[BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS IN MEXICO] 61
In contrast to the conciliatory stage, upon declaration of bankruptcy of the Merchant, management is handed over to a specialist, called the “Receiver”, who is also appointed by the IFECOM, whose main objective, as set forth above, is to sell all of the Merchant´s assets to repay its debts, whereas the Conciliator´s objective is to reach a Reorganization Agreement. Notwithstanding the beforementioned, the CIL stipulates that even in the bankruptcy stage, the Merchant may reach a Reorganization Agreement with its recognized creditors. 5.- Prepackage Plan. Pursuant to article 339 of the CIL, the Merchant and the majority of his creditors may file for a pre-packaged reorganization proceeding, in which a pre-accorded Reorganization Agreement is accompanied with the insolvency petition, so that once the Merchant is declared commercially insolvent, such Reorganization Agreement is submitted for the Court´s approval. In a pre-packaged proceeding the Insolvency Court decides whether to declare the Merchant as commercially insolvent, based on the information provided by the Merchant and the majority of his creditors, without the need to perform the Verification Visit. Once the commercial insolvency ruling is issued by the Insolvency Court, the insolvency procedure will be conducted as any other ordinary insolvency procedure. 6.- Protections during Verification Visit. The Merchant, the Visitor or any demanding creditor, if such is the case, may request the Insolvency Court during the visit to adopt, alter or lift injunctive measures for the purposes of protecting the Merchant´s Estate and the rights of the creditors. The determination of the application of the injunctive measures will be left to the discretion of the Insolvency Court,
who may also adopt them by operation of law. In any case, the injunctive measures that are issued will be in force until the date on which the Merchant is declared insolvent by the Insolvency Court; however, such measures will be substituted by the injunctive measures set forth in Section 7 below. These injunctive measures may consist of the following: (i) the prohibition of the Merchant to make payments of obligations due prior to the date of admittance of the petition of commercial insolvency; (ii) the suspension of any enforcement procedure against the assets and rights of the Merchant; (iii) the prohibition of the Merchant to perform sales or transfers or encumbrances of the principal assets of its enterprise; (iv) the prohibition of the any attachment of property; (v) the intervention of the Merchant´s treasury; (vi) the prohibition of the Merchant to perform transfers of funds or securities in favor of third parties; (vii) the placing of a house arrest order on the Merchant, for the sole purpose of not allowing it to leave its place of residence without leaving an attorney-in-fact with sufficient instructions and funds; and (viii) any others of a similar nature. Notwithstanding the foregoing, it has become a common practice for the Insolvency Courts to extend the beforementioned injunctive measures to the subsidiaries or related companies of the Merchant, no matter whether such entities are subject to a commercial insolvency proceeding. We consider this practice to be against the purposes of the CIL, giving grounds to any affected party to challenge such measures. 7.- Protections after the Insolvency Ruling. The declaration of commercial insolvency of a Merchant by means of a ruling issued by the Insolvency Court (the “ Insolvency Ruling ”), as well as the opening of the conciliatory stage, produces diverse effects, granting the Merchant
ILN Restructuring & Insolvency Group – Bankruptcy, Insolvency & Rehabilitation Series
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