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Criteria for enforcement
What are the common enforcement triggers for loans, guarantees and security documents?
The lender and borrower negotiate the events of default that will trigger enforcement of the collateral. Normally, these can include failure to make timely payments, if the borrower is subject to a foreclosure proceeding against any of its assets, breach of contract and so on. The borrower must waive its right on the term of the loan for the lender to be able to legally enforce the security; such waivers are found in almost all commercial contracts.
Process for enforcement
What are the most common procedures for enforcement? Are there any specific requirements with which lenders must comply?
Where foreclosure is the appropriate course of action, the steps will vary depending on the type of collateral, but all of them involve:
- notice to the debtor through a bailiff’s act (a document notified by an officer of the court) indicating the existence of an event of default;
- a request for foreclosure of the assets granted as security (filed either before the court or extra-judicially, depending on the asset); and
- the sale of the assets at a public auction; in the absence of third-party bidders, the lenders will automatically receive the asset in full as payment of the debt.
These processes are carried out in the local currency of the Dominican Republic. The proceeds of sale may be converted into foreign currency without restriction and can be transferred abroad as desired.
The private disposition of collateralised assets, enabling a creditor to take control of them without undergoing a public process, is prohibited under Dominican law. Creditors can call for a bid on the assets or request the court overseeing the process to assign them the assets for the amount of the debt.
Law 189-11 established an accelerated foreclosure proceeding for mortgages granted to secure a bank loan.
Ranking in insolvency
In what order do creditors rank in case of the insolvency of a borrower?
Credits originated after the commencement of the insolvency proceedings, when approved by the court, have a higher priority in relation to all other secured and unsecured claims other than those owed to the tax authorities, the employees or originated by the insolvency proceedings.
Article 86 of the Bankruptcy Law 141-15 establishes that the payment of debts must be performed in the following order:
- Labour liabilities, whenever they have not been advanced in accordance with the provisions of the labour code or any other laws regarding social security or employee health.
- The costs and expenses originated by the reorganisation process, including the fees of the officials and auxiliaries involved.
- The loans approved by the court and granted by financial intermediation entities or third parties for the financing of the debtor.
- The credits of essential and public service providers or suppliers, duly authorised by the court.
- The debts resulting from the execution of contracts that remain in force after the commencement of the reorganisation process, when approved by the court and the corresponding creditor agrees to deferred payment.
- Other liabilities, according to their priority (secured credits will prevail).
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