MEXICO Law and Practice Contributed by: Alejandro Stamoglou, Jesús Pérez Alcántar and Julio Jiménez Manrique, Bello, Gallardo, Bonequi y García, S.C.
Mexican law recognises contractual subordination, which is typically achieved through intercreditor agreements or subordination clauses in loan docu - mentation. Such provisions are generally enforceable and allow the priority among lenders to be contractu - ally varied. Contractual subordination provisions usually survive the insolvency of a Mexican borrower, provided they do not contravene mandatory insolvency rules or stat - utory priorities established by law. Certain creditors, such as those holding labour, tax, or social security claims, will rank ahead of secured creditors in insol - vency proceedings. 5.8 Priming Liens and/or Claims As explained in 5.7 Rules Governing the Priority of Competing Security Interests and/or Claims , under Mexican law, labour, tax and social security claims will prevail over secured creditors in insolvency pro - ceedings. These statutory claims rank ahead of any registered security interests. Common intercreditor agreement terms for private second liens include standstill provisions (preventing junior creditors from enforcing until senior debt is sat - isfied), waterfall provisions governing the distribution of proceeds, and restrictions on enforcement actions by subordinated creditors. 5.9 Cash Pooling and Hedging/Cash Management Obligations Cash pooling is not common practice in Mexico. Instead, corporate groups typically implement central - ised treasury structures, under which one entity man - ages group liquidity through internal transfers, inter - company loans, risk hedging and foreign exchange operations. These arrangements are documented through internal treasury agreements and aim to opti - mise cash usage and reduce financing costs, without the automatic balance consolidation that character - ises bank-driven cash pooling. In private credit transactions, secured hedging and cash management obligations are typically addressed by including them within the definition of “Secured Obligations” under the security package. Common practice is to limit secured hedging to bona fide inter -
est rate or foreign exchange hedging related to the credit facility, excluding speculative transactions. 5.10 Appointment of Collateral Agent In Mexico, it is common practice in syndicated or multi-lender credit transactions to appoint a secu - rity agent, who acts as the holder of the relevant lien on behalf of all lenders. This structure centralises the administration of collateral and avoids the need to amend registrations whenever the lender group changes. In the event of an assignment of credit rights by a lender, the usual approach is simply to execute the documentation evidencing such assignment, without the need to modify the existing collateral arrange - ments. This is because the collateral is granted in favour of the security agent, who remains the holder of the lien, thereby ensuring continuity and enforce - ability of the security against third parties. 6. Enforcement 6.1 Enforcement of Collateral by Non-Bank Secured Lenders In general terms, once the secured obligations have matured, the lender may request the enforcement of the assets given as collateral. Under Mexican law, for non-possessory pledges and security trusts, both judicial and extrajudicial procedures are available, provided that the contractual conditions and legal formalities are met. The extrajudicial enforcement procedure begins with a formal demand by the trustee or the pledgee to the obligor for the delivery of possession of the assets, made through a notary public or commercial broker ( corredor público ). Once possession of the assets has been delivered, the sale of such assets will proceed in accordance with the terms agreed in the contract. The parties may agree that the value of the assets be determined by an appraisal issued by an expert or by a third party other than the creditor, designated by the parties either at the time of executing the agree - ment or at a later date, or through any other procedure agreed in writing, specifying the basis for such des -
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