A Glimpse of Mexican Insolvency System: Part II

XI. Insolvency of Corporate Groups
 
The LCM does not regulate groups of companies.  There is no piercing of the corporate veil.  The LCM provides that the concurso mercantil of holding and subsidiary companies shall be joint, but each company insolvency shall be conducted as a separate filing.  The LCM does not provide for these to be combined or consolidated for administrative purposes, nor may their assets and liabilities be pooled for distribution.
 
XII. Claims & Appeals
 
There is a written format for proofs of claim that must be attached to either the original or a certified copy of documentary evidence.  A certified statement of account and accounting expert opinion may be filed to support the claim.  If they are issued abroad, they shall be ratified before a notary public and apostilled.  Note that a claim may be signed by an officer of the creditor; however, a valid and enforceable power of attorney may be needed.  This format (proof of claim) is found at www.ifecom.cjf.gob.mx.  Proofs of claim shall be filed before the period for appealing the judgment has expired.  Filing of a proof of claim after this last limit shall be rejected.
 
Disallowed claims are announced alongside the judgment of which claims have been allowed.  Such dismissed claims may be challenged by appeal.  Claims may be transferred, which must be notified to the court.  Private agreements between the debtor and any creditor are null and void once relief is granted and the creditor shall lose such rights.
 
To participate in the discussion, approval, agreement and veto of the plan, creditors must hold approved claims.
 
XIII. Liabilities that Survive Insolvency Proceedings
 
Government tax credits and labour credits survive insolvency proceedings and are enforceable, unless otherwise provided by agreements of labour and tax creditors under the plan.  An insolvency court may not assert jurisdiction over tax and labour creditors.
 
In a reorganisation plan, liabilities may survive unless it is agreed that they are fully discharged.  There are no dischargeable debts.
 
There is no discharge in liquidation.  If payment is not made in full, liabilities survive and creditors may enforce the outstanding balance of the claim.
 
XIV. Distributions
 
Distributions are made in the liquidation phase with proceeds realised from the sale of estate assets.  Distribution is made pursuant to a proof of claims judgment determining recognition, ranking and priority of credits.  Priority credits shall be paid first in full, otherwise pro-rata payment shall be made and so on pursuant to the approved ranking up to the estate´s proceeds.  In reorganisations, distribution is made pursuant to the plan.
 
XV. Transactions that may be annulled
 
In general, all fraudulent transactions executed against creditors and the insolvency estate may be set aside. 
The LCM defines as felonious those fraudulent acts that cause or aggravate the cessation of payments, as provided by law.  These acts may be set aside as well.  Fraudulent or preferential acts may be reviewed and declared void.  The LCM prescribes a 270-calendar-day ‘suspect period’ to be reviewed, counting backwards from the date the order for relief was entered.  The review period may be longer in certain circumstances if so ruled by a court order
 
XVI. Conclusion of case
 
Reorganisation concludes with court approval of the plan.  Liquidation concludes with the sale of estate assets and payment of creditors’ claims up to their sale proceeds.  There is a court judgment declaring termination.
 
Conditions for termination of insolvency proceedings:

(i) The reorganisation plan may be approved by simple majority of creditors holding allowed claims.  In liquidation, the plan must be approved by all of such creditors;
(ii) full payment of recognised claims is made;
(iii) recognised claims are partially paid and there are no estate assets left to liquidate;
(iv) it is proven that the estate assets are not sufficient to pay expenses and fees for the administration of the estate; or
(v) proceeding can be terminated at any time upon request of the debtor and all recognised creditors.
 
Reopening of commercial insolvency proceedings.

In the case of (iv) or (v) above, proceedings may be reopened if it is proven that in the two years following termination there are assets to pay at least the expenses and fees for the administration of the estate.
Termination is made upon court judgment.
The LCM does not provide for discharge in liquidation.
 
XVII. International cases
 
Mexico has incorporated the UNCITRAL Model Law on Cross-Border Insolvency.  Accordingly, Mexico provides recognition and full cooperation on cross-border insolvency.  Foreign creditors are granted equal treatment with domestic creditors.  The federal judiciary has granted relief sought in support of the model law.
 
Mexico was the first jurisdiction in the world to recognise two foreign bankruptcy proceedings and grant international insolvency cooperation thereto – the Xacur case and the IFS case.
 
Mexico has no international treaty on insolvency, bankruptcy or reorganisation matters.  Mexico has executed two treaties on the recognition of foreign judgments that expressly exclude insolvency, reorganisation, bankruptcy and liquidation.
 
The LCM incorporates the UNCITRAL Model Law in chapter 12.  The law defines the following terms:
 

• ‘foreign proceedings’ – collective judicial or administrative proceedings in a foreign country, including interim proceedings, under a law relating to insolvency, or adjustment of debt proceedings in which the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation;
• ‘main foreign proceedings’ – foreign proceedings pursued in the jurisdiction where the debtor’s centre of main interest (COMI) is located;
• ‘foreign representative’ – a person or body, including provisional persons or bodies, empowered in foreign proceedings to administer the reorganisation or liquidation of the debtor’s assets and affairs or to act as a representative of foreign proceedings;
• ‘foreign court’ – a judicial authority or other body with jurisdiction over the control or supervision of foreign proceedings; and
• ‘establishment’ – any place of operations where the debtor carries out a non-transitory economic activity with employees and goods and services.

Reciprocity is mandatory.  International cooperation may be conducted through Mexican courts and Mexican representatives.  Foreign courts and foreign representatives may only act through a Mexican court or Mexican representative.  Recognition is not automatic.  If a debtor has an establishment in Mexico, full insolvency proceedings (concurso mercantil) under the LCM shall be conducted.  Otherwise, foreign proceedings may be recognised in summary proceedings.  In interpreting and applying chapter 12, consideration shall be given to avoiding any violation of the LCM and current prevailing fundamental principles of law in Mexico.  Please note that chapter 12 allows the rejection of recognition when there is any violation whatsoever of the LCM or any of such fundamental principles of Mexican law.  Thus, chapter 12 mandates, for overwhelming reason, rejection when there is a manifestly violation of public policy.  Protection measures (stay of payments or execution) may be granted following the request being filed for recognition.  Upon recognition, additional protective measures may be granted.  Foreign proceedings shall be recognised as main or non-main proceedings, subject to the debtor’s COMI.  Chapter 12 shall be interpreted considering its international origin and the need to promote uniformity in its application and good faith observance.  Chapter 12 may be applied, unless otherwise provided for under international treaties executed by Mexico, except where there is no international reciprocity.  Mexico has not executed any international treaties regarding liquidations or reorganisations or the like.
 
Chapter 12 aims to provide effective mechanisms for dealing with cases of cross-border insolvency with the following objectives: cooperation between Mexico and foreign courts; increase of legal certainty for trade and investment; fair and efficient administration of cross-border insolvency cases; protection and maximisation of a debtor’s assets; and facilitation of the rescue of financially troubled businesses, thereby protecting investments and preserving employment.
 
Chapter 12 applies where: assistance is sought in Mexico by a foreign court or a foreign representative in connection with foreign proceedings; assistance is sought in a foreign country in connection with a case under Mexican insolvency law; both foreign proceedings and a case under Mexican insolvency law with the same debtor are concurrently pending (parallel proceedings); or creditors, or other interested parties, in a foreign country want to commence or participate in a case under Mexican insolvency law.
 
Cooperation and communication between Mexican courts and foreign courts and between Mexican representatives and foreign representatives may be direct, without the need for letters rogatory or any other formalities.
 
Dario U Oscós Coria is a legal counsel and practitioner specialising in insolvency, restructuring, creditor rights, litigation, arbitration and mergers & acquisitions.
 
Oscós Abogados is a high-profile boutique practice that specialises in both domestic and international litigation. The firm has rich experience and technical expertise in handling insolvency, restructuring, creditor's rights, litigation, arbitration, product liability and bankruptcy within a wide variety of industries that range from banking, energy, oil, gas, construction, industrial property, copyright, torts and financial services to telecommunications.
 
Oscós Abogados has been involved in major insolvency, litigation and arbitration cases in Mexico in the 21st century. The firm has built up a strong reputation for delivering high-quality results in a discreet and timely fashion.
 
The firm set a milestone by successfully adjudicating the first two cases in the world that recognised and fully enforced another country's insolvency proceedings under the UNCITRAL Model Law on Cross-Border Insolvency (adopted, inter alia, by USA, UK, Canada and Japan). As the Model Law (EU Insolvency Cross Border Statute) becomes increasingly adopted by major countries, Oscós Abogados will refer to its familiarity and knowledge of international insolvency to ensure clients receive the best possible legal solutions.
 
The firm successfully concluded a complex RICO (Racketeer Influenced and Corrupt Organizations Act) action proceeding with cross-border insolvency and criminal implications in USA, UK and Mexico.
 
Members of the firm have participated in ICC major oil arbitrations as well as major energy and construction disputes. The firm has a rich diversity of clients that originate from numerous countries. Oscós Abogados has foreign clients based in the UK, Sweden, Germany and the US. Oscós Abogados has also worked with clients from South Korea and Canada. In short, the firm has represented individuals and firms from all the major continents. Unsurprisingly, the firm also represents the crucial business interests of key Mexican firms both domestic and internationally.
 
Mexico has opened its borders to foreign competition in an effort to revitalise its economy. Basing its strategy on liberalised trade, Mexico continues to push for closer trade relations with the USA, Western Europe and Asia. It launched the world's largest free trade area with the USA and Canada in 1994 when it signed the North American Free Trade Agreement (NAFTA). Since the implementation of NAFTA, Mexican trade with the USA and Canada has tripled. Building on that success, Mexico has negotiated 13 additional free trade treaties with over 40 countries that span the Americas, Europe and Asia. As a result, foreign direct investment has flooded in. Private investment is allowed almost in all sectors of the economy, and foreign investment is welcome. For example, 95 per cent of the financial and banking sector is owned by overseas companies. The Mexican legal system welcomes and privileges foreign investment in almost all sectors, including oil and energy.
 
Mr Oscós is the director of Oscós Abogados, Law Firm. He is a founder and senior partner at Oscós Abogados.
He graduated from, and was a professor of the Escuela Libre de Derecho. He studied conflict of laws as a postgraduate at Harvard University. He was the senior litigator at Santamarina & Steta SC as well as the senior litigator and corporate lawyer at Grupo Financiero Banamex Accival.
 
Mr Oscós has been also professor of procedural law at the Escuela Libre de Derecho, Universidad Iberoamericana; of insolvency at Universidad Panamericana; and of arbitration at the Instituto Tecnologico Autonomo de Mexico (ITAM). He is a member of the American Law Institute (and Mexican delegate and adviser in its transnational insolvency project), the International Insolvency Institute, the International Bar Association, the Insol International, the Insol Europe, the National Association of US Bankruptcy Trustees, of Barra Mexicana Colegio de Abogados and Ilustre y Nacional Colegio de Abogados de México. He is a lecturer and author of judicial literature.
 
Oscós Abogados and Mr. Oscós have been quoted as the best Mexican law firm and lawyer by The New Economy, World finance, Corporate International, ACQ, Deal Makers, IFLR 1000, Corporate International, IAIR, CNBC, FI Monthly Law, Financer, Who’s Who Legal, Lawyers World, Lawyers Monthly, and ACQ Country, inter alia.
 
For more information please contact Oscós Abogados by phone on +52 55 1253 0100 or alternatively via email at doscos@oscosabagados.com.mx
 
www.oscosabogados.com.mx