Legal Guarantees Framework: Changes introduced by the new law

On October 30, Law No. 14,711 was enacted to provide for the improvement of rules on collaterals, thus establishing the Legal Guarantees Framework.

The law brings significant legal advances to numerous economic segments and activities, including the real estate industry and the financial and capital markets, in addition to introducing new developments in retail relations.

With the initial purpose of promoting changes aimed at reducing the costs of financial operations by reducing interest rates, the innovations introduced by the Legal Framework for Guarantees are worthy of recognition.

Among other features, the new rules provide for:

• The secured fiduciary sale of supervening asset, that is, a type of “second degree” or successive fiduciary sale, which enables the same property to be used as collateral in more than one transaction;
• The collateral agent, who will act under a guarantee management contract and which, despite already widely used in the market, had not been specifically and legally provided for;
• Initial procedures for extrajudicial execution of debts secured through fiduciary sale of movable assets until ownership of the asset is consolidated. However, the provisions proposed in the bill and extrajudicial measures for search and seizure were vetoed;
• Procedures for extrajudicial execution of credits guaranteed by mortgage, establishing a new legal purpose to the mortgage as a collateral, thus expanding its applicability, notably with regard to the rules for extinguishing the debt and halting the procedure for other forms of foreclosure, according to the creditor’s interests;
• Rules related to the credit priority ranking that hold guarantees over the same property.

The numerous and important changes include rules to encourage debt renegotiation, allowing the intervention of a protest notary for this purpose, as well as new procedures for protesting titles, and the classification of the collateral agent.

On the other hand, in addition to the rules related to search and seizure procedures for movable assets used as collateral in a fiduciary sale, the new law excluded the rules of the original text in regard to civil pledge, previously established in the intermediate phase of the processing of Bill no. 4,188, thus maintaining the monopoly of Caixa Econômica Federal, which prevents the opening of the market in this segment.

The possibility of seizing a family’s sole property was also excluded, even in cases that justified this exception to the protection of family assets, which was the subject of intense and legitimate discussions. In addition, the law removed mining rights from the list of rights that could be used as guarantee, which had already been foreseen by the sector given the possibilities that this could represent in the operations of mining companies.

The significance of these innovative legal changes is undeniable. Our Real Estate, Capital Markets, Banking and Finance, and Alternative Investments teams are, readily available to provide our clients with further information on the topic.

For more information on the fiscal changes brought by the new rule, click here.