By Moema Giovanella

The entry into force on 10/31/2023 of Law 14.711/23 establishes the Legal Framework for Loan Guarantees, improving the rules for treating credit and guarantees and extrajudicial measures for credit recovery in Brazil.

The topic brings great expectations from the market due to the advances it represents to the guarantee system, facilitating its use and the recovery of assets given as collateral, in cases of default.

Fiduciary Alienation

The Legal Framework for Loan Guarantees allows for the registration of the fiduciary transfer of property already transferred in trust, with effectiveness conditional upon the cancellation of the fiduciary property previously constituted, enabling greater legal certainty in possible guarantees using different degrees of priority in favor of subordinated creditors.

In cases of foreclosure of guarantee, previous fiduciary transfers will have priority over newer ones, with subsequent creditors being subrogated, from the date of registration of the respective guarantee, to the right to receive the remaining amount of the proceeds from any sale of the property.

Creation of the role of Guarantee Agent

With the regulation of the guaranty agent figure, previously used by the market, the same may be appointed by the creditors and act in their own name for their benefit to constitute, register the encumbrance of the asset, manage and execute the guarantee, and may even use the extrajudicial execution of the guarantee, if provided for in specific legislation applicable to the respective type of guarantee.

Extension of the mortgage to secure new obligations in favor of the same creditor

If requested by the owner, in order to guarantee new obligations in favor of the same creditor, the mortgage may be extended, but may not exceed the term and maximum value guaranteed by the original guarantee.

If several creditors have the same mortgage extended, only the creditor holding the highest priority claim may promote the judicial or extrajudicial execution of the mortgage, unless otherwise agreed by all creditors.

Recognition of the possibility of extrajudicial execution of the mortgage

The Legal Framework for Loan Guarantees allows mortgage-backed loans to be executed extrajudicially, aligning the procedures with those currently used for fiduciary alienation, and must expressly contain a provision for the extrajudicial execution procedure provided for by law.

New alternatives for extrajudicial negotiation prior to protest and incentives for renegotiating protested debts

With the change, creditors will be able to use extrajudicial measures to recover credits, via a negotiation solution prior to the protest, through protest notary offices, which will send the debtor a notice about the debt discount proposal made by the creditor, and may provide a period of up to 30 days for acceptance.

Changes in the requirements applicable to the issuance of debentures

In the context of the issuance of debentures, the decision to define the authority to deliberate on the issuance may be made either by the general meeting or by the board of directors or executive board, in the case of debentures not convertible into shares where there is no statutory provision to the contrary.