Insolvency Law in Mexico

Introduction

Mexican insolvency law is governed by the Mercantile Insolvency Law (Ley de Concursos Mercantiles, LCM), enacted in 2000 and substantially reformed in 2014. The LCM establishes a unified legal framework for the insolvency of commercial enterprises, replacing the outdated bankruptcy provisions of the Commerce Code. The law aims to preserve viable businesses through reorganization while ensuring equitable treatment of creditors in liquidation proceedings.

Types of Proceedings

The LCM provides for two types of insolvency proceedings: Concurso Mercantil (mercantile insolvency) and Concurso Mercantil with Reorganization Plan. The former is analogous to Chapter 7 liquidation under US law, while the latter resembles Chapter 11 reorganization. The proceeding may be initiated voluntarily by the debtor or involuntarily by creditors meeting statutory thresholds. The key objective is to maximize the value of the debtor’s assets for the benefit of creditors.

Insolvency Test

A debtor is considered insolvent when it fails to pay its obligations or has assets insufficient to meet its liabilities. The LCM applies a mixed test: the debtor is presumed insolvent if it has defaulted on obligations representing 35% or more of its total liabilities. The court appoints a Conciliator (for reorganization) or a Trustee (for liquidation) who administers the estate and oversees the proceeding.

Reorganization

In reorganization, the conciliator negotiates a Reorganization Plan (Convenio Concursal) with creditors during a Conciliation Phase (etapa de conciliación) lasting up to 365 days. The plan must be approved by creditors representing a majority of recognized claims and is binding on dissenting creditors. The plan may include debt restructuring, payment extensions, interest reductions, and asset sales. Successful reorganization allows the debtor to continue operations under court supervision.

Creditor Rights

The LCM establishes a clear hierarchy of creditor claims: secured creditors (acreedores con garantía real), singularly privileged creditors (acreedores singularmente privilegiados), and common creditors (acreedores comunes). Labor claims and tax claims have special priority status. Creditors participate in the proceeding through the Meeting of Creditors (Junta de Acreedores) and may challenge the conciliator’s or trustee’s actions.

Conclusion

The LCM provides a modern insolvency framework balancing reorganization and liquidation objectives. The 2014 reforms strengthened creditor protections, simplified proceedings, and enhanced cross-border insolvency coordination through the adoption of the UNCITRAL Model Law on Cross-Border Insolvency. The LCM has contributed to the development of a more efficient restructuring culture in Mexico.