Highlights of the new regulatory framework for investment funds
The Brazilian Securities and Exchange Commission (CVM) Resolution 175 came into effect, establishing Brazil’s New Regulatory Framework for Investment Funds, updating practices to international standards, providing greater transparency on fund management, and increasing fundraising potential. Among the changes brought by the new Resolution, we highlight:
- Possibility of limiting shareholders’ liability;
- Multiclass investment funds – an investor can invest in different products through a single investment fund with separate asset allocation for each class, ensuring that price variations in one product do not affect the others;
- Recognition of crypto assets as financial assets, provided they are traded in entities authorized by the Brazilian Central Bank or CVM or, in operations abroad, by a competent local entity;
- Possibility of investment funds allocating up to 100% of their assets abroad;
- Retail investors can invest in a Fund of Investment in Receivables, which were previously exclusively for qualified investors.
The new Resolution will come into force in phases. Investment funds established from October 2023 must comply with the new rules while existing investment funds will follow an adaptation schedule.
(Brazilian Securities and Exchange Commission, Resolution 175/2022)
Highlights of the New Legal Framework for Collateral
It was sanctioned the Law 14,711/2023, which establishes the New Legal Framework for Collateral, updating and modernizing Brazilian rules for the using of assets as collateral. The New Framework aims to improve legislation to reduce debtors’ default risks and to facilitate collateral execution.
Among the various changes brought by the Law, we highlight:
- Possibility of using the same asset to secure multiple debts with the same creditor, both in the case of secured fiduciary sale and mortgages;
- In case of default on a debt secured by the same asset, the creditor can declare the acceleration of maturity of all obligations (cross default);
- Possibility for the creditor to execute various real estates secured by fiduciary sale simultaneously or successively when the contract does not specify which portion of the debt each real estate will secure;
- Possibility of extrajudicial execution of mortgage collateral, excluding operations financing agricultural activities;
- In case of multiple credits secured by the same real estate, if the execution of one guarantee is initiated, the property registry officer will simultaneously notify all competing creditors to take part in the execution;
- Recognition that the contract for counter-guarantee or any other contract aiming at reimbursing the insurer against insurance-taker and guarantor claims is an extrajudicial enforceable title.
(Law 14,711, dated October 30, 2023)
Superior Court of Justice rules that statute of limitations recognition prevents extrajudicial debt collection
The Third Panel of the Superior Court of Justice ruled that the statute of limitation of debt collection prevents both judicial and extrajudicial collection. Essentially, this means that debts barred by a statute of limitation cannot be pursued through a lawsuit and extrajudicial means.
The rationale behind this understanding is that, according to Article 189 of the Brazilian Civil Code, the statute of limitations targets the claim, not the action, which is the power to demand the obligation’s fulfillment. Thus, once the period of the statute is barred, the power to demand the debt payment through any means is barred.
(Superior Court of Justice, Special Appeal No. 2088100/SP, Third Panel, Rapporteur Justice Nancy Andrighi, ruled on 10/23/2023)
Superior Court of Justice rules that is possible the levy the debtor membership interest of a single-member limited liability company
The Third Panel of the Superior Court of Justice ruled that, on a subsidiary basis, is possible to levy a debtor’s membership interest in a single-member limited liability company for debt payment.
In the absence of other assets or means to satisfy the debt, the levy may cover all or part of the debtor’s participation in the single-member company, either by (i) expropriating a portion of membership interests, reducing the company’s capital, or, (ii) if partial expropriation renders the business unviable or is insufficient, by selling the company itself.
The decision further clarifies that there is no legal prohibition on dividing the capital of a company of this nature into quotas, as long as all quotas are owned by the same individual or company.
(Superior Court of Justice, Special Appeal No. 1982730/SP, Third Panel, Rapporteur Justice Marco Aurélio Bellize, ruled on 03/21/2023)
Superior Court of Justice rules that late registration of corporate changes does not have retroactive effects
The Fourth Panel of the Superior Court of Justice decided that late registration of corporate changes cannot have retroactive effects, as the registration is required to produce effects against third parties.
The specific case involved the late registration of a partner’s withdrawal from a company, which resulted in the maintenance of the partner’s liability for debts incurred by the company before the registration.
According to the Rapporteur Minister Antonio Carlos Ferreira, based on articles 1,150 and 1,151 of the Civil Code and article 36 of Law 8,934/1994, amendments to the articles of organization have effects from the date they are drafted, provided they are registered within 30 days. If the deadline is not observed, changes take effect only from the registration date.
(Superior Court of Justice, Special Appeal No. 1864618/RJ, Fourth Panel, Rapporteur Minister Antonio Carlos Ferreira, ruled on 09/12/2023)
Supreme Federal Court declared the unconstitutionality of the Amendment imposing a cap on court-issued registered warrant payments
The Supreme Federal Court ruled unconstitutional the changes implemented in 2021 to the court-issued registered warrant regime (Constitutional Amendments 113 and 114), including one imposing a cap on registered warrant payments between 2022 and 2026.
Court-issued registered warrant expenses are excluded from spending caps, including those issued between 2023 and 2026, authorizing the Union to open extraordinary credits necessary for paying issued and unpaid registered warrant debts. Additionally, the Union was ordered to settle the accumulated registered warrant debt in the 2022 fiscal year.
This decision was made during the judgment of Direct Actions for the declaration of unconstitutionality No. 7064 and No. 7047.
(Supreme Federal Court, Direct Actions for the declaration of unconstitutionality No. 7064 and No. 7047, Rapporteur Minister Luiz Fux, ruled on 12/04/2023)
Superior Court of Justice confirms the validity of a contractual clause limiting indemnification liability
The Third Panel of the Superior Court of Justice confirmed the validity of a contractual clause limiting liability for potential damages, respecting the autonomy of the contracting parties’ will. The decision states that merely recognizing the economic and technical power of the party benefiting from the clause is not sufficient to render the limitation of liability clause null.
In the specific case, it was considered that the party seeking nullity of the clause had the competence and freedom to understand that, in case of contract frustration, any compensation would be limited to the pre-established amount. The prevailing opinion also highlighted that the Brazilian legal system expressly allows the parties to agree on anticipation of potential losses and damages, as per Article 416, sole paragraph, of the Civil Code.
(Superior Court of Justice, Special Appeal No. 1989291/SP, Third Panel, Rapporteur Minister Ricardo Villas Bôas Cueva, ruled on 11/07/2023)
The São Paulo State Court of Justice ruled for the limitation of funds levy in a company’s bank accounts
The 27th Private Law Chamber of the São Paulo State Court of Justice deemed it reasonable and proportionate to limit the levy of funds in the company’s bank accounts to ensure the continuity of its business activities.
In this particular case, the court of first instance had limited the levy of the debtor company’s bank account funds to 10% of the blocked amount, considering that the execution must also be less burdensome for the debtor, as per Article 805 of the Civil Procedure Code. The ruling is based on an analogy with the limitation of levying net revenue from executed companies.
(São Paulo State Court of Justice, Interlocutory Appeal No. 2107138-89.2023.8.26.0000, 27th Private Law Chamber, Rapporteur Justice Daise Fajardo Nogueira Jacot, ruled on 07/18/2023)
Superior Court of Justice ruled that legal opinion costs are not reimbursed by the losing party
The Second Panel of the Superior Court of Justice ruled that the party cannot be reimbursed for hiring renowned lawyers, even for preparing a legal opinion. The decision affirmed that the hiring of lawyers for judicial defense does not, by itself, result in compensable damage, as it is inherent to the regular exercise of constitutional rights of adversarial proceedings, full defense, and access to justice.
(Superior Court of Justice, Special Appeal No. 2135717/SP, Second Panel, Rapporteur Minister Assusete Magalhães, ruled on 10/30/2023)
Superior Court of Justice rules that attorneys’ fees related to the loss of suit costs cannot be increased in fully or partially successful appeals
The Special Panel of the Superior Court of Justice ruled on Theme 1,059, setting the thesis that attorneys’ fees increase in the second instance, as stipulated in Article 85, §11, of the Civil Procedure Code, does not apply in case of total or partial appeal success, even if the judgment’s outcome change is minimal. Fee increases in appeal proceedings only occur when the losing party’s appeal is entirely dismissed or not recognized by the Court.
(Superior Court of Justice, Theme 1,059, Special Panel, Rapporteur Minister Paulo Sérgio Domingues, ruled on 11/09/2023)