secured transactions in mexico - credit congresscreditcongress.nacm.org/pdfs/handouts/27060 -...
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Secured Transactions in Mexico:Strategies for Trade Creditors
June 13, 2018
8:30 to 10:00 am
Session 27060
Romelio Hernandez
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The good old days
• Financing agreement with USA Co.
• Promissory notes for $1.9M and $3M.
• Security agreement over inventory
• Guarantee agreement by Mx Co.
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“Cross-border transactions merit attention. Failure to secure them properly based on sound strategy can result in a serious loss.”
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Our program
1. Secured transactions
2. Enhancing security devices
3. Problems with cross-border
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1. When you get collateral
2. When you put in place contracts that create strong obligations from debtor or third party that are efficiently enforced.
Secured Transactions
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Privileged actions
• Promissory note Executive proceeding
• Pledge Special proceeding
• Mortgage Summary proceeding
• Invoices Ordinary proceeding
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• Bankruptcy
• Taxes
• Employees
• Creditors
• Debtor
Challengers
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Security Devices
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Personal Guarantee
1. Financial condition of guarantor is key
2. No privileged action available
3. Debtor is not joint obligor, unless…
Someone else responding for the debt of your debtor
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Title retention
1. Good for machinery or equipment
2. Defeats all creditors in bankruptcy
3. No privileged action available
You are still the owner until you get paid in full
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Pagaré
1. Immediate attachment order
2. Presumption of debt favors creditor
3. Bankruptcy stay on proceedings
An enforceable unconditional promise to pay
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Bond
1. You will collect as long as you win
2. No execution over assets needed
3. Voluntary payment not guaranteed
A bank responding for the debt of your debtor
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BondTimeline of full case to enforce a bond
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Classic pledge
1. Bailment creates criminal liability
2. Not ideal for inventory or receivables
3. Not effective in bankruptcy unless…
Security interest over “tangible” movable assets
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Non-possessory pledge
1. Intangibles allowed (proceeds)
2. Purchase money security interest
3. Special enforcement proceeding
UCC Article 9 security interest in movable assets
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Mortgage
1. Real estate will preserve value
2. No need for deficiency claim
3. Vulnerable to labor and tax claims
A security interest in real estate property
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Guaranty Trust
1. Debtor conveys title to trustee
2. Trustee is always a bank
3. Private enforcement (self-help)
Debtor entrusts assets to trustee as guarantee
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1. Implementation
2. Enforcement
3. Security
Assessing security
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Implementation
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Personal Guarantee Pagare Bond Trust
Implementation Enforcement Security
Assessing security
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• Rights and obligations
• Right incentives
• Preferred agreed proceeding
• Jurisdiction and venue
Enhancing Security
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Right IncentivesTimeline of full case to enforce a bond
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• Think “fast-track” arbitration
• We could improve:
– Experts
–Personal notices
– Limits on evidence and appeals
– Execution process (auction)
Preferred agreed proceeding
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*Infographic published by El Financiero newspaper on July 21, 2015
Jurisdiction and venue
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• Assuming that law is “law”
• Legal concepts may have no meaning across the border
• Remedies lacking recognition or privileged action
Cross-border risk
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• Consignment
• Lease or commodatum
• Warehousing or bailment
• Joint ventures
Additional risk
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• Financing agreement with USA Co.
• Promissory notes for $1.9M and $3M.
• Security agreement over inventory
• Guarantee agreement by Mx Co.
What to Do?
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45,780 66,339 74,136
226,783
992,925
756,197
1,220,512
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7
Total RUG Filings: 3'387,474 (to Sep-2017)
RUG Filings
www.rug.gob.mx
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Due Diligence!!!
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CONCLUSIONS
1. Cross-border transactions merit special attention.
2. Failure to secure them properly based on sound strategy can result in a serious loss.
3. To secure properly based on strategy you need ask at least the following questions:
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Question-checklist
1. Did local attorney review the security device?
2. Are agreed remedies enforceable in court?
3. Is venue the best forum for creditor?
4. Is security device afforded a privileged action?
5. Have creditor’s rights been further enhanced?
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