The New Legal Framework for Guarantees and Payment Arrangements in Brazil

The New Legal Framework for Guarantees and Payment Arrangements in Brazil

Introduction:

In 2013, Brazil introduced Law No. 12,865, also known as "L12865," which focuses on payment arrangements and payment institutions within the Brazilian Payment System (SPB). This law brought several changes and innovations to the financial sector, aiming to promote efficiency and security in payment transactions. Additionally, in 2023, Law No. 14,711 made important alterations to the legal framework for loan guarantees, further enhancing the country's financial landscape.

Garantias de Empréstimos - Changes and Innovations:

One of the significant changes introduced by Law No. 14,711 is the dispensation of the obligation to maintain and register Debenture Books with the Commercial Registry. This alteration provides more flexibility to creditors, allowing them to focus on finding negotiated solutions for defaulted credits before resorting to legal actions like protesting the title. Furthermore, the law establishes the role of a Guarantees Agent, who acts on behalf of the creditors and is responsible for the registration, management, and execution of guarantees. This agent assumes fiduciary duties and is accountable for their actions to the creditors.

Another noteworthy modification involves the minimum threshold for the second auction in cases of foreclosure due to default on mortgage loans. Except for consortium operations, the minimum bid in the second auction is set as the full amount of the oldest outstanding debt on the property, including associated expenses. This provision aims to ensure a fair and reasonable valuation of the property in foreclosure proceedings.

Alienation Fiduciária and Hipoteca:

Law No. 14,711 aligns the regulations for Alienation Fiduciária (fiduciary transfer of property) and Hipoteca (mortgage), particularly in terms of extrajudicial execution of the guarantees. It grants the creditor the option, after the second auction without a suitable bid, to appropriate the property to settle the debt. This provision aims to streamline the foreclosure process and expedite the resolution of defaulted loans.

The Role of the Guarantees Agent:

The introduction of the Guarantees Agent, as mandated by Law No. 14,711, marks a significant development in Brazil's financial landscape. This agent, appointed by one or a group of creditors, assumes responsibility for managing guarantees, representing the interests of the creditors. The Guarantees Agent can also act in judicial proceedings that involve discussions about the validity and effectiveness of the guaranteed credit. This inclusion in the Civil Code provides more clarity and accountability in guarantee management.

Precatórios and Negotiation:

Law No. 14,711 introduces changes related to the negotiation of precatórios, which are court-ordered payments owed by public entities. Interested parties can now request notaries to inform judges and courts about ongoing negotiations between the current creditor of the precatório and a third party. This communication facilitates the possibility of reaching agreements before the precatório is protested, allowing the creditor to propose a settlement to the debtor without legal consequences.

Innovations in Intimations:

The law also introduces innovations in the process of intimating debtors before protesting their debts. Notaries now have the option to use electronic means and voice calls to notify debtors. As long as there is proof that the debtor received the message from the notary, this form of communication is considered valid and eliminates the need for traditional methods of notification.

Changes in the Issuance of Debentures:

Law No. 14,711 made important modifications to the regulations for the issuance of debentures. One significant change is the possibility for both public and private companies to authorize the issuance of non-convertible debentures through the Board of Directors or the Directors themselves. This eliminates the requirement for approval by the General Assembly of shareholders, except when stipulated otherwise in the company's bylaws. Additionally, the law removes the obligation to register the issuance of debentures with the Commercial Registry.

Moreover, the law simplifies the procedures for debenture issuance abroad, making it easier for companies to access international capital markets.

Conclusion:

The legal changes introduced by Law No. 12,865 and Law No. 14,711 have brought significant improvements to Brazil's financial sector. These changes aim to enhance efficiency, transparency, and security in payment transactions, loan guarantees, and debenture issuances. The introduction of the Guarantees Agent and the facilitation of negotiations through notaries contribute to a more streamlined and effective resolution of defaulted credits. The simplification of procedures for debenture issuance promotes access to capital markets, allowing companies to raise funds more easily.

Actionable Advice:

1. Utilize the services of a Guarantees Agent: Engaging a Guarantees Agent can provide added security and efficiency in managing loan guarantees. Their expertise and fiduciary responsibilities can help creditors navigate complex legal processes.

2. Explore negotiation options before protesting debts: Taking advantage of the new provisions that allow for negotiations before protesting debts can lead to more amicable and efficient resolutions. Proposing settlement options to debtors through notaries can help avoid legal consequences and foster better debtor-creditor relationships.

3. Stay updated on regulatory changes: As the financial landscape evolves, it is crucial to stay informed about new laws and regulations. Regularly reviewing updates and seeking legal advice can help businesses and individuals adapt to changes and make informed financial decisions.

In conclusion, the legal changes introduced by Law No. 12,865 and Law No. 14,711 have significantly improved Brazil's financial framework. The introduction of the Guarantees Agent, facilitation of negotiations through notaries, and modifications in debenture regulations have enhanced efficiency, security, and access to capital markets. By utilizing the available resources and staying informed about regulatory changes, individuals and businesses can navigate the financial landscape more effectively.