Creditors have various alternatives to secure credit transactions in Brazil, and the choice of the appropriate instrument depends on the specifics of each business.
The efficiency and security of each guarantee depend on factors such as the transaction structure, the nature of the asset, the amounts involved, and the debtor’s financial condition.
Among the main guarantee instruments for business operations, fiduciary lien in Brazil stands out for offering significant advantages to financiers, as highlighted below.
1. Protection of the Asset: Fiduciary lien provides maximum protection for the asset. In certain cases, third parties are prohibited from seizing assets subject to fiduciary lien. In others, even if seizure is allowed, the fiduciary creditor retains priority over any subsequent guarantees;
2. Agile and Cost-Effective Execution: In the event of default, the enforcement of the guarantee can be carried out extrajudicially through a notary public, making the process faster and less expensive. Unlike judicial enforcement proceedings, this method avoids the high costs associated with court actions
3. Protection Against Judicial Reorganization or Bankruptcy: Claims secured by fiduciary lien are not subject to judicial reorganization or bankruptcy proceedings. This means that the guarantee can still be enforced, even if the debtor files for judicial reorganization or bankruptcy. However, caution must be taken as, in cases of judicial reorganization, if the asset is deemed essential to the debtor’s business activities, enforcement of the guarantee will not be feasible.
To ensure the effectiveness of the guarantee, it is essential to accurately assess the asset, consider transfer costs, and verify whether the asset is deemed essential. Additionally, the agreement should include a provision for a deficiency claim, allowing the creditor to pursue any remaining debt balance if the proceeds from the sale of the collateral are insufficient to cover the full amount owed.
Fiduciary lien is an effective tool for securing credit protection, offering advantages such as speed, potential cost-effectiveness, and a degree of priority. However, its application requires careful consideration of the specific legal and factual circumstances, including a thorough understanding of the applicable laws and regulations in the relevant jurisdiction.
