The RUG: Floating Lien, Preventive Filing and is the RUG better than the UCC
You may recall our previous posts about securing receivables in Mexico via the RUG (if you don’t, check out this blog post & this infographic). Modeled after our Article 9 of the UCC and Canada’s PPSA, the RUG affords creditors the ability to securely lend to companies in Mexico – including creditors supplying inventory & equipment.
In a recent article published via mondaq, the law firm, Strasburger & Price, LLP, provides an in-depth look at the RUG: how it has evolved since 2000, an exhaustive list of the information to be included in a RUG filing, the idea of a preventive filing, and what makes the RUG better than the UCC.
As mentioned, the article is quite thorough, so we won’t address it in its entirety. Rather, we’ll touch on three specific topics.
First, we’ll discuss an improvement to the RUG, which permits creditors to have security via a “floating lien.”
“Mexico has made significant progress since 2000 by amending the Mexican Commercial Code and the General Law of Credit Instruments and Transactions … to permit personal property security interests to be created more easily on a “floating lien” basis. A new type of nonpossessory pledge … allows a debtor to pledge all of its inventory and receivables, for example, generically described (rather than described by reference to specific items), to a secured party without requiring that possession of the collateral be transferred to the secured party. This pledge can permit the debtor to sell the pledged collateral in the ordinary course of business without obtaining a case-by-case release from the secured party, and can automatically subject newly acquired property to the pledge without any further filing, which effectively results in a floating lien.”
Secondly, though this idea is geared more towards lending institutions, the idea of a preventive filing is definitely worth discussing. In order to allay the fears of any last minute filings potentially taking priority over the lender’s security, the lender can record their security before the loan even closes. The filing is temporary though; in the event the loan does not close, the filing is automatically released, normally 2 weeks later.
“Articles 32 bis 5 of the Commercial Code amendments and 33 bis of the Amended Registry Regulations permit the proposed lender to make a filing prior to the scheduled closing, which will have the effect of preventing any other lender from making a filing that would have priority over the later definitive filing by the proposed lender of its own security interest. If the closing does not take place, the debtor need not seek removal of the preventive filing from the records of the RUG, because such filing would automatically cease to be effective after the passage of a specified period, normally two weeks.”
Is the RUG Better than the UCC?
Lastly, the author poses the question, “Effect of the Reforms: Better than the UCC?” In other words, does the RUG have a ‘leg up’ on the UCC? While not completely ahead of the UCC (after all, the RUG is still quite young), the author does highlight two features of Mexico’s process that the U.S. (and Canada) could learn from:
“Two features are present in the Mexican situation which did not exist in the case of the adoption of the UCC. First, the RUG will be the sole registry in Mexico for filing security interests in personalproperty, unlike the separate filing systems in the 50 States of the U.S. and in the District of Columbia, and many local filing places such as the offices of County Clerks. Thus, the sometimes thorny question in the U.S. of where to file will not apply in Mexico. Secondly, the RUG is exclusively electronic, as opposed to the recordation systems in the U.S., which initially relied entirely on paper filings and have only recently began to transition to electronic systems, gradually, on a State by State basis.”
If your company is extending credit to companies in Mexico, I encourage you to read the article, Mexico’s Unified Secured Transactions Registry Offers New Opportunities for Secured Lending, in its entirety. Any opportunity you have to become a secured creditor is an opportunity you should seize!
If you have any questions about the RUG, please contact us! SecureYourTomorrow@ncscredit.com, 800-826-5256.
Please note, opinion may vary on the method of filing; electronic v. paper. Consult your legal team.
Outside Our Walls
Wrapping up the series, “Assessing and Reinforcing Litigation in Mexico,” Romelio Hernández discusses legal strategy in Part 3.
“The last piece of the puzzle is all about reducing risks and raising your chances of success. This comes while confirming that you have a good quality case with moderate risks. The equation involves good legal counsel that is willing to share the risk, and a sound action plan that you can both come up with to control the costs and time of litigation. We should look into these factors in more detail.”
As if keeping track of preliminary notice and mechanic’s lien deadlines weren’t tough enough (unless of course, you are taking advantage of NCS!), claimants should also be wary of the deadline imposed by a Demand to Commence Suit.
Check out this week’s post to learn more about what a Demand to Commence Suit is and to see what could happen if you don’t respond to the demand! What is a Demand to Commence Suit?
- Louisiana—SB195—Public Private Partnerships
- SB195 includes provisions for the Louisiana Department of Transportation and Development to authorize certain public-private partnership contracts. Click here for more information.
- Connecticut—HB5328—Public Work Contract Retainage
- Effective 7-1-16, HB5328 changes the retainage amount for certain public work contracts from 10% to 7.5% and allows for collection of reasonable attorneys’ fees and costs when a payment bond surety company does not respond in a timely fashion to a claim for payment. Click here for more information.
Upcoming Educational Opportunities
- Free Webinar July 26th, 1:00 pm: Bond Claims and Public Construction
- Free Webinar August 2nd, 1:00 pm: Understanding the Mechanic’s Lien Process for States with Notices of Non-Payment
Will you be at CRF Credit and Accounts Receivable Open Forum & Expo? You’d better swing by booth #40 because Craig Slimmer, Director of Sales & Marketing, and Sandra Stelmarski, Account Representative, will have a case of the Blues!
NCS Fall Seminars
Plus, more info coming soon on seminars in Los Angeles & Chicago!