Mexican Legal Framework of Business Insolvency - White & Case
Mexican Legal Framework of Business Insolvency - White & Case Mexican Legal Framework of Business Insolvency - White & Case
32 that the related company may have taken part in the management of the debtor or acted like a director of the debtor and caused it to incur debts and liabilities. Furthermore, where the debtor company belongs to a group of companies, it may be difficult to untangle the specific circumstances of any particular case to determine which group company particular creditors dealt with or to establish the financial dealings between group companies. 20 Prior to analyzing the treatment afforded to corporate groups, it is worth first discussing the issue of consolidation. Consolidation doctrine can be viewed from two different angles: (1) substantive consolidation; and (2) procedural consolidation. Weil (2000) 21 provides an excellent description of substantive consolidation: Substantive consolidation, which is an equitable doctrine applied in bankruptcy cases to ensure the equitable treatment of creditors, permits the bankruptcy court to disregard the separateness of the debtor and one or more of its affiliates and to consolidate and pool the entities’ assets and liabilities and treat them as though held and incurred by one entity. As a result, a single estate for the benefit of all creditors of all the consolidated corporations is created and all creditors of the various corporations are combined into a single creditor body [footnotes omitted]. Without naming it as such, Sargent (1989) 22 defines procedural consolidation as the joint administration of multiple debtors’ estates. For more information on the subject of consolidation, the reader is encouraged to consult Sargent (1989). The Insolvency Law has very little regulation concerning corporate groups. While the Insolvency Law does not recognize or give effect to the principles of substantive consolidation, it does provide for some level of procedural consolidation when dealing with corporate groups: The concurso of a holding company and its subsidiaries or of the subsidiaries of the same holding company will be procedurally consolidated with the same courts, but under separate dockets [LCM 15]. 20 UNCITRAL (2005), p. 276. 21 P. 38. 22 P. 2.
For a debtor to be considered a holding company, the debtor must be a resident of Mexico, with no other entity holding more than 50 percent of its voting stock. So, for example, while the Mexican members of a group of companies that are themselves controlled by a non-Mexican company can be individually declared en concurso, their procedures would not be consolidated. It is unclear what the rationale is behind these requirements for procedural consolidation. 11. Commencement Standards a. General The issue of commencement standards deals with the economic or legal situation in which a debtor is found before being subject to the benefits and discipline of the Insolvency Law. The standard to be met for commencement of insolvency proceedings is central to the design of an insolvency law…Laws differ on the specific standard that must be satisfied before insolvency proceedings can commence. A number of laws include alternative standards and distinguish between the standard applicable to commencement of liquidation and reorganization proceedings, as well as between applications by a debtor and a creditor or creditors. 23 UNCITRAL (2005) 24 distinguishes two different commencement standards: (1) the liquidity, cash flow or general cessation of payments test; and (2) the balance sheet test. The liquidity, cash flow or general cessation of payments test requires that a debtor has generally ceased making payments and will not have sufficient cash flow to service its existing obligations as they fall due in the ordinary course of business. 25 23 UNCITRAL (2005), p. 45. 24 P. 45 et seq. 25 UNCITRAL (2005), p. 45. White & Case 33
- 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 and 16: Introduction All of a debtor’s as
- Page 17 and 18: PART I Out-of-Court Restructuring O
- 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
- Page 35 and 36: The above court precedent has two f
- Page 37 and 38: 2. Voluntary Acceptance Small merch
- Page 39: ii. Passive Estate Since a branch i
- Page 43 and 44: ■■ Shutting down the enterprise
- Page 45 and 46: ■■ The facts that motivate the
- Page 47 and 48: filing such proofs of claim and ind
- Page 49 and 50: 29 P. 161. i. Conservative Measures
- Page 51 and 52: i. Disposition of Assets During con
- Page 53 and 54: ■■ ■■ Granting of collatera
- Page 55 and 56: All assets acquired by the concubin
- Page 57 and 58: ■■ ■■ ■■ ■■ ■■
- Page 59 and 60: ■■ ■■ Claims for an uncerta
- Page 61 and 62: chattel 35 ) unless its price is pa
- Page 63 and 64: c. Extensions of Credit An extensio
- Page 65 and 66: the negotiable instruments and the
- Page 67 and 68: epayment or abandonment shall apply
- Page 69 and 70: ■ ■ Swaps: transactions in whic
- Page 71 and 72: If the subject matter of the constr
- Page 73 and 74: Netting of obligations in light of
- Page 75 and 76: they function generally determine f
- Page 77 and 78: . The Reorganization Plan The purpo
- Page 79 and 80: extend to guarantors or co-obligors
- Page 81 and 82: the reorganization plan); (3) all s
- Page 83 and 84: If a debtor does not successfully c
- Page 85 and 86: ii. Timing Removal takes effect leg
- Page 87 and 88: Claims by creditors operate at two
- Page 89 and 90: ■■ ■■ ■■ ■■ ■■
For a debtor to be considered a holding company, the debtor must be a resident <strong>of</strong><br />
Mexico, with no other entity holding more than 50 percent <strong>of</strong> its voting stock. So, for<br />
example, while the <strong>Mexican</strong> members <strong>of</strong> a group <strong>of</strong> companies that are themselves<br />
controlled by a non-<strong>Mexican</strong> company can be individually declared en concurso, their<br />
procedures would not be consolidated. It is unclear what the rationale is behind these<br />
requirements for procedural consolidation.<br />
11. Commencement Standards<br />
a. General<br />
The issue <strong>of</strong> commencement standards deals with the economic or legal situation<br />
in which a debtor is found before being subject to the benefits and discipline <strong>of</strong> the<br />
<strong>Insolvency</strong> Law.<br />
The standard to be met for commencement <strong>of</strong> insolvency proceedings is central to the design<br />
<strong>of</strong> an insolvency law…Laws differ on the specific standard that must be satisfied before<br />
insolvency proceedings can commence. A number <strong>of</strong> laws include alternative standards and<br />
distinguish between the standard applicable to commencement <strong>of</strong> liquidation and reorganization<br />
proceedings, as well as between applications by a debtor and a creditor or creditors. 23<br />
UNCITRAL (2005) 24 distinguishes two different commencement standards: (1) the<br />
liquidity, cash flow or general cessation <strong>of</strong> payments test; and (2) the balance sheet test.<br />
The liquidity, cash flow or general cessation <strong>of</strong> payments test requires that a debtor has<br />
generally ceased making payments and will not have sufficient cash flow to service its<br />
existing obligations as they fall due in the ordinary course <strong>of</strong> business. 25<br />
23 UNCITRAL (2005), p. 45.<br />
24 P. 45 et seq.<br />
25<br />
UNCITRAL (2005), p. 45.<br />
<strong>White</strong> & <strong>Case</strong><br />
33
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