Vol 6 (2009) - Issue 1

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Hold ’Em? Or Fold ’Em? Labour Claims, Secured Claims, Tax Liabilities and Their Potential Impact on the Outcome of Mexican Concurso Proceedings

1. Introduction

Commercial insolvency is – if nothing else – a protracted series of battles and bargains amongst the debtor, its creditors, and other stakeholders (i.e., principals, employees, regulatory agencies, investors, etc.). The objective of this extended contest is to extract the most potential value (or minimise the prospective loss) from the insolvency process – sometimes in collaboration with other participants, but just as often at others’ expense. The ‘rules’ of the contest are derived from the substantive law of those jurisdictions in which the debtor does business, and from the unwritten laws of the market.

In Mexico, as in many other Latin American countries, the substantive legal ‘rules’ affecting insolvency proceedings have undergone extensive change in recent years. In 2000, the Mexican legislature enacted a completely re-written Ley de Concursos Mercantiles (Law of Commercial Reorganisation) (‘LCM’), designed to eliminate many of the perceived problems with prior Mexican insolvency law. Likewise, the Codigo de Comerico (Commercial Code) and the Ley General de Titulos y Operaciones de Credito (Credit Transactions Law) underwent considerable amendment in 2000 and 2003, with the objective of enhancing creditors’ rights and, from a lender’s perspective, increasing the attractiveness of secured lending. Yet despite these changes, old ideas and customs – and old legislation – remain, and must be incorporated into the rapidly changing legal fabric of Mexican commerce.

Against this backdrop, how do debtors and their creditors resolve the potential disputes that commonly attend commercial insolvency in Mexico? To fully address this question would require a discussion well beyond the scope of the present article; however, the following very brief overview outlines some of the issues that arise when the Mexican debtor bargains with three of its most prominent Mexican creditor constituencies: labour, secured lenders, and taxing authorities.

2. Background: Mexican creditors’ rights under non-insolvency law

2.1. Labour claims

The Mexican Constitution and the Mexican Federal Labour Law are the result of the Mexican post-revolution (PRI) governments. They reflect a paternalistic attitude toward, and protection for, workers and labour unions. Indeed, the country's labour laws are perceived by some Mexican practitioners to be so strong as to create a potential barrier to increased foreign investment in Mexico.

These protections appear to have survived recent insolvency reform. Articles 65, 66, 67 and 68 of the LCM, for example, all recognise certain protections and priority for labour-related claims. The second paragraph of Article 65 recognises two general types of labour claims: (i) those derived from Article 123, section A XXIII of the Mexican Constitution; and (ii) other labour debts. The rights of labour claims under the LCM are – as they are outside of insolvency proceedings – heavily protected.

In addition to labour claims, the remedies available to organised labour must be reckoned with. Unions have the right to enforce a strike or ‘work stoppage’ until differences between the parties are resolved. As will be discussed below, such rights can be used with great effect in connection with Mexican insolvency proceedings.