Brazil
Antonio Carlos Cantisani Mazzuco, Roberta Prado Lukaisus, Gabriel Sollero Figueira and Byung Soo Hong
Madrona Hong Mazzuco Brandão - Sociedade de Advogados
- 1.What are the most common forms of bank financing in your jurisdiction?
The most common forms of bank financing in Brazil, are single handled or syndicated (as far as lender is concerned) and corporate or consumer (as far as borrower is concerned). In connection with the guarantee, the loans may be secured or unsecured and related to its purpose, it may be a structured finance (including securitisation transactions), capital or operating leasing and working capital.
In terms of credit instrument financial institutions have been adopting credit documents that may be tradable in the market. For such purpose credit documents must comply with legal requirements set forth by specific legislation applicable to each credit instrument. CETIP is the entity in charge of registrations of credit instruments for negotiation purposes, categorising these instruments in rural titles; securities and real estate titles such as the examples below:
- Bank Credit Certificate (Cédula de Crédito Bancário – CCB);
- Leasing, Advance on Export Contracts (Adiantamento sobre Contratos de Câmbio – ACC);
- Rural Product Certificate (Cédula do Produto Rural – CPR);
- Agribusiness Receivables Certificates (Certificado de Direitos Creditórios do Agronegócio – CDCA);
- Export Credit Note (Nota de Crédito à Exportação – NCE);
- Export Note;
- Export Credit Certificate (Cédula de Crédito à Exportação – CCE); and
- Real Estate Credit Certificate (Cédula de Crédito Imobiliário – CCI).
- 2.Are any governmental or central bank registrations or approvals required for foreign lenders to lend to borrowers in your jurisdiction?
Brazilian laws and regulations does not impose the obtaining of any type of governmental approvals as a requirement for foreign lenders to lend to borrowers that are resident, domiciled or established in Brazil.
However, all loans from foreign lenders to legal entities or individuals resident, domiciled or headquartered in Brazil must be registered with the Central Bank of Brazil, as provided by the Regulamento de Mercado de Câmbio e Capitais Internacionais – RMCCI – Exchange and Foreign Capital Rules brought by Circular 3.280/2005, as amended, enacted by the Central Bank of Brazil.
According to the RMCCI, the terms and conditions of the financial operation must be registered with the Electronic Information System of the Central Bank (“SISBACEN”), under Financial Operations Registration (“RDE-ROF”) module, prior to the first disbursement of funds by the foreign lenders to the borrower, and is a condition for the inflow and the outflow of funds to and from Brazil.
The RDE-ROF registration shall include the amount of the loan, the applicable interest rates, payment conditions, guarantees, fees and commissions payable to the lenders, as well as others.
In case of enforcement of the loan in Brazil, the RDE-ROF will also allow the foreign borrowers to convert the registered amount in local currency (reais) into foreign currency and repatriate such funds back to the lenders’ located abroad.
- 3.Are there any foreign exchange provisions restricting, or governmental or central bank registrations or approvals required for, the remittance of funds abroad or in a foreign currency?
Further to question 2, the main conditions of the loan is that it shall be registered with the Brazilian Central Bank under RDE-ROF module. Any payments thereof must be registered in such system as a condition for the remittance or repatriation of funds abroad.
Any court decision enforced against a Brazilian borrower or guarantor under a loan agreement will be expressed in local currency (reais). After such decision, the local currency will then be converted into the foreign currency and wired to the lender abroad.
- 4.Are there any governmental or central bank registrations or approvals required for the prepayment of loans either domestically or abroad?
No governmental approval is required for the prepayment of loans (either domestic or abroad).
Once the terms and conditions of the loan are duly registered with the Brazilian Central Bank under the RDE-ROF module (please see question 2 for details about registration), the borrower and/or guarantor shall be able to remit the funds abroad.
Until enactment of Central Bank Circular 3,058/04, loan prepayments were previously informed and approved by the Brazilian Central Bank. When Circular 3,291/05 came into force, such requirement and consequently, the requirement for Central Bank’s prior approval was abolished.
- 5.Are any mandatory governmental or central bank deposits required to be made from loan proceeds?
No, there are no mandatory governmental or Central Bank of Brazil deposits required to be made from loan proceeds.
- 6.Describe any governmental measures that may be taken to declare a moratorium on the loan obligations of private companies.
Brazil has adopted a system of exchange control under the authority of the Central Bank and all exchange transactions from or to Brazil shall be registered before the Central Bank. All the regulation is included in the RMCCI (Regulamento do Mercado de Cambio e Capitais Internacionais) amended by criteria of the Central Bank limiting of flexibilising the purchase and sale of the foreign currency.
Therefore, the Central Bank (that has no independent status) can impose restrictions to the entry or remittance of funds in or out of the country.
In addition to the Central Bank the Federal Government may also interfere in the exchange policy through the increase or reduction of taxation by the IOF-Exchange (please refer to question 9 below).
- 7.Describe any environmental liabilities and any other areas of lender liability that may be imposed as a result of the activities of borrowers.
The Brazilian Environmental Policy – Política Nacional do Meio Ambiente (Law 6,931/81) provides for in article 3 that a polluter directly or indirectly is responsible for the activities that harmed the environment. In addition, article 12 of such Law provides that the financing and incentive of governmental entities must condition the approval of financial projects to the licensing of the project as well as to the enforcement of environmental rules.
Although article 12 of the Brazilian Environmental Policy included the obligation for the governmental entities to condition funding with the presentation of all environmental licenses required for the project, a cross interpretation of rules and environmental laws extends such liability and obligation to private banks.
The liability of the banks that are funding the project that harmed the environment is strict and does not depend on proof that the funding has contributed for the damage. Such liability is also joint with the direct polluter and both may be deemed responsible for the environmental remediation and payment of fines, that may vary from of R$50 to R$50 million, depending on the extension of the impact to the environment. In some cases, the criminal liability of the polluters may also be triggered.
Court decisions deeming banks liable for environmental damages caused in funded projects are rare in Brazil and the superior courts have not decided any related claim. There are some current cases involving the Brazilian Development Bank – BNDES, Banco do Brasil, Caixa Econômica Federal and Banco da Amazônia, but the case law is still controversial, as in some cases, the banks were deemed liable and in others they were released from the obligation of repairing the environment.
- 8.Are interest payments or loan fees subject to a withholding tax?
As a general rule interest payments by a Brazilian legal entity or individual to a non-resident lender are subject to 15 per cent withholding income tax. If the lender is domiciled in a country that does not impose income tax or imposes income tax at a rate lower than 20 per cent (tax havens), the withholding income tax is increased to 25 per cent. The tax burden over the withholding income tax may be reduced, depending on the foreign lender’s location, pursuant to bilateral treaties on double taxation.
If the lender is part of the Brazilian financial system (commercial bank, investment bank, developing bank, savings bank, insurance, credit, financing or investment company, housing credit company, brokerage firm, leasing company or credit union), no withholding obligation related to income tax is applied, however the interest received is considered a part of the calculation basis of the lender’s corporate income tax (15 per cent + 10 per cent) and part of the calculation basis for the social contribution over the net profit (15 per cent) as well.
If the lender is any other kind of entity, interest payments are subject to withholding income tax (“IRRF”) by borrowers that are legal entities (“IRRF”) at rates that vary from 15 per cent to 22.5 per cent according to the loan term. The IRRF withheld and paid by the borrower will be treated by the lender as an anticipation of the corporate income tax due by the legal entity and as a definitive taxation in case of individuals.
- 9.What other taxes or mandatory fees, for example, transaction, registration, or documentary fees, apply to loan transactions?
Apart from income tax and social contributions described above, the taxes and fees depend on the company (if financial institution or other) and if the lender is domiciled in Brazil or non-resident.
If non-resident lenders, pursuant to Decree. 6,306/07 (as amended), the conversion of Brazilian reais into foreign currency and on the conversion of foreign currency into Brazilian reais are subject to the tax on foreign exchange transactions (“IOF/Exchange”). Currently, the foreign exchange transactions related to payments under loans with an average term greater than 720 days are subject to IOF/Exchange at a rate of zero per cent. If the loan payment is redeemed in a period of less than 720 days, the IOF/Exchange rate will be levied at a 6 per cent rate, in addition to applicable fines and interest. The Brazilian government can increase such rate at any time by up to 25 per cent, but regarding future foreign exchange transactions.
If Brazilian lender and, also, a financial institution, the lender will, also, be subject to PIS (Employees’ Profit Participation Program Social Contribution) and Social Insurance Contributions (COFINS) levied at 4.65 per cent over the revenue received from the loan.
In cases of non-financial institutions, Brazilian lenders are subject to 9.25 per cent of PIS/COFINS for companies subject to the non-cumulative system calculated over the revenue derived from the loan. However, by virtue of Decree 5,442/05, the current PIS/COFINS rate for companies subject to the non-cumulative system is zero in cases of revenue qualified as financial revenue.
The borrower, in case of loan operations in Brazil (Brazilian lender and borrower), will be subject to tax on financial transactions (IOF/Credit), withheld at source by the lender (if financial institution or legal entity), and levied at 0.0041 per cent (in case of legal entity) and 0.0068 per cent (in case of individuals) over the total amount of the loan, limited to 1.5 per cent on the principal amount, if a loan has a pre-fixed maturity date and amount, in addition to 0.38 per cent IOF surtax.
- 10.Are there different taxes applicable to loans repayable to lenders in your jurisdiction and loans repayable to lenders in a foreign jurisdiction?
Other than the above mentioned taxes there are no additional or different taxes applicable to loans repayable to lenders in Brazil.
- 11.Is your country party to any double taxation treaties that reduce taxes payable by borrowers in respect of loan payments abroad?
Yes, Brazil is a party to double taxation treaties with countries such as; Argentina, Austria, Belgium, Canada, Chile, China, Czech Republic, Denmark, Equator, Finland, France, Hungary, India, Italy, Israel, Japan, Luxembourg, Mexico, Netherlands, Norway, Peru, Portugal, Philippines, Slovakia, South Africa, South Korea, Spain, Sweden and Ukraine.
Most double taxation treaties signed by Brazil reduced the withholding income tax rate of cross-border loan interest to 15 per cent. However such tax rates can vary depending on the country and the conditions of the treaty.
- 12.Do any financing structures receive favourable tax treatment, such as prepayments of exports?
Yes, withholding income tax rate is zero regarding the payment of interest and fees in prepayments of exports in financing transactions, prepayments of interest on export drafts and bankers’ commissions of such export drafts.
- 13.Describe any limitations on the ability of lenders to charge default interest under loan agreements.
The limitations on the ability of lenders to charge default interest rates are included in Decree 22.626/33, Consumer Defense Code, Brazilian Tax Code and Civil Code.
According to article 406 of the Brazilian Civil Code, financial institutions are not subject to any limitations regarding the charge of default interest in loan agreements, as they can freely determine their applicable interest rates, even if they overcome the limit established by law. Therefore, if for any reason; (i) the default interest rate is not agreed or agreed without specifying a rate, or (ii) the right to receive interest because of late payment is expressly established by law, the interest rate shall be fixed in accordance with the applicable rate for late payment of taxes to the Brazilian National Treasury. Therefore, even if the transactions involve any aspect of the Consumer Defense Code financial institutions are not obliged to agree on interest rates.
- 14.Describe any restrictions that may apply to the choice of law, for example, whether a choice of New York or English law will be recognised and enforced in your jurisdiction.
In accordance with Article 9 of Decree 4.657/42 (Lei de Introdução do Código Civil – LICC), the contract obligations are governed by the laws of the country where they were constituted. For purposes of such law, the contract is deemed constituted wherever the proponent is located. Additionally, the choice of foreign law will only be enforceable in Brazil to the extent that such law is not deemed to be against Brazilian sovereignty, public policy or ethics.
If the obligations of a loan agreement is assumed and complied within Brazil, Brazilian courts may decide that both jurisdictions (Brazilian and the foreign jurisdiction provided in the loan agreement) are competent to decide the case.
Any foreign court decision against a Brazilian borrower or guarantor regarding loan agreement will be enforceable in Brazil without a reexamination of the merits if previously confirmed by the Brazilian High Court of Justice (Superior Tribunal de Justiça – STJ) whenever it;
- fulfills all formalities required for its enforceability under the laws of the country wherever it was issued;
- was issued by a competent court;
- after due service of process on such borrower or guarantor; or
- after sufficient evidence of such borrower’s or guarantor’s absence has been given, as required under applicable law;
- is not subject to appeal;
- was consularised by the Brazilian consulate and translated into Portuguese language by a sworn translator;
- regards a payment of determined or ascertainable amount; and
- is not against Brazilian national sovereignty, public policy or ethics.
- 15.Describe generally the requirements for the enforceability of a foreign judgment in your jurisdiction in respect of an outstanding loan.
For any foreign judgments to be enforceable in Brazil they have to be previously ratified by the High Court of Justice (Superior Tribunal de Justiça – STJ), and must comply with the following conditions:
- it must have been granted by a competent court;
- the parties must have been properly served or its default must have been legally declared;
- the decision shall be final, unappealable and enforceable under the laws of the foreign location; and
- there should be a certified translation into Portuguese.
- 16.Upon the closing of a loan, what procedural requirements should be observed to ensure that a loan agreement is enforceable in your jurisdiction?
In order for a loan agreement to be enforceable in Brazil, the following procedural requirements shall be observed: execution by authorised representatives, inclusion of all elements required for proper definition of the loan (amount, term, payment conditions, interest rate) and shall be attested by two witnesses in order to be considered a extrajudicial executive instrument.
In the event the loan agreement is executed abroad, the following requirements shall be met in order for such agreement to be valid and enforceable in Brazil: notarisation of the signatures of the parties by a notary public; authentication of the signature of the notary public by the Brazilian consulate abroad; translation of the agreement into Portuguese by a certified translator; and registration of the agreement, together with its certified translation, before the competent Registry of Deeds and Documents.
As a matter of practice, most foreign Loan Agreements are governed by the law of the lenders’ jurisdiction. However, to the extent the collateral is located in Brazil, the applicable law and jurisdiction will be Brazilian and the collection of credit can be made exclusively on the basis of the security documents, ie, pledge, statutory lien, mortgage or personal guarantees.
- 17.Does a loan agreement in English need to be translated and locally registered to be enforceable in your jurisdiction?
Yes, as per article 157 of the Brazilian Civil Procedure Code, for a loan agreement in foreign language to be enforceable in Brazil, it shall be notarised, consularised, translated by a certified translation and registered before the competent registry of deeds and documents (please refer to question 16). Security documents are also subject to translation and registration requirements.
- 18.Must a foreign bank be registered in your jurisdiction to enforce any rights under the applicable loan documentation?
To perform a loan with the entrance of funds in Brazil, the foreign bank must be registered before the Central Bank of Brazil, through the Registry of Individuals and Legal Entities – Foreign Capital (“CADEMP”). After registration with CADEMP, all input information is automatically sent to the Brazilian Federal Revenue Service and it is enrolled with the National Registry of Legal Entities (“CNPJ”). Such registration, however, does not create any tax payment or tax compliance obligations, except in the cases where the Brazilian lender must withhold income tax at the source.
Furthermore, all transactions must be registered independently with the Central Bank of Brazil through its Electronic Information System of the Central Bank (SISBACEN), under Financial Operations Registration (RDE-ROF) module.
- 19.Are foreign lenders treated any differently than local lenders in enforcing loan documentation in the courts of your jurisdiction?
There are no differences of treatment between foreign and local lenders.
However, further to Articles 38, 77 and 163 of the Judicial Recovery Law (Law 11.101/05) it is expressly established that for purposes of voting in the Creditor’s General Meeting, the credit in foreign currency will be converted to Brazilian currency by the exchange rate of the day before the holding of the assembly; for purposes of declaration of bankruptcy, all credits in foreign currency must be converted to local currency for the exchange rate of the day of the court’s order that confirmed the bankruptcy; and regarding the plan of judicial recovery, the credit in foreign currency will be converted to local currency by the exchange rate of the day before of the execution of the plan, and specifies that the variation of the exchange rate can only be removed if the creditor expressively approves a diverse provision in the plan of judicial recovery.
- 20.Is consideration required for the enforceability of a contractual obligation or guarantee?
According to Articles 475-O and 829 of the Brazilian Civil Procedure Code, the judge may demand the parties to give pledge.
Aside from that, the Article 835 of the Brazilian Civil Procedure Code determines that in the event the plaintiff, whether Brazilian or foreign, that resides outside of Brazil or leaves the country during the lawsuit shall, in future lawsuits, grant sufficient pledge to ensure the payment of the expenses and attorney fees of the other party, if the plaintiff does not have any properties in Brazil that guarantees the payment.
Nevertheless, Article 836 of the Brazilian Civil Procedure Code establishes that this pledge will not be demanded in the execution based on an extrajudicial enforcement instrument.
- 21.To enforce a loan in your jurisdiction, need the loan be evidenced by a promissory note or other form of título executivo?
No, the loan agreement itself will be considered an extrajudicial execution instrument and enforceable, provided that the formalities (written instrument, duly executed by the debtor and attested by two witnesses) have been met.
Article 585 of the Brazilian Code of Civil Procedure lists the documents that are considered extrajudicial executive instruments, to wit: promissory notes, trade notes, debentures, checks; private instrument executed by the debtor and two witnesses; agreements secured by mortgage, pledge, antichresis and escrow; all the other securities that by express provision the law confers enforceability, within others.
However, in the absence of any essential requirement (for example, lack of signature of one witness), although the Loan Agreement may not be considered an extrajudicial execution instrument, it still can be enforceable by means of a Monition Action.
- 22.To enforce a guarantee (aval) in your jurisdiction, is it necessary that the guarantee be evidenced by a guarantee agreement or other form of título executivo?
The aval is a specific type of personal guarantee regulated by articles 898 through 900 of the Brazilian Civil Code. Differently from the fiança (the other type of personal guarantee included in articles 818 through 839 of the Civil Code) as it is an independent and autonomous obligation, ie, the obligation of the grantor of the aval is not affected by the novation of the primary obligation. The aval can be only granted through securities and must be formalised by means of the signature of the grantor in the overleaf or in the face of the security.
The fiança can be formalised either by a separate instrument of by signature of the grantor in the very loan agreement. The fiança is subsidiary to the main obligation and its novation should affect the obligation of the grantor of the fiança. As a subsidiary obligation, the guarantor may raise against the creditor the same exceptions that the original debtor may have in connection with the obligation. However, almost as a rule, creditors will only accept a fiança in those instances where the grantor expressly waives to the benefit of order in the Civil Code.
According to article 49, first paragraph, of the Judicial Recovery Law – Law 11,101/05), creditors of a debtor in judicial recovery retain their rights and privileges against all the joint obligors, guarantors in the form of a fiança and recourse obligors. Despite the nature of the fiança certain courts have been taken the position that the novation of the main debt does not affect the obligation of the grantors of a fiança. The jurisprudence controversy is yet to be settled by superior courts.
- 23.Are there any restrictions on loans to multiple borrowers or guarantees in respect of a loan to an affiliated entity?
No, there are no restrictions on loans to multiple borrowers or guarantees in respect of a loan to an affiliated entity, provided that, as per question 2, the main conditions of the loan and the guaranty must be registered with the Brazilian Central Bank, under the RDE-ROF module. Any payments thereof must be registered in that system as a condition for the remittance of funds abroad.
Thin capitalisation rules concerning related parties located abroad conditions that interests paid by Brazilian companies to related foreign entities that are quotaholders/shareholders will only be deductible for income tax and social contribution on net income (“CSLL”) purposes if the debt of the Brazilian borrower does not exceed 200 per cent of the equity interest held by the foreign lender (article 25, item one of Law 12.249/10). Thus, the ratio of debt and equity interest should be 2:1 in order to maintain such interest as deductible from income and CSLL tax basis. Such thin capitalisation rules determine that interests paid by a Brazilian borrower to a lender domiciled in a tax haven (as per Federal Revenue Regulatory Instruction 1.037/10) will only be deductible in Brazil for CSLL purposes if the total amount of the loan does not exceed 30 per cent of the net equity (patrimônio líquido) of the Brazilian borrower.
- 24.Can a party grant a secured or unsecured guarantee in respect of a loan to an unaffiliated third party?
Yes, a party can grant both a secured or unsecured guarantees in respect of a loan to an unaffiliated third party, to the extent corporate approvals are properly formalised.
- 25.Is there a distinction between the granting of a security interest and the perfection of a security interest?
Yes, the granting of a security interest shall necessarily be through a private written agreement, that clearly identifies the collateral and properly executed by the parties and attested by two witnesses. However, the security interest is not perfected until registered in the competent registry – Registry of Deeds and Documents, Real State Registry or other, depending on the asset granted as security.
- 26.What is the most common form of granting and perfecting a security interest in moveable assets?
Under Brazilian law the most common ways of granting and perfecting a security interest in movable assets are pledge and statutory lien (Alienação Fiduciária).
The pledge, as provided by the Brazilian Civil Code, is a lien placed on a movable or immovable assets as guarantee of payment of a debt. For the granting of a pledge it is necessary to have a duly executed pledge agreement attested by two witnesses, and the agreement shall include:
- the credit amount, an estimative of such amount or the maximum credit amount;
- the term agreed for payment;
- interest rate;
- description of the pledged assets and its specifications;
- registration of the pledge agreement with the competent Registry of Deeds and Documents, Real Estate Registry and/or traffic/transport/licensing departments, as the case may be, for effectiveness before third parties; and
- the pledger must deliver to the pledgee the original counterparts of the respective documents that prove the existence of the pledged rights, unless the pledger has demonstrated interest to keep such documents in its possession.
As for the Statutory Lien, the debtor assigns the title and indirect possession of an asset to the creditor until the debt is fully paid up. It is a regulation of fiduciary transfer of ownership available to both individual and legal entities, allowing the creditor to recover its debt in a more efficient and enforceable manner, without the need of any judicial proceedings. Please see question 25 for the perfection requirements of the security interest.
Both pledge and statutory lien have different treatments according to the Judicial Recovery Law – Law 11.101/05. While the pledge, as an in rem security, ranks second in the priority rank – only after employment credits up to 150 minimum wages per employees and credits in connection with labour accidents – credits secured by a Statutory Lien are not subject to judicial recovery procedures and, once the 180-day stay-of-execution period expires, creditors may seek recovery of their assets..
- 27.What is the most common form of granting and perfecting a security interest in real estate?
The most common form of granting and perfecting security interest in real estate is through mortgage and statutory lien.
According to Brazilian laws and regulations, more than one mortgage may be created over movable or immovable assets whereupon the date of filing of the security interest for registration shall determine the priority of the mortgage. The security interest created over the asset, independently of who holds its title, binds the asset until the secured obligation has been fully satisfied, therefore the security is not affected by the sale or transfer of the asset. The mortgage can only be created by a public deed, except in certain cases where the law expressly authorises a lien to be created by a private credit instrument or certificate (Hipoteca Cedular). The maximum term for a mortgage is 30 years, although it can be renewed through a new public deed.
The statutory lien, as mentioned in question 25, occurs when the debtor assigns the title and indirect possession of an asset to the creditor until the debt is fully paid up. It is a regulation of fiduciary transfer of ownership available to both individual and legal entities, allowing the creditor to recover its debt in a more efficient and enforceable manner, without the need of any judicial proceedings. Please see question 25 for the perfection requirements of the security interest.
- 28.What is the most common form of granting and perfecting a security interest in receivables and accounts?
The most common forms of granting a security interest in receivables and accounts are through pledge and the fiduciary assignment (cessão fiduciária).
According to the Brazilian Civil Code, specifically Article 1,451, any rights that may be assigned qualifies for pledge.
As for the fiduciary assignment (Law 10,931/04 and Law 9,514/97), in which the debtor effectively transfers the property rights over a given asset to the creditor, it is applicable to credits arising from real estate projects, rights over movable assets and credit instruments (for example: promissory notes) . The Brazilian law authorises the creation of fiduciary security over movable and immovable assets, rights over movable and immovable assets and credit instruments.
The provisions of Article 1.420 of the Brazilian Civil Code is noteworthy as it is expressly included that only the authorised person to sell an asset can give it as a security interest.
In order for such guarantees to be granted, the collateral shall necessarily be identified in a private written agreement, duly executed by the parties and attested by two witnesses and for its perfection, it should be registered before the competent Registry of Deeds and Documents.
Creditors generally prefer the security interest since they are not subject to credit composition procedures (please see question 30). In addition to security instruments over both credits and bank accounts, creditors also usually create escrow accounts capture the cash flow of the debtor (trava bancária) and provide proper notice.
- 29.Does your jurisdiction recognise the transfer of assets to a trust for the benefit of a lender as a means of granting a security interest in such assets?
The common law concept of a trust does not exist in Brazilian law.
- 30.Does your jurisdiction recognise the fiduciary transfer of assets (such as an alienação fiduciária) to a lender as a means of granting a security interest in such assets?
Yes, fiduciary transfer of assets occurs when a debtor assigns the title and indirect possession of an asset or right given as a security to the creditor until the relevant debt is fully paid up.
This is a popular type of security within security packages for project finance transactions in Brazil. Such security may be applicable to credits arising from real estate projects, rights over movable assets and credit instruments (promissory notes, etc.) and quotas of investments funds for security of leases. Brazilian law authorises the creation of fiduciary security over movable and immovable assets, rights over movable and immovable assets and credit instruments. Credits represented by fiduciary transfer of assets are not subject to credit composition procedures in the form of Judicial Recovery.
- 31.Are there any types of asset that cannot be pledged as collateral under the laws of your jurisdiction?
Yes. Pledge can only be created over movable assets. However, Article 649 of the Civil Procedure Code and Article 100 of the Civil Code include a list of inalienable assets that may not be pledged as collateral.
- 32.Please describe any other relevant legal considerations in connection with loans to borrowers in your jurisdiction.
According to the Brazilian Civil Code, the lender is not authorised to retain assets received from the borrower as collateral for the payment of a loan. If the borrower or guarantor does not comply with the payment obligations provided in the loan agreement, the lender will be authorised to proceed with the execution of the outstanding amount of the debt, and claim for the sale of such assets in a public or private auction and use the proceeds to pay the outstanding obligations of the borrower.
Furthermore, in the event the lender is an entity located or domiciled abroad (whether it is or not employed by a public or private sector entity), it must be registered with the Central Bank of Brazil through its electronic system (CADEMP) and provide its enrollment before the General Taxpayers’ Registry (CNPJ) prior to the loan to be sent to borrowers on Brazil.
In connection with the resources that enter Brazil as foreign loan, such loans are also subject to registration with the Central Bank of Brazil in the RDE-ROF module. Any change in the records of foreign loan operations, including renewals and extensions, are also subject to prior consent of the Central Bank (Please see question 2 for further information).
© Law Business Research Ltd 1998-2012. All rights reserved.
Company No.: 03281866
IMPORTANT: Please read our Terms & conditions.
W11 1QQ, UK
