Insolvency Law at Mexico
In Mexico, insolvency law is primarily governed by the Ley de Concursos Mercantiles (Commercial Bankruptcy Law), which regulates the process for both individuals and companies facing financial difficulties. This law was enacted in 2000 and provides the framework for handling bankruptcy, restructuring, and liquidation procedures in Mexico.
Here's a general overview of how insolvency law works in Mexico:
1. Types of Insolvency Procedures:
There are primarily three main procedures under the Commercial Bankruptcy Law:
Concurso Mercantil (Business Reorganization/Restructuring): This procedure is aimed at helping businesses or individuals restructure their debts and continue their operations. It allows the debtor to work out a repayment plan with creditors while receiving protection from their claims for a specified period.
Liquidación Judicial (Judicial Liquidation): This is the liquidation process for companies that are not able to reorganize. The company’s assets are sold to satisfy creditor claims, and the company is dissolved.
Concordato Preventivo (Preventive Concordat): This procedure allows a debtor to negotiate directly with creditors to avoid entering formal insolvency. It’s a voluntary process that aims to prevent more drastic measures like bankruptcy.
2. Insolvency Procedure Steps:
Filing for Insolvency: The debtor or creditors can file for insolvency. The request is usually made to the Juez de Distrito (District Judge).
Recognition of Insolvency: Once insolvency is recognized, the court appoints a conciliador (conciliator), who acts as a mediator to facilitate the negotiation between the debtor and creditors.
Negotiation: The conciliator helps to create a reorganization plan or an agreement between the parties. The debtor will often continue operations while paying off the debt over time.
Creditors' Meetings: A meeting is held to vote on the proposed reorganization plan or any other offers.
Approval: If the majority of creditors approve the plan, the restructuring can proceed. If not, the company may enter liquidation.
3. Protection for Debtors:
During the insolvency proceedings, debtors are granted a form of protection from creditors, meaning that creditors cannot demand immediate payment of debts or initiate lawsuits against the debtor’s assets for the duration of the procedure (usually for a few months).
4. Role of the Conciliador:
The conciliador is key to the process. They help to reach agreements and ensure that the proceedings are handled fairly. They have the power to suggest changes to the debtor's restructuring plan, as well as help draft a feasible repayment strategy.
5. Impact on Creditors:
Secured creditors (those with collateral) are given priority in the repayment process.
Unsecured creditors typically have lower priority but may still receive a portion of the debtor’s remaining assets or payments.
In cases where a business cannot be restructured, creditors must rely on liquidation for repayment.
6. Post-Insolvency:
If a restructuring is successful, the debtor can continue its operations once the plan is implemented.
If liquidation is necessary, the company’s assets are sold, and the proceeds are distributed to creditors.
7. Cross-Border Insolvency:
Mexico is a signatory to the UNCITRAL Model Law on Cross-Border Insolvency, which aims to handle cases where the debtor’s assets or operations are spread across multiple jurisdictions. This can help streamline the insolvency process in cases with international elements.
8. Recent Amendments:
Mexico has made various reforms to its insolvency laws over the years to increase the effectiveness of the insolvency process, focusing on facilitating business rehabilitation and improving the legal framework for creditors.
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