BRAZIL Law and Practice Contributed by: Thiago Fernandes Chebatt and Luiz Eugênio Araújo Müller Filho, Müller Chebatt Advogados
5.8 Priming Liens and/or Claims Multiple liens and contractual subordination are both common in Brazil, but priority analysis is asset-by- asset and sensitive to registry mechanics. Compet - ing security over the same asset can produce dis - putes driven by filing dates, the type of security and the exact perfection steps completed, which is why sequencing and registry strategy are core diligence issues. Contractual subordination is typically imple - mented through intercreditor provisions governing payment waterfall, turnover, enforcement standstills and release mechanics, and structural subordination is frequently used through HoldCo/OpCo layering. In insolvency, the practical effect of subordination may be tested by plan dynamics and litigation, so lenders aim to align economic priority with enforceable control and executable proceeds allocation rather than relying solely on post-filing arguments. 5.9 Cash Pooling and Hedging/Cash Management Obligations Cash pooling is used in Brazil, usually through bank- led cash management structures and intercompany arrangements, and it can materially affect recoveries if it creates competing rights over cash. From a private credit perspective, the central questions are whether collections are segregated, whether the cash manage - ment bank has set-off or other contractual rights, and how those rights would operate under stress. Lenders typically manage this through restrictions on pooling without consent, requirements for dedicated collec - tion accounts, and cash-trap triggers that redirect flows upon objective early-warning events. Where hedging is part of the capital structure, the docu - mentation commonly addresses whether the hedge counterparty is secured, how it shares collateral and how proceeds are allocated, to avoid unanticipated priming. Because these mechanisms operate before a filing, they often matter as much as formal enforce - ment rights. 5.10 Appointment of Collateral Agent A collateral or security agent structure is increasingly workable in Brazil for multi-lender secured transac - tions, but it must be aligned with Brazilian collateral law, registry practice and the contractual allocation of powers. Where a representative holds and admin - isters security for the creditor group, transfers can be
terised as lacking corporate interest or as prejudicing creditors. As a result, lenders tend to implement tar - get support with clear approvals, a defensible busi - ness rationale and sequencing that reduces challenge risk, particularly where security is added post-closing. Documentation often reinforces the benefit narrative through on-lending mechanics, integration steps or other features that make consideration and advantage to the target group visible. The focus is less on formal permissibility and more on the ability to defend the structure if later litigated. 5.6 Release of Typical Forms of Security Practical restrictions and costs are significant. Per - fection and releases often require notary formalities, sworn translations and filings in multiple registries, with fees that can be material and that vary by state and collateral type. Certain assets in regulated sec - tors or under concession arrangements may have restrictions on encumbrance or may require consents, which must be assessed case by case. Insolvency also creates “hardening” concerns, because security granted close to distress – especially for antecedent obligations – can be attacked depending on timing and effect. Private credit execution therefore includes a formalities and consents map, an implementation timetable and careful consideration of whether incre - mental security should be staged and how it should be documented to reduce avoidable challenge risk. 5.7 Rules Governing the Priority of Competing Security Interests and/or Claims Releasing security in Brazil is a process, not a single document. The secured party or appointed repre - sentative executes releases, but effectiveness usu - ally requires cancellation or annotation filings in the relevant registries and corporate records, and in some cases notifications to third parties such as obligors and account banks. In multi-lender structures, release decisions must align with intercreditor thresholds and may be partial or substitution-based, increasing the need for disciplined documentation and tracking of registrations. Because incomplete releases can dis - rupt refinancings and create residual encumbrance risk, sophisticated practice treats release mechanics with the same care as initial perfection. Clear closing checklists and post-closing follow-up are therefore essential to avoid operational surprises.
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