Brazil: The Trust in Brazil

Walter Douglas Stuber and Henrique Bonjardim Filizzola *

1. Introduction

The concept of the trust as it is known in anglo-saxon law does not exist in Brazil. Brazilian law does recognize, however, some similar institutes, which are discussed below.

A - The fidei-commissum

Brazilian legislation which regulates testamentary succession grants any person of full legal capacity the right to dispose of his assets by will, subject only to the required portion due to the legal heirs. The testator has the right to nominate heirs or legatees and impose to one of them1 ("the fiduciary") the obligation of transferring the inheritance or legacy to another heir or legatee ("the fide-commissary"), on the death of the testator, at a certain time or on certain conditions. Such a faculty is called fidei-commissum.

The fiduciary will then have the resolvable ownership of the inheritance or legacy (even though such an ownership is restricted and not of an absolute nature) being obligated, however, to prepare an inventory of the inheritance or legacy and render a bond in favor of the fide-commissary, if required by him.

The fidei-commissum terminates: (i) with the renunciation of the fide-commissary and (ii) if the fide-commissary dies before the fiduciary or before the occurrence of the condition terminating the fiduciary's right.

B - Business Mandate ("comissão mercantil")

The business mandate2 is the contract under which a trader ("the commissary"), based on trust, undertakes to make business in favor and on behalf of another person, ("the committing"), at his own name, in exchange of a commission.

By accepting the mandate, the commissary is obliged to act subject to the precise instructions of the committing. However, when contracting to third parties, the commissary responds personally.

If the commissary disrespect the instructions of the committing or the usual practice of the commerce, he shall respond for loss and damages, except:

a) when the transaction turns out to be advantageous to the committing;

b) in case of operations of an urgent nature, if the commissary acted following the usual practice of the commerce;

c) when the commissary visibly acted in good faith and did not have the intention of exceeding the mandate; and

d) if the operation is later ratified by the committing.

The responsibility of the commissary includes the custody of the goods which have been entrusted to him by the committing, in consignment, deposit or under any other title, and can only be removed in case of act of God.

C - Debentureholders' fiduciary agent

The debentureholders' fiduciary agent is another institute which bear similarity to the trust.

Brazilian Corporate Law (Law No. 6.404 of December 12, 1976) establishes that all public issues of debentures must necessarily have the interference of a debentureholders' fiduciary agent, an individual or institution which will represent the joint interests of the debentureholders vis-à-vis the issuing company. The fiduciary agent is, therefore, an autonomous and mandatory representative of the debentureholders.

Following are the main duties of the debentureholders' fiduciary agent:

(a) to protect the rights and interests of the debentureholders, employing in the performance of his task the care and diligence that every diligent and honest man habitually employs in the administration of his property;

(b) to prepare an annual report and present it to the debentureholders within four months counted as from the end of the company's fiscal year, drawing attention to all relevant facts which occurred during the year relating to the company's liabilities, the security of the debentures and the constitution and application of the amortization fund, if any; such report shall also contain a statement by the trustee about his ability to continue his task;

(c) to notify the debentureholders, within ninety days, of any infringement by the company of the terms of the deed of issue;

(d) to authenticate debenture certificates;

(e) to manage the amortization fund;

(f) to keep in custody the property given in guarantee by virtude of the debentures issue; and

(g) to pay interest, amortization and redemption moneys (the last 4 attributions are not mandatory, but can be imposed to the fiduciary agent by means of the deed of issue).

Such as the trustee, the debentureholders' fiduciary agent performs its tasks independently.

D - Foreign institutional investors' fiduciary agent

In Brazil, foreign institutional investors, as defined in the existing regulations, may register portfolios for trading in the securities market "for their own account" and/or through an "omnibus" account3.

Registration of own accounts entitles investors to operate only for themselves, whereas registration of omnibus accounts authorizes the accountholders to operate for their institutional clients, know as passageiros (participants), or on their own behalf.

Depending on the profile of an investor, its operation as a participant in an omnibus account can be more advantageous. A large number of foreign securities dealerships, brokerage companies and banks hold omnibus accounts in Brazil, and as such, are duly qualified to perform the services required by the investor to invest on the Brazilian stock exchanges, with the assistance of a Brazilian local administrator. Performing such a task, the omnibus account holders actually act on a fiduciary basis, on behalf of the institutional investors.

2. Conclusion

Despite the fact that the concept of the trust as it is known in anglo-saxon law is not expressly foreseen by Brazilian law, there are some institutes in Brazil, as mentioned above, which are similar to the trust. Apart from that, it must be stressed that currently Brazilian companies and/or individuals participate in the structuring of foreign financial transactions, involving the formalization of trust arrangements on behalf of the parties. Such arrangements are normally governed by foreign laws and will be accepted in Brazil for all legal purposes and effects, provided that the trust arrangements are valid under their governing law and are not against Brazilian applicable legislation and sovereignty.

São Paulo, November 12, 1998

* The authors are respectively founding partner and associate of the Brazilian law firm Amaro, Stuber e Advogados Associados. Amaro, Stuber e Advogados Associados is a member of Globalaw - the International Law Group, a network of independent law firms, as well as legal consultant to the Brazilian Association of Multi-Service and Commercial Banks ("ABBC").

1 Civil Code, Law No. 3071 of January 1, 1916, art. 1733.
2 Commercial Code, Law No. 556, of June 25, 1850, arts. 165 to 190.
3 Central Bank Resolution No. 1832, of May 31, 1991 and CVM Instruction No. 169, of February 1,1992.

The Brazilian Member of Globalaw - The International Law Group

Walter D. Stuber
Abel S. Amaro
Gisela da S. Freire
Manoel I. T. Monteiro

Cláudio de Abreu
Márcio Belluomini
Alessandro Diaferia
Lionel P. Nobre
Andrea A. P. Kanaguchi
M. Cecilia S. Carmona
Adriana M. Gödel
Enrico J. Bentivegna
Noemia M. Fukugauti
Ana C. P. Franco
Andrea S. Zago
Guilherme L. G. Pajoli
Marcos V. P. Prado
Mônica F. Ivamoto
Maria de Melo Franco
Henrique B. Filizzola
Márcia M. M. Torres

Patricia A. Araujo
Flávia S. Bueno
Ricardo B. Macedo
Márcia T. P. Reis
Flávio A. D. Armani
Flaviana C. Azzi
Daniele Brandão Gazel
Adriana G. Stamato
Fabrizzio M. Vicente
Renata Salvadego
José R. V. Scharlack

The content of this article is intended to provide a general guide to the subject matter. A specialist's advice should be sought in order to provide professional advice on a case to case basis which will meet specific circumstances.

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