Mexico

The Concurso Law (Ley de Concursos Mercantiles (LCM)) provides for a single insolvency proceeding known as a concurso proceeding (conciliation/restructuring or insolvency/bankruptcy procedure).

The applicable laws on restructurings and insolvency proceedings are mainly the LCM, the General Law on Business Organizations (GLBO), the Law of Credit Institutions and the Law of Insurance and Bonds Institutions. The debtor itself, any creditor, the district attorney, a judge and tax authorities in their capacity as creditors may file an insolvency petition. With the petition filed by creditors or authority (involuntary) or the insolvency petition filed by the company (voluntary), as the case may be, a guarantee or bond must be posted to guarantee the examiner’s fee payment.

The first stage of a concurso procedure is the conciliation stage, which is purported to encourage a binding restructuring plan between the debtor and its creditors and thus avoid the debtor’s bankruptcy or liquidation. The conciliation stage shall not last more than 185 calendar days, unless extended for up to two additional consecutive periods of 90 calendar days each; provided, however, that in no event shall the conciliation stage last more than 365 calendar days. Once the commercial insolvency of the debtor has been declared, the conciliation stage shall commence, and the conciliator will attempt to find a formula to allow the debtor and creditors to reach a plan of reorganization.

The company may continue to operate the business in the ordinary course as a debtor-in-possession and in this case, the conciliator retains the authority to resolve, among other things:

• non-ordinary course dispositions of assets;
• assumption or rejection of material contracts; and
• after a concurso judgment has been entered, preferred and senior financing against the estate (equivalent to debtor-in-possession financing in a Chapter 11 proceeding).

Under Article 81 of the LCM, the conciliator may request the Mexican Bankruptcy Court to remove the debtor’s management in certain circumstances.

The conciliation stage ends upon:

1. an agreement among the company and a majority of its creditors with respect to a consensual restructuring approved by the court in the form of a plan;
2. the expiration of the term limit set forth above, at which time the concurso proceeding will move to the liquidation stage;
3. the request of the conciliator and with the court’s approval of such request;
4. the company’s request; or
5. the creditors’ request with the company’s agreement.

In the case of (2) through (5) above, the company enters the liquidation stage of the concurso proceeding following the court’s entry of a formal judgment for liquidation (“Liquidation Judgment”).

If the concurso proceeding goes into the liquidation stage, the IFECOM appoints a receiver to operate the company in the liquidation stage. The receiver makes public the order for liquidation and files a report concerning the company’s books and records, assets and balance sheet. All of the company’s assets are turned over to the receiver. The receiver then takes steps to liquidate or otherwise dispose of the debtor’s assets for the highest possible price pursuant to the rules and procedures expressly provided in the LCM. The proceeds are then used to provide distributions to creditors in accordance with the claims and rankings set forth in the Recognition Judgment. The receiver follows the LCM’s strict rules of publicity and operability to guarantee the transparency of a sale procedure and follows the guidance and forms determined by the IFECOM.

The liquidation stage is supervised by the IFECOM and the receiver, and the length of the procedure will vary depending on the type of industry and the time required to auction, sell and reach agreements among creditors to offset claims.

The liquidation stage is aimed at terminating any pending company operations, collecting any amounts in favor of the debtor, and liquidating any outstanding amounts of the debtor in favor of creditors. The liquidation concludes with the cancellation of the company’s registration.

Now, the Mexican General Law of Business Organizations (GLBO) is a Mexican federal corporate law that generally provides the rules of formation, by-laws and corporate governance requirements for various privately-held business entities. Article 229 of the GLBO addresses the out-of-court dissolution and liquidation process of wholly owned corporate subsidiaries and affiliates not subject to controversial or litigious proceedings. The purpose of the dissolution and liquidation proceeding under the GLBO is to provide for a simplified proceeding that allows enterprises to carry out a simple, expedited and gratuitous dissolution and liquidation process. This proceeding is not applicable for restructurings; rather, it is used for simplified liquidations in very particular situations which comply with clear conditions to avoid the closing of businesses with pending obligations before shareholders or third parties.

The LCM is a federal, specialized law that governs all the steps of the formal in-court federal insolvency procedures available under Mexican law for companies. It provides for a single insolvency proceeding known as a concurso proceeding, in which the conciliation/restructuring or insolvency/bankruptcy procedures are regulated.

The concurso procedure consists of two main stages, whether aimed at restructuring (the conciliation phase or conciliación) or liquidation (phase of liquidation or quiebra). The first stage of a concurso procedure is the conciliation stage, which is intended to encourage a binding restructuring plan between the debtor and its creditors and therefore avoid the debtor’s liquidation. The second stage of a concurso procedure, if applicable, consists of the liquidation stage. The debtor may be declared in liquidation if the conciliation stage ends without the parties reaching a creditors’ agreement; the debtor fails to comply with the creditors’ agreement; the debtor requests its liquidation; or the conciliator requests the debtor’s liquidation and the court agrees to grant it.

The debtors may obtain the issuance of preemptive measures during the concurso proceeding (i.e., a stay) to protect the debtor’s assets and estate. These measures serve as a mechanism to provide the debtor with the necessary breathing space to have a real and effective opportunity to rehabilitate and solve its insolvency problems jointly with its creditors.

Debtors can request preemptive measures upon the admission of their concurso petition. In cases where the concurso petition is filed by a creditor, the plaintiff creditor may also request preemptive measures. During the preliminary stage known as the examination stage, the court-appointed examiner may request the granting or modification of any preemptive measure deemed necessary.

At the time of the declaration of insolvency, the preemptive measures are generally ratified if issued and may even be extended. In fact, precautionary measures may be granted or modified at any time during the concurso procedure, at the request of the company, the conciliator, or ex officio by the court itself.

Precautionary measures are temporary in nature. They seek to protect the assets and rights that the company holds at the time of requesting them, which implies merely maintaining the ongoing situation (and only for a limited period).

A debtor may consider a corporate reorganization and out-of-court restructuring to stabilize business operations before deciding for an in-court insolvency or liquidation proceeding of any business.

Many restructuring proceedings in Mexico begin as informal and/or consensual efforts. Ending a judicial proceeding would depend on the various circumstances around the negotiations and status of the debtor. The possibility of aligning interests and positions of different creditors is essential, as well as the ability to reach a restructuring plan. It is likely that, if sophisticated creditors (banks, funds) are involved — which occurs in major restructurings — they will try to be cooperative to reach a restructuring plan that may serve to restructure the debtor out of court or prepare it for pre-pack, in-court proceedings (a more expeditious procedure than regular proceedings).

Laws in Mexico do not require mandatory consensual restructuring negotiations or a restructuring plan before commencement of a formal statutory process.

Consensual restructurings begin with informal meetings among all or a portion of the debtor’s creditors, out of which some will take the lead, creating an ad hoc committee to represent a specific group. Standstills and waivers are commonly used and granted to allow the debtor to continue operating and avoid an imminent in-court proceeding. The information and documentation of the debtor provided to creditors and other related parties would usually include financial and accounting information, as well as corporate documentation and relevant contracts of the company. The scope of the material or information to be disclosed will be determined by the confidentiality agreements executed.

3.1 What are the conditions to entry?

Upon the admission of a voluntary (debtor) or involuntary (creditors) petition filed before the court, the judge will order IFECOM to appoint an independent examiner (visitador). During the examination stage, the examiner will review and audit the company’s books and records to determine whether the company satisfies the LCM’s insolvency requirements (the “Insolvency Test”) to be eligible for a concurso proceeding.

The Insolvency Test focuses on whether the company has generally failed to comply with its obligations. Article 10 of the LCM provides that the Insolvency Test is satisfied when:

1. the company has failed to comply with its payment obligations in respect of two or more creditors;
2. 35% or more of all the company’s outstanding liabilities are 30 days overdue; and/or
3. the company has insufficient liquid assets and receivables as established in the LCM (e.g., cash, cash equivalents and liquid securities) to support at least 80% of its obligations which are due and payable.

In cases involving voluntary petitions, the company must satisfy the tests set forth above in (1) and either (2) or (3) to be declared insolvent. Alternatively, the company may satisfy the Insolvency Test if it can prove that it will be generally in default with respect to its payment obligations within 90 days from the filing of the voluntary petition. In cases involving an involuntary petition, the company must satisfy the test set forth in each of (1), (2) and (3) to satisfy the Insolvency Test.

The conciliation stage begins with the court’s decision confirming the examiner’s opinion as to whether the company meets the requirements to be eligible for the concurso proceeding

3.2 Can creditor claims be compromised “within a class”?

The LCM classifies creditors based on their claims and the nature of their rights. In Mexico, creditors are classified into the following classes:

• singularly privileged;
• secured creditors;
• creditors with special privilege;
• unsecured (common) creditors; and
• subordinated creditors.

A restructuring plan can propose compromises for certain creditors, as long as there is approval by the court and required voting is met. The restructuring plan must be approved by the relevant classes of creditors, requiring a majority vote within each class. Dissenting creditors within a class cannot be forced to accept a plan if the required majority are not met by the Concurso Court.

3.3 Is there a “cross-class cramdown”?

While the Concursos Law does not explicitly outline a procedure for cramming down dissenting creditors, it does allow for a restructuring plan that includes measures such as haircuts or maturity extensions to be imposed on unsecured creditors, provided that at least 30% of the unsecured creditor class accepts the same terms. This mechanism offers a path for restructuring plans to move forward even in the absence of unanimous support from unsecured creditors.

Secured creditors and creditors with special privileges are not bound to the terms set forth in the restructuring plan regarding their class. They may enforce their security or privileges independently. Secured creditors cannot be impaired without their consent; however, they may choose to participate in a restructuring plan and exercise their voting rights.

As for labor and tax claims, the LCM does not allow for any compromise or settlement of such claims; such claims must be paid in full as provided in the judgment of recognition, ranking and priority of claims (sentencia de reconocimiento, graduación y prelación de créditos).

3.4 Can shareholder claims be compromised?

In a concurso proceeding, equity holders do not participate and are not considered a class of creditors. There is no class of equity interest in a restructuring plan because such a plan cannot alter shareholders’ rights without their consent (just as no plan can alter a debtor’s rights without their consent). However, if equity holders have intercompany debt, they may be recognized as a class of creditors (subordinated creditors).

Any plan of reorganization that involves a debt-for-equity exchange or any amendment that alters the composition of the debtor’s equity, such as an increase, must obtain shareholder consent. Such features of a restructuring are not permitted under Mexican law without consent or approval by the shareholders who are affected. The GLBO requires that any debt-for-equity exchange or any amendment to the composition of the debtor’s equity complies with the requirements under such law, which include holding a shareholders’ meeting to approve any such transactions or amendments that impact the debtor’s equity. Further, the by-laws of the company normally provide the same limitation, requiring shareholder consent in respect of any debt-for-equity exchange or any amendment to the composition of the equity of the company. The only power afforded to a court for a proposed plan providing an equitization of creditors’ claims is the authority to approve a capital increase in the event that the shareholders choose to not exercise pre-emptive rights within the 15-day statutory period.

Subordinated creditors (intercompany creditors or those subordinated by contract) are the last creditors to be paid in a concurso proceeding. As per the Concursos Law, subordinated creditors are those creditors whose credits have been expressly subordinated; as well as unsecured credits granted by:

• the administrator, main directors or any member of the board of directors of the debtor, shareholders that hold more than 50% of the equity of the debtor or any other person that holds control, directly or indirectly, over the debtor; or
• any other company with the same administrator, board members or main directors.

Equity holders will receive any remaining amount after having paid all types of creditors.

3.5 Can secured creditors’ claims be compromised? Are deficiency claims treated differently?

Under Mexican law, secured creditors (with a mortgage and pledges over assets of the debtor) cannot be impaired without their consent; however, they may choose to participate in a restructuring plan and exercise their voting rights.

Secured creditors are paid first from the proceeds obtained through the sale of the mortgaged or pledged assets. If the value of such assets exceeds the amount of the secured obligation, the surplus is allocated to the payment of subsequent creditors. Conversely, if the proceeds are insufficient to fully cover the secured claim, the creditor may participate in the insolvency proceeding as an unsecured creditor for the unpaid balance, on a pro rata basis.

3.6 Can creditors propose competing plans?

To be effective, the restructuring plan shall be subscribed by the debtor and the recognized or acknowledged creditors representing over 50% of the sum of:

• the amount recognized to the totality of the recognized or acknowledged unsecured and subordinated creditors; and
• the amount recognized to these recognized or acknowledged secured creditors or with special privilege subscribing the restructuring plan.

Pursuant to the Concursos Law, should the subordinated (intercompany) creditors represent more than 25% of all the acknowledged loans, the majority of the remaining unsecured creditors will vote on the restructuring agreement without considering the subordinated creditors.

Creditors are not entitled to propose competing plans, but they can provide comments and objections to the plan filed by the debtor and the conciliator and may appeal the resolution that approves the restructuring plan, if they consider that it does not comply with the requirements established by the LCM.

3.7 What level of court or other third-party supervision is there of the process(es)?

The competent authority to hear insolvency and commercial bankruptcy cases is the specialized federal bankruptcy court located in Mexico City. The court is the authority overseeing the insolvency proceeding.

The IFECOM was created specifically to attend insolvency proceedings governed by the LCM, being an entity of the federal judicial branch that participates in a concurso proceeding that even has the authority to issue General Rules applicable to insolvency proceedings governed by the LCM and assist the courts when a concurso procedure exists. IFECOM directs and administers a group of individuals able to carry out the duties of so-called specialists in the LCM. These individuals, who are selected, monitored and regulated by IFECOM, will serve as examiners, conciliators or receivers in LCM-compliant insolvency processes.

Pursuant to the Concursos Law, an intervenor may represent the interests of creditors in the concurso procedure and oversee the actions of the conciliator or the receiver, as well as the actions of the debtor with respect to the operation of its business. Any creditor or group of creditors representing at least 10% of the value of the credits owed by the debtor, pursuant to the provisional list of credits, has the right to request the court to appoint an intervenor.

Intentional fraudulent transactions and certain other transactions may be set aside or declared as void when it is established that the debtor received inadequate consideration. According to the LCM, any of the following transactions may be invalidated if entered into the period referred in Question 4.2, below:

• transactions executed by a debtor prior to the declaration of insolvency with the intention of defrauding creditors (knowledge of the counterparty is not required if the act was gratuitous);
• gratuitous transactions;
• undervalued transactions;
• transactions not effected at an arm’s-length basis;
• waivers of debts agreed by a debtor;
• performance of obligations prior to their maturity date; and
• discounts made by a debtor.

In line with the foregoing, a presumption exists that the following transactions are executed in fraud of creditors, unless the debtor proves good faith: creation of new security interests or the increase of any existing security interests if the original obligation did not provide for it; payments in kind when such form of payment was not originally agreed; and transactions entered into by a debtor with related individuals or entities, such as its spouse, cohabiting partner, relatives, members of the board or decision-making individuals within the business or companies where at least 51% of their capital stock is owned or voted by any of the foregoing individuals. Challenges may be brought by recognized creditors, the conciliator or the intervener (intervening administrator) appointed by the creditors. The party that challenges the transaction bears the burden of proof.

If the claim is successful, the party must pay damages and return any value to the debtor’s estate.

4.1 What is the applicable law that provides for clawback and/or antecedent transaction claims?

The Concurso Law and the Federal Civil Code.

4.2 What are the relevant “look-back” periods for claims?

According to the Concurso Law, the transactions referred to in Question 4, above, may be invalidated if entered into during the period starting on the day that is 270 calendar days prior to the declaration of insolvency by a competent court

Per the request of the conciliator, liquidator, intervener or any creditor, the judge may extend the 270-day term, but such a term may not exceed three years. If subordinated creditors exist (intercompany claims) a 540-day term will apply with respect to the transaction in which these are involved.

4.3 Who can pursue the claims?

The conciliator, liquidator, intervenor or any creditor.

4.4 What remedies are available and how do they operate in practice?

Fraudulent claims must be filed before the Bankruptcy Court and will be processed as ancillary proceedings. In such cases, the debtor and the parties involved in the allegedly fraudulent transaction will be required to file an answer and submit evidence. A motion for reconsideration may be filed before the Bankruptcy Court against the resolution issued in the ancillary proceeding. Once the Bankruptcy Court issues its ruling on the motion for reconsideration, the parties may seek constitutional relief through an amparo.

Although the LCM provides for the prosecution of fraudulent acts within the insolvency proceeding, there is also a legal remedy available outside the bankruptcy process, known as the Actio Pauliana, which is governed by the Federal Civil Code.

4.5 What defenses are available?

The debtor or the parties involved in the allegedly fraudulent transaction may argue that the transaction was carried out under market conditions or formed part of a legitimate financial operation that conferred value upon the company. Ultimately, they bear the burden of proving that the transaction was made pursuant to a valid business judgment and resulted in a tangible benefit to the estate.

4.6 Is there a general right of action in respect of transactions defrauding creditors or Actio Pauliana claims?

In Mexico, the Actio Pauliana (Acción Pauliana) is a legal remedy that allows creditors to challenge fraudulent actions by the debtor that hinder or impair the recovery of unpaid debts. Through this mechanism, creditors may seek to have the fraudulent transaction declared void; however, any recovery resulting from such action will only benefit the creditor who initiated the claim.

The Actio Pauliana is governed by the Federal Civil Code. Nevertheless, as previously explained, the LCM also provides specific provisions and requirements for challenging fraudulent transactions within the context of a bankruptcy proceeding.

 4.7 Who can pursue the claims?

In the context of a concurso proceeding:

• One-fifth of the recognized creditors.
• The recognized creditors that represent, as a whole, at least 20% of the total amount of the recognized claims, or of the total amount of the recognized claims.
• The intervenors (interventores) that have been appointed in the concurso

In case of an Actio Pauliana, any creditor may pursue the claims.

4.8 What remedies are available and how do they operate in practice?

• The fraudulent transaction claim aims to have the transaction declared void and to claw back the relevant assets for the benefit of the creditors.
• A liability action may be brought to seek indemnification for damages.
• Civil or criminal liability actions may also proceed, as applicable, under the relevant laws.

4.9 What defenses are available?

Please refer to Question 4.5, above.

Owners/shareholders may be potentially liable to creditors pursuant to the provisions of civil and criminal regulations. The directors of a company that has not been declared insolvent by a competent court may not be liable for continuing to operate a company under financial distress.

However, the transactions related to the collection of a creditor’s rights could be subject to review when the company is declared insolvent. In the event that the company is declared insolvent, directors engaging in any malicious act or conduct that causes the non-performance of the company’s payment obligations might be liable to civil actions or even criminal liability, if those acts are proven to be fraudulent.

The LCM provides for events during which a director or managing officer will become liable to the debtor, for the benefit of the estate of the company in a concurso procedure, for any damages and losses of anticipated earnings caused by any unlawful decision they had made, provided they cause damage to the estate of the debtor which led to the insolvency situation of the company. This is regardless of any liability incurred by the director or managing officer under any other law. Unless good faith and compliance with the duties of care and loyalty can be evidenced, members of the board of directors, as well as relevant employees of the debtor, shall be liable for damages and losses due to some of the following activities:

• voting in board meetings or making decisions regarding the estate of the debtor regardless of a conflict of interest;
• favoring a shareholder or group of shareholders to the detriment of other shareholders;
• obtaining, due to their position and without legitimate cause, direct or indirect economic benefits;
• producing, publishing, providing or ordering information they acknowledge is false;
• ordering or failing to register operations of the debtor or modifying the registry to conceal the real nature of the operations performed, affecting any element of the financial statements;
• ordering or accepting the registration of false information in the debtor’s books;
• destroying, modifying or ordering the destruction or modification of systems or accounting registries or the documentation on which these are based; and
• in general, committing malicious or illegal acts.

5.1 What are the duties of directors and managers?

Directors and managers have duties of care and loyalty. Relevant employees of the debtor shall also:

• make decisions in the best interest of the company and avoid conflicts of interest;
• avoid favoring one shareholder to the detriment of another;
• avoid using, providing or disclosing false information;
• avoid concealing information that may affect third parties;
• maintain accounting information; and
• avoid unlawful or fraudulent acts;

5.2 What claims can be brought against directors and managers arising from breaches of those duties?

They could be sued for any damages and losses of anticipated earnings caused by any unlawful decision they had made, provided they caused damage to the estate of the debtor which led to the insolvency situation of the company. Also, they may be subject to criminal proceedings.

5.3 Who can pursue the claims?

Claims can be pursued by:

• the company;
• shareholders of the company who, individually or in the aggregate, hold shares with voting rights, even if limited or restricted; or without voting rights, representing 25% or more of the capital stock of the company; and
• in some cases, anyone who considers that the unlawful action of the director or manager has caused damage or harm to its assets.

5.4 Do directors have, at any time, a strict obligation to file for insolvency and, if so, when does that arise?

No, in Mexico directors do not have a strict obligation to file for a concurso proceeding. However, if the insolvency is evident, this could be interpreted as a lack of diligence in their decision-making and they could be sued for damages.

5.5 Can directors and managers be found liable for the increase in sums owed to creditors after a company becomes insolvent?

They might if they actively contribute to this increase.

5.6 In what other circumstances can directors and managers be found liable directly to creditors of the company?

The managers are jointly and severally liable to the company regarding the following aspects:

• for the truthfulness of the contributions made by the shareholders;
• for compliance with the legal and statutory requirements established regarding the dividends paid to the shareholders;
• for the existence and maintenance of the accounting, control, registration, filing or information systems provided for by law; and
• for strict compliance with the resolutions adopted by the general meetings.

When filing for the concurso proceeding, the debtor is required to submit a list of its assets, creditors, debtors, ongoing litigation and financial statements. Creditors have access to this information once the court recognizes their participation in the proceeding as recognized creditors of the debtor.

Additionally, once the company enters the conciliation stage (etapa de conciliación), the court-appointed conciliator (conciliador) must file bi-monthly reports containing financial and operational information about the debtor. This information is available to its creditors, who may also request from the conciliator information related to the company’s activities and operating expenses.

6.1 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

Office holders are entitled to obtain information regarding the debtor’s assets, creditors, accounts receivable, financial records and operating expenses incurred during the concurso proceeding. If the debtor fails to provide such information, the office holder may request the Bankruptcy Court to order its disclosure and, if the debtor does not comply, to impose the applicable sanctions.

6.2 How is that information obtained in practice?

Any recognized creditor in the concurso proceeding may request the court to order the debtor or the conciliator to provide the relevant information.

Once the liquidation stage is declared, IFECOM appoints an independent receiver to operate the company in the liquidation stage. The receiver then makes public the order for liquidation and files a report concerning the company’s books and records, assets and balance sheet. The receiver must file regular reports containing financial and operational information.

6.3 Can the court assist in obtaining that information and how does that work in practice?

Yes, the court may assist in obtaining such information. Upon request by a party, the Bankruptcy Court may order the production of the relevant documentation and has the authority to impose sanctions to ensure compliance with its orders.

7.1 Is the UNCITRAL Model Law on Cross-Border Insolvency adopted?

Mexico was one of the first countries to adopt the UNCITRAL Model Law on Cross-Border Insolvency, which was expressly incorporated to the provisions set forth in the LCM in Title 12.

7.2 Is it possible to recognize office holders from other jurisdictions?

Coordination and cooperation contemplated under Articles 304 and 305 of the LCM concern cooperation in the case of parallel proceedings, where there are bankruptcy cases pending in multiple jurisdictions.

Article 304 requires Mexican bankruptcy judges, inspectors, conciliators and liquidators to “cooperate to the extent possible with foreign courts and representatives”.

Article 305 provides the means through which the cooperation referenced in Article 304 may be “put into practice”, including but not limited to:

• the appointment of a person to act under the direction of the judge, the bankruptcy conciliator, the inspector or the liquidator;
• the communication of information through any means that the judge, the inspector, the bankruptcy conciliator or the liquidator considers appropriate; and
• the coordination of the procedures that are being processed simultaneously in respect of the same debtor.

The Concursos Law recognizes foreign proceedings in bankruptcy, insolvency and reorganization matters, and it recognizes foreign representatives appointed through a recognition request. In this regard, the Concursos Law recognizes foreign proceedings when legally held in a foreign country in accordance with bankruptcy or insolvency laws applicable to the debtor due to its activities, the location of assets or other similar causes. The Concursos Law states that any representative of a foreign bankruptcy procedure may request the presiding Mexican court to recognize the foreign bankruptcy procedure during a concurso procedure. 

Under the LCM, a “foreign representative” is an individual or entity that:

• has been empowered under a foreign bankruptcy procedure to administrate the reorganization or settlement of the business; or
• has been designated as the representative of such foreign bankruptcy procedure.

Any representative of a foreign bankruptcy procedure may request the presiding Mexican court for the recognition of the foreign bankruptcy procedure during a concurso procedure. Therefore, any foreign representative is entitled to appear directly before the presiding Mexican court in all procedures brought under the LCM. Such filing should be made by means of an interlocutory procedure before the civil federal court analyzing the concurso proceeding.

The foreign representative has the power and capacity to ask that the examiner, the conciliator or the receiver initiates the actions for the recovery of assets that belong to the entirety of a property, and of nullity acts concerning the defrauding of creditors.

7.3 What is the process and what are the conditions for recognition?

In terms of the Concursos Law, there are two ways that a Mexican court can recognize a foreign bankruptcy procedure:

• as a main proceeding, when the foreign procedure is brought to a court with jurisdiction in the place where the business has its main place of interests; or
• as a non-main procedure, when the foreign procedure is brought to a court with jurisdiction in the place where the business has an establishment.

The main difference between the recognition of a foreign bankruptcy procedure as a main procedure or as a non-main procedure is in the direct effect of such recognition over the business’ assets located in Mexico. Pursuant to the Concursos Law, if a foreign bankruptcy procedure is recognized as a main procedure; any and all foreclosure over the business’ assets, and any and all rights to transfer or grant any lien over business’ assets, shall be suspended. A Mexican court shall recognize the foreign bankruptcy procedure as a non-main procedure if takes place in any location where the debtor has an establishment. Pursuant to the Concursos Law, a debtor has an “establishment” in “every place of operations where the Debtor carries out in a non-transitory form an economic activity with human means, assets or services”.

The recognition aspects of a non-principal foreign bankruptcy procedure are as follows: the granting of appropriate injunctions that concede to a Mexican court to protect the business’ assets or the creditors’ interests, who may request through the foreign representative that the receiver, conciliator or examiner, as the case may be:

• suspends all execution injunctions against the business assets;
• suspends the rights exercised to transmit or to mortgage the business assets, as well as to dispose of such assets in any other way;
• orders the delivery of evidence or the provision of information regarding the business’ assets, activities, rights or liabilities of the business;
• entrusts the foreign representative, the receiver, conciliator or examiner with the administration or foreclosure of all or part of the business’ assets located in Mexican territory;
• extends every granted injunction granted by the foreign recognition procedure request; and
• grants any other injunction that under Mexican law may be grantable to a receiver, conciliator or examiner.

Once a foreign procedure is recognized, the foreign representative will be able to ask the receiver, conciliator or examiner to entrust, through a foreign representative, the distribution of all the business’ assets located in Mexican territory. The Mexican court must make sure that the creditors’ interests domiciled in Mexico are sufficiently protected so that it may decree the injunctions mentioned above. 

7.4 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

The conciliator is responsible for reviewing the ordinary operation of the company’s business, approving expenses during the in-court proceeding and filing various public reports before the court (so the officer must review the company’s accounting, books and records). The conciliator also supervises any company transactions during the conciliation stage.

If the concurso proceeding proceeds to the liquidation stage, IFECOM appoints an independent receiver (síndico) to operate the company who will be able to access all the information about the business, the company’s books and records, assets and balance sheets.

The LCM allows that any creditor or group of creditors representing at least 10% of the value of the credits owed by the debtor, pursuant to the provisional list of credits, has the right to request the court to appoint an intervenor (interventor), who is entitled to receive accounting information, expenses during the in-court proceeding, and relevant business information.

7.5 What steps can a foreign office holder take to recover assets belonging to the debtor?

If an office holder has suspicions about a transaction, they can request information from the company. If the transaction falls within the look-back period, the officer can initiate fraudulent transaction action. If it does not fall within the scope, the officer can request an extension to the period, as noted in Question 4, above, and subsequently initiate the fraudulent transaction action.

7.6 Is a foreign office holder able to bring clawback claims or fraudulent transaction claims?

Yes. Any foreign representative will have the rights entitled under the LCM. Please see Question 4, above.

8.1 Can a foreign office holder take appointments?

See Question 7.2, above.

8.2 What are the conditions for becoming an office holder?

The IFECOM interviews and evaluates candidates, issuing a registration certificate to selected specialists. Candidates undergo a rigorous process of certifications that requires a high level of expertise and experience in financial restructuring and insolvency proceedings. IFECOM shall apply rules to prevent conflicts of interest in the assignment of its experts. IFECOM is responsible for their appointment and ensuring they meet all required qualifications. Appointments are generally based on a random and electronic selection from the registered experts.

8.3 What are the main rules of professional conduct?

There is a Code of Ethics which provides that, in performing their duties, office holders must observe the following principles:

• Impartiality. The office holder must act as a facilitator of the process in support of the jurisdictional body. They must not take sides exclusively in favor of any of the parties involved in the reorganization proceedings.
• Professionalism. The office holder must act in accordance with their experience, knowledge, skills and aptitudes. Considering their expertise in insolvency matters, they are also obliged to keep themselves updated on topics related to the performance of their functions.
• Excellence. The office holder shall always prioritize perfection in their work, paying close attention to efficiency, time management and results.
• Confidentiality. The office holder shall guarantee the secrecy and protection of any information discussed during the process, providing the relevant information to those entitled to it.
• Honesty. The office holder shall govern their actions according to the rectitude of their conduct, obtaining for themselves and for others the benefit that the law itself recognizes for their activity.