MEXICO Law and Practice Contributed by: Alejandro Stamoglou, Jesús Pérez Alcántar and Julio Jiménez Manrique, Bello, Gallardo, Bonequi y García, S.C.
5.3 Downstream, Upstream and Cross- Stream Guarantees Under Mexican law, it is generally permissible for entities to provide downstream, upstream and cross- stream guarantees. There are no statutory restrictions requiring the guarantor to demonstrate corporate benefit or prohibiting financial assistance. The main considerations are corporate capacity and proper cor - porate authorisations, which are typically addressed through resolutions of the relevant corporate bodies. Market practice does not impose quantitative limita - tions on the amount guaranteed, nor are such limita - tions measured at the time of granting or enforcement. With respect to the allocation of proceeds among dif - ferent tranches of debt, this is typically addressed in the credit agreements. 5.4 Restrictions on the Target Under Mexican law, there is no statutory prohibition on a target company granting guarantees, security interests or financial assistance in connection with the acquisition of its own shares. Unlike certain jurisdic - tions that impose financial assistance restrictions or require evidence of corporate benefit, Mexican legisla - tion does not contain such limitations. The primary considerations are, as outlined above, corporate capacity and proper authorisations. It is standard practice to review the target’s by-laws to confirm that its corporate purpose allows the granting of guarantees and to obtain the necessary corporate approvals (eg, board or shareholder resolutions). Even when such authorisations are not strictly required by law, lenders typically request them as a matter of practice. 5.5 Other Restrictions As explained in 5.1 Assets and Forms of Security , in Mexico, it is common practice to review the corporate documents of the borrower and any guarantor entities to confirm their capacity and identify the competent corporate bodies that must approve the granting of security or guarantees. There are generally no require - ments for works council or similar consents.
Costs associated with security or guarantees typically include notarial and registration fees, and, in the case of security trusts, trustee fees. In addition, under Mexican law, there is a “harden - ing period” ( fecha de retroacción ) that is a retroactive period, generally covering 270 calendar days immedi - ately preceding the date of the insolvency judgment, during which acts carried out by the obligor, including the granting or increase of security interests, may be deemed fraudulent in respect of creditors and there - fore subject to be declared null or invalid. Retention of title ( reserva de dominio ) is recognised under Mexican law and can be contractually agreed, although, in this context, it is not widely used in prac - tice. Finally, under Mexican law, any creditor may gen - erally assign its rights without the debtor’s consent unless such assignment is prohibited by law, express - ly restricted by the parties, or impossible due to the nature of the right. Assignments of receivables or other rights typically require written notice to the underlying obligor, and such assignments become enforceable against third parties on the date they are registered in the RUG. Anti-assignment provisions agreed by the parties are generally enforceable. 5.6 Release of Typical Forms of Security In general terms, once the secured obligations have been fully satisfied, the parties execute the corre - sponding release agreements acknowledging such compliance. Subsequently, the relevant security inter - ests are cancelled in the applicable public registries, such as the Public Registry of Property or the RUG, as appropriate. 5.7 Rules Governing the Priority of Competing Security Interests and/or Claims Mexican law permits multiple liens over the same asset, provided that the obligor has the capacity to grant them and the relevant formalities are observed. The priority of competing security interests is gener - ally determined by the date of registration in the appli - cable public registry.
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