On October 02, 2019 the Brazilian legislative enacted Provisional Measure No. 897 (MP 897), which creates the Fraternal Guarantee Fund (Fundo de Aval Fraterno – FAF) and regulates other aspects related to agribusiness, including points of contact between certain collaterals relating to agribusiness financing and judicial recovery (JR) and bankruptcy proceedings.
The FAF may be comprised of 2 to 10 rural producers, as well as creditors and financial institutions, and may guarantee credit facilities from financial institutions to rural producers.
MP 897 also allows the rural landowner to create earmarked property on real estate, intended to provide collateral in credit operations and which may be linked to Rural Real Estate Notes (Cédulas Imobiliárias Rurais – CIR). If linked to CIRs, the earmarked assets are not subject to the effects of JR or bankruptcy of the landowner. In other words, MP 897 states that the earmarked assets should be used to the payment of debt associated with the relevant CIR even in the case of JR and bankruptcy. In addition, MP 897 provides that JR or bankruptcy causes the early maturity of CIR’s.
MP 897 also amends provisions of Law No. 11,076/2004, which provides, among others, on the Agricultural Deposit Certificate (Certificado de Depósito Agropecuário – CDA) and the Agricultural Warrant (Warrant Agropecuário – WA), securities representing, respectively, the promise of delivery of agricultural products related goods or rights (CDA), and promise of cash payment (WA) that gives a right to pledge over the corresponding CDA as well as the product described therein. MP 897 included in that Law a provision to ensure that, in the event of JR or bankruptcy of the debtor that gave CDA and/or WA as collateral, the creditor’s right to receive the corresponding products to satisfy his credit remains.
Thus, MP 897 promotes the financing of rural producers, inter alia by expressly excluding related collaterals from judicial recovery or bankruptcy proceedings.
MP 897 will be reviewed and may be amended in Congress before being voted and eventually converted into statutory law.