The market for the acquisition of distressed assets and receivables in Brazil exceeds US$ 100 billion and draws the attention of Brazilian and foreign investors.
The target assets and receivables range from non-peforming loans (NPLs) and commercial receivables, tax, civil, succession and labor court credits (special situations), precatorios, real estate for retrofit, international transfers of sport athletes, and others.
Among the investors, there are investment funds, family offices, Brazilian and foreign financial institutions interested in allocating funds in assets and receivables whose investment and time frame compensate the risk vs. opportunity.
See below 4 points of attention for foreign investors in the acquisition of distressed assets and financial receivables in Brazil:
1. Foreign investors should confirm the existence and enforceability of the target asset or receivable: A key starting point is to confirm the existence and enforceability of the target asset or receivable. It sounds basic, but there are numerous known cases where the investor has not performed adequate due diligence to verify that the asset or receivable (i) actually exists, based on documentation, related facts and calculations that back it, and (ii) can be claimed from the debtor and whether the right of enforcement or collection is not barred.
2. Foreign investors should investigate the existence of any third party rights over the target asset or receivable: Investigating third party rights over the target asset or receivable is another essential aspect. Third party rights may include rights that are enforceable or not yet enforceable at the date of acquisition by the investor, whether public or privately held.
Acquisitions, mainly of judicial receivables or those related to sports transfers, require special attention regarding third-party rights.
3. Foreign investors should pay attention to the legal and legal requirements to carry out the assignment and transfer of the target asset or receivable: Foreign investors must observe the requirements of Brazilian law, including art. 290 of the Brazilian Civil Code, – and foreign law, when involving international operations – and with the appropriate legal instruments are fundamental for the perfecting of the assignment and transfer of ownership of assets and receivables.
Verification of the assignor’s powers of representation, the accuracy of the content of the instrument for notifying and acknowledging the assignment and attention to the formalization of signatures (physical, electronic or digital) are essential precautions.
4. Foreign investors should provide for indemnification from the Seller of the asset or target receivable in the event of false representation: The receivables purchase contract must provide, whenever possible, for an indemnity clause in favor of the investor through which the assignor/seller of the credit undertakes to indemnify him in the event of false representation, such as the defect or non-existence of the target asset or receivable, or the existence of third-party rights not informed to the investor, among other relevant situations.
The next few years should greatly increase the volume of acquisition of distressed assets and credit rights in Brazil, with the participation of both Brazilian and foreign investors, and the points above should be considered to reduce the transaction risk.
