The Prioritization of Claims in a Bankruptcy

Prioritizing Claims

Under Mexican insolvency law, debts are paid in the following order during reorganization:

• credits against the bankruptcy, such as judiciary expenses and the fees of the administrator, conciliator and mediator (these persons are appointed by a specialized institute, with the court's acknowledgement, to oversee various stages of the reorganization process);
  
  
• money owed to the merchant's employees that became due during the two years preceding the reorganization process, as provided by the Mexican Constitution;
  
  
• certain creditors privileged by law, such as creditors for funeral and medical expenses in the case of an individual debtor or merchant becoming seriously ill or dying following the institution of the reorganization proceeding;
  
  
• secured creditors, such as those with debts secured by a mortgage or pledge;
  
  
• money owed for other labour-related claims, other than those mentioned above, and money owed by the merchant for taxes;
  
  
• specially privileged creditors that have priority under the Mexican Commercial Code or other applicable law, or those who have a retention right, as found in a commission contract;
  
  
• common creditors, including all unsecured creditors; and
  
  
• shareholders.

Securing Unpaid Debts

Supply agreements often contain retention of title clauses. These clauses provide that the supplier retains title to the supplied goods (eg, through the retention of an invoice) until it has received full payment for the goods. The clause in the supply agreement may allow for the retention of title until specifically identified goods have been paid for, or until all monies owed by the debtor to the supplier have been paid. In regards to immovable and movable property (when such property can be clearly identified) the clause must be recorded at the public registry of property for the jurisdiction where the debtor is located in order to be enforceable against third parties.

For further information on this topic contact Jaime R Guerra González, José Víctor Rodríguez Barrera, Alonso Rivera Gaxiola, Alfonso Peniche García or Ernesto Rodríguez León at Guerra González y Asociados, SC by telephone (+52 55 5543 9270) or fax (+52 55 5543 6621 or +55 5543 6624) or by email ([email protected]).