Reinforcing Sales Documentation for Strong Collection Claims: Lessons from Litigation in Mexico November 29, 2018 Presented by: Romelio Hernandez in partnership with BARR Credit Services Main Goal of the Webinar: To enhance the position of trade creditors by helping them gain a strategic advantage in litigation, should it be required to collect a debt. Objectives: To gain a general understanding of the legal process in Mexico, and the challenges that creditors face during litigation for collecting debt. To identify key documentation needed for evaluating and raising the likelihood of success of potential legal action in Mexico. To identify the key elements and best strategies for selling to buyers in Mexico on credit and reinforcing through the available security devices, for bringing a strong and agile legal action for collecting debt. Features: Through actual case-studies, we will gain basic knowledge and understanding of: Legal proceedings Mexico, including current problems and challenges, as well as recent developments. Specific challenges of debt collection and litigation in Mexico, as compared to the USA. Essential supporting documents and best terms of sale for gaining leverage over debtors. How secured transactions enhance the position of creditors against debtors. How to assess, choose and implement the best security for creditors,what problems should we avoid, and How can we enhance a security device, and how to create and implement a plan for securing credit sales in Mexico Directed to: Credit and general managers responsible for managing credit and/or sales in Mexico and Latin America, as well as foreign attorneys or debt collectors engaged in or considering litigation in Mexico. Presenter Romelio Hernandez President HMH Legal, Credit & Collections Romelio Hernandez is President of HMH Legal, a professional corporation specialized in credit and collection services in Mexico. He is based in Tijuana, Baja California, México, where he works with foreign exporting companies and collection agencies assisting them with their out-of-court and legal collection efforts throughout Mexico and Latin America. His litigation experience of 20 years and exposure to international commercial law has allowed him to provide guidance to foreign companies in mitigating the various risks of selling international. Romelio graduated from Universidad Autónoma de Baja California, and was admitted to practice law in Mexico since 1997. Romelio holds a Masters’ Degree in Comparative Law (LL.M.) from the University of San Diego School of Law (2011).

1. Romelio Hernandez
Reinforcing Sales Documentation for
Strong Collection Claims
- Lessons from Litigation in Mexico -

2. “Legal collection in Mexico
is challenging. Secured
transactions opens up the
possibility of truly enforcing
your claims efficiently and
effectively.”

3. Our program
1. Legal landscape - challenges
2. Strategy: securing transactions
3. Conclusions - checklist

4. Legal Landscape

5. RANK COUNTRY TIME (days) COST (% of claim)
1 Republic of Korea 290 12.7
16 USA 420 30.5
41 Mexico 341 33.0
47 Brazil 731 22.0
177 Colombia 1288 45.8
107 Latin America 767.1 31.4
Enforcing Contracts 2018
Doing Business Guide - The World Bank Group

6. RANK COUNTRY SCORE
1 New Zealand 89
8 Canada 82
16 USA 75
96 Brazil 37
96 Colombia 37
135 Mexico 29
Corruption Perceptions Index 2017
Transparency International

7. Indicators Brazil Colombia Mexico
Overall Global Rank 52 72 92
Constraints on Government
Powers
50 65 83
Absence of Corruption 63 83 102
Order and Security 83 104 99
Civil Justice 61 77 100
Criminal Justice 85 92 105
Rule of Law Index 2017-2018
The World Justice Project

8. Privileged actions in Mexico
• Promissory note Executive proceeding
• Pledge Special proceeding
• Mortgage Summary proceeding
• Invoices Ordinary proceeding

9. • Bankruptcy
• Taxes
• Employees
• Creditors
• Debtor
Challengers

10. Strategy

11. 1. Reinforcing terms of sale
2. Securing payment obligations
Strategy

12. 1
Terms & Conditions
(credit application)
2
Offer to Buy
(purchase order)
3
Performance
(bill of lading or
shipper import)
The Contract of Sale

13. Buyer
(debtor)
Seller
(creditor)
1
Performance
2
Payment Obligation
The Loan Agreement

14. Terms of Sale

15. 1. Governing law and jurisdiction
2. Obligations from sales contract
3. Creating incentives for buyer
4. Optional arbitration
Terms of Sale

16. Incentives
1. Late fees
2. Attorneys’ fees and court costs
3. Damages
Make a debtor think twice about not paying

17. Right Incentives
Timeline of full case to enforce a bond

18. Secured Transactions

19. 1. When you get collateral
2. When you put in place contracts
that create strong obligations
from debtor or third party that
are efficiently enforced.
Secured Transactions

20. Contracts that create strong
obligations (“in personam”)
Contracts that apply specifically to
collateral (“in rem”)
Personal guarantee Non-possessory pledge
Pagaré Classic pledge
Bond Mortgage
Contracts that create strong obligations (“in personam”)
as well as “in rem” rights
Title retention clause
Guaranty trust

21. Personal Guarantee
1. Financial condition of guarantor is key
2. No privileged action available
3. Authority for guarantee is key
4. Guarantor is not joint obligor, unless…
Someone else responding for the debt of your debtor

22. Pagaré
1. Immediate attachment order
2. Presumption of debt favors creditor
3. Bankruptcy stay on proceedings
An enforceable unconditional promise to pay

23. Enhancing Security

24. • Rights and obligations
• Preferred agreed proceeding
• Jurisdiction and venue
Enhancing Security

25. • Think “fast-track” arbitration
• We could improve:
–Experts
–Personal notices
–Limits on evidence and appeals
–Execution process (auction)
Preferred agreed proceeding

26. The Plan

27. 0
1
2
3
4
5
6
7
Personal Guarantee Pagare Bond Trust
Implementation Enforcement Security
Assessing security

28. Layers of protection
Mortgage
Pledge
Pagaré
Terms of Sale
Credit App +
Personal
Guarantee

29. 1. Generate Statement of account or
all customers
2. Create Letter confirming balance,
for audit purpose
3. Customers will sign (L+S) and email
back, original by mail
Homework

30. Caveat

31. • Assuming that law is “law”
• Legal concepts may have no
meaning across the border
• Remedies lacking recognition
or privileged action
Cross-border risk

32. Due Diligence!!!

33. CONCLUSIONS
1. Collecting through the courts in Mexico is
challenging.
2. Reinforcing sales by securing transactions
opens up the possibility to enforce your
claims efficiently and effectively.
3. Create a plan to secure your transaction
by considering the following:

34. Checklist
1. Discuss with local counsel best terms of sale
and create right incentives.
2. Identify security devices with local counsel
and choose the most cost-effective,
enhancing when possible.
3. Add as many layers of protection as possible.
4. Do your homework!!!

35. HAPPY SALES!
For additional information or copies of slides please
contact us at: romelio@hmhlegal.com