Vol 5 (2008) - Issue 5

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More, Better, Faster: Gauging the Effectiveness of Mexican Insolvency Reform

1. Introduction

Time is money. The NAFTA region’s market-oriented national governments have sought to help private enterprise save both. In Mexico, these efforts have resulted in significant legislative reform: In 2000, the legislature completely overhauled Mexico’s bankruptcy scheme, resulting in fundamental structural changes to Mexican insolvency law. The aim of such measures was to help address the challenges of financial globalisation, the need to attract foreign investment and credit, and the proliferation of regional and global trade agreements.

But have Mexico’s reform efforts worked? This article suggests that two primary features of those efforts – the expedited pace of insolvency proceedings and the establishment of a separate governmental agency charged with overseeing them – appear to be generating real savings in time and, in at least some cases, money.

2. Overview
2.1. Legislative reforms

The changes to Mexico’s bankruptcy legislation, though significant, are embodied in a relatively simple, two-step process – debtors receive an opportunity to reorganise, followed by liquidation in the event reorganisation efforts prove unsuccessful. Upon the filing and admission of a proper petition3 and approximately 35 days after the appointment4 of an initial visitador (examiner), the presiding court will issue a judgment granting or denying a concurso proceeding (analogous to an order for relief under US law). If a concurso is granted, the court then appoints a conciliador (conciliator) and the debtor thereafter has a period of up to 185 days (extendable to 360 days) in which to negotiate with its creditors over the terms of an acceptable plan of reorganisation. If the debtor cannot successfully negotiate an acceptable plan within the one-year conciliation period, if the conciliator seeks liquidation at an earlier point, or if the debtor seeks liquidation directly rather than through a reorganisation, the court may enter a judgment of bankruptcy. At this point, a sindico (trustee) is appointed and a liquidation of the debtor’s assets proceeds in a manner similar to that under Chapter 7 of the US Code.

Mexico’s new law has accelerated the pace of insolvency proceedings. As will be explored in some detail below, insolvency proceedings that commonly took four years or more to complete now routinely require less than 12 months.

2.2. IFECOM’s composition and involvement

Among the changes implemented by Mexico’s 2000 reform efforts was the establishment of a quasi-judicial administrative agency – the Instituto Federal de Especialistas de Concursos Mercantiles (IFECOM) – for the oversight of bankruptcy cases. IFECOM’s primary point of contact with the insolvency system is through a registry of specialists – professionals appointed at various stages of insolvency proceedings.