MEXICO Law and Practice Contributed by: Julián J. Garza Castañeda and Paulina Bracamontes Belmonte, Nader Hayaux & Goebel
estate assets may be more costly, as they require the involvement of third parties, including notaries, and registrations with public registries. 5.6 Release of Typical Forms of Security Typical forms of security are released through amend- ment, termination and/or release instruments. Collat- eral instruments – such as mortgages, pledges and security trusts – that have been registered in pub- lic registries require the filing of such termination or release documents in the respective registries in order for the release to be effective against third parties. Additional filings may be required when dealing with regulated entities. 5.7 Rules Governing the Priority of Competing Security Interests As a general rule, secured lenders have priority over the assets granted to them as collateral in the event of foreclosure and in an insolvency scenario, although subject to a variety of exceptions. Since the 2014 amendment to the Mexican Insolven- cy Law, contractual subordination is expressly rec- ognised in the case of an insolvent entity. Mexican courts recognise the subordination of contractually subordinated claims with respect to other secured or unsecured claims of creditors of an insolvent entity. Also, intercreditor agreements are commonly used in Mexico. They constitute the framework regulat- ing the relationship between lenders in a syndicated facility, or between lenders under several financings. It is common to appoint an administrative agent (also known as a collateral agent). The most common vehicle to achieve structural sub- ordination is a trust containing a payment waterfall with subordinated payments. 5.8 Priming Liens Mexican bankruptcy law provides for several types of creditors and establishes a specific hierarchy for the prioritisation and payment of their respective claims. By law, labour and tax credits take precedence and are paid immediately after any creditor holding collat- eral over a specific asset, such as a pledge or mort- gage, but before any other type of creditor.
Due to their inherent nature, the payment of labour and tax credits is accorded special status and takes priority over the payment of common credits, solely by virtue of the law. 6. Enforcement 6.1 Enforcement of Collateral by Secured Lenders A secured lender who has a perfected security inter- est over its collateral has, in principle, no limitations to enforce its rights in a court of law, subject to bank- ruptcy and insolvency rules. Enforcement of security in Mexico is generally conducted through Mexican courts. Loan and collateral documents must comply with the Mexican legal formalities required for their enforce- ability and perfection in Mexico. Enforceability of obli- gations before a Mexican court may often be contin- gent on: • the valid existence of the borrower; • the authority of the borrower and its representa- tives to assume such obligations pursuant to any provisions of relevant by-laws; • corporate authorisations and powers of attorney; and • the absence of conflicts with applicable law and third-party obligations or contractual arrange- ments. A number of formalities concerning loan documenta- tion must be met to avoid difficulties in the enforce- ment process. Loan obligations are usually documented in promisso- ry notes ( pagarés ). The documentary formalities appli- cable to promissory notes ( pagarés ) are very strict and failure to meet them may result in a court refusing to grant them specific procedural benefits. A promissory note ( pagaré ) will entitle its holder, whether a Mexican or foreign lender, to claim a judicial “executive action”, which carries certain procedural benefits, including the right to attach assets of the debtor upon service of process being made. Note that Mexican banks and certain other financial entities also have executive
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