There are various legal actions available in Mexico in favour of creditors prior to a formal insolvency proceeding to recover on a defaulted loan or obligation of a debtor. Of course, the action proceedings (namely, foreclosure, attachment of assets,temporary restraining orders,preliminary discovery or pre-filing motions, etc) may vary depending on the type of agreement, source of the action to be followed (civil, mercantile -ordinary, special), whether collateral was granted, whether promissory notes were issued, type of collateral, etc. In this regard, under Mexican law there are different types of securities that might be consti­tuted over different types of assets.For example,the most common securities for movable or intangible assets are the guaranty trust and the floating lien pledges, while the mortgage is the most common security involving real estate assets. Guaranty trust and floating lien pledges are governed by federal law,while mort­gages are governed by state law.Securities require a publicity principle by means of registration before public record offices so that they may be opposable against third parties. However, there are some cases where the security does not require registration before public record offices and a direct notification to the debtor of the collector’s rights is sufficient;also,there are some cases in which an additional registration is required (namely,with the Federal Telecommunication Registry). Therefore, the type of the applicable remedy or legal action will depend on the type of security, if any, implemented over assets of the debtor or the guarantors. Moreover, summary proceedings for the enforcement of commercial claims are available when the lawsuit seeking enforcement is based on a document that allows for summary enforcement as a consequence of non-performance; for example, Mexican promissory notes allow summary enforcements.

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Directors of a company declared insolvent by a competent court, engaging in any malicious act or conduct that causes the non-performance of the company’s payment obligations, might be held liable to civil actions or even subject to criminal prosecution, in the event of fraudulent acts. However, if the company has not been declared insolvent by a competent court, the directors may not be liable for continuing to operate a company under financial distress. It may be considered that transactions related to creditors’ collections rights that have not been segregated are more vulnerable to attack.

Additionally,according to the Mexican insolvency law (the Concursos Law) any of the following transactions may be invalidated if entered into during thep­eriod starting on the day which is 270 calendar days prior to the declaration of insolvency by a competent court:

• transactions executed by a debtor prior to the declaration of insolvency with the intention of defrauding creditors (knowledge of the counterparty is not required if the act was gratuitous);
• gratuitous transactions;
• undervalue transactions;
• transactions not effected at an arms-length basis;
• waivers of debts agreed by a debtor;
• performance of obligations prior to their maturity date; and
• discounts made by a debtor.

In line with the foregoing, a presumption exists that the following transactions are executed in fraud of creditors, unless the debtor proves good faith:

• creation of a new security interests or the increase of any existing security interests if the original obligation did not contemplate the foregoing;
• payments made with assets other than money if such form of payment was not originally agreed; and
• transactions entered into by a debtor with related individuals or entities, such as its spouse, relatives, members of the board or decision-making indi­viduals within the business, or companies where at least 51 per cent of their capital stock is owned or voted by any of the foregoing individuals.

Furthermore, considering the company as a legal entity, the criminal liability might be followed against the members of its board of directors, administrators, managers or liquidators of the legal entity, who were the authors of, or partici­pated in, the criminal offence, if any.

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Yes; a creditor may foreclose on the collateral through the enforcement of its creditor’s rights and by following the special enforcement procedure applicable to the type of collateral granted in its favour (stock pledge; floating pledge over assets; mortgage; special mortgage over concessions, etc).

However,if the concurso procedure (see question 4 below) has been accepted by the court, then the creditors will be prevented to foreclose on the collateral or sell collateral in a private sale while the procedure is in progress. Likewise, special measures or injunctions might be granted to the debtor in order for the latter to preserve its assets and operations, and to protect the debtor from separate or individual creditors’ rights seeking the enforcement of collateral or seizure or attachment over debtor’s assets. Upon the insolvency declaration by the competent court, a stay is automatically imposed over enforcement of the creditors’ rights, and remains in force throughout the conciliation stage.

In principle, secured creditors must be paid in full according to the terms of their credits unless they agree to a lesser treatment; otherwise, secured creditors retain their pre-concurso liens and other rights.

Likewise,if certain assets were transferred into a separate trust agreement in favour of certain creditor,then such assets,in principle,should be separated from debtor’s estate and the beneficiary (namely,creditor) thereunder might then fol­low a special or summarised procedure to enforce its claim or even implement a payment-in-kind structure, which depends on the nature and characteristics of the trust (namely, guaranty trust agreement, source of payment trust agreement) and whether a true sale mechanism was implemented.

In principle,there are no accelerated procedures available for secured credi­tors under a concurso procedure.

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The Concursos Law provides for a single insolvency proceeding known as con­curso mercantil (reorganisation or bankruptcy procedure).The concurso procedure consists of two main stages, conciliation stage and bankruptcy stage, each of them supervised by the Federal Institute of Specialists in Mercantile Insolvency and Bankruptcy Procedures (IFECOM).

The Concursos Law forms part of Mexico’s federal commercial legislation. Pursuant to article 17 of the Concursos Law, jurisdiction over a commercial bankruptcy case lies in the federal district court of the debtor’s corporate domi­cile or principal place of business, as the case may be. The Concursos Law is based upon certain general principles:

• all creditors of the same class shall be treated equally,without regard to their nationality, domicile or capacity;
• all creditors of the debtor, whether domestic or foreign, shall have access to the concurso procedure, and shall collect in equal proportion (according to the class) from the assets located within the territorial jurisdiction of the court;
• if possible, the debtor’s operations should be preserved, for the benefit of the general economy of Mexico; this principle seeks to avoid the ‘chain bankruptcies’ phenomenon, whereby the commercial bankruptcy of one company and its cessation of operations causes the commercial bankruptcy of its creditors; and
• all assets of the debtor shall be consolidated and its liabilities determined. This principle is the basis for actions taken to eliminate dubious credits,such as the commencement of legal proceedings to collect debts due in favour of the debtor,or actions to invalidate fraudulent conveyances or other transfers contrary to the Concursos Law, commenced by the debtor in breach of the principle that all creditors of the same class should be treated equally.

Additionally, and in furtherance to the goals of this principle, third parties are permitted to recover assets in the debtor’s possession not owned by the debtor. Immediately after the insolvency petition is filed and accepted by the court, the court must file a petition before the IFECOM for the appointment of an exam­iner. Once the examiner has been appointed and he or she has accepted such an appointment, the examiner shall, within the following 15 to 30 days, report to the court if the debtor is, in fact, insolvent (according to the measures provided for under the Concursos Law) and, thus, is in one or more of the hypothesis established in the Concursos Law to be declared in concurso.The debtor and, in the event that the insolvency petition is filed by creditors (involuntary proce­dure), the said creditors may challenge the examiner’s report.The court must resolve as to the solvency or insolvency of the debtor within the 15 days fol­lowing the date of its receipt of the examiner’s report. If the court resolves that the debtor is solvent, the concurso procedure ends. If the court resolves that the debtor is in fact legally insolvent, it shall issue the corresponding declaration or judgment of insolvency, the effect of which is the formal commencement of the conciliation stage.

The declaration of insolvency must establish that the debtor has incurred a general default of its payment obligations, and must include a provisional list of creditors identified in the debtor’s accounting records.This list does not exhaust the proceeding for recognition, ranking and determination of the priority of creditors’ claims.

Pursuant to the Concursos Law, the declaratory of insolvency shall include the retroactivity date (that is, the date to which the effects of the concurso pro­cedure will be applied retroactively, known as the ‘hardening’ or ‘look-back’ period); a declaration that the conciliation stage has commenced; instructions for the IFECOM to appoint a professional conciliator; an order for the debtor to immediately provide to the conciliator the debtor’s books, records and all other necessary documents, and allow the conciliator and interveners, if any, to carry out the activities necessary to perform their duties, and to suspend the payment of debts.

The first stage of a concurso procedure is the conciliation stage, which is purported to encourage a binding reorganisation agreement between the debtor and its creditors and,thus,avoid the debtor’s bankruptcy or liquidation (restruc­turing plan or creditors’ agreement).The conciliation stage may not last more than 185 calendar days, unless extended for up to two additional consecutive periods of 90 calendar days each; provided, however, that in no event shall the conciliation stage last more than 365 calendar days.

Once the commercial insolvency of the debtor has been declared, the con­ciliation stage shall commence, and attempts to find a formula to allow the debtor and creditors to come to an agreement will begin. A conciliator, who initially acts as an intermediary between the company and its creditors, must direct this attempt. The role of the examiner and of the conciliator may be performed by the same individual.

Pursuant to the purposes of the Concursos Law, the conciliator shall act as an amicable intermediary among the parties. One of the functions or powers of conciliator is to recognise claims based on the debtor’s accounting records in order to streamline the claim recognition process.The conciliator will also collaborate in the decision regarding whether the business will continue to be operated by debtor’s restructuring the debt (debtor-in-possession), or whether it is necessary to remove existing management from the operation of the company.

The objective of the conciliation stage is to preserve the operation of the debtor’s business. The conciliator is responsible for, inter alia, publishing the deadline for creditors to submit proofs of claims, processing proofs of claims, serving as a mediator among the debtor and creditors,and proposing reorganisa­tion plan (creditors’ agreement) to the court.

The second stage of a concurso procedure, if applicable, consists of the bank­ruptcy stage.The debtor may be declared bankrupt if the conciliation stage ends without the parties reaching a creditors’ agreement; the debtor fails to comply with the creditors’ agreement; or the debtor requests its bankruptcy, or the con­ciliator requests the debtor’s bankruptcy and the court agrees to grant it.

In addition to the effects attributed to the declaration of insolvency, the bankruptcy judgment:

• suspends the ability of the debtor to perform legal acts, which disability affects its business and assets;
• causes the appointment of a receiver, with full authority to replace the debtor or the conciliator, as the case may be, in the management of the debtor’s business;
• orders the debtor and any third party having possession of the debtors’assets to deliver all such assets to the receiver;
• requires that payments to the debtor only be made with the receiver’s author­isation (failure to obtain such authorisation leads to double payments);
• invalidates any acts performed by the debtor or its representatives following the bankruptcy judgment without the receiver’s authorisation; and
• invalidates any payments executed by the debtor after the bankruptcy judgment.

The Concursos Law does not provide different insolvency proceedings for individuals and companies nor does it make distinction between ‘preventative’ insolvency proceedings and ‘actual’ insolvency proceedings.

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A debtor may be declared insolvent if it has generally failed to perform its obli­gations.For purposes of the Concursos Law,an individual or entity has generally failed to perform its obligations if:

• it has defaulted its obligations contracted with two or more different creditors;
• the obligations of the debtor which have been due for at least 30 days represent, at least, 35 per cent or more of all the debtor’s obligations on the date on which the demand or insolvency petition is filed (or depends, or both, if it was an involuntary or voluntary petition, respectively);
• the debtor does not have any of the following assets in an amount sufficient to perform at least 80 per cent of its obligations due on the date on which the demand or insolvency petition is filed:
• cash and demand deposits;
• term deposits and investments becoming exercisable or maturing in a term no longer than 90 calendar days following the date on which the demand or insolvency petition is filed before the court;
• customer receivables with a maturity date not exceeding 90 calendar days following the date on which the demand or insolvency petition was filed before the court; or
• securities or negotiable instruments available at the relevant markets which may be sold within a term of 30 business days, with a known value on the date on which the demand or insolvency petition was filed before the court.

The debtor itself, any creditor, the district attorney, a judge, and tax authorities in their capacity as creditors, may file insolvency claims.

With the petition filed by creditors (involuntary) or the insolvency petition filed by the company (voluntary), as the case may be, a guaranty or bond must be posted to guaranty the examiner’s fee payment.

The court will order the creditor that filed the petition,or the company that filed the insolvency claim,to pay attorney’s fees and expenses (gastos y costas,the amount is regulated by statue), including the examiner’s fees, if any judgment is issued declaring no insolvency of the company.

The filing of an insolvency petition of a company does not have effect over the subsidiaries or affiliates of the debtor.

Pursuant to the Concursos Law, the concurso procedure of two or more debtors cannot be joined. However, the concurso procedure of the following shall be joined but are processed under separate cover: holding companies and their controlled companies;and,two or more companies controlled by the same holding company.

For purposes of the Concursos Law, companies meeting the following cri­teria shall be deemed to be business holding companies:

• Mexican resident companies;
• ownership of over 50 per cent of the voting stock of another or other con­trolled companies, even if such ownership is held through other companies which, in turn, are controlled by the same holding company; and
• no other company or companies own over 50 per cent of its voting stock.

Stock having limited voting rights which, pursuant to the Mexican commercial legislation, are known as preferred stock, shall not be considered voting stocks.

In the case of companies that are not stock companies, the value of the capital contributions shall be taken into consideration.

Companies in which over 50 per cent of their voting stock is owned either directly or indirectly or both by a holding company,shall be regarded as control­led companies. For this purpose, the indirect ownership, referred to here, shall mean the holding company’s ownership, through another company or other companies that, in turn, are controlled by the same holding company.

The Concursos Law does not treat intercompany or affiliate claims differ­ently in terms of recovery or voting, except in the event of fraudulent claims as described in question 2.

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Creditors may request the acknowledgment or recognition of their credits as of the date of publication of the declaration of insolvency. Notwithstanding the foregoing, the conciliator shall provide the court with a provisional list of the debtor’s liabilities within 30 days following the last publication of the declaration of insolvency in the Federal Official Gazette.The court will provide creditors a short term for the approval of such a list, and shall issue the judgment for acknowledgment or recognition and preference of credits.

The plan of reorganisation or creditors’ agreement must be approved by the acknowledged creditors whose debts represent at least 51 per cent of the total amount acknowledged to the unsecured creditors, the secured creditors (willing to vote the creditors’ agreement) and creditors with a special privilege. The approved creditor’s agreement must be filed before the court, which shall grant an additional term to the creditors for objections. If a simple majority of unsecured creditors, or any number of creditors representing jointly at least 50 per cent of the total amount of acknowledged debt, oppose the agreement, the creditors’ agreement shall not be deemed to have been approved.

The Concursos Law, in principle, does not expressly recognise (nor does it permit the full participation of) bondholders under an indenture; however, there is nothing preventing the full participation of an individual bondholder, provided that it is able to evidence its claim against the debtor.

As opposed to other jurisdictions where the beneficial holders of bonds and other debt securities often participate directly in the bankruptcies of companies in which they invest, a Mexican company will solely recognise, in principle, the indenture trustee as the holder of the claim, which prevents beneficial bond­holders to exercise their right to accept or reject the creditors’ agreement. In Mexico, if not properly advised, the beneficial bondholders might face dif­ficulties in exercising the rights that they are afforded abroad (even though the beneficial holders are foreigners, and even though their bonds were issued abroad).

For example, in these foreign insolvency proceedings, the United States’ indirect holdings system for bonds may confront a foreign legal system in which only a creditor named on a note may sue to enforce that note. In Mexico, in principle, the name on the note constitutes the initial creditor taken into con­sideration,thus initially,the indenture trustee will generally be recognised as the sole creditor under a bond issuance.Therefore, foreign investors may encounter difficulty evidencing their support for a restructuring plan, but it will be pos­sible to obtain their recognition by evidencing their individual participations;in Mexico,the ‘sole creditor’ perspective may be redirected through the submission of proper documentary evidence (filing of documents demonstrating the link between the individual bondholder and the indenture trustee -DTC, DTC participant, nominee name, custodian, etc), in which case the Mexican court shall recognise the individual creditor standing of the bond holder.

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Inter-company claims are handled as any other credits and may be voted in a plan process; however, as stated above, any of the following transactions may be invalidated if entered during the hardening period (starting on the day which is 270 calendar days prior to the declaration of insolvency by a competent court):

• transactions entered into by a debtor prior to the declaration of insolvency with the intention of defrauding creditors (knowledge of the counterparty is not required if the act was gratuitous);
• gratuitous transactions;
• undervalue transactions;
• transactions not made at an arms-length basis;
• waivers of debts granted by a debtor;
• performance of obligations prior to their maturity date; and
• discounts made by a debtor.

The Concursos Law provides special rules for certain contracts including, among others, repurchase agreements, securities loans transactions, differential or futures contracts, derivative financial transactions and framework agreements.

Additionally, the Concursos Law provides special rules for the concurso pro­cedure of:

• companies that provide public services under concession titles;
• credit institutions; and
• auxiliary credit institutions.

Restructuring agreements voted and approved with inter-company claims have been challenged. However no judicial precedent has been issued in such regard.

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One of the effects of the declaration of insolvency consists in the suspension of any payments arising from obligations of debtor existing on the date of the declaration of insolvency, except for payments deemed necessary for debtor’s ordinary course of business, which must be notified to the court by debtor within 24 hours following their execution.

Pursuant to the Concursos Law, the declaratory of insolvency shall include the retroactivity date (namely, the date to which the effects of the concurso pro­cedure will be applied retroactively (hardening period)); a declaration that the conciliation stage has commenced; instructions to the IFECOM to appoint the conciliator; an order to the debtor to immediately provide to the conciliator the debtor’s books, records and all other documents, and allow the conciliator and interveners, if any, to carry out the activities necessary to accomplish their duties,and to suspend the payment of debts.As stated above,the court will grant an automatic stay preventing third parties from acting against the debtor out of the concurso procedure.The debtor might terminate contracts if this was expressly agreed in the corresponding agreement, but subject to special rules and limita­tions provided in the Concursos Law (there are special rules for termination of leases, purchase of goods not delivered, deposits, repurchase and derivative agreements,security loan transactions,differential or future contracts,lump sum construction contracts and insurance contracts). During the conciliation stage, the debtor may continue its ordinary course of business with a conciliator reviewing the debtor’s operations and accounting.In principle,the debtor keeps management of its business, unless the conciliator requests from the court the removal of the debtor in order to protect the pool of assets.With some excep­tions,any contractual stipulation,which due to the filing of a voluntary petition for concurso or the issuance of the declaration of insolvency sets modifications that worsen the contract terms for the debtor shall be deemed not included.

If the debtor retains management, the conciliator shall: supervise the accounting and all transactions performed by the debtor; decide if any existing agreements binding on the debtor must be terminated; approve, with the prior opinion of the interveners appointed by the creditors, new credits in favour of the debtor,the creation of new security interests,the substitution of any existing security interests or the sale of any assets not involved in the ordinary course of business of the debtor; and call the board or any other decision-making com­mittee of the debtor to discuss and approve any kind of matters relating to the debtor’s business.

In the event the debtor is removed from the management of its business, the conciliator will become the administrator and will be granted full authority to conduct the business, on the understanding that the authorities of the debtor and its decision-making committees shall cease.The conciliator may also request the court to suspend the debtor’s operations if the pool of assets or an increase in the debtor’s liabilities is at risk.The court may adopt measures to safeguard assets of the debtor for the benefit of the creditors, and assure that no actions are taken outside the ordinary course of business.

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In principle, secured creditors must be paid in full according to the terms of their credits or agree to a lesser treatment; otherwise, secured creditors retain their pre-concurso liens and other rights. Upon the declaration of insolvency by the competent court, a stay is automatically imposed over enforcement of the unsecured creditors’ rights, which stay remains in full force throughout the conciliation stage.

Unsecured debts cease to accrue interest, while secured debts may accrue interest up to the amount of the collateral. Unsecured debts are indexed as investment units (UDIS – a quasi-currency established by the Mexican govern­ment for constant reference,equal to pesos grossed up by accumulated inflation). In the event the unsecured debt is denominated in a foreign currency, it will be converted into pesos and then indexed as UDIS.This might cause an imminent currency risks to creditors.

The declaration of insolvency will result in the suspension of the enforce­ment of legal actions intending to attach debtor’s assets, excepting those aimed at the collection of wages and other monetary benefits of debtor’s employees accrued during the two years prior to the declaration of insolvency.

Equity holders are not treated in concurso procedure and.Therefore,they may not recover prior to creditors being paid in full.

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The concurso procedure has no direct effects over a company’s current or retired employees, except with respect to treatment of labour claims against the debtor, as described in answer to question 12.

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In principle,directors or officers of companies in insolvency proceedings do not suffer any direct consequence, unless special measures were ordered to remove management from the company, as stated above, or fraudulent acts were com­mitted by them.

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In order for a creditor to file a claim,it must first submit a petition for the recog­nition of its credit (proof of claim). Once such claim is admitted, the court will call upon the conciliator or the examiner,as the case may be,and the debtor shall submit a response indicating their views on the claim. One permitted response is to request the court to request additional evidence of the validity, legality or amount of the claim.The court will then issue a judgment and divide credits into three categories: those recognised; those excluded; or those still pending upon their status is sufficiently clarified.

The Concursos Law classifies creditors into five categories:

• singularly privileged creditors;
• secured creditors (with mortgages and pledges);
• creditors with special privilege;
• common creditors in commercial transactions; and
• common creditors in other transactions.

Satisfaction of credits must be made as follows: secured creditors (with mort­gages or pledges) are paid first with proceeds from the sale of mortgaged or pledged items. If the items have a value or a price in excess of the debt, any such excess or remaining value is directed to cover subsequent debt payments to other creditors. If the price does not cover the debt, mortgage or pledge, the corresponding creditor may participate, pro-rata, as a common or unsecured creditor, to collect the remaining amount.This procedure is the same for other creditors with preemptive rights. Common commercial creditors collect pro­rata from the balance after the initial sale of assets to satisfy all prior debts.The balance thereof will then be apportioned among non-commercial creditors.

Labour credits and tax credits shall be paid after payment of the singularly privileged credits and the secured creditors, but prior to the payment of credits with special privilege or unsecured creditors.

In addition to the aforementioned categories,there are other types of credits that have priority over all other categories: pending wages for the last two work­ing years, prior to the date of declaration of insolvency; and expenses incurred in the administration of the secured assets.

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Local creditors and foreign creditors shall be always treated equally under Mexi­can Law, without any different treatment. Moreover the Mexican Constitution contains the general principle of law that everyone must be treated equally.

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During the conciliation stage, the debtor must work with its creditors to reach a creditors’ agreement or rorganisation plan. If a creditors’ agreement is reached and approved by the court, the concurso procedure ends. An express procedure for ‘cramming down’ creditors that does not approve proposals approved within these procedures,as permitted under other foreign jurisdictions,is not expressly contemplated by the Concursos Law. However, it is possible to reach a plan of reorganisation without the vote of all the creditors if certain mandatory condi­tions and percentages of votes are met, as provided for under the Concursos Law.

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Prior to the vote of the creditors’ agreement, the conciliator will need to con­firm the holdings and claims, particularly in the case of bondholders. Creditors might trade their claims during the course of reorganisation through a notice of such assignment to the conciliator. In principle, the assignee will have the rights of the assignor.

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As mentioned above, the Concursos Law provides special rules for the concurso procedure of:

• companies that provide public services under concession titles;
• credit institutions; and
• auxiliary credit institutions.

Within this type of concurso procedure the Mexican government plays an active role. For example, under the Concursos Law, the government agency that granted the concession proposes to the judge everything pertaining to the appointment, removal and replacement of the conciliator and the receiver that participate in the special concurso procedure and to the monitoring of the activi­ties carried out by said conciliator and receiver. Additionally, the government may, once the concurso procedure has been declared, propose to the judge the removal of the party in charge of the management of the company providing public services, and the appointment of a person to assume such management, whenever it may deem it necessary for the continuity and safety of the provision of the public service. Moreover, any restructuring agreement proposed must be notified to the government. Likewise, in practice, depending on the magnitude and relevance of the restructuring procedure, the government might have a certain participation in the resolution of the restructuring issues, particularly depending on regulation of industry.

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Immediately after the insolvency petition is accepted by the court, the court shall request the appointment of the examiner to the IFECOM. Once the examiner has been appointed and he or she has accepted such appointment, the examiner must report to the court, within the following 15 to 30 days, whether the debtor is in fact insolvent (according to the requirements provided for under the Concursos Law) and,thus,if it fulfills one or more of the require­ments contemplated by the Concursos Law to be declared in concurso. As stated above,pursuant to the Concursos Law,the declaratory of insolvency will include instructions to the IFECOM to appoint the conciliator; an order for the debtor to immediately provide to the conciliator debtor’s books, records and all other necessary documents, and allow the conciliator and interveners (appointed by creditors), if any, to carry out the activities necessary to accomplish their duties, and to suspend the payment of debts. In the stage of bankruptcy, a receiver will be appointed.

Pursuant to the Concursos Law an intervener may represent the interests of creditors in the concurso procedure and may be assigned the responsibility of overseeing actions of the conciliator and of the receiver, as well as the actions of the debtor in relation with the operation of its business.

Any creditor or group of creditors representing, at least, 10 per cent of the value of the credits owed by the debtor, pursuant to the provisional list of credits,has the right to request the court to appoint an intervener in the concurso procedure.The fees of the intervener shall be paid by the creditor(s) requesting such an appointment.The intervener does not have to be a creditor.Any credi­tor or group of creditors may file before the court requests for the appointment of an intervener.The intervener may be substituted or removed by those who requested his or her appointment. Interveners have certain authorities provided for under the Interventor Law. On a case-by-case basis, the creditors’ commit­tees play an important role in the process. Competing reorganisation plans are not regulated under the Concursos Law, but is is possible to present various proposals for the analysis of the conciliator.

Creditors can form ad-hoc committees aimed to have more leverage and negotiation power in relation to the debtor under concurso procedure.

In Mexico, we do not have bankruptcy courts specialising only in concursos. Federal district courts are competent to hear these insolvency processes in addi­tion to other matters.

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Yes,debtors may obtain financing while in insolvency,subject to the conciliator’s approval and by following certain rules provided under the Concursos Law.

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During the conciliation stage, the debtor must work with its creditors to reach a creditors’agreement. As stated above,if a creditors’agreement is reached and approved by the court, the concurso procedure ends.

In the event the conciliation stage terminates without the debtor having reached a creditors’agreement with its creditors,whose claims have been recog­nised in the proceeding, then the court shall declare the bankruptcy of debtor. However, the court may declare the bankruptcy prior to the moment that the debtor or the conciliator proves to the court that a creditors’ agreement is not feasible. Once in bankruptcy, the administration of the debtor’s assets is turned over to the receiver, who may elect to continue or discontinue the debtor’s business pending final liquidation. During the bankruptcy stage, as in the con­ciliation stage, the court may adopt measures seeking to safeguard the debtor’s assets for the benefit of the creditors and ensure that no actions are taken outside the ordinary course of business.The bankruptcy stage ends with the liquidation of the debtor’s assets for the benefit of its creditors, in accordance with their respective rankings and privileges.This stage does not have a specific term.The receiver must provide a status report to the court every two months.Liquidation continues until no assets are left,and may be re-started by any creditor each time the debtor receives new assets.

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The first stage of a concurso procedure is the conciliation stage, which is pur­ported to encourage a binding reorganisation or plan agreement among the debtor and its creditors and, thus, avoid the debtor’s bankruptcy or liquidation. The conciliation stage may not last more than 185 calendar days unless extended for up to two additional consecutive periods of 90 calendar days each; provided, however, that in no event shall the conciliation stage last for more than 365 calendar days.

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On 2 October 2007 the Mexican Congress issued a decree pursuant to which the Concursos Law was amended.This decree was published on 27 December 2007 in the Official Gazette of the Federation, and became effective as of 28 December 2007.

Among other amendments to the Concursos Law,a new chapter governing a procedure of ‘pre-packaged plan’ was included, which grants creditors rights and actions to have debtors comply with a specific financing restructure. Now, it is, in fact, feasible for the debtor and its creditors to agree in advance on a restructuring plan out of the concurso procedure, and subsequently proceed to file it through a voluntary insolvency procedure, a concurso, but within a sum­mary procedure. In such a case, there will not be controversy or disagreement with respect to the recognition, graduation and degree of the credits, which means that the procedure will be simplified by eliminating the inspection or visita stage.

A concurso procedure filing with a pre-packaged plan should be admitted by the competent judge, provided that:

• it complies with the insolvent requirements under the Concursos Law for a debtor to be declared insolvent;
• it is duly executed by the debtor and the creditors representing, at least, 40 per cent of debtor’s credits;
• the debtor represents under oath that;
• it is in a condition where it can no longer perform its payment obliga­tions; or
• it is imminently, in a period no longer than 30 days, in a condition where it can no longer perform its payments obligations,with an expla­nation of the causes of such insolvency; and
• it contains a restructuring plan of the debtor’s credits signed by the credi­tors that represent, at least, 40 per cent of the debtor’s credits or claims. If so admitted by the court, then the concurso procedure will commence and the creditor’s agreement might be approved if it complies with all standard and applicable rules of the concurso procedure described in question 6.

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As of the date of the declaration of insolvency, debtor may not set off pre-dec­laration debt against amounts owed to debtor.In the conciliation stage,creditors are given the opportunity to prove their claims and become acknowledged or recognised creditors.

Set-off is permitted under the law;however,it is advisable to obtain a court order modifying the automatic stay.

In principle, creditors cannot recover the expense of participating in the process.

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Yes; however, certain tax rules applicable to companies under reorganisation will apply.

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According to the Concursos Law, a foreign proceeding is defined as a col­lective or universal proceeding, whether judicial or administrative, including provisional proceedings, followed in a foreign state pursuant to a law governing bankruptcy, liquidation, or insolvency matters of the debtor; as a result of these proceedings, the property and businesses of the merchant may result subject to the control or supervision of a foreign court, for purposes of reorganisation or liquidation.

The Concursos Law recognises foreign proceedings in bankruptcy, insol­vency and reorganisation matters, and it recognises foreign representatives appointed through a recognition request.In this regard,the Concursos Law rec­ognises foreign proceedings when legally held in a foreign country in accord­ance with bankruptcy or insolvency laws applicable to the debtor due to its activities, the location of assets or other similar causes.

Under the Concursos Law a ‘foreign representative’ is the individual or entity that:

• has been empowered under a foreign bankruptcy procedure to administrate the reorganisation or settlement of the business; or
• has been designated as the representative of such foreign bankruptcy procedure.

The Concursos Law states that any representative of a foreign bankruptcy pro­cedure may request the presiding Mexican court for the recognition of the foreign bankruptcy procedure during a concurso procedure.

Pursuant to the Concursos Law, any foreign representative is entitled to appear directly before the presiding Mexican court in all procedures brought under the Concursos Law. Such a filing should be made by means of an inter­locutory procedure before the civil federal court knowing of the concurso prin­cipal proceeding. The interlocutory recognition procedures shall follow the following stages:

• delivery of a copy of the recognition request to the creditors who have appeared at the procedure abroad, so that within the term of five days, they declare that which is in their best interest.The foreign representative’s allegations will be taken as certain in the case of the creditors who fail to deliver their reply during the term specified for such effects;
• evidence will be offered in the interlocutory claim and in the interlocutory reply;
• once the term of the five days has elapsed, the Mexican court will summon the parties to a hearing of proofs and pleas that will be held within the 10

  following days;

• when offering expert or testimonial tests, at the time of offering the test, one copy of the interrogations shall be exhibited to each one of the parties so that they can formulate verbal or written questions when verifying at the hearing.Three witnesses are allowed for each fact.The Mexican court may designate an expert or those that it considers necessary, in order to render joint or separate opinions with the parties’experts.With the purpose that the parties produce their proofs at the hearing, the authorities or civil employees have the obligation to dispatch them promptly; and
• once the hearing is concluded and within the term of three days and with­out summons, the Mexican court will pronounce the interlocutory judg­ment relative to the recognition of a foreign procedure.

In terms of the Concursos Law, there are two ways under which a Mexican court can recognise a foreign bankruptcy procedure:

• as a principal procedure, when the foreign procedure is brought to a court with jurisdiction in the place where the business has its main place of inter­ests; and
• as a non-principal procedure, when the foreign procedure is brought to a court with jurisdiction in the place where the business has an establishment.

The main difference between the recognition of a foreign bankruptcy procedure as a principal procedure or as a non-principal procedure is in the direct effect of such a recognition over the business’s assets located in Mexico.

Pursuant to the Concursos Law,if a foreign bankruptcy procedure is recog­nised as a principal procedure; any and all foreclosure over the business’s assets, and any and all rights to transfer or grant any lien over business’ assets, shall be suspended.

A Mexican court shall recognise the foreign bankruptcy procedure as a non-principal procedure if the debtor has a permanent place of business outside Mexican territory, but not as a principal foreign bankruptcy procedure.

The recognition aspects of a non-principal foreign bankruptcy procedure are as follows:

• the granting of appropriate injunctions that concede to a Mexican court to protect the business’s assets or the creditors’ interests, who may request through the foreign representative,that the receiver,conciliator or examiner, as the case may be:
• suspends all execution injunctions against the business assets;
• suspends the rights exercised to transmit or to mortgage the business assets, as well as to dispose of such assets in any other way;
• orders the delivery of evidence or the provision of information regarding the business’s assets, activities, rights, or liabilities of the business;
• entrusts the foreign representative, the receiver, conciliator or examiner, with the administration or foreclosure of all or part of the business’ assets located in Mexican territory;
• extends every granted injunction granted by the foreign recognition pro­cedure request; and
• grants any other injunction that under Mexican law may be grantable to a receiver, conciliator or examiner.

Once a foreign procedure is recognised, the foreign representative will be able to ask the receiver, conciliator or examiner, to entrust, through a foreign repre­sentative, the distribution of all the business’ assets located in Mexican territory. The Mexican court must make sure that the creditors’ interests domiciled in Mexico are sufficiently protected so that it may decree the injunctions briefed above.

The foreign representative has the power and capacity to ask that the exam­iner, the conciliator or the receiver, initiates the recovery of assets actions for the recovery of assets that belong to the entirety of a property, and of nullity acts concerning the defrauding of creditors.The authorisation of the foreign representative to take part in the procedures promoted against the businessman that are in the proceedings and that have a patrimonial content can take place.

The injunctions that may arise from the recognition of a foreign bankruptcy procedure under a concurso procedure depend on the procedural phase,namely,as from the filing of the recognition request throughout the corresponding resolu­tion, and as from the issuance of the recognition resolution.

Therefore,and provided that the abovementioned is followed,if a company organised under the laws of Mexico entered into extraterritorial bankruptcy or insolvency proceedings those proceedings would be recognised within Mexican jurisdiction.

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In general,there are more cases of debtor companies reaching the reorganisation plan stage and successfully emerging from bankruptcy,as opposed to liquidation. There are some cases, however, in which the debtor company directly files a voluntary petition for liquidation. Failure to reach a restructuring plan might be the main cause for a company ending in liquidation, as well as the lack of possibility for the company to continue in business.

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Pursuant to the Concursos Law any of the following transactions may be invali­dated if entered during the period starting on the day that is 270 calendar days before the declaration of insolvency by a competent court:

• transactions made by a debtor, before the declaration of insolvency, with the intention to defraud creditors (knowledge of the counterparty is not required if the act was gratuitous);
• gratuitous transactions;
• transactions at an undervalue;
• transactions not made at an arm’s-length basis;
• waivers of debts made by a debtor;
• payments of obligations before their maturity date; and
• discounts made by a debtor.

Additionally, there is a presumption that the following transactions are made in fraud of creditors, unless the debtor proves good faith:

• to create new security interests or to increase any existing security interests if the original obligation did not contemplate the foregoing;
• payments made with assets other than money if such a form of payment was not originally agreed; and
• transactions made by a debtor with related persons, such as its spouse, rela­tives,members of the board or decision-making persons within the business, or with companies where at least 51 per cent of their capital stock is owned or voted by any of the foregoing persons.

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The Concursos Law and the Securities Law do not provide special treatment for a debtor company’s debt securities.

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Although there are no common techniques that debtors use to manipulate or control insolvency proceedings, a debtor might follow strategies to minimise potential holdouts.

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The IFECOM is constantly analysing the Concursos Law to determine potential amendments. However, there is currently no formal final draft to amend the law, but only projects under discussion by the Congress to include certain amendments on procedural and other matters. In our opinion, it is strongly advisable to amend the Concursos Law regarding:

• the participation of bondholders under an indenture;
• the creditor’s rights during the preliminary stages and to oppose acts of the examiner or visitador, as well as special measures or injunctions requested by the debtor;
• unsecured credits contracted in foreign currency;
• treatment of intercompany accounts; and
• required specialisation on bankruptcy courts.

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