Bank Financing

Last verified on Thursday 11th May 2017

Mexico

Michell Nader S and Julián Garza C
Nader, Hayaux y Goebel SC
  1. 1.

    What are the most common forms of bank financing in your jurisdiction?

  2. The most common forms of bank financing include unsecured lending, secured financing, structured finance (including securitisation transactions), syndicated loans, capital and operation leasing and factoring. Both Mexican and foreign banks can conduct lending activities in Mexico through a variety of forms and subject to specific regulations and limitations.

  3. 2.

    Are any governmental or central bank registrations or approvals required for a foreign lender (being a lender not incorporated in your jurisdiction or operating through a branch or office outside of your jurisdiction) to lend to a borrower in your jurisdiction?

  4. No. Foreign lenders are not required to be specifically registered with, or approved by, governmental authorities in order to conduct lending activities in Mexico. The prior registrations or filings required for foreign lenders to achieve a preferential tax treatment on interest payments have been repealed.

    With regard to debt securities, subject to certain exceptions, to achieve a 4.9 per cent withholding tax rate on interest payments of debt securities issued by a Mexican issuer and placed with foreign holders, the following conditions apply:

    • the securities should be placed through bank or broker dealers in a country with which Mexico maintains a tax treaty for the avoidance of double taxation, such as the US or Luxembourg; and
    • filings with the National Banking and Securities Commission and the Tax Administration must be completed.
  5. 3.

    Are there any foreign exchange provisions restricting, or governmental or central bank registrations or approvals required for, a borrower in your jurisdiction to contract debt obligations in a foreign currency or to remit funds abroad?

  6. No, there are no governmental registrations or approvals required for a Mexican borrower to contract debt obligations in a foreign currency or to remit funds abroad. Tax reporting obligations may apply to the borrower.

  7. 4.

    Are there any governmental or central bank registrations or approvals required for the prepayment of loans abroad?

  8. No, there are no governmental or central bank registrations or approvals for such purpose.

  9. 5.

    Are any mandatory governmental or central bank deposits required to be made from loan proceeds?

  10. No.

  11. 6.

    Describe any governmental measures that may be taken to declare a moratorium on the loan obligations of private companies.

  12. None, other than by Act of Congress.

  13. 7.

    Describe any environmental liabilities and any other areas of lender liability that may arise as a result of the activities of a borrower or the realisation of a security interest.

  14. There is no statutory lender liability in Mexico. Lender liability may only arise from wrongdoings by a lender. We are not aware of any binding precedent where a lender has been held liable for any wrongdoings. Nevertheless, a lender may assume the environmental liabilities of borrowers by taking ownership and/or possession of contaminated assets, including as a result of a realisation of a security interest. At such point, the lender will be considered to be jointly and severally liable under Mexican environmental law.

  15. 8.

    Are interest payments or loan fees subject to a withholding tax?

  16. Yes, in the case of interest payments to non-residents, withholding tax rates range from 4.9 per cent to 40 per cent, 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 to export-import banks may not be subject to any withholding, provided that the conditions set forth by the relevant tax treaty are complied with.

  17. 9.

    What other taxes or mandatory fees, for example, transaction, registration or documentary, apply to loan transactions?

  18. In principle, value added tax may apply to interest payments. However, interest payments made to Mexican financial institutions may be exempt from such tax in certain instances.

  19. 10.

    Are there different taxes applicable to loans repayable to lenders in your jurisdiction and loans repayable to lenders in a foreign jurisdiction?

  20. No. In both cases income tax is the only tax levied on interest payments carried out by or to financial institutions. It should be noted, however, that interest payments may be subject to different withholding tax rates depending on the tax residency of the beneficial owner (see question 8).

  21. 11.

    Is your country party to any double taxation treaties that reduce taxes payable by borrowers in respect of loan payments abroad?

  22. Yes. Mexico has enacted more than 40 double tax treaties and is in the process of negotiating more. As mentioned above, such tax treaties may reduce the withholding tax applicable in accordance with the Mexican domestic tax legislation. Under a number of those treaties a preferential 4.9 per cent withholding tax rate applies to interest paid to financial institutions resident for tax purposes in a treaty country.

  23. 12.

    Do any financing structures receive favourable tax treatment, such as prepayments of exports?

  24. As a general rule, favourable tax treatment is granted in the following cases:

    • interest derived from loans granted to the federal government, the central bank or derived from bonds issued by them;
    • interest derived from loans granted under preferential conditions (three or more years for repayment), payable to foreign development financial institutions;
    • interest derived from loans granted by foreign development financial institutions to non-profit organisations; and
    • interest derived from securities issued by the federal government or the central bank, provided that the beneficial owner of the interest is a non-resident for tax purposes. Also, interest payments made to export-import banks granting or guaranteeing loans may not be subject to any withholding, provided that the conditions set forth by the relevant tax treaty are complied with.
  25. 13.

    Describe any limitations on interest rates or the ability of lenders to charge default interest under loan agreements.

  26. There are no specific limitations. There may be though, 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.

  27. 14.

    Describe any restrictions that may apply to the choice of law, for example, whether a choice of New York or English law will be recognised and enforced in your jurisdiction.

  28. There are no specific restrictions applicable to loan documents. The choice of foreign law should be recognised and enforced provided that security documents should not otherwise be subject to Mexican law.

  29. 15.

    Describe generally the requirements for the enforceability of a foreign judgment in your jurisdiction in respect of an outstanding loan.

  30. A judgment rendered by a foreign court, pursuant to a legal action instituted before such court in connection with an outstanding loan, would be enforceable against the borrower in the competent courts of Mexico, provided, that:

    • such judgment is obtained in compliance with the legal requirements of the jurisdiction of the court rendering such judgment and in compliance with all legal requirements of the respective transaction documents;
    • such judgment is strictly for the payment of a certain sum of money, based on an in personam (as opposed to an in rem) action;
    • the judge or court rendering the judgment was competent to hear and judge on the subject matter of the case in accordance with accepted principles of international law that are compatible with Mexican law;
    • service of process is made personally on the defendant or on its duly appointed process agent;
    • such judgment does not contravene Mexican law, public policy of Mexico, international treaties or agreements binding upon Mexico or generally accepted principles of international law;
    • the applicable procedure under the laws of Mexico, with respect to the enforcement of foreign judgments (including the issuance of a letter rogatory by the competent authority of such jurisdiction requesting enforcement of such judgment and the certification of such judgment as authentic by the corresponding authorities of such jurisdiction in accordance with the laws thereof), is complied with;
    • the action in respect of which such judgment is rendered is not the subject matter of a lawsuit among the same parties, pending before a Mexican court;
    • such judgment is final in the jurisdiction where it is obtained;
    • the judgment fulfils the necessary requirements to be considered authentic; and
    • the courts of such jurisdiction recognise the principles of reciprocity in connection with the enforcement of Mexican judgments in such jurisdiction.

    Service of process by mail does not constitute personal service of process under Mexican law and, since such service of process is considered to be a basic procedural requirement, if for purposes of proceedings outside Mexico, service of process is made by mail, a final judgment based on such process would not be enforced by the courts of Mexico.

  31. 16.

    Upon the closing of a loan, what procedural requirements (execution formalities, notarisation, registration, recordation or filing) should be observed to ensure that a loan agreement or related judgment is enforceable in your jurisdiction?

  32. Loan and collateral documents must comply with Mexican legal formalities required for their enforceability and perfection in Mexico. Enforceability of obligations before a Mexican court may often be contingent on the authority of the borrower and its representatives to assume such obligations pursuant to any provisions of relevant by-laws, corporate authorisations and powers of attorney, which are also subject to formalities that must be complied with to avoid difficulties in the enforcement process. Loan obligations are usually documented in pagarés (notes). The documentary formalities applicable to pagarés are very strict and failure to meet them may lead a court to disregard such instruments’ procedural advantages (see question 21).

    With regard to collateral documents, certain security instruments, including mortgages, pledgor-in-possession pledge agreements and guaranty trusts on real estate assets, are required to be formalised before a Mexican notary public and registered with the corresponding Mexican public registry (ie, the local Public Registry of Property or the Federal Registry of Movable Property). A lien on other assets may require additional formalities; for example, registration with intellectual property registries if such lien is created on certain intellectual property rights.

    See question 15 regarding the enforceability of foreign judgments.

  33. 17.

    Does a loan agreement in English need to be translated or locally registered to be enforceable in your jurisdiction?

  34. Generally, no. As mentioned in our response to question 16, certain collateral instruments may be subject to registration and additional formalities (see also question 19).

  35. 18.

    Must a foreign bank be registered in your jurisdiction to enforce any rights under the applicable loan documentation?

  36. No.

  37. 19.

    Are foreign lenders treated any differently from local lenders in enforcing loan documentation in the courts of your jurisdiction?

  38. No. Please note, however, that:

    • in the event that any legal proceedings are brought in the courts of Mexico with respect to any transaction document prepared in English, a Spanish translation of such documents required in such proceedings prepared by a court-approved translator would have to be approved by the court after the defendant had been given an opportunity to be heard with respect to the accuracy of the translation, and proceedings would thereafter be based upon the translated documents; and
    • in the event that proceedings are brought in Mexico seeking performance of the obligations of the borrower in Mexico, 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 the Banco de México in the Official Gazette of the Federation of Mexico on the date preceding the date of payment.
  39. 20.

    Is consideration required for the enforceability of a contractual obligation or guarantee?

  40. Not necessarily for purposes of enforceability; however, a guarantee without consideration may be voided if it is deemed a fraudulent conveyance (see also questions 23 and 24).

  41. 21.

    To enforce a loan in your jurisdiction, need the loan be evidenced by a promissory note or other form of título executivo?

  42. No; however, documenting a loan with a promissory note would provide a foreign or Mexican lender "executive action" which carries certain procedural advantages including the right to attach assets of the debtor upon service of process being made. Note that Mexican banks also have ‘executive actions’ through other type of documents.

  43. 22.

    To enforce a guarantee (aval) in your jurisdiction, is it necessary that the guarantee be evidenced by a guarantee agreement or other form of título executivo?

  44. Not necessarily; the best manner to document a guarantee on a promissory note (pagaré) is to have the guarantor sign the promissory note por aval.

  45. 23.

    Are there any restrictions on loans to multiple borrowers or on a guarantee in respect of a loan to an affiliated entity?

  46. There are no restrictions on loans to multiple borrowers. There are also no restrictions on guarantees in respect of a loan to an affiliated party; however, as a general rule, the guarantor should receive a consideration or benefit from the loan to its affiliated party to avoid a challenge on the validity or enforceability of the guarantee.

  47. 24.

    Can a party grant a secured or unsecured guarantee in respect of a loan to an unaffiliated third party?

  48. Yes, but if there is no consideration therefor the guarantee may be voided.

  49. 25.

    Is there a distinction between the granting of a security interest and the perfection of a security interest?

  50. Yes. A security is granted at the time when it is created by contract or otherwise. In a number of cases (but not in all cases), Mexican law requires that either:

    • the security interest be registered (ie, in a Public Registry); or
    • the collateral be delivered to the secured party or a depositary, and it is such registration or delivery that perfects the security interest and makes it enforceable against third parties.
  51. 26.

    What is the most common form of granting and perfecting a security interest in moveable assets?

    • The "traditional pledge" where the collateral is delivered to the secured party or a depositary and, for certain working capital loans, the pledgor may hold the collateral;
    • the "pledge with debtor in possession"; or
    • the guaranty trust where the collateral is actually transferred to a trustee (see questions 29 and 30 regarding guaranty trust).

    The pledge with debtor in possession and the guaranty trust shall be registered with the Federal Registry of Movable Property for effectiveness and preference as regards third parties. A guaranty trust over real estate property shall be registered with the corresponding local Public Registry of Property.

  52. 27.

    What is the most common form of granting and perfecting a security interest in real estate?

  53. Through a real estate mortgage or a guaranty trust. Both shall be registered with the Public Registry of Property with jurisdiction over the place where the real estate is located.

  54. 28.

    What is the most common form of granting and perfecting a security interest in receivables and accounts?

  55. Through a pledge with debtor in possession or a guaranty trust. The pledge with debtor in possession and the guaranty trust shall be registered with the Movable Property Registry for effectiveness vis-à-vis third parties.

  56. 29.

    Does your jurisdiction recognise the transfer of assets to a trust for the benefit of a lender as a means of granting a security interest in such assets?

  57. Yes; through the guaranty trust. In such cases the collateral is owned by the trustee.

  58. 30.

    Does your jurisdiction recognise the fiduciary transfer of assets (such as an alienação fiduciária) to a lender as a means of granting a security interest in such assets?

  59. Pursuant to a guaranty trust a borrower may transfer to a trustee (namely, a Mexican banking institution) ownership of certain assets. The trustee will hold ownership of such assets for the primary benefit of the corresponding lender who would be appointed as a beneficiary of the guaranty trust.

    Among several advantages afforded by the guaranty trust, it permits:

    • borrowers to continue to use and manage the collateral and maintain regular business activities; and
    • parties to the guaranty trust to contractually establish their own tailor-made rules of foreclosure, including (within reasonable due process confines) out-of-court foreclosure. Such foreclosure procedure permits transfer of collateral to a lender subject to compliance with applicable legal requirements.
  60. 31.

    Are there any types of asset that cannot be pledged as collateral under the laws of your jurisdiction?

  61. Any moveable asset that may be transferred can be pledged.

  62. 32.

    Describe any restrictions on enforcement of security. For example, any statutory regime that may stay the enforcement of the security or provide that enforcement is limited to public sale through the courts.

  63. Enforcement of security in Mexico is generally conducted through Mexican courts. As mentioned in question 30 above, a guaranty trust permits a borrower and a lender to agree on the terms and conditions to conduct an out-of-court foreclosure procedure, which may consist of a sale process to third parties or a direct transfer of collateral to a lender. Any agreed upon out-of-court foreclosure procedure must comply with very specific rules and may be subject to challenges in a Mexican court.

    Other challenges in enforcing a security may include, in some circumstances, gaining possession over the collateral to be realised either because of statutory restrictions or given that collateral is in possession of a third party.

  64. 33.

    Describe any other relevant legal considerations in connection with loans to a borrower in your jurisdiction.

  65. There are a number of additional Mexican legal considerations in connection with loans to borrowers, the relevance of which varies from one case to another. Each transaction must be assessed considering a variety of factors, including parties involved, available collateral, tax, regulatory and bankruptcy considerations. The enforceability of the terms of certain financing and collateral documents may, for example, be limited by bankruptcy, insolvency, concurso mercantil or other laws relating to creditors’ rights generally. Also, in considering available enforcement options it must be considered that remedies may not be cumulative or exercised concurrently.

    Please note that regulations have been enacted to, among other matters, strengthen capitalisation and liquidity requirements applicable to Mexican banks, including implementing Basel III agreements. As a consequence thereof, Mexican banks could have to comply with higher requirements in that regards, including if they enter into transactions with relevant related parties.

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Questions

  1. 1.

    What are the most common forms of bank financing in your jurisdiction?


  2. 2.

    Are any governmental or central bank registrations or approvals required for a foreign lender (being a lender not incorporated in your jurisdiction or operating through a branch or office outside of your jurisdiction) to lend to a borrower in your jurisdiction?


  3. 3.

    Are there any foreign exchange provisions restricting, or governmental or central bank registrations or approvals required for, a borrower in your jurisdiction to contract debt obligations in a foreign currency or to remit funds abroad?


  4. 4.

    Are there any governmental or central bank registrations or approvals required for the prepayment of loans abroad?


  5. 5.

    Are any mandatory governmental or central bank deposits required to be made from loan proceeds?


  6. 6.

    Describe any governmental measures that may be taken to declare a moratorium on the loan obligations of private companies.


  7. 7.

    Describe any environmental liabilities and any other areas of lender liability that may arise as a result of the activities of a borrower or the realisation of a security interest.


  8. 8.

    Are interest payments or loan fees subject to a withholding tax?


  9. 9.

    What other taxes or mandatory fees, for example, transaction, registration or documentary, apply to loan transactions?


  10. 10.

    Are there different taxes applicable to loans repayable to lenders in your jurisdiction and loans repayable to lenders in a foreign jurisdiction?


  11. 11.

    Is your country party to any double taxation treaties that reduce taxes payable by borrowers in respect of loan payments abroad?


  12. 12.

    Do any financing structures receive favourable tax treatment, such as prepayments of exports?


  13. 13.

    Describe any limitations on interest rates or the ability of lenders to charge default interest under loan agreements.


  14. 14.

    Describe any restrictions that may apply to the choice of law, for example, whether a choice of New York or English law will be recognised and enforced in your jurisdiction.


  15. 15.

    Describe generally the requirements for the enforceability of a foreign judgment in your jurisdiction in respect of an outstanding loan.


  16. 16.

    Upon the closing of a loan, what procedural requirements (execution formalities, notarisation, registration, recordation or filing) should be observed to ensure that a loan agreement or related judgment is enforceable in your jurisdiction?


  17. 17.

    Does a loan agreement in English need to be translated or locally registered to be enforceable in your jurisdiction?


  18. 18.

    Must a foreign bank be registered in your jurisdiction to enforce any rights under the applicable loan documentation?


  19. 19.

    Are foreign lenders treated any differently from local lenders in enforcing loan documentation in the courts of your jurisdiction?


  20. 20.

    Is consideration required for the enforceability of a contractual obligation or guarantee?


  21. 21.

    To enforce a loan in your jurisdiction, need the loan be evidenced by a promissory note or other form of título executivo?


  22. 22.

    To enforce a guarantee (aval) in your jurisdiction, is it necessary that the guarantee be evidenced by a guarantee agreement or other form of título executivo?


  23. 23.

    Are there any restrictions on loans to multiple borrowers or on a guarantee in respect of a loan to an affiliated entity?


  24. 24.

    Can a party grant a secured or unsecured guarantee in respect of a loan to an unaffiliated third party?


  25. 25.

    Is there a distinction between the granting of a security interest and the perfection of a security interest?


  26. 26.

    What is the most common form of granting and perfecting a security interest in moveable assets?


  27. 27.

    What is the most common form of granting and perfecting a security interest in real estate?


  28. 28.

    What is the most common form of granting and perfecting a security interest in receivables and accounts?


  29. 29.

    Does your jurisdiction recognise the transfer of assets to a trust for the benefit of a lender as a means of granting a security interest in such assets?


  30. 30.

    Does your jurisdiction recognise the fiduciary transfer of assets (such as an alienação fiduciária) to a lender as a means of granting a security interest in such assets?


  31. 31.

    Are there any types of asset that cannot be pledged as collateral under the laws of your jurisdiction?


  32. 32.

    Describe any restrictions on enforcement of security. For example, any statutory regime that may stay the enforcement of the security or provide that enforcement is limited to public sale through the courts.


  33. 33.

    Describe any other relevant legal considerations in connection with loans to a borrower in your jurisdiction.


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  • Chile
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  • Colombia
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  • Dominican Republic
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  • Mexico
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  • Panama
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  • Paraguay
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  • Peru
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  • Uruguay
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