BRAZIL Law and Practice Contributed by: Roberto Panucci, Tiago Severo, Diogo Nebias and Guilherme Teles, Panucci, Severo e Nebias Advogados
age and avoid surprises that would erode the eco- nomics of the loan.
often capped or scaled) and registration has evolved to adapt to online platforms. 5.2 Floating Charges and/or Similar Security Interests Brazilian law does not provide for a true floating charge that covers all present and future assets of a company in a universal manner (as one might have under English law), except for debentures (which are seldom used in Brazil, owing to the lack of a wider legal framework and case law). Security interests in Brazil must generally attach to specific assets or cat- egories of assets. There is no concept of a floating charge that hovers over changing pools of assets and then “crystallises” upon default. Instead, lenders must take security interest in defined assets and – if they want coverage of future assets – they need to specifi- cally include those assets in the security agreement and must frequently update the collateral schedule as new assets come into being. The absence of a floating charge means lenders can- not get a one-stop security that picks up everything automatically (except perhaps via an all-assets FIDC structure, which is not exactly a charge but a transfer to a fund). Therefore, the approach is to cover major assets piecemeal. Notably, assets such as real estate and vehicles have title-based registries; it is not pos- sible to have a generic lien on “all real estate” without identifying each property at its registry. In summary, Brazilian law permits security over class- es of assets and future assets of that class, but does not have a single security instrument over the entire enterprise assets by default (except for debentures, as mentioned earlier). Lenders must use combina- tions of fiduciary transfers, pledges, and mortgages to compose the security package. There is no func- tional equivalent to the English floating charge that later becomes fixed – except the inventory pledge, which is probably the closest functional analogue, albeit used on a limited basis. 5.3 Downstream, Upstream and Cross- Stream Guarantees Brazilian companies may provide downstream, upstream and cross-stream guarantees, subject to proper authorisation and to compliance with officers’
5. Guarantees and Security 5.1 Assets and Forms of Security
Almost any class of asset can be granted as collateral in Brazil, provided that the security interest is created in the proper legal form and perfected in the relevant public registry. Typical collateral packages for a Brazilian corporate loan might include fiduciary transfer of properties (movable and immovable), fiduciary assignment of key receivables and contracts, fiduciary transfer of shares, and even a floating inventory lien (specific for debentures). Under a fiduciary transfer, the title to the asset is con- ditionally transferred to the creditor and the posses- sion remains with the debtor. Under mortgage and pledges, the debtor retains the title to the asset. In general, creditors prefer fiduciary transfer of proper- ties and fiduciary assignment of rights, as those collat- erals have the advantage of out-of-court foreclosure (faster enforcement) and keep the asset outside the borrower’s insolvency estate. Mortgages and pledges are also granted in certain situations (eg, to foreign lenders, or where necessary to differentiate security rankings). Formalities and perfection vary, but a universal step is registering the security agreement with the appro- priate public registry. If perfection requirements are not completed, consequences are severe: the security might not be effective against third parties (including other creditors or an insolvency estate). Counsel must co-ordinate to ensure completeness, because miss- ing a step can render the security unperfected. After perfection, the lender holds strong rights. Setting up comprehensive security in Brazil can be quite time-consuming and costly, owing to multiple registrations. Each asset class might involve a dif- ferent registry and different fees. However, none of the fees are exorbitant relative to loan sizes (they are
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