18 May Initiative to amend the Insolvency Law to add a Fifteenth Title referring to the Emergency Insolvency Regime.
The measures taken by virtue of the health emergency decreed on March 30th, 2020, have produced, and will continue to do so, a deterioration in the economy of many companies in Mexico. In this sense, a large number of companies are expected face the need to file a petition to a federal judge for the declaration of insolvency in the coming months.
The reorganization is a tool designed, first of all, to help companies facing financial difficulties to find a way to solve them through an agreement reached with their creditors. For the creditors, this reorganization involves a reasonable recovery of their credits that otherwise, could be totally unrecoverable.
In this regard, on April 28th, the PRI Parliamentary Group promoted an initiative to amend the Insolvency Law (the “Law“) to include a Reorganization Procedure under an Emergency Regime (the “Process“) considering that it is necessary to find an expedite mechanism that makes it possible to attend to the situation promptly, and that the deadlines for the procedure must be short and strictly observed.
Pursuant to the initiative, the Process will apply when there is an Act of God or force majeure event, or when a declaration of emergency, health contingency or natural disaster has been issued at the national or regional level and the economic situation of the country or of a region and this affects individuals, or companies. It will be applied for all the time that these subsist and for the following six months.
This Process may be carried out entirely electronically.
The requesting merchant will promote a reorganization application under the emergency regime by means of a simple writing designed by IFECOM and declaring under protest to tell the truth that it is under any of the scenarios that trigger the reorganization process according to the Law, unlike the ordinary procedure in which the merchant shall prove that it is in general breach of its obligations.
The rights of workers affected by the emergency situation will be protected by establishing a line of communication between labor authorities and the bankruptcy judge.
In addition, in order to protect the rights of creditors, the merchant shall deliver a list of the credits that it owes, and creditors may participate in the preparation of the same. After the judgment of recognition, graduation and priority of credits, the conciliation process shall begin immediately in ordinary terms of the Law.
Although this is an initiative and its discussion, review, possible improvements, and if applicable, approval are still pending, in case this law amendment is approved, companies that are in difficulty to meet their financial obligations due to emergency circumstances may find a more agile solution path than the ordinary one. However, it will be a challenge to find a balance between, on one hand, the flexibility of requirements to grant expeditiously and as an emergency measure the benefits of a reorganization and, on the other hand, to avoid potential abuses from debtors that do not comply with the requirements to duly look after this alternative.
Should you have any further questions or comments, please do not hesitate to contact us.
Contact
Andrés Urquidi
aurquidi@cuestacampos.com
Azucena Marín
amarin@cuestacampos.com