The Attorney General Office of the Brazilian Treasury (Procuradoria-Geral da Fazenda Nacional – PGFN) has recently enacted Ordinance No. 164/2014, which regulates the offering and acceptance by federal tax authorities of judicial surety bonds (seguro garantia judicial) seeking to secure tax foreclosures (execuções fiscais) and administrative arrangements for repayment of tax debts in installments (parcelamento administrativo fiscal).
The regulation was issued just a few months after the Superior Court of Justice (Superior Tribunal de Justiça – STJ) handing out a series of precedents holding that judicial surety bonds would be an unsuitable means to secure tax foreclosures.
The position held by the STJ was based on a rather formal argument. Federal Law No. 6,830, of September 1980, governs the proceedings applied to tax foreclosures. Article 9 of said law states that such credits may be secured in four manners, namely: (1st) deposit in cash; (2nd) bank letter of credit; (3rd) appointment of assets; and (4th) appointment of third party's assets which had been previously accepted by the National Treasury.
The use of judicial surety bonds in Brazil started to gain steam in the last decade. In the 80s, the market for (insurance-type) surety bonds in general in Brazil was virtually non-existent, let alone judicial surety bonds. Yet, absent express reference to judicial surety bonds in the narrow list provided for Article 9, the STJ has consistently refused to accept the use of this type of coverage to secure federal tax disputes. Such approach upset insurers and debtors altogether, forcing the latter group to resort to expensive bank guarantees as substitutes.
Although Ordinance No. 164/2014 does not have the effect of amending the law, it is expected to be followed by federal authorities. The ordinance subjects the acceptance of judicial surety bonds to a number of contractual conditions, including a minimum term of 2 years and the exclusive jurisdiction of the courts competent for enforcing the tax foreclosure. Arbitration clauses are not acceptable.
Ordinance No. 164/2014 was published in the Official Gazette on March 5, 2014. It became effective upon publication.
Specialists predict that the passage of the ordinance will boost the sale of judicial surety bonds in the Brazil.
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