Mexican Legal Framework of Business Insolvency - White & Case
Mexican Legal Framework of Business Insolvency - White & Case Mexican Legal Framework of Business Insolvency - White & Case
62 8. Leases A lease is an agreement through which the lessor grants the temporary use and enjoyment of nonconsumable property, and the lessee agrees to pay a certain price as rent [CCF 2398, 2400]. The subject matter of the lease can be either realty or chattel property. Please refer to the Appendix for a summary of the differences between real property and chattel. The Insolvency Law only regulates executory lease contracts with respect to realty. If the debtor is the lessor under a realty lease agreement, its concurso will not affect the lease. If the debtor is the lessee under a realty lease agreement, its concurso will not affect the lease; provided, however, that the conciliator can reject the lease, but the debtor will be liable to pay a penalty equivalent to three months’ rent (or such other early termination penalty provided for under the lease) [LCM 106]. 9. Lump Sum Construction Agreements The lump sum construction agreement is the agreement through which a contractor undertakes to carry out, under its supervision and with its own materials, a work requested by a sponsor, who undertakes to pay the contractor a lump sum price. 42 An executory lump sum construction agreement shall terminate upon the concurso declaration of either the sponsor or the contractor, unless the parties, with the approval of the conciliator, agree to its continuation [LCM 108]. Upon early termination, the law provides for equitable payments based on actual work performed and expenditures incurred by the contractor [CCF 2635, 2638, 2639]. 42 Sánchez Medal (1989), p. 339.
If the subject matter of the construction agreement is chattel property, the contractor has a right to retain such chattel property until it is paid for in full [CCF 2644]. This is especially important in the case of the concurso of a sponsor because that makes the contractor a priority creditor (cfr. 16.c). It is oftentimes difficult to distinguish between a construction agreement and a purchase agreement of a future asset (see, e.g., Sánchez Medal (1989), pp. 340-341). The analysis should be made on a case-by-case basis. The distinction is not merely theoretical, as the construction agreement and the purchase agreement each have a different treatment under the Insolvency Law (cfr. 15.n.iv.1 and 15.n.iv.2). 10. Insurance The insurance agreement is an agreement through which, in consideration for receiving a premium, an insurance carrier undertakes to repair damage or pay a sum of money to the insured party or the beneficiary upon occurrence of the casualty event foreseen in the contract [LSCS 1]. The Insolvency Law only regulates the cases of concurso of the insured party, since insurance carriers are excluded from its application (cfr. 10.c.iii). The Insolvency Law distinguishes between life insurance and insurance contracts where the subject matter is an asset. With the declaration of concurso of the insured party, the life insurance contract is not terminated, and the insured party, with the authorization of the conciliator, can assign the policy (or carry out any other operation to the benefit of the estate) to receive a reduction of the insured capital in proportion to the premiums paid pursuant to calculations carried out by the carrier and taking into account risks assumed by the carrier [LCM 110]. The insurance carrier can terminate executory insurance contracts covering chattel (i.e., the insurance contract does not terminate automatically), but those covering realty shall remain in effect upon the declaration of concurso of the insured party. White & Case 63
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If the subject matter <strong>of</strong> the construction agreement is chattel property, the<br />
contractor has a right to retain such chattel property until it is paid for in full<br />
[CCF 2644]. This is especially important in the case <strong>of</strong> the concurso <strong>of</strong> a<br />
sponsor because that makes the contractor a priority creditor (cfr. 16.c).<br />
It is <strong>of</strong>tentimes difficult to distinguish between a construction agreement<br />
and a purchase agreement <strong>of</strong> a future asset (see, e.g., Sánchez Medal (1989),<br />
pp. 340-341). The analysis should be made on a case-by-case basis. The distinction<br />
is not merely theoretical, as the construction agreement and the purchase<br />
agreement each have a different treatment under the <strong>Insolvency</strong> Law<br />
(cfr. 15.n.iv.1 and 15.n.iv.2).<br />
10. Insurance<br />
The insurance agreement is an agreement through which, in consideration for<br />
receiving a premium, an insurance carrier undertakes to repair damage or pay<br />
a sum <strong>of</strong> money to the insured party or the beneficiary upon occurrence <strong>of</strong> the<br />
casualty event foreseen in the contract [LSCS 1].<br />
The <strong>Insolvency</strong> Law only regulates the cases <strong>of</strong> concurso <strong>of</strong> the insured party, since<br />
insurance carriers are excluded from its application (cfr. 10.c.iii).<br />
The <strong>Insolvency</strong> Law distinguishes between life insurance and insurance contracts<br />
where the subject matter is an asset. With the declaration <strong>of</strong> concurso <strong>of</strong> the<br />
insured party, the life insurance contract is not terminated, and the insured party,<br />
with the authorization <strong>of</strong> the conciliator, can assign the policy (or carry out any other<br />
operation to the benefit <strong>of</strong> the estate) to receive a reduction <strong>of</strong> the insured capital in<br />
proportion to the premiums paid pursuant to calculations carried out by the carrier<br />
and taking into account risks assumed by the carrier [LCM 110].<br />
The insurance carrier can terminate executory insurance contracts covering chattel<br />
(i.e., the insurance contract does not terminate automatically), but those covering<br />
realty shall remain in effect upon the declaration <strong>of</strong> concurso <strong>of</strong> the insured party.<br />
<strong>White</strong> & <strong>Case</strong><br />
63
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