The Mexican Insolvency Law (Ley de Concursos Mercantiles or “LCM”) provides for a single insolvency proceeding called concurso mercantil (or, simply, concurso), encompassing two successive stages. The first is the conciliation (or reorganization) stage and the second is the bankruptcy (or liquidation) stage. Prior to a debtor being placed in concurso, the process includes a preliminary visit stage to verify whether the commencement standards have been met.
The commencement standards are: that the debtor fails to comply with its payment obligations in respect of two or more creditors, and the existence of the following two conditions: (i) 35 % or more of the debtor’s outstanding liabilities are 30 days past due, and (ii) the debtor has insufficient liquid assets and receivables (which are specifically defined) to support at least 80% of its obligations which are due and payable. A debtor can petition for concurso if any of the two tests are met or if it declares under affirmation that it will inevitably fall in any of these two tests within the next 90 days. A creditor or the Mexican Office of the Attorney General can demand the concurso if both tests are met.
Once the judge declares the debtor in concurso, the reorganization stage commences. The stated purpose of the reorganization stage is to conserve or save the business enterprise through a restructuring agreement with recognized creditors. The reorganization stage is designed to be completed within 185 calendar days; although, the concurso specialist at this stage (conciliador) or recognized creditors representing fifty percent of the total amount of the recognized credits may request a 90-day extension. In addition, the concurso specialist at this stage (conciliador) or recognized creditors representing seventy-five percent of the total amount of the recognized credits may request an extension of an additional 90 days. In all, the conciliation stage cannot exceed 360 days. If there is no restructuring agreement among the debtor and the required majority of creditors, the liquidation stage immediately begins.
The stated purpose of the liquidation stage is to liquidate the business, as a whole or by sale of productive units (as an on-going concern) or its individual assets, to repay creditors. The receiver would proceed with the sale of the assets of the enterprise and the payment of the recognized claims pursuant to the statutory priority of payments. The declaration of bankruptcy (quiebra) results in the removal of management and management of the debtor’s enterprise would then be vested on a receiver.