The Lending and Secured Finance Review: Brazil


The Brazilian financial system is highly sophisticated and subject to the regulation and supervision of the Central Bank of Brazil. Brazil has faced boom-and-bust economic cycles throughout its history. In the early 2000s, Brazil benefited from rising commodity prices and political stability.

In recent years, however, the fall in commodity prices, the high level of government spending and corruption scandals led Brazil into a deep recession, and Brazilian GDP decreased 3.8 per cent in 2015 and 3.6 per cent in 2016.2

This bearish trend was reverted in 2017, 2018 and 2019, when the Brazilian GDP increased by 1 per cent per year; indices of consumer confidence – in both consumption and services – continued to improve, and the domestic interest rate decreased significantly. There was also an improvement in credit indicators, because of the combination of a decrease in portfolio risk and a greater credit supply, and this positive scenario led to an increase in lending activities; the volume of credit in the financial markets increased from 3.257 trillion reais in December 2018 to 3.470 trillion reais in December 2019,3 an increase of approximately 6.5 per cent. This result derives mainly from consumer credit, which rose approximately 11.7 per cent in 2019.4

Legal and regulatory developments

Despite the past decades of banking services being concentrated among four large local banks (Itaú Unibanco, Bradesco, Banco do Brasil and Caixa Econômica Federal) and foreign-owned banks playing an important role mainly in corporate lending activities, the Central Bank is taking several actions to foster distribution of the almost 80 per cent of all credit in Brazil actually dominated by these local financial institutions.

The liberalisation of banking practice once started in 2018 with the regulation of 'lighter' financial institutions (credit fintechs) takes a step further on fostering competitiveness, efficiency, reduction of fund costs and, most of all, cooperation between entities. Nowadays, the Central Bank enhances a collaborative environment towards financial market development, that is to be the promise of a brighter future.

The earlier regulation of credit fintechs created two new types of financial institutions: the direct credit company (SCD) and the peer-to-peer lending company (SEP), which have smaller capital, regulatory and licensing requirements than traditional financial institutions.

As financial institutions, SCDs and SEPs (1) are free to charge any compensatory interest rates, without caps or limitations, being excluded from the restrictions imposed by the Brazilian usury law, (2) will have direct access to the credit risk data system of the Central Bank for credit purposes analysis and (3) may opt to have direct access to the Brazilian payment system, which allows the performance of domestic wire transfers and issuance of payment slips without the intervention of a traditional financial institution.

In addition, it is worth mentioning that a huge step regarding foreign investments in Brazil was taken in 2019: Presidential Decree No. 10,029 allowed the Central Bank to authorise foreign investments in local financial institutions. Former rules provided that such investments required a specific prior approval from the President.

Moreover, in November 2019, the Central Bank announced two public consultations to provide initial guidelines for the Open Banking regulation and the Controlled Testing Environment for Financial Innovations (Regulatory Sandbox). In February 2020, the Central Bank issued the first Instant Payments regulation, which aims to implement the Instant Payment System (SPI), the unique brand of the Brazilian instant payment (PIX) and the guidelines for the instant payments ecosystem. The idea of this system is to allow real-time, 24/7, 365 days a year payments at a low cost aiming at replacing payments in cash, debit card and banking barcoded payment slip.

The following items will provide a more specific overview of the above-mentioned matters.


The business model of an SCD encompasses lending, financing and acquiring receivables exclusively through an electronic platform with its own financial funds. An SCD is prohibited from raising funds from the public or collecting deposits to be used in its financial activities.

The regulatory framework for SCDs is simpler than the regulatory framework applicable to banks and other financial institutions, considering that such institutions have a limited and less complex scope of activity (focusing exclusively on the extension of loans and financing, as well as on the acquisition of receivables, without leverage).

The regulation of credit fintechs originally allowed SCDs to sell the loans they originate to (1) other financial institutions, (2) receivable investment funds invested in exclusively by qualified investors and (3) securitisation companies that distribute securitised assets solely to qualified investors. As a result, credit securitisation structures are expressly available to SCDs as a funding alternative. Recently, the Central Bank changed this rule to allow credit fintechs to sell their originated loans not only to receivables investment funds, but to any types of funds, maintaining the requirement that such funds should be invested in exclusively by qualified investors.

ii SEP

An SEP is a financial institution that, exclusively through an electronic platform, brings creditors and borrowers together in a peer-to-peer lending arrangement. By so doing, SEPs will intermediate the borrower–creditor relations, thus engaging in a typical financial intermediation activity.

The regulation of credit fintechs has set a more robust regulatory framework for SEPs by regulating how the financial intermediation shall take place and determining specific mechanisms for managing the credit risks in these transactions, among other issues. The regulation makes it clear that, unlike SCDs, SEPs cannot carry out lending or financing transactions using their own funds (thus, underscoring the peer-to-peer nature of such activity). Further, as a rule, neither the SEPs nor their controlling persons and affiliates can directly or indirectly hold the credit risk inherent to loan transactions carried out by the SEPs.

Only individuals or legal entities resident and domiciled in Brazil may act as borrowers in transactions intermediated by SEPs. However, creditors may comprise the following:

  1. individuals;
  2. financial institutions;
  3. receivables investment funds invested in exclusively by qualified investors;
  4. securitisation companies that distribute securitised assets solely to qualified investors; and
  5. non-financial legal entities.

In the same way of the changes applicable to SCDs, SEPs creditors were furtherly allowed to comprise any types of investment funds, provided that such funds should be invested in exclusively by qualified investors.

Nevertheless, creditors other than qualified investors can lend up to 15,000 reais to one single borrower at the same SEP.

iii Open banking

The open banking concept refers to the opening of bank information retained by financial institutions with respect to their customers so that they can be processed and used by other financial institutions, provided that prior consent from the customer is obtained.

Although there is currently no regulation that obliges banks and other regulated entities to provide such information, the Central Banks expects to issue and implement a regulation in 2020, which has been discussed since 2019. By means of Public Consultation No. 73, the Central Bank made available to the market the draft of the Open Banking rules, with the goal of fostering innovation, competition and financial inclusion, as well as increasing the efficiency of the National Financial System (SFN).

In a phased approach, the above-mentioned rules aim to regulate the sharing of data and payment solutions by financial institutions as well as other Central Bank licensed entities. The data shall comprise products, services, costumer records and consumer transactions data, upon authorisation of the customer.

iv Instant payments

Set up in May 2018, the Working Group for Instant Payments between Central Bank and market participants aimed to define the fundamental requirements for the Brazilian instant payment ecosystem.

In the guidelines formulated within the aforementioned Working Group, the Central Bank places as pillars of this new system:

  1. the ecosystem will work in a real-time gross settlement model;
  2. the Central Bank will provide payment instruction transmission service between the various payment service providers (PSP) participating in the ecosystem, as well as the settlement infrastructure;
  3. a central advisory committee will be set up to assist the Central Bank in defining general ecosystem rules and a governance committee to define specific ecosystem rules with the aim of forming conventions on various topics; and
  4. there will be at least three modalities of participation in the ecosystem: (1) direct participant, (2) indirect participant and (3) payment initiation service provider.

In February 2020, the Central Bank issued Circular No. 3,985, which started the process of implementing the SPI, in connection with the guidelines defined in the Working Group. In this context, the unique brand of the Brazilian PIX was also launched. The rules regarding such payment arrangement are currently under Public Consultation No. 76.

v Regulatory Sandbox

Lastly, the rules proposed for the Regulatory Sandbox, as per Public Consultation No. 72, focus on regulating tests on innovative financial payments projects during a specific period, limited to one year and extendable once for the same period. The project aims to foster solutions for the foreign exchange market; links between capital market and credit market; credit for micro entrepreneurs and small businesses; and solutions for the open banking effects.

Tax considerations

Credit support and subordination

i Security

This section provides an overview of the common methods of taking securities over different types of assets in Brazil.

The following methods of credit support are available:

  1. in rem guarantees;
  2. personal guarantees;
  3. contract bonds;
  4. standby letters of credit or demand guarantees; and
  5. avals on promissory notes.

A fiduciary sale or assignment, mortgages and pledges are in rem guarantees, which create a privilege over the collateral in favour of the creditor, with this being the asset granted in collateral bound to the secured obligation. In such cases, creditors do not have recourse against the guarantor that provided an in rem guarantee to collect outstanding amounts after the foreclosure of the collateral, unless agreed otherwise.

The most common types of in rem guarantees are the fiduciary sale, mortgage and pledge.

A fiduciary sale is a type of security interest pursuant to which the guarantor assigns to the creditor the title of certain assets. Therefore, the guarantor continues to have possession of the assets, still being liable for the duties of an escrow agent or bailee, or a trust in relation to them. Title of the asset granted in a fiduciary sale is only given back to the guarantor when the latter has fulfilled all of its obligations under the guaranteed credit.

The fiduciary sale was introduced in Brazil in 1965, but the applicable legal framework changed in the early 2000s with the enactment of a new Civil Code and other laws. These modifications fostered the use of fiduciary sale, which is currently one of the main credit support transactions, especially because of its bankruptcy remoteness feature. Because a fiduciary sale entails the transfer of the ownership of the underlying assets to the creditors, the creditors are not exposed to the risks inherent to a guarantor's bankruptcy.5 This is the main difference between a fiduciary sale and the other guarantees, which do not entail the transfer of ownership of collateral and, therefore, the creditor may be subject to bankruptcy apportionment of the guarantor.

There are two regimes applicable to fiduciary sales. On one hand, Law No. 4,728/1965 and Law No. 10,931/2004 regulate fiduciary sales within the scope of the financial and capital markets, expressly allowing the fiduciary sale of fungible6 and non-fungible property and credit rights. On the other hand, the Civil Code applies to fiduciary sales that are not within the scope of the above-mentioned markets. Although the Civil Code makes no provision regarding the characteristics of the asset given as collateral in a fiduciary sale, there are precedents of the Brazilian Superior Court of Justice (STJ) narrowing the fiduciary sale under the Civil Code to non-fungible assets.7 Because foreign lenders do not qualify as financial institutions under Brazilian law, it is disputable whether a transaction with such entities would qualify as a transaction within the scope of the financial or capital markets and, therefore, it is also disputable whether these entities could benefit from a fiduciary sale of fungible assets or credit rights.

Pledges and mortgages are also commonly used as collateral in lending transactions, with pledges being applicable to movable assets and rights (e.g., machinery, inventory, vehicles, credits and shares) and mortgages to immovable assets (e.g., real estate). Different from the fiduciary sale, in pledges and mortgages the guarantor keeps the title of the collateral and, therefore, creditors may be affected by the bankruptcy of the guarantor. In addition to that, pledges and mortgages are subject to multiple liens (first, second, third priority or more); therefore, the creditor may not necessarily receive a first priority security interest with respect to a particular asset if the asset has already been encumbered in favour of another creditor. Fiduciary sale is not subject to multiple liens, as it involves a transfer of ownership to the creditor.

Brazilian law does not provide any specific restriction on taking security over all or substantially all of the assets of a debtor or guarantor. Nonetheless, it is impossible to document such a security interest in a single document, as in rem guarantees need to be registered before different authorities depending on the type and location of the asset granted as collateral (registration with the competent authorities is a condition for perfection of such security interests).

Brazilian law forbids the creditor to keep or obtain title of collateral in the event of default (prohibition of commissoria lex), unless the guarantor grants express consent after the maturity date of the debt or its acceleration. In view of that, if the guarantor does not grant this consent, the collateral should be sold at a public auction, the proceeds of which will be applied to the payment of the principal and interest of the debt, judicial expenses and legal fees, provided that, in the case of attachment of quotas or shares8 requested by a creditor who is not a shareholder or partner (as the case may be) of the company, the company shall be summoned for the purposes of securing the right of first refusal of its shareholders or partners.9 In any case, the balance amount (surplus), if any, shall be returned to the guarantor.

ii Guarantees and other forms of credit support

Besides in rem guarantees, lending transactions may be secured by personal guarantees. Under Brazilian law, a personal guarantee is likely to be perceived as a surety and may be defined as a contract of a person or corporate entity by which one guarantees, in whole or in part, the performance of an obligation of someone else.

In summary, under Brazilian law:

  1. personal guarantees may encompass the principal amount and ancillary charges (monetary correction, interest and other fees);
  2. personal guarantees are granted by a guarantor and do not require the debtor's prior consent;
  3. if the personal guarantee is granted by a married individual, consent of the spouse is required; and
  4. the guarantor has a series of benefits granted by law, which are generally waived by the parties.

Contract bonds are a type of insurance wherein the insurance company guarantees the performance of the insurance taker's (the debtor's) underlying obligations under the lending agreement by providing the funds for the insured party to contract another company to perform the insured obligations. Local companies or individuals domiciled in Brazil shall take out insurance coverage before local insurers for risks run in Brazil. There are a few exceptions to this rule; for example, local companies or individuals are allowed to take out insurance coverage abroad if the insurance in question is not offered by local insurance companies.

Standby letters of credit and demand guarantees are also used to guarantee loan transactions. Brazilian banks and affiliates of international banks in Brazil in general do not issue standby letters of credit or demand guarantees for local transactions. These guarantees are usually issued in connection with cross-border transactions or by financial institutions headquartered abroad.

Promissory notes are documents that represent amounts owed. Although promissory notes are not considered additional guarantees for the payment of debts, they are used to represent amounts owed under the lending transaction, and the debt stated in the promissory note may be guaranteed by a third party by means of an aval guarantee. Any legal entity or individual may issue a promissory note or grant an aval guarantee (additional requirements may be applicable if the aval guarantee is granted by individuals).

iii Priorities and subordination

In the event of bankruptcy liquidation, certain credits are excluded from bankruptcy apportionment, such as assets granted in a fiduciary sale, post-petition claims and certain labour claims. After those credits are paid, the balance of the funds received from the liquidation of the assets must be used to pay the pre-petition claims, in accordance with the following order:

  1. labour-related claims, limited to 150 minimum wages per creditor, and occupational accident claims;
  2. secured claims, up to value of the collateral;
  3. tax claims, except for tax fines;
  4. special priority claims;
  5. general priority claims;
  6. unsecured claims;
  7. contractual penalties and monetary penalties for breach of criminal or administrative law, including tax law; and
  8. subordinated claims.

Exception is made for a fiduciary sale, which is bankruptcy-remote and is, therefore, not subject to this list of priorities.

Legal reservations and opinions practice

i Legal reservations

Lending transactions and collateral may be limited by the validity of the underlying obligation, because under Brazilian law guarantees are considered an accessory duty to the underlying obligation, and the nullity of the principal obligation causes the nullity of all the accessories obligations. These limitations are not applicable to independent guarantees, such as standby letters of credit, demand guarantees and aval guarantees on promissory notes.

In addition, bankruptcy, governmental intervention, extrajudicial liquidation, insolvency, fraudulent transfer, judicial and out-of-court reorganisation procedures may impact lending transactions and guarantees (an exception is made for the independent guarantees listed above and for contract bonds).

The Brazilian Bankruptcy Law governs the insolvency proceedings involving companies and corporations, and provides three procedures to address insolvency situations, as follows:

  1. judicial reorganisation;
  2. out-of-court reorganisation or prepackaged reorganisation; and
  3. bankruptcy liquidation.

Judicial and prepackaged reorganisations are similar, respectively, to Chapter 11 and prepackaged arrangements under the US Bankruptcy Code. Creditors holding pre-bankruptcy claims are subject to reorganisation and generally precluded to enforce their credit rights against the debtor. Initially, claims are also not enforceable during the stay period in a judicial reorganisation proceeding. Further, if the plan of reorganisation or prepackage plan is confirmed, creditors will be bound by the plans (payment terms and corresponding rights will be governed by the relevant instrument). In a bankruptcy scenario, creditors are subject to bankruptcy apportionment of the guarantor.

ii Opinions practice

Brazilian law does not require lenders or borrowers to obtain legal opinions to enter into loan transactions, but such documents may be used to ensure that directors and officers have complied with their fiduciary duties, and to provide comfort to borrowers entering into the transaction.

Legal opinions are mainly required in loan transactions involving large amounts. Creditors generally request debtor counsel to provide legal opinions on the corporate powers of the debtor entering the transaction; observations on financial covenants with other creditors; and opinions on legality and enforceability of the loan, and the relevant collateral or guarantees. Legal opinions are especially relevant if the loan is granted to a distressed debtor, because according to the Brazilian Bankruptcy Law and in the event of bankruptcy of the debtor, certain acts are ineffective with regard to the bankruptcy estate, whether the lender was aware of the counterparty's economic and financial distress, and whether the debtor intended to defraud creditors.10

iii Governing law and choice of jurisdiction

Governing law

In rem guarantees of assets located in Brazil must be governed by Brazilian law. Other agreements (including credit agreements secured by in rem guarantees of assets located in Brazil) may be governed by foreign law in a contract if there is a connection between the foreign law chosen and the places where the agreement could be enforced or the place where the parties to the agreements are based. Nonetheless, discussions on the applicable law are not broadly, technically and deeply assessed before the Brazilian courts. In the event of litigation in Brazil involving an agreement governed by foreign law, Brazilian courts tend to disregard foreign law and apply Brazilian laws to the case. There is a different scenario if disputes are solved by arbitration, because arbitration law expressly allows parties to freely choose the governing law.

Foreign awards (judicial or arbitral) can be enforced in Brazil without re-examination of the merits of the case, provided the decision is as follows: (1) final and unappealable; and (2) previously confirmed by the STJ.

This confirmation generally takes from six to 18 months to be granted and is available only if the decision fulfils certain formalities and if it does not violate Brazilian national sovereignty, public policy, or good morals and ethics. The STJ does not analyse the merits of the case to confirm a foreign award.

Choice of jurisdiction

Under Brazilian law, courts shall have jurisdiction (in addition to any other valid choice of jurisdiction that may have been made by virtue of contract) whenever:

  1. the defendant is domiciled in Brazil;
  2. the obligation must be performed in Brazil; or
  3. the fact under dispute has taken place in Brazil.

Besides the above, courts have exclusive jurisdiction in actions relating to real estate assets situated in Brazil. Parties may agree to submit disputes related to disposable rights to arbitration, but arbitration panels do not have the power to enforce a decision. The enforcement should be carried out by Brazilian courts.

Loan trading

Loan transactions may be structured as bilateral or syndicated loans. In both transactions, the agreement with the borrower is generally entered into only by one lender.

In syndicated loans, the lenders that provided the funding may freely trade their participation, providing notice to the syndicate leader. These transactions impact neither the borrower nor the guarantors. Nevertheless, the substitution of the syndicate leader does impact these transactions.

The sale of the transaction by the single creditor in a bilateral loan or by the syndicate leader in a syndicated loan may be made by assignment of the loan agreement, endorsement of the loan agreement or novation of the loan, depending on the terms and conditions of the original loan. In an assignment of a loan, the lender should notify the borrower of the assignment. This should not affect in rem or aval guarantees, but may cause the release of personal guarantees, contract bonds and standby letters of credit depending on the wording of the documents. In an endorsement, all the guarantees set forth in the endorsed document should survive the transaction. However, novation causes the release of all guarantees.

Other issues

i Enforcement

In Brazil, loan agreements can be judicially enforced if the debtor fails to comply with its loan obligations. The enforcement may be made through three different types of lawsuits:

  1. a summary or an enforcement procedure, where the judge may immediately order payment of the debt and the foreclosure of collateral. This lawsuit is available if:
    • ascertainable through simple calculation, certain and undisputable; and
    • the debt is represented by a document that qualifies as an extrajudicial enforcement instrument under Brazilian civil procedure rules;
  2. an ordinary collection action, whereby an order of payment of the debt and definitive foreclosure of assets can only be carried out after a final, unappealable decision is rendered (which would take from five to 10 years to be issued, depending on the complexity of the underlying credit transaction); or
  3. a monition action, which is similar to a summary procedure if the debtor does not file a defence, and which is similar to an ordinary collection action if the debtor files defence.

In view of these differences, loan transactions are usually structured to allow the lender to file a summary or an enforcement procedure to collect the debt or foreclose collateral, avoiding time-consuming ordinary collection and monition actions.

ii Agreements using a foreign currency

As a rule, agreements and obligations enforceable in Brazil must state the amounts due in Brazilian currency. Parties may state amounts in foreign currency in certain cases, such as obligations involving foreign parties. Nonetheless, any judgment for payment of a certain debt in foreign currency obtained in Brazilian courts should be payable in Brazilian currency in an equivalent amount on the date of actual payment. In the event of bankruptcy, all credits denominated in foreign currency shall be converted into local currency at the exchange rate prevailing in Brazil on the date of declaration of bankruptcy. In view of this, creditors must be aware that they hold an exchange rate risk in the event of bankruptcy.

iii Registration of foreign loans before Brazilian authorities

Cross-border loan transactions with a tenor greater than 360 days must be registered before the Central Bank registry of financial transactions (ROF). Registration allows the inflow and outflow of funds relating to the registered transactions, and shall be obtained in the name of the parties to the transaction (i.e., the lender and borrower). If the guaranteed transaction is registered before the ROF, the collateral or guarantee should also be registered to allow the guarantor to remit the funds abroad.

In addition to the ROF required by the Central Bank, the Federal Revenue Office requires that foreign entities carrying out transactions be subject to enrolment with the National Registry of Legal Entities. To obtain this enrolment, the foreign entity should also be registered with the Companies Register of the Central Bank through the Central Bank data system.

iv Limitations to lending and secured finance

Brazilian financial institutions are not allowed to grant loans, advances or guarantees; enter into derivative transactions; underwrite; or hold in their investment portfolio securities of any clients or group of affiliated clients that, in aggregate, give rise to exposure to a client or group of affiliated clients that exceeds 25 per cent of their regulatory capital.11

Government and government-controlled corporations are subject to borrowing limits and cannot grant guarantees without proper authorisation.

However, there is no limitation on borrowing by a non-regulated company or on it guaranteeing the borrowings of its subsidiaries or affiliates.

Covid-19 Considerations

In view of the covid-19 outbreak, the National Monetary Council (CMN) has recently issued several bailout rules to ease the impact of the pandemic on the Brazilian economy. In terms of systemic risk, there has been no sign that local or foreign financial institutions are facing liquidity problems like those occurring during the 2008 financial crisis. However, the current crisis may have an adverse bearing on the businesses of financial institutions, from an increase in cash withdrawals and in credit defaults to a slowdown in new business origination.

As a recent measure to deal with the covid-19 crisis, the Central Bank and the Brazilian Social and Economic Development Bank (BNDES) announced an emergency credit facility to support for up to two months the payroll of small and medium businesses with annual revenues ranging between 360,000 reais and 10 million reais. This credit facility will support the payment to employees earning up to two minimum wages a month. In exchange, the employer must refrain from dismissing those employees during the two-month facility period. Companies adhering to this programme will be entitled to a six-month grace period and a 30-month period for loan repayment plus interest at 3.75 per cent per annum (the current Selic benchmark rate). Private financial institutions may also qualify for the programme.

Additional measures of note were also issued:

  1. the reserve requirements (i.e., compulsory deposits) on time deposits was at first reduced from 31 per cent to 25 per cent, and further to 17 per cent (such measures are valid, in principle, until December 2020, depending on how the country’s economic conditions evolve along the year);
  2. the Liquidity Coverage Ratio (LCR) of banks was relaxed to provide the financial system with greater liquidity;
  3. the rules on provisioning were relaxed for the ‘rollover’ of existing credit transactions and to avoid an increase in bank provisions;
  4. the Capital Buffer requirement was reduced to expand the banks’ ability to grant new credit transactions;
  5. repos on US$ denominated sovereign securities were entered into between the Central Bank and financial institutions to reduce market volatility on the markets where such securities are traded, and to offer greater liquidity in US$ to national banks;
  6. time Deposits Backed by Special Guarantees (DPGEs), replicating the model adopted in the past for deposits secured by the Credit Guarantee Fund (FGC); and
  7. the rules applying to Agribusiness Credit Bonds (LCA) were relaxed.

Outlook and conclusions

The legal, regulatory and market outlook has been significantly changing in the last years. During the past two decades, the Brazilian Social Democracy Party and the Worker's Party alternated in power in the federal government. These parties, however, were affected by Operation Car Wash corruption investigations, the impeachment of Dilma Rousseff in 2016, the imprisonment of Luiz Inácio Lula da Silva (President of Brazil from 2003 to 2010), the unpopular government of Michel Temer (President of Brazil from 2016 to 2018, recently charged for corruption and money laundering) and a series of corruption accusations involving many politicians. In the last quarter of 2018, Brazilians elected the candidate of the once tiny Social Liberal Party, Mr Jair Bolsonaro, as President. In addition, the Social Liberal Party became a congressional powerhouse, being the second party in number of seats in the Lower House of Congress.

In 2019, Mr Jair Bolsonaro, jointly with the Minister of Economy, Mr Paulo Guedes, prepared a Proposal for a Constitutional Amendment (PEC) to overhaul the Brazilian social security system. The Proposal was approved in October 2019 and enacted in November 2019. The pension reform provided minimum retirement ages to Brazilians of 65 years for men and 62 years for women, and it expects to represent a saving of about 1 trillion reais and a prevention on gross public debt rising (a cause of great concern in Brazil's economy). Given the demand for an increase of public spending in view of the covid-19 outbreak, however, the projections for a public debt decrease shall be subject to revision.


1 Bruno Balduccini is a partner and Lucas Cassoli Bretones is a legal assistant at Pinheiro Neto Advogados.

2 Central Bank of Brazil.

3 ibid.

4 ibid.

5 The Brazilian Bankruptcy Law: assets granted by means of fiduciary arrangements can have their foreclosure suspended for 180 days should the judge consider the assets as being 'essential' for the company's activities. An asset may be considered essential if the guarantor cannot perform its activities without it or when the performance of its activities is jeopardised in the absence of the asset. Brazilian courts tend not to hold financial assets and investments as essential asset, but this analysis must always be done on a case-by-case basis, as it depends on the business of the guarantor.

6 Regarded as commercially interchangeable with other property of the same kind.

7 Special Appeal No. 1.101.375, decided on 4 June 2013; Special Appeal No. 346.240, decided on 30 August 2002; and Special Appeal No. 97.952, decided on 6 April 2000.

8 Brazilian law presently in force does not expressly contemplate the creation of a pledge of quotas of a limited liability company. However, such a pledge of quotas has been accepted by Brazilian courts on the basis of provisions of law relating to the pledging of rights, contract rights and Law No. 6,404/76, as amended.

9 In certain cases, the transfer of shares or quotas may be subject to antitrust clearance and if the new, different, owner is a foreign entity, certain formalities before the Central Bank must be observed by the foreign entity.

10 The following acts are ineffective with regard to the bankruptcy estate: (1) payment by the counterparty within the bankruptcy legal term (up to 90 days as of the petition of bankruptcy) of debts not yet fallen due, by any means of extinguishment of the credit right, including by discount of the relevant instrument; (2) payment made within the bankruptcy legal term of debts fallen due and enforceable, in any way other than as provided for in the relevant contract; (3) creation of a security interest, including a lien, within the bankruptcy legal term, in the case of a debt contracted previously; if the mortgaged assets are given in a subsequent mortgage, the bankruptcy estate shall receive the portion otherwise applying to the creditor of the revoked mortgage; (4) acts performed free of charge during the two years preceding the decree of bankruptcy; (5) waiver of inheritance or legacy during the two years preceding the decree of bankruptcy; (6) sale or transfer of an establishment without the express consent of or payment to all creditors existing at the time, if the debtor has not kept sufficient assets to settle his or her liabilities, unless within 30 days there is no opposition by creditors after being duly notified by a court clerk or by an officer of the Registry of Deeds and Documents; and (7) registration of in rem guarantees and of property transfer, for a consideration or free of charge, or an annotation of real property made after the decree of bankruptcy, unless there is a previous annotation thereof.

11 For the purpose of this limit, the following public sector entities are to be considered as separate customers: (1) the government; (2) an entity controlled directly or indirectly by the government that is not financially dependent on another entity controlled directly or indirectly by the government; (3) entities controlled directly or indirectly by the government that are financially dependent among themselves; (4) a state or the federal district, jointly with all entities directly or indirectly controlled by it; and (5) a municipal district, jointly with all entities directly or indirectly controlled by it.

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