Source: Von Wobeser y Sierra SC
Guarantees and collateral
Related company guarantees
Are there restrictions on the provision of related company guarantees? Are there any limitations on the ability of foreign-registered related companies to provide guarantees?
There are no restrictions with regard to guarantees granted by related companies or third parties. With regard to secured guarantees, the perfection of the security interests granted could have associated costs, such as notary public and registration fees.
Foreign-registered related companies are allowed to provide secured or unsecured guarantees; however, there could be limitations related to the enforcement of such guarantees in a foreign country.
Assistance by the target
Are there specific restrictions on the target’s provision of guarantees or collateral or financial assistance in an acquisition of its shares? What steps may be taken to permit such actions?
As such, there are no specific provisions that restrict or limit the target’s ability to provide guarantees, collateral or financial assistance in an acquisition of its shares. To authorise these actions, it is customary for a corporate resolution to be adopted by the shareholders or partners of the relevant target, through which the provision of guarantees, collateral or financial assistance is approved.
Types of security
What kinds of security are available? Are floating and fixed charges permitted? Can a blanket lien be granted on all assets of a company? What are the typical exceptions to an all-assets grant? Are there limitations on security granted by a target to support its acquisition?
Under Mexican law, a wide range of security interests may be granted, including pledge and mortgage. Such security may be granted over any assets or ownership rights (this includes real estate property, machinery, copyrights, trademarks, negotiable instruments, shares or bonds). While Mexican law does not formally recognise the common law concepts of ‘floating’ and ‘fixed’ charges, similar structures are available through non-possessory pledges.
It is possible to create blanket liens over substantially all of a company’s assets. This is typically achieved through a non-possessory pledge, a security trust or an industrial mortgage. However, real estate assets require separate treatment as mortgages over real property must be executed before a notary public and registered with the corresponding public registry of property, and cannot be included in a blanket lien without satisfying those formalities.
Requirements for perfecting a security interest
Are there specific bodies of law governing the perfection of certain types of collateral? What kinds of notification or other steps must be taken to perfect a security interest against collateral? Do stamp duties or similar taxes apply to taking a perfected security interest?
The General Law of Negotiable Instruments and Credit Operations regulates two types of security interests that can be granted over movable property as collateral: (1) the pledge with transfer of possession; and (2) the non-possessory pledge. The difference between these two types of pledges is that, when granting a non-possessory pledge, the pledgor retains the possession of the pledged assets while the pledge with transfer of possession necessarily requires for the pledgor to transfer the possession of the pledged assets.
To perfect collateral granted through a pledge with transfer of possession, the following requirements must be met: (1) a pledge agreement must be executed in writing; and (2) possession of pledged assets must be transferred to pledgee (ie, pledged assets must be delivered or endorsed).
To perfect collateral granted through a non-possessory pledge, the following requirements must be met:
- a non-possessory pledge agreement must be executed in writing;
- when the amount of the credit secured by the pledge is equal to or greater than the equivalent in local currency of 250,000 Investment Units (ie, around US$89,000) the parties must ratify the non-possessory pledge agreement before a Mexican notary public; and
- the non-possessory pledge agreement must be registered in the Registry of Movable Guarantees.
The requirements to perfect a security interest over real estate property granted as collateral are provided in the local Civil Code of the state where the real estate property is located. This generally includes:
- the execution of a mortgage agreement in writing;
- the ratification of the mortgage agreement before a Mexican notary public; and
- the registration of the mortgage before the local Public Registry of Property.
Moreover, it is also common to incorporate a security trust to grant collateral for the benefit of the lenders. Security trusts are regulated in the General Law of Negotiable Instruments and Credit Operations. Through this type of trust, the borrower (or any related or third party that grants a security interest) transfers certain assets to a trust with the purpose of securing the borrower’s obligations.
There are no stamp taxes in Mexico.
Renewing a security interest
Once a security interest is perfected, are there renewal procedures to keep the lien valid and recorded?
The validity of a security interest will be subject to the term set forth in the relevant security agreement. It is customary for the validity of a security interest to be tied to the term of the principal agreement that sets forth the secured obligations. However, periodical renewal of the registrations of the security before the local registries might be required to keep the security interest recorded and effective against third parties.
Stakeholder consent for guarantees
Are there ‘works council’ or other similar consents required to approve the provision of guarantees or security by a company?
Under Mexican law, other than appropriate corporate governance consents or approvals, no ‘works council’ consents are required to approve the provision of guarantees or security by a company.
Granting collateral through an agent
Can security be granted to an agent for the benefit of all lenders or must collateral be granted to lenders individually and then amendments executed upon any assignment?
It is possible to grant security to an agent for the benefit of different lenders instead of granting collateral individually to each lender. However, in this case, it is customary for a security trust to be incorporated.
Under a security trust, a financial institution will act as trustee and will assume the role of collateral agent for the benefit of all the lenders.
Creditor protection before collateral release
What protection is typically afforded to creditors before collateral can be released? Are there ways to structure around such protection?
Typically, creditor’s protection clauses are included in the security agreements (eg, the pledge or mortgage agreements). The parties have contractual freedom to include any restrictions or limitations on the sale of the assets granted as collateral, including prohibitions on selling such assets, or the obligation to request the consent of the creditors to execute any sale.
Additionally, when creditors seek to structure such protection more effectively, a security trust is incorporated. When a security trust is incorporated, borrowers transfer the assets granted as collateral to the trust that is incorporated, which will be managed by a financial institution acting as trustee. When structuring a security trust, the parties can include any limitations on the sale of the assets granted as collateral as well, and the trustee is obliged to comply with such limitations.
Fraudulent transfer
Describe the fraudulent transfer laws in your jurisdiction.
The Federal Civil Code and the local codes of each of the states of Mexico protect creditors against the fraudulent transfers that generate the insolvency of debtors. There is a specific claim (a Paulian action) that creditors can file before a Mexican court to cancel any act that intentionally generated the insolvency of a debtor.
Moreover, fraudulent transfers can also be criminally charged, although the specific rules that regulate fraudulent transfers as crimes may vary from state to state.
Symbiosis focuses its efforts in terms of export promotion, assistance with direct investment, and internationalization of Canadian companies. With deep cultural and business ties with the region and an understanding of the challenges presented to Canadian clients doing business in Mexico. Our team is positioned to timely and efficiently assist clients in providing counsel and the legal tools to assist in their positioning in Mexico. For further information, please contact us or book a call/video conference with a member of our team, it would be our pleasure to meet you and talk about your project.
