Major Liberalization of Brazilian Law: Use of Agricultural Land as Security Interest for Financial, Other Transactions
Brazil has changed its laws to facilitate the use of fiduciary liens as security interest over agricultural lands. Some of the most valuable lands in Brazil are agricultural lands, but because of existing laws that limit foreign ownership of rural lands, there was legal doubt whether fiduciary liens could be granted over agricultural lands. To the extent a foreign controlled company was offered a security interest in rural lands, the only instrument that appeared available on a risk-free basis, before the change in law, was a mortgage.
Mortgages, unlike fiduciary liens, are not bankruptcy remote. A secured party with a mortgage cannot act to foreclose on a mortgage without approval of its credit in a bankruptcy reorganization plan, where the secured party is often subject to a haircut on what it can recover. With the change in law specifically authorizing the grant of fiduciary liens over rural lands, foreign-controlled entities can now obtain a security interest in rural lands that is generally not subject to frustration in an insolvency proceeding. This change in the legal framework should facilitate an increase in financings and other transactions with foreign investors with a concomitant increase in foreign investments into Brazil.