Extrajudicial Search and Seizure of Movable Assets Given as Collateral in the Form of Fiduciary Transfer

In the context of simplifying the constitution and foreclosure of guarantees, as established by Law 14,711, of October 30, 2023 (“Legal  Framework of Guarantees”), whose key aspects were addressed in our Client Alert of October 31, 2023, certain provisions were enacted on December 22, 2023 regarding the extrajudicial search and seizure process related to movable assets given as collateral in the form of fiduciary transfer. These provisions had been vetoed upon the sanctioning of the Legal Framework of Guarantees. However, after re-examination and discussion, the Brazilian Congress rejected all of the referred vetoes. 

The provisions enacted in December 2023 are those included in the original wording of Article 8-C, and its paragraphs, as well as in the sole paragraph of Article 8-E, all of which were added to the text of Decree-Law No. 911, of October 01, 1969, as amended (“DL 911/69”), under the terms of Article 6 of the Legal Framework of Guarantees.

Consolidation of Ownership of Movable Assets Subject to Fiduciary Transfer for Purposes of Foreclosure

According to the new provisions, upon default of the obligation secured by the fiduciary transfer and confirmation of the debtor’s default due to the expiration of the payment deadline, the creditor can consolidate the ownership of the secured asset with the purpose of carrying out its extrajudicial sale to third parties, regardless of any auction, public tender, prior appraisal, or any other judicial or extrajudicial measure. To this end, the debtor or fiduciary guarantor will be required to voluntarily hand over or dispose of the movable asset to the fiduciary creditor, under penalty of a 5% fine on the amount of the debt.

Extrajudicial Search and Seizure of Movable Assets Subject to Fiduciary Transfer

If the debtor fails to pay the secured debt or to fulfill their obligation to hand over or dispose of the asset given as collateral in the form of fiduciary transfer, the creditor is then entitled to apply before the registry of deeds and documents for the extrajudicial search and seizure process aiming at retrieving the secured asset, upon proof of the updated debt amount.

The new regulations on the procedure for this type of search and seizure contemplate the following steps:

• Regarding vehicles, it is the registrar’s responsibility to impose a restriction on the use and transfer of the asset on the national registry of motor vehicles database, and to proceed with the respective write-off once seizure has been duly effected.
• The registrar must also notify the competent registration offices so that they can register the non-availability of the asset as well as the extrajudicial search and seizure.
• The extrajudicial search and seizure event will then be registered on the electronic platform held by the registries of deeds and documents nationwide.
• A certificate of extrajudicial search and seizure of the asset will be issued.
  

Creditors, whose secured credit is in default, will be able to take measures to locate the asset subject to the fiduciary transfer, either by themselves or by hiring third parties, to whom they will grant a power-of-attorney to act on their behalf in taking such measures, and these third parties can be set-up as companies specializing in asset retrieval services. Regarding such companies, the law assigned the task of defining the minimum requirements for their operation to the Executive Branch.

Once the asset has been seized, the creditor can proceed with its sale by notifying the registrar, who will then be in charge of (i) clearing the entries and notices of systemic restrictions; and (ii) registering the sale of the asset in the appropriate registry or informing the corresponding registration bodies.
Once possession of the asset has been taken, either through seizure or voluntary handover by the debtor, it will be the sole responsibility of the creditor to comply with the tax and administrative obligations attached to the seized asset.

Even after the asset has been seized, the fiduciary debtor can recover possession of it, provided, however, that they pay – within five days from the effective date of seizure – the full outstanding debt in accordance with the amounts established by the creditor at the beginning of the request for extrajudicial search and seizure. In this event, the asset consolidation will no longer have effect, and ownership will be restituted to the debtor.

Our lawyers are available to assist with the clarification of any doubts regarding the implementation of the new extrajudicial search and seizure of movable assets that are given as collateral in the form of fiduciary transfer.