Trade Finance

Last verified on Friday 20th October 2017

Ecuador

Diego Ramírez Mesec
Fabara & Compañía (Quito)

    Bills of exchange

  1. 1.

    Does your country have specific statutes governing bills of exchange?

  2. Bills of Exchange in Ecuador are regulated in general terms by the Commerce Code, Title VIII, the legal instrument that regulates commercial activities. There is no specific statute other than the one contained in the Commerce Code.

  3. 2.

    Do these laws follow the Geneva Convention providing a Uniform Law for Bills of Exchange and Promissory Notes of 1930 or the United Kingdom

  4. The provisions in the Commerce Code draw from the Geneva Convention for Uniform Law for Bills of Exchange of Promissory Notes, which was signed by Ecuador, although it has not been ratified.

  5. 3.

    What are the fundamental elements of a bill of exchange that is freely negotiable and enforceable under the laws of your jurisdiction?

  6. The elements that a negotiable bill of exchange must contain are a clear, non-misleading denomination, a simple order for payment of a specified amount, the exact name of who shall pay for it, its expiration date, the place where the payment shall be made, the name of the person to whom the order payment is due, the date and place where the bill is issued and the signature of the person who issues the bill of exchange.

  7. 4.

    Under your country’s laws, can a bill of exchange include a governing law clause? Would a foreign governing law be recognised by a local court?

  8. Any bill of exchange issued by a private commercial party can, pursuant to Ecuador law, include a governing law clause, and such provision establishing a governing law other than Ecuador law will be valid and enforceable among private commercial parties by a local court. State entities, however, do require authorisation to agree to a foreign governing law. The choice of Ecuador law as a governing law will, of course, be enforced, as it is the default governing law of any legal document entered into and signed in Ecuador.

  9. 5.

    Do the laws of your jurisdiction recognise the concept of a “holder in due course” or a “bona fide purchaser”, free from all claims to it by any person and from all defences of any third party?

  10. The concept of a ‘holder in due course’ of a bill of exchange is accepted under the Ecuadorian legislation and grants him or her all legal rights and claims; a bona fide purchaser need not be concerned about claims and defences of a third party that would deprive him or her of any rights thereunder (other than those specific to the instrument).

  11. 6.

    If so, what steps must be taken to qualify as a holder in due course or bona fide purchaser?

  12. The only step to qualify as a holder in due course or bona fide purchaser is a continuous, uninterrupted series of valid endorsements in the original document (a blank endorsement is considered valid).

  13. 7.

    Are any stamp taxes, duties, levies, imposts or similar charges payable in connection with a bill of exchange pursuant to the laws of your jurisdiction? Who is responsible for paying them?

  14. There are no taxes, or fees involving execution, delivery, performance or enforcement of bills of exchange, although as a means of payment, the underlying claim for a sum of money may incur a tax (ie, VAT) or tax withholding (ie, income tax).

  15. 8.

    Is a banking licence or any other type of approval, consent or filing required for an entity to purchase a bill of exchange in your jurisdiction? Does this depend on whether the purchaser is a foreign entity?

  16. There are no banking licences, or filing required to purchase, hold, endorse, trade or enforce a bill of exchange, only the acceptance of it. It makes no difference whether the purchaser is a foreign entity, a natural person or a registered business.

    Letters of credit

  17. 9.

    Does your jurisdiction have specific statutes governing letters of credit?

  18. The Commerce Code (Title XI) also regulates letters of credit, although subsidiary provisions may be found in the Monetary and Financial Code (including the authorisation for financial institutions to engage in the issuance and trading of letters of credit).

  19. 10.

    Is the issuer’s obligation to pay independent of the applicant’s ability or willingness to reimburse the issuer and any commercial dispute between the applicant and the beneficiary of the letter of credit?

  20. Yes, a valid letter of credit is deemed to be an ‘executive title’ that entails an obligation by the issuer to pay the beneficiary, regardless of any other consideration, including potential commercial disputes or willingness to reimburse.

  21. 11.

    Must a beneficiary’s presentation to draw under a letter of credit comply strictly with the terms of the letter of credit for the issuer to be obliged to pay?

  22. The terms for drawing under a letter of credit must be observed for the obligation to pay to be enforceable, or it may not be considered due.

  23. 12.

    Are issuers expected to disregard any non-documentary conditions in a letter of credit under the laws of your jurisdiction?

  24. Yes, as indicated previously, the obligation to pay is deemed independent of other considerations and conditions not established in the document and, therefore, it may not rest on conditions not expressly recognised in the document itself.

  25. 13.

    Under the laws of your jurisdiction, must letters of credit have a set expiry date or can they be perpetual? Must letters of credit be available for a specific amount or can they be open-ended in terms of the issuer

  26. Some of the essential elements that a letter of credit must have are the duration term and the exact amount otherwise it will be deemed only a recommendation.

  27. 14.

    Are standby letters of credit prevalent in your jurisdiction? What about demand guarantees?

  28. Both standby letters of credit and demand guarantees are prevalent in Ecuador and fully acceptable instruments.

  29. 15.

    Is the use of ISP98 as a set of governing rules for standby letters of credit common or are they generally construed in accordance with UCP600 or other rules?

  30. The Central Bank of Ecuador issues letters of credit construed in accordance with UCP600, and both UCP600 and ISP98 are used by private banks.

  31. 16.

    Under the laws of your jurisdiction, can a confirming bank seek a remedy from the applicant if the issuing bank defaults on its reimbursement obligations?

  32. The confirming bank could initiate an executive proceeding as long as the letter of credit complies with the minimum requirements to be an enforceable right: it must be determined, unconditioned, paid in cash and immediately due.

    Even if the confirming bank is not located in Ecuador, the executive proceeding may be initiated. However, if the letter of credit is unenforceable under Ecuadorian law, the remedy must be in accordance with private international law.

  33. 17.

    Assuming the laws of your jurisdiction apply, are there any elements of letters of credit that cannot be varied by agreement or by provisions stated in a letter of credit?

  34. Parties are free to agree on variations to the standard letter of credit, as long as the required elements are present (such as the amount and duration term) and any variation is not prohibited in our jurisdiction.

    Account receivable purchases

  35. 18.

    Is the concept of a ‘true sale’ recognised in your jurisdiction? What are the legal requirements for a sale of accounts receivable to be treated as a true sale?

  36. Yes, a ‘true sale’ of accounts receivable is fully recognised in Ecuador, and it is required that there be limited recourse to the seller in the event of non-performance by the debtor (although a buy-back obligation of non-performing receivables by the seller or eligibility criteria for receivables may be embedded in the receivables sale and purchase contract).

  37. 19.

    In your jurisdiction, is there a centralised register or record of purchased receivables that can be viewed by third parties?

  38. There is no centralised register or record of sold or assigned receivables available for review by third parties.

  39. 20.

    Under the laws of your jurisdiction, can a receivable be sold, assigned or pledged without the underlying account debtor’s consent if the commercial contract giving rise to the receivable does not prohibit it? If the consent of the underlying account debtor is required, what is the proper means of effecting such consent?

  40. In Ecuador a receivable can be assigned, but the effects on third parties are only effective once the debtor is notified or grants consent (depending on whether, originally, the assignment was authorised or not). In some cases the notification may need to be effected through a public notary (when it may be expected that debtor will decline to confirm notification).

  41. 21.

    If the seller of the receivables becomes insolvent, could the accounts receivable that have been sold become part of the seller’s estate under the insolvency proceedings?

  42. There are no ‘clawback’ provisions regarding sold receivables in our jurisdiction or bankruptcy rules.

  43. 22.

    If your country’s laws govern the underlying commercial contract giving rise to the receivable, may the seller enter into an accounts receivable purchase agreement that is governed by foreign law?  

  44. Yes, there is no need for a receivables sale and purchase agreement to be subject to the same governing law as the underlying commercial contract, taking into consideration that under Ecuadorian law, if there is no prohibition regarding a specific subject, it is permitted. 

  45. 23.

    Is a banking licence or any other type of approval, consent or filing required for an entity to purchase a receivable in your jurisdiction? Does this depend on whether the purchaser of the receivable is a foreign entity?

  46. As indicated previously, there are no banking licences or filing required to purchase or be assigned a receivable in Ecuador. The only requirement is the acceptance of it.

    Pre-export finance agreements

  47. 24.

    Is there any beneficial tax treatment in your jurisdiction for pre-export finance loans as compared to other types of loans?

  48. Currently there is no preferential tax treatment for pre-export finance or any other benefit when compared with other loans.

  49. 25.

    Regarding pledged property, what is the proper means for creating and perfecting or providing notice of a security interest to make it effective against, and to have priority over, third parties?

  50. Any lien or security interest should be recorded either at the local Mercantile Registry or Real Estate Property Registry to perfect it and ensure it becomes enforceable and effective, providing priority over claims by third parties (unsecured).

  51. 26.

    Is there any restriction on the ability to have a perfected and enforceable security interest over the same pledged property under the laws of your jurisdiction and the laws of a foreign jurisdiction simultaneously?

  52. There is no specific provision preventing security interest under Ecuador law and another (foreign) law, but if the pledged property is located within Ecuador a full, valid and registered lien will be required for enforcement against other claimants and, thus, the local security interest will prevail over the foreign one.

  53. 27.

    Is there a centralised register or record of security interests in your jurisdiction? Does entry in the register put third parties on notice of the secured interest?

  54. As indicated, there is a register for real estate property liens or interests and another one for commercial, agricultural and industrial liens.

  55. 28.

    Are any stamp taxes, duties, levies, imposts or other similar charges payable in connection with a pre-export finance agreement pursuant to the laws of your jurisdiction? Who is responsible for paying them?

  56. There are no stamp taxes, duties, levies, imposts or other similar charges payable in connection with a pre-export finance agreement pursuant to Ecuador law.

  57. 29.

    Is there any requirement that the signatures to a pre-export finance agreement or any related security agreements be notarised for the signatures or the agreements to be valid?

  58. There is no need for a notary public to be present at execution or to confirm signatures thereafter for the pre-export finance, but parties may either agree to it or decide to have additional confirmation of valid execution. Some security agreements (ie, industrial liens or mortgages) do require a notary public to file the document (Escritura pública).

  59. 30.

    In your jurisdiction, is there any requirement that a pre-export finance agreement or related security agreements be translated into the local language and be registered with a government authority? Must translations be notarised?

  60. Any document that needs to be registered officially (ie, at the Mercantile or the Property Registry) or that is intended for enforcement in Ecuador needs to be translated into Spanish by a recognised translator and duly legalised or apostilled.

  61. 31.

    Is a banking licence or any other type of approval, consent or filing for an entity to engage in a pre-export financing in your jurisdiction? Does this depend on whether the proposed creditor in such transaction is a foreign entity?

  62. Financial institutions may engage regularly in authorised financial intermediation activities, including pre-export financing, but non-financial entities may also finance certain activities (provided they do not solicit funds from the public, so no intermediation occurs). Therefore, no banking licence, approval, consent or filing is required for a specific transaction.

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Questions

    Bills of exchange

  1. 1.

    Does your country have specific statutes governing bills of exchange?


  2. 2.

    Do these laws follow the Geneva Convention providing a Uniform Law for Bills of Exchange and Promissory Notes of 1930 or the United Kingdom

  3. 3.

    What are the fundamental elements of a bill of exchange that is freely negotiable and enforceable under the laws of your jurisdiction?


  4. 4.

    Under your country’s laws, can a bill of exchange include a governing law clause? Would a foreign governing law be recognised by a local court?


  5. 5.

    Do the laws of your jurisdiction recognise the concept of a “holder in due course” or a “bona fide purchaser”, free from all claims to it by any person and from all defences of any third party?


  6. 6.

    If so, what steps must be taken to qualify as a holder in due course or bona fide purchaser?


  7. 7.

    Are any stamp taxes, duties, levies, imposts or similar charges payable in connection with a bill of exchange pursuant to the laws of your jurisdiction? Who is responsible for paying them?


  8. 8.

    Is a banking licence or any other type of approval, consent or filing required for an entity to purchase a bill of exchange in your jurisdiction? Does this depend on whether the purchaser is a foreign entity?


  9. Letters of credit

  10. 9.

    Does your jurisdiction have specific statutes governing letters of credit?


  11. 10.

    Is the issuer’s obligation to pay independent of the applicant’s ability or willingness to reimburse the issuer and any commercial dispute between the applicant and the beneficiary of the letter of credit?


  12. 11.

    Must a beneficiary’s presentation to draw under a letter of credit comply strictly with the terms of the letter of credit for the issuer to be obliged to pay?


  13. 12.

    Are issuers expected to disregard any non-documentary conditions in a letter of credit under the laws of your jurisdiction?


  14. 13.

    Under the laws of your jurisdiction, must letters of credit have a set expiry date or can they be perpetual? Must letters of credit be available for a specific amount or can they be open-ended in terms of the issuer

  15. 14.

    Are standby letters of credit prevalent in your jurisdiction? What about demand guarantees?


  16. 15.

    Is the use of ISP98 as a set of governing rules for standby letters of credit common or are they generally construed in accordance with UCP600 or other rules?


  17. 16.

    Under the laws of your jurisdiction, can a confirming bank seek a remedy from the applicant if the issuing bank defaults on its reimbursement obligations?


  18. 17.

    Assuming the laws of your jurisdiction apply, are there any elements of letters of credit that cannot be varied by agreement or by provisions stated in a letter of credit?


  19. Account receivable purchases

  20. 18.

    Is the concept of a ‘true sale’ recognised in your jurisdiction? What are the legal requirements for a sale of accounts receivable to be treated as a true sale?


  21. 19.

    In your jurisdiction, is there a centralised register or record of purchased receivables that can be viewed by third parties?


  22. 20.

    Under the laws of your jurisdiction, can a receivable be sold, assigned or pledged without the underlying account debtor’s consent if the commercial contract giving rise to the receivable does not prohibit it? If the consent of the underlying account debtor is required, what is the proper means of effecting such consent?


  23. 21.

    If the seller of the receivables becomes insolvent, could the accounts receivable that have been sold become part of the seller’s estate under the insolvency proceedings?


  24. 22.

    If your country’s laws govern the underlying commercial contract giving rise to the receivable, may the seller enter into an accounts receivable purchase agreement that is governed by foreign law?  


  25. 23.

    Is a banking licence or any other type of approval, consent or filing required for an entity to purchase a receivable in your jurisdiction? Does this depend on whether the purchaser of the receivable is a foreign entity?


  26. Pre-export finance agreements

  27. 24.

    Is there any beneficial tax treatment in your jurisdiction for pre-export finance loans as compared to other types of loans?


  28. 25.

    Regarding pledged property, what is the proper means for creating and perfecting or providing notice of a security interest to make it effective against, and to have priority over, third parties?


  29. 26.

    Is there any restriction on the ability to have a perfected and enforceable security interest over the same pledged property under the laws of your jurisdiction and the laws of a foreign jurisdiction simultaneously?


  30. 27.

    Is there a centralised register or record of security interests in your jurisdiction? Does entry in the register put third parties on notice of the secured interest?

  31. 28.

    Are any stamp taxes, duties, levies, imposts or other similar charges payable in connection with a pre-export finance agreement pursuant to the laws of your jurisdiction? Who is responsible for paying them?


  32. 29.

    Is there any requirement that the signatures to a pre-export finance agreement or any related security agreements be notarised for the signatures or the agreements to be valid?


  33. 30.

    In your jurisdiction, is there any requirement that a pre-export finance agreement or related security agreements be translated into the local language and be registered with a government authority? Must translations be notarised?


  34. 31.

    Is a banking licence or any other type of approval, consent or filing for an entity to engage in a pre-export financing in your jurisdiction? Does this depend on whether the proposed creditor in such transaction is a foreign entity?


Other chapters in Trade Finance

  • Ecuador
    Fabara & Compañía (Quito)
  • Mexico
    Escalante & Asociados