Security over Collateral A Lex Mundi Multi-Jurisdictional Survey prepared by the Lex Mundi Bank Finance and Regulation Practice Group

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1 Security over Collateral A Lex Mundi Multi-Jurisdictional Survey prepared by the Lex Mundi Bank Finance and Regulation Practice Group 2100 West Loop South, Suite 1000 Houston, Texas USA Tel:

2 About Lex Mundi Lex Mundi is the world s leading association of independent law firms. Lex Mundi facilitates the exchange of information regarding the local and global practice and development of law and improves the ability of its members to serve their respective clients. Lex Mundi has member law firms in 99 countries. Lex Mundi firms have adopted uniform standards of client service and are comprehensively and periodically reviewed to ensure continued adherence to Lex Mundi s standards of excellence. The worldwide coverage of Lex Mundi's membership provides Lex Mundi the unique ability to conduct and facilitate surveys of local law and procedure on a global scale. Lex Mundi member firms cooperated with the World Bank, Harvard University and Yale University to complete the most comprehensive comparative study of litigation ever undertaken. Lex Mundi member firms are currently working with the same organizations on a comparative study of the rights of minority shareholders. A complete list of multi-jurisdictional surveys can be found on our website at

3 Security over Collateral Survey About this Survey The Bank Finance and Regulation Survey on Security over Collateral was conducted by members of the Lex Mundi Banking and Finance Practice Group, chaired by José María Eyzaguirre B. (Claro y Cia.). The survey presents jurisdictional overviews on security interests in general, the collateral which may granted as security and certain interesting effects in more than 50 jurisdictions around the globe to banks accepting collateral. This multi-jurisdictional survey will be updated from time to time. For the most up to date information, please go the Lex Mundi web site ( and access the Bank Finance and Regulation Survey from the Banking and Finance Practice Group web page or from the Publication and Resources page. If you need assistance, please contact the Lex Mundi office The results of the survey are not intended to represent a comprehensive guide nor a legal advise on the matters covered by them but rather provide a general overview on the subject. They may only be used as an indication and advice should always be sought from the appropriate Lex Mundi member law firm. Please note that each response was provided on a different date, and therefore the answers to the survey refer to laws and regulations in force on that specific date

4 TABLE OF CONTENTS ARGENTINA... 7 AUSTRALIA AUSTRIA BARBADOS BELGIUM BOLIVIA BRAZIL BULGARIA CANADA BRITISH COLUMBIA CAYMAN ISLANDS CHILE COLOMBIA CYPRUS DENMARK ECUADOR EGYPT FINLAND GREECE HONDURAS HUNGARY IRELAND ITALY LATVIA LITHUANIA LUXEMBOURG

5 MALAYSIA MEXICO THE NETHERLANDS NEW ZEALAND NORWAY PAKISTAN PARAGUAY PERU PHILIPPINES POLAND PORTUGAL ROMANIA SPAIN SRI LANKA TAIWAN THAILAND TRINIDAD AND TOBAGO TURKEY URUGUAY USA - ARKANSAS USA - GEORGIA USA - KENTUCKY USA - MINNESOTA USA - MISSOURI USA - NEBRASKA USA NEW JERSEY USA PENNSYLVANIA

6 USA - TENNESSEE

7 BANK FINANCE AND REGULATION Multi-Jurisdictional Survey SECURITY OVER COLLATERAL CONTACT INFORMATION Roberto E. Silva, Jr. Marval, O'Farrell & Mairal Av. Leandro N. Alem 928 (54-11) ARGENTINA 1. Can assets be charged, liened and/or encumbered in your jurisdiction? Please insert any exemptions, if any. Yes; in principle, Argentine law generally allows assets to be charged, liened and/or encumbered. However, note that certain assets may stand immune and/or the creation and implementation of any charge, lien and/or encumbrance may be limited in accordance with the nature of the assets involved and/or the underlying industry and activity in which they are employed. In this respect, in general there are governmental regulations imposing prior authorization, approval and/or limitations in order to constitute encumbrances/liens on certain type of strategic assets such as social services assets and/ or assets employed in the energy, telecommunication, and/or media sectors. Notably, the following assets would be immune from any kind of charge, encumbrance and/or lien: (i) Central Bank s assets that constitute freely available reserves under Articles 5 and 6 of Law No. 23,928, as amended;; (ii)property in the public domain located in the territory of Argentina that falls within the purview of Articles 2337 and 2340 of the Civil Code of Argentina; (iii) property located in or outside the territory of Argentina that provides an essential public service; (iv) property (whether in the form of cash, bank deposits, securities, third party obligations or any other methods of payment) of the Argentine government, its governmental agencies and other governmental entities relating to the performance of the budget, within the perview of Articles 67 of Law No. 11,672 (t.o. 1999), as supplemented by Articles 94, 95 and 96 of Law 25,401; v) property entitled to the privileges and immunities of the Vienna Convention on Diplomatic Relations of 1961; vi) property used by a diplomatic, governmental or consular mission of Argentina; or vii) property of a military character or under the control of a military authority or defense agency of Argentina

8 2. In your jurisdiction, under what circumstances may security arrangements be subjected to choice of law and/or choice of forum clauses (does it matter, whether the security itself is located abroad and/or governed by foreign law [e.g. a pledged claim])? What is the market practice in your jurisdiction? Argentine law does not provide a specific rule indicating jurisdiction and the governing law applicable to security arrangements. Notwithstanding, note that Article 10 of the Argentine Civil Code provides that: Real property situated in Argentina is governed exclusively by the laws of Argentina, with respect to its character as such, the rights of the parties, the capacity to acquire it, the modes of transferring it, and the formalities which must attend such acts. Title to real property, therefore, can be acquired, conveyed or lost only in accordance with the laws of Argentina. In addition, under Article 11 of the Argentine Civil Code Movables permanently situated and which are held with the intention of not removing them, are governed by the laws of the place where they are located; but movables which the owner always carries with him, or which are for his personal use, whether he be at his domicile or not, as well as those which are kept to be sold or carried to another place, are governed by the laws of the domicile of the owner. Note that movable goods which require registration before the appropriate registry are also included under Article 11 of the Argentine Civil Code. Therefore, the law of the place where the good or asset is located (i.e., the lex rei sitae) is generally applicable to the creation of in rem rights (such as a pledge) and the effects thereof. In accordance to the market practice in Argentina, the law applicable to the assets should be analyzed on a case by case basis by determining if they are permanently located assets or in transit and, if permanently located, where such assets are located. Generally the law applicable will be that of the place where the movable asset is located at the time of the creation of the security interest. Is there a treaty on this in your jurisdiction, whether bilateral or multi-lateral? Argentina, Uruguay and Paraguay are signatories of the Treaty of Montevideo of 1940 on International Commercial Law (the Treaty ). This Treaty provides on its Article 20 that the creation, rights and duties of the parties with respect to the pledged assets are subject to the law of the place where the pledged assets were located at the time of the creation of the pledge, even if thereafter such assets are transferred to another country. Although there is no express rule addressing the matter, the Treaty would seem to imply that the creation of an in rem security interest and the rights and duties of the parties with respect to such assets are not matters subject to the law applicable to the contract. Rather, they appear to pertain to the domain of the lex rei sitae (i.e., the law of the place where the collateral is held). Hence, the application of a foreign law to the creation of a security interest seems to be subject to the fact that the collateral is located in or outside Argentina at the time of creation of such security interest

9 Are there any requirements for enforcement in your jurisdiction? The recognition and enforcement of foreign judgments by the courts of Argentina is subject to certain requirements imposed by procedural laws. In particular, the recognition of foreign judgments or arbitral awards by any court sitting in the City of Buenos Aires or by any Federal Argentine Court is subject to the fulfillment of the conditions stated on Article 517 and Article 519 of the Argentine Code of Civil and Commercial Procedure: (i) the judgment must be final in the jurisdiction where rendered, be issued by a competent court in accordance with the Argentine laws regarding conflicts of law and jurisdiction, and have resulted from a personal action or an in rem action with respect to personal property which is transferred to Argentine territory during or after the prosecution of the foreign action; (ii) the defendant against whom enforcement of the judgment is sought was personally served with the summons and, in accordance with due process of law, was given the opportunity to defend the foreign action; a notice given to the service of process agent will be valid if such service of process agent was personally summoned. (iii) the judgment must be valid in the jurisdiction where rendered and its authenticity must be established in accordance with the requirements of Argentine law; (iv) the judgment must not violate any principle of public policy of Argentine laws; and (v) the judgment is not contrary to a prior or simultaneous judgment of an Argentine court. The same rules apply to arbitral awards. 3. In your jurisdiction, are floating charges or security over the overall assets of an entity accepted, and if so in what terms? Under Argentine law, floating charges are in general allowed. To become legally effective, the contract must be registered with the registry corresponding to the debtor s domicile. In addition, in case of issuance of negotiable obligations under Argentine Negotiable Obligations Law No. 23,576 and debentures under Article 327 of Law No. 19,550, as amended, payment can be secured by means of a floating charge on all kind of present and future rights, movable property or real estate of the issuer. This pledge should be registered with the Public Registry of Commerce (Superintendency of Corporations) to be enforceable vis à vis third parties. In any other cases, all or part of a debtor s existing assets can be pledged by means of a fixed pledge

10 Notably, these types of security agreement are not generally implemented as they are currently a non-widespread market practice in Argentina. 4. In relation to the following types of assets, please explain in your jurisdiction the types of security that can be created or granted, if the security requires any type of registration or perfection requirements, an estimate of cost (including applicable taxes and any other duties/ costs) and timing for granting such security, and any special considerations regarding the asset type: (a) Aircraft; (b) Bank Accounts; (c) Animals, Crops (in ground and severed) and Timber; (d) Equipment; (e) Intellectual Property; (f) Inventory; (g) Leases; (h) Mineral Interests, including Hydrocarbons; (i) Promissory Notes and Chattel Paper; (j) Real Estate; (k) Receivables (credit rights under contracts or invoices); (l) Rights under Contracts (excluding Receivables); (m) Shares (in book-entry and certificate form and other securities); (n) Vessels; (o) Vehicles; and (p) Business as an ongoing concern. For your convenience, we have prepared a chart that sets forth the requested information with respect to each type of assets, indicating in each case the different type of security interests that can be created (and, thus, the different ways of perfecting such security interests). Note that under Argentine law there are no security interests or privileges other than those created by operation of law, as it is provided in Articles 2,502, 2,503 and Article 3,876 of the Argentine Civil Code 1. Thus, in accordance with Argentine Law and 1 Article 2,502 of the Argentine Civil Code: In-rem rights can only be created by operation of the law. Any contract or disposition of last will which constitutes other in-rem rights or modifies those recognized by this Code, is valid only as a constitution of personal rights, provided it could have such value. Article 2,503 of the Argentine Civil Code: The following are in-rem rights: Ownership and co-ownership. Right of enjoyment. Right of use and habitation. Right of Easment. The right of mortgage. Pledge. Antichresis. Forest surface in-rem right. Article 3,876 of the Argentine Civil Code: A privilege can result only from a provision of the law. The debtor cannot create a privilege in favor of his creditors

11 market practice, the types of security that can be created or granted are commonly the rights of mortgage 2 and pledge 3. Under certain circumstances, right of enjoyment (usufructo) and Forest surface in-rem right may also be granted as security. Mortgages may be created over real estate and movable goods requiring registration such as aircrafts and vessels. In all cases, the mortgage must be filed for registration with the appropriate Registry in order to be effective vis-à-vis third parties. Pledges, on the other hand, may be created over every other movable good. In this case, depending on each type of asset, it may or may not require to be filed for registration with the appropriate chattel mortgage registry ( Chattel Mortgage Registry ) (Registro de Creditos Prendarios) in order to be effective vis-à-vis third parties. As from the enactment of Law No. 24,441, security trusts have become a widely- spread market practice in Argentina. They provide an alternative under Argentine Law to secure obligations in addition to pledges and mortgages. Notably, trusts constitute an excellent means of providing security as the relevant assets may be held in trust by a trustee as a separate estate. Such assets are not subject, in principle, to bankruptcy proceedings of the settlor, the trustee or the beneficiaries, and moreover, upon default the trustee may be empowered to sell the assets for the repayment of the credit without any court intervention. With regard to the estimation of the cost associated to granting a security, this will necessarily vary upon the different types of assets which are considered. However, most of the assets will be subject to stamp tax as well as notary and registration fees. Stamp tax rates vary between 1% and 1,5% of the economic value of the security agreement. Notary fees are generally low, unless a public deed is executed in which case it is approximately 1% of the economic value of the transaction. Registration fees usually are approximately 0,2% of the guaranteed obligation. Registration before the applicable registry may take approximately between 1/6 months, depending on the type of assets involved. Security Creation/ Form of Perfection and Other Notices and Filings documentation Aircraft Mortgages over aircraft may be The mortgage must be filed for registration created by means of a notarial with the National Aircraft Registry in order deed or an authenticated private to be effective vis-à-vis third parties. instrument. 2 Article 3,108 of the Argentine Civil Code: A mortgage is an in-rem right created for the security of a credit in money, upon immovable property, which continues in the possession of the debtor. 3 Article 3,204 of the Argentine Civil Code: A pledge is constituted when the debtor of a certain or conditional obligation, present or future, delivers to the creditor a movable thing or a credit as security for the debt

12 The registration of a mortgage over an aircraft will expire automatically 7 years after the date upon which it was registered, unless it is renewed by the creditor (this renewal does not require the consent of the mortgagor). Under Argentine conflict of law rules, liens over aircraft are governed by the law of the aircraft's flag. In addition, Argentina will recognize mortgages which are established outside Argentina to the extent that such foreign state recognizes mortgages established in Argentina. The rules relating to assignment and foreclosure of mortgages over aircraft are similar in most respects to those relating to real estate mortgages. The rules relating to the registration of assignments of mortgages are governed by the law that regulates the National Aircraft Registry. Priorities are specifically regulated by the Aeronautic Code. Bank Accounts Animals, Crops and Timber Securities over this asset is impracticable considering the nature and operation of bank accounts. However, this doesn t limit the execution of a security trust or the assignment of the funds as collateral of certain transactions. Certain valuable animals may be subject to securities as long as they register with the appropriate Public Registry. The mortgage must be filed for registration with the Public Real Estate Registry in order to be effective vis-à-vis third parties. Securities over crops and timber are considered by Argentine Civil Code Article 2,503, as in-rem rights In addition, Article 2 of Law No. 25,509 includes an in-rem right known as forest surface in-rem right, which provides a third party with power to exploit forest surface for a maximum of 50 years

13 The law also states that forest surface in-rem rights may be created by means of private instrument or a notarial deed and perfected by means of possession. Equipment Every movable good regarded as equipment, such as machinery or vehicles, may be subject to a pledge interest. Registration will depend on the type of asset which is being considered. If applicable, the pledge must be filed for registration with the appropriate Public Registry in order to be effective vis-à-vis third parties. Patents, Copyright s, Trademar ks and Other Intellectua l Property Inventory Leases Private agreement subject to certain formalities required by the Chattel Mortgage Registry, including without limitation certification of signatures of the parties by a notary public or public deed. Under Argentine Law, there is no definition for the term inventory. However, goods collectively considered conforming an inventory, may be granted as security interest on an individual basis. Pursuant to current Argentine law, the execution of a lease contract needs no registration and produces its effects solely with the consent of the parties (Articles 1493/1494 of the Argentine Civil Code 4 ). Notwithstanding, products resulting from the development of a lease contract could be assigned to secure transactions. Registration with the Chattel Mortgage Registry. Filing with the trademark and patents registry (Instituto Nacional de Propiedad Industrial). If applicable, every movable good included in such inventory, may be subject to a pledge. Registration will depend on the type of asset which is being considered. No registration is required in order for a lease contract to be deemed perfected. 4 Article 1,494 of the Argentine Civil Code: A contract of lease or hire is perfected by the mutual consent of the parties. All the provisions relating to price, consent and other essential elements of a contract of purchase and sale, are applicable to a contract of lease or hire

14 Mineral Interests, including Hydrocarb ons Promissor y Notes and Chattel Paper Real Estate Exploitation concessions, including mineral deposits and buildings, machinery, internal vehicles and equipment used in the exploitation of the mine with a perpetual destination, may be subject to a mortgage interest. On the other hand, exploration permits (cateos) may not be subject to a mortgage interest, since they are not considered real estate property by the Argentine Mining Code Law No. 1,919. With regard to formalization requirements, notarization of the mortgage through a notary public deed shall be required. Securities over promissory notes is impracticable considering the nature and operation of this type of asset. With regard to chattel paper, pledge over this asset may be created by means of private agreement. In the case of registered pledges, subject to certain formalities required by the Chattel Mortgage Registry, including without limitation certification of signatures of the parties by a notary public or a public deed. Mortgages over real estate may only be created by means of a notarial deed executed before a notary public. A mortgage remains in full force and effect until all amounts secured by the mortgage have been paid in full; the mortgage is otherwise cancelled by mutual agreement of the parties or by a Court order. The registration of a In order for the mortgage to be effective visà-vis third parties, the mortgage shall have to be registered before the local mining registry. Registered Pledge: Registration with the Chattel Mortgage Registry in the jurisdiction where the chattel is located. Non-registered Pledge: Possession The mortgage deed must be filed for registration with the Public Real Estate Registry of the jurisdiction where the property is located. Only upon registration is the mortgage effective vis-à-vis third parties

15 mortgage will automatically expire 20 years after the date upon which it was registered, unless it is renewed by the creditor, who may do so without the consent of the mortgagor. Receivabl es (credit rights under contracts or invoices) Rights under Contracts (excluding Receivabl es) Shares (in bookentry and certificate form and other securities) Private agreement. In the case of non-registered pledges, it is advisable to have the signatures of the parties certified by a notary public (or less commonly, a public deed). In the case of registered pledges, subject to certain formalities required by the Chattel Mortgage Registry, including without limitation certification of signatures of the parties by a notary public or a public deed. Private agreement. In the case of non-registered pledges, it is advisable to have the signatures of the parties certified by a notary public (or less commonly, a public deed). In the case of registered pledges, subject to certain formalities required by the Chattel Mortgage Registry, including without limitation certification of signatures of the parties by a notary public or a public deed. Pledges of shares are governed by the Commercial Code and by the Companies Law, on its Article 215. Pursuant to current Argentine law, shares must be issued in non-endorsable registered form Security interest in the form of a pledge may be executed with respect to receivables. Creditors may choose to register the security interest before the Chattel Mortgage Registry. In such event, perfection of security is deemed with the appropriate registration. Otherwise, if no registration is sought, perfection will be obtained with possession. In any event, note that notice to the relevant debtor is necessary for enforceability against the debtor and vis a vis third parties. Registered Pledge: Registration with the Chattel Mortgage Registry. Non-registered Pledge: Possession. Notice to the debtor under the contract is necessary for enforceability against the debtor and vis a vis third parties. Pledges over shares must be reported to the issuing company or the registrar (if any), and must be recorded in the company's or in the registrar's books, whichever the case may be. The pledge only takes effect vis-àvis the company and third parties from the date it is registered in the company's or registrar's books

16 Vessels Vehicles Business as an ongoing concern or book-entry form. Mortgages over ships may be created by means of a notarial deed or an authenticated private instrument. Under Argentine conflict of law rules, mortgages over ships are governed by the law of the ship's flag. In addition, Argentina will recognize mortgages which are established outside Argentina to the extent that such foreign state recognizes mortgages established in Argentina. Pledges over vehicles may be created by means of a notarial deed or an authenticated private instrument. Under Argentine Law, there is no definition for the term business as an ongoing concern as an individuality, in order to make it eligible to secure transactions. However, goods collectively considered conforming a business as an ongoing concern, may be granted as security interest on an individual basis. Notice to the issuing company (for registration on the Stock Registry Book) and registration on the stock certificates is necessary for enforceability vis a vis third parties. The ship mortgage must then be filed for registration with the National Ship Registry in order to become effective vis-à-vis third parties. The registration of a mortgage over a ship under the Argentine flag will expire automatically 3 years after the date upon which it was registered, unless it is renewed by the creditor (this renewal does not require the consent of the mortgagor). The rules relating to assignment, priorities and foreclosure of mortgages over ships are similar in most respects to those relating to real estate mortgages. The vehicle mortgage must then be filed for registration with the National Vehicle Registry in order to become effective vis-àvis third parties. If applicable, every real estate or movable good included in such business as an ongoing concern, may be subject to mortgage or a pledge interest, respectively. Registration will depend on the type of asset which is being considered. 5. Please explain briefly for each type of assets the procedure for enforcement (judicial and extra-judicial). The following is a brief description of the foreclosure procedures for both mortgages and pledges in general being these the most usual types of security interests created and granted in Argentina

17 Pledged Assets: Article 585 of the Argentine Commercial Code sets forth the pledgee s remedies in the event of default by the pledgor in the fulfillment of its obligations under a secured debt. In general, pledge assets may be sold by the pledgee upon default of the pledgor in a public auction which shall be held ten days after the auction has been announced in the Argentine Official Gazette. The proceeds of such auction shall be applied to cancel the credit of the pledgee. Article 585 of the Argentine Commercial Code also provides that the parties may agree upon other means of collection. However, it has been argued that, under Argentine law, a clause in an agreement is void if, pursuant to such clause, the pledgee would be entitled to ownership of the pledged assets in the event of default of the pledgor. 5 Such principle does not seem to forbid the validity of any agreement for appropriation of the pledged asset entered into after the default has occurred (or maturity of the debt has taken place, as the case may be), whereby the defaulting party (or debtor, as the case may be) transfers the ownership of the pledged assets to the pledgee. Should the pledge consist of shares, securities or alike assets traded in stock markets, such collateral may be sold through a broker the day after the pledgor has failed to comply with its obligations. No notice to the debtor or surety is necessary prior to the sale of the pledged securities. If no special procedure has been set forth in the pledge agreement, the sale must be made in a public auction, and notice thereof published 10 days in advance 6. However, the sale of pledged bonded debt, stock and other commercial papers traded on any Argentine stock exchange may be made through a broker, at the quoted price the securities had the day following maturity of the secured obligation. In this case, publication is not needed. Private sale is allowed under Argentine law 7. It is not mandatory to obtain a court order to proceed with the sale, but if the security agreement does not provide for a special procedure, a public auction is needed. However, in certain circumstances such as when the amount of the debt is not determined, it will be necessary to file a petition before the court to obtain an award fixing a liquidated amount. In case of loans, principal, interest and fees are considered a determined debt so that a court award is not required. Prior to the institution of any proceedings in the City of Buenos Aires or the federal courts of Argentina (other than execution proceedings such as (i) the enforcement in Argentina of a judgment obtained abroad or (ii) the enforcement of the pledge over the investment securities when the amount of the secured debt is determined on the basis of instruments which evidence the due amount by themselves or when such instruments only need to be complemented by information requested by the court), Law No. 24,573 5 ZAVALA RODRIGUEZ, Código de comercio y leyes complementarias III, (Buenos Aires, 1967), pp Article 585 of the Argentine Commercial Code. 7 Article 585 of the Argentine Commercial Code

18 regarding alternative dispute resolution mandates an instance before a private mediator prior to the institution of any such proceeding before such Argentine court. This procedure is optional for the claimant if the proceeding falls within the scope of the exceptions referred to between the brackets in the previous sentence. Upon failure of the mediation, proceedings may be instituted before such Argentine courts; provided, however, that the minutes of the failed mediation must be submitted before such court. A court tax of 3% of the amount in controversy so claimed must be paid with respect to the institution of any judicial proceeding brought in any court sitting in the city of Buenos Aires or any Argentine federal court. Such tax may be added to the amount of the obligation owed by the pledgor to the pledgee. Mortgages do not entitle the creditor to acquire title to or possession of the property upon default of the debtor, but only to exercise the right of foreclosure. Although applicable law does not require taking any specific steps before initiating regular foreclosure proceedings, it is widespread practice to send a private written notice for payment in full of all outstanding sums for a certain period of usually 10 to 15 days. Foreclosure is carried out by means of special summary court proceedings which provides for the sale of the property by public auction, enabling the creditor to satisfy its debt out of the proceeds of the sale. The National Procedure Code is applicable to proceedings heard by courts sitting in the City of Buenos Aires and federal courts sitting throughout Argentina. In the Provinces procedural codes have been adopted which are, in large part, identical to the National Procedure Code. The foreclosure proceeding commences with the filing of a claim by the mortgagee. All the documents pursuant to which the relevant mortgage was created and perfected must be filed in conjunction with the complaint. This requirement is met by filing with the court the public deed creating the mortgage. Additionally, that deed must contain evidence that the mortgage was recorded in the Real Estate Registry. After the issuance of the complaint, the defendant will be served with the summons. Within five days, the defendant is entitled to file a brief setting forth any admissible defenses 8. The auction is conducted by an auctioneer appointed by the court. Advertisements containing the relevant information of the auction are published. In principle, the minimum bid is agreed between the parties. Absent an agreement, the minimum bid will be equal to two-thirds of the value of the property established by the tax authorities or the value determined by an expert appointed by the court. 8 Defenses which are limited to (i) lack of venue; (ii) lack of legal standing with respect to the claimant, the defendant or their representatives; (iii) litis pendentia; (iv) res judicata; (v) forgery or formal deficiencies in the documents on which the complaint is based; (vi) running of the statute of limitations applicable to the debt secured by the mortgage ; (vii) payment in whole or in part of the debt or any debt reduction, grace period or release; and (viii) expiration of the registration of the mortgage in the real estate registry. Once the foreclosure proceeding has been initiated, an attachment can be easily obtained and is recommended

19 The auctioneer must award ownership of the property to the bidder submitting the highest bid. To the extent no bids are submitted at the first auction, a new auction will be held. The minimum bid at the second auction will be an amount equal to the minimum bid established for the first auction reduced by 25%. If the second auction is also unsuccessful, a further auction will be held, but with no minimum bid established. In all cases, any individual or entity, including the creditor (who is allowed to offset the credit against the purchasing price), can participate in the auction and purchase the property. The sale of the property will be deemed perfected upon approval of the auction by the court, payment of the purchase price in full or in part and transfer of the property to the purchaser. The judicial sale of the property by public auction results in the mortgage being extinguished from the moment that the purchaser of the mortgaged property deposits the purchase price with the court. If the purchase price is insufficient to cancel the credit, the creditor may pursue a deficiency judgment for the outstanding balance. The fees and expenses involved in the above described procedure are the following: (i) a court tax equal to 3% of the amount of the complaint, (ii) legal fees, generally in the range of 11%-20% of the involved amount, (iii) reports required for the auction, for an amount equal to US$ 160 approximately 9, (iv) auctioneer s fees, which in Civil Courts are equal to 3% of the purchase price, and (v) publication fees and other costs related to the public auction, equal to US$ 800/1,500 approximately 9. As an alternative to the above mentioned foreclosure procedure, Argentine Law No. 24,441 enacted in 1995 established an out-of-court procedure for the foreclosure of mortgaged property. This procedure may only be utilized in cases where provision has been specifically made for it in the deed creating the mortgage. The debtor must be at least sixty days in arrears on the payment of principal or interest to file this out-of-court proceeding. Notwithstanding that the procedure is, in principle an out-of-court proceeding, the mortgagee must nevertheless have recourse to the courts to obtain possession of the property before to the public auction. The creditor must file with his complaint the mortgage public deed and a special certificate of the collateralized property issued by the Real Estate Registry. If the judgment is favorable to the creditor, he or she may hold a public auction for the sale of the property upon meeting certain publication requirements involving notice of the auction. The auction under this proceeding is very similar to the auction to be carried out in the case of the judicial proceeding described above. After the public auction, the creditor must file for the court s approval a settlement of the proceeds obtained in the public auction and the costs and expenses paid. The debtor will be able to object the creditor s settlement and the court will finally render a 9 Applying October 5, 2007 s exchange rate (AR$ 1 = US$ 3.18)

20 judgment on the matter. The debtor is entitled to repurchase the auctioned real estate property upon payment of the purchase price to the buyer plus an additional 3% within 30 days from the date of the public auction. The fees and expenses of this procedure are similar to the ones described with respect to the judicial procedure mentioned above. However, with respect to the 3% court tax, it should be noted that certain courts of the City of Buenos Aires have considered that this tax should not be paid for an amount equal to 3% of the complaint, but merely for an amount of US$ 22 9 regardless of the amount of the complaint. Is it possible to enforce security governed by another jurisdiction? If yes, what is the procedure? Parties to transactions will have access to courts sitting in Argentina to the extent the defendant is domiciled in Argentina or to the extent the place of performance of any obligation under the relevant transaction is located in Argentina. Also, parties would be granted access to the courts sitting in the City of Buenos Aires or any Federal Argentine court, if they have agreed to submit disputes resulting from the relevant transaction to any such courts. Lastly, Argentine courts would be deemed vested with jurisdiction to hear a claim regarding recognition and enforcement of a foreign judgment rendered against a party domiciled in Argentina. The courts of Argentina should recognize as a valid judgment and should enforce any final and conclusive non-argentine judgment against the debtor by the secured party; provided, however, that an exequatur is needed for the enforcement of a judgment obtained abroad in any federal court of Argentina or in the courts of the city of Buenos Aires and, if sought, the requirements set forth in Answer 2 hereof Can a trustee or security agent be used in your jurisdiction, or must security be granted in favour of all lenders? Yes, to the extent that it is expressly established in the relevant credit agreement that the security agent acts as mandatory of the secured parties and for the benefit of all current and future creditors. No supplemental agreements would be required each time a new creditor is included to such credit agreement. As pointed out in paragraph 4 hereof, currently security trusts provide for a well-spread alternative under Argentine Law to secure obligations in addition to pledges and mortgages. Under such fiduciary agreements, the trustee holds the relevant assets in trust in a separate estate for the benefit of the creditors. Notwithstanding, opinions to the contrary and particularly in the case of mortgages and registered pledges 11 assert that, to the extent that identity of the secured parties and the 10 Articles 517 through 519 of the National Code of Civil and Commercial Procedure of Argentina. 11 Except for the case of negotiable obligations and debentures secured by a floating charge in which foreclosure is carried out by a third party appointed by the creditors (see paragraph 3 above)

21 creditors may be considered necessary for the validity of, and for the foreclosure of the collateral, advisably, all creditors should be incorporated in the relevant security agreement and registered as secured parties rather than registering the relevant security in the name of a trustee or security agent. 7. In bankruptcy or insolvency scenarios, what are the suspect periods, is clawback possible, and what other types of rights (tax debts, employees, etc.) have preference over security granted? Under the Bankruptcy Law, the bankruptcy court may determine a suspect period of up to two years prior to the bankruptcy judgment. Such period depends on the date when insolvency was first evidenced (the Date of Insolvency ), which date is determined by the court. Certain acts which occur during such preference period may be ineffective vis-à-vis other creditors, namely: (i) Pursuant to Article 118 of the Bankruptcy Law the following acts are ineffective by operation of law (i.e., no discussion of the validity of the act vis-à-vis third parties is possible) (a) acts for which no consideration is given; (b) when a debt is paid prior to its stated maturity; and (c) when a security interest is obtained for a debt which is non-matured and which was originally unsecured; and (ii) pursuant to Article 119 of the Bankruptcy Law, any act could be declared ineffective if the creditor had actual knowledge (or should have known) that the debtor was insolvent, to the extent that the act was prejudicial to the other creditors (notwithstanding that the creditor whose act is under attack may show that such act has not been harmful to the other creditors). The following credits have priority over senior unsecured creditors: (i) Special Preferences The following credits have a special preference, in order of decreasing priority (except for (iv) and (vi) which have priority of payment over the relevant asset even with respect to the rest of the claims with special preferences): (i) construction, improvement or maintenance expenses over the relevant asset (to the extent that such asset is still in the debtor s possession); (ii) salaries and related compensation of workers over the proceeds of the sale of merchandise, raw material and machines located in the debtor s premises; (iii) specific taxes and duties due over the asset to which such tax applies; (iv) mortgages, pledges, warrants, debentures and negotiable obligations with special or floating guarantees over the proceeds of the sale of the collateral; (v) sums owed to a creditor who retained possession of the asset as guarantee for what is due to it in connection with such asset (derecho de retención) as of the date of the bankruptcy decree; and (vi) claims under the Argentine Maritime Code, the Argentine Aeronautical Code, the Argentine Financial Entities Law and the Argentine Insurance Law

22 (ii) Preservation and Judicial Expenses Claims and expenses related to the preservation, management and liquidation of the bankruptcy estate and related to the insolvency proceedings are paid after the claims with special preferences (except for claims and expenses related to foreclosure proceedings in the case of claims with special preferences, which are paid prior to such claims with special preferences) and with priority with respect to claims with general preferences and unsecured claims. (iii) General Preferences The following credits have a general preference, in order of decreasing priority: (i) labor credits not subject to a special preference; (ii) the principal amount of social security debts; (iii) funeral, medical and certain personal expenses of individuals; and (iv) the principal amount of any taxes and duties due. Credits with a general preference may not absorb more than 50% of the total assets of the debtor after satisfying (a) claims with special preferences and preservation and judicial expenses, and (b) the principal amount of labor credits with general preferences. To the extent such proportion is exceeded, the unpaid balance participates ratably with senior unsecured claims. 8. In your jurisdiction, can borrowers or guarantors subordinate their claims and if so in what terms? Under Article 3876 of the Argentine Civil Code, it is possible to contractually subordinate obligations. Such agreements are only enforceable against any creditor who has specifically agreed to the subordination of its rights. To ensure enforceability of such subordination (including by a bankruptcy court or liquidator) it is necessary to incorporate specific provisions to such extent in the credit documents. In addition, the Bankruptcy Law No. 24,522 recognizes unsecured debt subordination in liquidation proceedings as well as in reorganization proceedings12. Under the previous bankruptcy law, the pars condictio creditorum principle, which requires the equal treatment of all unsecured creditors, had been construed as barring the possibility of any contractual unsecured debt subordination upon bankruptcy or reorganization. 9. What are the consequences of a transfer, assignment or novation of an underlying credit in your jurisdiction (is new security necessary, is the security automatically transferred, etc.). Under Argentine law, the assignment of a credit carries with it all ancillary rights associated with the credit including the security interest, if any. The manner in which the perfection of the security interest accompanying the credit is achieved depends on 12 Article 41 of the Bankruptcy Law No. 24,522, authorizes the debtor to include in its reorganization proposal an unsecured and subordinated category of creditors

23 the underlying asset, since interests in certain assets are only recognizable upon registration in the relevant registry. Mainly, publicity requirements typically consist in (i) registration before a public registry, or (ii) delivery of notice to the assigned debtor. Thus, upon the transfer of certain credits (notably, pledges and mortgages), registration of the security interests transferred with the credit must be accomplished in order to be effective vis-à-vis third parties. In principle, new security would be necessary in the event of a novation. However, note that Articles 803 and 3,190 of the Argentine Civil Code would allow that in the event of a novation of the principal obligation, and to the extent that parties have duly agreed under the credit documents that the security interest would continue even if a novation occurs, such security would be valid and enforceable and need no ancillary registration, if applicable, with respect to the new principal obligation. 10. Can you have on top of a security in your jurisdiction, another layer consisting of an assignment of the collateral concerned conditional upon default by the debtor? Yes; there is no restriction under Argentine law in order to secure an obligation conditional upon default. 11. Are step-in rights lawful in your jurisdiction or does any action to take control require the creditors to go through a court process? Under Argentine law, any action that may be initiated by the creditor to take control over an asset, as stated in Article 1,196 of Argentine Civil Code 13, requires undergoing a court proceeding. Under Articles 111 to 114 of the Argentine Code of Civil and Commercial Procedure, the exercise of step-in rights does not require any previous judicial authorization, and will be exercised through a special process in which the debtor will be summoned and given 10 days to either file an opposition or to initiate actions as plaintiff against the defendant. In any event, the judicial judgment will have full effects in favor or against the debtor. 13 Article 1,196 of the Argentine Civil Code: Creditors may, nevertheless, exercise all the rights and actions of their debtor, with the exception of those inherent to his person

24 BANK FINANCE AND REGULATION Multi-Jurisdictional Survey SECURITY OVER COLLATERAL CONTACT INFORMATION Karen Lee Clayton Utz Level 34, 1 O'Connell Street Sydney NSW 2000 AUSTRALIA Tel: kalee@claytonutz.com AUSTRALIA Please note that this document should not be considered to be legal advice. Any person reading this document should seek specific legal advice in relation to any questions concerning security over assets located in Australia, security granted by an Australian resident individual or an Australian registered company (including a company incorporated outside Australia but registered in Australia for the purposes of carrying on business there) or where a security document is governed by Australian law. The information contained in this document is current as at 13 February Can assets be charged, liened and/or encumbered in your jurisdiction? Please insert any exemptions, if any. Yes, as a general rule, assets can be charged, liened and encumbered. Typically, security interests are granted in the form of charges (whether fixed and floating, fixed or floating) or mortgages (whether legal, equitable or statutory). It is possible for other forms of security interests to be entered into, such as pledges and liens, though these are less common. A security interest (whether it is a charge, mortgage or any other form of security interest) cannot be granted over a chose in action (a contractual right) which is considered to be "personal" to the parties to that contract and therefore not assignable. By way of example, employment contracts and partnership or joint venture agreements would generally not be considered to be assignable as the identity of the parties to the contract is seen as of fundamental importance. In the case of other contracts which impose conditions on the grant of security interests, those conditions should be satisfied before the security interest is granted. This issue is considered further below. There may be restrictions on the circumstances in which certain assets are able to be encumbered. For example, although rights in respect of bank accounts are able to be

25 mortgaged or charged to a person other than the bank with whom the relevant account is held, it is still unclear under Australian law whether a charge or mortgage is able to be granted over a bank account in favour of the bank with whom the account is held. Again, this issue is considered further below. 2. In your jurisdiction, under what circumstances may security arrangements be subjected to choice of law and/or choice of forum clauses (does it matter, whether the security itself is located abroad and/or governed by foreign law [e.g. a pledged claim])? What is the market practice in your jurisdiction? Is there a treaty on this in your jurisdiction, whether bilateral or multi-lateral? Are there any requirements for enforcement in your jurisdiction? The general rule under Australian law is that courts will give effect to a choice of law clause, provided that the choice was made on a bona fide basis and without the primary purpose of avoiding the laws of another jurisdiction. Notwithstanding that this is the general rule that applies in Australia, where a security interest relates to property in a particular jurisdiction, an Australian court may not apply the choice of law in the security document and may instead apply the laws of the jurisdiction in which the assets are located to determine any enforcement related dispute. Also, certain questions will be determined by the law of the forum (or other specified law) irrespective of the choice of law in the security interest. The general rule under Australian law is also that courts will give effect to a choice of forum clause, though courts do retain a discretion to determine that proceedings have been commenced in an inappropriate forum notwithstanding the existence of such a clause. Typical Australian practice will be to select one particular State or Territory for both the choice of law and choice of forum clauses. Usually, this will be the State or Territory in which the secured property is located but may be another jurisdiction, for example, the State or Territory with which the financier taking the benefit of the security interest has the closest connection. There are no bilateral or multi-lateral treaties dealing with enforcement to which Australia is a party. Typically under Australian law, enforcement of a security interest does not require court proceedings. Enforcement will be governed by the terms of the security interest itself and also the terms of the Corporations Act 2001 (Cth), which applies across all Australian jurisdictions. Under section 420 of the Corporations Act, a receiver (or receiver and manager) has power in Australia "and elsewhere" to do all things necessary in connection to the attainment of the objectives for which the receiver (or receiver and manager) was appointed