The Mexican bankruptcy law has undergone two major overhauls since 2000, with the most recent amendments offering a more transparent process, and offering greater solutions for rehabilitation and management throughout the insolvency processes.
All countries have their own specific legal outlines and Mexican law is no different. Mexican bankruptcy law, officially known as the Ley de Concursos Mercantiles (the ‘LCM’), which replaced the Ley de Quiebras y Suspensión de Pagos (the ‘LQSP’) in 2000, has recently undergone further amendments in 2014. The LQSP had been in place in Mexico since 1943 and the changes this update has brought have largely been met with widespread approval by legal practitioners throughout Mexico. The more recent updates have further improved procedures and are much clearer, making the recourse for addressing claims and managing debts a far more orderly and transparent process.
BRINGING CHANGES TO THE INDUSTRY
Some of the key changes include the identification of a statutory ‘subordinated creditor’ where an unsecured creditor shares the same Board members as the debtors, and it also now contains provisions for dealing with corporate groups (“grupo societario”). The amendments also now permit a debtor to begin a reorganisation proceeding (“concurso”) if insolvency is pending within 90 days, and also authorises the debtor to enter into credit facilities (similar to debtor-in-possession financing) if it is something vital to keep the debtor’s business operative.
Also, under the previous law, if a debt was reduced or modified during the course of negotiation or court order proceedings, any co-debtor would also receive the benefit of such a compromise. The amendments now limits the effect of the compromise to the debtor only.
Perhaps the only unwelcome change is the requirement that insolvency proceedings must now also be authorised by shareholders rather than just the Board of Directors. Mexican corporate law enforces strict procedural outlines to call a shareholders’ meeting, so the process to begin a “concurso” can effectively now be more time-consuming and costly, as shareholders need to be brought into play.
Overall though, the 2014 amendments do improve the management of cases, offer additional options for rehabilitation, and grant courts the power to issue appropriate orders to protect the debtor’s assets. Mostly though, the amendments support and promote the prospects for reorganisation.
IMPLEMENTING THOSE CHANGES AND OPERATING EFFECTIVELY
One of Mexico’s leading influences within this sector is legal firm Vargas Morgado SC, based in Mexico City, where it has been situated since 1992. Although it is a comparatively young firm, it has already made an excellent name for itself. As with all legal firms it has its specialisms and this business focuses on the areas of debt restructuring, via this Mexican bankruptcy law, or through an extrajudicial mediation procedure. The firm holds a firm view that solving problems via mediation is always a far better route to take than going to legal war simply to bag a controversial and expensive victory. Their aim is to ensure a smooth and successful process for all parties without unnecessary litigation and expense.
The founder of the office is Jorge Vargas PhD, who has extensive experience in the legal sector. As well as founding the company, he has been a University Professor for about thirty-five years, working in several Mexican institutions and has also published a number of works. A quick ‘Google’ of his name reveals his extraordinary impact across many businesses and disciplines across the US and Mexico and his experience and reputation is diverse and successful. The legal work of Vargas Morgado has predominantly been developed to support small and medium-sized companies, but it has also gained an enviable reputation for working with individual people too. We asked Jorge what the key to his success is.
“Investing in our clients’ confidence in our role as their counsel is vital to Vargas Mogado’s ethos,” explains Jorge, “making sure that we understand the problems and issues for each individual.” The firm is keen to ensure that all their counsellors stay abreast of developments in the modern world; therefore they try to keep updated in all fields related to their work; not only in the legal field but on the profiles of their clients’ companies and key personnel activities.
“The legal counsellors and other staff are convinced that this professional practice and these ethical principles are the way to develop our business effectively,” he states.
Vargas Morgado offers a wide range of services across all legal sectors, but particularly focuses on the field of insolvency. The firm has worked in the field of commercial collapse since its inception and has conducted a large number of legal proceedings and pertinent negotiations, sometimes on the side of the debtor and others on the creditors’ flank. Their understanding of this field of work is of special note, something Jorge is proud of.
“Currently the firm is working on ten procedures in the Mexican sugar industry which demand particular skills, balancing a number of different interests to create acceptable solutions. Our work in insolvency practice has led Vargas Morgado to be distinguished with some prestigious awards in this field in recent years; something we are obviously proud of.”
MORE THAN INSOLVENCY
Aside from the insolvency side, the firm also works to help develop services within civil law. In Mexico, legal tradition separates civil and commercial legal areas, so the civil practice of the firm covers areas such as real estate and family matters. When it comes to real estate, the office handles property issues, land development and mortgage; with family law, they are trained to help clients to settle on inheritance matters and conjugal separation.
Regarding commercial law, Morgado supports corporate work of all kinds, in what the Mexican law names as mercantile societies; covering incorporation, operation, mergers, split-ups and dissolution, and final liquidation. They are also experienced in many types of contracts covering both civil and commercial subject matter.
Overall though, mediation as an alternative way to settle disputes is a new implement in Mexico and Morgado’s associate Pablo Vargas is the Mediator 173 in Mexico City. This is an official seat which allows him to act with public faith in the formalisation of settlements. Obviously this gives Vargas Morgado superlative expertise in this field, but the firm also offers a variety of skills within administration. This means the business is able to support public institutions and public companies alike, offering the same level of expertise for corporate, property administration and business, often offering advice on public tender in the institutional field or in support of the bidder.