Creditors, especially those from outside the country, tend to be skeptical about engaging in litigation in Mexico to collect money from debtors. For many reasons they believe that engaging in litigation will only result in a loss of time, effort, and money, without any guarantee of a profitable end result.

The main reason for this reluctance to litigate seems to be that creditors view the process in terms of the general scenario for suing in Mexico, which involves an "ordinary" proceeding that tends to give the advantage to debtors (or defendants). In this scenario, the plaintiff (creditor) has the burden of proof for the underlying claim. The case then enters into a lengthy procedure that offers many appeal opportunities to the defendant. The creditor does not get an attachment order until a judgment is rendered and is considered final. (There is a way to get a pre-judgment attachment order under this type of ordinary proceeding. However, it takes another formal petition to the court; some witnesses to prove the potential risk of the debtor leaving, closing down doors, or selling away his assets; and a requested deposit or bond as payment guarantee for damages, should the plaintiff not get a favorable judgment.)

For the creditor, this means having to pay filing fees and service fees throughout the case - generally a long one. It means having to search for detailed information and papers that must be filed; presenting witnesses; preparing his testimony or that of his agent; bringing in expert witnesses; getting official reports; and the list goes on. The risk of engaging in this venture is that there is no guaranteed that the creditor will win the case. And worst yet, they are not guaranteed that they will be able to execute upon the debtor at the end.

The way to offset this risk is by filing suit through an "executive" proceeding. Under this scenario, it is the creditor who is the one with the advantages. His underlying claim is presumed to be valid and enforceable, and he gets an immediate attachment order upon filing his complaint. Better yet, it is the debtor who now has the burden of proving either that he has paid already, or that the claim is null or void.

The problem is that the executive proceeding is only available to creditors who have either secured their debt with a note (promissory note, check, or bill of exchange); have their contract included in a formal deed through a Notary Public; or have a formal acknowledgment of debt from the debtor, made before the court. This last condition can be met through a preliminary proceeding.

The Preliminary Proceeding

The objective of the preliminary proceeding (medios preparatorios) is to obtain an acknowledgment of debt from the debtor which will allow a creditor to file a formal complaint through an executive proceeding.

This is done by either summoning the debtor to the court to testify during a hearing as to whether he owes the creditor or not, or by having a court clerk visit the debtor at his address and make a formal inquiry as to the origin and existence of the claimed debt. If the debtor fails to show up at the hearing, the creditor automatically gets a resolution that allows him to file an executive proceeding. If the debtor does show up and recognizes the debt, the result is the same. However, if the debtor shows up and denies the debt or the allegations, he could be subject to criminal liability if he makes any false statements. The penalties for making false statements before a court are regulated by each State, but all of them are severe and include imprisonment.

Requesting a Preliminary Proceeding

A preliminary proceeding is made possible by filing a petition to the court, usually in the debtor’s jurisdiction. The petition should include: a statement of facts that gave rise to the underlying claim and a copy of any receivables or contracts that the creditor wants the debtor to recognize (not required, but many times recommended).

It’s an easy four step process: 1) you get detailed facts; 2) you or your counsel draft and file the petition; 3) you notify the debtor; and 4) you wait for the hearing date. There is no need to go through a whole formal case. There are no legal obligations in court other than conducting with truth and good faith. There is no need to present formal evidence. And, the fees and costs are minimal.

You have to keep in mind though, that the only person who can file the petition is a duly appointed legal representative of the creditor company. For this reason, the individual filing on behalf of the creditor will need a formal power of attorney for lawsuits and collections.

Advantages of Filing for Preliminary Proceedings

Creditors who want to know how fierce a battle the debtor will put up once formally sued, or those who want to better assess the risk of litigation (and possibly lower it), should definitely file a petition for preliminary proceedings. This is also highly recommended for creditors who do not want to go into litigation. The effort will be well worthwhile.

Once filed, the petition for preliminary proceedings will automatically create two things:

It will immediately let your debtor know that you mean business and that you will take all the necessary steps to get your money back. Very often, this is what it takes to get some debtors attention.
It will put the debtor in a precarious and vulnerable position since he will be testifying under oath. This gives him two options:
1. He can lie by denying the debt and making himself subject to criminal liability with the chance of going to jail. (It's my experience that criminal accusations put a lot more pressure on a debtor than a civil complaint. No one wants to be on record as having been the subject of a criminal investigation.)
2. He can tell the truth by admitting the debt, thus putting himself in the vulnerable position of allowing his creditor to immediately obtain an attachment order. Should this happen, he knows that the attorneys will be coming soon, and will, therefore, make a real effort to resolve the dispute quickly to avoid any problems.

While the above situations will put a debtor under heavy stress, the creditor can simply sit back and enjoy the show. As we said before, they will have no legal obligation in the proceedings, and there is no likelihood whatsoever of being countersued because they have not yet filed a formal complaint. In any case, the creditor will face one of two scenarios:

Best Scenario. The main consequence that will derive out of a preliminary proceeding is that the creditor will really get the debtor’s attention. That will definitely increase his chances of getting paid out of court, or at least reaching a settlement agreement.

Worst Scenario. The worst thing that can happen here is that the debtor may still be reluctant to pay voluntarily. In that case, the creditor now has two weapons:

If the debtor did acknowledge the debt, the creditor will have an advantage in litigation through an executive proceeding.
If the debtor denied the debt, the creditor will have the opportunity of filing a criminal accusation for false statements against the debtor and still file suit through an ordinary proceeding.

Strategic Recommendations

Although the requirements for filing preliminary proceedings are fairly simple, a creditor should always provide its counsel with the best weapons. For instance, it is not necessary to provide copies of any unpaid receivables or contracts to support the underlying claim. Nevertheless, it is far better to present them in court, along with translations, since that will create the opportunity to present them physically to the debtor at the hearing for recognition. Because of the possibility of criminal liability, refuting such documents is much riskier for the debtor than merely denying facts.

Also, a simple statement of facts that just mentions the debt is sufficient. (For example: I sold goods to the debtor worth X dollars, he was supposed to pay on X date, and he didn’t pay). You want to give as much information as possible so that the framing of the questions to be addressed to the debtor can proceed from general to very specific. These are questions that present facts which will be very difficult for the debtor to deny, and, conversely, will be very easy for the creditor to prove during a criminal investigation.

Conclusion

A creditor should never give up too easily and walk away from money he is owed just because a debtor is difficult to deal with. Even when he does not plan to file a formal suit because he wants to avoid the trouble of dealing with the courts, he should at least give himself a chance to recover the debt by filing for preliminary proceedings. The investment of time, effort, and money is minimal, and the benefits are many. The worst that can happen is he might get paid.

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Disclaimer: The information in this article is not, nor is it intended to be, legal advice. HMH Legal only provides legal advice after having entered into an attorney client relationship. It is imperative that any action you take be done on the advice of counsel, and not based solely upon this article.

Romelio Hernandez is a partner at HMH Legal. Headquartered in Tijuana, Baja California, Mexico, HMH Legal is a law firm providing credit and debt recovery services. For more information on HMH Legal, visit their website at http://hmhlegal.com or e-mail to info@hmhlegal.com

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