Debt and equity funding rounds in Brazil must be preceded by Non-Disclosure Agreements (NDAs) in order to protect sensitive information to be exchanged between the parties involved.
With the spread of instant messages, it is not uncommon for sensitive and strategic data of foreign lenders/investors, on the one hand, and Brazilian borrowers/targets, on the other, to be passed on and circulated openly to unauthorized third parties, due to lack of care (or even bad faith) of those who access them, causing significant reputational and financial damage.
Along these lines, parties should consider the following points in NDAs related to Brazilian transactions:
1. Define Who is The Disclosing and Receiving Party: It must be clearly provide for who will be the revealing party of the confidential information and who will be the receiver, thus defining the party that has the duty of confidenciality. It is common to see subjective and confusing NDAs, with no objective definition of who should take care of sensitive data;
2. Define What Is “Confidential Information”: NDAs need to define what constitutes confidential information. There are instruments that establish that everything that is transmitted verbally or in writing is considered confidential and others that confidentiality is restricted to what is “stamped” or referred to as “confidential”. Terms such as the facility amount, cost of funds (interest rate), tenor, collateral package, coverage ratio, valuation, earn-outs, percentage of equity acquired, among others, are highly sensitive. Defining what is “Confidential Information” is essential in NDAs;
3. Impose Limitation of Access: NDAs should limit who on the receiving party can handle sensitive information. Whether it will be restricted to specific executives or made available to other people and third parties (such as lawyers, consultants, auditors, etc.). If this is the case, the recipient must undertake to extend the confidentiality obligation to third parties directly involved in the transaction;
4. Define Tenor of Confidenciality Obligation: The tenor of the confidenciality obligation varies according to the sector and the relevance of the information disclosed. Commonly, 1 year is used for those less sensitive to 5 years for the most. There are cases where the confidentiality commitment can reach 20 years or even perpetual, if it includes the availability of codes and industrial secrets;
5. Include Default Penalty: It is necessary to assess whether or not there is a contractual fine for non-compliance. The provision of a pecuniary penalty for violators can inhibit the illegal circulation of what is under secrecy, but its inclusion must contain highly objective and clear language, to avoid doubt when applying it.
The more sensitive the transaction, the more important the role of the NDA becomes. Therefore, debt or equity funding rounds in Brazil should start with them to protect sensitive information from lenders/investors, on the one hand, and borrowers/targets, on the other.
