National Monetary Council regulates on the Sharing of Fiduciary Lien and on the Working Capital Program For The Preservation of Companies – CGPE

As part of the new measures taken by the Federal Government to mitigate economic impacts of the Covid-19 pandemic, Provisional Measure No. 992, published on July 16, 2020, introduced the sharing of fiduciary lien and instituted the Working Capital Program for the Preservation of Companies (“CGPE”), whose objective is to grant credit to micro, small, and medium-sized companies (with annual gross revenue, as calculated in 2019, of up to BRL 300 million or proportional to the number of months of operation in 2019).

Through the exercising of duties stipulated in the Provisional Measure to define: (i) the conditions, terms, and rules for the granting of credit transactions and their characteristics; and (ii) the allocation of credits granted by segments or areas of activity and size ranges of companies, the National Monetary Council (“CMN”) approved, on July 21, 2020, Resolutions No. 4,837 and No. 4,838.

As a measure to stimulate the credit market, Resolution No. 4,837 amended  Resolution No. 4,676, of July 31, 2018, which provides for the conditions and criteria for contracting real estate financing by financial institutions and other institutions authorized to operate by the Central Bank of Brazil and establishes the allocation of funds raised in savings deposits.

Resolution No. 4,837 defines that, when the same property serves as collateral for more than one credit transaction, through the sharing of fiduciary lien, the total nominal value of the guaranteed obligations, comprising principal and ancillary expenses, must observe the limit applicable to the original credit transaction.

In addition, the new rule includes loans guaranteed by shared fiduciary lien of real estate in the list of real estate financing operations, which enables the use of a portion of the funds raised in savings deposits by entities that are part of the Brazilian Savings and Loan System (“SBPE”).

For the new loans that share the fiduciary lien, the total amount, interest rates and terms must be less than or equal to those of the original credit transaction. In addition, the new rule establishes a maximum percentage for the total value of these credit transactions, calculated based on the average daily balances of savings deposits.

Resolution No. 4,837 also stipulates that the value of financing transactions for the acquisition of new, used or under construction non-residential properties, for the construction of non-residential properties and for loans guaranteed by shared fiduciary lien of real estate may consist of the following ancillary expenses:

i. notary costs incurred by the borrower related to the registration of the title or to constitute, declare or transfer real rights over the property;

ii. costs of the information transmission service for purposes of electronic registration, if contracted by the borrower, subject to the applicable rules;

iii. amount of the Property Transfer Tax (“ITBI”); and

iv. amount of the Tax on Financial Operations (“IOF”).

Finally, Resolution No. 4,837 also establishes that new and autonomous credit transactions contracted within the scope of shared fiduciary lien must observe interest rates equal to or lower than the original credit transaction and terms equal to or less than the remaining term of the credit transaction. Thus, lending institutions must, prior to contracting these new transactions, inform the borrower, in an appropriate and clear manner, about the possible change in the condition of extinction of debts, obtaining formal and express consent regarding the change in the condition, by signing a specific term.

Resolution No. 4,838 provides for the conditions, terms and rules for the granting and the characteristics of credit transactions contracted under the CGPE.

Resolution No. 4,838 stipulates that such credit transactions must be contracted by December 31, 2020, observing the following requirements:

i. exclusive allocation to working capital financing;

ii. a minimum term of 36 months; and

iii. a minimum grace period of six months to start paying the principal.

In addition, creditor institutions are prohibited from establishing any limitation on the free disposal by the debtors of the amounts contracted by the CGPE, and cannot retain amounts for payment, in whole or in part, of pre-existing debts or establish clauses that direct amounts for payment, total or in part, of pre-existing debts.

Resolution No. 4,838 also defines, within the scope of CGPE operations, the allocation of the total contracted amount as follows:

i. at least 50% of the total contracted amount must be allocated to companies with gross revenue below BRL 100 million;

ii. a maximum of 20% of the total contracted amount may be allocated to companies with gross revenue between BRL 100 million and BRL 300 million; and

iii. a maximum of 30% of the total contracted amount may be allocated to operations that are simultaneously included in the CGPE and the National Support Program for Micro and Small Enterprises (“Pronampe”) or the Employment Support Emergency Program.

The verification of compliance with the allocation described above will be carried out at the end of the term of the CGPE based on the information contained in the Credit Information System (“SCR”), considering the transactions contracted up to December 31, 2020 that integrate the active portfolio of the creditor institution and that were indicated by the creditor institution as transactions within the scope of the CGPE.

Demarest’s Banking and Finance team is closely monitoring these and other measures and is ready to assist you in any matters regarding this topic. For more information, please feel free to contact us.