Mexican Legal Framework of Business Insolvency - White & Case
Mexican Legal Framework of Business Insolvency - White & Case Mexican Legal Framework of Business Insolvency - White & Case
When a debtor experiences emerging problems (first stage), most of the solutions rely upon the debtor’s management-led corrective actions. Since, for nonfinancial sector firms, most of the cases at this stage have little or no impact on third parties, it is not relevant to delve into them from a legal framework perspective. When management is unable to resolve emerging problems, these could evolve into acute and worsening problems (second stage). At this stage, the debtor will try to reach an out-of-court workout plan with creditors. Part I addresses these issues. Part II addresses the court-assisted tools to solve cases of insolvency through reorganization or liquidation (third and fourth stages). The purpose of reorganization proceedings is to develop a reorganization plan. Since a private workout will only be effective upon consenting creditors, court assistance is sometimes necessary to achieve a successful reorganization or make broadly effective an otherwise private workout plan. The purpose of liquidation is to sell off the assets of the debtor and pay creditors with the proceeds of such sale. The line that divides reorganization from liquidation is often blurred (e.g., in the case of sales of complete lines of business or the whole enterprise as a going concern). Part III addresses special cases of insolvency of public service concessionaires and financial sector firms, other than banks. Part IV addresses the insolvency of banks. In the case of banks, even the emerging problems (first stage) could trigger “early warnings” that prompt preventive action from regulators. Other specific topics relating to sundry corporate and other legal issues arising in the context of insolvency are addressed in Part V. 8
PART I Out-of-Court Restructuring Out-of-court restructuring is aimed at securing contractual agreements, both between lenders themselves and between the lenders and the debtor, for the restructuring of the debtor. This type of restructuring is governed by scattered substantive and procedural rules, but mostly by internationally recognized principles of conduct and professional practice in the field. There are no binding rules as to how the process is conducted or what the final product will look like, so most private workouts are carried out in an ad hoc fashion. The author will, however, attempt to loosely follow the principles of INSOL (2000) and those of UNCITRAL (2005) to address the relevant legal aspects of a private workout. 1. Coordinated Approach The coordinated approach of creditors needs to overcome the inherent differences in the creditors’ attitudes and interests and in the nature of their claims. Not all creditors will have the same level of interest in the restructuring. For example, secured creditors may have a preference for liquidation, while unsecured creditors may prefer the continuation of the business as a going concern; some creditors with a big exposure may be willing to devote more resources to the workout process, while others may consider it not worthwhile due to the relatively small size of their claims. To complicate things further, a workout process presents a typical case of the prisoner’s dilemma: Creditors are better off if all creditors cooperate, but each creditor is better off being uncooperative. Coordination among different creditors and different constituencies of creditors reduces the risk of asset dilapidation caused, for example, by early moving creditors attaching assets; and the cost and time to achieve restructure, for example, by pooling advisors and sharing costs and by reducing emergence of miscommunication issues. 2. Standstill Agreement Participating creditors are expected to refrain from enforcing their claims during the negotiation period. This is achieved by entering into a standstill agreement. Standstill agreements may provide for undertakings by each creditor refraining from pursuing individual action against the debtor or its assets, challenging other participating creditors’ claims and White & Case 9
- Page 1 and 2: Mexican Legal Framework of Business
- Page 3 and 4: Mexican Legal Framework of Business
- Page 5: Maria Teresa Fernández Labardini*
- Page 8 and 9: PART IIISpecial Insolvencies ......
- Page 10 and 11: 2 Consignment Consignación Coopera
- Page 12 and 13: 4 Priority claim Crédito con privi
- Page 15: Introduction All of a debtor’s as
- Page 19 and 20: One of the risks that suppliers of
- Page 21 and 22: Under either of the two approaches,
- Page 23 and 24: . Prevention of Systemic Risk Anoth
- Page 25 and 26: verification and admission of claim
- Page 27 and 28: The issue is still divided between
- Page 29 and 30: the debtor to arrive at a consensua
- Page 31 and 32: v. Remuneration Specialists are ent
- Page 33 and 34: after his death, if the creditors
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- Page 37 and 38: 2. Voluntary Acceptance Small merch
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- Page 41 and 42: For a debtor to be considered a hol
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- Page 47 and 48: filing such proofs of claim and ind
- Page 49 and 50: 29 P. 161. i. Conservative Measures
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PART I<br />
Out-<strong>of</strong>-Court Restructuring<br />
Out-<strong>of</strong>-court restructuring is aimed at securing contractual agreements, both between<br />
lenders themselves and between the lenders and the debtor, for the restructuring <strong>of</strong> the<br />
debtor. This type <strong>of</strong> restructuring is governed by scattered substantive and procedural rules,<br />
but mostly by internationally recognized principles <strong>of</strong> conduct and pr<strong>of</strong>essional practice in the<br />
field. There are no binding rules as to how the process is conducted or what the final product<br />
will look like, so most private workouts are carried out in an ad hoc fashion. The author will,<br />
however, attempt to loosely follow the principles <strong>of</strong> INSOL (2000) and those <strong>of</strong> UNCITRAL<br />
(2005) to address the relevant legal aspects <strong>of</strong> a private workout.<br />
1. Coordinated Approach<br />
The coordinated approach <strong>of</strong> creditors needs to overcome the inherent differences in the<br />
creditors’ attitudes and interests and in the nature <strong>of</strong> their claims. Not all creditors will have<br />
the same level <strong>of</strong> interest in the restructuring. For example, secured creditors may have<br />
a preference for liquidation, while unsecured creditors may prefer the continuation <strong>of</strong> the<br />
business as a going concern; some creditors with a big exposure may be willing to devote<br />
more resources to the workout process, while others may consider it not worthwhile due<br />
to the relatively small size <strong>of</strong> their claims. To complicate things further, a workout process<br />
presents a typical case <strong>of</strong> the prisoner’s dilemma: Creditors are better <strong>of</strong>f if all creditors<br />
cooperate, but each creditor is better <strong>of</strong>f being uncooperative.<br />
Coordination among different creditors and different constituencies <strong>of</strong> creditors reduces the<br />
risk <strong>of</strong> asset dilapidation caused, for example, by early moving creditors attaching assets; and<br />
the cost and time to achieve restructure, for example, by pooling advisors and sharing costs<br />
and by reducing emergence <strong>of</strong> miscommunication issues.<br />
2. Standstill Agreement<br />
Participating creditors are expected to refrain from enforcing their claims during the<br />
negotiation period. This is achieved by entering into a standstill agreement. Standstill<br />
agreements may provide for undertakings by each creditor refraining from pursuing individual<br />
action against the debtor or its assets, challenging other participating creditors’ claims and<br />
<strong>White</strong> & <strong>Case</strong><br />
9
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