Volume 4, Number 26, Page 3

Secured Financing and Electronic Registries

RECOMMENDATIONS FOR MEXICO

The articles in this series derive from a visit by NLCIFT staff to the Personal Property Registry in Regina, Saskatchewan, and the information presented at the May 1997 Canadian Conference on Personal Property Security Law, especially that prepared by Ron C. C. Cuming and Greg Hebert. —Editor

The two main features of personal property registries (as implemented in Canada and the United States) can be summarized as follows:

To provide a registration system for secured parties (lenders, sellers, garage keepers, lienholders and, in some cases, buyers) to register their interest in the personal property of a debtor and to establish their priority position vis-à-vis other parties;

To create an inquiry system whereby a person who is intending to purchase or to lend money on the security of personal property may determine if a security interest or lien has been registered against a particular debtor, motor vehicle, manufactured home, aircraft, or other collateral.

The registration system that needs to be established is a notice-filing system. The registry’s function should amount to making information available to the public, not to creating rights between the two parties or regarding third parties. Thus, the information to be registered should be limited to essential data—a summary—in order to establish the nature and scope of the encumbrance and to identify the affected parties.

Several specifications should be established when implementing the system under Mexican law, including the type of collateral that needs to be registered and whether to include serial-numbered goods (motor vehicles, aircraft, boats, etc.). The inclusion of serial-numbered property might be appealing under the Mexican framework because it would generate revenues and would be consistent with growing trends to establish international registries dealing with the transfer of this type of property. (The work of UNIDROIT should be considered regarding the drafting of a Convention Relating to the Recognition and Enforcement of Security Interests in Mobile Equipment.)

Another significant issue is whether or not to include signatures, and, if so, which ones. The United States requires the signature of the debtor, whereas Canada requires that of the secured party for paper-based registrations and no signatures for electronic filings (security devices implemented under the electronic system are deemed sufficient guarantee of the authenticity of the messages).

The debtor’s signature is not required in Canada because the Canadian Personal Property Security Act puts the burden of the notification on the secured party, imposing penalties in the event of non-compliance. Another option would be for the registry to send a verification statement to both the secured party and debtor, with the additional cost being borne by the registrant.

If the filings are done electronically, signature requirements could be met by implementing security standards that may include the use of digital signatures following generally accepted encryption methods.

Considering the discrepancies between the U.S. and Canadian systems as to whose signature is necessary and under what method, Mexico could reasonably require the signature of the debtor, the secured party, or both of them, without limiting the possibility of harmonization. Additionally, or alternatively, different security methods could be adopted in the electronic environment, including the possibility of resorting to digital signatures.

So far, the registration of the financing statement, as described, can be carried out in two basic ways:

a) by submitting a paper-based document to the registry office (either personally, over the counter, or via fax or mail); or

b) by transmitting the registration data to the registry via a remote electronic communications system.

Implementation of the electronic system by no means implies the immediate elimination of the traditional paper-based system. Rather, it is consistent with the trend to gradually modernize procedures that would enhance swiftness, accuracy and accessibility, facilitate centralization, and reduce costs.

A central electronic registry could be implemented in Mexico to register all types of security interests covering personal property, with the possibility of establishing interconnected branches or offices in different parts of the country. This new registry would allow for searches and filings based on the type of collateral registered and/or the identity of the debtor, and would provide third parties with notice of existing security interests.

The information to be filed at this registry would be a summary of the security agreement, thus eliminating the need to register the whole document. A pre-printed form would still be filed, but the information would be in the form of a summary, shorter than what is filed now. Another step in facilitating the process would be to require the registrant (or a representative, which could be a Notary Public, a service provider, etc.) to submit the completed forms, either on paper or, ideally, electronically. As in the Canadian system, different fee schedules could be implemented corresponding to those who file for themselves or those who use registry services.

Conclusions

Mexico is moving toward changes in its secured financing laws. This is the first priority, since modernization cannot begin without implementing necessary legislative changes. These changes would not only guarantee that electronic folios, filings, searches and digital signatures are accepted, but would also bring about the needed additions or modifications to currently applicable commercial law. They would also provide the framework to create and register security interests in all types of personal property: tangible or intangible, easily identifiable or not. One of the most important features of the proposed system is the use of the debtor’s name as one of the basic search criteria. Several of the important features of the system could not function on the exclusive basis of collateral description criteria. So far, a debtor registry has not been generally implemented in Mexico, although some efforts have been carried out to that effect in Hermosillo, Sonora.

Registry modernization in Mexico has focused primarily on electronic access to digital images saved on optical disks, which has proved to be an ineffective, cumbersome and impractical process. Registration is, for the most part, still done manually, and users and registrars alike have been prevented, due to technical impossibilities, from searching or readily accessing existing image databases. The Federal District and some state registries have been striving to change this situation and are moving toward the compilation of all existing information into an easily accessible text database.

The new system should guarantee that all filings are carried out electronically, including an easier registration process requiring only the completion of pre-existing computerized forms.

Mariana Silveira is the Research Director at the National Law Center for Inter-American Free Trade.