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New judgment about guarantee trusts and credit filings

Roberto E Silva Jr Fermín O Castro Madero

On July 14 2010, in the case of Feroanco, Tribunal E of the Commercial Court of Appeals affirmed the ruling of the lower court in accepting the credit filed by Sinsbur (the beneficiary) as a potential unsecured creditor.

Sinsbur and Feroanco (Feroanco or the insolvent) were parties to a copper supply contract in which Sinsbur supplied Feroanco. In order to secure Feroanco's obligations the parties created a guarantee trust over the future receivables to be collected by Feroanco. FNB acted as the trustee.

The trustee was the one that initially requested the credit acceptance on behalf of the beneficiary. The lower court declared that the trustee could not claim on behalf of the beneficiary. This resolution resulted in claim preclusion. Consequently, the beneficiary filed the evidence of its credit at a later stage.

Tribunal E considered that the rejection of the filing by the trustee did not preclude the beneficiary from making such filing. Tribunal E established that in connection with guarantee trusts, beneficiaries must file the evidence of their credits because: (i) the creation of a trust does not mean the novation of the main obligation which lasts until its total repayment; and (ii) the secured credit can be partially satisfied if the trust assets are not enough to repay the credit in full.

Whether the credit is unsecured or preferred, Panel E understood that it is an unsecured credit because the guarantee that the trust creates does not affect an asset of the insolvent party because trusts create a separate asset, different from the trustee's and the settlor's. Nevertheless, this does not negate the preference that Sinsbur has over the trust assets.

This judgment clarifies an issue that had become very controversial among legal authors.

Roberto E Silva, Jr. and Fermín O Castro Madero

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