Collateral instruments that provide effective comfort to foreign lenders doing business in Brazil can be counted in a single hand.
One of them is CDA/WA (Certificado de Depósito Agropecuário/Warrant Agropecuário), a certificate of agricultural deposit issued by independent third party, acting as depositary, representing commodities deposited by producers, cooperatives and trading company.
There are repeated Lower and Superior Court decisions throughout the country recognizing the rights of domestic and foreign lenders to CDA/WA’s underlying commodities, either in Judicial Recovery (RJ) and non-RJ proceedings.
A recent case, in which Feijo Lopes Advogados assisted a foreign fund in connection with a US$ 8 million Export Prepayment Facility entered into with a Brazilian borrower, the State Superior Court of Sao Paulo ruled that “it is unlawful for the defendant [borrower] to take any action that may result in loss to or jeopardise the assets deposited in the complaint [lenders]’s name.”
The Court said that the products represented by the CDA/WAs endorsed to the foreign lender “are not property of the defendant [borrower] anymore due to the issuance and endorsement of the notes, which transferred the title of the deposited goods to the endorsee and prevent the defendant [borrower] from imposing any obstacles to the full and free disposition by the creditor“.
The above evidences that the choice of collateral instruments to secure finance transactions in Brazil and the understanding of their actual value in real enforcement scenarios are crucial aspects for the comfort of foreign lenders and investors take into account when doing business in the country.