic rights) were suspended until 17/02/2019. In this framework, fines will be applied as of 18/02/2019. 

 It should be clarified that through AT Resolution No. 01/2019, a schedule was set for the enactment of sanctions, fines and non-sanctioning measures, as detailed below:

Schedule for the application of sanctions, fines and non-sanctioning measures
RUC Ending	Application of sanctions as of:
0 and 1	18Th of February 2019
2 and 3	18Th of March, 2019
4 and 5	18Th of April, 2019
6 and 7	18Th of May, 2019
8 and 9	17Th of June, 2019

As can be seen, to determine from what moment the sanctions will be applied the last number of the RUC (not the check number) of the company must be taken into account. In order to facilitate the understanding of said regulation, we present the following example: 

Business Name	RUC	Last Number of RUC	Application of sanctions as of:
Berkemeyer SA	800150-8	0	18Th of February 2019
If this firm did not comply with their corporate obligations, as of 18/02/2019 sanctions and non-sanctioning measures will be applied.
Berkemeyer SA	800152-9	2	18/03/2019
If the firm did not comply with their corporate obligations and the Treasury Department is informed of said breach on 27/02/2019, it will not be able to apply any sanction, since according to the schedule, sanctions can only be applied to this firm as of 18/03/2019.

We emphasize the importance of drafting correctly corporate documents in order to avoid civil, tax, and other contingencies, so it is always advisable to have expert counsel in these areas of the law. 

Recently, the head of the Central Bank of Paraguay (BCP), Economist Juan Cantero Sienra, commented on the local financial market’s investment opportunities. He mentioned that the current financial system is composed of only 17 banks and 10 credit institutions, and that there is room for new actors in this sector.

This scenario proposes an opportunity to foreign financial entities that have enough experience to enter the market since, as mentioned by the head of the Central Bank, a strong track record in the market is required, as well as the minimum social capital.

Following the Central Bank of Paraguay guidelines, our Firm has compiled the points that we consider important for potential future foreign investors:
1) Banks must reach a minimum capital of Gs. 53,930 million, while this capital is reduced to Gs. 26,965 million for credit institutions .

2) The application for commencement must be addressed to the Bank Superintendence, with a promoter’s involvement, and including the social statutes and investment project. This last document covers key points such as activities to be developed, organizational chart, internal audit and control systems, list of shareholders, governing board and administration, and so on .

In Paraguay, there are entities with a track record of transactions with relevant importance for our market. Among them we can name Citibank N.A. Paraguay Branch (1958), Sudameris Bank S.A.E.C.A. (1958), Banco Bilbao Vizcaya Argentaria Paraguay S.A. (1963), and even Banco Itaú Paraguay S.A. (1978, under the name of Unibanco). These institutions have trusted our country and obtained important return on an annual basis.

With regards to return on equity (ROE), institutions in Paraguay record interesting ratios that average 23.4% for commercial banks . As a comparison, we point that the average ROE of financial institutions in more developed regional markets, like Brazil (14.66%) and Chile (17.87%), is below the mean of Paraguayan institutions .

Despite being an emerging economy, Paraguay has developed through the years a banking sector that is stable, highly professional, predictable, conservative, but open to innovation. This development is reflected in the system solidity index, with 38.6% liquidity, 23.4% profitability, 17.8% solvency, and 2.6% default rate .

The consolidated financial sector reports deposits of Gs. 63 trillion and a credit portfolio of Gs. 83,405 billion. These credits are focused mainly on consumer goods (23%), wholesale (14%), and animal husbandry (13%) when referring to local currency; while affecting agriculture (31%) and agribusiness (11%) when referring to foreign currency .

At Berkemeyer we observe a favorable climate for M&A operations in the financial sector, through the acquisition of shares in local financial institutions, and we also observe that the conditions are set for the entry of new foreign players.

Recently, economist Jorge Vergara, head of the Direction of Strategic Projects (DIPE) of the Ministry of Public Works and Communications (MOPC), announced a new pipeline of infrastructure projects to be tendered under the public-private partnership modality, governed by Law No. 5102/13 (PPP Law) and under the turnkey regime, governed by Law 5074/13 and amendments. He also announced expected investments of USD 370 million in PPP projects, and tender works that represent financing of approximately USD 1,140 million in turnkey projects.

It is important to note that under both contracting modalities the private party provides the financing of the project. Nevertheless, there are important distinctions between the two regimes. In contracts under public-private partnership modality, the private party, not only designs and builds the work, but is also in charge of the operation and maintenance of the works performed. Therefore these contracts are long term, and they are generally funded with the project’s cash flow and collateral under the non-recourse Project finance scheme .

In contracts of public works with private financing (Law 5074), the contractor designs and builds the works, but payment by the State is deferred to 10 years approximately after the completion of milestones. Once the works are completed, the State operates and maintains the works. Payment obligations by the State to the contractor are implemented through “Certificates of Recognition of Payment Obligation” (“Certificado de Reconocimiento de Obligación de Pago in Spanish), unconditional and irrevocable payment certificates, that once issued, are independent to the work’s contract, and are backed by sovereign guarantee of the Paraguayan State. These certificates can be assigned by the contractor to third parties prior authorization of the State .

As announced by DIPE’s representative, the bidding package consists of 7 projects that are to be tendered in the period between 2019 and 2021.
Projects to be tendered under the PPP modality:

• Implementation of a ferry system in the Paraguay River to transfer passengers from the capital to various cities in the metropolitan area. This is a private initiative presented by the company Somarco and is currently being analyzed by the Technical Secretariat for Planning. If the project is approved, its execution would be tendered during commencement of the following year. Estimated investment amount: USD 40 million
• Duplication of Ruta No. 1 in the section San Lorenzo – Itá – Quiindy, and the improvement of the southern access area until the connection to Ruta No. 1 (110 km). Foreseen to be tendered next year. Estimated investment amount: USD 200 million
• Duytu5 brplication and improvement of Ruta No. 6 from Encarnación until the cross with Pirapó (65 km). Currently in stage of project development. Estimated investment amount: USD 130 million
• Projects to be tendered under the turnkey regime:
• Duplication of the section Falcón – Cerrito and asphalt pavement Ruta No. 12 until General Bruguez (200 km). Foreseen to be tendered between July and August of this year. Estimated investment amount: USD 150 million
• Second and third stages of the Bioceanic Corridor, that will consist on asphalt pavement the section Cruce Centinela – Mariscal Estigarribia – Pozo Hondo (573 km that are to be divided in two parts). This work is in design stages and the call for tender is foreseen for the year 2021. Estimated investment amount: USD 800 million
• Asphalt pavement of the section Puerto Indio – Mbaracayú and connection to the superhighway (65 km). Foreseen to be tendered in the second semester of this year. Estimated investment amount: USD 80 million
• Costanera Sur construction and coastal defense for the city of Pilar. Estimated to be tendered next year. Although to be tendered under the turnkey regime, the government is still analyzing the contracting modality. Estimated investment amount: USD 110 million
• In the years 2017 and 2018 BKM|Berkemeyer has assisted the bidders that have been awarded and signed the first contracts under the PPP and turnkey modalities. To date, the firm counsels on financial closure, both in the PPP project of Ruta No. 2 and Ruta No. 7 (of USD 500 million approx.) and the bioceanic corridor (USD 445 million approx.). The contracts are in full execution, an explanation to the Paraguayan State’s decision to betting on tendering the largest infrastructure projects through these contracting regimes.

After two years from regulating the elimination of bearer shares in the country, shareholders and companies obtained a new grace period to fulfill the provisions required by Law and avoid falling into breaches or incurring in fines. Although companies are facing possible more strict and forceful limitations, a precise regulation that contemplates a wide range of assumptions grants the benefit of an objective guide instead of one subject to diverse interpretations.

In fact, legal frame for corporations in Paraguay underwent an strategic change in October 2017 with the promulgation of Law No. 5895 (the «Law»), through which transparency rules were established for joint stock companies, being one of the most specific issues, the elimination of bearer shares and the obligation to exchange them for registered shares, modifying corporate bylaws thereby.

Just recently, on October 9, 2019, the Executive Branch enacted Law No. 6399/29, which modifies Articles 3 and 4 of Law No. 5895/2017, the “New Law”.

The New Law kept the purpose and spirit of the Law and was limited to modifying matters in established manner and regulating others that were not included at the beginning. However, such modifications cannot go unnoticed as they affect processes, prohibitions and restrictions relevant to the operation of corporations, as described below.

The Law established a term, 24 months after coming into effect, for shareholders to exchange their bearer shares for registered shares. Considering that said law was published on October 9, 2017, the deadline expired on the same day in which the New Law is published and provides as follows:

a) The deadline is extended until December 10, 2019 to initiate the procedures for requesting a resolution regarding the modification of Bylaws by the Department of Registries and Supervision of Companies, a division of the Legal Section of the Treasury Dept.

b) A period of 180 days is established as of 10/12/2019, for the effective fulfillment of the exchange of bearer shares for registered shares.

c) Instead of requiring the exchange of 90% of bearer shares, it is provided that, within the established term, all shares must be converted to registered shares.
In case the above is not fulfilled, serious penalties are established for shareholders that fail to exchange their shares as well as for the companies themselves.
Besides the suspension of financial rights for those holders of shares that were not exchanged, the New Law creates situations and penalties not previously established.

Indeed, it provides that, if after six months of the expiration date for the effective exchange of shares, still there are bearer shares, these would lose their validity as a share title. In this case, shareholders who can prove the legitimate ownership of the shares would have the right to be reimbursed only for their nominal value, unless they request their readjustment to real values, but with the proportional reduction of the liability assumed by the company.

Specifically, the collection action for reimbursement that the holder of the shares may exercise against the company will expire after five years.

In line with the loss of validity of the shares and the reimbursement of their nominal value, the New Law establishes that within six months after the deadline for the loss of validity mentioned in the previous paragraph expired, the companies must call for an extraordinary meeting to reduce capital, decreasing it in the value of the shares not exchanged.

Subsequently, the New Law includes three additional provisions as previously provided by the Law:

a) For companies that had not initiated any procedure after six months of the expiration of the term, it is established the obligation to begin its process of termination and liquidation, as well as the authorization to the Legal Section of the Treasury Dept. to judicially require the dissolution, liquidation and extinction of company.

b) It provides monetary fines for breaching the exchange of shares (established in the Law and which were not modified), would enjoy special privileges over any other credit that the bearer may have against the company and those derived from the relation between shareholders.

c) It orders that, in the event that bearers claim reimbursement of their shares, the company should require the shareholder to provide proof of the payment of the fines due for failing to exchange the same (ranging between G. 8,600,000 (USD 1400) and G. 42,000,000 (USD 6800) approximately).

Finally, the New Law establishes transitory provisions and formalities related to the extraordinary meeting of shareholders that must be held to approach the reduction of issued capital in regard to the value of the not exchanged shares.

In December 2017, the National Congress enacted Law No. 6007 that creates the “National Program for the Medical and Scientific Study and Research of the Medicinal Use of Cannabis and its Derivatives (PROINCUMEC)”, (the “Program”), being regulated by Decree No. 9303/18.

The purpose of this law is to establish a regulatory framework to promote the study as well as the medical and scientific research of the medicinal, therapeutic and/or palliative use of the Cannabis plant and its derivatives for the treatment of diseases and conditions in humans, in addition to regulating its controlled production.

An interdisciplinary framework is set forth because different public entities take part in the process depending on the prerrogatives of each one.
The National Sanitary Vigilance Directorate (the “DINAVISA”), under the authority of the Ministry of Public Health and Social Welfare, is appointed as the enforcement authority, who will act as the national coordinator of said Program.

Likewise, the National Service for Quality and Health of Plants and Seeds (the “SENAVE”) will be responsible for defining the conditions, requirements and monitoring to grant the authorization to import the seeds to the interested parties.

Finally, the National Anti-Drug Secretariat (the “SENAD”) must implement the security conditions that will be applied to obtain and maintain the license and will carry out the control during the validity period of the license.

Through the regulation of said Law, the requirements for the production, controlled industrialization, import, export, commercialization, prescription, dispensation and rational use of medicinal cannabis under the Program, are incorporated.

In order to access the production, industrialization and commercialization activities, it is mandatory to obtain a license granted by DINAVISA, in coordination with SENAVE and SENAD, within the scope of each one.

The granting of said license necessarily implies the prior fulfillment of a series of requirements provided for in the regulations and must be requested by an authorized national laboratory that has a certificate of good manufacturing practices (GMP) in force.

It is worth mentioning that the license shall be granted for a period of 5 years, and may be renewed for equal periods and may not be transferred or assigned under any title, nor obtained only for the exclusive performance of certain processes, since the licensee must perform all the activities of the process, except for transportation and final disposal, which may be outsourced.

Currently, the government is working on a complementary regulation in order to establish the procedure for obtaining a license for a controlled production and industrialization, given that there is a limited number of licenses to be granted, that the applications must be evaluated, and that the eventual rejection must be properly grounded.

For more information please contact Sofía Suárez – sofia.suarez@berke.com.py – and Ignacio Serratti –Ignacio.Serratti@berke.com.py –

Martin Carlevaro, in charge of the BKM infrastructure practice, spoke on the 5 Días TV channel about Project Financing through international financial structures designed for the issuance of project bonds (under foreign law).

Recently, the Ministry of Public Works and Communications (MOPC), published the call for International Public Tender of “Construction Companies for Rehabilitation and Maintenance Works of Route No. 9 and Accesses, Segment 3 Lot 5 and 6 Ad Referendum to the Budget Planning”, known as the Trans-Chaco Highway. 

The call for tender is composed by two Lots, Lot 5 (km 326 – km 390) and Lot 6 (km 390 – km 450), whose estimated amounts for total implementation are USD 96,833,000 and USD 88,058,000, respectively, including taxes.  The source of the funds are loan contracts with the Inter-American Development Bank (IDB) and the Andean Development Corporation (CAF).  

Offerors for the call can be physical entities (sole proprietorship), legal entities or any combination of these, such as a Joint-Venture, Consortium or Association (APCA), and must necessarily be from IDB member countries. 

The offerors shall be able to present a bid in one Lot, or both Lots, but in this case, only one contract shall be awarded.  In case an Offeror were to present the lowest Bid in more than one lot and fulfill the established evaluation and qualification criteria, the Lot will be awarded to the bid where the difference with the second lowest bid is greatest.  Nevertheless, the winner of any of the lots shall not be able participate in the following tenders for the remaining lots. 

The Implementation term planned in the Contract is of 72 months, establishing a partial term of 24 months for the implementation of the Construction Works (with maintenance for the existing highway), and a term of 48 months to maintain the Service Index (Maintenance Term of the new highway once construction is concluded).  

Bid delivery and bid opening is foreseen for July 29th of the current year, at 09:00 and 09:30 respectively, and consultations to the Book of Basis and Conditions can be presented until July 8th 2019 at 15:00.  

The duplication and maintenance of Road No. 9 in all its extension is considered by the Ministry of Public Works and Communications as a whole and the realization of the works will be carried out through three calls for tender, this one being the first of three, establishing that the winner of this tender shall not be awarded any further tenders for the remaining lots, either individually or as a Consortium. 

For more information contact Martin Carlevaro – martin.carlevaro@berke.com.py –  or Sofía Suárez – Sofia.suarez@berke.com.py – . 

Financial close involved 2 transactions: (i) the issuance of notes (144A / REG S  bonds) under New York law by an SPV, for which UBS A.G. participated as the structuring agent of the 15 years term notes that amounts to USD 430 million plus interests (interest rate ended up in 5.375%, despite the round has started at a price of 5.75%) and BONY acted as indenture trustee (issuance was a success with an oversubscription of 2,6); and (ii) a revolving syndicated loan for working capital in which local banks Banco Atlas S.A., Banco Regional, Sudameris Bank and Banco Nacional de Fomento, participated as lenders of the USD 50 Million short term credit facility and Finexpar as trustee for a local collateral trust.

For more information on the transaction please visit:
https://www.inframationnews.com/public/open/M3YwQzdSRjlFa3plb28wVGxzVndFV0k9.thtml

This new year arrived with it a new type of company, through the promulgation of Law No. 6480/2020: the Simplified Joint Stock Companies or “EAS” (according to its initials in Spanish). The novelty of EAS lay on the fact that they can be incorporated by one or more natural or legal persons. That is, ownership of the company by a single person is admitted. The only proviso in the law in this regard is that a single-person EAS cannot be a shareholder of another single-person EAS.

EAS are created through a unilateral contract or act stated in a public or private instrument with certification of signatures. The interesting facility presented for the incorporation process is the non-mandatory recordal of the company in the Public Registry Office, as documents must be entered only and exclusively through the SUACE, which will then refer the procedure to the Ministry of Finance.

Once the documents are registered before the corresponding division of the Ministry of Finance appointed for such purpose, the EAS acquires a legal personality different from that of its members. Until acquiring legal personality, each member of the EAS is jointly and unlimitedly responsible for the obligations taken on behalf of the company. After the personality is acquired, the partners are liable up to the limit of their contributions.

The Law does not require a minimum capital for the incorporation of EAS, divided in shares. Subscription and payment of the capital can be done in such conditions, proportions and terms as agreed by the members, although the payment period must not exceed 2 years after subscribing the capital. To this date, corporations (“SA”) do not have this obligation.

The EAS’ articles of incorporation are important since they define their organization. The governing body is the meeting of the members, to take decisions, regardless of whether it is formed by a single member.

Another peculiarity of the EAS is that the figure of a corporate trustee is not mandatory, meetings of members can be held without calls published in newspapers and it is not necessary to do it in advance. However, EAS must have corporate books similar to those used by SA.

It is important to mention that, although the Law whereby this type of company is created is currently in force; the Ministry of Finance must designate the agency in which the EAS will be registered, so such procedure is still pending in order to make their incorporation effective. Furthermore, these companies bring other innovations and particularities which will be described in more detail in the next newsletters.

Finally, with regard to the tax regime of the EAS, they will be under the same regime as any other person who is engaged in the same activity, without any distinction. However, the single-person EAS owned by a natural person could have a competitive advantage compared to other companies, losing fiscal neutrality, since they could pay the IRE by the SIMPLE Regime, as long as they invoice up to G. 2,000,000,000 per year. In that way, the single-person EAS owned by a natural person will enjoy tax benefits agreed to single-person companies but obtaining the additional benefit of limiting the liability to the value of the contributed capital.