BRAZIL Law and Practice Contributed by: Roberto Panucci, Tiago Severo, Diogo Nebias and Guilherme Teles, Panucci, Severo e Nebias Advogados
istered with the Central Bank of Brazil under SCE- Crédito ( Sistema de Prestação de Informações de Capital Estrangeiro de Crédito Externo ). In practice, the Brazilian borrower is responsible for carrying out the registration, which is a prerequisite for enabling foreign exchange inflows and outflows and ensur- ing deductibility of interest for tax purposes. Loan disbursements and repayments must be processed through authorised foreign exchange dealers in Brazil, in compliance with local foreign exchange regulations. As foreign lenders do not need a Brazilian banking licence to extend credit cross-border, many interna- tional banks, export credit agencies, development finance institutions and investment funds routinely Brazilian law allows foreign creditors or their secu- rity agents to take and hold security and guarantees granted by Brazilian obligors. Practical constraints exist for certain asset classes (eg, rural land or bor- der-area properties), where enforcement may need to occur via sale to eligible buyers rather than direct title vesting in a foreign mortgagee. 3.3 Restrictions and Controls on Foreign Currency Exchange Brazil maintains a regulated foreign exchange system, but recent reforms have modernised and liberalised many aspects of currency control. For cross-border loans, the main control is the registration requirement described in 3.1 Restrictions on Foreign Lenders Providing Loans . Once a loan is registered, the bor- rower can purchase foreign currency from a local bank to remit interest and principal abroad at maturity. 3.4 Restrictions on the Borrower’s Use of Proceeds lend to Brazilian companies from abroad. 3.2 Restrictions on Foreign Lenders Receiving Security Brazilian law does not impose a general restriction on how a private borrower may use loan or debt securi- ties proceeds, with a few notable exceptions. In most commercial loan agreements, the use of proceeds is a contractual matter – lenders may stipulate that the funds must be used for a certain purpose (eg, to finance an acquisition or a project or as general working capital) and thus misuse could be a breach of
contract. However, as a matter of law, there is no blan- ket rule that prevents loan funds being used for stock buybacks or other particular activities. The excep- tions are typically tied to specific credit programmes or incentivised financing. 3.5 Agent and Trust Concepts Brazil’s legal system, rooted in civil law, does not rec- ognise the concept of trusts in the same way com- mon-law jurisdictions do. There is no direct equiva- lent of a trust whereby a trustee holds property for the benefit of beneficiaries. However, in commercial practice, agency and fiduciary arrangements are rec- ognised and commonly used to achieve similar out- comes, particularly in banking and secured transac- tions. 3.6 Loan Transfer Mechanisms Loans in Brazil can be transferred or assigned between lenders, but the mechanism depends on the form of the loan and the documentation of the security interests. The common methods for transferring loan exposure are assignment of credit ( cessão de crédito ) or negotiation of credit instruments, and the transfer of the security package requires certain formalities. Ensuring the collateral is transferred with the loan means checking each type of security. Some may require a formal assignment document and possibly publicly registering that assignment, especially for assets where priority is at stake. To ensure that the security remains effective after a transfer, parties often mention in the initial documentation that the collateral is granted not only to the original lender but also to its successors and assignees. When well-managed, the result is that a new lender can benefit from the same secured position as the original lender without interruption. 3.7 Debt Buyback In summary, debt buybacks are allowed; indeed, some well-advised companies use this tool opportun- istically. The key is to have clear loan documentation provisions, typically requiring lender consent to any borrower repurchase (often all lenders consent via the agreement upfront, albeit with conditions).
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