Since 2000, and as of 31 May 2022, a total of 872 cases have been initiated in Mexico. The jurisdictions that have received the most cases have been Mexico City, Jalisco, Nuevo Leon and the State of Mexico.

According to the latest reports prepared by the Federal Institute of Insolvency Specialists (Instituto Federal de Especialistas en Concursos Mercantiles, or IFECOM) there were 26 concurso proceedings initiated during the first semester of 2022, out of which 15 were voluntary proceedings and 11 involuntary proceedings. During the first semester of 2022 an increase of 30% in concurso proceedings was registered compared to the prior semester. 

The General Agreement 4/2022 of the Plenary of the Federal Judiciary Council, published in the Official Gazette of the Federation on 4 March 2022, announced that the creation of the first two courts specialised in insolvency and commercial bankruptcy matters are to be designated as First and Second District Courts in Commercial Bankruptcy Matters, located in Mexico City.

These two courts will receive and process insolvency proceedings filed by companies or creditors. The courts will likewise hear first instance insolvency proceedings and indirect amparo lawsuits filed against resolutions issued by other district judges in insolvency matters. 

The Effect of COVID-19

The current economic, political and social scenarios and, mostly, the consequences related to the global COVID-19 pandemic are having repercussions on many companies and industries that require that companies look for alternative sources of income and liquidity, corporate reorganisations and negotiation with their creditors, both out of court and in court. 

In Mexico, regardless of their size, and whether in the formal or informal sector, most companies and industries have been impacted by COVID-19. Many companies are being affected, and demand and supply chains have seriously suffered due to the current global crisis. 

A decreasing income and, in many cases, the need to continue incurring fixed costs, is making businesses struggle financially and to default their credit payments and commercial obligations. It is unquestionable that the recent worldwide health emergency, and its serious effects on the Mexican economy, are and will continue forcing businesses in various sectors and industries to evaluate their financial liquidity and define plans to avoid insolvency or even bankruptcy.

The Concursos Law provides for a single insolvency proceeding known as concurso mercantil (conciliation/restructuring or insolvency/bankruptcy procedure). The laws applicable to restructurings and insolvency proceedings are mainly:

• the Concursos Law;
• the General Law on Business Organisations;
• the Law of Credit Institutions; and 
• the Law of Insurance and Bonds Institutions. 

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

A debtor may consider a corporate reorganisation and out-of-court restructuring to stabilise business operations before deciding for an in-court insolvency or liquidation proceeding of any business. Under the Concursos Law, the substantive test for a debtor to be declared insolvent is that it has generally failed to perform its obligations. For the 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 and if the obligations of the debtor which have been due for at least 30 days represent, at least, 35% of all the debtor’s obligations on the date on which the demand or insolvency petition is filed (depending on whether it was an involuntary or voluntary petition) or the debtor does not have any of the following assets in an amount sufficient to perform at least 80% 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.

Regarding liabilities, penalties, or other implications for failing to comply with an insolvency proceeding, the most evident and immediate implication for a company when not commencing a timely insolvency proceeding is that its contracts will be terminated due to defaults and breaches and it may also fail in continuing to be a qualified bidder, if that is the case.

Creditors will likely begin to exercise remedies and actions such as the enforcement of guaranties. 

Directors of a company engaging in any malicious or illegal 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, the directors may not be liable for continuing to operate a company under financial distress. 

If the debtor has generally defaulted on its payment obligations and such situation is evidenced, they will be placed in insolvency. A debtor will be deemed to have generally defaulted when obligations are past-due to two or more different creditors and when one of the following conditions has been met:

• of the defaulted obligations, those that are in arrears by at least 30 days represent 35% or more of all the debtor’s obligations on the date of filing; or 
• the debtor does not have sufficient liquidity to satisfy at least 80% of its past-due liabilities. 

In an involuntary filing, the petitioner – ie, any creditor, district attorney, judge, or tax authority in their capacity as creditors – may file insolvency claims if the debtor meets the substantial test and shall evidence that conditions listed above are met.

See 2.4 Commencing Involuntary Proceedings.

Special provisions govern the reorganisation of public service companies, credit institutions and bonded warehouses. These procedures shall be subject to the Concursos Law and to the specific applicable laws, regulations, and concession titles, as the case may be. The agencies responsible for overseeing such public service companies have the right to commence a case and direct the IFECOM to appoint the specialists ordinarily appointed at its discretion.

Many restructuring proceedings in Mexico, beginning as informal and/or consensual efforts and ending in a judicial proceeding, would depend on the various circumstances around the negotiations and status of the debtor. The possibility of aligning interests and positions of different creditors is essential, as well as the ability to reach a reorganisation agreement. It is likely that, if sophisticated creditors (banks, funds) are involved – which occurs in major restructurings – they will try to be co-operative to reach a reorganisation agreement that may serve to restructure the debtor out-of-court or prepare it for pre-pack, in-court proceedings (a more expeditious procedure than regular proceedings). 

Laws in Mexico do not require mandatory consensual restructuring negotiations or reorganisation agreements before commencement of a formal statutory process.

Consensual restructurings begin with informal meetings among all or a portion of the debtor's creditors, out of which some will take the lead creating an ad hoc committee to represent a specific group. Standstills and waivers are commonly used and granted to allow the debtor to continue operating and avoid an imminent in-court proceeding. The information and documentation of the debtor provided to creditors and other related parties would usually include financial and accounting information, as well as corporate documentation and relevant contracts of the company. The scope of the material or information to be disclosed will be determined by the confidentiality agreements executed. 

Financing may be granted to the debtor outside of a statutory or formal process. Likewise, liens may be granted, but the debtor has to be very cautious in their actions to make sure that such financing is granted for the purpose of preserving the ordinary course of business and shall be aware of the elements of fraudulent transfer in order to avoid the potential risks associated therewith. 

Any debtor-in-possession (DIP) loan will be repaid before any other loan, pursuant to the order of preference rules provided in the Concursos Law. This special or urgent financing is deemed as a claim against the estate of the debtor and would have preference over common creditors, aiming to preserve the ordinary course of business and intending to provide the required liquidity during the procedure. However, DIP financing would not have preference over already secured creditors; the rules include possible loans with priority liens but without affecting existing priority secured creditors.

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.

Fraudulent operations and preferential treatment granted to specific creditors or stakeholders are prohibited, to the extent that such operations may be declared as void if entered during the look-back period.

Secured creditors cannot be subject to cram-down plans under the Concursos Law. However, when an in-court restructuring agreement is reached by more than 50% in a concurso proceeding the conditions of unsecured creditors are uniformed.

The most common security for immovable property is the mortgage, which is governed by state law. This security requires to be documented in a notarial instrument and shall comply with the publicity principle by its registration so that it may be opposable against third parties. Depending on the asset granted as collateral, there are some cases where additional registration is required (with the Federal Telecommunication Registry, Maritime Registry, etc). 

The most common securities for movable or intangible assets are the guaranty trusts and the floating lien pledges, governed by federal law. The Mexican laws provide that all rights and movable property can be pledged under a floating lien pledge – except for those rights that are strictly personal to its holder – which is the case of equity quotas (stock pledge). 

There are various legal actions available to creditors prior to a formal insolvency proceeding to recover on a defaulted loan or obligation of a debtor. The action proceedings (foreclosure, attachment, temporary restraining orders, preliminary discovery or pre-filing motions, etc) would 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.

Following the concurso judgment, the court (based on its own opinion or the examiner’s recommendation) may issue restriction orders on the debtor’s business operations, including a prohibition to make any due payments of existing obligations or disposing of any property.

Creditors are entitled to challenge resolutions issued within a concurso proceeding. Although the proceeding will not be suspended, such actions may certainly disrupt or delay the process. 

Unsecured debts with security rights cease to accrue interest until the date of concurso judgment, while secured debts with said security rights continue to accrue ordinary interest up to the amount of the collateral.

Likewise, and unlike unsecured debts, secured debts shall be kept in the currency they are denominated.

Secured creditors (with security rights) are paid first with the proceeds from the sale of mortgaged or pledged items. If the price does not cover the debt, a preferred or privileged creditor may participate, pro rata, regardless of dates, as a common creditor, to collect the remaining amount. General labour credits and tax credits shall be paid after payment of the singularly privileged credits and the secured creditors.

The existing Concursos Law classifies creditors into the following categories or classes (and with the following rankings or preferences):

• first priority claims against the “estate” of the debtor (créditos contra la masa), which includes:
1. special labour claims under Section XXIII, Chapter A, of Article 123 of the Constitution, and applicable regulations, by increasing the wages to the corresponding two years prior to the concurso judgment (formal commencement of the concurso procedure of the debtor);
2. debt incurred for the management of the estate of the debtor with the authorisation of the conciliator or the receiver, as the case may be, or those contracted directly by the conciliator;
3. debt incurred to cover ordinary expenses for the safety and protection of the estate assets, their repairs, conservation and management; and
• debt incurred from the judicial or extra-judicial acts for the benefit of the estate; provided, however, that under Article 225 of the Concursos Law against the secured creditors, with mortgages or pledges, or creditors with special privilege, the preference or privilege of the claims against the estate would not apply, except for the following claims: the special labour claims referred in subsection (a) above, the litigation expenses incurred for the defence or recovery of the goods or assets subject to the security interest of the secured claims or over those assets related to the "special privilege", and the expenses necessary for the repair, conservation and sale of those assets;
• singularly privileged creditors;
• secured creditors (with mortgages and pledges over assets of the debtor) and tax claims secured with a security in rem (up to the value of such guaranty) 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);
• other tax claims and labour claims;
• creditors with a special privilege (ie, those with a guaranty trust);
• common or unsecured creditors (trade creditors would usually rank as unsecured creditors and there are no particular mechanisms to secure their unpaid debts by statute); and
• subordinated creditors (intercompany claims).

During the conciliation stage, the debtor must work with its creditors to reach a creditors’ agreement or reorganisation agreement. If a creditors’ reorganisation agreement is reached and approved by the court, the concurso procedure ends. 

Express Procedure

As explained above, an express procedure for cramming down creditors that do not agree to the 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 an agreement 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.

To be effective, the reorganisation agreement shall be subscribed by the debtor and the recognised or acknowledged creditors representing over 50% of the sum of:

• the amount recognised to the totality of the recognised or acknowledged unsecured and subordinated creditors; and
• the amount recognised to these recognised or acknowledged secured creditors or with special privilege subscribing the reorganisation agreement.

Insolvency

One of the consequences of the insolvency declaration is the order to suspend, during the conciliation stage, any writ of attachment or execution against the property and rights of the company.

It generally takes one to two-and-a-half years to enforce an unsecured claim but, depending on the circumstances and the proceeding, the enforcement might take additional time to get resolved and executed.

Trade creditors generally rank as unsecured creditors and there are no particular mechanisms to secure their unpaid debts by statue.

There are various legal actions available to creditors (ie, restraining orders, attachments, etc) prior to a formal insolvency proceeding, to recover on a defaulted loan or obligation of a debtor. The form of the action proceedings will vary depending on the type of agreement, source of the action, etc.

See 5.3 Rights and Remedies for Unsecured Creditors. 

See 5.1 Differing Rights and Priorities.

Conciliation

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 (restructuring plan or creditors’ agreement), and therefore avoid the debtor’s bankruptcy. The conciliator, a person who acts as an intermediary/mediator between the company and its creditors, must direct this attempt. The objective of the conciliation stage is to preserve the operation of the debtor’s business while reaching a reorganisation arrangement between the debtor and its creditors.

The debtor, any creditor, the district attorney, a judge and tax authorities in their capacity as creditors, may file a concurso claim. With the petition filed by creditors (involuntary) or the insolvency petition filed by the company (voluntary), a guaranty or bond must be posted to guarantee the examiner’s fee payment. 

The court will order the petitioner to pay attorney’s fees and expenses (gastos y costas, the amount is regulated by statue), including the examiner’s fees, if a judgment is issued declaring no insolvency of the company. Immediately after the insolvency petition is filed and approved by the court, the court must file a petition with the IFECOM for the appointment of an examiner. Once the examiner has been appointed, they shall, within the following 15 to 30 days, report to the court if the debtor is actually insolvent (according to the substantial test) and thus falls into one or more of the categories established in the Concursos Law to be declared in concurso. The debtor and creditors (in the event that the insolvency petition is filed by creditors) may challenge the examiner’s report.

The court must resolve on the solvency or insolvency of the debtor within the 15 days following the date on which the examiner’s report was received. If the court resolves that the debtor is solvent, the concurso procedure ends. If the court resolves that the debtor is actually insolvent, it shall issue the corresponding declaration or judgment of insolvency. 

Declaration of insolvency

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 based on the debtor’s accounting records. This preliminary list is just the beginning of the proceeding for recognition, ranking and determination of the priority of creditors’ claims. 

Pursuant to the Concursos Law, the declaration of insolvency shall include: the look-back period; the confirmation that the conciliation stage has begun; an instruction for the IFECOM to appoint a professional conciliator; an order for the debtor to immediately provide the conciliator with 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.

During the conciliation stage the debtor shall negotiate with its creditors to reach a creditors’ agreement or reorganisation agreement. If a creditors’ agreement is reached and approved by the court within the term provided by law, the concurso procedure ends. 

The reorganisation agreement

To be effective, the reorganisation agreement shall be subscribed by the debtor and the recognised or acknowledged creditors representing over 50% of the sum of:

• the amount recognised to the totality of the recognised or acknowledged unsecured and subordinated creditors; and
• the amount recognised to these recognised or acknowledged secured creditors or with special privilege subscribing the reorganisation agreement.

Should the subordinated (intercompany) creditors represent more than 25% of all the acknowledged loans, the majority of the remaining common creditors will vote on the restructuring agreement without considering the subordinated creditors.

Supervision and conclusion

The concurso procedure is supervised by the IFECOM and the conciliator would supervise and control the debtor's affairs. Pursuant to the Concursos Law an intervener may represent the interests of creditors in the concurso procedure and oversee the actions of the conciliator or the receiver, as well as the actions of the debtor with respect to the operation of its business. 

Any creditor or group of creditors representing at least 10% 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. The creditors’ committees have an important role in the process. Creditors can create ad hoc committees to align their interests and have more negotiation leverage. 

Any concurso procedure is public, strengthening the principle of publicity to concurso procedures, and allowing any person to request access, at the petitioners cost, to the documents contained in the file or docket, respecting any reserved or confidential information, in accordance with the applicable laws.

The conciliation stage shall 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.

The conciliation stage would conclude and the debtor would be declared bankrupt if: 

• the conciliation stage ends without the parties reaching a reorganisation agreement;
• the debtor fails to comply with the creditors’ reorganisation agreement; or 
• if the debtor or conciliator requests the bankruptcy being approved by the court.

The court, based on its own opinion or the examiner’s recommendation, is entitled to issue pre-emptive measures on the debtor’s business operations, including a prohibition to make any due payments of existing obligations or disposing of any property.

Operation and Management

The debtor may continue to operate its business and it usually keeps management of it, unless the conciliator requests from the court the removal of the debtor in order to protect the pool of assets. 

The debtor may retain management and, if that is the case, 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 to discuss and approve 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 with 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 and the conciliator are authorised to 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.

Financing

Subject to the judge and conciliator’s approval, debtors may obtain financing while in insolvency, to preserve the ordinary course of business and to provide the required liquidity during the procedure and by following certain rules provided under the Concursos Law. Any debtor-in-possession (DIP) loan will be repaid before any other loan, pursuant to the order of preference rules provided in the Concursos Law. This special or urgent financing is deemed as a claim against the estate of the debtor and has preference over common creditors, aiming to preserve the ordinary course of business by providing the required liquidity during the procedure. However, unlike other jurisdictions, in Mexico the DIP financing does not have preference over already secured creditors. The new rules include possible loans with priority liens but without affecting existing priority secured creditors.

In the conciliation stage, creditors are given the opportunity to prove their claims and become acknowledged or recognised creditors. 

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 debtor to submit a response indicating their views of the claim. The court will then issue a judgment (judgment on recognition, grading and ranking of claims) and divide credits into three main categories:

• those recognised;
• those excluded; or
• those still pending until their status is sufficiently clarified.

Common representatives may file credit recognition claims on behalf of a group of creditors. Recognised creditors will have the ability to actively participate in the proceeding.

A procedure for cramming down creditors is not expressly contemplated by the Concursos Law.

In terms of Article 144 of the Concursos Law, if a creditor transfers, through any means, the ownership of its claims, it shall – as well as the acquirer or purchaser – notify of such transfer and its characteristics to the conciliator through the formats that are provided by the IFECOM for such purpose. 

The conciliator shall make public the notification, in accordance with the general rules issued for such purpose by the IFECOM, that provide that in order to comply with Article 144 of the Concursos Law, the conciliator or the receiver, as the case may be, shall notify the debtor, creditors, the concurso judge and, if applicable, the appeal court, that it received a notification of a claim transfer.

Debtors which are part of the same corporate group may simultaneously request the joint judicial concurso declaration, without need of estate consolidation. For the joint concurso procedure, it is enough that one of the parties of the group is under the assumptions of insolvency under the Concursos Law, and that such condition places one or more of the parties forming the corporate group under the same situation.

Creditors of debtors that are part of a group that meet the assumptions described above may claim the joint judicial concurso procedure. The joint judicial concurso procedure can be cumulative with other concurso procedures. 

A debtor may substitute any existing security interests or sell any assets not involved in the ordinary course of business of the debtor under the supervision and authorisation of the conciliator/receiver. The conciliator/receiver shall inform the judge of any new loans or the sale of property. Creditors and the attorney general may object.

It is important to bear in mind that following the concurso judgment and even in the preliminary stage of visita, the court (based on its own opinion or the examiner’s recommendation) may issue restriction orders on the debtor’s business operations, including a prohibition to make any due payments of existing obligations or disposing of any property.

During insolvency proceedings, the sale of assets to protect the ongoing concern of the debtor shall be subject to the conciliator or intervenor's approval. The purchaser will acquire good title as long as the sale is conducted in the same terms as a public auction. The receiver shall follow the rules of publicity and operability to guarantee the transparency of a sale procedure.

Credit bids must follow the rules of public auction under the Concursos Law in order to maximise the value of the sale. There is no express provision for the creditors' bid for the assets to act as a stalking horse in the sale procedure.

During insolvency proceedings, the sale of assets to protect the ongoing concern of the debtor shall be subject to the conciliator or intervenor's approval. A valid and approved restructuring agreement by the conciliator is required for creditors' recovery.

The law allows the debtor to incur unsecured or secured indebtedness in the ordinary course of business. If such credit is approved by the court or conciliator, as the case may be, it provides a priority claim or a lien to a lender on the debtor’s unencumbered assets or a second priority claim on encumbered assets.

DIP loans have a priority claim in the insolvency, except for certain labour, tax, and secured claims. Assets encumbered by pre-existing secured creditors' liens cannot secure new money, unless authorised by the secured creditors affected. 

As previously described, in the conciliation stage, creditors are given the opportunity to prove their claims and become acknowledged or recognised creditors. 

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 a claim is admitted, the court will call upon the debtor to submit a response indicating their views of the claim. One permitted response is to request the court to require additional evidence of the validity, legality or amount of the claim. The court will then issue a judgment on recognition, grading and ranking of claims.

A restructuring agreement needs to be passed by the debtor, its creditors and filed before the judge for its approval.

The general rule is that contracts must be honoured by the debtor, unless the conciliator rejects the contract. Even if the debtor or its management remains in control of its business, the conciliator is entitled to accept or reject executory contracts, incur new indebtedness, substitute collateral and sell assets outside the regular course of business.

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 as not included.

A non-debtor party to a contract may request the conciliator to confirm if it will reject the contract. If the conciliator responds that it will not, then the debtor must honour the contract. If the conciliator states that it will reject the contract, or fails to respond, the non-debtor party to the contract may terminate it by giving notice to the conciliator. 

Without a valid and approved restructuring agreement by the conciliator, creditors cannot offset debts owed to them by the debtor in an insolvency proceeding. Moreover, creditors may not recover expenses of participating in the process unless agreed with the company (ie, lock-up agreements) and approved by the conciliator. Only the following may be subject to a set-off after the concurso judgment: 

• any amounts arising from rights and obligations of the debtor and third parties which became due before the concurso judgment and may be subject to a set-off pursuant to Mexican law;
• any amounts arising from rights and obligations of the debtor and third parties regarding the same transaction, only if such transaction has not been suspended as a result of the concurso judgment;
• outright transfers (reportos) of securities, securities’ loans and any other derivative transaction, even if the indebtedness amounts are not determined and cannot be determined within the following nine calendar days – the set-off of transactions in this subsection cannot be objected or invalidated by the liquidator, even if they were entered during the hardening period, unless evidence is provided which proves such transactions were made to give a preference to certain creditors; and
• tax credits in favour and against the debtor.

Failing to observe the approved plan of reorganisation would entitle any recognised creditor, or the debtor, to request the enforcement of the reorganisation agreement by the court that approved that plan of reorganisation.

Once the judge declares the debtor's bankruptcy or liquidation, shareholders would be liquidated if there is any balance left after having paid creditors.

The second stage of a concurso procedure, if applicable, consists of the bankruptcy or liquidation stage. The debtor may be declared bankrupt if: 

• the conciliation stage ends without the parties reaching a creditors’ reorganisation agreement; 
• the debtor fails to comply with the creditors’ reorganisation agreement;
• the debtor requests its bankruptcy; or 
• the conciliator requests the debtor’s bankruptcy and the court approves it. 

No substantial test shall be met. 

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 then 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;
• 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 bankruptcy phase will be supervised by the IFECOM and the servicer, and the length of procedure will vary depending on the type of industry and the time required to auction, sell, and reach agreements among creditors and the conciliator to offset claims. 

The liquidation process is aimed to terminate any pending operation of the company, collect any amounts in favour of the debtor and liquidate any outstanding amounts of the debtor in favour of any type of creditor and, ultimately, its shareholders. The liquidation of a company concludes with the cancellation of the by-law's registration. 

During insolvency proceedings, the sale of assets to protect the ongoing concern of the debtor shall be subject to the receiver's approval. The purchaser will acquire good title as long as the sale is conducted in the same terms as a public auction. The receiver shall follow the rules of publicity and operability to guarantee the transparency of a sale procedure.

Credit bids must follow the rules of public auction under the Concursos Law in order to maximise the value of the sale. There is no express provision for the creditors' bid for the assets to act as a stalking horse in the sale procedure.

Creditors can organise freely in accordance with their interests. Committees are common and they usually agree on the terms for retaining advisers. Their expenses may be reimbursed by the debtor if such an agreement is reached. 

According to the Concursos Law, a foreign proceeding is as a collective or universal proceeding, whether judicial or administrative, including provisional proceedings, in a foreign state pursuant to a law governing bankruptcy, liquidation, or insolvency matters of the debtor. 

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 an 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.

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. Therefore, any foreign representative is entitled to appear directly before the presiding Mexican court in all procedures brought under the Concursos Law. Such filing should be made by means of an interlocutory procedure before the civil federal court analysing the concurso proceeding.

Pursuant to the Concursos Law, the following are the alternatives 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; or
• 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 two is in the direct effect of such recognition over the business’s assets located in Mexico. 

If a foreign bankruptcy procedure is recognised as a principal procedure then 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’ 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; and
• 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.

Upon the recognition of a foreign procedure, 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. 

Foreign Representative Powers

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 above-mentioned is followed, if a company organised under the laws of Mexico entered into extraterritorial bankruptcy or insolvency proceedings then those proceedings would be recognised within Mexican jurisdiction.

Co-operation

Courts in Mexico do co-operate with foreign courts where there are concurrent rescue or insolvency proceedings in other jurisdictions. The Concursos Law actually provides for such co-operation with foreign courts. 

With respect to the insolvency matters, the international documents that served as basis for the current provisions of the Concursos Law are the “Model Law for Cross-Border Insolvency” of the UNIDROIT and the “Effective Insolvency Systems” of the World Bank. 

Some of the international treaties to which Mexico is party that are related to insolvency matters are those regarding powers of attorney, judicial requests, request letters, and notifications of judicial or extrajudicial documents in civil and commercial matters.

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.

Pursuant to Article 1347-A of the Mexican Commerce Code (Código de Comercio) (the “Commerce Code”), judgments delivered by foreign courts shall be deemed to be effective and shall be recognised by Mexican courts, provided that those judgments are not contrary to the public order, and that the following requirements are satisfied:

• that the requirements regarding foreign judgments established by the treaties to which Mexico is party have been met; 
• that judgments are not delivered in virtue of the exercise of an actio in rem;
• that the judgment is delivered by a competent foreign judge; 
• that a notification was personally served on the defendant; 
• that the judgment in question is a final judgment in the place where it was delivered;
• that the actions from which the judgment derived are not subject to a pending judgment before Mexican courts;
• that the obligation to be performed in virtue of the judgment is not contrary to public order; and 
• that all authenticity requirements be fulfilled.

Notwithstanding the forgoing, a judge may refuse the recognition of a foreign judgment if it is evidenced in court that in the country of origin there is no execution of foreign judicial decisions in similar cases.

In order for Mexican competent courts to execute a foreign judgment, said judgment shall be homologised. The homologising of a foreign judgment is the procedure by means of which the Mexican courts recognise a foreign judgment, and it is achieved by means of a procedure named homologation ancillary action (Incidente de Homologación) (the “Ancillary Action”).

The Ancillary Action begins by the delivery of a personal notification of it to the defendant, upon delivery of which the latter shall have a nine-business-day term in order for them to file any defences and exercise any rights and, as the case may be, file any evidence that may be appropriate. The district attorney shall intervene in all cases, in order to exercise any rights to which they are entitled. Upon termination of the Ancillary Action, the judge will issue a resolution granting or denying the execution of the judgment, which resolution may be appealed and shall be resolved by an Appeals Court, and ultimately, and as the last resource available for the parties, a constitutional action (amparo directo) may be filed at the Federal Courts (Tribunales Colegiados de Circuito).

Examiner and Conciliator

The examiner performs an auditing or review process within the visita stage in which they determine the eligibility of the debtor for reorganisation based on the analysis of the debtor's books and records. The examiner may also recommend to the judge the issuance of pre-emptive measures to protect the debtor's assets and estate. The responsibilities of the conciliator are mainly the delivery of a list of creditors to the judge and the accomplishment of a reorganisation agreement between creditors and debtor. The conciliator acts as mediator between the debtor and its creditors during the conciliation phase and will be responsible for preparing the reorganisation agreement. Likewise, they shall monitor the administration of the debtor and even be responsible for operating the business under some cases. 

The examiner and conciliator have a close interaction with the debtor's management, directors and key employees as they need to have a good understanding of the company and be provided with sufficient information to determine whether the debtor is insolvent or not, identify creditors, relevant providers and employees and understand the needs of the company to perform their job diligently. The conciliator needs to have good communication with the debtor and creditors to negotiate terms that benefit both.

Receiver and Intervener

The receiver is an officer who will be entrusted with the disposing of the assets of the debtor’s estate if the conciliation fails and the liquidation phase begins. 

The intervener represents the interest of the creditors and oversees the actions of the conciliator and debtor to ensure they perform their duties properly.

See 9.1 Types of Statutory Officers.

Statutory officers are appointed by the IFECOM. In the case of the examiner, after the judge has approved a valid request for insolvency, they give notice to the IFECOM who will then appoint an examiner. The conciliator is appointed by the IFECOM once the district judge gives notice that the conciliation phase has begun and may be replaced by petition filed by the debtor and creditors representing at least 50% of the credits. It is common for the receiver to be the same person appointed as conciliator.

The intervener follows a different rule as it is the only statutory officer that may be appointed by the court only upon the request of a creditor or group of creditors representing at least 10% of the total amount of the debtor's indebtedness. The Concurso Law provides for different situations in which someone related to the debtor or the company subject to a concurso proceeding may not act as a statutory officer:

• if the person is the spouse, partner, relative, relative of the spouse or partner (if the relative is the child, grandchild, parent, grandparent or brother) of the debtor, the partners or the board members of the company; 
• if the person is the lawyer, attorney in fact or an individual authorised to act on behalf of the debtor or any of the creditors in an ongoing jurisdictional proceeding; 
• if the individual has a labour relationship with the debtor or any of the creditors, or had a labour relationship in the six months prior to the declaration of the concurso proceeding; 
• if the individual is the partner, lessor or lessee of the debtor or any creditor; and 
• if the individual has a direct or indirect interest in the concurso proceeding. 

As long as such professionals do not fall into the foregoing limitations and are authorised by the IFECOM, they may act as statutory officers.

The directors of a company that has not been declared insolvent by a competent court may not be liable for continuing to operate a company under financial distress. However, the transactions related to the collection of a creditor’s rights could be subject to review when the company is declared insolvent. In the event that the company is declared insolvent, directors engaging in any malicious act or conduct that causes the non-performance of the company’s payment obligations might be liable to civil actions or even criminal liability, if those acts are proven to be fraudulent.

The Concursos Law provides for events during which a director or managing officer will become liable to the debtor, for the benefit of the estate of the company in a concurso procedure, for any damages and losses of anticipated earnings caused by any unlawful decision they had made, provided they cause damage to the estate of the debtor which led to the insolvency situation of the company. This is regardless of any liability incurred by the director or managing officer under any other law. 

Unless good faith and compliance with the duties of care and loyalty can be evidenced, members of the board of directors, as well as relevant employees, of the debtor shall be liable for damages and losses due to some of the following activities:

• voting in board meetings or making decisions regarding the estate of the debtor regardless of a conflict of interest; 
• favouring a shareholder or group of shareholders to the detriment of other shareholders; 
• obtaining, due to their position and without legitimate cause, direct or indirect economic benefits;
• producing, publishing, providing or ordering information they acknowledge is false;
• ordering or failing to register operations of the debtor or modifying the registry to conceal the real nature of the operations performed, affecting any element of the financial statements; 
• ordering or accepting the registration of false information in the debtor's books;
• destroying, modifying or ordering the destruction or modification of systems or accounting registries or the documentation on which these are based; and
• in general, committing malicious or illegal acts.

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

If a duty or obligation is owed to creditors, they can directly assert their claim against the directors.

Intentionally fraudulent transactions and certain other transactions may be set aside or declared as void when it is established that the debtor received inadequate consideration.

The following transactions are presumed to be a fraudulent transfer, unless the debtor proves good faith:

• creation of new security interests or the increase of any existing security interests if the original obligation did not provide for it;
• payments in kind when such form of payment was not originally agreed; and
• transactions entered into by a debtor with related individuals or entities, such as its spouse, cohabiting partner, relatives, members of the board or decision-making individuals within the business, or companies where at least 51% of their capital stock is owned or voted by any of the foregoing individuals.

Response Pursuant to the Concursos Law, some transactions may be invalidated if entered into during the period starting on the day which is 270 calendar days prior to the declaration of insolvency by a competent court. Such period can be extended up to three years under some situations regulated by law, and would be doubled for intercompany transactions.

Any creditor, or even an office holder, may directly assert a claim of fraudulent conveyance. Any creditor may directly assert claims to set aside or void transactions.