Mexican Legal Framework of Business Insolvency - White & Case

a security holders’ meeting 85 ) [LGTOC 220-III]. Consenting to extensions or carrying out
“any other amendment” to the securities is considered a major event and requires a
qualified majority (holders representing a 75 percent interest) for the meeting to be validly
convened. This quorum requisite is relaxed in the second or subsequent call, in which a
meeting will be legally convened with the presence of any number of security holders.
The note or the indenture may impose higher majorities.
The issue is further complicated if the rescheduling agreement or the reorganization plan
requires creditors to accept haircuts or otherwise change the financial conditions of the
debt instrument (e.g., converting principal to a different unit of account, reducing the rate
of interest, etc.), or to convert the original debt instrument into another type of debt or
equity instrument. In these cases, agreement from the ultimate security holder of record
(not the indenture trustee or even the custodian) will be required. Depending on the level of
dispersity of the debt instrument in question, the practical hurdle of seeking the consent of
each ultimate holder of record can delay or even frustrate the process.
Oftentimes, a rescheduling agreement is implemented through an exchange offer. An
exchange offer also poses registration costs and delays, and participation is individually
voluntary. Some additional obstacles imposed by Mexican securities laws prevent broad
acceptance of the exchange offer. For example, consideration has to be the same for all
participants (staggered pricing to incentivize early tender or acceptance is theoretically
allowed but the author does not know of any case where it has ever been used), and exitconsent
mechanisms are not a permitted means for changing the terms of holdouts unless
carried out in the context of a security holders’ meeting. For these reasons, the existence
of publicly traded debt securities often makes court assistance necessary to achieve a
successful reorganization.
85 This is not a settled matter. As a matter of practice, indenture trustees have been reluctant to accept executing
orders from a security holders’ meeting that decides to accept a haircut or change other financial conditions of
the securities, under the claim that those matters are individual decisions of the security holders that cannot be
imposed on holdouts.
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