COVID-19 has had a dramatic impact on the world economy with the virus affecting jobs and companies around the world in many ways, with imminent cash-flow shortfalls soon to occur throughout many sectors of the global economy. This client alert analyzes how to utilize courts in Mexico to achieve recognition and enforcement of Chapter 11 proceedings (or other similar reorganization processes being conducted around the world) when the petitioner has assets or subsidiaries in Mexico. Undertaking certain proceedings in Mexico may allow financially-distressed companies to effectively enforce in Mexico the effects of the automatic stay pursuant to 11 U.S.C. § 362 of the U.S. Bankruptcy Code and other types of stay orders or injunctions obtained outside of Mexico in order to impede foreign or Mexican creditors from undertaking collection actions against assets and subsidiaries in Mexico to the detriment of the estate of the reorganization petitioner. Many jurisdictions dictate that such reorganization processes cover all of the assets of the petitioner, wherever located; however, in many countries such as Mexico, in order to insure that assets in Mexico are validly included and protected, certain proceedings must first be undertaken before a Mexican court. This is not unlike the Chapter 15 proceedings under the U.S. Bankruptcy Code to protect assets in the U.S. where owned by an entity undergoing a foreign restructuring proceeding.
Article 279 of the Mexican Reorganizations Law contemplates the recognition in Mexico of a foreign chapter 11 or reorganization proceeding. However, in order for such recognition to occur in Mexico, specific relief must be requested (the “Recognition Writ”) by the individual, court or party that has been appointed to manage the reorganization or to act on behalf of the reorganization proceeding or process (e.g., a trustee) (the “Appointed Representative”).
In order to request such recognition, the Appointed Representative must submit the following documents to the Mexican court:
The Mexican Reorganizations Law allows for two different types of procedures in Mexico depending on whether or not the petitioner has a branch, subsidiary or a controlling interest in a Mexican company (collectively, the “Establishment”).
Upon the filing of the Recognition Writ, the Mexican court is required to analyze the admissibility of the writ, including compliance with certain formalities, to request the recognition and enforcement in Mexico of the foreign reorganization proceedings. This includes a review of the qualifications and legitimacy of the Appointed Representative, as well as the authenticity of the documents provided and the circumstances surrounding any request for injunctive or temporary relief measures.
Once the Recognition Writ is duly-admitted, the Mexican court will undertake the following analysis of the Recognition Writ:
Once the Mexican court has completed the preceding review, the parties proceed to the review of the Examiner’s Report. During this stage of the process, the Examiner visits the facilities of the Establishment and undertakes a review of the financial documents and information about the Establishment in order to prepare and issue the Examiner’s Report.
After the issuance of the Examiner’s Report, the Mexican court will require the parties to prepare and present their final arguments based upon which the Mexican court will issue a ruling whether or not to recognize and enforce the foreign reorganization process on the Establishment.
In the event that the petitioner does not have an Establishment but does have assets in Mexico, the Appointed Representative that requests recognition of the foreign proceeding is required to designate an address so that a summons can be issued by the Mexican court. In this type of ancillary proceeding, the only parties that appear before the Mexican court are the Appointed Representative and the petitioner.
In those situations where the petitioner does not have an Establishment in Mexico, there will therefore be no declaration or ruling from the Mexican court recognizing and enforcing the foreign Chapter 11 proceeding, nor a visit from an Examiner, due to the fact that the petitioner will not be able to demonstrate that it has an Establishment in Mexico. Therefore, in principle, any creditors that wish to assert claims against these assets in Mexico will have to assert those claims in the foreign Chapter 11 proceeding.