Alerts
Covid-19 | The Rural Segregate Estate
As a way of segregating risks, the owner of a rural property, individual or legal entity, has now the alternative to submit his rural property (or fraction thereof) to the rural segregated estate regime, designed to provide guarantees to creditors through the issuance of Rural Product Certificates (CPR) or guarantees in financial operations contracted with financial institutions through Rural Real Estate Certificates (CIR). We highlight the following main features of the institute:
(i) the land, the accessions and the improvements fixed therein may constitute the rural segregated estate, being prohibited, however, its constitution over: (a) the tillage, movables and livestock, of the rural property; (b) property already subject to mortgage, fiduciary assignment of immovable assets or other in rem rights, or certain records and annotations recorded on its real estate record; (c) small rural property; (d) area smaller than the rural module or the minimum fraction, whichever is smaller; or (e) family property.
(ii) as long as it is bound to the CIR or CPR, the rural segregated estate: (a) cannot be used as collateral for any other obligation other than the one to which it is bound to; (b) is unattachable and cannot be subject to judicial constraints; (c) is not affected by the effects of bankruptcy, civil insolvency or judicial reorganization; and (d) does not form part of bankrupt estate. It is noteworthy that the segregation of the rural segregated estate does not apply to labor, social security and tax obligations of the rural owner.
Foreigners and Brazilian legal entities controlled by foreigners and the possibility of creating a security guarantee for rural properties and of receipt of rural properties for settlement of transactions
Through important changes to specific provisions of Laws 5,709/1971 and 6,634 / 1979, Law 13,986/2020 brought more legal basis to the agribusiness, enabling:
(i) the creation of in rem rights, including the transfer of fiduciary property in favor of a legal entity, national or foreign; and
(ii) use of real estate property in the liquidation of a transaction with a legal entity, national or foreign, or national legal entity in which foreign individuals or legal entities hold the majority of their share capital, by means of the foreclosure of a security interest (including the consolidation of fiduciary ownership), payment in kind or otherwise.
Such innovations aim at putting an end to the legal uncertainty related to the consolidation of rural property in favor of foreigners, expressly allowing foreign creditors to receive rural property through payment in kind and become owners of rural properties (including those located in the border areas of Brazil).
Rural Product Certificate (CPR) and Financial Rural Product Certificate (CPRF)
The CPRs, which are titles setting forth promises of delivery of rural products, with or without collateral cedularly constituted, regulated by Law 8,929/1994, underwent several changes resulting from the promulgation of Law 13,986/2020, among which we highlight the following:
(i) products obtained from agricultural, livestock, planted forest, fishing, aquaculture and activities related to the conservation of native forests, the respective biomes and the management of forests, within the scope of the public forest concession program, may now be subject to CPR.
(ii) the list of parties authorized to issue the CPR was also expanded, to include rural producers, whether individuals or legal entities, including those with a social purpose that includes non-exclusive rural production, agricultural cooperatives and associations of rural producers whose purpose is production, commercialization and industrialization of rural products.
(iii) the CPR may be issued in a cartular or book-entry form, by means of an electronic bookkeeping system to be managed by an entity authorized by the Central Bank and may be negotiated, provided that it is registered or deposited in an entity authorized by the Central Bank to exercise the registration activity above mentioned.
(iv) the CPRF may be issued with an exchange rate fluctuation clause, to be applied in its redemption, which regulation will be the responsibility of the National Monetary Council.
(v) it will be possible to secure the CPR with fiduciary assignment of agricultural products and their by-products, whether present or future, fungible or non-fungible goods, consumable or not, whose ownership belongs to the beneficiary, the debtor or a third party guarantor.
Rural Real Estate Certificate (CIR)
Law 13,986/2020 created the CIR, a credit title that represents: (a) a promise of payment in cash, resulting from a credit operation of any type; and (b) an obligation to deliver, in favor of the creditor, a rural real property, or a fraction thereof, linked to the rural segregated estate, and which is a security of the transaction, in the event that there is no payment by the maturity date. Below are the main features of this new credit title:
(i) any owner of a rural property, individual or legal entity, that constituted a rural segregated estate, is entitled to issue the CIR.
(ii) its issuance can be made in cartular or book-entry form (in the latter case, by means of a bookkeeping system authorized to operate by the Central Bank).
(iii) the CIR will be secured by part or all of the rural segregated estate, and may also be guaranteed by third parties, including by a financial institution or insurance company.
(iv) the rules of credit titles law apply to the CIR, except that the endorsement must be complete and the endorser will be solely liable for the existence of the obligation.
Agribusiness Securities
In addition to the changes listed above, Law 13,986/2020 also brought significant amendments to Law 11,076/2004, among which we highlight the following:
(i) agribusiness credit titles, the Agricultural Deposit Certificate (CDA) and the Agricultural Warrant (WA), may be issued in cartular or book-entry form (in the latter case, by means of a bookkeeping system authorized to operate by the Central Bank).
(ii) certain credit titles – Agribusiness Credit Rights Certificate (CDCA), Agribusiness Credit Certificate (LCA) and Agribusiness Receivables Certificate (CRA) – may be issued with an exchange rate fluctuation adjustment clause, provided that they are fully linked to credit rights with exchange rate fluctuation clauses in the same currency. In the case of the CDCA, there is also the requirement that it is issued in favor of a non-resident investor or an agribusiness credit rights securitization company, for the exclusive purpose of binding the CRA with an equivalent clause.
Credit securities may now be issued in favor of a non-resident investors.
