Message From the New Executive Director

VOLUME 3, ISSUE 3, FALL 2011 Message From the New Executive Director By Annette Waggoner, Executive Director Commercial Collection Agency Association As I prepared for my position of Executive Director, I came across a 1993 article which chronicled the history of the CCAA. It was entitled, History of the Commercial Collection Agency Section of the CLLA, and was written by Frank Uhlman, Sanford Harris, Gordon L. Calvert, and Stanley Tulchin. As I read the article, I smiled. It read, At the CLLA Convention at the Doral Country Club in Florida in July 1972, the Section was organized on a permanent basis. I recalled that was the reason our family s summer vacation was at that location. Since my father was an inaugural member of the CCAA, I grew up attending many CLLA conferences. Spending summer breaks at various conferences such as the Doral Country Club in 1972, my exposure to the CLLA and CCAA occurred early in my childhood, as I gained a basic understanding of my father s occupation. In the meantime, however, I was having fun at the pool with other children of CLLA members, and thus began the foundation for my strong ties to the league s and association s members. My professional life began as an accounting officer with Chicago Title & Trust Company, where I specialized in financial analysis, auditing and mergers and acquisitions. I remained with Chicago Title for a period of five years, until I joined Cosmopolitan Service Corporation. There I held the position of Vice President of Operations and Treasurer. Alongside my brother, I started the transition for the family owned and operated collection agency to pass the torch to its second generation. My various duties at Cosmopolitan allowed me to learn the collection business from the ground up, while bringing my computer and accounting knowledge to the agency to catapult it into the new millennium technologically. Throughout this time at Cosmopolitan Service Corporation, I continued with my involvement in the CLLA by being an active member of regional committees and task forces. In fact, one of the kids I played with in the pool at the Doral was, years later, the attorney who asked me to join the Midwest Region Council. I served the region as Secretary, First Vice-Chair, Chair-Elect, Chair and Immediate Past Chair. One of the most gratifying experiences was to have the honor to chair the 2010 Midwest meeting and Annual Conference in April, 2010. As a member of the National Education Committee, Nominating Council, Robert E. Caine Leadership Award Committee and Strategic Planning Committees, I furthered my experience in the CLLA, building business relationships and contributing to the various functions of the league. My Executive Council Member position of the CCAA prepared me for the road ahead, my new assignment as Executive Director. Serving on the council gave me the insight to the workings of our association, the relationship it has with the League, as well as the important relationships it has with organizations with which we network. I have a tremendous amount of respect for the toils of our members during the past forty plus years. We have seen the League change and we, ourselves, have changed. In addition, we have witnessed changes in the technological world and we see how our agencies have evolved. What remains constant is the desire to make money and create business opportunities. I am grateful to be able to bring not only over twenty years of professional experience to the position, but a strong personal connection to the CLLA and CCAA that will assist me in making I N T H I S I S S U E Legal Issues...2 Determining the Liabilities of Successor Corporate Entities What is a CCAA Certified Agency...4 International...6 Collections Most Frequently Asked Questions For Recovery Of Debt In Mexico Minimizing Your Company s Escheatment Exposure:...8 Three Questions to Ask When Developing Procedures to Minimize Your Unclaimed Property Liabilities Members...13 our fine organization achieve continued success in the years to come. Please feel free to contact me via telephone, fax or email. I look forward to hearing from you. The following is the new information to contact me: Annette M. Waggoner Commercial Collection Agency Association P.O. Box 142 Arlington Heights, IL 60006-0142 annette.waggoner@yahoo.com awaggoner@ccaacollect.com Telephone: 847-907-4670 Facsimile: 847-496-7360 Cellular: 847-528-5055 n

INTERNATIONAL COLLECTIONS MOST FREQUENTLY ASKED QUESTIONS FOR RECOVERY OF DEBT IN MEXICO By: Romelio Hernandez, President and Director of Litigation, HMH Legal 1. Under what circumstances would it be more convenient to rely on Mexican courts for the direct recovery of debt, choosing therefore and including a Mexican venue provision in our contract (to be subject to the jurisdiction of Mexican courts)? Much of this decision has to do with practical reasons, such as when will a Mexican court provide for a faster, less expensive, and still safe proceeding for your recovery of debt. Generally, a non-complex contested commercial case will take approximately one year to be resolved in a Mexican court, without adding an appeal process and any constitutional injunction proceedings (Amparo), which could add up another 9 to 12 months. That time could very well double in a complex commercial dispute or in a collection case involving a large amount of money. It is probably only in these two last scenarios where you could consider choosing a foreign court or arbitration for resolving your disputes instead of a Mexican court, but not in the first mentioned, because of cost-effectiveness. Just to get an idea, the following costs should be considered when thinking about bringing a claim to a foreign court or an arbitration tribunal: Arbitration costs. According to the International Chamber of Commerce (ICC), costs add up to $5,875 dollars for a $25,000 dollars case, and $13,000 dollars for a $100,000 dollars case, for arbitrators fees (one, and not including his expenses) and administrative expenses. In Mexico, the Arbitration Center of Mexico (CAM) charges around $7,700 dollars for arbitrator s fees (also one, and not including expenses) and administrative expenses for any lawsuit of up to $100,000 dollars. Counsel s fees for arbitration. Lawyers involved in arbitration generally will charge an hourly fee for their services, and not a fixed fee or a contingency fee. Costs for service of process. If you are going to bring a case in a foreign court and your debtor is located in Mexico, you will still have to comply in strict manner with Mexican procedure rules for proper service of process in Mexico. That means that you will have to go through a Mexican court to serve the defendant properly once a formal request is made through a Letter Rogatory from the foreign court. Failure to do this properly will invalidate your judgment and will make it unenforceable. This service will require the help of counsel in Mexico, who will generally charge an hourly fee. (It is also recommended to at least substantially comply with Mexican procedure rules for the service of process during arbitration. Failure to do this could allow a defendant to argue infringement of his fundamental rights provided under the Mexican Constitution). Costs for enforcing a judgment. Again, you are going to need the help of counsel in Mexico to enforce a judgment. They can charge either hourly or contingency fees. You will need to keep in mind that the process of homologation and execution is complex and there are many risks involved due to the level of defenses that the defendant will have. Thus, you will have to throw this factor into the mix in your evaluation of whether to sue in Mexico directly, or whether to sue in a foreign court and then try to enforce a judgment. Adding up all these costs (without considering pre-judgment remedies), you would realize that a recovery for a modest amount of money may not result in a profitable business after all if are inclined on suing or commencing arbitration outside of Mexico. For this reason, we believe that collection cases worth $100,000.00 dollars or less are best pursued directly through a Mexican court. You should be confident that Mexican courts are each day more and more reliable and efficient, especially for these kinds of cases. Retaining a counsel in Mexico for collection will waive all the above-mentioned costs, since you will be able to find reliable attorneys that work under contingency fees. 2. What are the requirements for the international assignment of receivables from a debtor in Mexico (either an international assignment or an international account receivable)? Notification of an assignment or a payment instruction to the debtor will be effective every time the debtor acknowledges such notice either by express or implied means, such as complying with the new terms of payment. However, whenever the debtor does not acknowledge such notice, does not agree with new payment terms to the assignee, or just defaults payment with no cause, a formal notification will have to be done in strict compliance of Mexico s commercial laws. Article 390 of Mexico s Commercial Code provides that the assignment of receivables is to be done with proper notification of the debtor before two witnesses. However, it is a common practice in Mexico to give notice to debtor with the help of a Notary Public instead of the two required witnesses. This is known in Mexico as a formal notification, and there are certain formalities that have to be satisfied, something a Mexican attorney will be able to help with. In order for the notice to be valid, it has to be done through a legally appointed representative of the creditor See International page 7 6 Fa l l 2 0 1 1

continued from page 6 or assignor. That means that a power of attorney will have to be furnished to the creditor s representative in Mexico, and such power of attorney will have to strictly comply with Mexican laws on issuance of powers of attorney. This document will also have to be furnished to the debtor at the time of notice. Furthermore, notice will have to be provided in Spanish language or proper translation of documents will have to be provided at such time. It is also highly recommended that all documents pertaining to the assignment are furnished to debtor, making sure he is well informed of the transaction, and of the legitimacy of the rights claimed by the assignee. This step should be taken to avoid future problems that the assignee may have in trying to collect such receivables in court. 3. How can I appoint a representative to act on behalf of my company in Mexico? If your company intends to pursue legal actions in Mexico, or is either entering into formal contracts within the Mexican territory, a legal representative must be appointed to act on its behalf through a formal power of attorney. Powers of attorney to be utilized in Mexico must be carefully drafted, and must also conform to either one of the following International Treaties: The Washington Protocol on the Uniformity of Powers of Attorney Which are to be Utilized Abroad of 1940; or The Panama Inter-American Convention on the Legal Regime of Powers of Attorney to be Used Abroad of 1975. Both these treaties provide for a handful of legal requirements and conditions that will have to be satisfied and strictly complied with in order to have full binding effects in Mexico. Some of the basic requirements include: Certification and attest by a Notary Public. A Notary Public has to attest that the company granting powers of attorney was duly formed and is legally existing, that the individual acting on behalf of the company has capacity and authority to delegate special and general powers of attorney, etc.; Purpose and extent of the power of attorney. The purpose and limitations of the power of attorney must be determined in precise terms, e.g., for lawsuits and collections, to buy and sell goods, to manage the company s business, etc.; Language. The power of attorney is to be executed in Spanish, or you should provide proper translation of all documents pertaining to the same; Authentication and legalization of power of attorney. The Notary Public s signature and certification must be asserted by a Government official as valid, and an Apostille for such official certification must be obtained; and Filing. It is recommended that powers of attorney are filed in the Public Registry of Commerce in such City or State where the power of attorney is to be used. These are just some of the main requirements provided under the International Treaties. You should therefore seek further legal advice from counsel in Mexico to make sure that every condition and all requirements are met. 4. What legal recourse do I have in Mexico if buyer defaults payment? There are several remedy options available to pursue a collection in court, each according to a different strategy and dependent upon how the commercial transaction was conducted and documented. In general terms, you can file a complaint for an ordinary proceeding or CCAA continued from page 4 visits of CCAA members are made each year by the Executive Director. We believe you will agree that a comprehensive process is in place to protect the integrity of the Certification and the CCAA Seal. for an executive proceeding. If an executive proceeding is not available due to its strict nature and constraints, there is a preliminary proceeding available that can further allow access to the executive proceeding. There is also the possibility of securing a prejudgment remedy to be discussed in a following question. For now, we will try to explain how these particular proceedings work. Ordinary proceedings. These proceedings accommodate for most of the cases where an international business transaction is disputed, including a debt collection claim. This is mainly because they do not rely on a credit instrument or a special title document (título ejecutivo) and, thus, do not allow for immediate interim measures to guarantee proper execution of a final judgment, unless strict guidelines for prejudgment remedies are followed, including the posting of a required bond. Some features of the ordinary proceeding include the fact that it is a relatively longer proceeding, it allows a party more time and opportunity to prepare and request the admission of evidence in court, and it also provides wider opportunities for counterclaim. Executive proceedings. Plaintiffs find more reliable and comfortable to sue with an executive action rather than through an ordinary proceeding. Reasons are plenty. First of all, the special title (título ejecutivo) on which the proceeding is based creates a presumption that the claim exists and that it s legally valid, which turns the burden of proof on the defendant. Secondly, the same title gives a preliminary certitude of the plaintiff s claims, allowing an immediate ex See International page 10 The CCAA Seal has come to be recognized in the business credit community as akin to the Good Housekeeping Seal of Approval and many large and mid-sized companies will not do business with an agency that has not been certified. You should know that the CCAA takes its responsibilities to the integrity of the Seal and the Certification Program very seriously. n 7 Fa l l 2 0 1 1

continued from page 7 parte prejudgment attachment order without placing bond. Thirdly, it is rather a summary proceeding in which evidence admission and proposals are limited to the initial stages through the complaint and answer s briefs. This makes for a shorter and faster proceeding in which a final resolution is usually going to be rendered in less time. The drawback to this proceeding is that is not always available to all creditors since they must account for a título ejecutivo, which can be a credit instrument, a judgment, or a judicial acknowledgment of debt among other possibilities. Preliminary proceedings. The main purpose of a preliminary proceeding within the collection process is to obtain a judicial acknowledgment of debt that will enable an executive action instead of following an ordinary proceeding. It usually starts with a formal petition from creditor in which facts relating to the debt are stated and a subpoena or citation for debtor is requested. The court will setup a hearing date in which debtor will have to respond as to whether he owes the creditor or not. If the debtor fails to show up at the hearing, the judge will consider the stated claim as legally acknowledged by debtor. The supporting documents to the acknowledged debt will constitute a título ejecutivo that can be enforceable through an executive proceeding. Oral proceedings. An amendment to Mexico s Commercial Code on January 27, 2011 created the new oral proceedings, which are to take effect throughout the country on January 27, 2012. These are to represent the proper proceedings for small claims of roughly $18,500.00 US Dollars or less. The purpose of this amendment has been to create a shorter and faster legal process where all its stages are concentrated in two hearings: 1) the preliminary hearing to rule on the necessary evidence to be authorized and disclosed at trial, and 2) the trial hearing, where all accepted evidence will be disclosed, followed by the verdict from the judge within ten days. Many lawyers and academics believe that this is where the general legal process is heading in Mexico to allow for a more expedite and accurate justice. Many also believe that the new oral proceeding for small claims is the experiment. Whether this will hold true or not, only time will tell. 5. What is the general process of commercial litigation in Mexico (overview)? The general process of litigation is comprised of five main stages for both the executive (EP s) proceedings and the ordinary proceedings (OP s). The main difference in these two types of proceedings as we mentioned before, is the shorter or longer periods of time available to parties for discharging procedural actions or obligations within a given proceeding. Some of the main features of each stage or phase are the following: 1) Exhibition stage. The process of litigation is generally commenced by filing a formal complaint, and by proper service of process upon defendant, allowing him from 8 to 15 days to file a formal written answer. After the answer brief is filed, the plaintiff is given a 3-day period to reply to any argument made by the defendant, and 9 days to reply to any counterclaim that the defendant might sustain in an OP. It is during this stage that an order for seizure of assets will be executed in EP s, mainly during the service of process phase and without any need of placing a bond. The service of process itself is a very important act and almost considered a sacramental one. The service of process must be executed through an official court clerk, and must fully comply with local civil procedure rules. 2) Probatory stage. Any piece of evidence that claims to support a cause of action (documents, witnesses, experts, etc.) must be first proposed to the court (asked for its admission) for disclosure during a hearing. Such proposal must be made during the exhibition stage, included in the complaint and/or answer briefs, during EP s. Once allowed they should be disclosed within 15 days, at a formal hearing. During OP s, parties must request the court for a 10 day period to offer evidence. Once evidence is accepted, they will have 30 days to disclose all evidence during a formal hearing. The procedure itself is mainly conducted in written fashion. The nature, purpose, and extension of the hearings are very different from trial, as known in common law jurisdictions. It is important to consider that in Mexico there is no pretrial discovery stage, and the plaintiff must plead with particularity. Since there is no opportunity to amend a complaint once it is filed in court, a plaintiff commencing a lawsuit will need to have everything ready upon filing its complaint, such as: 1) facts, and 2) evidence. 3) Conclusion stage. After all evidence has been rendered and the probatory stage has ended, parties are given a 3- day period each to make allegations (2 days for EPs), which will have to filed through formal briefs (in writing). Unlike common law jurisdictions, there is no opportunity to give final oral statements that will be kept on record and later considered by the court. Following the allegations period, the judge will have 15 days to decide its case on OP s, and 8 days in EP s. 4) Appeal stage. After a judgment has been rendered, there is a 9-day period to file an appeal by which the proceedings or the judgment itself can be reviewed by the court of appeals (generally the State Superior Court). Respondents in an appeal process are given a 3-day period to reply to arguments and allegations made in the appellate brief. There are no oral arguments in this phase, and every allegation will have to be made in writing. Within three days after the court of appeals has received the case file, it will decide whether to admit the appeal process or not. Following this period, the court will have 20 to 30 days to enter a decision and issue a resolution either affirming or reversing the lower court s decision. See International page 11 10 Fa l l 2 0 1 1

continued from page 10 In additional to an appeal process, there is a possibility of losing parties filing a constitutional injunction proceeding (Amparo proceedings) through a federal court, which can be filed to challenge a decision from the state court of appeals. 5) Executive stage. The final step in any legal proceeding will be executing the judgment. This will only be possible when the resolution is final and has the force of res judicata (no appeal or amparo proceeding must be pending). During this phase there is generally a 5-day period granted to the defendant to voluntarily comply with the judgment. After such period has expired, an execution process will begin, starting with the seizure of defendant s property and proper sale by judicial auction. Here there are various methods of execution, including writs of attachment and garnishment orders. Generally, remedies are limited to very specific actions during the execution process, and there is a chance that the defendant might seek obstruction through Amparo proceedings. Nevertheless, an amparo against execution is also limited and generally only permitted against the judicial auction at the end. 6. What judicial prejudgment remedies are available to creditors in Mexico? The Mexican Commercial Code provides for several precautionary measures, including a seizure of goods order (embargo or secuestro), which has both features of the attachment and garnishment orders. Such remedy which we will call throughout this paper attachment order will therefore allow a creditor to seize property in the control of the debtor or to levy on real property by an act of recording, and also to levy on the debtor s tangible personal property in the possession of a third party or to levy on an intangible obligation owed to a debtor (including bank accounts). Although the remedy is fairly available to all creditors, there are certain conditions and requirements that must be fully complied with, since the measure is granted as an ex parte relief. Firstly, the petition for an attachment order as a precautionary measure has to be well supported by documents or witnesses showing that 1) petitioner has a prima facie underlying claim on the merits; and 2) there s a potential risk that debtor will hide or transfer ownership rights on his real or personal property. Secondly, once the attachment order is granted, the creditor must post a bond that will indemnify the debtor for damages if there s any wrongful attachment, or if creditor fails to obtain judgment in the suit. The attachment will be then executed only after the bond is posted. (The amount required for the bond is left to the court s discretion, and generally ranges from 10 to 20% of the claim). Thirdly, since the attachment is a remedy ancillary to a suit, the same will be ineffective if there s no suit filed within three days of the execution. Such term can be extended if the suit has to be filed or followed in any foreign jurisdiction. 7. Can I recover even if I don t have a signed contract? Modern legislation in Mexico legally binds a party to a commercial transaction even when no written agreement has been executed, or no documentary evidence is accounted for. In support of such trend, the Vienna Convention on Contracts for International Sale of Goods ( CISG ) provides that no international transaction will need to be executed in writing or that upon controversy written evidence will not be required. If you can show that there was an agreement for the sale of goods, and that you honored your end of the bargain, you will be able to enforce your rights and collect your money. One major risk under this scenario is that witnesses will be highly required for your case in a contested lawsuit, and good and impartial witness are hard to come by. In addition, the legal process in Mexico requires at least two coincident witnesses to prove each of the alleged facts. So again, a creditor will want to stay away from a complex case where lots of witnesses will be required. Sometimes when there is enough documentary evidence to support a claim, a witness will not be necessary, especially when the debtor has recognized the exhibited documents as true and correct. This would be the ideal scenario for a creditor. 8. Does it make a difference how long the account has been overdue? Yes. The statute of limitations in Mexico for enforcement of commercial transactions made within the country is one year for retail sales and ten years for wholesale sales. On international or cross-border sales, the statute of limitations is four years according to Vienna Convention (CISG). For a criminal matter where a debtor committed fraud against the creditor in obtaining credit or merchandise, the statute of limitations is one year upon date of notice or acknowledgement of such crime, extendable to two years on special cross-border matters. Besides legal constraints, collectability has much to do with practical factors, such as how fast our actions are, and how fast the claim is pursued when compared with other creditors. The premise first come, first served is proven to be true when a debtor has hit financial crisis. Undercapitalized businesses are common in Mexico (as they are everywhere), so the few assets a company has to pay its debts with will be allocated to those who seize assets and execute upon them first. Finally, it is common to see how debtors very easily transfer the company s assets to another business without a proper liquidation process. Although there is legal recourse against fraudulent conveyance of assets, this usually carries longer and more complex proceedings that prevent an immediate and smooth recovery. Therefore, it is highly recommended to act fast and execute upon debtor s property even faster. 9. What will it cost me to collect through Court? Firms should, and usually will, pass along a breakdown of costs that will include certain court related expenses that will be needed to file a complaint, as well See International page 12 11 Fa l l 2 0 1 1

continued from page 11 as expenses that are likely to be incurred throughout proceedings. These expenses relate to obtaining and executing an order of attachment (including all tasks necessary for proper seizure of debtor s property), and to preparing all documentation and evidence that needs to be rendered in court. Other considerable expenses include traveling to other nearby cities courts of appeals and district courts in case of parallel proceedings, as well as office expenses in regard to your case. All of the expenses made on your behalf must be reflected in detailed monthly statements that should be provided according to a legal services agreement that should be executed upon litigation. Fees for litigation will vary within in each firm. While a few of them will be willing to handle claims for litigation based on contingency fees, most will require to work under hourly or fixed fees. Some of these firms will require advancements of these fees as a form of a retainer. 10. How long will it take me to collect through court, and how efficient is the Mexican Judicial System as to this date? Some scholars and legal practitioners throughout the country have generally agreed that a non-complex contested commercial case will take approximately one year to be resolved, without adding the time for any appeal process or Escheatment continued from page 9 ongoing business relationship with the customer that has a credit. A few of the exemptions are retroactive while others are prospective from a particular date. Some of the exemptions require you to keep the credit on your books indefinitely. Finally, note that these exemptions generally do not apply to financial institutions or insurance companies. Conclusion Careful planning that includes thoughtful Contractual Executability (EC) ratings by State Aguascalientes EC2+ Guerrero EC3 Quintana Roo EC4+ Baja California EC2+ Hidalgo EC4 San Luis Potosí EC3 Baja California Sur EC4 Jalisco EC3 Sinaloa EC3+ Campeche EC3 State of Mexico EC1 Sonora EC4+ Coahuila EC2+ Michoacán EC4+ Tabasco EC3+ Colima EC2+ Morelos EC4 Tamaulipas EC2+ Chiapas EC3+ Nayarit EC2 Tlaxcala EC4 Chihuahua EC4 Nuevo León EC1 Veracruz EC5 Mexico City (DF) EC3+ Oaxaca EC3 Yucatán EC3 Durango EC2+ Puebla EC4 Zacatecas EC4 Guanajuato EC1 Querétaro EC1 EC1 Highest rating EC2 Superior rating EC3 Average rating EC4 Below average rating EC5 Worst rating possible * A + or promising rating within EC2, EC3 and EC4 denotes a higher or more promising standing within the rank. Amparo (constitutional injunction proceeding) which could add up another 9 to 12 months. That time could very well double in a complex commercial dispute or a collection case involving a large sum. The timeframe pointed out could also increase in certain jurisdictions where courts performance has been rated below the average rate in the country. In this regard, Moody s de Mexico (Investor Service) published in March 2007, the ratings on contract enforcement for each of the 31 States and Federal District in Mexico. These policies and procedures can significantly reduce the number of credits that become escheatable unclaimed property. Minimizing the number of unclaimed property isssues also builds stronger customer relationships through better communication and may forestall stateimposed penalties and interest and possible SOX consequences. Karen Anderson was vice president at Unclaimed Property Recovery and Reporting (UPRR) when she initially wrote this. She is currently Senior Compliance Advisor with Abandoned Property Services, LLC, and can be reached at 317-577-9530 or via email at Kanderson@apsescheat.net. n ratings were based on a survey study conducted in December 2006 by ITAM (Instituto Tecnológico Autónomo de México) and GMA (Gaxiola Moraila y Asociados, S.C.). The study concentrated in analyzing public perception on the courts performance based on: 1) professionalism, 2) quick outcomes, 3) staffing resources, and 4) quality of actual enforcement action. See the results in the table on this page. Romelio Hernandez is President and Director of Litigation at HMH Legal, a law firm specialized in credit and collection services in Mexico. He is based in Tijuana, Baja California, México, where he works extensively with foreign exporting companies and collection agencies assisting them with their out-of-court and legal collection efforts throughout Mexico. His litigation experience of fifteen years and exposure to international commercial law has allowed him to provide guidance and general counsel to foreign companies in mitigating the various risks of selling international. Romelio is a graduate of Universidad Autónoma de Baja California, having graduated and being admitted to practice law in Mexico since 1997. Romelio holds a Masters Degree in Comparative Law (LL.M.) from the University of San Diego School of Law (2011). n 12 Fa l l 2 0 1 1