Brazil: Assignment Of Credits In Brazil

Last Updated: 6 June 2001
Article by Walter Stuber

Co-written by Adriana Gödel Stuber

On May 30, 2001, the Brazilian Monetary Council approved new rules regarding credit assignments in Brazil, which are now consolidated by means of Resolution number 2836 issued by the Central Bank of Brazil ("Bacen"). Pursuant to such Resolution, financial institutions duly licensed by Bacen to operate in Brazil are expressly authorised to assign to other institutions of the same nature credits arising out of loan, financing and leasing transactions. The negotiation of other types of credit documents is also allowed, such as bank credit certificates, mortgage certificates and rural, commercial, industrial and export credit certificates and notes. Furthermore, Brazilian leasing companies may assign to other Brazilian leasing companies and financial institutions their credit rights arising out of leasing agreements. Such credit assignments may be effected with or without co-obligation of the assignor.

The purchase of credit rights derived of agreements with exchange variation clause (i.e. a clause that enables the parties to correct the amounts expressed in Brazilian currency in accordance with the floating of the United States dollar or any other convertible foreign currency) can only be made upon payment with proceeds originated from loans obtained abroad. However, the negotiation of credit documents with exchange variation clause may be effected with domestic proceeds.

The regulations do not permit: (i) the repurchase on term of non-matured credits which have been previously assigned; and (ii) the acquisition of credits with proceeds originated from acceptance of bills of exchange. Bills of exchange and other commercial instruments, such as trade bills (duplicatas) and promissory notes, are normally used in Brazil in connection with consumer credit finance transactions to fund purchases of goods and services by consumers or by end-users.

Operations of assignment and acquisition of credits between Brazilian credit, finance and investment companies (financeiras), commercial banks and multiservice banks with commercial and/or credit, finance and investment portfolios, involving any of the transactions admitted by Bacen indicated above, may originate acceptance of bills of exchange by the assignee, whenever the following conditions are jointly complied with: (i) the acquired credits must be derived of finance granted based on bills of exchange’s acceptance agreements; and (ii) with respect to the assigned credits, there is no acceptance of bills of exchange by the assignor.

The Brazilian financial institutions and leasing companies are authorised to assign credits arising out of loan, finance and leasing transactions to legal entities which are not part of the Brazilian Financial System, provided that: (i) the credit assignment must be made with no co-obligation of the assignor; (ii) no repurchase of the assigned credits is allowed; and (iii) the liquidation of the transaction must be made at sight. The credit assignment agreement must contain all the terms and conditions of the transaction and shall remain at the disposal of Bacen at the assignor’s headquarters. The assignor will have to include in its first balance sheet published after the credit assignment an explanatory note informing the accounting value and the credit assignment value, as well as the consequences in the company’s net worth and in the result arising out of the transaction.

It depends on the prior authorisation of the Financial System Organisation Department (Departamento de Organização do Sistema Financeiro – DEORF) of Bacen, any credit assignment made to controlling, controlled or affiliated individuals or legal entities, also comprising companies located in Brazil or abroad, in which the assignor holds, directly or indirectly, individually or jointly with other partners, including as a result of voting agreements, partner’s rights that assure to such assignor, separately or cumulatively: (i) predominance in the company’s resolutions; (ii) power to elect or dismiss a majority of the company’s officers; (iii) effective operational control, so characterised by common administration or management or by acting in the market under the same trademark or the same commercial name; (iv) shareholding control represented by the sum of the equity participation hold by the institution, regardless of the percentage, with those owned by its officers, controlling partners and affiliated companies, as well as those acquired, directly or indirectly, through investment funds.

Brazilian financial institutions may acquire from or assign to other legal entities, whether such entities are part or not of the Brazilian Financial System, any credits arising out of export contracts negotiated in the domestic market.

The credit assignment operations made by the Brazilian financial institutions and leasing companies are limited to those contemplated in Resolution number 2836 and in Bacen’s Resolution number 2686, of January 26, 2000, which authorises the assignment of credits arising out of transactions performed by multiservice banks, commercial banks, investment banks, credit, finance and investment companies (financeiras), real property credit companies, leasing companies, mortgage companies, savings and loans associations and the Federal Savings Bank (Caixa Econômica Federal – CEF) to special purpose corporations (companies formed with the sole and exclusive purpose of purchasing such credits). The acquisition by any such institutions of credit rights from entities which are not part of the Brazilian Financial System is also allowed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Walter Stuber
 
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