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Bankruptcy & Insolvency

Governing Law

Law of Competition (Ley de Concursos Mercantiles) - LCM

Non-Possessory Pledge


Within a concurso proceeding, creditors can request recognition of their credits (somewhat like the proof of claims in a Chapter 11) in three different moments: (i) within 20 days (or 45 days, in the case of foreign creditors) from the date of publication of the concurso judgment in the Federal Official Gazette; (ii) within the term to object to the preliminary list of claims; and (iii) within the term to appeal the judgment for allowance, categorization and ranking of claims. It is not mandatory for a creditor to submit a proof of claim for its claim to be recognized, but a creditor that does not appear in the judgment for allowance, categorization and ranking of claims, and does not file its proof of claim in any of those three moments will not be recognized whatsoever.

Who Can File Insolvency Claims [Insolvency Petition / Demand]

The debtor may file an insolvency petition. A creditor, the district attorney, a judge or the tax authorities may file an insolvency demand [Note: I suggest limiting the use of “claim” to the credits the creditors have against the insolvent company, and using “petition” or “demand” for the filing of bankruptcy]

Filing Process

Once the petition or demand has been filed, a court-appointed examiner must, within the following 15 to 30 days, report to the court if the debtor is insolvent and can be declared in concurso, according to the insolvency test provided in the Insolvency Law. The debtor and, in the event that the insolvency is demanded by creditors (involuntary proceeding), the creditors can challenge the examiner's report. The court must determine 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 determines that the debtor is solvent, the concurso proceeding ends and the party that filed the insolvency petition/demand, must pay the attorney’s fees and expenses, including the examiner’s fees. If the court resolves that the debtor is legally insolvent, it will issue the corresponding declaration or judgment of insolvency, which formally begins the conciliation stage.

Insolvency Test

For concurso to be declared, the following conditions must be met: (1) the failure of a debtor to comply with its payment obligations in respect of two or more creditors, and (2) the existence of the following two conditions: [x] 35 percent or more of the debtor’s outstanding liabilities are 30 days past due; and [y] the debtor has insufficient current assets (cash, demand deposits, 90-day time deposits, accounts receivable maturing no later than 90 days and marketable securities realizable within 30 days) to cover at least 80 percent of its obligations that are due and payable.
In case of a debtor’s petition, either [x) or [y] will suffice, whereas in a demand scenario both [x] and [y] must be met.

Claims Documentation

Written Petition
Original Documentation - Contracts/Purchase Orders/Invoices

Concurso Mercantile Process

Conciliation Stage

The first stage of a concurso procedure is the conciliation stage, which aims to encourage a binding reorganization agreement between the debtor and its creditors and, as a result, avoid the debtor's liquidation. A court-appointed conciliator, who initially acts as an intermediary between the company and its creditors, must direct this attempt.

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 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.

Under the LCM, the declaration of insolvency must 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.

Protection from Creditors

The LCM provides for clawbacks, avoidance of preferences and transactions, and other measures to enlarge the debtor’s estate. However, contrats that worsen the conditions for the debtor upon filing or declaration of concurso will not be enforced.

Executory Contracts

Any party to an executory contract with the debtor shall be entitled to require the conciliator to declare whether he will assume or reject the contract. If the conciliator declares the assumption of the contract, the debtor must perform or guarantee performance thereunder. If the conciliator rejects the contract, or does not provide an answer within 20 business days, the debtor’s counterparty may thereafter declare the termination of the contract.

Some executory contracts have specific rules:

  • The termination of leases: If the debtor is the lessor under a realty lease agreement, its concurso will not affect the lease. If the debtor is the lessee under a realty lease agreement, its concurso will not affect the lease; provided, however, that the conciliator can reject the lease.
  • The purchase of goods that are not delivered: the seller is not required to deliver the subject matter of the contract (whether realty or chattel) unless the debtor- purchaser pays or guarantees the price.
  • Repurchase and differential, future contract and derivative agreements: they are terminated on the date of the declaration of insolvency, and are netted out. The after-netting balance, if in favor of the debtor, shall be payable to the debtor within 30 days or, if against the debtor, shall constitute a claim against the debtor subject to concurso.
  • Security loan transactions.
  • Where the debtor acted as the borrower of securities, the borrower/debtor shall transfer to the lender the negotiable instruments, and the lender must reimburse the borrower with the pesos subject matter of the guarantee
  • Where the debtor acted as the lender of securities, the borrower shall keep the securities and the debtor/lender shall keep the peso collateral, while the borrower shall have a claim against the lender/debtor subject to concurso for the difference between the market value of the securities and the peso collateral.
  • All reciprocal securities loan agreements guaranteed with pesos shall be terminated on the date of the declaration of concurso, the rules regarding repayment or abandonment shall apply with respect to each agreement,
  • On securities loan guaranteed with peso-denominated securities, each party shall keep the securities in their respective possession, these securities are marked-to-market and any over- or under-collateralization issues are resolved by the rules applicable to the repurchase netted-out balance: if in favor of the debtor, shall be payable to the debtor within 30 days or, if against the debtor, shall constitute a claim against the debtor subject to concurso and the resulting balances are thereafter netted out.
  • Lump sum construction contracts: they shall terminate upon the concurso declaration of either the sponsor or the contractor, unless the parties, with the approval of the conciliator, agree to its continuation
  • Insurance contracts: the insurance carrier can terminate executory insurance contracts covering chattel (i.e., the insurance contract does not terminate automatically), but those covering realty shall remain in effect upon the declaration of concurso of the insured party.

Length of Procedure

The conciliation stage must not last more than 185 calendar days, unless extended for up to two additional consecutive periods of 90 calendar days each. However, the conciliation stage must not last more than 365 calendar days.


At the conclusion of the conciliation stage the debtor is declared bankrupt if the:

  • Conciliation stage ends without the parties reaching a creditors' agreement.
  • Debtor fails to comply with the creditors' agreement.
  • Debtor requests its bankruptcy.
  • Conciliator requests the debtor's bankruptcy and the court agrees to grant it.

Bankruptcy Process

The second stage of a concurso procedure, if applicable, consists of the bankruptcy stage. The Mexican insolvency law (LCM) does not provide different insolvency proceedings for individuals and companies or make distinction between "preventative" insolvency proceedings and "actual" insolvency proceedings.

Creditor Ranking

  • First priority claims against the "estate" of the debtor (creditos contra la masa), which includes (collectively, the "claims against the estate"):
  • Special Labor Claims (section XXIII, chapter A, Article 123, Constitution, and applicable regulations);
  • debt incurred for the management of the estate (masa) of the debtor with the authorization of the conciliator or the receiver, or those contracted directly by the conciliator;
  • debt incurred to cover ordinary expenses for the safety 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 that under Article 225 of the LCM against the secured creditors, with mortgages or pledges, or creditors with special privilege, the preference or privilege of the claims against the estate does not apply, with the exception of the Special Labor Claims referred to above; the litigation expenses incurred for the defense 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, consisting of terminal illness and burial expenses, non-existent in corporate bankruptcies
  • 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 guarantee) 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 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 labor claims;
  • creditors with a special privilege (that is, those with a guarantee trust);
  • common or unsecured creditors (Trade creditors generally rank as unsecured creditors and there are no particular mechanisms to secure their unpaid debts by statue.); and
  • subordinated creditors.

Source: Eugenio Sepúlveda and Martín Cortina, Galicia Abogados, S.C., “Restructuring and insolvency in Mexico