According to article 16 of the Mexican Commercial Insolvency Law (in Spanish “Ley de Concursos Mercantiles”), a foreign company can be declared under insolvency in Mexico, but only regarding the branches and goods located in Mexican territory.

Yet, if a cross border insolvency proceeding has been initiated abroad, the Mexican Courts may dictate several remedies (provisionally) and also to execute the orders issued within a foreign insolvency proceeding, regarding the company’s goods and properties located in México, in order to protect the estate and creditor’s rights.

Insolvency of a foreign company’s branch offices in Mexico

If a foreign company has branches in Mexico and therefore has assets in our country, it will be subject to a commercial insolvency proceeding, but this proceeding will only compromise the branches located in Mexico and the Court will only recognize as creditors the ones that entered into business and operations with such offices.

Therefore, the commercial insolvency proceeding of the foreign company with branches in Mexico, as well as its liquidation will be processed under the formalities indicated in the Commercial Insolvency Law (CIL) and its creditors will be recognized and payed according to the ranking and priority of claims foreseen in our legislation.

In Mexico the criteria followed by the Bankruptcy Courts is the COMI (Center of Main Interest) criteria, or as it is mentioned by the CIL: the place where "the main administration of the company" is located.

Therefore, it does not matter where the factory or the branches of the company are located; the important factor is where the "management" of the company is carried out, that is, where the board of directors meets or where the sole administrator is addressed.

In the case of foreign companies with branches in Mexico, the insolvency proceeding will be held where the "main establishment" of the company is located (article 4 section III and article 279 section IV of the CIL).

Cross-border insolvency of foreign companies with branches in Mexico.

The second scenario foreseen by the CIL is when a foreign company has been already declared under insolvency or bankruptcy by a foreign Court, but also this company has branches in Mexico. In this particular case, a petition for insolvency must be filed and the foreign company must be declared as insolvent by the Mexican Courts.

This petition for the cross-border insolvency will be admitted only if it is filed by a foreign representative authorized on the foreign insolvency proceeding and when it proves the existence of the foreign proceeding.

Once the petition for commercial insolvency is filed, the Court will request the Federal Institute of Specialists in Bankruptcy Proceedings (IFECOM) to appoint an examiner to verify whether the debtor has incurred in any of the statutory causes to be declared subject to a commercial insolvency proceeding.

The Mexican Court must recognize the cross border insolvency proceeding on the resolution that declares the company as insolvent, as well as dictate all the necessary provisional remedies to protect the estate and the creditor’s rights.

This judgment in which the Court formally declares the foreign company as insolvent must also mention the creditors recognized in the foreign insolvency proceeding and this recognition will not be subject of discussion or analysis in the commercial insolvency proceeding initiated before Mexican Courts, as it was already resolved by the foreign court.

The examiner, the conciliator and the liquidator must cooperate with the foreign representative and may require to the Bankruptcy Court to dictate all the provisional measures that the foreign representative considers necessary.

Cross border insolvency of foreign companies with no branches in Mexico.

The third scenario foreseen by the CIL is when a foreign company has been declared in bankruptcy by a foreign Court and the company does not have any branches in Mexican territory.

In this scenario it will not be necessary to bring any commercial insolvency proceeding before the Mexican Courts, as there will not be creditors in Mexico, being that the company has no branches in Mexican territory and cannot enter any commercial act, so the insolvency proceeding just has to be recognized by Mexican Courts, in order to dictate any provisional remedies regarding the debtor’s goods and properties in Mexico, as well as to cooperate with the foreign court to execute any kind of orders dictated in the cross border insolvency proceeding.

Provisional remedies foreseen by the CIL

A Mexican Court has capacity to dictate all the necessary and urgent measures to protect the company’s goods in México and the creditor’s interests, which can not affect the foreign proceeding.

These provisional remedies include the following:

1. The order to suspend all attachments and sales of the merchant’s properties and goods.

2. The designation of a manager or executor for the sale and management of the merchant’s goods and properties in México.

3. Order of presentation of evidence or information regarding the merchant’s businesses, goods, rights, obligations and responsibilities.

4. To order the foreign representative of the debtor, or the designated executor or conciliator to manage and execute the company’s goods and properties.

5. Any other provisional remedies foreseen by the Mexican laws.

Once the cross-border insolvency is recognized, the Court must order the suspension of all attachments and sales of the merchant’s properties and the suspension to transmit or dispose in any way the debtor’s goods.

The foreign representative can also request to the examiner, the conciliator or the executor to request to the Court the following measures:

1. Stay of all attachments and sales of the company’s properties.

2. Stay to transmit or dispose in any way the debtor’s goods.

3. Request the presentation of evidence or information regarding the company’s businesses, goods, rights, obligations and responsibilities.

4. To order the foreign representative of the debtor, or the designated executor or conciliator to manage and execute the company’s goods and properties.

5. To extend the provisional remedies dictated when the petition for the cross border insolvency recognition was filed.

Parallel insolvency proceedings.

When a cross border insolvency proceeding of a foreign company is being process at the same time as an insolvency proceeding in México, the Mexican Court must coordinate its entire acts with the foreign proceeding.

If an insolvency proceeding of a foreign company is already being processed in México when the petition for the cross border insolvency recognition is filed, all provisional remedies dictated by the Mexican Courts, regarding the foreign proceeding must be compatible with the Mexican insolvency proceeding.

Under the presumption that the insolvency proceeding in México was initiated after the petition to recognize the foreign proceeding was filed or after the foreign proceeding was recognized, the Court must review all provisional remedies in the ancillary proceeding, in order for them to be compatible with the insolvency proceeding in México.

If a foreign insolvency proceeding was recognized by the Mexican Courts and an insolvency proceeding is filed regarding its branch offices in México, the Court can presume that the merchant has breached its obligations in general and declare it as insolvent along with its branch offices in México.

If there is more than one foreign insolvency proceeding being process at the same time as the one in México, the Court must cooperate with the foreign courts and coordinate that all provisional remedies are compatible with the principal foreign proceeding, taking place in the country where the debtor has its main management offices

Under the presumption that a petition to recognize a principal foreign insolvency proceeding is filed after the petition to recognize a non -principal foreign proceeding was filed or after it was recognized, the Court must review all provisional remedies in the ancillary proceeding, in order for them to be compatible with the principal foreign proceeding.