Vol 5 (2008) - Issue 6

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Pre-packaged Reorganisations under Mexico’s Ley de Concurso Mercantiles: New Amendments Offer New Possibilities for Cross- Border Insolvencies

Introduction

As Mexico’s reformed Ley de Concurso Mercantiles (LCM) approaches its ninth year of effectiveness, the country’s legislature and judiciary continue to search for procedures that further the law’s stated objectives of corporate rescue. That search has led, most recently, to amendments to the LCM designed to implement and facilitate ‘pre-packaged’ reorganisations.

How will such reorganisations be treated in cross-border proceedings requiring recognition and other relief in US Bankruptcy Courts? The following article discusses very briefly the LCM’s amendments and, based on existing precedent involving other Latin American cross-border restructurings, offers some initial thoughts as to how US Courts might treat ‘prepackaged’ reorganisations commenced in Mexico.

Pre-packaged reorganisation plans under the Ley de Concursos Mercantiles

Among the LCM’s 2007 amendments are a new ‘Title XIV’, captioned Concurso Mercantil con Plan de Reestructura Previo (‘Reorganisation with Prior Plan of Restructuring’). These amendments – consisting of four new articles – are rooted in the policy objectives of encouraging commercial debtors to negotiate proactively with their creditors for an effective ‘exit strategy’ in advance of liquidity problems:

‘The reform’s most important addition is the implementation of the “Reorganisation with Prior Plan of Restructuring”, designed to permit companies with anticipated liquidity problems to pre-negotiate with their creditors a reorganisation and exit.’

The LCM’s ‘pre-pack’ amendments are quite straightforward:
– A petition must comply with all requirements of Article 20 otherwise applicable to the commencement of concurso proceedings.
– The petition must be submitted with sworn testimony evidencing the support of creditors representing at least 40% of the face value of the debt.
– The petition must be submitted with the debtor’s further sworn testimony that the debtor either (a) presently satisfies the liquidity requirements of Arts 10 and 11; or (b) satisfaction of such requirements is ‘imminent’.