Directors’ and officers’ liability for company insolvencies in Mexico

Source: Martínez Algaba de Haro y Curiel

General

Legislation

What main legislation is applicable to insolvencies and reorganisations?

The main legislation applicable to insolvency proceedings is the Commercial Insolvency Law, which was published in the Federal Official Gazette on 12 May 2020. It entered into full force and effect the next day.

Excluded entities and excluded assets

What entities are excluded from customary insolvency or reorganisation proceedings and what legislation applies to them? What assets are excluded or exempt from claims of creditors?

Individuals or legal entities that are merchants pursuant to the provisions of the Commercial Code may be subject to a commercial insolvency proceeding. For an individual to be considered a merchant, it must be proved that commerce is their normal occupation. In the case of legal entities, all companies and corporations incorporated under commercial laws, as well as the branches of foreign companies that perform acts of commerce in Mexico, are considered as merchants.

Based on the foregoing, the following persons may be subject to a commercial insolvency proceeding:

individuals whose normal occupation is commerce;
business corporations, including state-owned companies created as corporations; and
the branches of foreign companies that perform acts of commerce in Mexico; however, in this case, the declaration of commercial insolvency will only encompass the assets and rights that are located and enforceable in Mexico, and the creditors related to transactions performed with such branches.

In addition, the estate of a trust may be subject to a commercial insolvency proceeding if its purpose is to perform business activities. In order to determine whether the estate of a trust is related to the performance of business activities, the provisions of the Income Tax Law and the Federal Tax Code should be considered.

On 9 August 2019, the Commercial Insolvency Law was amended to incorporate provisions that would allow majority state-owned companies to request to be declared commercially insolvent or in bankruptcy.

Furthermore, the Commercial Insolvency Law stipulates that certain entities cannot be subject to commercial bankruptcy proceedings. These exceptions are established to protect institutions of public interest or ones that have special characteristics within the economy. The main entities excluded are:

government entities such as federal, state or municipal government bodies;
insurance and surety institutions, which are regulated by special laws and are excluded from commercial bankruptcy; and
mutual insurance societies, such as insurance institutions, as these societies have a different regulatory framework.

These entities are usually subject to special regulations and intervention processes, such as those managed by the National Banking and Securities Commission (CNBV) or the National Insurance and Surety Commission (CNSF).

In relation to the merchants’ assets, in an insolvency proceeding the Insolvency Court may adopt, alter or lift injunctive measures for the purposes of protecting the merchant’s estate and the rights of the creditors. The determination of the application of the injunctive measures will be left to the discretion of the Insolvency Court, which may also adopt them by operation of law. In any case, the injunctive measures that are issued will be in force until the date on which the merchant is declared insolvent by the Insolvency Court.

These injunctive measures may consist of the following:

prohibiting the merchant from making payments towards obligations due prior to the date of admittance of the petition of commercial insolvency;
suspending any enforcement procedure against the assets and rights of the merchant;
prohibiting the merchant from performing sales, transfers or encumbrances for the principal assets of its enterprise;
prohibiting any attachment of property;
allowing the intervention of the merchant’s finances;
prohibiting the merchant from performing transfers of funds or securities in favour of third parties;
placing a merchant on house arrest order, for the sole purpose of not allowing them to leave their place of residence without leaving an attorney-in-fact with sufficient instructions and funds; and
any other measures of a similar nature.

Public enterprises

What procedures are followed in the insolvency of a government-owned enterprise? What remedies do creditors of insolvent public enterprises have?

As we previously stated, pursuant to the Commercial Insolvency Law, only majority state-owned companies may request to be declared commercially insolvent or in bankruptcy. Public agencies, such as federal, state or municipal government bodies, cannot be subject to commercial bankruptcy.

Protection for large financial institutions

Has your country enacted legislation to deal with the financial difficulties of institutions that are considered ‘too big to fail’?

The Commercial Insolvency Law contains special provisions for the event that the merchant is a financial institution. In principle, the insolvency of these organisations shall be governed by the provisions of the Commercial Insolvency Law, provided that they do not produce a result that is contrary to the special provisions that are applicable to this manner of merchants.

In the matter of credit institutions, the insolvency may only be brought by the Institute for the Protection of Bank Savings (IPAB) or by CNSF, and such insolvency procedure shall, by necessity, commence in the bankruptcy stage, and therefore there will not exist any possibility of reorganisation.

Courts and appeals

What courts are involved? What are the rights of appeal from court orders? Does an appellant have an automatic right of appeal or must it obtain permission? Is there a requirement to post security to proceed with an appeal?

From 7 March 2022, the First and Second District Courts, specialised in insolvency matters, assumed jurisdiction to hear insolvency and bankruptcy matters, including those proceedings filed since 16 November 2020, which were consequently remitted to said courts.

Regarding the creditors’ right to file an appeal, in a commercial bankruptcy proceeding, creditors have the right to appeal at various stages of the process, depending on decisions that directly affect them. The most common situations in which creditors can file an appeal are:

the commercial insolvency ruling, only if the creditor demanded such declaration against the merchant;
the acknowledgement of credits resolution;
the approval of the reorganisation agreement;
the judgment declaring the merchant in a state of commercial bankruptcy; and
the declaration of termination of the insolvency proceeding.

Apart from the appeals, creditors may challenge the court’s determinations at any stage where they feel their rights are being violated or that the decisions made do not comply with the law.

Types of liquidation and reorganisation processes

Voluntary liquidations

What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

For a merchant to request an insolvency or bankruptcy proceeding to be declared commercially insolvent, it must be demonstrated that the merchant has defaulted in the payment of its obligations in a general manner. To prove this condition of general non-performance, a payment default to two or more different creditors should exist, and one of the two following conditions should exist if the insolvency petition is filed by the merchant, or both conditions if the insolvency petition is filed by the creditors:

that of its matured obligations, those that are at least 30 days overdue represent 35 per cent or more of all the obligations that the merchant has to the date on which the insolvency petition is filed; and/or
the merchant has insufficient assets, of those listed below, in order to satisfy at least 80 per cent of its matured obligations on the date the petition is filed.

The assets that should be considered are:

cash in hand and on-site deposits;
deposits and investments with a term of less than 90 calendar days following the date of the petition;
clients and accounts receivable whose maturity does not exceed 90 calendar days following the date of the petition; and
securities for which purchase–sale transactions are regularly conducted in the respective markets, which may be sold in a maximum term of 30 banking days, and whose value is known to the date on which the petition is filed.

If a merchant has not yet used the provisions mentioned to be declared commercially insolvent, the Commercial Insolvency Law allows the merchant to request so, by stating under oath that it will imminently fall into a generalised non-compliance with the payment of obligations, and that any of the said situations will inevitably occur within 90 days following the request.

Voluntary reorganisations

What are the requirements for a debtor commencing a voluntary reorganisation and what are the effects?

that of its matured obligations, those that are at least 30 days overdue represent 35 per cent or more of all the obligations of the merchant to the date on which the insolvency petition is filed; and/or
the merchant has insufficient assets, of those listed below, in order to satisfy at least 80 per cent of its matured obligations on the date the petition is filed.

The assets that should be considered are:

cash in hand and on-site deposits;
deposits and investments with a term of less than 90 calendar days following the date of the petition;
clients and accounts receivable whose maturity does not exceed 90 calendar days following the date of the petition; and
securities for which purchase–sale transactions are regularly conducted in the respective markets, which may be sold in a maximum term of 30 banking days, and whose value is known to the date on which the petition is filed.

If a merchant has not yet used the provisions mentioned to be declared commercially insolvent, the Commercial Insolvency Law allows the merchant to request so, by stating under oath that it will imminently fall into a generalised non-compliance in the payment of obligations, and it will be presumed that any of said situations will inevitably occur within 90 days following the request.

Successful reorganisations

How are creditors classified for purposes of a reorganisation plan and how is the plan approved? Can a reorganisation plan release non-debtor parties from liability and, if so, in what circumstances?

The creditors are classified into ranks, according to the nature of their credits, and the Commercial Insolvency Law states that the payment of these credits will be made based on their level of preference. Below is an explanation of the order that should be followed for the payment of the merchant’s credits, based on their ranking and certain preferences indicated in the Commercial Insolvency Law, provided that, no payment is made of a credit of one rank without previously having liquidated those from the previous ranks, according to the priority established for them.

Creditors or credits against the estate

The following are credits against the estate and will be paid in the order indicated below:

accrued wages and labour compensation for a period of two years prior to the date of declaration of commercial insolvency (the Preferential Labour Credits);
those contracted for the management of the estate by the merchant with the authorisation of the conciliator or receiver or, where applicable, those contracted by the conciliator;
those contracted to cover ordinary expenses for the security of the assets of the estate, its replacement, conservation and administration; and
those originating from in- or out-of-court procedures for the benefit of the estate.

The credits against the estate will have preference over all other credits; however, with regard to credits with collateral or special privilege, only the following credits against the estate will have preference:

the Preferential Labour Credits;
legal fees incurred for the defence or recovery of property subject to guarantee or on which the privilege falls; and
the necessary expenses for the replacement, conservation and sale of such property subject to guarantee or on which the privilege falls.

If the value of the entire estate that is not subject to a lien is insufficient to pay the full amount of the Preferential Labour Credits, then the guaranteed creditors will contribute, with the amount obtained from the sale of their guarantees, to the payment of the Preferential Labour Credits. This contribution will be made by each secured creditor based on the percentage that the value of their asset subject to a lien represents compared to the value of the other assets subject to a lien.

Except for the Preferential Labour Credits, the credits against the estate are assumed after the declaration of commercial insolvency and, from our point of view, the special preference given to them by the Commercial Insolvency Law, is for the purpose of ensuring that the persons that have credits against the estate, who contract with the merchant as of such date, will have preference of payment. This preference will also allow better conditions for reaching the Reorganisation Agreement, by providing facilities for the continuation of the operation of the merchant’s company and the conservation of its assets.

Singularly privileged creditors or credits

These are in the following order of preference: (1) the funeral expenses of the merchant, in cases where the commercial insolvency ruling is after their death; and (2) the creditors for the expenses of the illness that has caused the death of the merchant in case that the commercial insolvency ruling is after his death. Clearly, these creditors will only exist to the extent that the merchant is an individual.

If the value of all of the assets of the estate that is not subject to a lien is insufficient to pay the singularly privileged credits, then the guaranteed creditors will contribute, with the amount obtained from the sale of their guarantees, to the payment of such singularly privileged credits. This contribution will be made by each guaranteed creditor based on the percentage that the value of their asset subject to a lien represents compared to the value of the other assets subject to a lien.

Creditors or credits with collateral

The following are creditors with collateral: mortgages and those provided with a pledge, so long as their guarantees are duly established pursuant to applicable provisions.

Creditors with collateral will receive the payment of their credits from the proceeds of the assets subject to their liens, to the absolute exclusion of the other creditors, except for exceptions for credits against the estate and singularly privileged credits; provided that, if two or more creditors share the same guarantee, the order of payment of their credits is determined based on applicable provisions regarding the registration date of the respective guarantee.

When a creditor with collateral considers that the value of their guarantee is less than the principal amount and accessories of its credit on the date of declaration of commercial insolvency, they may ask the judge to consider them as a creditor with collateral for the value that the creditor attributes to their lien, and as a common creditor for the balance. Credits without collateral are not converted into investment units (UDIs) upon declaration of insolvency; however, only for the purposes of determining the participation of such creditors in the insolvency proceeding, the corresponding credits are converted to UDIs at their value on the date of declaration of commercial insolvency. In this case, the creditor must explicitly waive any surplus between the price obtained after enforcing the guarantee and the value it attributed in favour of the estate, considering the value of UDIs to the date on which the enforcement takes place.

If any creditor with collateral does not make the aforementioned request and the proceeds obtained from the sale of their guarantee are insufficient to cover their credit, then the unpaid balance should be treated as a common credit.

Tax and labour creditors or credits

Labour credits, other than Preferential Labour Credits, and tax credits, will be paid once the credits against the estate, the singularly privileged credits and the credits with collateral have been paid, but before credits with special privileges and common credits.

In cases where the tax credits have collateral, for the effects of their payment, the provisions of the paragraph ‘Creditors or credits with collateral’ above will be observed for up to the amount of their guarantee value, and any balance will be paid in terms of this paragraph.

Creditors or credits with special privileges

Creditors with special privileges are all those that, according to the Commercial Code or by operation of law, have a special privilege or a right of withholding. For example, in terms of the Federal Civil Code, the builder of any movable work is entitled to withhold it until it is paid, and its credit will be preferably paid with the price of such asset.

Common creditors or credits

Common creditors are all those that are not considered in the foregoing paragraphs and their common credits will be paid rateably without distinction as to the dates of their credits.

Involuntary liquidations

What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

Commercial insolvency may be requested by the creditors that, apart from proving their creditor status, will have to abide by the outcome of the visit that will show if the merchant is within the parameters to be declared commercially insolvent, or in the event of the presumption of a general state of non-performance provided by the Commercial Insolvency Law.

Notwithstanding the right of creditors to request the commercial insolvency of a merchant, it is important to point out that if any creditor requests the commercial insolvency of a merchant and the judge decides that it is inadmissible, such creditor will be bound to pay the ensuing court costs and expenses, including the fees and expenses of the visitor. The visitor is a specialist named by the Federal Institute of Bankruptcy Specialists (IFECOM) to determine whether the merchant is within the parameters established by the Commercial Insolvency Law to be declared commercially insolvent.

In contrast to a voluntary petition from the merchant, if a creditor demands the declaration of insolvency, the merchant has the right to refute the creditors’ claims in order to avoid being declared commercially insolvent.

Involuntary reorganisations

What are the requirements for creditors commencing an involuntary reorganisation and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

Commercial insolvency may be requested by the creditors who, apart from proving their creditor status, will have to abide by the outcome of the visit that will show if the merchant is within the parameters to be declared commercially insolvent, or in the event of presumption of a general state of non-performance provided by the Commercial Insolvency Law.

Expedited reorganisations

Do procedures exist for expedited reorganisations (eg, ‘prepackaged’ reorganisations)?

Pursuant to article 339 of the Commercial Insolvency Law, the merchant and the majority of their creditors may file for a prepackaged reorganisation proceeding, in which a pre-accorded reorganisation agreement is accompanied with the insolvency petition, so that once the merchant is declared commercially insolvent, such reorganisation agreement is submitted for the court’s approval.

In a prepackaged proceeding the Insolvency Court decides whether to declare the merchant commercially insolvent, based on the information provided by the merchant and the majority of its creditors, without the need to perform the verification visit. Once the commercial insolvency ruling is issued by the Insolvency Court, the insolvency procedure will be conducted as any other ordinary insolvency procedure.

Unsuccessful reorganisations

How is a proposed reorganisation defeated and what is the effect of a reorganisation plan not being approved? What if the debtor fails to perform a plan?

To the extent that the merchant and its acknowledged creditors are unable to execute the Reorganisation Agreement during the maximum conciliatory term of one year established by the Commercial Insolvency Law or, if the Courts of Appeal revoke the approval of a Reorganisation Agreement, then the merchant is declared in a state of bankruptcy.

At such time, the objective of this stage shall become to sell all the assets and rights of the merchant, in order to apply the proceeds thereof to the payment of the merchant’s debts, in the order and preference established by the Commercial Insolvency Law.

Corporate procedures

Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

A merchant may be subject to an out-of-court liquidation process, through which it ceases its operations, pays off its debts and distributes any remaining assets among the shareholders.

Liquidation is an out-of-court process of closing down a company by selling its assets; in contrast, bankruptcy is a legal process that can lead to restructuring or liquidation, with the aim of managing the insolvency under court supervision.

Conclusion of case

How are liquidation and reorganisation cases formally concluded?

An insolvency proceeding concludes with the approval of a Reorganisation Agreement, in which the merchant and its acknowledged creditors reach an agreement regarding the terms and conditions according to which the merchant will repay its debts. Also, in a state of bankruptcy, the proceeding concludes when there are no more assets to sell to pay off the merchant’s debts.

Insolvency tests and filing requirements

Conditions for insolvency

What is the test to determine if a debtor is insolvent?

The necessary condition for a merchant to be declared commercially insolvent is that it can be demonstrated that the merchant has defaulted in the payment of its obligations in a general manner. In order to prove this condition of general non-performance, a payment default to two or more different creditors should exist, and one of the two following conditions should exist if the insolvency petition is filed by the merchant, or both conditions if the insolvency petition is filed by the creditors:

that of its matured obligations, those that are at least 30 days overdue represent 35 per cent or more of all the obligations of the merchant to the date on which the insolvency petition is filed; and/or
the merchant has insufficient assets, of those listed below, in order to satisfy at least 80 per cent of its matured obligations on the date the petition is filed. The assets that should be considered for the effects established in this paragraph are:
- cash in hand and on-site deposits;
- deposits and investments with a term of less than 90 calendar days following the date of the petition;
- clients and accounts receivable whose maturity does not exceed 90 calendar days following the date of the petition; and
- securities for which purchase–sale transactions are regularly conducted in the respective markets, which may be sold in a maximum term of 30 banking days, and whose value is known to the date on which the petition is filed.

If a merchant has not yet incurred the provisions mentioned to be declared commercially insolvent, the Commercial Insolvency Law allows the merchant to request so, by stating under oath that it will imminently fall into a generalised non-compliance in the payment of obligations, and it will be presumed that any of said situations will inevitably occur within 90 days following the request.

Mandatory filing

Must companies commence insolvency proceedings in particular circumstances?

Merchants may be subject to an insolvency proceeding governed by the Commercial Insolvency Law, if it is within its interest to protect its assets during the process to reach a Reorganisation Agreement with the majority of its creditors.

Directors and officers

Directors’ liability – failure to commence proceedings and trading while insolvent

If proceedings are not commenced, what liability can result for directors and officers? What are the consequences for directors and officers if a company carries on business while insolvent?

A merchant can carry on with its business notwithstanding being declared commercially insolvent. Therefore, the only consequences for directors and its officers are if they are found to have acted with wilful intent, fraud or gross negligence, in which case they may face civil and criminal liability. This may include liability for company debts or penalties for mismanagement.

Directors’ liability – other sources of liability

Apart from failure to file for proceedings, are corporate officers and directors personally liable for their corporation’s obligations? Are they liable for corporate pre-insolvency or pre-reorganisation actions? Can they be subject to sanctions for other reasons?

Pursuant to article 270-bis of the Commercial Insolvency Law, members of the board of directors, as well as the relevant employees of the merchant, shall be subject to liability consisting of compensating for damages and losses caused to the merchant, when they have caused financial damage and the merchant is in general non-compliance with the payment of its obligations, due to the occurrence of any of the following assumptions:

they vote in the sessions of the board of directors or make determinations related to the merchant’s assets, with a conflict of interest;
they knowingly favour a certain shareholder or group of shareholders of the merchant, to the detriment or prejudice of the other shareholders;
when, without legitimate cause, by virtue of their employment, position or commission, they obtain economic benefits for themselves or procure them in favour of third parties, including a certain shareholder or group of shareholders;
generate, disseminate, publish, provide or order information, knowing that it is false;
order or cause the omission of the record of operations carried out by the merchant, as well as alter or order the alteration of the records to hide the true nature of the operations carried out, affecting any concept of the financial statements;
order false data to be recorded in the merchant’s accounting or accept it;
destroy, modify or order that the accounting systems or records or the documentation that give rise to the accounting entries of the merchant be destroyed or modified, totally or partially, prior to the expiration of the legal conservation periods and with the purpose of hiding their record or evidence;
alter or order the modification of active or passive accounts or the conditions of contracts, make or order the recording of non-existent operations or expenses, exaggerate the real ones or intentionally carry out any act or operation that is illicit or prohibited by law, generating in any of these cases a debt, loss or damage to the assets of the merchant, for their own economic benefit, either directly or through a third party, including the recording of liabilities in favour of the persons indicated in articles 116 and 117 of this Law; or
in general, carry out fraudulent or bad faith acts, or acts that are illicit according to this Law or other laws.

Directors’ liability – defences

What defences are available to directors and officers in the context of an insolvency or reorganisation?

Directors’ and officers’ defence against the before mentioned accusations involve proving that they have not acted with wilful intent, fraud or gross negligence.

Shift in directors’ duties

Do the duties that directors owe to the corporation shift to the creditors when an insolvency or reorganisation proceeding is likely? When?

No.

Directors’ powers after proceedings commence

What powers can directors and officers exercise after liquidation or reorganisation proceedings are commenced by, or against, their corporation?

The merchant has the right to refute any creditors’ claim in order to avoid being declared commercially insolvent.

Matters arising in a liquidation or reorganisation

Stays of proceedings and moratoria

What prohibitions against the continuation of legal proceedings or the enforcement of claims by creditors apply in liquidations and reorganisations? In what circumstances may creditors obtain relief from such prohibitions?

The merchant, the visitor or any demanding creditor may request that the Insolvency Court during the visit adopt, alter or lift injunctive measures for the purposes of protecting the merchant’s estate and the rights of the creditors. The determination of the application of the injunctive measures will be left to the discretion of the Insolvency Court, which may also adopt them by operation of law. In any case, the injunctive measures that are issued will be in force until the date on which the merchant is declared insolvent by the Insolvency Court.

These injunctive measures may consist of the following:

prohibiting the merchant from making payments towards obligations due prior to the date of admittance of the petition of commercial insolvency;
suspending any enforcement procedure against the assets and rights of the merchant;
prohibiting the merchant from performing sales, transfers or encumbrances for the principal assets of its enterprise;
prohibiting any attachment of property;
allowing the merchant’s treasury to intervene;
prohibiting the merchant from performing transfers of funds or securities in favour of third parties;
placing a merchant on house arrest order, for the sole purpose of not allowing them to leave their place of residence without leaving an attorney-in-fact with sufficient instructions and funds; and
any others of a similar nature.

Notwithstanding the foregoing, it has become a common practice for the Insolvency Courts to extend the injunctive measures mentioned above to the subsidiaries or related companies of the merchant, no matter whether such entities are subject to a commercial insolvency proceeding. This practice appears to be against the purposes of the Commercial Insolvency Law, giving grounds to any affected party to challenge such measures.

Doing business

When can the debtor carry on business during a liquidation or reorganisation? Is any special treatment given to creditors who supply goods or services after the filing? What are the roles of the creditors and the court in supervising the debtor’s business activities?

Pursuant to the Commercial Insolvency Law, these credits are considered as essential for the operation of the merchant, and therefore, are treated with special priority during the proceeding. Their treatment includes:

priority payment: these credits have priority over pre-bankruptcy creditors, as they are vital to the company’s ongoing operations;
conciliator approval: during the conciliation phase, the conciliator must approve essential expenses, ensuring they are needed for the business to continue;
definition: these credits include payments for raw materials, employee wages and basic services necessary for day-to-day operations;
payment plan: in cases of liquidation, these credits are paid before most other creditors, except certain privileged ones (eg, labour or tax claims); and
judicial supervision: both the conciliator and the court ensure these credits are reasonable and necessary for operations.

In short, essential operational credits are given preferential treatment to allow the company to continue functioning during bankruptcy proceedings.

Post-filing credit

May a debtor in a liquidation or reorganisation obtain secured or unsecured loans or credit? What priority is or can be given to such loans or credit?

Yes. Under the Commercial Insolvency Law, a merchant undergoing an insolvency proceeding can contract essential operational credits to continue its regular operations. In order to obtain such, the conciliator must approve these credits to maintain the company’s daily operations during the conciliation phase, and must be strictly for essential activities, such as paying wages, raw materials or basic services, not for non-essential investments.

These credits have priority over pre-bankruptcy debts, ensuring they are paid first, which makes it less risky for creditors to lend during the process.

Sale of assets

In reorganisations and liquidations, what provisions apply to the sale of specific assets out of the ordinary course of business and to the sale of the entire business of the debtor? Does the purchaser acquire the assets ‘free and clear’ of claims or do some liabilities pass with the assets?

Pursuant to article 75 of the Commercial Insolvency Law, the conciliator may sell assets that are not linked to the ordinary operation of the merchant; however, the conciliator must seek the best conditions for alienation to obtain a higher recovery value. These assets have to be transferred free of liens and encumbrances of any kind.

Negotiating sale of assets

Does your system allow for ‘stalking horse’ bids in sale procedures and does your system permit credit bidding in sales?

Pursuant to the rules that apply to the execution of the merchant’s assets in a bankruptcy phase, during the first six months upon declaration of bankruptcy, the merchant’s assets must be sold by public auction; after the aforementioned period has elapsed, any interested party may submit an offer for any of the merchant’s assets.

Rejection and disclaimer of contracts

Can a debtor undergoing a liquidation or reorganisation reject or disclaim an unfavourable contract? Are there contracts that may not be rejected? What procedure is followed to reject a contract and what is the effect of rejection on the other party? What happens if a debtor breaches the contract after the insolvency case is opened?

With the exceptions established by the Commercial Insolvency Law, the contracts entered into by the merchant, and any other obligations assumed thereby, continue to be valid in their terms, except when the conciliator challenges them for not being in the best interests of the estate. Anyone who contracted with the merchant will be entitled to request that the conciliator state whether they oppose the performance of the relevant contract, and if the conciliator states that they will not oppose it, the merchant will have to perform or guarantee its performance, and if the conciliator reports that they will oppose it, or does not give a reply within 20 days, the party contracting with the merchant may at any time terminate the contract, by notice to the conciliator.

Intellectual property assets

May an IP licensor or owner terminate the debtor’s right to use the IP when a liquidation or reorganisation is opened? To what extent may IP rights granted under an agreement with the debtor continue to be used?

No, an IP licensor or owner may not terminate the debtor’s right to use the IP when a liquidation or reorganisation is opened. In this case, any IP rights may continue to be used even though the merchant is declared commercially insolvent.

Personal data

Where personal information or customer data collected by a company in liquidation or reorganisation is valuable, are there any restrictions in your country on the use of that information or its transfer to a purchaser?

Even though personal information and customer data is not considered as an asset, the value of such information, in cases where a merchant is sold as an operating unit during a bankruptcy phase, will depend on the merchant’s business.

Arbitration processes

How frequently is arbitration used in liquidation or reorganisation proceedings? Are there certain types of disputes that may not be arbitrated? Can disputes that arise after the liquidation or reorganisation case is opened be arbitrated with the consent of the parties?

Any in-court reorganisation or liquidation proceedings are governed by the Commercial Insolvency Law, not by arbitration proceedings.

Creditor remedies

Creditors’ enforcement

Are there processes by which some or all of the assets of a business may be seized outside of court proceedings? How are these processes carried out?

Prior to an insolvency proceeding, creditors may enforce actions against the merchant and seize its assets; however, once a merchant is subject to an insolvency proceeding, all of its assets are secured by the injunctive measures issued by the court and may not be executed outside the proceeding.

Unsecured credit

What remedies are available to unsecured creditors? Are the processes difficult or time-consuming? Are pre-judgment attachments available?

Unsecured creditors have a low payment priority in an insolvency proceeding, behind privileged credits and those against the estate. Their payment depends on whether there are sufficient assets left once the higher-ranking credits have been covered, and in many cases, they can be restructured or subject to partial write-offs.

Creditor involvement and proving claims

Creditor participation

During the liquidation or reorganisation, what notices are given to creditors? What meetings are held and how are they called? What information regarding the administration of the estate, its assets and the claims against it is available to creditors or creditors’ committees? What are the liquidator’s reporting obligations?

Once the merchant is declared bankrupt, an extract of the judgment is published in the Federal Official Gazette in order to notify all creditors of the existence of the procedure. Any interested party, with a legitimate claim, can appear before the court.

Regarding the merchant’s operations, such as the sale of assets, the law requires specialists (conciliator or the receiver) to submit bi-monthly reports indicating the state of the merchant’s operations, which are made available to creditors in the process.

Creditor representation

What committees can be formed (or representative counsel appointed) and what powers or responsibilities do they have? How are they selected and appointed? May they retain advisers and how are their expenses funded?

Not applicable. However, the Commercial Insolvency Law contemplates the possibility, but not the strict necessity, that any creditor or group of creditors that represent at least 10 per cent of the amount of the credits against the merchant, pursuant to the provisional list of credits, may ask the judge to name a interventor, whose fees will be paid by the person or persons making such request. The interventor does not have to be a creditor. In general terms, if appointed, the interventor will represent the interests of the creditors who appointed them in all stages of the insolvency proceeding.

Enforcement of estate’s rights

If the liquidator has no assets to pursue a claim, may the creditors pursue the estate’s remedies? If so, to whom do the fruits of the remedies belong? Can they be assigned to a third party?

No.

Claims

How is a creditor’s claim submitted and what are the time limits? How are claims disallowed and how does a creditor appeal? Can claims for contingent or unliquidated amounts be recognised? Are there provisions on the transfer of claims and must transfers be disclosed? How are the amounts of such claims determined?

The creditors may request the acknowledgement of their credits at any of the following times in the proceeding:

within 20 calendar days following the date of the publication of the Commercial Insolvency Ruling in the Federal Official Gazette;
within the term for filing objections to the Provisional List, that is within five calendar days following the date on which the judge makes the Provisional List available to the merchant and creditors according to the commercial insolvency proceeding; and
within the term for filing the appeal to the credit acknowledgement, ranking and priority of payment ruling, that is within nine days following the date on which such ruling enters into effect. The amounts are determined by the creditor and the merchant’s accounting.

Furthermore, the acknowledged creditors are authorised to assign their credits; however, both the assignor–creditor and the assignee acquiring the credit, should notify the respective transfer to the conciliator, and the conciliator will make the notification public as follows: if the assignment is performed before the conciliator has prepared the Provisional List, such assignment will be reported by inserting the relevant data in such Provisional List; and in all other cases, by means of the court, or the appeals court, if applicable, according to the provisions issued to this effect by the Federal Institute of Bankruptcy Specialists (IFECOM).

Set-off and netting

To what extent may creditors exercise rights of set-off or netting in a liquidation or in a reorganisation? Can creditors be deprived of the right of set-off either temporarily or permanently?

From the date on which the bankruptcy judgment is issued, only the following may be offset:

rights in favour of and obligations against the merchant that arise from the same transaction and that are not interrupted by virtue of the bankruptcy judgment;
rights in favour of and obligations against the merchant that have expired before the bankruptcy judgment and whose offset is provided for by law;
rights and obligations arising from securities loans, futures and derivatives transactions; and
tax credits in favour of and against the merchant.

Modifying creditors’ rights

May the court change the rank (priority) of a creditor’s claim? If so, what are the grounds for doing so and how frequently does this occur?

Once the court issues the acknowledgement of credits resolution, the judge may determine, according to the information filed before the court, a different priority to the creditors’ claim. If so, the affected creditor and the conciliator may file an appeal against such resolution.

Priority claims

Apart from employee-related claims, what are the major privileged and priority claims in liquidations and reorganisations? Which have priority over secured creditors?

Those contracted for the management of the estate by the merchant with the authorisation of the conciliator or receiver or, where applicable, those contracted by the conciliator; those contracted to cover ordinary expenses for the security of the assets of the estate, its replacement, conservation and administration; and those originating from in- or out-of-court procedures for the benefit of the estate.

Furthermore, singularly privileged credits have priority over secured creditors. These are in the following order of preference: the funeral expenses of the merchant, in cases where the commercial insolvency ruling is after their death; and the creditors for the expenses of the illness that has caused the death of the merchant in cases where the commercial insolvency ruling is after their death.

Employment-related liabilities

What employee claims arise where employees’ contracts are terminated during a restructuring or liquidation? What are the procedures for termination? (Are employee claims as a whole increased where large numbers of employees’ contracts are terminated or where the business ceases operations?)

The merchant may enter into agreements with their employees so long as they do not increase the extent of the merchant’s existing obligations. The terms of the agreements with their employees should be included in the Reorganisation Agreement.

Pension claims

What remedies exist for pension-related claims against employers in insolvency or reorganisation proceedings and what priorities attach to such claims?

As previously stated, only accrued wages and labour compensation for the period of one year prior to the date of declaration of commercial insolvency have priority over the rest of the creditors.

Environmental problems and liabilities

Where there are environmental problems, who is responsible for controlling the environmental problem and for remediating the damage caused? Are any of these liabilities imposed on the insolvency administrator personally, secured or unsecured creditors, the debtor’s officers and directors, or on third parties?

In this event, the merchant will be solely responsible for controlling the environmental problem and remediating the damage caused.

Liabilities that survive insolvency or reorganisation proceedings

Do any liabilities of a debtor survive an insolvency or a reorganisation?

In a reorganisation proceeding, the debtors’ liabilities are replaced by the terms set forth in the Reorganisaton Agreement.

Distributions

How and when are distributions made to creditors in liquidations and reorganisations?

Once a Reorganisation Agreement is approved, the merchant may comply with the terms set forth in such agreement, so that the creditors may receive payment of their corresponding credits. In a bankruptcy proceeding, distribution will depend on the execution of the assets’ and creditors’ priority.

Security

Secured lending and credit (immovables)

What principal types of security are taken on immovable (real) property?

Mortgages.

Secured lending and credit (movables)

What principal types of security are taken on movable (personal) property?

Pledges.

Clawback and related-party transactions

Transactions that may be annulled

What transactions can be annulled or set aside in liquidations and reorganisations and what are the grounds? Who can attack such transactions?

The Commercial Insolvency Law refers to a concept called ‘date of retroaction’ (also known as the ‘suspicious period’) for the purpose of defining a period of time, prior to the declaration of commercial insolvency, which may be subject to examination to determine if during such period acts were performed that are, or are presumed to be, acts to defraud creditors. As a general rule, the date of retroaction will be the 270th calendar day prior to the date of the Commercial Insolvency Ruling; however, the judge, at the request of the conciliator, the interventors or of any creditor, may establish a prior date as the date of retroaction.

Irrespective of the date on which they have been performed (except for the general commercial rule that sets the statute of limitations at 10 years), acts to defraud creditors are those that meet the following requirements:

they were performed prior to the declaration of commercial insolvency;
through them the creditors were knowingly defrauded; and
the third party involved in the act was aware of the fraud, although the latter requirement is not necessary in respect of acts of a gratuitous nature.

In addition to the provisions of the paragraph above, the following are acts to defraud creditors, so long as they have been performed after the date of retroaction:

gratuitous acts;
acts and sales in which the merchant pays a price with a clearly higher value or receives a price with a clearly lower value to the considerations offered by its counterpart;
transactions performed by the merchant in which conditions or terms are established that are significantly different to the prevailing conditions of the market in which they have been performed, on the date of their performance, or from commercial practices and uses;
debt remittances made by the merchant;
payments of unmatured obligations made by the merchant; and
discounting made by the merchant of its own effects, which, after the date of retroaction, will be considered as an advance payment.

As explained, in contrast to the acts mentioned in the following paragraph, none of these acts admits the possibility that the interested party can prove its good faith. The foregoing is because the Commercial Insolvency Law deems that the performance of any of these acts inherently includes the bad faith of the person performing it, both of the merchant and that of the other parties involved.

The following acts of fraud will be presumed to have been committed against creditors if they are performed after the date of retroaction, except when the interested party proves its good faith:

granting of guarantees or an increase in existing ones, when the original obligation did not contemplate such guarantee or increase; and
payment of debts made in kind, when not originally stipulated, or when the agreed price was specified in cash.

If it is resolved that an act was performed defrauding creditors, it will be void in respect of the estate. Notwithstanding the foregoing, if the respective third party were to return what it received from the merchant, including its proceeds or interest having regard to the time during which it enjoyed the asset or money, the acknowledgement of its credit may be requested.

Anyone who acquires assets in bad faith to defraud creditors will be liable to the estate for the damages and losses caused to it when the asset has been transferred to a good faith purchaser or has been lost. The same liability falls on anyone who, to evade the effects of the voidance that would show that creditors had been defrauded, has destroyed or hidden the relevant assets.

Equitable subordination

Are there any restrictions on claims by related parties or non-arm’s length creditors (including shareholders) against corporations in insolvency or reorganisation proceedings?

In cases where the merchant is a legal entity, the Commercial Insolvency Law contemplates several other presumptions of acts to defraud creditors, regarding acts performed by the merchant as of the date of retroaction with related parties, as in the case of directors, administrators, board members or majority shareholders of the merchant.

Lender liability

Are there any circumstances where lenders could be held liable for the insolvency of a debtor?

A lender can potentially be held responsible for a merchant’s bankruptcy in specific circumstances, although this is uncommon. For example, such will be the case if the lender acts fraudulently or with malice, knowingly worsening the merchant’s financial condition, it may be held accountable for contributing to the insolvency.

Groups of companies

Groups of companies

In which circumstances can a parent or affiliated corporation be responsible for the liabilities of subsidiaries or affiliates?

Subsidiaries may be held responsible for a parent company’s debts in cases of balance consolidation, joint liability, fraud, irregular transactions, guarantees, restructuring or lack of legal separation.

Combining parent and subsidiary proceedings

In proceedings involving a corporate group, are the proceedings by the parent and its subsidiaries combined for administrative purposes? May the assets and liabilities of the companies be pooled for distribution purposes?

In the case of corporate groups, the general rule is that the commercial insolvency of a company that forms part of a corporate group does not necessarily lead to the insolvency of the holding company or that of the other subsidiaries that form a part of such group. The Commercial Insolvency Law defines holding companies as those that:

are located in Mexico;
possess more than 50 per cent of the voting stock of controlled companies, even when such ownership is held by means of other companies that in turn are controlled by the same holding company; and
where under no circumstances more than 50 per cent of its voting stock belongs to other companies.

Consequently, in respect of each of the companies that form a part of the corporate group, that is the holding company and the subsidiaries, an individual analysis should be performed to determine which of them are found to meet the necessary conditions to be declared commercially insolvent. Now, if the commercial insolvency of a holding company or of any of its subsidiaries is requested, the commercial insolvency proceedings of such holding company and its respective subsidiaries will be made cumulative, but will be processed separately (ie, they will be presided over by the same judge, but each one will have its own proceeding).

International cases

Recognition of foreign judgments

Are foreign judgments or orders recognised, and in what circumstances? Is your country a signatory to a treaty on international insolvency or on the recognition of foreign judgments?

The Commercial Insolvency Law contemplates several provisions that regulate assistance and interaction between Mexican courts and foreign courts in connection with procedures involving insolvency that are brought in respect of a Mexican merchant that has an establishment, place of business or assets abroad, and of a foreign merchant that has an establishment, place of business or assets in Mexico.

In the Commercial Insolvency Law there are two classes of foreign procedures in these type of insolvency or bankruptcy procedures: a principal foreign procedure, which is defined as that brought against a merchant, in a foreign state, which has its principal place of business in that foreign state; and a non-principal foreign procedure, defined as one brought against a merchant that has its principal place of business in Mexico but also has an establishment abroad.

The provisions of the Commercial Insolvency Law are clear and congruent in the matter of the acknowledgement of a foreign procedure in respect of a Mexican merchant that has an establishment abroad. For this case, there are provisions that permit the Mexican judge to work in a coordinated manner with the foreign court to have the proper measures adopted with respect to the assets that the merchant has and the activities that the Mexican merchant performs abroad.

In the case of the acknowledgement of a foreign procedure in respect of a foreign merchant that has an establishment in Mexico, the Commercial Insolvency Law states that the rules regarding the verification visit have to be observed to determine if the foreign merchant is in effect found to be within the requisite parameters of the law to be declared commercially insolvent and that, if such conditions are present, the Mexican judge will issue a ruling to declare such foreign merchant in commercial insolvency, and the procedure of commercial insolvency will be followed in accordance with the provisions that are stated in the Commercial Insolvency Law; provided that the effects of this declaration of commercial insolvency are to be limited to the establishment of the foreign merchant in Mexico.

For a foreign procedure to be recognised by the Mexican courts, a petition must be brought before the Insolvency Court for the recognition thereof by the foreign representative, who is the person defined by the Commercial Insolvency Law as the person or body, including someone designated in a provisional manner, who shall have been empowered in the foreign procedure to manage the reorganisation or liquidation of the assets or business of the merchant or to act as the representative of the foreign procedure. The appearance of the foreign representative before the Mexican courts does not imply the submission of the foreign representative nor that of the assets and businesses of the merchant brought to the jurisdiction of the Mexican courts.

UNCITRAL Model Laws

Have any of the UNCITRAL Model Laws in relation to insolvency been adopted or is adoption under consideration in your country?

Not to the best of our knowledge.

Foreign creditors

How are foreign creditors dealt with in liquidations and reorganisations?

The Commercial Insolvency Law does not give different treatment to foreign creditors. However, unpaid principal and financial accessories of credits in foreign currencies, without collateral, irrespective of the place originally agreed to for their payment, will cease to generate interest and will be converted into Mexican pesos at the exchange rate set generally by the Central Bank of Mexico for the settlement of obligations denominated in a foreign currency payable in Mexico, provided that such amount will, in turn, be converted into investment units (UDIs).

Cross-border transfers of assets under administration

May assets be transferred from an administration in your country to an administration of the same company or another group company in another country?

The Commercial Insolvency Law does not contemplate such assumption.

COMI

What test is used in your jurisdiction to determine the COMI (centre of main interests) of a debtor company or group of companies? Is there a test for, or any experience with, determining the COMI of a corporate group of companies in your jurisdiction?

The COMI is generally determined according to the merchant’s registered office.

Cross-border cooperation

Does your country’s system provide for recognition of foreign insolvency proceedings and for cooperation between domestic and foreign courts and domestic and foreign insolvency administrators in cross-border insolvencies and restructurings? Have courts in your country refused to recognise foreign proceedings or to cooperate with foreign courts and, if so, on what grounds?

Our interpretation of the Commercial Insolvency Law concludes that there are two classes of foreign procedures in these type of insolvency or bankruptcy procedures: a principal foreign procedure, which is defined as that brought against a merchant, in a foreign state, who has its principal place of business in that foreign state; and a non-principal foreign procedure, defined as one brought against a merchant that has its principal place of business in Mexico but also has an establishment abroad.

The provisions of the Commercial Insolvency Law are clear and congruent in the matter of the acknowledgement of a foreign procedure in respect of a Mexican merchant that has an establishment abroad. In this case, there are provisions that permit the Mexican judge to work in a coordinated manner with the foreign court to have the proper measures adopted with respect to the assets that the merchant has and the activities that the Mexican merchant performs abroad.

In the case of the acknowledgement of a foreign procedure in respect of a foreign merchant that has an establishment in Mexico, the Commercial Insolvency Law states that the rules regarding the verification visit have to be observed to determine if the foreign merchant is in effect found to be within the requisite premises of the law to be declared commercially insolvent and that, if such conditions are present, the Mexican judge will issue a ruling to declare such foreign merchant in commercial insolvency, and the procedure of commercial insolvency will be followed in accordance with the provisions that are stated in the Commercial Insolvency Law; provided that the effects of this declaration of commercial insolvency are to be limited to the establishment of the foreign merchant in Mexico.

Cross-border insolvency protocols and joint court hearings

In cross-border cases, have the courts in your country entered into cross-border insolvency protocols or other arrangements to coordinate proceedings with courts in other countries? Have courts in your country communicated or held joint hearings with courts in other countries in cross-border cases? If so, with which other countries?

Yes. The Commercial Insolvency Law contemplates several provisions that regulate assistance and interaction between Mexican courts and foreign courts in connection with procedures involving insolvency that are brought in respect of a Mexican merchant that has an establishment, place of business or assets abroad, and of a foreign merchant that has an establishment, place of business or assets in Mexico.

The Commercial Insolvency Law has two classes of foreign procedures in these type of insolvency or bankruptcy procedures: a principal foreign procedure, which is defined as that brought against a merchant, in a foreign state, who has its principal place of business in that foreign state; and a non-principal foreign procedure, defined as one brought against a merchant that has its principal place of business in Mexico but also has an establishment abroad.

Winding-up of foreign companies

What is the extent of your courts’ powers to order the winding-up of foreign companies doing business in your jurisdiction?

Quick reference

Summary of law and procedure

Applicable insolvency law, reorganisations and liquidations

The Commercial Insolvency Law.

Customary kinds of security devices on immovables

Mortgages.

Customary kinds of security devices on movables

Pledges.

Stays of proceedings in reorganisations/liquidations

These injunctive measures may consist of the following:

prohibiting the merchant from making payments towards obligations due prior to the date of admittance of the petition of commercial insolvency;
suspending any enforcement procedure against the assets and rights of the merchant;
prohibiting the merchant from performing sales, transfers or encumbrances for the principal assets of its enterprise;
prohibiting any attachment of property;
allowing the merchant’s treasury to intervene;
prohibiting the merchant from performing transfers of funds or securities in favour of third parties;
placing a merchant on house arrest order, for the sole purpose of not allowing them to leave their place of residence without leaving an attorney-in-fact with sufficient instructions and funds; and
any others of a similar nature.

Duties of the insolvency administrator

In a bankruptcy proceeding, the receiver must sell all of the assets and rights of the merchant, seeking at all times to maximise their value, and will apply the funds obtained from such sales to the payment of the merchant’s indebtedness, following the order and preference indicated in the Commercial Insolvency Law. Furthermore, upon declaration of bankruptcy, the Commercial Insolvency Law suggests the full removal, without the need for any additional court order, of the merchant from the management of their business. The merchant will then be substituted by the receiver. For the performance of their functions, the receiver will have the most extensive powers permitted by law.

Set-off and post-filing credit

As of the date on which the Commercial Insolvency Ruling is passed, only the following may be set-off: the rights in favour of and obligations against the merchant under the same operation so long as the same have not been interrupted by virtue of the Commercial Insolvency Ruling; the rights in favour of and obligations against the merchant that have become due and payable prior to the Commercial Insolvency Ruling and for which set-off is provided by law; the rights and obligations derived from repurchase, securities loan, futures and derivative transactions and similar operations; and tax credits in favour of and against the merchant.

Creditor claims and appeals

The creditors may request the acknowledgement of their credits at any of the following times in the proceeding: within 20 calendar days following the date of the publication of the Commercial Insolvency Ruling in the Mexican Official Daily of the Federation; within the term for filing objections to the provisional list, that is within five calendar days following the date on which the judge makes the provisional list available to the merchant and creditors according to the commercial insolvency proceeding; and within the term for filing the appeal to the credit acknowledgement, ranking and priority of payment ruling, that is within nine days following the date on which such ruling enters into effect.

Priority claims

The following are credits against the estate and will be paid in the following order: accrued wages and labour compensation for a period of two years prior to the date of declaration of commercial insolvency (the Preferential Labour Credits); those contracted for the management of the estate by the merchant with the authorisation of the conciliator or receiver or, where applicable, those contracted by the conciliator; those contracted to cover ordinary expenses for the security of the assets of the estate, its replacement, conservation and administration; and those originating from in- or out-of-court procedures for the benefit of the estate.

Major kinds of voidable transactions

The following are acts to defraud creditors, so long as they have been performed after the date of retroaction:

gratuitous acts;
acts and sales in which the merchant pays a price with a clearly higher value or receives a price with a clearly lower value to the consideration offered by its counterpart;
transactions performed by the merchant in which conditions or terms are established that are significantly different to the prevailing conditions of the market in which they have been performed, on the date of their performance, or from commercial practices and uses;
debt remittances made by the merchant;
payments of unmatured obligations made by the merchant; and
the discounting made by the merchant of its own effects, after the date of retroaction, will all be considered as an advance payment.

Operating and financing during reorganisations

During the conciliatory phase, the merchant will remain in the administration. Furthermore, a company undergoing bankruptcy proceedings can contract essential operational credits to continue its regular operations. The conciliator must approve any credits contracted to maintain the company’s daily operations during the conciliation phase, and must be strictly for essential activities, such as paying wages, raw materials or basic services, not for non-essential investments.

International cooperation and communication

Our interpretation of the Commercial Insolvency Law concludes that there are two classes of foreign procedures in these type of insolvency or bankruptcy procedures: (1) a principal foreign procedure, which is defined as one that is brought against a merchant, in a foreign state, that has its principal place of business in that foreign state; and (2) a non-principal foreign procedure, defined as one brought against a merchant that has its principal place of business in Mexico but also has an establishment abroad.

The provisions of the Commercial Insolvency Law are clear and congruent in the matter of the acknowledgement of a foreign procedure in respect of a Mexican merchant that has an establishment abroad. In this case, there are provisions that permit the Mexican judge to work in a coordinated manner with the foreign court to have the proper measures adopted with respect to the assets that the merchant has and the activities that the Mexican merchant performs abroad.

Liabilities of directors and officers

Pursuant to article 270-bis of the Commercial Insolvency Law, members of the board of directors, as well as the relevant employees of the merchant, shall be subject to liability consisting of compensation for damages and losses caused to the merchant, when they have caused financial damage and the merchant is in general non-compliance with the payment of its obligations, due to the occurrence of any of the following:

they vote in the sessions of the board of directors or make determinations related to the merchant’s assets, with a conflict of interest;
they knowingly favour a certain shareholder or group of shareholders of the merchant, to the detriment or prejudice of the other shareholders;
when, without legitimate cause, by virtue of their employment, position or commission, they obtain economic benefits for themselves or procure them in favour of third parties, including a certain shareholder or group of shareholders;
generate, disseminate, publish, provide or order information, knowing that it is false;
order or cause the omission of the record of operations carried out by the merchant, as well as alter or order the alteration of the records to hide the true nature of the operations carried out, affecting any concept of the financial statements;
order or accept that false data be recorded in the merchant’s accounting;
destroy, modify or order that the accounting systems or records or the documentation that gives rise to the accounting entries of the merchant be destroyed or modified, totally or partially, prior to the expiration of the legal conservation periods and with the purpose of hiding their record or evidence;
alter or order the modification of active or passive accounts or the conditions of contracts, make or order the recording of non-existent operations or expenses, exaggerate the real ones or intentionally carry out any act or operation that is illicit or prohibited by law, generating in any of these cases a debt, loss or damage to the assets of the merchant, for their own economic benefit, either directly or through a third party, or third parties, including the recording of liabilities in favour of the persons indicated in articles 116 and 117 of this Law; or
in general, carry out fraudulent or bad faith acts, or acts that are illicit according to this Law or other laws.

Pending legislation

There is still a need to reform the Commercial Insolvency Law, given that there are matters that are not properly regulated, such as the application and duration of injunctive measures; protection of creditors’ rights; or conditions that do not adjust to current market practices. This lack of regulation has led to merchants taking advantage to the detriment of creditors’ rights.

Update and trends

Trends and reforms

Are there any emerging trends or hot topics in the law of insolvency and restructuring? Is there any new or pending legislation affecting domestic bankruptcy procedures, international bankruptcy cooperation or recognition of foreign judgments and orders?

Members of the house of representatives are proposing a legislative reform to the Commercial Insolvency Law, to streamline the insolvency process and allow more proactive measures to safeguard the companies’ assets from individual creditors’ actions. The amendment will also introduce a new system for small and medium-sized companies, making insolvency proceedings a more viable option for them, which it had not been previously due to the high associated costs. This reform is still being discussed and has not yet been submitted for legislative approval.

Symbiosis focuses its efforts in terms of export promotion, assistance with direct investment, and internationalization of Canadian companies. With deep cultural and business ties with the region and an understanding of the challenges presented to Canadian clients doing business in Mexico. Our team is positioned to timely and efficiently assist clients in providing counsel and the legal tools to assist in their positioning in Mexico. For further information, please contact us or book a call/video conference with a member of our team, it would be our pleasure to meet you and talk about your project.

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