Magazine article Business Credit

What U.S. Creditors Should Know about Mexico's New Bankruptcy Law

Magazine article Business Credit

What U.S. Creditors Should Know about Mexico's New Bankruptcy Law

Article excerpt

Mexico's new bankruptcy law, codified as the Ley de Concursos Mercantiles ("LCM"), became effective on May 13,2000. It incorporates the best international practices, including the recommendations of the World Bank and draws upon domestic experience under the former commercial and insolvency regulatory system to create a modern, transparent and efficient system for the resolution of insolvency proceedings. The primary objectives of the LCM are to preserve and protect the rights of the various local and foreign constituencies involved in an insolvency proceeding, and to maximize the value of the assets of the bankruptcy estate and their equitable distribution to the creditors of the estate.

The salient features of the LCM are: (1) it confers original and exclusive jurisdiction over bankruptcy cases and proceedings arising under such cases to the federal district court judges; (2) it creates the Federal Institute of Bankruptcy Specialists ("IFECOM"), which is responsible for supervising the bankruptcy administrators (e.g. examiners, conciliators and trustees), establishing adequate rules of bankruptcy procedure and resolving extrajudicial processes affecting bankruptcy cases; (3) it facilitates the timely and transparent administration and disposition of the property of the bankruptcy estate wherever located; (4) it provides equal access to the court and participation in the distribution of the estate to both local and foreign creditors; and (5) it facilitates international cooperation between the Mexican bankruptcy courts and foreign courts.

The LCM was enacted partly in response to the need for better protection of the rights of creditors. The LCM eliminates official creditors' committees, a mechanism perceived as the representative voice of the creditors body in other foreign jurisdictions, because it apparently allowed for the type of cronyism that came to be known as the "bankruptcy ring" in the United States prior to the enactment of the Bankruptcy Reform Act of 1978.

The LCM replaces official creditors' committees with individual "interveners", nominated by IFECOM and appointed by the court, upon the request of one or more creditors holding at least 10 percent of the amount of the total allowed claims, provided that the petitioning creditors are willing to pay for the services rendered by the interveners. Because the LCM uses the term "interveners" in the plural, it would seem that the drafters intended that each separate class of creditors holding allowed claims should seek the appointment of an intervener to represent the interests of each such class. This application of the plain meaning of the statute raises the risk of unfair prejudice to creditors unwilling or unable to pay for the retention of an intervener. Further, the absence of an official creditors' committee to represent the collective interests of Mexican creditors in cross-border bankruptcy cases could potentially result in the disjointed administration of bankruptcy estates, to the extent that creditors in foreign jurisdictions are permitted to organize into such official committees while Mexican creditors are left to fend for themselves. Conceivably, in a cross-border bankruptcy case entailing concurrent main and ancillary proceedings in Mexico and a foreign country, a global official committee of creditors will include the Mexican interveners; or Mexican creditors can establish an informal committee and elect one representative (perhaps an intervener) to be a member of the official creditors' committee in the foreign bankruptcy proceeding. Arguably, the collective rights and interests of Mexican creditors in a cross-border bankruptcy case should be protected in the foreign proceeding through the active role of the local Mexican bankruptcy administrator (conciliator or trustee), to the extent the LCM expressly contemplates international cooperation between the local Mexican bankruptcy administrator and the Foreign Representative appointed in the foreign proceeding to interface with the Mexican court, IFECOM and the local bankruptcy administrator. …

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