We believe that understanding Mexican insolvency regulation will allow you to be prepared to react to the economic slowdown caused by the COVID-19 pandemic. Due to the current crisis, companies, as well as their clients, creditors, debtors, and suppliers are being economically affected, and, likewise, production chains could be harmed. In this regard, we want to encourage our clients to maintain close communication
The Commercial Bankruptcy Law (Ley de Concursos Mercantiles) regulates the only commercial insolvency procedure provided for under Mexican law, known as concurso mercantil. This law was enacted on May 12, 2000 and, since then, it has been amended on three occasions (in 2007, 2014, and 2019). Following the same logic as Chapter 11 in the United States, the Commercial Bankruptcy Law seeks to preserve the company. If this is not possible, the law also provides for a procedure to liquidate the company and pay the creditors (bankruptcy). For a company to be declared in concurso mercantil, it must be in a "generalized default in the payment of its obligations." The law allows a company that will imminently be in such generalized default in the payment of its obligations (within a period of 90 days) to request its concurso mercantil. To be declared in concurso, the debtor company must be in default with respect to two or more creditors and meet the following requirements: (i) that at least 35% of the company’s total obligations are at least 30 days past due; and (ii) that the company lacks liquid assets and accounts receivable (as defined in the law) to meet at least 80% of its past-due obligations. In the case of voluntary concurso mercantil (i.e., that the company itself requests its declaration of concurso mercantil), it is sufficient to meet one of the two requirements. In contrast, for involuntary insolvency (i.e., that the creditors sue for the concurso mercantil of the company), both requirements must be met. The concurso mercantil offers the following advantages: (i) publicity and transparency; (ii) professional third parties will act as inspectors (visitadores), conciliators, and receivers (síndicos); (iii) all parties may request the judge to order precautionary measures to protect the assets of the company in concurso; (iv) the judgment declaring the concurso mercantil prevents the execution of the debtor’s assets and orders it to suspend payment to its creditors; (v) the company in concurso retains its management (although there are rules for the removal of the company’s management); and (vi) the procedure provides mechanisms to protect the parties from any act carried out in fraud of creditors. Despite the law’s 20 years of existence, companies have used this procedure on few occasions. According to data from the Federal Institute of Commercial Bankruptcy Specialists (“IFECOM,” the administrative body that oversees concurso mercantil procedures), since 2000, only 778 concurso mercantil procedures have been processed. This means approximately 40 procedures per year and 3 to 4 per month.1 Being one of the largest economies in the world, these figures are negligible. In our experience, the best alternative to face a financial crisis is to achieve an out-of-court debt restructuring through negotiations with the main related parties, without prejudice to having the judicial concurso mercantil procedure available. Due to the COVID-19 crisis, there is a suspension of work by the Federal Judicial Branch until April 20, 2020, and, therefore, companies will not be able to file concurso mercantil petitions or complaints until that date. We encourage our clients and friends to maintain close communication with their own clients, creditors, debtors, and suppliers to try to develop structured solutions in the event of a possible insolvency situation. At Von Wobeser y Sierra, S.C. (“VWyS”) we are at your service to provide legal advice and help you restructure your credits, develop contingency plans, or advise you in concurso mercantil proceedings, whether judicial or out-of-court. VWyS has been involved in the most relevant restructuring and bankruptcy cases (concursos mercantiles) in Mexico over the last decade, representing both insolvent debtors and creditors involved in complex disputes. In 2019, Global Restructuring Review ranked VWyS among the top 100 firms in the world in restructuring matters, being one of the few Latin American firms included in said ranking. To obtain additional information, contact our experts: Diego Sierra, Partner: +52 (55) 5258 1039 | dsierra@vwys.com.mx Alejandro González, Associate: +52 (55) 5258 1039 | algonzalez@vwys.com.mx Juan Francisco Barrera, Associate: +52 (55) 5258 1039 | jbarrera@vwys.com.mx
