Insights

Explore thought leadership from Lumen Trust on guarantees, structured finance and capital markets, in Brazil and abroad.

The Role of the Collateral Agent after the New Legal Framework for Guarantees

Author: Diogo Malheiros

Brazilian Law No. 14,711/2023, known as the New Legal Framework for Guarantees, has consolidated a significant change in how guarantees are structured, recorded and enforced in Brazil. By simplifying procedures, expanding out-of-court mechanisms and providing greater legal certainty to creditors, the new legislation has created a more efficient environment for credit transactions, especially in complex structures and debt restructurings.

One of the central features of the law is the formal recognition of the Collateral Agent in Article 853-A of the Brazilian Civil Code. Any guarantee, whether real or personal, can be created, registered, managed and enforced by an agent appointed by the creditors, who acts in its own name and for the benefit of those creditors, including in court proceedings. In practice, the agent becomes the technical hub responsible for structuring, administering and enforcing the guarantees in a coordinated and professional manner.

The Collateral Agent owes a fiduciary duty to the creditors and is liable for its acts. It may be replaced at any time by the sole creditor or by a simple majority of the secured credits, provided such replacement is formally and duly approved at a creditors’ meeting. This dynamic reinforces confidence and allows creditors to adjust the structure whenever necessary, while preserving the continuity of the transaction.

Another important development concerns the treatment of proceeds arising from the enforcement of guarantees. Article 853-A, § 5, provides that the proceeds of enforcement constitute a segregated asset from that of the agent for a period of up to 180 days from receipt, as long as they have not yet been transferred to the creditors. During this period, such amounts cannot be used to satisfy the Collateral Agent’s own obligations. This mechanism reduces the commingling risk among the different transactions under its administration and protects creditors against potential financial distress of the agent itself. In addition, § 6 stipulates that the agent has up to 10 business days to transfer the amounts to the creditors, reinforcing predictability and operational discipline.

The law also recognizes the need for a broader and more strategic role for the Collateral Agent. In parallel with the agreement executed with the creditors, the agent may enter into agreements with the debtor to search for more favorable credit conditions, assist in the drafting and formalization of financing contracts and security documents, and intermediate matters relating to the credit transactions and the guarantees. In these relationships, the legislation requires conduct in strict good faith, balancing the interests of creditors and debtor and contributing to negotiated and sustainable solutions.

In terms of enforcement, the New Legal Framework for Guarantees strengthens the possibility of out-of-court procedures for mortgages and real estate guarantees, expanding the role of real estate registries in credit recovery and bringing mortgages closer to the level of efficiency already seen in fiduciary liens. In practical terms, this means more speed, lower transaction costs and greater predictability in the enforcement of guarantees. By centralizing management and enforcement in the hands of a specialized Collateral Agent, disputes over title are reduced, interactions with multiple creditors are coordinated and the fragmentation of individual initiatives is minimized.

It is important to note that some of these innovations, especially those related to repossession and out-of-court enforcement, are currently under discussion in Direct Actions of Unconstitutionality before the Brazilian Supreme Court. For the time being, however, Law No. 14,711/2023 remains in force, and the Court’s case law has historically been favorable to out-of-court enforcement mechanisms where access to the Judiciary is preserved. This scenario reinforces the importance of a technical, prudent and well-documented approach by agents and other market participants.

For the financial and capital markets, the strengthening of the Collateral Agent’s role represents a decisive step in the professionalization of guarantee management. By centralizing administration, monitoring and enforcement in a specialized agent, transactions benefit from greater agility, safety and transparency, which are essential factors to broaden access to credit, reduce perceived investor risk and enable more sophisticated financing structures.

At Lumen Trust, we act as Collateral Agent with a focus on structured transactions, debt restructurings and complex deals, combining hands-on experience in the financial and capital markets with the careful application of the New Legal Framework for Guarantees. Our commitment is to deliver technical, independent management aligned with the interests of the creditors and the transaction, contributing to a more robust, efficient and reliable credit ecosystem.

If your company is looking to structure new transactions or adapt contracts and guarantees to Law No. 14,711/2023, our team is ready to support you from deal conception through to the ongoing administration of the guarantees.