Mexico

1. What type of restructuring schemes exist in Mexico?

All insolvency proceedings are governed by the Mexican Commercial Bankruptcy Law (Ley de Concursos Mecantiles “LCM”). The restructuring schemes most commonly used in Mexico are the following:

Out-of-court Restructuring

The LCM does not explicitly provide for informal out-of-court restructurings prior to insolvency; however, out-of-court restructuring may be entered into with all or a portion of the debtor’s creditors. The creditors that do not enter into the restructuring plan will not be bound by the restructuring terms, and their original terms and conditions agreed upon with the debtor will remain in force and effect. Out-of-court restructuring will not be mandatory for dissenting stakeholders.

Companies often choose formal workouts because a company does not need the approval of all the creditors; only 50% of them. Another benefit is that the reorganisation agreement is mandatory for all unsecured creditors, even for those who did not sign the agreement.

Concurso Mercantil

The LCM regulates the sole insolvency procedure available under Mexican law, which is the Concurso Mercantil. Under the LCM, companies can put in place the following restructuring schemes:

  1. Formal proceeding (reorganisation), where the debtor may file a petition for reorganisation. Admission of the petition requires the filing of evidence showing in a presumptive manner that the debtor is in payment cessation at the time of filing.
    1. The debtor enjoys a 185-day period, extendable up to 180 additional days from the date of the court’s resolution admitting the debtor petition, during which it must draft a reorganisation plan and obtain the consent of the required majorities of secured and non-secured creditors.
    2. The restructuring plan must receive the approval of more than 50% of (i) all unsecured creditors, and (ii) secured creditors that signed the reorganisation agreements. Once the plan is endorsed and performed, the Court will issue a resolution declaring the reorganisation to be concluded and finalising the intervention of the conciliator.
  2. Pre-packaged restructuring, where the debtor with the majority of its creditors can file an insolvency proceeding with an agreed restructuring plan. If it fulfils all legal requirements, the bankruptcy court will issue a ruling approving the plan if it does not contain any clause in violation of the law, public interest of third party rights. This is subject to approval by the judge and the recognised creditors of the debtor during the conciliation period (i.e. 365 days, during which creditors decide whether to approve the restructuring agreement). The proceeding will be the same as the ordinary insolvency proceeding, and may include the appointment of a conciliator agreed to by the debtor and a majority of its creditors.

2. What type of liquidation schemes exist in Mexico?

Out-of-court liquidation

Out-of-court liquidation or voluntary liquidation does not require the filing of a complaint or evidence to demonstrate that the debtor is in payment cessation. This decision must be agreed to by all shareholders and validated at a company assembly. During this meeting, one or more liquidators will be appointed.

Once all these internal decisions have been made, the liquidator will have to submit the minutes of the assembly of the company’s dissolution and liquidation in the Public Registry of Commerce. After that, the company will go through the following series of steps:

  • Close ongoing transactions and operations; 
  • Make payments on debts to creditors and suppliers; 
  • Sell the company’s assets; 
  • Distribute the liquidated and remaining assets to those creditors and shareholders who are owed money;
  • Draw up the liquidation balance sheet. 

The liquidators must keep the documents of the partnership and the books of account and cooperation on deposit for ten years after the date of liquidation.

Simplified out-of-court liquidation

There is a simplified proceeding to voluntary liquidation in Mexico. Under the simplify procedure, the company must carry-out the following steps:

  • Carry out a shareholders’ assembly to define the resolutions of the liquidation and appoint the liquidators.
  • Publish the minutes of the assembly in the publication of commercial entities website (Publicaciones de Sociedades Mercantiles or PSM); there is no need to formalise them before a notary public.
  • With the authorisation of the Mexican Ministry of Economy, deliver the liquidation minutes in the Public Registry of Commerce.
  • All the company’s assets, property, records, and documents are transferred to the liquidator.
  • Distribution by the liquidator of the remaining assets to the shareholders, according to their shares.
  • Delivery of share certificates to the liquidator by all shareholders.
  • The liquidator publishes the final balance sheet of the company in the PSM.
  • The Mexican Ministry of Economy will submit the cancelation of the registration of the company in the Public Registry of Commerce and notify Mexican tax authorities.

Court Liquidation

Legal proceedings can be initiated voluntarily by the debtor filing an insolvency proceeding requesting the liquidation of all its assets, properties, goods and rights or by one or more creditor on a compulsory liquidation when the company can no longer repay its debts. Admission of the petition requires the filing of evidence showing in a presumptive manner that the debtor is in payment cessation at the time of filing. The Federal Institute of Specialists in Commercial Bankruptcy Proceedings (IFECOM) will be the main authority in these procedures.

Insolvency proceedings consist of two steps: conciliation and bankruptcy. Conciliation has a statutory conciliation time frame of 185 days once the judge's ruling (i.e. at the beginning of the insolvency procedure) is published in the Mexican Federal Official Gazette. It is during this conciliation period that the company may prove its solvency and express its desire to continue operating. As mentioned before, this period may be extended up to 180 additional days.

During the conciliation phase, the debtor must either try to reach an agreement with its creditors or carry out a reorganisation plan. If a reorganisation agreement is reached, then the judge issues a resolution. If it approves the agreement, the proceedings are terminated.

At the end of the conciliation procedure and in the event that a restructuring agreement has not been reached, the company may be declared to be in bankruptcy. The purpose of bankruptcy is the sale of the company, its assets, goods, and rights for payment to its recognised creditor.

3. What are the effects of the commencement of an insolvency proceeding?

From the moment that the judge admits the insolvency claim up to the end of the conciliatory stage, no seizure or enforcement against the assets or rights of the debtor can be executed. The insolvency procedure is not a cause to interrupt the payment of ordinary employment obligations and tax credits will continue to be adjusted, generating fines and late fees. Additionally, the judge can decide to apply interim measures in order to protect the debtor’s estate.

Pursuant to the LCM, if during the “retroactive period” (i.e. a period of 270 days before the Judge declares the insolvency of the company), or during the insolvency procedure, the debtor grants new or increases existing securities; when the original obligation did not contemplate such new guarantees or increases, it may be considered as creditor fraud and will not be considered in the liquidation. The retroactive period is designed to prevent and, if necessary, declare void acts conducted by the debtor prior to the insolvency procedure, which intends to defraud creditors or avoid payment obligations.

4. Managing assets in an insolvency proceeding

As a general rule, before the bankruptcy is legally declared and during the conciliatory stage, the debtor may manage the company with the purpose of preserving it, always taking into consideration the operations that the debtor may or may not carry out in accordance with the restrictions established by the LCM (please refer to Question 3), and always under the supervision of the Conciliator. Notwithstanding, the Conciliator may request that the judge remove the debtor from the management of the company and assignment of the same in favour of the Conciliator in order to protect the estate.

After the conciliatory stage is concluded, if the debtor fails to execute a conciliatory agreement with its creditors, the liquidation stage will begin, and an Insolvency Administrator (síndico) will be appointed. The Insolvency Administrator will then be in charge of the company and will dispose of all the company’s assets and, if necessary, liquidate them in order to pay its creditors, or the Insolvency Administrator can continue running the company in order to maintain its value.

5. Plans of reorganisation and liquidation: vote and structure

The restructuring schemes and liquidation plans during the insolvency procedure are structured during the conciliation phase. This phase is a right where the debtor has to deal with its financial or economic problems in which the debtor will continue to manage its company while trying to reach an agreement with creditors before the liquidation and insolvency procedure begins. 

The purpose of this phase is the adoption of an agreement in order to settle the debts between the creditors and the debtor with the aim of conserving the company or discussions regarding the continuity of its operations under the supervision of the Conciliator. The Conciliator shall obtain a favourable opinion from the debtor and the majority of its creditors so that the judge can approve a conciliation agreement. If there is no agreement between the debtor and its creditors, the liquidation stage will begin. The Conciliator must be an expert with experience in financial restructuring schemes and the rescue of companies and will be appointed by the Federal Institute of Experts on Insolvency Procedures.

6. International insolvency: effects of an international insolvency for assets located in Mexico

Pursuant to the LCM, so that the foreign procedure is recognised in Mexico, the legal representative of the foreign company will file a request before a Mexican Judge that must comply with certain formalities under Mexican law. Additionally, the legal representative shall deliver a copy of the international insolvency procedure for the judge to recognise it. Once the international procedure is recognised, the order of payment to the creditors shall be determined and once the insolvency is declared, the procedure established in the LCM shall be followed, always taking into consideration the legal provisions established in the International Treaties to which both parties belong.

Raúl Zepeda
Partner
Mexico City
Héctor González Martínez
Senior Associate
Mexico City