Volume 4, Number 25, Page 2

The Freezing of Assets

Subjective Limits

by Levy & Salomão Advogados

On March 13, 1974, the Brazilian Central Bank established Law No. 6024, which freezes the assets of persons connected to financial institutions undergoing intervention or extrajudicial liquidation. Upon decreeing the intervention in or extrajudicial liquidation of a financial institution, the Brazilian Central Bank normally freezes assets belonging not only to administrators, but also to others the Bank deems covered by the legal provisions. Is this action legal?

Article 36 of Law No. 6,024/74 provides that “managers of financial institutions under intervention or liquidation or undergoing bankruptcy proceedings will have all their assets frozen, and they may not, in any way, directly or indirectly, sell, dispose of or incur charges on them until such time as their liabilities have been definitively established and settled.”

The assets of a financial institution’s managers, as defined in the institution’s corporate bylaws, are directly affected by a decree of intervention or extrajudicial liquidation issued by the Brazilian Central Bank.

The freezing may also extend “to the assets of administrators, members of the Supervision Council (Conselho Fiscal), and all those who, up to the limit of the estimated liability of each one, may have contributed, in the preceding 12 (twelve) months to the decree of intervention or extrajudicial liquidation,” pursuant to Paragraph 2, Article 36, of Law No. 6,024/74. For this extended freezing to occur, the Brazilian Central Bank is required to submit a proposal for approval by the National Monetary Council.

Any ruling by the Brazilian Central Bank, therefore, that seeks to deprive persons other than the managers of the institution of their right to freely dispose of their personal assets, without the approval of the National Monetary Council, is illegal and void.

While managers have their assets frozen independently from any special government determination or ruling to this effect, the freezing of other assets must abide by a specific procedure with the approval of the National Monetary Council.

Article 2 of Law No. 9,447, dated March 14, 1997, specifically outlines which assets may be affected: “the provisions of Law No. 6,024, of 1974, and of Decree-Law No. 2,321, of 1987, with regard to the freezing of assets, also apply to assets belonging to companies or individuals holding a controlling interest, directly or indirectly, in institutions undergoing intervention, extrajudicial liquidation or temporary special administration.”

The new law includes, among those subject to the freezing of assets provided for in Law No. 6,024/74, persons controlling financial institutions, but with no alteration to the rules as to the application of the freezing.

Because Law No. 9.447/97 restricts rights, its interpretation must be restrictive. Considering that the new law does not provide for the direct application of asset freezing, holders of a controlling interest may only be included in the list of those subject to asset freezing with the approval of the National Monetary Council. In the absence of such approval, any freezing measure is illegal and may be declared void by the courts.

The law firm of Levy & Salomão Advogados is located in São Paulo, Brazil. Its practice areas include international banking, contracts, taxes, litigation and corporations.