Rising Distress Tests Mexico Framework

As bankruptcy filings in Mexico become more frequent and corporate restructurings soar, market participants say the country’s legal and institutional frameworks face their greatest test since 2000, when bankruptcy proceedings were rewritten. “The jury is still out on whether you can reorganize a large multinational company in Mexico,” says Howard Seife, a partner at Chadbourne & Parke, speaking on a panel hosted by his firm Friday. Among concerns for creditors facing a restructuring or potential concurso mercantil are Mexican courts’ ability to understand and process a complicated workout with fairness and predictability; creditors’ ability to keep the securitization trusts they lend to outside a bankruptcy proceeding of the ceding company; companies’ ability to gain immediate protection from creditors once they have moved to file for bankruptcy; how companies with assets in the US and other jurisdictions should file; and controlling families’ and shareholders’ influence over a company and its assets throughout a concurso. The number of bankruptcy filings doubled in Q4 2008 versus the corresponding period of the previous year, says Luis Manuel Mejan, head of the Instituto Federal de Especialistas de Concursos Mercantiles in Mexico, noting that the majority of filers are SMEs. Restructurings related to derivatives and debt rollover problems have soared, meanwhile, says Jose Maria Abascal, a partner at his eponymous law firm and one of the architects of the 2000 law. “These will all be negotiated and the company will come to agreements with creditors [outside of court],” says Abascal, adding that the primary interest is to keep companies alive and productive.