In order to meet the challenges of global competition, a number of U.S. companies have shifted
significant portions of their manufacturing and assembly operations to Latin American countries.
As part of this process, borrowers are asking U.S. lenders to finance transactions involving
Latin American-based assets, making lenders more and more active in cross-border transactions
with assets or entities in Latin America.
Even in deals that exclude non-U.S.
assets from initial collateral packages
and as part of workouts, lenders have
needed to expand the scope of their collateral by perfecting on Latin American–
based assets. Fortunately, the secured
lending process in Latin America is more
viable than ever now, thanks to significant improvements in the laws governing secured transactions there, which
are more lender-friendly than ever.
Perfection and enforcement of collateral
involving assets in Latin America is more
predictable, and lenders are increasingly
familiar with the business practices in
This article was prepared by leading
law firms, members of Meritas Law firms
worldwide, with significant expertise in
cross-border asset-based lending transactions, in Argentina, Brasil, Chile and Mexico,
and addresses some of the frequently
asked questions of U.S. lenders regarding
how to perfect and enforce collateral that
involves assets based in Latin America’s
1. Which laws in your country regulate the
perfection of pledges to foreign lenders?
Argentina: Argentine regulations cover
different types of liens. The ones worth
mentioning are (i) the commercial pledge
(prenda comercial), regulated by sections
580 to 588 of the Argentine Commercial
Code; (ii) the civil pledge (prenda civil) in
sections 3204 to 3238 of the Argentine
Civil Code; and (iii) the registered pledge
(prenda con registro) regulated by decree-law number 15,348/46, ratified by law
number 12,962 and amended by decree
Brazil: The creation and perfection of
security interests in assets and properties
in Brazil are generally governed by specific
rules in the Brazilian civil code. Such rules
apply to security interests granted to
individuals and legal entities domiciled in
Brazil or abroad.
Chile: In Chile, the civil code regulates
mortgages and civil pledges; a code of com-
merce regulates commercial pledges. Spe-
cial pledges are regulated by special laws.
New regulations regarding nonconveyance
pledges (“New Law”) and the yet-unpub-
lished Regulatory Law on Pledges will
eliminate all other types of special pledges
in favor of nonconveyance pledges.
2. Do your local laws and regulations
contemplate the creation of a security
interest to a foreign lender for inventory, accounts receivable or machinery?
In such a case, is a pledge over all assets
(excluding real estate) available?
Argentina: Argentine law regulates liens
over various types of assets (real property,
intellectual property, equipment, stock,
contract rights, receivables, etc.) but
does not enable parties to create a global
encumbrances over all existing and future
assets of a business with a single security
document. This limitation reflects a policy
of recognizing security interests only over
specific, identifiable assets that exist at
the time the lien is created. However, as an
exception to the rules of specificity and existence, Argentine law does allow floating
liens (prenda flotante). Under a floating lien,
a creditor may create a security interest
in a specified amount of fungible goods.
The fungible goods may remain part of the
debtor’s fluid inventory or assets as long as
the overall value or volume of the secured
goods is measurable. In lieu of a lien, lenders often secure credit via a global assignment of existing and future receivables.
Brazil: Brazilian laws regulate the
creation of security interests in inventory,
receivables and equipment. The concept
of a floating charge on assets is not
recognized under Brazilian law, and each
property, asset or right given as a security,
must exist and be fully described in the
relevant security document at the time the
lien is granted.
Chile: Currently, agricultural and industrial pledges exist for: merchandise, raw
materials, farming implements, tools and
instruments that are part of the industrial
line of a business, transportation equipment, manufactured products of similar
nature and replacements as a whole, not
over inventory. These pledges may only
secure obligations that arise from either
agricultural or industrial activities. Nonconveyance pledges may be created for
tangible movable assets.
New Law will allow pledges of unrecorded inventory and future assets, even
if they have not yet been determined. It is
not clear if this will extend to future receivables. All pledges can be granted in favor of
any creditor, irrespective of the creditor’s
nationality or country of residence.
Mexico: Mexican law regulates several
vehicles that create security interests in
almost all types of assets, personal property and real property. The most common
vehicles are industrial mortgages, guaranty
trusts and pledges. Pledges are widely used
to secure accounts receivable, movable
property (such as inventory and machinery)
and shares of stock or partnership interests.
3. Are pledges without possession (float-
ing liens) available?
Argentina: Argentine law regulates the form
of the registered pledge (prenda con registro), which is usually created through a security agreement. In the case of a registered
pledge, the asset remains in the possession
of its owner and the security agreement is
registered to prevent disposition of the asset without the creditor’s consent.
Brazil: As per a general rule of Brazilian law, , the owner of the pledged asset
must actually transfer its possession to
the secured lender (traditio), provided
that such lender may appoint a third
party (including, for instance, an officer
or director of the borrower) to hold the