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Amendments to mexican reorganization and bankruptcy law

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Amendments to mexican reorganization and bankruptcy law

  1. 1. AMENDMENTS TO MEXICAN REORGANIZATION AND BANKRUPTCY LAW Published in the Official Journal on January 10th, 2014
  2. 2. The Amendments Seek To: • Preserve the companies • Provide legal tools to avoid abuses from the parties or authorities • Incorporate informational technology (IT) mechanisms for more effective proceedings • Less discretion for the courts in regards to procedural terms
  3. 3. 10 Fundamental Changes: 1. 2. 3. 4. 5. 6. Benefits for creditors Liability for the Board of Directors and employees The concept of “imminent bankruptcy” Changes in the legal term for “creditor’s fraud” Less requirements for the reorganization stage Modification in bankuptcy settlement agreements and subordinated creditors 7. Prohibition to extend procedural terms and disposal of assets 8. Electronic signature incorporated 9. Creation of consolidation, collective and “emergency” credits 10. Increased criminal liabilities
  4. 4. 1. Benefits to Creditors • One or more creditors may request the liquidation of the company without exhausting the conciliation stage • Protection to creditors and the estate during bankruptcy proceedings • Maximum disclosure of documents and information during bankruptcy proceedings • Protects personal data and all confidential information
  5. 5. 2. Liability for the Board of Directors and Employees The members of the Board of Directors and the employees of the debtor will be liable when they cause property damage There will be joint and several liability for the Board of Directors and employees involved in the decision making Board of Directors and employees involved in the decision making will be liable for damages and lost profits, and as a result will be removed from their positions There is no possibility of releasing the Board of Directors and employees from liability
  6. 6. 3. The Concept of “Imminent Bankuptcy” • The debtor may request bankruptcy when it is imminent that they are unable to comply with their payment obligations up to ninety days following the filing of their reorganization claim
  7. 7. 4. Changes to the Legal Term For “Creditor’s Fraud” • The burden of proof is significately reduced • The judge may set as bankruptcy date a term of no more than 3 years if the application is submitted prior to the “creditor’s fraud” stage • It is not necessary to prove the existence of fraudulent acts in order to proceed with the modification of the term “creditor’s fraud”
  8. 8. 5. Less Requirements For The Reorganization Stage • Once the initial term and, if applicable, its extension in the reorganization stage elapses (which jointly may not exceed one year), the judge will certify the conclusion of the stage declaring the debtor insolvent • The judge is not allowed to exceed such term • The minimun number of creditors to request extensions in the reorganizational stage is reduced
  9. 9. 6. Modification To Bankuptcy Settlement Agreements And Subordinated Creditors • Now it is possible to modify the bankruptcy settlement agreement • When a change in circumstances that affects the compliance of the agreement occurs, such modification proceeds • Any creditor may be able to request the mandatory enforcement of the bankruptcy settlement agreement
  10. 10. 6. Subordinated Creditors Privileged Creditors Secured Creditors Ordinary Creditors Subordinated Creditors Are those: • That agree with the debtor in subordinating their rights regarding their ordinary credits • Whose credits have not been acknowledged • Creditors holding unsecured credits of any holder associated with the debtor
  11. 11. 7. Prohibition To Extend Procedural Terms The judge shall guide the bankruptcy proceeding, but he may not modify any term or period fixed by law unless he is expressly empowered to do so (“Mexicana case”) Disposal Of Assets For the disposal of assets that are not related to the ordinary operations of the company, the conciliator will seek the best conditions of sale
  12. 12. Disposal Of Assets The disposal of assets shall meet the following aspects: • Meet the ordinary business practices • The conditions under which the operation is conducted • It is possible to group the assets into packages that reduce terms and maximize value • May be entrusted to specialized third parties
  13. 13. 8. Electronic Signature Incorporated • It is now possible to use electronic signatures which will have the same legal effect as handwritten signatures Credits of the Debtor • When the bankruptcy filing or once the bankuptcy has been admitted, the judge may authorize the immediate recruitment of the credits that are necessary to maintain the normal operation of the company
  14. 14. 9. Creation of Consolidation, “Emergency” Credits Collective and The bankruptcy proceedings of companies that belong to the same corporate group will be consolidated Collective credits • The legal representative of the creditors will be able to apply for the recognition of the credits • Any creditor of a collective credit will be enabled to appear individually to request the recognition of the credits
  15. 15. 9. “Emergency” Credits These are necessary to maintain the normal operation of the companies during bankruptcy proceedings. 10. Increase of Criminal Liabilities The debtor that is declared in bankruptcy by final judgment, the members of the Board of Directors, the Sole Administrator, the General Director, any relevant employee or legal representatives of the debtor shall be punished with imprisonment from three to twelve years when they commit intentional conduct that aggravates the bankruptcy proceeding
  16. 16. These Amendments Have As A Purpose To: 1. Strengthen the rights of the debtors and creditors by introducing new legal concepts in favor of more efficient proceedings 1. Avoid trials with indefinite terms in order to prevent proceedings like “Mexicana de Aviación” 1. Maximizes the conservation of the companies with "emergency” credits, "disposal of assets," among others 1. Adapts to the complexity of current business relationships
  17. 17. Luis Omar Guerrero R. loguerrero@bstl.mx Paseo de los Tamarindos 150 – PB, Bosques de las Lomas, 05120 México D.F. (55) 5091 0000 Omar Cuéllar G. ocuellar@bstl.mx Jorge Valdes K. jvaldes@bstl.mx Juan Arturo Dueñas R. jaduenas@bstl.mx Alejandra Domene S. adomene@bstl.mx Av. Ricardo Margáin 444 Torre Norte Mezzanine “A” Valle del Campestre 66265 San Pedro Garza García, N.L.

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