Trade and Commercial Law Assessment - Honduras - Economic ...

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004HONDURASlivestock and industrial operations, and créditos refaccionarios, 65 which refer to loans for morepermanent operations, machinery, improvements and installations). The guaranty then followsinto not only the production assets acquired with the credits, but also into the goods producedwith those assets and their proceeds. Production credits may be created by a private document,but must be inscribed in both the real property and the commercial registries before theguaranties associated with them take effect against third parties. 66The legal figure of production credits is known in other Latin American countries as well, but theHonduran Commercial Code includes one of the clearest legislative treatments of it. Amongnotable provisions, the Commercial Code gives guaranties for créditos de habilitación o avíoprecedence over those for créditos refaccionarios, and the latter precedence over all otherguaranties. 67 It also places responsibility on the creditor to assure that the credit is used forproduction purposes, at the risk of losing the special priority if it is not, 68 but the special priorityso gained follows the guarantied assets into the hands of third party purchasers who purchasedirectly from the debtor and also affects subsequent purchasers who “knew or should haveknown of the guaranty created against them.” 69Another mechanism developed in the Honduran Commercial Code beyond its treatment in manyLatin American Commercial Codes even today is the fideicomiso de garantía, or guarantytrust. 70 In Honduras, only authorized banks may act as a trustee. 71 The trustee “shall exercisepowers of disposition over the goods and rights given in trust,” 72 according to the terms andconditions of the trust instrument. 73 The statute specifically recognizes trust arrangements that“signify acquisition or substitution of goods and rights, or investment of money or liquidfunds,” 74 operations that easily correspond to collateral guaranties.The guaranty trust under Honduran law permits virtually immediate, extra-judicial executionagainst collateral upon debtor’s default. In the event of debtor-settlor’s non-payment, the trusteemay simply sell the collateral and turn over the proceeds to the beneficiary-creditor, so long asthe trust instrument provides for such process. 75 Among more sophisticated lenders and theirlawyers in Honduras, the guaranty trust is a favored form for structuring secured transactions,although its costs make it prohibitive for most small and medium enterprises seeking credit.65 CdCom, Arts. 918-919, 927.66 CdCom, Art. 921.67 CdCom, Art. 923.68 CdCom, Art. 922.69 CdCom, Art. 925.70 CdCom, Arts. 1033-1062. The statute does not refer specifically to the fideicomiso de garantía, but in a nice turnof legislative phrase the statute does state, “The trust may be constituted to serve all purposes imaginable aslegal activities, so long as they are licit and specified.” (El fideicomiso puede constituirse para servir todas lasfinalidades imaginables como actividades jurídicas, siempre que sean lícitas y determinadas.) CdCom, Art.1049. Consistent with its unlimited purposes, the trust may operate against “all class of goods and rights.”CdCom, Art. 1048.71 CdCom, Arts. 1040, 1054. While no bank may serve both as trustee and beneficiary of the same trust, CdCom,Art. 1038, one bank may serve as trustee to the benefit of another bank.72 CdCom, Art. 1037.73 CdCom, Art. 1048.74 CdCom, Art. 1056.75 CdCom, Art. 1057.VI-5
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004HONDURASHonduran law would permit many forms of secured transactions, particularly through applicationof the more agile and imaginative provisions written into the Commercial Code, whichcontemplate development of new mechanisms as new commercial circumstances emerge overtime. In fact, however, the Honduran credit market has not exploited even the statutory basesavailable to it, because of its strong aversion to risk. Banks and other credit sources simply donot make many loans, and usually turn away potential borrowers with movable collateral to offeras guaranties. These policies regarding risk analysis and lending are characteristic of the attitudeof Honduran lenders, rather than justified by Honduran laws.2. Enforcement ProceduresHonduras’s legal system provides for summary execution of guaranties against collateral, andcreditors’ lawyers and bankers seem reasonably satisfied that they can obtain relativelyexpeditious execution against collateral goods in the event of a debtor’s failure to pay. Althoughboth the Civil Code and the Commercial Code prohibit the pacto comisorio, defined as anycontractual provision that authorizes a creditor to repossess and dispose of collateral withoutjudicial process, available procedures come close. Liquidation of a guaranty trust providesessentially the same extrajudicial, self-help execution available in the United States under theUniform Commercial Code.In Honduras, the constitutional guarantee of due process (debido proceso) and a right to ahearing (derecho de audiencia) before a party may be deprived of any rights in property seem tobe satisfied by minimal judicial participation and notice to debtors with a right to object when anon-trust guaranty is foreclosed. The constitutional guarantee may be vindicated by allowingdebtors to invoke a hearing if they feel that they have viable defenses against the creditor’sclaims. However, where a debtor recognizes that the debt is delinquent and the creditor’s claimagainst the collateral is appropriate—a very common reaction—the creditor should be able toproceed extrajudicially and execute against the collateral in a matter or days, thus radicallyreducing the risk of nonpayment and the associated enforcement costs.C. IMPLEMENTING INSTITUTIONSUntil promulgation of the LdP in June 2004, 76 Honduras had an antiquated, nonfunctionalregistry system administered by the Supreme Court (for which it provided a source of revenue). 77The LdP created an Instituto de Propiedad, which will administer all registries for Honduras.The LdP has begun its reforms by concentrating on real property registries, with an ambitiousplan to convert the entire system to electronic entries, coordinated with a national cadastralsurvey. The reform of the Commercial Registry, which will include inscription of guarantiesagainst movable property, should occur in the near future if the Honduran executive branch cancarry out its program. Some doubt exists, however, concerning the constitutionality of thereforms; and vested interest groups—who view the new LdP as a serious threat to theirprofessional role and revenue—have hurried to file cases raising constitutional challenges. As ofthe date of this assessment no decisions had been handed down by the Supreme Court in thismatter.7677Ley de Propiedad, Decreto No. 82-2004, 15 June 2004.Ley de Propiedad, Decreto No. 82-2004, 15 June 2004.VI-6
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