Vol 5 (2008) - Issue 4

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Cross-Border Bankruptcy Reform in NAFTA Jurisdictions: Has Seizing Control of Troubled, Closely-Held Corporations Gotten Easier?

Introduction

The past 15 years have witnessed unprecedented development in global insolvency reform. On nearly every continent, legislatures have revised the substantive content and the cross-border provisions of their bankruptcy laws. Do these reforms – specifically, the cross-border provisions of many new statutes – help trustees and other court-appointed representatives seize control of previously difficult-to-access closely-held or family-controlled ‘offshore’ enterprises or assets?

Two rather recent cases, in Mexico and in the US respectively, highlight and illustrate this issue in NAFTA jurisdictions. This article briefly reviews those cases in the context of Mexican and US cross-border and substantive bankruptcy law, then suggests some implications arising from them.

The issue

Mexican businesses are typically family-owned and run. This is consistent with the business environment of most Latin American countries, where many of the region’s largest companies are controlled by a few prominent families. In the US, ‘close control’ likewise remains the perceived predominate means by which midsized and smaller corporations are held.

Such family control often extends to ‘offshore’ interests (e.g., to firms incorporated or doing business outside the controlling family’s host jurisdiction). Until recently, creditors of family members3 could obtain control of such interests only through unwieldy means – or not at all. However, cross-border provisions of both the Mexican Ley de Concursos Mercantiles (LCM) and the US Bankruptcy Code (US Code) offer trustees and court-appointed representatives (and, by extension, creditors) improved mechanisms for divesting such individuals of control of their holdings when things go wrong.