Mexico
Giving or taking guarantees
A civil guarantee cannot exist without a valid principal obligation. Guarantors are granted certain benefits under Mexican law, known as the benefits of orden, división and excusión. The benefit of orden requires the creditor to proceed against the debtor before proceeding against the guarantor. The benefit of excusión requires the creditor to ensure the assets of the debtor are first exhausted in payment of its obligations before any amounts are claimed from or paid by the guarantor. The benefit of división exists when there are multiple guarantors: it allows one of the guarantors which has been called to trial to have the other guarantors appear at the same trial in order to defend themselves jointly, with each guarantor being liable for its proportionate share of the principal obligation. These benefits may be waived by the guarantor.
Giving or taking security
A mortgage securing a debt above a minimum threshold value (which is determined by local law and varies from state to state) must be in writing and executed before a Mexican notary public. The mortgage instrument, which should precisely describe the property being encumbered and the term of the mortgage, must be registered in the appropriate real property public registry office to be effective against third parties. Other registrations are required depending on the type of property being encumbered. For example, registration in the aircraft registry, the maritime registry and the railroad registry.
Guarantee trusts must be executed in writing. A guarantee trust over immovable property must be executed before a Mexican notary public and the trust instrument must be registered in the appropriate real property public registry office to be effective against third parties. Guarantee trusts over movable property securing a debt above a minimum threshold value must also be executed before a Mexican notary public and the trust instrument should be registered in the federal personal property collateral registry (Registro Único de Garantías Mobiliarias). Other registrations, authorizations and additional actions can also be required depending on the assets being placed in trust.
A traditional pledge must be executed in writing. Special perfection requirements apply depending on the type of asset, such as delivery of bearer instruments to the lender or a third party, delivery and endorsement of registered instruments and registration in the special registry ledger (for example, in the case of shares of a private stock corporation), and delivery of non-negotiable instruments and notices to the underlying debtor, if applicable.
A non-possessory pledge must be executed in writing. A non-possessory pledge securing a debt above a minimum threshold value must be ratified before a Mexican notary public and the resulting instrument registered in the the federal personal property collateral registry (Registro Único de Garantías Mobiliarias) to be effective against third parties.
A securities pledge must be executed in writing and involves a foreclosure agent (ejecutor) and the transfer of the securities to an account at the clearing agency. A Mexican bank or brokerage firm (other than the lender) may be appointed as foreclosure agent and is responsible for selling the securities at market value if a default occurs.
Are there any restrictions on lending and borrowing?
Lending
Lending is only a regulated activity in relation to mortgages and consumer lending. In these circumstances, and assuming none of the available exemptions apply, a lender will need to be authorized by the National Banking and Securities Commission to conduct such business. The main provisions regulating these activities aim at protecting financial services users, strengthening competition in banking services, and giving the National Commission for the Protection and Defense of Users of Financial Services (CONDUSEF) powers to supervise and impose sanctions.
There are no additional restrictions that apply to foreign lenders making loans to Mexican borrowers.
Borrowing
While borrowers are generally not regulated, it is advisable for borrowers to consider whether either the mortgage or consumer lending regimes apply to their activities, in which case they will benefit from the protections mentioned above.
What are common lending structures?
Lending in Mexico can be structured in a number of different ways to include a variety of features depending on the commercial needs of the parties.
A loan can either be provided on a bilateral basis (a single lender providing the entire facility) or syndicated basis (multiple lenders each providing parts of the overall facility).
Syndicated facilities by their nature involve more parties (such as agents and trustees which fulfil certain roles for the finance parties), are more highly structured and involve more complex documentation. Larger financings will typically be done on a syndicated basis with one of the syndicate taking the lead in coordinating and arranging the financing.
Loans will be structured to achieve specific objectives, eg term loans, working capital loans, equity bridge facilities and project or letter of credit facilities.
Loan durations
The duration of a loan can vary between:
- a term loan, provided for an agreed final period of time but with a short availability period;
- a revolving loan, provided for an agreed period of time with an availability period that extends nearer to maturity of the loan and which may be redrawn if repaid;
- an overdraft, provided on a short-term basis to solve short-term cash flow issues; or
- a standby or a bridging loan, intended to be used in exceptional circumstances when other forms of finance are unavailable and often attracting a higher margin.
Loan security
A loan can either be secured, unsecured or guaranteed. For more information, see Giving and taking guarantees and security.
Loan commitment
A loan can be:
- committed, meaning that the lender is obliged to provide the loan if certain conditions are fulfilled; or
- uncommitted, meaning that the lender has discretion whether or not to provide the loan.
Loan repayment
A loan can be repayable on demand, on an amortizing basis (in instalments over the life of the loan) or scheduled (usually meaning the loan is repayable in full at maturity).
What are the differences between lending to institutional / professional or other borrowers?
Lending to institutional/professional borrowers is subject to less regulatory oversight and so less burdensome from a compliance perspective.
By contrast, lending in the context of mortgages and to consumers is a regulated activity supervised by the National Banking and Securities Commission (CNBV) and the National Commission for the Protection and Defense of Users of Financial Services (CONDUSEF).
For more information, see Lending and borrowing – restrictions.
Do the laws recognize the principles of agency and trusts?
It is common to appoint an agent to act on behalf of other parties (as in syndicated loan transactions) and a trustee to hold rights and other assets on trust for the lenders or secured parties. Thus, the common-law principles of agency and trust are recognized in the Mexican legal framework.
Are there any other notable risks or issues around lending?
Generally
Loan agreements and other finance documents are subject to general contractual principles. There are no specific limitations on interest rates or the ability of lenders to charge default interest under loan agreements, however, there may be general or practical limitations stemming from usury statutes, judicial precedents and market conditions that may limit the amount of the rate as well as from tax considerations, particularly in the case of transactions among related parties.
In the event of proceedings in Mexico seeking performance of obligations of a Mexican borrower, pursuant to Mexican Monetary Law, the borrower may discharge its respective obligations by paying any sums due in a currency other than Mexican currency, in Mexican currency at the rate of exchange prevailing in Mexico and fixed and published by Banco de México (BANXICO) in the Official Gazette of the Federation of Mexico on the date preceding the date of payment.
Specific types of lending
In mortgage and consumer lending, the National Commission for the Protection and Defense of Users of Financial Services (CONDUSEF) is granted authority to provide for a list of ‘abusive clauses’ which institutions will not be able to include in their adhesion contracts, as well as the regime for its supervision and removal. Financial adhesion contracts are non-negotiable financial contracts which are offered by financial institutions and accepted ‘as is’ by financial services users seeking the corresponding financial service.
Standard form documentation
There are no recommended forms of lending documentation provided by market participants or regulators. Most finance transactions are documented on bank standard form documentation prepared in-house or by external legal counsel.
Are there any other notable risks or issues around borrowing?
In cross-border lending, borrowers are required to consider the identity of the beneficial owner of interest payments, given that tax gross-up clauses are a common feature in loan agreements and withholding tax rates range from 4.9% to 40%, depending on the beneficial owner of the interest. Lower withholding tax rates may be available to tax residents in countries with which Mexico has entered into a tax treaty to avoid double taxation. Interest payments carried out to export-import banks may not be subject to any withholding, provided that the conditions set out by the relevant tax treaty are complied with.
Edgar Romo
Partner
DLA Piper Gallastegui y Lozano
[email protected]
T +52 55 5261 1858
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