Brazilian Leasing ORDINANCE # 2,309, of Aug., 28th, '96

                                   Disciplines and consolidates norms relative to commercial lease operations

THE CENTRAL BANK OF BRAZIL, pursuant to art. 9 of Law # 4,595. of Dec. 12th, '64, states that the NATIONAL MONETARY COUNCIL, in the course of a session held on Aug. 28th, '96, based upon the contents of Law # 6,099, of Sep. 12th, '94, with the amendments introduced by Law #7,132, of Oct. 26th, '83.

Art. 1 Has approved the attached Regulations, disciplining the operational mode of commercial lease, authorizes the entry into commercial lease operations with natural entities in general and consolidates norms relative to financial commercial lease.

Art. 2 The Central bank of Brazil is hereby authorized to take measures and impose norms deemed required to the execution of the contents hereof.

Art. 3 The present Ordinance shall enter into force on the date of its publication.

Art. 4 Ordinances # 980 of Dec. 13, 1984, # 1,452 of Jan. 15, 1988, # 1,474 of Mar. 29, 1988, # 1,681 of Jan 31, 1990, # 1,686 of Feb. 20, 1990 and # 1,769 of Nov. 28, 1990, article 2 of Ordinance # 2,276 of Apr. 30, 1996, Circulating Letters # 903, of Dec. 14, 1984, # 2,064 of Oct. 17, 1991 and article 2 of Circulating Letter # 2,706 of Jul. 18, 1996 are hereby revoked.

Gustavo Jorge Labiossière Loyola

Chairman

ATTACHMENT

CHAPTER I

Of the Commercial Lease Practice

Art. 1 Commercial lease operations with tax treatment pursuant to Law # 6,099 of Sep. 12, 1974, amended by Law #7,132 of Oct. 26, 1983, shall only be performed by legal entities who have as primary corporate purpose the rendering of commercial lease operations, by universal banks with commercial lease portfolios and by financial institutions who, pursuant to article 13 of the present Regulation, are authorized to enter into commercial lease operations with the seller of the object or with legal entities connected to or interdependent with same.

Sole Paragraph. The operations addressed by the present article may be of either the financial or operational types.

Art. 2 In order to perform the operations addressed by the present Regulation, commercial lease societies and financial institutions mentioned on the previous article shall maintain a technical department duly structured and overseen by one of its directors.

Sole Paragraph. Societies and institutions shall communicate the Regional Office of the Central Bank of Brazil under whose jurisdiction they may be the name of the Director responsible for the commercial lease area.

CHAPTER II

Of the Execution and Operation of Commercial Lease Societies

Art. 3 The execution and operation of legal entities whose primary corporate purpose is the performance of commercial lease operations, named commercial lease societies, shall be dependent on authorization by the Central Bank of Brazil.

Art. 4 Commercial lease societies shall be executed as corporations and shall be subject, where appropriate, to the conditions set for the operations of financial institutions under law # 4,595 of Dec. 31, 1964, as well as subsequent legislation pertaining to the National Financial System, and their corporate name shall mandatorily include the expression "Commercial Lease".

Sole Paragraph. The expression "Commercial Lease" as a part of the corporate name is exclusive to the societies addressed by the present article.

CHAPTER III

Of the Modes of Commercial Lease

Art. 5 Financial commercial lease is deemed the mode where:

I – considerations and other payments set forth under the agreement, due by the lessee, shall be normally sufficient for the lessor to recover the cost of the good let for the contractual period of time of the operation and, in addition, perceive return on the funds invested;

II – maintenance, technical support and ancillary services expenses related to the operability of the good let shall be the lessee's responsibility;

III – the price for exercising the purchase option shall be freely agreed, and may be the let good's market worth.

Art. 6 Operational commercial lease is deemed the mode where:

I – considerations due by the lessee shall comprise the cost of leasing the good and services inherent to its placement at the lessee's service, and the grand total of such payments shall not exceed 75% (seventy five percent) of the cost of the good let;

II – maintenance, technical support and ancillary services expenses related to the operability of the good let shall be the lessee's or the lessor's responsibility;

III – the price for exercising the purchase option shall be the let good's market worth.

Sole Paragraph. The operations addressed by the present article shall only be performed by universal banks with a commercial lease portfolio and by commercial lease societies.

CHAPTER IV

Of Lease Agreements

Art. 7 Commercial lease agreements shall be instrumentalized by private or public act and shall contain, at least, the below indicated specifications:

I – description of the goods which comprise the object of the agreement, with all features that may permit their perfect identification;

II – the lease period;

III – the amount of the considerations or a formula for the calculation thereof, as well as the criterion for adjustment of same;

IV – the manner of settlement of considerations at set intervals, not to exceed 1 (one) half-year, except for operations to the benefit of rural activities, where payment may be set at intervals not to exceed 1 (one) year;

V – the conditions for the lessee to exercise the right to choose among renewal of the agreement, restitution of the goods or purchase of the goods let;

VI – the award to the lessee of the option to purchase the goods let, establishing the price for exercising such right or the criterion applicable to the establishment of the price;

VII – expenses and operating burdens, including technical support, maintenance and ancillary services expenses relative to the operability of the goods let, admitted, in addition, as regards financial commercial lease:

a) the possibility of the lessee's paying the guaranteed outstanding worth at any time in the course of the duration of the agreement, such payment not to characterize the exercise of the purchase option;

b) manner of adjustment of the price set for the purchase option and the guaranteed outstanding worth;

VIII – conditions for the eventual replacement of the goods let, including upon the occurrence of contingent events, for others of the same nature, which better serve the lessee's needs, such replacement to be formalized by an amendment to the agreement;

IX – other responsibilities to be agreed arising from:

a) undue or improper use of the goods let;

b) insurance coverage for risks on the goods let;

c) damage done to third parties by the use of the goods;

d) burdens arising from defects of the goods let;

X – the lessor's ability to inspect the let goods and demand from the lessee the adoption of measures required to maintain the integrity if said goods;

XI – the lessee's obligations in the event of default, destruction, death or disappearance of the goods let;

XII – the lessee's ability to transfer to domestic third parties, with the lessor's prior and explicit assent, its rights and duties arising from the agreement, with or without joint and several responsibility.

Art. 8 Agreements shall establish the following minimum lease periods:

I – for financial commercial lease:

a) 2 (two) years, counted from date of delivery of the goods to the lessee, instrumentalized in a statement to the effect of acceptance and receipt of goods, and the date of the last consideration, as regards goods with life equal to or shorter than 5 (five) years;

b) 3 (three) years, pursuant to the term definition as set forth above, as regards other goods;

II – for operational commercial lease, 90 (ninety) days.

Art. 9 Commercial lease agreements the object of which are goods acquired with funds arising from loans taken directly or indirectly abroad shall be entered into with an exchange-rate related clause.

Art. 10 Commercial lease operations shall be construed to be a term sale operation should the purchase option be exercised prior to the respective term set forth under art. 8 hereof.

CHAPTER V

Of Lease Operations

Art. 11 Domestically or foreign produced chattels and real state acquired by the lessor entity for the lessee's use, according to the latter's specifications, may be the object of lease.

Art. 12 Commercial lease operations may be entered into with natural or legal entities as lessees.

Art. 13 Commercial lease operations entered into with the seller of the good or with entities affiliated to or interdependent with same may only be agreed as financial commercial lease, with the application of the conditions set forth hereunder.

Paragraph 1. The operations addressed under the present article may only be entered into with legal entities as lessees.

Paragraph 2. Universal banks with investment, development and/or real state credit portfolios, investment banks, development banks, savings banks and real state credit societies may also perform the operations addressed under the present article.

Art. 14 The lessor entity may, in the events of return or recovery of the goods let:

I – maintain the goods as fixed assets, for the maximum period of 2 (two) years; 

II – assign or let said goods to third parties.

Sole paragraph. The contents of the present article shall also apply to goods received as payment.

CHAPTER VI

Of Sub-Lease

Art. 15 Universal banks with a commercial lease portfolio and commercial lease societies may enter into commercial lease operations with entities domiciled abroad, with the single aim of subsequently sub-letting such goods to domestic legal entities.

Sole Paragraph. Commercial lease operations addressed under the present article shall be subject to filing with the Central bank of Brazil.

Art. 16 Universal banks with a commercial lease portfolio and commercial lease societies may acquire, in the domestic marketplace, rights and duties arising from lease agreements entered into with foreign entities with the single aim of subsequently sub-letting such goods, as set forth under the above article.

Art. 17 Sub-lease operations are forbidden where direct or indirect affiliation or interdependence exists between the lessor domiciled abroad and the sub-lessee domiciled in Brazil, pursuant to art. 27 of the present Regulation.

Art. 18 Universal banks with a commercial lease portfolio and commercial lease societies shall pass through to sub-lessees domiciled in Brazil, under financial commercial lease agreements, executed pursuant to the present Regulation, all costs, fees, taxes, commissions and other expenses relative to the acquirement of the good let as well as any other conditions set under the agreement entered into with the foreign entities, accrued of compensation, including compensation arising from the eventual acquirement of rights and duties arising from agreements, and such expenses and burdens may accrue the cost of the good let.

CHAPTER VII

Of the Sources of Funds

Art. 19 Commercial lease societies may employ in their activities, in addition to own resources, those arising from:

I – loans made abroad; 

II – loans and financing from domestic financial institutions, including pass-through of foreign funds; 

III – official financial institutions, destined for pass through to specific programs;

IV – placement of public or private issuance debentures and promissory notes destined to trade sale; 

V – assignment of commercial lease agreements, as well as of the credit rights arising therefrom;

VI – interbank deposits, pursuant to the regulations in force;

VII – other forms of collection of funds, as authorized by the Central Bank of Brazil.

Art. 20 Commercial lease societies and financial institutions authorized to perform the operations addressed hereunder may take loans abroad, with the following purposes:

I – securing funds to acquire goods for the purpose of lease; 

II – acquirement of credit rights arising from commercial lease agreements that contain exchange rate adjustment clauses;

III – acquirement of commercial lease agreements that contain exchange rate adjustment clauses as per art. 22 of the present Regulation.

Art. 21 Commercial lease societies may take loans, financing, pass through of funds and warranties with controlling, affiliated or interdependent financial institutions, and the respective burdens shall be those normally charged at operations of such sorts entered into with third parties.

Art. 22 Assignment and acquisition operations regarding lease agreements in the domestic marketplace, with the exception of those mentioned under art. 13 hereof, shall be restricted to universal banks with a commercial lease portfolio and commercial lease societies.

Sole paragraph. Assignment and acquisition of agreements referred to under art. 13 of the present Regulation between institutions authorized to perform such activities is permitted.

Art. 23 Acquisition of commercial lease agreements whose goods have been acquired with funds arising from foreign loans or that contain exchange rate adjustment clauses, as well as of the credit rights arising from same, may only be performed with the employment of funds arising from loans secured abroad.

Art. 24 Commercial lease societies may offer as collateral for loans taken in the domestic or foreign marketplaces, pledge of credits rights arising from commercial lease agreements.

Art. 25 The assignment of commercial lease agreements, as well as of the credit rights arising from same, to entities domiciled abroad shall depend on the previous assent of the Central Bank of Brazil.

Art. 26 Universal banks with investment or development portfolios, investment banks and development banks may employ funds arising from foreign loans taken pursuant to Ordinance # 63 of Aug. 21, 1967, in commercial lease operations as addressed by art. 13 of the present Regulation.

Paragraph 1. Operations performed pursuant to the present article shall only be entered into with legal entities as lessees.

Paragraph 2. The portion of foreign funds amortized by the settlement of considerations may be applied to new commercial lease operations, to passthroughs to customers, or to alternative applications as authorized for foreign funds destined to passthroughs.

Paragraph 3. Observed the minimum terms set forth under art. 8, item I, of the present Regulation, operations referred to under the present article may only be performed at terms equal to or shorter than those of the final amortization of the loan taken abroad, whose funds shall remain in Brazil pursuant to the foreign repayment period admitted by the Central Bank of Brazil at the time of the authorization of its entry.

CHAPTER VIII 

Of Affiliation and Interdependence

Art. 27 For the purposes of art, 2, Paragraph 1, of Law # 6,099 of Sep. 12, 1974, and of the present Regulation, affiliated or interdependent shall be the entity:

I – in whom the lessor entity has a direct or indirect stake equal to or in excess of 10% (ten percent);

II – in whom the managers of the lessor entity, their spouses and respective relatives up twice removed have, as a group or individually, directly or indirectly, a stake equal to or in excess of 10% (ten percent);

III – in whom shareholders with a stake equal to or in excess of 10% (ten percent) of the lessor entity have, directly or indirectly, a stake equal to or in excess of 10% (ten percent);

IV – who has, directly or indirectly, a stake equal to or in excess of 10% (ten percent) of the lessor entity;

V – whose managers, and their spouses and relatives up to twice removed as a group or individually, directly or indirectly, a stake in the lessor entity equal to or in excess of 10% (ten percent);

VI – whose partners, quotaholders or shareholders with a stake equal to or in excess of 10% (ten percent) also have, directly or indirectly, a stake in the lessor entity equal to or in excess of 10% (ten percent);

VII – whose managers be, partially or in their entirety, the same ones as for the lessor entity.

CHAPTER IX

Prohibitions

Art. 28 Commercial lease societies and the financial institutions referred to under art. 13 of the present Regulation are barred from entering into commercial lease operations with:

I – affiliated or interdependent natural and legal entities;

II – managers and their spouses and relatives up to twice removed;

III – the manufacturer of the good let.

Art. 29 Commercial lease societies shall not enter into loan agreements with non-financial natural and legal entities.

CHAPTER X

Final Considerations

Art. 30 The Central Bank of Brazil may set criteria for the distribution of considerations throughout the term of the agreement, in the light of appropriate compliance with the minimum terms set forth under art. 8 of the present Regulation.

Art. 31 Commercial lease societies' available funds, where not kept in currency, may be freely invested in the marketplace, pursuant to the limits and other regulatory norms relative to each type of financial investment.

Art. 32 The norms in force for financial institutions in general shall apply to commercial lease societies, as regards the Central Bank of Brazil's exclusive jurisdiction for the award of authorizations contemplated under item X of art. 10 of Law # 4,595 of Dec. 31, 1964, as well as for the confirmation in any position in the management of said societies, including consultative, fiscal or similar bodies, pursuant to said Law and subsequent regulations.

Art. 33 Operations performed that fail to comply with the contents of the present Regulation shall not be construed to be commercial lease.

(Official Gazette of Aug. 29, 1996)