BRAZIL Law and Practice Contributed by: Caio Ferreira Silva, Thiago Braga Junqueira, Vinícius Pimenta Seixas and Rodrigo Vieira, Pinheiro Neto Advogados
erty of the assets granted as security under a fiduciary sale or assignment by means of a pro- cedure conducted directly via the competent Registry of Deeds and Documents. Proceeds of the Collateral The proceeds resulting from the sale of the assets subject to a security interest must be allocated by the creditor to amortise the secured debt and the expenses, if any, incurred with the enforcement of the collateral. Any remaining (positive) balance will be delivered to the debt- or with a statement detailing the implemented action. If the proceeds of the sale of the assets are insufficient to pay the debt, the outstanding balance will be considered an unsecured debt of the creditor if there is no additional collateral to secure such an amount. In addition, pledges and mortgages may be sub- ject to multiple liens, with each of their payment rankings being based on the time of filing; the first to be filed has priority over the subsequent filings. Fiduciary sale or assignment, on the other hand, is not subject to multiple liens, given the nature of the security interest, which entails the transfer of ownership/title of the collateral to the creditor. Bankruptcy/Insolvency Limitations As indicated above, the fiduciary sale or assign- ment is generally exempt from the effects of the bankruptcy or insolvency of the obligor or grantor of the security interest. Assets subject to fiduciary sale agreements can have their foreclo- sure proceeding suspended for 180 days (stay period), renewable for an additional 180 days under certain circumstances, should the relevant reorganisation court consider such assets to be essential for the operations of the company.
Holders of pledges or mortgages, however, are subject to judicial reorganisation and a judicial reorganisation plan. Therefore, any creditor of such in rem guarantees would not be able to commence a foreclosure proceeding during the judicial reorganisation of the security grantor. The ranking of mortgage and pledge payments in reorganisation or bankruptcy scenarios is sub- ject to specific rules set forth in the Bankruptcy Law. In addition to security interests, obligors may also grant personal guarantees for the benefit of creditors in acquisition finance transactions. The term “personal guarantees” means that personal obligations are placed on the party giving the guarantee in their relationship with their credi- tor, corresponding to security that the creditor obtains from the guarantor. In its full sense, it is a fiduciary relationship since the creditor must have complete confidence in the integrity of the guarantor. A personal guarantee implies a prin- cipal obligation to which the guarantee is sub- sidiary. Personal guarantees can be rendered as a surety ( fiança ) or an endorsement by the guarantor ( aval ). Comfort letters are also typically issued to creditors. Such letters are not actual guarantees, although they may be included in the category of personal guarantees. 6. Guarantees 6.1 Types of Guarantees Personal guarantees granted by banks are also available for a fee paid to the guarantor bank. Due to the increasing number of such bank guar- antees ( fianças ) rendered by Brazilian banks as guarantees to bid processes, judicial executions and major financing projects, the Central Bank of Brazil and the CMN established specific rules for the rendering of such special types of guarantee
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