Layers of Legality: Building Enforcement Capacity for Brazilian Corporate Law

Brazil is one of the world’s largest emerging markets, with many opportunities for development. Persuading financiers to commit funds to Brazilian firms requires effective corporate and securities laws to facilitate ‘arm’s length’ contracting.  Enforcement of these laws is problematic. Brazilian judges are over-worked, with a long case backlog. They are also under-trained in business matters, and expected to anticipate ‘social and economic consequences’ in their judgments. This provides little certainty. Nevertheless, authorities and market participants have developed an array of specialist enforcement institutions, which build upward from the authority of the inefficient courts, and overlap each other. None is sufficient to provide a stand-alone solution, but through the layering of multiple overlapping jurisdictions, the net effect is a far more robust and effective enforcement regime. Drawing on qualitative data from interviews with participants, we document the evolution and layered interaction of four such institutions in Brazilian corporate and securities law. First, the growing role of arbitration, beginning with an chamber established by the stock exchange (Bovespa), which provides quick and expert resolution of private law claims, but no precedents to guide future parties. Second, the restructuring of the Sāo Paulo Court of Justice (Tribunal de Justiça de São Paulo) to create specialist panels of expert commercial judges, but only at the appellate level. Third, a specialist securities regulator (Comissāo de Valores Mobiliários), with a dedicated “administrative court”, which has jurisdiction to impose penalties, but not civil damages (or criminal liability). And fourth, a recent initiative to create a Brazilian Takeover Panel (Comitê de Aquisições e Fusões), who provide expert decisions with publicly available precedents, but only for companies that have opted in. We describe these developments and chart their inter-relationship. Together they form a mutually reinforcing system of enforcement, the sum of which is far greater than its unpromising judicial foundations. We derive policy implications for other emerging markets that face similar challenges with weak courts... (segue)