This content is from: Mexico

Placing a security guarantee on financing of works

It is important not to forget that the Civil Code states that debtors respond to the fulfilment of their obligations with their assets, except for all those assets considered by law as inalienable or which cannot be seized.

Moreover, the Mexican Copyright Law states that economic rights cannot be seized or pledged. However, it recognises the possibility of embargo and having in pledge the revenues and products derived from its exercise.

Therefore, a guarantee on the revenues and products of the exercise of the economic rights of a literary or artistic work can provide legal certainty for creditors for the execution of debt instruments that finance the production of works.

In the execution of debt instruments, there may be accessory contracts, beyond the aforementioned pledge, to guarantee the payment of the debt. Among these are specialised financial and insurance products such as a completion bond.

The purpose of this is to guarantee compliance with the production of the work, to allow the exercise of rights of use or exploitation in order to generate income and to comply with the obligations in favour of creditors.

It is important to mention that the Mexican Copyright Law Regulation recognises that the person who seizes an embargo or exercises a pledge action on the revenues and products derived from the exercise of economic rights can request the judicial authority to authorise the exploitation of the work when the copyright owner refuses to do so.

However, the complexity of the legal structure required for the subscription of debt for the production of literary or artistic works will depend on the magnitude of the investment required.

In addition, there may be distribution agreements that consider advance payments for the exploitation of the work, to guarantee payment to creditors, which can be assigned in favour of them.

The foregoing, must, at all times, follow the formalities required by the Mexican Copyright Law for any transfer of economic rights.

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