Where joint obligations exist between a holding company and its subsidiaries in respect of a third party, it is arguable that the subsidiaries may not vote on a bankruptcy or business reorganisation agreement if the holding company might benefit from reductions in its financial obligations or extensions of time. However, if no such obligation exists, it is necessary to analyse the origin of the claim.
The provisions in Title XIV of the Bankruptcy Code allow for submission of a business reorganization plan agreed between the debtor and creditors representing at least 40% of the total debt. Such pre-packs offer businesses in difficulty a more flexible form of proceeding that gives them an opportunity to resolve or at least mitigate their financial problems. However, further improvements are needed.
Includes: Ranking of Creditors and Shareholders; Mechanisms for Trade Creditors to Secure Unpaid Debts; Rescue and Insolvency Procedures; Liability and Transactions; Foreign Proceedings.
Until recently, directors of a company which was subject to a business reorganization process at the request of a merchant or creditor could be sentenced to house arrest by a federal judge. However, amendments to the Business Reorganization Law now restrict this right.
Article 24 of the Business Reorganization Law states that a person or entity filing a petition for business reorganization must demonstrate that it has access to an amount equivalent to 1,500 times the daily minimum wage in Mexico City (around $50,000). The article was ruled unconstitutional on the grounds that it limits the right to free access to justice guaranteed in the Constitution.
The Supreme Court has ruled that Article 49 of the Business Reorganization and Bankruptcy Law does not violate the constitutional right to trial established by Article 14 of the Constitution.
The Supreme Court recently ruled that the domiciliary arrest of members of a bankrupt or reorganizing company's board of directors is constitutional and does not affect their right to freedom of transit, as long as they leave a legal representative responsible for complying with all legal obligations which the company might have.
Mexico has implemented the United Nations Commission on International Trade Law Model Law on the Unification of International Commercial Law, which relates to the acknowledgment and execution of foreign judgments on bankruptcy and business reorganization.
Mexico's highest federal courts have held that the only evidence relevant to approving a merchant's business reorganization proceeding is the report made by the inspector appointed by the Federal Institute of Specialists on Business Reorganization Proceedings. This implies that judges cannot give a decision that is contrary to the report.
According to the Mexican Business Reorganization Act, inspectors are responsible for any damage they cause to a merchant or its creditors if their decision to reorganize the merchant is unrealistic, lacks foundation or merit, or is not in accordance with the merchant's financial situation.
An amendment made by the new Business Reorganization Act has increased the participation of inspectors in reorganization proceedings, so that any actions of the conciliator and/or receiver during a trial must be authorized by the designated inspector. Any creditor representing 10% or more of the total debt may request the designation of an inspector.
Under the new Business Reorganization Act, a conciliatory agreement in a business reorganization procedure does not legally require anything other than the agreement of 50.1% of preferred recognized creditors and 49.1% of common recognized creditors. Reference to the company's value need not be made and payments to creditors need not represent the company’s market value.
The Mexican circuit collegiate courts have held that the simple admission of a business reorganization claim does not cause any irreparable harm to the admitted company and therefore is not subject to appeal. The company visit resulting from the admission does not violate the privacy rights of the company, as access to the results of the visit is restricted.
During bankruptcy proceedings the company's administrators, managers and officers remain responsible for its management, but only act under the supervision and approval of the conciliator. The board of directors, administrators, directors, managers and liquidators can all be held liable if the company’s accounts are misleading, or are falsified or destroyed.
This update answers pertinent questions such as whether Mexican courts recognize bankruptcy and rescue procedures in other countries and if the courts cooperate when there are simultaneous insolvency proceedings against the same debtor in both Mexico and a foreign jurisdiction.
This update lists prioritization of claims in bankruptcy established by Mexican insolvency law, and demonstrates how trade creditors can secure unpaid debts by retaining title clauses.
This update describes the duties that must be carried out by the conciliator in commercial bankruptcies in Mexico.
The administrator is one of the principal entities to take part in the judicial commercial bankruptcy process in Mexico. This update describes the role and duties of the administrator.
The new Commercial and Bankruptcy Law builds on the now repealed Bankruptcy and Suspension of Payments Law. This update describes how the new law deals with the judicial bodies participating in the judicial procedure of commercial bankruptcy.
The new Commercial Bankruptcy Law lays down new provisions for when a merchant is to be declared bankrupt, speeding up the process and strengthening the position of creditors.