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CHAPTER 9 Insolvency and Bankruptcy Considerations in Mexico
Jurisdiction | United States |
CHAPTER 9 Insolvency and Bankruptcy Considerations in Mexico
A. Overview of the Mexican Legal System
Over the last 12 years, Mexico has experienced a dramatic change in the area of creditor protection and reorganization of businesses in distress. On May 12, 2000, the Mexican Business Reorganization Law (Ley de Con-cursos Mercantiles, or LCM) was published in the Mexican Official Gazette of the Federation. Pursuant to the enabling decree, this new law repealed the Insolvency and Bankruptcy Law, which for more than 50 years had proven to be largely ineffective.
The issuance of the LCM served two main objectives: (1) correct process deficiencies in bankruptcy matters; and (2) implement a new system addressing creditors' rights and the rehabilitation or bankruptcy of a business in distress. The LCM has been widely heralded as a welcome element for the modernization of the Mexican court system.
The LCM expressly acknowledges that it is "in the public's best interest" to preserve and prevent businesses from failing and falling into a generalized default. The LCM provides reorganization processes that are similar to the proceedings included in chapter 11 of the U.S. Bankruptcy Code. A timeline of the process under the LCM is in Appendix F.
In recent years, there have been a number of cross-border reorganization cases involving either a U.S. entity with operations and assets in Mexico (i.e., General Motors Corp.) or a Mexican insolvent debtor with assets or creditors both in Mexico and in the U.S. (i.e., Sanluis Corporación, S.A.B. de C.V.). Cases like this and others have raised some interesting issues and tested the principle of comity, critical to addressing sovereignty and public policy in the implementation of cross-border judgments.
According to the international principle of comity, a court (e.g., a Mexican court) called upon to enforce the judgment entered by a court in another sovereign state (e.g., a U.S. court) will honor such a request if (1) the petitioning court has a policy of reciprocity and (2) the judgment in question is not contrary to the public policy of the nation where the enforcement is being sought. This principle is recognized by the UNCITRAL Model Law on Cross-Border Insolvency of 2007, which served as the model for chapter 15 of the U.S. bankruptcy law and its corresponding section of the LCM.
B. Reorganization Proceedings in Mexico
For a business to be declared insolvent and subject to reorganization pursuant to the LCM, it must incur a generalized default of its payment obligations with respect to two or more of its creditors and meet either one or both of the following criteria:
1. The company has overdue debt for at least 30 days that represents at least 35 percent or more of its outstanding liabilities as of the date on which the application for reorganization is filed; or
2. The company has insufficient assets to pay at least 80 percent of its outstanding obligations as of the date on which the application for reorganization is filed.640
The following assets shall be considered in determining whether a business meets the above tests: (1) cash on hand and demand deposits; (2) term deposits and investments maturing within 90 calendar days following...
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- Interrupted! Understanding Bankruptcy's Effects on Manufacturing Supply Chains
- Front Matter
- ABOUT THE AUTHORS
- ABOUT THE EDITORS
- ACKNOWLEDGMENTS
- TABLE OF CONTENTS
- CHAPTER 1 Introduction
- CHAPTER 2 Hallmarks of a Financially Distressed Supplier
- CHAPTER 3 Identification and Analysis of Contracts with a Troubled Supplier
- CHAPTER 4 Remedies Available to the Nondefaulting Party
- CHAPTER 5 Workout and Restructuring Alternatives for the Troubled Supplier
- CHAPTER 6 Bankruptcy of Troubled Suppliers and Customers in the United States
- CHAPTER 7 Insolvency and Bankruptcy Considerations in Canada
- CHAPTER 8 Insolvency and Bankruptcy Considerations in Germany
- CHAPTER 9 Insolvency and Bankruptcy Considerations in Mexico
- APPENDIX A State Tooling Lien Statutes
- APPENDIX B Accommodation Agreement
- APPENDIX C Access and Security Agreement
- APPENDIX D Trade/Critical Vendor Agreement
- APPENDIX E Schedule of Credit-Bidding/Loan-to-Own Cases
- APPENDIX F Mexican Time Chart and Instances of Concurso Mercantil
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