MEXICO Law and Practice Contributed by: Alejandro Sainz, Gabriela Avendaño and Daniel Pardo, Sainz Abogados
before the concurso judgment and may be subject to a set-off pursuant to Mexican law. • Any amounts arising from rights and obligations of the debtor and third parties regarding the same transaction, but only if such transaction has not been suspended as a result of the concurso judg - ment. • Outright transfers ( reportos ) of securities, securi - ties’ loans and any other derivative transactions, even if the indebtedness amounts are not deter- mined and cannot be determined within the follow - ing nine calendar days. The set-off of these kinds of transactions in cannot be objected to or invali - dated by the liquidator, even if they were entered into during the “hardening period”, unless evidence is provided which proves such transactions were made to give a preference to certain creditors. • Unsecured Mexican peso debts. The outstanding amount (capital, interest and any other accesso - ries) of any unsecured debts denominated in Mexi - can pesos shall stop accruing interest and shall be converted into Unidades de Inversión (UDIs). These are indexed units of account that are generally preferred to pesos in the Mexican credit system because of their stability. • Unsecured debts denominated in foreign currency. The outstanding amount (capital, interest and any other accessories) of any unsecured debts denomi - nated in foreign currency shall stop accruing inter - est and shall be converted first into Mexican pesos and then into UDI. Equity In a concurso proceeding, equity holders do not par - ticipate and are not considered a class of creditors. There is no equity interest class in a reorganisation plan because such a plan cannot alter sharehold - ers’ rights without their consent (just as no plan can alter a debtor’s rights without their consent). How - ever, if equity holders have intercompany debt, they may be recognised as a class of creditors, depending on the nature and characteristics of that debt. Any plan of reorganisation that involves a debt-for-equity exchange or any amendment that alters the com - position of the debtor’s equity, such as an increase, must obtain shareholder consent. Such features of a restructuring are not permitted under Mexican law without consent or approval by the shareholders who
are affected. The Mexican General Law of Business Organisations (GBLO) requires that any debt-for-equi - ty exchange or any amendment to the composition of the debtor’s equity complies with the requirements under such law, which include holding a shareholders’ meeting to approve any such transactions or amend - ments that impact the debtor’s equity. Further, the by-laws of the company normally provide the same limitation, requiring shareholder consent in respect of any debt-for-equity exchange or any amendment to the composition of the equity of the company. The only power afforded to a Mexican Bankruptcy Court regarding a proposed plan for an equitisation of creditors’ claims is the authority to approve a capital increase in the event that the shareholders choose to not exercise pre-emptive rights within the 15-day statutory period. 5. Statutory Insolvency and Liquidation Procedures 5.1 The Different Types of Liquidation Procedure The GBLO is a Mexican federal corporate law that provides the rules for corporate formation, company by-laws, and corporate governance requirements for various privately held business entities. Article 229 of the GBLO addresses the out-of-court dissolution and liquidation process of wholly owned corporate subsidiaries and affiliates not subject to controversy or limitation. The purpose of the dissolution and liqui - dation proceeding under the GBLO is to provide for a simplified proceeding that allows enterprises to carry out a simple, expedited, and free dissolution and liq - uidation process. This proceeding is not applicable for restructurings; rather, it is used for simplified liquida - tions in very particular situations and that comply with clear conditions to avoid the closing of businesses with pending obligations before shareholders or third parties. The concurso proceeding is the only commercial insolvency proceeding available for companies in Mexico. All insolvency proceedings of companies or merchants are governed by the LCM, whether aimed at a restructuring process (phase of conciliation or
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