Mexican Legal Framework of Business Insolvency - White & Case

PART II
Court-Assisted Reorganization
and Liquidation
The Insolvency Law regulates business reorganization and liquidation in Mexico. The
Insolvency Law became effective on May 13, 2000, repealing the Law of Bankruptcies
and Suspension of Payments of 1943.
6. Stated Purpose
The stated purpose of the business reorganization procedure is (1) to preserve the
enterprise 3 and (2) to prevent the generalized default of payment obligations from
jeopardizing the continuation of the insolvent enterprise and those enterprises with which
it has dealings (i.e., prevent systemic risk) [LCM 1].
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a. Preservation of the Company
There are two seemingly opposite policy positions that an insolvency law should
attempt to balance: (1) preservation of an enterprise, and (2) speedier recovery to
creditors. This dichotomy is clearly expressed in UNCITRAL (2005): 4
An insolvency law needs to balance the advantages of near-term debt collection through
liquidation (often the preference of secured creditors) against preserving the value of the
debtor’s business through reorganization (often the preference of unsecured creditors and the
debtor). Achieving that balance may have implications for other social policy considerations,
such as encouraging the development of an entrepreneurial class and protecting employment.
Mexico has taken the policy position to favor preservation of an enterprise over speedier
recovery. Mexico made a point of this when submitting the LCM Bill by stating: 5
The central objective [of insolvency law] was easily identified: Provide the relevant framework
to maximize the value of an enterprise in [financial] crisis through its preservation, which
results in the protection of employment of its human elements, avoids the negative
repercussion to society at large brought by the closing of a provider of goods or services
and recovers the entrepreneurial effort that such enterprise represented to its owner.
3 Please refer to Section 10.b.iv for a discussion on the concept of enterprise.
4 P. 11.
5
LCM Bill, with edits.