Some companies granting high-value credit rely on the fact that, by being secured through non-possessory pledges or guaranty trusts, they will face fewer difficulties in recovering their investment in the event of a debtor’s default.
On the other hand, if the formal requirements mandated by law to establish such collateral are not met, creditors may lose the possibility of accessing a privileged enforcement proceeding.
Both types of collateral grant creditors a special procedure that allows them to obtain rapid possession of the secured assets if the debtor defaults.
However, for this to occur, the law establishes additional requirements for the guarantees to be formally constituted.
When the amounts of the secured credits are equal to or higher than 250,000 Investment Units -UDI- (approx. 2.17 million pesos), the law requires that, besides the security agreement being in writing, the parties’ signatures be ratified before a notary public.
The Supreme Court validated these requirements when analyzing a case in which a group of creditor companies sued for the collection of a debt.
The creditors did not ratify their signatures on the secured contracts, trusting that the debtor’s ratification was enough. The courts of Nuevo León concluded that the special enforcement rapid proceeding sought by the creditors was inadmissible.
Subsequently, the Court validated that the legal form required is a reasonable condition to access a special enforcement proceeding that does not infringe upon the creditors’ right of access to justice.
On the contrary, such a requirement provides them with greater certainty regarding the amount, conditions, and agreed-upon collateral.
What lessons can we learn from this new decision of the Supreme Court?
For creditors:
Confirm that credits granted in an amount equal to or higher than 250,000 UDI are not only set forth in writing but also that the parties jointly appear to ratify their signatures before a notary public.
Verify that, based on the nature of the secured assets, it is confirmed whether additional formal or registration requirements must be satisfied.
For debtors:
Ensure formal requirements for the constitution of collateral are met, and do not assume that, in case of non-compliance, only the creditors will be affected.
A proceeding other than the privileged special enforcement for this type of collateral will result in the debtor ending up paying additional amounts for interest and associated expenses.
