1. R EPRIN T FINANCIER WORLDWIDE
NOVEMBER 2013
FINANCIER
WORLDWIDE corporatefinanceintelligence
FINANCE & INVESTMENT
Financial reform: amendments to ease
loan collection
RAMÓN BRAVO H., FEDERICO DE NORIEGA O. AND DAVID GARCÍA L.
BARRERA, SIQUEIROS Y TORRES LANDA
T
he Executive Branch recently submitted a bill to the Mexican Congress
which, if approved, would result in a significant overhaul of the Mexican
financial regulation. The bill has already been approved by the Mexican House
of Representatives, with some amendments, and is now being discussed by
the Mexican Senate. Although the bill has several objectives and entails the
amendment to more than 35 federal laws, we will centre our analysis on one
of these objectives: to reduce borrowing costs by easing loan collection and,
consequently, to expand credit. To this end, we will discuss in the following
paragraphs the most important amendments that the bill proposes with
respect to commercial judicial proceedings and with respect to the creation
and enforcement of security interests.
One of the major procedural reforms sought by the bill is facilitating the
granting of provisional relief in commercial judicial proceedings, particularly
the attachment of assets. The importance of provisional relief is that it may
be granted ex parte prior to commencing judicial proceedings. In this way,
creditors can ensure that debtors do not dispose or hide assets in anticipation
Ramón Bravo H. is a partner, and Federico De
Noriega O. and David García L. are lawyers,
at Barrera, Siqueiros y Torres Landa. Mr Bravo can
be contacted on +52 55 5091 0162 or by email:
rbravo@bstl.mx. Mr Noriega can be contacted on
+52 55 5091 0154 or by email: fnoriega@bstl.mx.
Mr García can be contacted on +52 81 8220 1507
or by email: dgarcia@bstl.mx.
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of a legal battle.
If the bill is passed, the requirements
to attach assets as a provisional
remedy will be simplified and clarified.
An affidavit in support of a reasonable
doubt that the debtor may unlawfully
dispose of its assets may satisfy the
requirement of proving ‘grounded
fear of asset disposal’. Furthermore,
there will be a statutory presumption
that debtors may dispose of cash and
bank accounts, so in these cases not
even the affidavit will be required.
Consequently,
the
attachment
of cash and liquid assets may be
faster and easier to accomplish.
Another important aspect is that
the requirement to post a bond
before securing the provisional
relief – as a guaranty for potential
damages sustained by the debtor, is
scaled down from a ‘sufficient bond’
to a ‘reasonable bond’. Both of these
amendments will prove to be effective
to ease and make loan collection faster
– when and if correctly implemented
– as debtors will have less incentive
to pursue dilatory tactics during the
proceedings.
Judicial interpretation will be key
for the effectiveness of the new rules
for provisional remedies. Particularly,
it will be important for judges to
interpret that not only the granting
of the provisional measures should
be ex parte but also the execution and
perfection thereof. Though we believe
allowing ex parte execution and
perfection to be complicated based
on Mexican legal tradition, it could
importantly foster lending activity.
One issue to note is that the bill does
not extend the list of provisional relief
that may be granted in commercial
proceedings. On the contrary, after
the comments from the House of
Representatives, the bill provides that
the list is limitative. The provisional
relief is currently limited to attachment
of assets and orders not to abandon
certain jurisdiction. However, for many
cases, this relief may fall short. Why
not include preliminary injunctions
and preliminary restraining orders?
The bill also seeks to facilitate
service of process. When the address
of the defendant is unknown or when
the defendant cannot be found,
plaintiffs need to request, through the
judge, information on the defendant’s
address to government authorities
before serving process through
publications. The bill seeks to limit the
time for the authorities to respond
to 20 days (currently there is no term
for the authorities to respond). If the
authorities fail to respond within this
term, process may be served through
publications. This will shorten the
duration of proceedings when the
address of the relevant debtor is
unknown. However, it may be argued
that the debtor is being unfairly
punished by a failure of authorities
to timely answer the court’s request.
Consequently, this provision may be
held unconstitutional.
Another proposed reform to the
Commercial Code worth noting
is the possibility of registering the
attachment of real property with
the attachment deed. Currently, in
executive proceedings, plaintiffs may
serve process and simultaneously
attach assets. However, in order for the
attachment to be effective, it needs
to be registered and a court order
secured to request registration. This
gives some time for the defendant
to dispose or hide the attached asset
while the attachment is still ineffective.
If the reform is passed, then no court
order will be required to perfect the
attachment over real property and
the attachment deed served on the
defendant will be enough to register
the attachment. It is not clear why
the bill does not include the same
possibility for attachment of personal
property.
Particular attention should be given
to the right to inspect attached assets
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‘at any time’ that the reform seeks to
implement. Inspection rights are
positive but we believe they deserve
clearer regulation. It is unclear, for
instance, if plaintiffs may use this right
to appoint a full-time inspector to be
present at the defendant’s facilities all
the time.
Perhaps one of the most important
proposals being made consists of the
creation of special federal courts for
commercial matters. The bill seeks
to reform the Federal Judiciary Law
(Ley Orgánica del Poder Judicial de la
Federación) to create these courts.
Currently, commercial matters may
be brought both at local courts and at
federal courts. However, federal courts
generally dislike commercial matters
because they are more specialised in
solving constitutional claims (juicios
de amparo). Creating special courts for
commercial matters would certainly
reduce the workload of federal courts
and help with the judges’ ‘learning
curve’ with respect to commercial
matters. Naturally, this may cause
speedier proceedings and faster loan
collection. A caveat: this proposal
may prove effective to achieve
speedier proceedings but cannot
be implemented if it is not coupled
with an increase in the budget of the
federal judiciary. How is the federal
judiciary going to create more courts
if its budget is not increased?
We turn now to the proposed
amendments to create and enforce
security interests. A number of
amendments in this respect are
necessary. However, the Executive
Branch decided instead to include
only a provision that cashcollateralised loans may be enforced
without judicial intervention. Simply
put, if a creditor has a security interest
over cash, the creditor will be able,
upon the borrower’s default, to apply
such cash to the payment of its loan
without judicial authorisation. Was this
amendment really needed? Creditors
were already able to include in their
credit agreements an authorisation
to offset cash held as security
against monies owed to them, so
the amendment does not seem to
create a ‘new enforcement tool’. But,
more importantly, we believe that this
specific amendment will not foster
credit expansion to medium and small
size companies as the government
announced. The number of debtors
that can grant cash as collateral over
their loans is very small. Hence this
amendment may not necessarily be
effective in expanding credit.
We believe other amendments
to the rules for the creation and
enforcement of security interests
would be more useful. For instance,
why not consider the creation of a
federal registry for mortgages? The
federal registry for security interests in
personal property has been effective
in reducing the time and cost for
the registration of pledges or other
charges to personal property. But
there is nothing similar for mortgages,
which still need to be registered at
the public registry of the jurisdiction
where the real estate is located. We
understand that creating a federal
registry of mortgages may pose some
questions about federal invasion into
state powers, but we believe the idea
is worth exploring.
Other less ambitious amendments
required for the creation of security
interests are allowing non-possessory
pledges over a specific category of
assets without having to produce
an itemised description of the
pledged assets. Currently, the law
only contemplates two kinds of nonpossessory pledges: a general pledge
over all the assets used for the main
business of the pledgor or a pledge
over itemised assets. There is no
possibility to create a pledge over
‘all the accounts receivables’ of the
pledgor or ‘all the inventory’ of the
pledgor. Lawyers spend a lot of time
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designing ways to pledge a specific
category of assets without pledging
the remainder of the assets and
without having to produce a specific
list of pledged assets.
The financial reform submitted
before Congress and approved by
the House of Representatives is a
comprehensive reform of various
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financial laws and an ambitious
reform in its scope and objectives.
Although the reform can be
improved, we believe that it may
mean a positive step towards better
regulation of the financial sector.
Specifically, with respect to the goal
of easing loan collection, we believe
the reform brings improvements to
the current framework of commercial
procedural law but the reform will
not be effective if judges do not assist
in their implementation through
judicial interpretation. This requires
training and specialisation of judges,
which also raises the need to increase
the budget allocated to the federal
judiciary.
© 2013 Financier Worldwide Limited.
Permission to use this reprint has been granted by the publisher.
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