Securitisation 2024 Comparisons

The most common financial assets securitised in Brazil are:

• corporate loans backed by fiduciary liens;
• consumer credit;
• credit card receivables;
• auto loans;
• real estate and agriculture related receivables; and
• loans granted to federal, state and municipal public officials and to pensioners, collateralised by their salaries and pensions, respectively (crédito consignado).

Transfer, Assignment and Perfection

The transfer of receivables under Brazilian law, including financial receivables, must comply with the applicable rules set forth in the Brazilian Civil Code. The assignment of certain asset classes, such as credit card receivables; loans granted to federal, state and municipal public officials; and pensioners collateralised by their salaries and pensions, respectively (crédito consignado) may require compliance with additional specific legal requirements. It is sometimes recommended that the assignment agreement be executed as a public deed (instrumento público). Most assignments in the context of securitisation transactions in Brazil are contracted without recourse to the seller. If the underlying documentation related to the assigned receivables does not require otherwise, prior consent and notice to the obligor are not required under Brazilian law for transferring title (“ownership”) over the securitised receivables from the originator to the securitisation vehicle. Assuming that the assigned receivables are free and clear, title is transferred automatically from the seller to the securitisation vehicle upon the execution and delivery of the assignment agreement. Brazilian law allows for the assignment of present and future receivables, in so far as they are identified or identifiable in the future. However, assignment notice is necessary for the assignment to be perfected against the obligor. Perfection in this case means that, after notice, to be discharged of its obligations, the obligor must pay its debt only to the assignee. To be perfected before third parties other than the obligor, the agreement shall be filed for registration before a Public Registry of Deeds and Documents located at the buyer’s or seller’s principal place of business or executed as a public deed (instrumento público). It is advisable that such filing is completed within 20 days upon the execution and delivery of the assignment agreement. For warranties, covenants, servicing, defaults, and indemnities in an assignment agreement, please refer to 3.2 Principal Warranties, 3.3 Principal Perfection Provisions, 3.4 Principal Covenants, 3.5 Principal Servicing Provisions, 3.6 Principal Defaults and 3.7 Principal Indemnities.

Securitisation Vehicles

As to the buyer of the receivables, securitisation companies and receivables’ investment funds, denominated Fundo de Investimento em Direitos Creditórios (FIDC), are the standard securitisation vehicles in Brazil. While a securitisation company is a legal entity organised as a regular corporation, an investment fund is a pool of assets under joint ownership of its shareholders that issues shares, which represent a pro-rata ownership stake over the fund’s net worth. Legally, holders of shares issued by a fund are de facto owners of the assets that constitute the fund’s net worth. On 23 December 2021, the Securities and Exchange Commission of Brazil (CVM) enacted Resolution 60 (RCVM 60), which, together with Law 14,430, dated 3 August 2022, as amended (“Law 14,430”), allow for credit rights arising from “any economic segment” (Article 2, IV, RCVM 60) to back the issuance of securitised securities, such as real estate (CRI), agribusiness (CRA) certificates, debentures, promissory notes and “other securities” (Article 18, sole paragraph, Law 14,430). Previously, only receivables originated in the financial, agribusiness and real estate segments could be assigned to regulated securitisation companies for the purpose of being “securitised”. Today, the charter of investment funds is currently regulated by Resolution 175, enacted by the CVM on 23 December 2022 (“RCVM 175”).

Regulation

Through the above laws and regulations, Congress and the CVM established a new consolidated regulatory framework for the securitisation industry in Brazil as a whole. Today, ownership and management of securitisation companies in Brazil is a business activity that resembles the rendering of a trust and similar services in Europe and the USA. An investment fund, including an FIDC, is governed by its organisation charter denominated “Regulamento”. Ordinary activities of a fund are under the responsibility of an administrator (administrador). Investment and divestment decisions may be under the responsibility of a fund manager (gestor).

Patrimônio separado

From a structural point of view, RCVM 60 and Law 14,430 finally institutionalised in Brazil’s capital markets the so-called “multi-seller conduits”; namely, securitisation vehicles capable of issuing multi-series of collateralised debt obligations, each series backed by a specific (singular) pool of receivables, as provided for by Article 2, IV, of RCVM 60. As per Law 14,430, each asset pool may be detached and therefore segregated within the securitisation company’s net worth, in what is known as an isolated net worths (patrimônio separado). An isolated net worth is a pool of present and/or future assets linked to a particular series of securities issued by a securitisation vehicle. Each isolated net worth is considered as an independent unit, with its own information reports and financial information, which must be audited by independent auditors registered with the CVM. The assets belonging to each isolated net worth are not considered as corporate assets of the relevant securitisation company and any moneys arising therefrom may only be used to redeem the obligations relating to securities backed by it. Consequently, under this regime, the insufficiency of the assets belonging to a specific isolated net worth will not adversely affect the payment of the securities issued by the securitisation company backed by another isolated net worth. Unless otherwise provided for in the fund’s Regulamento, holders of securities issued by investment funds bear the risks associated with all the fund’s assets.

The principal applicable laws and regulations that have a material effect on the structures referred to in 1.2 Structures Relating to Financial Assets are Resolution 60, Law 14,430 and Resolution 175.

Even if the securities issued by a securitisation vehicle are acquired by international investors, the securitisation of Brazilian assets is traditionally structured by means of the incorporation of a securitisation vehicle chartered in Brazil under Brazilian Law. The protection offered to investors by the current legal framework represents the major advantage of incorporating a securitisation vehicle in Brazil.

The principal forms of credit enhancement used in the Brazilian securitisation market are subordination, over-collateralisation and granting of real and personal guarantees to ensure the payment of the assigned receivables. Credit insurance is also used as a credit enhancement strategy.

Securitisation companies and FIDC are the standard securitisation vehicles in Brazil. Managers of the securitisation vehicle are responsible for its day-to-day operations. Issuers of securitised securities are pass-through vehicles and, in addition to extensive regulatory requirements imposed by the CVM and self-regulatory bodies such as the Brazilian Financial and Capital Markets Association (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais - ANBIMA), are subject to specific fiduciary duties towards the holders of securitised securities issued by them. Relevant day-to-day services, as explained in 2.5 Servicers, may be under the responsibility of the securitisation vehicle or third-party service providers, including the originator

Sponsors originate securitised receivables. Under the Brazilian Civil Code, sponsors, as assignors, are responsible for the existence of the assigned receivables at the time of their transfer. Unless contracted otherwise, sponsors are not responsible for the settlement (payment) of the assigned receivables by their respective obligors. Today, as per Article 2, IV of the RCVM 60, credit rights arising from “any economic segment” may be assigned to a securitisation to back the issuance of securitised securities, such as real estate (CRI), agribusiness (CRA) certificates, debentures, promissory notes and “other securities” (Law 14.430, Article 18, sole paragraph). Previously, only receivables originating in the financial, agribusiness and real estate segments could be assigned to regulated securitisation companies for the purpose of being “securitised”.

Isolation from the risks associated with the originator’s insolvency may be achieved if financial and other factual considerations as to the seller and the assigned receivables, at the time of their assignment, may not lead the same to be construed as a fraudulent conveyance and/or fraud against creditors in a pre-existing lawsuit (fraude à execução) and, therefore, be declared unenforceable (ineficaz) or void by a court of law.

Careful due diligence of the seller’s economic and financial condition, particularly from a labour and tax perspectives, and of the targeted assets, is the golden rule for assessing the intensity of this risk. Especially in the context of revolving asset securitisations, it is customary to include a provision in the assignment agreement allowing the securitisation vehicle to require the originator to compulsorily repurchase the assigned receivables not in compliance with the eligibility criteria. To enforce its rights, certain set-off powers are traditionally granted to the securitisation vehicle, allowing it to set-off any payment obligations owed to the originator if the seller refuses to indemnify or acquire the credit rights assigned to the securitisation vehicle that do not meet certain eligibility (assignment) criteria. If the assignor defaults on its obligations, the assignee may have to start legal proceedings against it to enforce its rights.

The originators/sellers of the financial assets referred to in 1.1 Common Financial Assets are traditionally financial institutions, credit card companies, acquirers and acquiring companies.

Lead-managers, underwriters, and other placement agents of securities, including securitised securities, are responsible for ensuring that the information contained in the offering materials is complete, accurate and not misleading. These agents, including their managers, may be held responsible for the losses suffered by investors if they fail to fulfil their fiduciary and legal obligations in this regard, as well as being subject to administrative fines and other sanctions imposed by the CVM and other regulatory bodies that may have oversight.

Service providers in the context of a securitisation transaction are traditionally responsible for the following activities:

• procedures related to the collection and receipt of moneys arising out of the assigned receivables;
• account receivables’ reconciliation;
• management of escrow accounts (if any exist);
• safekeeping of credit supporting documents; and
• extrajudicial and judicial collection and foreclosure and execution of guarantees where there has been a default of obligations by the debtor of the securitised credits or, as applicable, by the guarantors.

In general, servicers do not need any specific permissions or authorisations to service the financial assets referred to in 1.1 Common Financial Assets. However, certain service activities, such as perfection and assignment of credit card receivables, may require specific permissions from the Central Bank of Brazil to be executed.

Apart from general lock-up restrictions and adequacy rules as to which kind of investment an investor may hold, there are no regulations that impose special duties and responsibilities on investors of securitised securities. Investors’ main duties and obligations vis-à-vis the issuer and their other co-investors are defined in the contractual terms and conditions of their respective indentures. The securitisation vehicle is responsible for carrying out the extrajudicial or judicial actions to protect its rights as holder of the securitised receivables and related guarantees on their behalf. If, for any reason, the securitisation vehicle does not have the financial resources necessary to implement such procedures, investors may be required to transfer such funds to the securitisation vehicle. Please see 4.13 Entities Investing in Securitisation.

The interests of investors in bonds and securities in Brazil, including those issued by securitisation companies, are traditionally represented by a figure known as agente fiduciário (fiduciary agent), whose responsibilities are fundamentally equivalent to those of a trustee. Fiduciary agents are charted as financial institutions and are subject to monitoring by the Brazilian Central Bank and the CVM. Their duties and responsibilities towards investors are of a fiduciary and contractual nature.

Fiduciary agents are responsible for representing the interest of the issuers of bonds and securities in Brazil, including securities issued by securitisation companies. Fiduciary agents are charted as financial institutions and are subject to monitoring by the Brazilian Central Bank and the CVM. Their duties and responsibilities towards investors are of a fiduciary and contractual nature. In some cases, they are also responsible for enforcing the rights of bondholders in the event the issuer’s default and, if applicable, the judicial enforcement of collateral and other guarantees.

A transfer of receivables under Brazilian law must comply with the applicable rules set forth in the Brazilian Civil Code. The assignment of certain asset classes, such as credit card receivables or legal claims against the federal, state and municipal governments, may require compliance with additional specific legal requirements. Sometimes it is recommended that the assignment agreement be executed as a public deed (instrumento público). Most assignments in the context of securitisation transactions in Brazil are contracted without recourse to the seller. If the underlying documentation related to the assigned receivables does not require otherwise, prior consent and notice to the obligor are not required under Brazil law for transferring title (“ownership”) over the securitised receivables from the originator to the securitisation vehicle. Assuming that the assigned receivables are free and clear, title is transferred automatically from the seller to the securitisation vehicle upon the execution and delivery of the assignment agreement. Brazilian law allows for the assignment of present and future receivables, in so far as they are identified or identifiable in the future. However, assignment notice is necessary for the assignment to be perfected against the obligor. Perfection in this case means that, after notice, to be discharged of its obligations, the obligor must pay its debt only to the assignee. To be perfected before third parties other than the obligor, the agreement shall be filed for registration before a Public Registry of Deeds and Documents located at the buyer’s or seller’s principal place of business or executed as a public deed (instrumento público). It is advisable that such filing is completed within 20 days upon the execution and delivery of the assignment agreement. For warranties, covenants, servicing, defaults, and indemnities in an assignment agreement, please refer to 3.2 Principal Warranties, 3.3 Principal Perfection Provisions, 3.4 Principal Covenants, 3.5 Principal Servicing Provisions, 3.6 Principal Defaults and 3.7 Principal Indemnities.

Regardless of its form, the incorporation documents of a securitisation vehicles normally limit the powers of their managers to, for instance, forbid them from hiring employees or carrying out any action that is alien to its corporate purpose or unrelated to the securitisation transaction. If the underlying securitised assets do not perform, the assets are transferred to the holders of the linked securitised securities. The securitisation vehicle may or may not be wound up. Insolvency situations affecting securitisation vehicles are very rare in Brazil. This risk is further mitigated if an “isolated net worth” is established, which may be transferred to another securitisation company, without affecting the rights of the holders of the securities issued by the original securitisation company. From this perspective, a securitisation vehicle may be regarded as “bankruptcy remote” for the purposes of Brazilian law.

The principal representations and warranties made by assignors are the following:

• the assigned receivables are of the assignor’s legitimate and sole ownership, existing, valid, effective, free and clear of any liens, encumbrances or restrictions or impeding facts of any nature, which, in any way, may hinder or restrict the assignment and/or the full benefit, by the assignee, of all rights, guarantees and prerogatives arising from the ownership of the assigned receivables, including in relation to third parties,
• the assigned receivables are not the object of any other sale, assignment or transfer, assignment option and/or encumbrance;
• only receivables that cumulatively meet certain eligibility criteria defined in the assignment are being offered by the assignor to the assignee;
• the assignor has no knowledge, on the relevant date, of any personal or real actions of a civil, commercial, tax or labour nature, instituted against the assignor in any court in Brazil or abroad that may involve or have as their subject matter the assigned receivables that may hinder the assignment and the full exercise, by the assignee, of the prerogatives resulting from the ownership of the assigned receivables under the terms of the assignment agreement;
• the assignor is not insolvent and the assignment of the receivables to the assignee will neither cause the assignor to become insolvent nor constitute fraud against creditors or execution;
• the assignment and the transfer of receivables, pursuant to the assignment agreement, do not establish, directly or indirectly, any consumer or commercial relationship between the assignor and the assignee;
• the assigned receivables were not originated by fraud or in any other way or under any other circumstance that may hinder its existence, validity, or collection under the terms of Brazilian law;
• if the obligor is a financial institution, the obligors of the assigned receivables, at the time of acquisition of the relevant eligible receivable, (i) have not had their bankruptcy decreed, in judicial or extrajudicial liquidation, and (ii) are not under a Special Temporary Administration Regime (RAET) decreed by the Central Bank of Brazil, or any equivalent regime;
• the assignor is not, at the time of acquisition of eligible receivables by the assignee, in default in respect of any of its material obligations before the assignee;
• the assignor will allocate the resources arising out of the assignment of the receivables according to the terms of the assignment agreement and other relevant documents; and
• other standard warranties, such as powers/authorisations/valid incorporation and organisation and that the execution and delivery of the assignment agreement do not violate any other agreements/applicable regulations.

In case of a misrepresentation by the assignor, the assignment agreements normally provide that:

• the assignor may be held responsible for losses suffered by the securitisation vehicle on account of the misrepresentation;
• the assignee may have the right to require the originator to compulsorily repurchase the assigned receivables not in compliance with the eligibility criteria;
• the assignee may terminate the assignment; or
• a combination of the above.

Especially in the context of revolving asset securitisations, it is customary to include a provision in the agreement allowing the securitisation vehicle to require the originator to compulsorily repurchase the assigned receivables not in compliance with the eligibility criteria. To enforce its rights, certain set-off powers are traditionally granted to the securitisation vehicle allowing it to set off any payment obligations owed to the originator if the seller refuses to indemnify or acquire the credit rights assigned to the securitisation vehicle that do not meet the eligibility criteria. If the assignor defaults on its obligations, the assignee may have to start legal proceedings against it to enforce its rights.

Assuming that the assigned receivables are free and clear, title is transferred automatically from the seller to the securitisation vehicle upon the execution and delivery of the assignment agreement. However, assignment notice is necessary for the assignment to be perfected against the obligor. Perfection in this case means that, after notice, to be discharged of its obligations, the obligor must pay its debt only to the assignee. To be perfected before third parties other than the obligor, the agreement shall be filed for registration before a Public Registry of Deeds and Documents located at the buyer’s or seller’s principal place of business or executed as a public deed (instrumento público). It is advisable that such filing is completed within 20 days upon the execution and delivery of the assignment agreement. The assignment of certain specific types of asset, such as credit card receivables or legal claims against the federal, state and municipal governments, may require compliance with additional specific legal perfection requirements.

The main covenants in a securitisation transaction traditionally refer to specific obligations assumed by the originator in the assignment agreement in favour of the securitisation vehicle, such as:

• to perform all acts necessary to perfect the assignment as per applicable legislation;
• not to give any kind of counter order to the debtors of the assigned receivables that may affect the rights of the securitisation vehicle;
• not to amend, without the prior and written authorisation of the securitisation vehicle, the terms and conditions of the underlying documentation relating to the assigned receivables; and
• to immediately transfer to the securitisation vehicle all amounts received in connection with the assigned receivables, even if received in error.

Eventually, the originator may act as collection agent, acting on behalf of the securitisation vehicle. This role, in principle, especially in the absence of fraud, should not adversely affect the receivable’s transfer. Considering the characteristics and nature of the underlying transaction giving rise to the assigned receivables:

• the originator may assume an obligation to immediately transfer the amounts collected to the securitisation vehicle; or
• the receivables’ proceeds eventually and erroneously received by the seller by mistake shall be immediately transferred to the securitisation vehicle.

Particularly under the first scenario, the securitisation runs related risks of “comingling” and needs to identify and segregate moneys belonging to the originator or the securitisation vehicle. If the assignor fails to perform its contractual obligations, the securitising vehicle may need to take legal action to protect and enforce its rights against the originator. Specific performance may not be available in some circumstances.

Securitisation companies and receivables’ investment funds, denominated Fundo de Investimento em Direitos Creditórios (FIDC), are the standard securitisation vehicles in Brazil. While a securitisation company is a legal entity organised as a regular corporation, an investment fund is not a legal entity. Today, ownership and management of securitisation companies in Brazil is a business activity that resembles the rendering of a trust and similar services in Europe and the USA. An investment fund is governed by its organisation charter denominated “Regulamento”. The managers of the securitisation company and the fund’s administrator (administrador) are responsible for the ordinary activities of the securitisation vehicle, and, in the case of an FIDC, its fund manager (gestor) is responsible for the fund’s investment and divestment decisions, which are subject to fiduciary and contractual duties and responsibilities towards the holders of the securities issued by the securitisation vehicle. Other service providers retained in a securitisation transaction may include the following activities:

• procedures related to the collection and receipt of moneys arising out of the assigned receivables;
• account receivables’ reconciliation;
• management of escrow accounts, if any exist;
• safekeeping of credit supporting documents; and
• extrajudicial and judicial collection and foreclosure and execution of guarantees for default of obligations by the debtor of the securitised credits or, as applicable, by any guarantors.

The relationship between the above service providers and the securitisation vehicle is mainly contractual. If the service provider defaults on its respective fiduciary or contractual obligations, as applicable, the securitising vehicle may need to take legal action to protect and enforce its rights against the defaulting. Specific performance may not be available.

Because the settlement of the securities issued by the securitisation vehicle is linked to the settlement of the assigned receivables, the failure of the obligor to pay the assigned receivables on time is certainly the most important default event in a securitisation transaction. Cross-default rules have an extremely restricted application in the context of single-asset securitisation transactions. Cross-default is relevant if the transaction in question is revolving. In this case, default by the obligor of the assigned receivables, the originator and the guarantor and/or even a relevant service provider, of their obligations set forth in the transaction documents, financial or otherwise, may result in the interruption of the assignment of new receivables (revolving) to the securitisation vehicle, thus resulting in the early redemption of the securitised securities. Again, the securitising vehicle may need to take legal action to protect and enforce its rights against the originator. Specific performance may not be available.

A transfer of receivables under Brazilian law must comply with the applicable rules set forth in the Brazilian Civil Code. Most assignments in the context of securitisation transactions in Brazil are contracted without recourse to the seller. However, under the Brazilian Civil Code, the assignor is responsible for the existence of the assigned credit and/or the underlying relationship at the time of its assignment. Especially in the context of revolving asset securitisations, the seller traditionally represents to the buyer that it will only offer to the securitisation vehicle receivables that meet certain “eligibility criteria” defined in the assignment agreement. In this case, it is customary to include a provision in the agreement allowing the securitisation vehicle to require the originator to compulsorily repurchase the assigned receivables not in compliance with the eligibility criteria. To enforce its rights, certain set-off powers are traditionally granted to the securitisation vehicle allowing it to set-off any payment obligations owed to the originator if it refuses to indemnify or acquire the credit rights assigned to the securitisation vehicle that do not meet the eligibility criteria. If the assignor defaults on its obligations, the assignee may have to start legal proceedings against it to enforce its rights.

Bonds, notes and other securities are traditionally issued under the terms and conditions of an indenture. The following subject matters are included in such document:

• identification of the issuer and, if applicable, guarantors;
• identification of the securitised assets;
• if the repayment of the bonds, notes and securities is or not secured by any type of personal or real collateral;
• applicable interest rate;
• maturity date;
• amortisation/redemption schedule;
• default and early maturity events; and
• duties and responsibilities of the agente fiduciário (bondholder trustee), if applicable.

Securitisation vehicles may use derivatives solely for protection purposes. However, the use of derivatives in the context of a securitisation transaction is not common in Brazil.

Resolution 160 enacted by CVM on July 13, 2022 (“RCVM 160”) governs the public offerings of securities and the related documentation.

The offering of securities to the public in general necessarily requires the disclosure of a prospectus (“prospecto”) and a summary of the offering’s information and characteristics (“lâmina”), except

• if offered exclusively to professional investors;
• in the offerings of shares of closed financial investments funds (funds whose bylaws do not allow for share redemption) exclusively for qualified investors (see 4.13 Entities Investing in Securitisation); and
• if offered exclusively to creditors of issuers in judicial or extrajudicial recovery procedures or plans and that do not encompass shares or share deposit certificates.

The content of the prospectus will depend on the characteristics of the issuer, the operation, the security and the target audience, contemplating the minimum information detailed in RCVM 160 (such as general information of the offering, the securities, the offeror, guarantors and risk factors). The disclosure of a prospectus must be made on the webpage of:

• the securities’ offeror;
• the investment fund whose shares are being offered, when applicable;
• the institutions that are part of the lead co-ordinator (ie, the entities responsible for the securities distribution):
• the organised market management entity in which the securities are traded, when applicable; and
• the CVM.

Whenever an offering requires the disclosure of a prospectus and foresees the creation of a reserve, a specific pricing procedure or advertising material, which requires time, the disclosure of a preliminary prospectus is required up until the disclosure of an offering’s start announcement, which shall contain substantially the same information as the final prospectus, except for the offering registration number with the CVM and the definitive price and remuneration date.

Securitisation companies that publicly offer their securities must comply with the disclosure and financial reporting rules set forth in RCVM 60 and other applicable regulations, including the Brazilian Corporation Act (Law No 6,404, dated 15 December 1976, as amended). Also, as per Law 14,430, securitisation companies that raise funds through public offering of securities may establish several patrimônios separados (isolated net worths), also named a “fiduciary regime”. An isolated net worth is a pool of present and/or future assets linked to a particular series of securities issued by the securitisation company. The assets belonging to each isolated net worth are not considered as corporate assets of the securitisation companies and any moneys related thereto may only be used to redeem the obligations relating to securities backed by it. The securitisation company must forward to the CVM, on the date they are made available to the public, financial statements for each isolated net worth, which must be prepared in accordance with Brazil’s corporate and CVM regulations. Each isolated net worth is considered as an independent unit that reports its information for purposes of preparing its individual financial statements and, as such, they must be audited by independent auditors registered at the CVM. The notes to each audited report must contain, at least, information relating to the operational context of the assets belonging to the isolated net worth in question, such as date of issuance of the securities linked to the isolated net worth, summary of their operations, criteria for revolving the portfolio (if applicable), use of derivatives (if applicable), risk retention mechanism and related guarantees, applicable accounting practices, criteria for loss recognition, description of the securitised credits (and their maturity and aging) and procedures for collection of defaulted credit rights.

If the securitisation vehicle is incorporated as an FIDC, the fund’s assets must be registered in the following groups: (i) operations with substantial acquisition of the risks and benefits in favour of the fund; or (ii) operations without substantial acquisition of risks and benefits in favour of the fund.

Please see 4.1 Specific Disclosure Laws or Regulations.

Please see 8.1 Legal Issues With Securitisation Accounting Rules.

Please see 4.1 Specific Disclosure Laws or Regulations.

The CVM controls the activities of rating agencies in Brazil. There is no specific legislation that regulates their activities when assessing a securitisation transaction.

Please see 6.3 Transfer of Financial Assets.

Securitisation vehicles may use derivatives for protection purposes. However, the use of derivatives in the context of a securitisation transaction is not common in Brazil.

Investor protection is provided by imposing concentration limits on the seller, debtor and asset classes that may be purchased by a securitisation vehicle; disclosure requirements; liability regime; fiduciary duties, etc, that make up Brazil’s banking and securities markets regulations, enforced by the Central Bank of Brazil and the CVM. Issuers of securities, including securitisation vehicles, underwriters and other placement agents of securities are responsible for ensuring that the information contained in offering materials is complete, accurate, and not misleading. These agents, including their managers, may be held responsible for the losses suffered by investors if they fail to fulfil their legal obligations in this regard, as well as being subject to administrative fines and sanctions imposed by the CVM and other regulatory bodies which have oversight.

A transfer of receivables by a financial institution must also comply with the applicable rules set forth in the Brazilian Civil Code. The assignment of certain types of specific asset, such as credit card receivables or legal claims against the federal, state and municipal governments, may require compliance with additional specific legal requirements. Neither obligor’s consent nor assignment notice to the obligor is required under Brazilian law for transferring title (“ownership”) over the securitised receivables from the originator to the securitisation vehicle, unless the underlying transaction giving rise to the assigned receivables requires otherwise. Assuming that the assigned receivables are free and clear, title is transferred automatically from the seller to the securitisation vehicle upon the execution and delivery of the assignment agreement. Brazilian law allows the assignment of present and future receivables, in so far as the same are identified or identifiable in the future. However, assignment notice is necessary for the assignment to perfected against the obligor. Perfection in this case means that, after notice, to be discharged of its obligations, the obligor must pay its debt only to the assignee. To be perfected before third parties other than the obligor, the agreement shall be filed for registration before a Public Registry of Deeds and Documents located at the buyer’s or seller’s principal place of business or executed as a public deed (escritura pública). It is advisable that such filing is completed within 20 days upon the execution and delivery of the assignment agreement. Please see 8.1 Legal Issues with Securitisation Accounting Rules.

Securitisation companies and FIDC are the standard securitisation vehicles in Brazil. While a securitisation company is a legal entity organised as a regular corporation, an FIDC is an investment fund organised as a joint ownership of assets, and which issues shares that represent a pro-rata ownership stake over the fund’s net worth. Legally, holders of shares issued by a fund are de facto owners of the assets that constitute the fund’s net worth. Issuers of securitised securities are pass-through vehicles and, in addition to extensive regulatory requirements imposed by the CVM and self-regulatory bodies such as the Brazilian Financial and Capital Markets Association (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais - ANBIMA), are subject to specific fiduciary duties towards the holders of their securitised securities. Ordinary activities of a fund are under the responsibility of an administrator (administrador), while the investment and divestment decision may be under the responsibility of a fund manager (gestor). As defined in the fund’s bylaws, holders of securities issued by investment funds may or may not bear the risks associated with all the fund’s assets. In accordance with applicable law, a securitisation company may establish several patrimônios separados (isolated net worths), also named “fiduciary regime”, which links a given pool of identified assets to a particular series of securities issued by the securitisation vehicle. Each isolated net worth is considered as an independent unit that reports its information for purposes of preparing individual financial statements and is, thus, subject to audit by independent auditors registered with the CVM. The failure of the assets belonging to a specific isolated net worth will not adversely affect the payment of the securities issued by the securitisation company backed by other duly designated isolated net worths. Regardless of whether the securitisation transaction is structured through a securitisation company or an investment fund, the major attention point for all parties involved relates to the possibility of the receivable’s assignment being construed by a court of law as a fraudulent conveyance and/or fraud against creditors in a pre-existing lawsuit (fraude à execução) and, therefore, being declared as unenforceable (ineficaz) or void, thus resulting in the return of the disposed assets to the assignor’s estate.

Fraudulent Conveyance (Ação Pauliana (Action Pauliana))

Even if the assignor is not subject to a bankruptcy proceeding, such as a financial institution, its creditors may, under the Brazilian Civil Code, bring a civil fraud action (action pauliana) to void the assignment, claiming that the assignment has resulted (i) in a loss to the debtor’s creditor evidenced by a reduction of its estate and (ii) was carried out with the intention to defraud creditors. Similarly, where the assignor is subject to a bankruptcy proceeding, such as an individual or a non-financial legal entity, its creditors, the bankruptcy trustee or the Public Prosecutor’s Office may under Article 130 of Brazil’s Bankruptcy Law bring a legal action seeking the annulment of the assignment (ação revocatória), claiming that it has resulted in a loss to the debtor’s creditor evidenced by a reduction of its estate and was carried out with the intention to defraud creditors. In both cases, the assets in question shall be returned to the debtors’ estate with all accessories. The standard of proof in both cases is high. It is important to note that Article 129 of Brazil’s Bankruptcy Law, which establishes a strict liability standard, does not typify a receivable’s assignment as a legal transaction that may be declared unenforceable (ineficaz) by a court of law.

Fraud Against Creditors in a Pre-existing Lawsuit (Fraude à Execução)

Holders of existing legal claims against the seller may, under Brazilian law, dispute the receivable’s assignment, claiming that the same may adversely affect their capacity to collect their debt if successful in their legal claim against the defendant obligor. Fraud against pre-existing lawsuit is certainly the most important legal risk in any transaction, including a securitisation, that results in the transfer or encumbrance of an asset. Special attention should be given to Article 185 of the Brazilian Tax Code (Código Tributário Nacional), which creates a rebuttable presumption that a sale or encumbrance of an asset by a taxpayer in arrears with the Public Treasury for a liquid, certain and duly registered tax claim, is fraudulent. This presumption is rebuttable if it can be shown that enough assets were set apart in order the ensure the payment of the relevant tax claim (Article 185, sole paragraph, Brazilian Tax Code).

There are no such activities in Brazil.

Brazil’s Federal Development Bank (BNDES) has considered granting complementary portfolio credit risk guarantees to FIDCs that acquire commercial receivables originated by micro, small and medium-sized enterprises. Moreover, public sector entities, such as states and municipalities, participate in the securitisation market by securitising tax receivables and royalties, through FIDC and securitisation companies. For instance, the State of São Paulo owns its own securitisation company, named CPSEC – Companhia Paulista de Securitização (CPSEC). CPSEC is a corporation controlled by the State of São Paulo, chartered under State Law No 13,723, dated 29 September 2009, as amended, and registered with the CVM. CPSEC’s corporate purpose is the acquisition of receivables owned by the State of São Paulo, stemming from both past-due tax and non-tax credits. Additionally, CPSEC is involved in structuring and implementing transactions related to the issuance of securities, including securitisations, through the private or public issuance of securities in the capital markets. Also, in 2014, the State of Rio de Janeiro, through a special purpose company named Rio Petróleo S.A., Companhia Securitizadora de Créditos Financeiros, securitised royalties due to it by corporations exploring oil reserves located in Brazil’s high seas. In this case, the securitised securities were placed outside Brazil.

The RCVM 160 governs the public offering of securities in Brazil. Securities offered to the general public and, as the case may be, qualified investors (as defined below) necessarily require the preparation of a prospectus (“prospecto”) and a summary of the offering’s information and features (“lâmina”). Such requirement may be waived if the securities are offered to professional investors (as defined below). The content of the prospectus will depend on the characteristics of the issuer, the offering, the security and the target audience, as defined in RCVM 160. The prospectus must also contain general information describing the offering, the securities, the offeror, guarantors, risk factors and, in the case of a securitisation transaction, detailed information relating to the securitised assets.

Law 14,430, RCVM 60 and RCVM 175 have expanded the investor base allowed to invest in securitised securities issued by securitisation companies and FIDC. Today, under RCVM 175, the separation between standard or non-standard FIDC no longer exists. Shares issued by an FIDC that acquires “standard” receivables may, considering the share’s distribution regime (eg, registered offer, limited registered offer or private placement) and certain considerations relating to the fund’s asset concentration profile, be acquired by professional Investors, qualified investors and retail investors, which was not previously allowed.

Professional Investors

“Professional investors” are defined by Article 11 of CVM Resolution 30, dated 11 May 2021, as amended (RCVM 30), as:

• financial institutions and other institutions authorised to operate by the Central Bank of Brazil;
• insurance and capitalisation companies;
• pension funds;
• individuals or legal entities that have financial investments in an amount greater than BRL10 million and that, additionally, as per applicable legislation, evidence in writing their status as a professional investor;
• investment funds;
• an investment club, provided it is managed by a securities’ portfolio manager authorised by the CVM;
• investment consultants, portfolio managers, analysts and consultants as to their own funds;
• non-resident investors; and
• endowment funds.

Qualified Investors

“Qualified investors” are defined by Article 12 of RCVM 30, as:

• professional investors;
• individuals or legal entities that hold financial investments in an amount greater than BRL1 million and that, additionally, as per applicable legislation, evidence in writing their condition as a qualified investor;
• individuals that have been approved in technical qualification exams or hold technical qualification certificates recognised by the CVM as a requirement for their registration as an investment consultants, portfolio managers, analysts and securities’ consultants, as to their own funds; and
• an investment club, provided its portfolio is managed by one or more quota holders who are qualified investors.

Please see 1.3 Applicable Laws and Regulations.

Brazil has no rules for the structuring of synthetic securitisations. Some of the benefits of a securitisation transaction may be “derivatively” achieved in Brazil when the seller’s assigned receivables and/or a seller’s obligations are collateralised by means of a fiduciary lien over real estate, movable assets and/or rights over moveable assets.

A fiduciary lien is structurally like a “chattel mortgage”. It is a form of security interest widely used in Brazil’s banking and capital markets sectors. A fiduciary lien entails the provisional transfer of ownership of the assets offered as collateral to the creditor, also known as the “fiduciary owner”, until the payment of the underlying obligation. After repayment of the debt, the assets are returned to the original owner of the collateral, also known as “fiduciante”. If the fiduciante defaults, the fiduciary owner may consolidate the ownership over the assets, sell them at auction or, in the case of a credit receivable, use the proceeds arising out of its payment to pay off its credit against the fiduciante. Assuming that the lien in favour of the fiduciary owner cannot be construed by a court of law as a fraudulent conveyance and/or fraud against creditors in a pre-existing lawsuit (fraude à execução), fiduciary liens are not in principle affected by the reorganisation or bankruptcy of the fiduciante.

The bankruptcy of the originator (the receivable’s seller) may result in the assignment of the securitised receivables being deemed unenforceable (ineficaz), under Article 130 of Brazil’s Bankruptcy Law (Law No 11,101, dated 9 February 2005, as amended). In this case, the receivables may return to the originator’s estate and be attached by the originator’s creditors to guarantee the payment of their credits against the originator. To be successful, the plaintiff must prove that the receivable’s assignment resulted in actual loss to the bankrupt estate and that the transfer was carried out with the intention to defraud its other creditors. The standard of proof to be shown by the aggrieved party under Article 130 is very high. Alternatively, if the transferred assets cannot be reconveyed, the bankrupt estate must be fully indemnified. Article 136, Section 1º, of Brazil’s Bankruptcy Law provides a safe harbour for securitisation transactions. In this case, the same provides that the credit assignment in favour of the securitisation vehicle shall not be deemed unenforceable (ineficaz) or void by a court of law to the detriment of the holders of the securities issued by the original securitisation company. Case law as to the effectiveness of this legal safe harbour is still uncertain.

Putting aside the obvious risks associated with the credit (payment) risk of the assigned receivables’ debtor or even, in the case of an assignment of future receivables, their future existence, the major legal and structuring concerns in a securitisation transaction structured in Brazil, relate to the possibility of the receivable’s assignment being construed by a court of law as a fraudulent conveyance and/or fraud against creditors in a pre-existing lawsuit (fraude à execução). If construed as a fraudulent conveyance and/or fraud against a pre-existing lawsuit, the same may be declared unenforceable (ineficaz) or void by a court of law. Please see 4.10 SPEs or Other Entities and 6.2 SPEs.

For most kinds of asset, including financial assets, securitisation companies and receivables’ investment funds (FIDCs) are the standard securitisation vehicles organised in Brazil for the exclusive purpose of acquiring/isolating the securitised receivables from an originator. While a securitisation company is a legal entity organised as a regular corporation, governed by its bylaws, an investment fund is a pool of assets subject to joint ownership that issues shares, which represent a pro-rata ownership stake over the fund’s net worth. Legally, holders of shares issued by a fund are de facto owners of the assets that constitute the fund’s net worth. Today, ownership and management of securitisation companies in Brazil is a business activity that resembles the rendering of a trust and similar services in Europe and the USA. An investment fund is governed by its organisation charter denominated “Regulamento”. Ordinary activities of a fund are under the responsibility of an administrator (administrador). Investment and divestment decisions may be under the responsibility of a fund manager (gestor).

Regardless of its form, securitisation vehicles’ incorporation documents limit the powers of their managers. They are not allowed, for instance, to hire employees or carry out any action that is alien to their corporate purpose or unrelated to the securitisation transaction. If the underlying securitised assets do not perform, the assets are transferred to the holders of the linked securitised securities. The securitisation vehicle may or may not be wound up. Insolvency situations affecting securitisation vehicles are very rare in Brazil. This risk is further mitigated if an “isolated net worth” is established, which may be transferred to another securitisation company, without affecting the rights of the holders of the securities issued by the original securitisation company. From this perspective, a securitisation vehicle may be regarded as “bankruptcy remote” for the purposes of Brazilian law. Under the current legal regime, the securitisation company is a conduit and, as such, investors may decide to transfer their isolated net worth to another securitisation company. Substantive consolidation and true sale, as understood under US law, are not legal concepts found in Brazilian law. Also, Brazilian courts, including bankruptcy courts, do not have the power to recharacterise a receivables’ assignment as a secured loan as in the US. However, under special circumstances, the Brazilian Central Bank has the authority to recharacterise an assignment of receivables as a secured loan. As already highlighted, isolation from the risks associated with the originator’s insolvency may be achieved if the financial and other factual considerations at the time of the receivable’s assignment may not lead the same to be construed as a fraudulent conveyance and/or fraud against creditors in a pre-existing lawsuit (fraude à execução) and, therefore, be declared unenforceable (ineficaz) or void by a court of law. Careful due diligence of the seller’s economic and financial condition, particularly from a labour and tax perspective, and of the targeted assets, is the golden rule for assessing the intensity of this risk.

A transfer of receivables under Brazilian law must comply with the applicable rules set forth in the Brazilian Civil Code. The assignment of certain types of specific asset, such as credit card receivables or legal claims against the federal, state and municipal governments, may require compliance with additional specific legal requirements. Sometimes it is recommended that the assignment agreement be executed as a public deed (instrumento público).

Most assignments in the context of securitisation transactions in Brazil are contracted without recourse to the seller. If the underlying documentation related to the assigned receivables does not require otherwise, prior consent and notice to the obligor are not required under Brazilian law for transferring title (“ownership”) over the securitised receivables from the originator to the securitisation vehicle. Assuming that the assigned receivables are free and clear, title is transferred automatically from the seller to the securitisation vehicle upon the execution and delivery of the assignment agreement. Brazilian law allows the assignment of present and future receivables, in so far as they are identified or identifiable in the future. However, assignment notice is necessary for the assignment to be perfected against the obligor. Perfection in this case means that, after notice, to be discharged of its obligations, the obligor must pay its debt only to the assignee. To be perfected before third parties other than the obligor, the agreement shall be filed for registration before a Public Registry of Deeds and Documents located at the buyer’s or seller’s principal place of business or executed as a public deed (instrumento público). It is advisable that such filing is completed within 20 days upon the execution and delivery of the assignment agreement.

A true sale, as understood under US law, is not a legal concept found in Brazilian law. In Brazil, from a financial and legal structuring perspective, the major attention point in a securitisation transaction relates to the receivable’s assignment being construed as a fraudulent conveyance and/or fraud against creditors in a pre-existing lawsuit (fraude à execução) and, therefore, being declared as unenforceable (ineficaz) or void by a court of law.

Financial institutions traditionally assign their receivables to mitigate capital constraints. The Brazilian Central Bank is responsible for their monitoring and control and, thus, defines risk retention guidelines that determine when a financial institution that assigns an asset (i) may remove it from its balance sheet and account the consideration received by it as profit, or (ii) should maintain that assigned asset on its balance sheet and account the consideration received as a liability.

If the Brazilian Central Bank intervenes in a financial institution or declares its liquidation, the trustee appointed by the Brazilian Central Bank, taking into consideration the economic substance rather than the legal form of the transaction, has the power and authority to recharacterise the “assignment” as a liability instead of a sale. In this case, the buyer of the receivables originally “assigned” may be treated by the Central Bank trustee as a clean, unguaranteed creditor of the assignor. The power to recharacterise an assignment as described above is a specific feature of Brazilian legislation applicable to financial institutions. Unlike in the USA, courts of law do not generally have this prerogative.

A securitisation vehicle is traditionally organised in Brazil as an investment fund (FIDC, real estate investment funds, etc) or a securitisation company for the exclusive purpose of acquiring/isolating the securitised receivables from the seller. Regardless of its form, the incorporation documents of a securitisation vehicles normally limit the powers of their managers by preventing them from, for instance, hiring employees or carrying out any action that is alien to the vehicle’s corporate purpose or unrelated to the securitisation transaction. If the underlying securitised assets do not perform, the assets are transferred to the holders of the linked securitised securities. The securitisation vehicle may or may not be wound up. Insolvency situations affecting securitisation vehicles are very rare in Brazil. This risk is further mitigated if an “isolated net worth” is established, which may be transferred to another securitisation company, without affecting the rights of the holders of the securities issued by the original securitisation company. From this perspective, a securitisation vehicle may be regarded as “bankruptcy remote” for the purposes of Brazilian law.

As already highlighted, isolation from the risks associated with the originator’s insolvency may be achieved if financial and other factual considerations as to the seller and the assigned receivables, at the time of its assignment, may not lead the same being construed as a fraudulent conveyance and/or fraud against creditors in a pre-existing lawsuit (fraude à execução) and, therefore, being declared unenforceable (ineficaz) or void by a court of law. Careful due diligence of the seller’s economic and financial condition, particularly from a labour and tax perspective, and of the targeted assets, is the golden rule for assessing the intensity of this risk.

A transfer of receivables under Brazilian law must comply with the applicable rules set forth in the Brazilian Civil Code. The assignment of certain asset classes, such as credit card receivables or legal claims against the federal, state and municipal governments, may require compliance with additional specific legal requirements. Sometimes, applicable law may require that the assignment agreement is executed and delivered as a public deed (instrumento público).

Most assignments in the context of securitisation transactions in Brazil are contracted without recourse to the seller. If the underlying documentation related to the assigned receivables does not require otherwise, prior consent and notice to the obligor are not required under Brazil law for transferring title (“ownership”) over the securitised receivables from the originator to the securitisation vehicle. Assuming that the assigned receivables are free and clear, title is transferred automatically from the seller to the securitisation vehicle upon the execution and delivery of the assignment agreement. Brazilian law allows the assignment of present and future receivables, insofar as the same are identified or identifiable in the future. However, assignment notice is necessary for the assignment to be perfected against the obligor. Perfection in this case means that, after notice, to be discharged of its obligations, the obligor must pay its debt only to the assignee. To be perfected before third parties other than the obligor, the agreement shall be filed for registration before a Public Registry of Deeds and Documents located at the buyer’s or seller’s principal place of business. It is advisable that such filing is completed within 20 days upon the execution and delivery of the assignment agreement. For warranties, covenants, servicing, defaults, and indemnities in an assignment agreement, please refer to 3.2 Principal Warranties, 3.3 Principal Perfection Provisions, 3.4 Principal Covenants, 3.5 Principal Servicing Provisions, 3.6 Principal Defaults and 3.7 Principal Indemnities.

Insolvency situations affecting securitisation vehicles are very rare in Brazil, in addition to this risk being further mitigated if an “isolated net worth” is established. From this perspective, a securitisation vehicle may be regarded as “bankruptcy remote” for the purposes of Brazilian law.

A transfer of receivables under Brazilian law must comply with the applicable rules set forth in the Brazilian Civil Code. The assignment of certain asset classes, such as credit card receivables or legal claims against the federal, state and municipal governments, may require compliance with additional specific legal requirements. Sometimes, applicable law may require that the assignment agreement is executed and delivered as a public deed (instrumento público).

The Real Profit Regime

With the enactment of Law 14,430, and considering the changes introduced by it to item VII of Article 14 of Law 9,718, all securitisation companies are subject to the real profit (lucro real) tax regime. Under this regime, the taxable income of a legal entity is calculated based on their gross income, less deductions and expenses allowed by the legislation. Thus, as per Law 9,718, as amended by Law 14,430, for the purpose of determining the tax base subject to corporate income tax (IRPJ) and Brazil’s social contribution tax (CSLL), the securitisation company may deduct from its gross income the amount of financial expenses associated with interest paid to security holders and other financial liabilities owed by it. Therefore, securitisation companies are taxed only on the spread of their operations. The current tax regime does not, unfortunately, eliminate all tax friction. For example, there are certain tax inefficiencies arising from gains earned by securitisation companies on investments on surplus cash held by it. Such minor inefficiencies are not present when the securitising vehicle is an FIDC, which are tax neutral vehicles (please see below). Nevertheless, the advantages associated with using a securitisation company as a securitisation vehicle usually outweighs this disadvantage.

Tax on Financial Operations

If the assignee remains responsible for the payment of the assigned credit (assignment with recourse), the same may be subject to the tax on financial operations (imposto sobre operações de crédito, câmbio e seguro, ou relativas a títulos ou valores mobiliários - “IOF/Credit”). Up to 1.5% per day on the total amount of the credit transaction may be levied for IOF/Credit purposes. The effective rate applied on the principal amount of the facility is now 0.0041% per day for legal entities (or 0.0082% per day for individuals), plus an extra 0.38% rate, up to a maximum total of 1.88% (for legal entities) or 3.37% (for individuals). The federal executive branch (the President of Brazil) may raise or lower IOF rates at any time up to its maximum chargeable amount, without prior Congressional consent. Any such increases are effective immediately but cannot be retroactively applied.

FIDC Tax Status

FIDCs are tax neutral vehicles, to wit, payments in favour of a fund and increase in its net worth are not taxable events, even if it transfers assets with a profit. Taxes are levied at the investor level when the fund’s shareholders (investors) receive income distributions or income from amortisations, redemptions of the fund’s shares or when the shareholder sells its shares and incurs a capital gain. As per Law No 14,754, dated 12 December 2023, as amended, income earned by the FIDC’s shareholders (investors), classified as an investment entity, will not be subject to the come-cotas taxation methodology, as explained below. In this case, shareholders (investors) are subject to withholding income tax (IRRF) levied at a 15% rate and paid on the last business day of the months of May and November or, if it occurs first, on the day the fund effects a distribution of income, amortisation, redemption or the shareholder (investor) sells its shares (cotas). In general, the fund will be classified as an “investment entity” for the purpose of Brazilian law if the same raise funds from one or more investors to invest in one or more assets and, in particular, are managed by agents or professional service providers with powers to make investment and divestment decisions on a discretionary basis. The come-cotas taxation methodology is a form of advance taxation applied to the earnings of investment funds. It implies that shareholders (investors) are taxed periodically, usually every six months (in May and November), based on the accumulated gains of the fund during that period. The term come-cotas derives from the idea that the fund’s earnings are automatically “eaten” or deducted from each investor’s shares.

Today, investors in an FIDC that do not meet the “investment entity” criteria will be subject, even if registered as a closed-end fund (fundo fechado), to IRRF under the come-cotas regime at the rate of 15%, levied as an advance on the last business day of the months of May and November of each year and a complementary payment necessary to total the regressive rates from 22.5% to 15%, on the date of distribution of income, amortisation, redemption or sale of the fund’s shares, to be defined depending on the fund in question being typified as “long term” or “short term”.

FIDC are tax neutral vehicles. Please see 7.1 Transfer Taxes for further discussion.

If the market value of the consideration received by the originator is greater than the historical or book value of the assigned asset, the originator may be subject to capital gains tax. An assignment of receivables is generally not subject to withholding tax. Given that the originator may be an individual or a legal entity, the tax burden will vary according to the tax regime of the seller. If the originator is a legal entity subject to the real profit (lucro real) tax regime, losses may be deducted for the purpose of determining the tax base subject to IRPJ and CSLL. For IRPJ/CSLL purposes, if the originator is subject to the presumed profit regime (lucro presumido), the total sale price will be accordingly taxed as part of the originator’s gross revenues.

Securitisation vehicles registered in Brazil cannot purchase “foreign” receivables.

Please see 7.1 Transfer Taxes and7.3 Withholding Taxes.

Normally, legal opinions are requested for the purpose of confirming the following legal aspects:

• good standing and enforceability of the assigned receivables;
• good order and sufficiency of approvals obtained in lieu of the transaction;
• signatories of the transaction documents have powers to represent the contracting parties; and
• that the agreements signed in lieu of the transaction represent valid, effective and enforceable obligations of the contracting parties in accordance with their terms.

Additionally, structurers currently require legal opinions dealing with legal risks associated with the solvency of the assignor from a fraudulent conveyance perspective.

Under CVM Resolution 155, dated 23 June 2022, as amended, publicly traded companies must present their consolidated financial statements following the guidelines issued by the International Accounting Standards Board (IASB). To comply with this, the consolidated financial statements of publicly held companies must be prepared based on pronouncements that are fully in line with the international standards issued by the Accounting Pronouncements Committee (CPC) and approved by the CVM.

Article 177, Subsections 3 and 5 of the Brazilian Corporation Act (Law No 6,404, dated 15 December 1976, as amended) are also relevant, establishing that the financial statements of publicly held companies shall be audited by independent auditors registered with the CVM and prepared in accordance with international accounting standards. CVM Resolution 76, dated 22 March 2022, as amended, approved “CPC 48”, which, among other issues, defines risk retention criteria for recognising the transfer of a specific asset and the consideration received as a sale or a liability. The Central Bank of Brazil and the National Monetary Council define risk retention guidelines, such as Brazilian Monetary Council Resolution 3,533, dated 31 January, 2008, as amended, defining criteria for determining when a financial institution that assigns an asset (i) may remove it from its balance sheet and account the consideration received by it as a profit, or (ii) should maintain the assigned asset on its balance sheet and account the consideration received as a liability. The simple fact that an assignment of a right is not treated as a sale under CPC 48 does not necessarily imply a weakness or risk for the purchaser of the credit. Local subsidiaries of foreign companies may also be obliged to follow international standards to which their controlling shareholders are subject.

A true sale, as understood under US law, is not a legal concept found in Brazilian law and Brazilian courts, including bankruptcy courts, do not generally have the power to recharacterise a receivables’ assignment as a secured loan, as courts  in the USA, for example, do. However, it is important to emphasise that if the Brazilian Central Bank intervenes in a financial institution or declares its liquidation, the trustee appointed by the Central Bank, taking into consideration the economic substance rather than the legal form of the transaction, has the power and authority to recharacterise the “assignment” as a liability instead of a sale. In this case, the buyer of the receivables originally “assigned” may be treated by the Central Bank trustee as a clean, unguaranteed creditor of the assignor. However, as already mentioned, financial institutions are subject to inspection and monitoring by the Central Bank of Brazil, including in the event of their insolvency and bankruptcy.

The issuance of non-consolidation opinions by law firms in the context of a securitisation transaction is not a common practice in Brazil. Lawyers’ guidance in this field normally relates to the liability regime applicable to the originator and risks supported by the securitisation vehicle, especially if the receivable’s assignment may be construed as a fraudulent conveyance and/or fraud against creditors in a pre-existing lawsuit (fraude à execução) and, therefore, may be declared unenforceable (ineficaz) or void by a court of law. Lawyers also guide sellers and buyers of receivables as to disclosure duties and adherence to reporting and disclosure rules.