Provisory Measure 881 – Brazil Free Economy

The Brazilian entrepreneurs are celebrating the provisory Measure No. 881 (PM 881), published on April 30, 2019. In addition to the incorporation of the Free economy principles in Brazil it came in order to assist and strengthen the already consistent growth of the Brazilian economy.

Among several changes the new law created a specific chapter to deal with investment funds, with special attention to the limitation of the liability of this specific method of investing. It was expected by the investors, for many years, such clarification and consistency of the law.

The new law legally defined the concept of investment fund as:  “The communion of resources, constituted on a condominium form, destined to the application in financial assets”. It is totally  in line with what is established by the regulations of the Brazilian Securities and Exchange Commission (CVM). 

From the concept of the investment fund, as outlined above, and the systematic interpretation of the new law, there are several important statements and intentions of the new PM.  

• Limiting the responsibility of the quota-holder to the invested value;
• Limiting the responsibility of the providers of fiduciary services, either before the quota-holders or before the fund itself, without any foreseen solidary responsibility. 

According to the new PM, there is the possibility for the articles of incorporation of the funds to regulate and establish limitations the responsibility of the quota-holder or the service providers of the fund. In the past it was not legally possible to segregate the quota-holders from the outcomes of the fund. It is great news to the future investors, and legal security for the implementation of new products of such nature. The expectation is that volume of new products for the investment fund industry will grow rapidly.  Before the PM 881 (economic freedom), the quota-holders could be held responsible in case of negative equity of the fund, without prejudice to the responsibility of the officer or the manager of that fund.

The new PM also clarifies that the adoption of the limited liability regime will only cover facts that occurred after the new legislation. The amendments to the Civil Code as we mentioned in this article came into effect on the date of publication of the PM of the Economic Freedom (i.e., April 30, 2019). But, In any case, it should be remembered that, under the terms of the Brazilian Federal Constitution, PM must be immediately submitted to the National Congress, which can approve it or not, within 60 days (renewable for an equal period). It can also be eventually modified by the National Congress. In case it is not converted into law, it will be the responsibility of the National Congress to discipline, by legislative decree, the legal transactions arising from the PM of the Economic Freedom.  

Paulo Rodrigues is Brazilian accountant and Attorney at Law, specialist in corporate Law, establishment of foreign companies in Brazil and accounting and tax compliance. Paulo is registered as a professional technician at the Brazilian Accountant’s Council (Conselho Federal de Contabilidade). Attorney at Law, registered at the Brazilian Bar Association (Ordem dos Advogados do Brasil), with more than 15 years of practical experience in international and domestic taxes and accounting.