On October 30th, 2023, Bill No. 4.188-c of 2021 became Law No. 14.711/2023, after being sanctioned by the President. This piece of legislation, which has been called the Legal Framework for Collaterals, brings, among other things, several innovations in the field of collaterals and their enforcement regime, especially with regards to real estate collaterals. In addition, the law introduces changes in the tax discipline to which private equity funds foreign holders are subject.
Changes to Real Estate Guarantee Enforcement Regimes
One of the most important changes brought in this topic is the possibility of extrajudicial enforcement of mortgage credits, making it possible for this to take place primarily through acts of the Real Estate Registry Office. In addition, the law creates mechanisms for the consensual resolution of conflicts, making it possible to negotiate guaranteed debts before the registry of protests, with the aim of avoiding the protesting of titles.
In this sense, notaries now have certain unprecedented powers, on a non-exclusive basis, such as (i) powers to certify the fulfillment or frustration of negotiable covenants, without excluding the analogous powers belonging to protest notaries, and (ii) powers to act as mediator, conciliator or arbitrator in the resolution of such disputes.
In addition, the rule now allows the practice of “second degree” fiduciary alienation, whereby the debtor of a credit operation secured by a fiduciary alienation can pledge the same Real Estate property as collateral for new debts debtor may incur, provided that (i) the new debt is contracted with the same creditor holding the original fiduciary alienation and (ii) there is no obligation assumed with different creditor(s) secured by the same property.
In such cases, default on any of the guaranteed credit operations gives the fiduciary creditor the prerogative to consider the other credit operations linked to the same guarantee to be due in advance, provided that previous fiduciary liens will have priority over subsequent ones.
The law in question also clarifies the cases in which the asset pledged as collateral is put up for auction. In cases where a second auction is necessary (due to the lack of bids in the first auction), if there is no bid in an amount equal to or greater than the value of the secured debt, the creditor may (i) accept a bid that corresponds to at least half of the asset’s appraised value, or (ii) freely dispose of the asset, with no obligation to hand over any residual value of the sale to the debtor.
In such cases, if it is not possible to obtain an amount equivalent to or greater than the debt, unlike the previous legislation, the debt will not be considered extinguished and the debtor will remain liable for the balance due, unless the guaranteed amount was obtained for the purchase or construction of residential property, in which cases the debt will be considered extinguished with reciprocal discharge..
In transactions secured by a fiduciary alienation of two or more properties, the fiduciary creditor may proceed with the seizure of all the properties simultaneously, with the consolidation of ownership and the subsequent holding of an auction for all the properties together or in successive acts, depending on how much is needed to fully satisfy his claim.
Private Equity Fund Zero Rates and Regime Changes
Law 14.711/2023 also introduced important changes to the tax treatment applicable to non-resident investors in private equity funds.
In this sense, the requirement previously in force, known as the “40% Test”, for zero tax rates was revoked. Under the previous rule, in order for non-resident investors to benefit from a zero rate of income tax on income and gains earned from private equity funds, they could not hold 40% or more of the private equity funds’ shares, nor could they hold shares that entitled them to 40% or more of the income distributed by the private equity fund.
With the entry into force of the new law, this limitation no longer exists, allowing non-resident shareholders to hold any percentage of the fund’s shares and still benefit from the aforementioned zero rate. There are, however, requirements that must be met, which are (i) that the shareholder be a resident in a jurisdiction with no favorable taxation (no income tax or a maximum tax rate of less than 20%), and (ii) that the private equity fund be classified as an investment company (”entidade de investimento”).
Finally, the law repealed the restrictions on the composition of private equity funds’ portfolios, removing the requirements of (i) a minimum investment of 67% in stock, subscription warrants or convertible debentures and (ii) a maximum investment of 5% of their net worth in debt securities, with the exception of convertible debentures or government bonds.
If you are interested in discussing these topics or finding out more about the innovations brought by, Law No. 14.711/2023, please don’t hesitate to contact us, our professionals will be delighted to discuss it in more detail.
Written by Arthur Manetta and Fernando Borges
 Here, it is important to make a distinction between the aforementioned regime and that provided for in the Bankruptcy Law (Law 11.101/2005), which regulates the situations in which the debtor is subject to judicial reorganization proceedings. Article 49, §3, of the Bankruptcy Law states that a claim secured by a fiduciary sale is not subject to the judicial reorganization process, so that the creditor’s property rights over the asset and the contractual conditions are preserved. However, according to the superior court “STJ”, in such cases, if the value of the asset is not sufficient to extinguish the obligation, the balance due cannot be demanded outside the debtor’s judicial reorganization.