MEXICO Law and Practice Contributed by: Julián J. Garza Castañeda and Paulina Bracamontes Belmonte, Nader Hayaux & Goebel
• (i) labour claims for salaries and severance corre- sponding to the immediate calendar year preced- ing the insolvency judgment; • (ii) claims arising from financing incurred for the management of the estate of the insolvent entity or financing that is essential to maintain the ordinary operations of the company and the necessary liquidity during the insolvency proceeding – in each case, as approved by the mediator or by the Insol- vency Court; • (iii) liabilities and obligations of the estate of the insolvent entity; • (iv) costs and expenses incurred as a consequence of the judicial and extrajudicial proceedings for the benefit of the insolvency estate; • (v) amounts paid to the secured creditors; • (vi) labour claims different from those described in (i) above; • (vii) claims of “preferred” creditors under the Mexi- can commercial laws only to the extent of the value of their respective privilege; • (viii) claims of unsecured creditors; and • (ix) claims of subordinated creditors and creditors qualifying as related parties of the insolvent entity. Notwithstanding the above, claims of secured credi- tors would be paid on a supra-priority basis up to the amount of the respective collateral. However, this is contingent on the following claims having priority over the amount of such collateral in the order that follows: • labour claims for salaries and severance for the calendar year preceding the issuance of the insol- vency judgment; • litigation expenses related to the defence or recov- ery of secured assets; and • expenses necessary for the maintenance, disposi- tion and repair of the secured assets. 7.3 Length of Insolvency Process and Recoveries The first stage in bankruptcy proceedings is to deter- mine whether the legal requirements to declare the respective merchant bankrupt are met. The lawsuit may be filed by the merchant, its creditors or the Pub- lic Prosecutor ( Ministerio Público ). The first stage lasts around a month and a half and if proceedings move forward, the judge will issue a bankruptcy ruling.
Once an insolvency ruling is published in the Fed- eral Official Gazette ( Diario Oficial de la Federación ), the bankrupted company has up to 185 days to enter into an agreement with its respective creditors. Such period may be extended for an additional term if the creditor(s) who represent(s) 50% or more of the aggregate debt consider(s) an agreement likely to be entered into soon. The conciliation stage cannot exceed 365 days. In the event no conciliation or agreement is reached, the quiebra (liquidation) stage shall begin. This stage has the purpose of dissolving the company and selling and distributing any remaining assets among its credi- tors (in the order and priority provided under Mexican bankruptcy law). The duration of this stage largely depends on the speed at which the company’s assets are sold; however, the law provides for a six-month term for the assets to be sold before starting a public auction. In the event a public auction is conducted, it shall occur within a 90-day term. Mexican legal proceedings and resolutions issued thereunder are subject to several legal remedies which may substantially delay the issuance of a final ruling and the enforcement thereof. Whether creditors will obtain full repayment of their credits depends on the size of the bankruptcy assets and the amount of the credits. If the entity is techni- cally insolvent (the amount of liabilities exceeds the amount of assets) it is unlikely that all creditors will be able to obtain repayment of 100% of their respec- tive credits, as Mexican bankruptcy law provides a particular order and priority in which credits would be repaid. Creditors without any legal privilege or pref- erence would be repaid from any remaining assets, alongside other creditors in similar circumstances, on a pro rata basis. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency Other than the insolvency proceedings ( concurso mer- cantil ), there are no other statutory rescue or reorgani- sation procedures in Mexico.
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