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Criteria for enforcement
What are the common enforcement triggers for loans, guarantees and security documents?
The event of default, as defined in the applicable financing documents.
Process for enforcement
What are the most common procedures for enforcement? Are there any specific requirements with which lenders must comply?
There are different procedures for enforcement, depending on the kind of security created. For instance, a mortgage enforcement procedure is different from a guarantee trust procedure. There are also judicial procedures before the courts and extrajudicial procedures where the courts are minimally involved; notwithstanding this, the most common procedures for enforcement are extrajudicial procedures that are agreed on by the parties. This is the case because the law provides minimum requirements to meet in order to agree to these procedures. For example, an extrajudicial procedure in connection with a guarantee trust must be agreed in a special section and fulfilled by the following:
- The creditor must instruct the trustee in order to commence the extrajudicial procedure and specify the debtor’s default.
- The trustee must notify the debtor and the debtor must have the opportunity to prove its compliance or interpose permitted objections (novation or extension).
- If the debtor does not prove its compliance or objections, the trustee must proceed to foreclose the secured assets in the terms and conditions previously agreed between the parties.
These steps must have compliance deadlines. If the parties do not agree to the extrajudicial procedure, the law provides a judicial foreclosure procedure for the secured assets.
Ranking in insolvency
In what order do creditors rank in case of the insolvency of a borrower?
Creditors are ranked in the following order:
- creditors against the estate (eg, labour claims regarding unpaid salary for the past two years);
- singularly privileged creditors (eg, illness and burial expenses);
- secured creditors (eg, pledged and mortgage);
- labour creditors and tax creditors;
- creditors with special privileges (eg, right of retention);
- unsecured creditors (ie, not subject to any guarantee or collateral security); and
- subordinated creditors.
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