Yudu - Lawyer Monthly March 2012

mARCH 2012 www.lawyer-monthly.com Legal Focus 73

Insolvency & Restructuring Mexico

Insolvency and restructuring is always a more prevalent topic in times of economic uncertainty such as the world is currently experiencing. Mexico is currently experiencing a healthier economic period than many countries at the moment and so Lawyer Monthly wanted to find out about insolvency and restructuring in this country. To this end, we speak to ALEJANDRO SAINZ, the Chairman of the Insolvency & Restructurings Practice Group and Co-Chair of the Mergers & Acquisitions Practice Group of CERVANTES SAINZ.

what sort of approach has the Mexican government taken in insolvency proceedings?

The Concursos Law provides special rules for the concurso procedure of (i) companies that provide public services under concession titles; (ii) credit institutions; and (iii) auxiliary credit institutions.

Within this type of concurso procedures

Mexican government plays an active role. For example, under the Concursos Law, the Governmental Agency that granted the concession proposes to the judge everything pertaining to the appointment, removal and replacement of the conciliator and the receiver that participate in the special concurso procedure and to the monitoring of the activities carried out by said conciliator and receiver. Additionally government may, once the concurso procedure has been declared, propose to the judge the removal of the party in charge of the management of the company providing public services, and the appointment of a person to assume such management, whenever it may deem it necessary for the continuity and safety of the provision of the public service. Moreover, any restructuring agreement proposed must be notified to the government. Likewise, in practice depending on the magnitude and relevance of the restructuring procedure, the Government might have certain participation in the resolution of the restructuring issues, particularly depending on regulation of industry.

what would you advise companies who are unable to reconcile their debts, are there any preventive steps they can put into place?

There are various legal actions available in Mexico in favor of creditors prior to a formal insolvency proceeding to recover on a defaulted loan or obligation of a debtor. Of

course, the action proceedings (I.e. foreclosure, attachment of assets, temporary restraining orders, preliminary discovery or pre-filing motions, etc) may vary depending on the type of agreement, source of the action to be followed (civil, mercantile - ordinary, special), whether collateral was granted, whether promissory notes were issued, type of collateral, etc. In this regard, under Mexican law there are different types of securities that might be constituted over different types of assets. For example, the most common securities for movable or intangible assets are the guaranty trust and the floating lien pledges, while the mortgage is the most common security involving real estate assets. Guaranty trust and floating lien pledges are governed by federal law, whilst mortgages are governed by state law. Securities require a publicity principle by means of registration before public record offices so that they may be opposable against third parties. However, there are some cases where the security does not require registration before public record offices and a direct notification to the debtor of the collector’s rights is sufficient; also, there are some cases in which an additional registration is required (i.e. Federal Telecommunication Registry). Therefore, the type of the applicable remedy or legal action will depend on the type of security, if any, implemented over assets of the debtor or the guarantors. Moreover, summary proceedings for the enforcement of commercial claims are available when the lawsuit seeking enforcement is based on a document that allows for summary enforcement as a consequence of non-performance; for example, Mexican promissory notes allow summary enforcements.

what if any legislative updates do you see for insolvency and restructuring?

The Federal Institute of Specialists in Mercantile Insolvency and Bankruptcy Procedures (IFECOM) is constantly analysing

the Concursos Law to determine potential amendments. However, there is currently no formal final draft to amend the law, but only projects under discussion by the Congress to include certain amendments on procedural and other matters. In our opinion, it is strongly advisable to amend the Concursos Law regarding:

• The participation of bondholders under an indenture;

• Regarding creditor’s rights during the preliminary stages and to oppose acts of the examiner or visitador and to special measures or injunctions requested by the debtor;

• Unsecured credits contracted in foreign currency;

• Treatment of intercompany accounts; and

• Required specialization on bankruptcy courts. LM

Contact Details:

Alejandro Sainz

Email: asainz@cervantessainz.com Dir: (52)(55) 9178 5046 Tel: (52)(55) 9178 5040 Fax: (52)(55) 5540 3433

Torre Del Bosque

Blvd. M. Avila Camacho 24-6 Lomas De Chapultepec 11000 Mexico, D.F.