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Brazil: Simplifying security interests

The Brazilian government has been making concerted efforts to eliminate red tape and generally improve the country's business environment. A new package of measures aims to eliminate bureaucratic procedures to reduce the so-called Brazilian cost - the set of structural and economic difficulties that make doing business in Brazil so expensive. The new rules simplify legal requirements for the creation of security interests in Brazil and improve institutional and legal stability.

Provisional Measure 775, dated April 6 2017 (MP 775), modifies the rules for the creation of liens on financial assets. According to MP 775, liens over financial assets and securities that are eligible to be registered or placed in custody with central depositary agents only need to be registered with those entities in order to be valid and enforceable against third parties. Those liens no longer need to be registered with public registries. Before MP 775, this simplified procedure was only available for capital markets and intra-bank financial transactions. It is expected that the new regime will simplify and reduce the transactional costs related to financings that are provided by banks to small and medium-sized enterprises and secured by trade bills. Congress has until June 5 2017 to convert MP 775 into law, otherwise it will lose its effectiveness, but any liens created during the period it was in force would remain effective.

In the energy sector, the Brazilian energy regulator issued Normative Resolution 766 on April 25 2017. This resolution expands the scope of guarantees that may be granted by companies holding concessions, permissions or authorisations to provide power generation, transmission or distribution services. It establishes the requirements those companies must satisfy to create liens over their concessions or authorisation rights, or to issue corporate guarantees without the need for advance regulatory approval. An update on the rules applicable to the oil and gas exploration and production sector is expected within the coming months.

In parallel, the Brazilian government has been promoting a wide and intense debate about the update of the country's bankruptcy law. One of the main topics of the agenda relates to the recognition and ranking of the various types of in rem guarantees that exist in Brazil. For instance, some court decisions have disregarded liens created by means of fiduciary sale or assignment of chattels, rights and personal properties, in transactions executed with companies that applied for bankruptcy protection or were subject to liquidation. The government's intention is to reduce legal uncertainty and to have a new regime that is more in line with international market practices. The bill is expected to be submitted to the Brazilian congress during 2017.

This series of microeconomic reforms of the security guidelines will foster legal certainty, accuracy and quality of information, reinforcing credit protection and supporting the stability of the Brazilian financial market.

Mauricio Teixeira
dos Santos
Amanda Areas

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