The administrator is one of the main entities involved in the judicial commercial bankruptcy process in Mexico. The administrator, which may be a natural or legal person, is appointed by the Commercial Bankruptcy Specialists Institute when the federal or district judge recognizes an application for commercial bankruptcy, irrespective of whether this application is submitted by the merchant itself or a creditor.

The administrator's principal task is to issue a report as to whether the merchant's case falls within one of the two causes of insolvency found in Article 10 of the Bankruptcy Law. The first cause is if the merchant has two or more debts more than 30 days overdue that represent 35% of its payment obligations. The second is if the merchant's liquid assets at the time of the application are insufficient to satisfy 80% of its payment obligations.

In order for this report to be completed the judge will order a bankruptcy supervisor to visit the merchant's offices, branches, stores, and/or warehouses as soon as he receives the administrator's appointment. The administrator will then appear within five days to carry out the supervisory inspection. If the merchant is not present when the administrator arrives, the latter will leave notice with another person at this location, indicating the time on the following day at which the merchant should appear, so that he can be informed of the purpose of the supervisory visit. He must also warn that failure to appear will result in a declaration of bankruptcy.

Thereafter, the administrator must confirm his appointment by producing the respective court order, and must formally identify himself and any assistants to the merchant before proceeding with the inspection. The administrator and his personnel must be allowed access to the accounting books, registries and financial statements of the merchant, as well as any other documents or electronic media in which the company's financial status is verified.

The merchant and its personnel must collaborate with the administrator and his auxiliary personnel. Should the merchant fail to comply and/or obstruct the inspection the judge, at the request of the administrator, can impose appropriate measures of compulsion, warning the merchant that non-cooperation will be grounds to declare it commercially bankrupt.

Once the inspection has been concluded a record will be made in which the facts and omissions made known will be reported in detail. The inspection record must be made in the presence of two witnesses named by the merchant. The administrator must give the merchant at least 24 hours' warning of exactly when the record will be drawn up. If the merchant does not appoint witnesses the record will be made before the Bankruptcy Court clerk. The merchant and witnesses must sign the record. If the merchant refuses to do so this must be detailed in the record. However, this will not affect the record's validity.

The inspection record must make note of any documents that the merchant claims would be useful evidence but are not included in the report. The administrator, based on the information in the inspection record, must then provide a reasoned and detailed report to the judge within 15 days, taking into consideration the facts set forth in the complaint. This period can be extended by up to 15 days for a justified cause.

Once the report has been submitted it will be shown to the merchant, its creditors, and the public prosecutor. These parties will then have 10 days in which to present their written allegations. The judge will issue a decision five days later.

The Bankruptcy Law also provides the administrator with the authority to request the judge to impose, modify or lift any necessary precautionary measures during the inspection stage, in order to protect the bankruptcy estate and the rights of the creditors. Such precautionary measures include the following:

  • prohibiting payment of obligations overdue before the date on which the commercial bankruptcy complaint was admitted;

  • suspending all enforcement proceedings against the merchant's property and rights;

  • prohibiting the merchant from carrying out any operation that might encumber or place a lien on the company's principal property;

  • seizing the merchant's property;

  • placing the assets in receivership;

  • prohibiting the transfer of resources or assets in favour of third parties; and

  • restraining the merchant from leaving the court's jurisdiction.

These precautionary measures will be enforced until the judge orders them to be lifted or a guarantee is made to the judge's satisfaction.

The Commercial Code decrees that before precautionary measures can be granted the applicant must explain why they are being sought. Under these provisions the measures can only be issued when:

  • it is feared that the person against whom a complaint should be or has been filed may disappear or hide;

  • it is feared the property upon which any real action may be exercised will be hidden or deteriorate; or

  • the action is personal and the debtor does not have other property other than that described in the judicial proceedings and it is feared that the same will be hidden or transferred.

Under the new Bankruptcy Law if precautionary measures are requested by the creditor the Commerce Code requirements must be satisfied before they can be imposed. However, if the precautionary measures are requested by the administrator these requirements need not be met; rather the administrator need only state the reasons for the measures to be applied in each case.

For further information on this topic please contact Jaime R Guerra Gonzalez, Alonso Rivera Gaxiola or Alfonso Peniche GarcĂ­a at Guerra, Gonzalez y Asociados, SC by telephone (+52 55 5543 9270) or by fax (+52 55 5543 6621 or +52 55 5543 6624) or by email ([email protected]).

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