In progress at the House of Representatives, in an emergency regime, is the Bill of Law 4.188/21, so called the new Legal Framework of Guarantees. The proposal consists of a short- and long-term strategy of the Ministry of Economy to boost the financial market, facilitating the obtaining of credits with reduced rates through the provision of guarantees.

The first and relevant change introduced by the project is the creation of the specialized management service of guarantees, real or personal. The service will be carried out by the Guarantee Management Institutions (in Portuguese, IGG), legal entities of private law regulated by the National Monetary Council and whose operation is authorized and supervised by the Central Bank.

The expectation of the federal government is that, with the separation of the management activity of guarantees, the operational costs will become the responsibility of the IGGs. Once contracted for this purpose, these institutions shall act on their own behalf with "exclusive power to constitute, record, manage and plead for the execution of the guarantees transferred to their ownership by means of the collateral management contract".[1] They will be prohibited from performing any typical activity of a financial institution.

The expectation is that due diligences and analyses of the legal and legal viability of the assets dealing with the collateral migrate from creditors to IGGs. Naturally, including by assuming the responsibilities for valuations, representations and guarantees, IGGs are expected to act with outstanding criteria in the exercise of their asset analysis functions.

There is also room for the increasing of the insurance and reinsurance markets, as ultimately the market – and operating costs – will be regulated by the assessment and division of the risks inherent in the assets that are subject to the collateral.

To act, IGGs need to enter into a management contract with the warranty provider. The Bill of Law also provides for the requirements that must be provided for in the contract, mainly:

  • maximum amount of credit that may be linked to the guarantee;
  • term of validity; and
  • types of operation expressly authorized by the warranty provider, including in favor of third parties.

In addition, the contract must provide for the authorization for, in the event of default, IGG to consider the other transactions linked to the guarantee due in advance, regardless of notice or judicial challenge, which allows the execution of the entire debt (cross default).

For greater legal certainty, the Bill of Law provides for the separation of the assets of the IGGs from the rights corresponding to the guarantees of the debtors, also segregating the fruits and income, in addition to the possible product of the execution. The adjudication of bankruptcy or dissolution of the IGG will not prejudice the effectiveness of the guarantees.

Another major change provided for in the Bill of Law is the change in the rules of guarantees, especially in the property execution. Considering the objective of giving greater speed in case of default, modifications were proposed in Law 9,514/1997, especially regarding extrajudicial execution.

As for fiduciary lien, the main innovation of the Bill of Law is the possibility of the same property guaranteeing more than one credit operation, allowing subsequent degrees of fiduciary guarantee. There are two requirements for the extension of the guarantee: that the new credit be granted by the same financial institution holding the fiduciary property and that there are no obligations with other creditors that are guaranteed by the same property.

Another guarantee that received special attention from the Bill of Law was the mortgage, a institute practically in disuse in the financial market. The proposal aims to bring back the prestige of this guarantee – used in only 6% of real estate credit operations[2] – equating it to the faster procedures of fiduciary alienation, with the possibility of its extrajudicial enforcement, regardless of contractual provision.

In addition, the project also clarifies one of the main gaps that permeate the theme of the execution of guarantees, with the definition of the price considered vile. The proposal establishes an objective criterion: in the event of a public auction for disposal of the property given in guarantee, the value of the auction may not be less than 50% of the value of the property.

Regarding the new rules for guarantees, there are provisions for the out-of-court enforcement of the real estate guarantee in the event of multiple creditors. To this end, registrations must be made in the respective competent enrollment certificate at the Real Estate Registry Office, which, in case of execution, will simultaneously notify all competing creditors to enable their claims within 15 days.

In addition to the above provisions, the Bill of Law provides for changes to the Brazilian Civil Code, including the figure of the warranty agent, responsible for constituting, registering, managing and even executing the debt – in or out of court. The agent may be one of the creditors or any third party appointed by them. According to the Federal Government, the measure will result in "efficiency and professionalization in the management, registration and execution of guarantees".[3]

The Bill of Law also proposes changes to Law 8,009/1990, that regulates the impenhorability of the homestead right. Currently, the impenhorability is oppoable in any execution process, except for foreclosure on property offered by the couple or the family entity. The current situation is criticized by financial institutions because the execution of the property is restricted to cases in which the property is offered by the family entity to constitute a mortgage. With the proposal, the impenhorability will not be apply to the execution of property offered as a real guarantee, regardless of the guaranteed obligation or the allocation of resources, even when the debt is incurred in favor of third parties.

The project was well received by the Brazilian Federation of Banks (Febraban), which published a note in favor of legislative change on November 25, 2021. In note, Febraban reiterates that the process of recovering guarantees is too time-consuming for financial entities, stating that the "current legal framework provides little effectiveness of guarantees", so that the expectation is "to have an expansion of the supply of credit and at lower rates".

If the Bill of Law is approved, the prospect is that the new dynamic will enable other configurations in the market with advantages for the borrower, who will have access to lower interest rates and greater credit, with the reduction of underutilization of guarantees. This will allow small businesses and families to access to investment credit. The change can also bring advantages for financial institutions, with the lower costs related to warranty management, which allows more institutions to actively participate in the market, such as Fintechs, medium-sized banks and credit unions.

REFERENCES:

SIDNEY, Isaac. Note from the President of the Brazilian Federation of Banks. Febraban. Published on November 25, 2021. Available in: <https://portal.febraban.org.br/noticia/3717/pt-br/>.

Financial market supports project that creates new milestone of guarantees. InfoMoney. Posted on November 27, 2021. Available in: <https://www.infomoney.com.br/economia/mercado-financeiro-apoia-projeto-que-cria-novo-marco-de-garantias/>.

Milestone guarantees is a big advantage for consumers, he tells CNN. CNN Brazil. Published on November 25, 2021. Available in: <https://www.cnnbrasil.com.br/business/marco-de-garantias-e-grande-vantagem-para-o-consumidor-diz-secretario-a-cnn/>

MENDES, William. Legal Framework of Guarantees is filed in the House of Representatives. Congress in Focus. Published on November 29, 2021. Available in: <https://congressoemfoco.uol.com.br/area/congresso-nacional/marco-legal-das-garantias-e-protocolado-na-camara-dos-deputados/>

MOREIRA, Talita. New Guarantee Framework may expand credit supply at lower rates, says Febraban. Economic Value. Published on November 25, 2021. Available in: <https://valor.globo.com/financas/noticia/2021/11/25/novo-marco-de-garantias-pode-ampliar-oferta-de-crdito-a-taxas-mais-baixas-diz-febraban.ghtml>.

 

[1] According to the explanation memorandum of Bill of Law 4.188/21.

[2] According to the explanation memorandum of Bill of Law 4.188/21.

[3] Justification of Bill of Law 4.188/21.