Mexico Survey on: Claw-back of security in insolvency. Questionnaire

Transcription

1 Mexico Survey on: Claw-back of security in insolvency Questionnaire Country: México Prepared by: Eugenio Sepúlveda White & Case SC Monterrey, Mexico Iván Libenson White & Case SC Mexico City Introductory questions 1.1 Please briefly describe the main type of security in your jurisdiction (per type of asset; per perfection technique; per type of secured obligation). The different types of security interests recognized in Mexico are: Pledge (prenda): a security interest on chattel property, which requires a pledgee or a third party taking possession of such chattel for its perfection. In commercial transactions, the pledge can be created by different means, such as the endorsement of a negotiable instrument, etc. Generally, only existing assets are subject matter of a pledge. Although not free from doubt the pledge on chattel property is subject to registration with the applicable public registry or registries. Non-possessory pledge (prenda sin desposesión): a security interest on chattel property, in which the pledgor remains in possession of such chattel. The non-possessory pledge is perfected and becomes effective against third parties by entering into a pledge agreement between pledgor and pledgee and recording the agreement with the applicable public registry or registries. Afteracquired assets can be the subject matter of a non-possessory pledge. Pledge on listed securities (prenda bursátil): a security interest on listed securities. A pledge on listed securities is perfected by entering into a pledge on listed securities agreement between pledgor, pledge, an administrator of the pledge and an executor of the pledge, 1 and transferring 1 Administrator and executor must be an authorized broker dealer or bank. The same broker dealer or bank can act in both capacities as administrator and executor of the pledge 1

2 the subject matter of the pledge to a special account held by the administrator with Indeval, the securities clearing system administrator. Although not free from doubt the pledge on listed securities is subject to registration with the applicable public registry. Under a different modality of the pledge on listed securities, title to those securities is transferred to the pledgee (and no transfer to the special account with Indeval is required) who must return to the pledgor an equal amount of securities upon payment of the underlying obligation. Pledge (prenda) under production-specific loans (créditos refaccionarios or créditos de habilitación o avío): a security interest on certain assets subject matter of the production-specific loan, including, in certain cases, the products of those assets, and with the land and building and other assets of the financed enterprise. The pledgor remains in possession of the assets subject matter of the pledge. This pledge is perfected by entering into a production-specific loan specifying the assets subject matter of the pledge, and recording the agreement with the applicable public registry. Mortgage (hipoteca): a security interest on realty (and, in some cases, also on chattel), which remains in the mortgagor s possession. Generally, a mortgage can be created unilaterally by a mortgagor but sometimes it requires a bilateral agreement among mortgagor and mortgagee, and recording the mortgage with the applicable public registry or registries. The mortgage is created on specific assets. Industrial mortgage (hipoteca industrial): a security interest on a whole enterprise, which remains in the mortgagor s possession. Industrial mortgages can only be granted in favor of Mexican licensed banks or pursuant to specific laws such as in the case of industrial mortgages granted by holders of telecommunications service concessions. The industrial mortgage is recorded with the public registry. Guaranty trust (fideicomiso de garantía): a special type of trust whereby title to an asset is transferred to a trustee, who must hold it and, in case of default, cause its foreclosure. Only certain financial entities can act as trustees of guaranty trusts. A guaranty trust can cover any type of assets (realty or chattel, present or after-acquired, etc.) and must be recorded with the applicable public registry or registries. It is unclear whether these trusts create a secured obligation for the purposes of the rules set forth for secured creditors in the bankruptcy law. While traditionally not being considered a security interest, retention rights (derechos de retención) and other statutory privileges in certain circumstances are subject to registration and afford its holder (holders of priority claims acreedores con privilegio especial) some bankruptcy privileges not afforded to unsecured creditors. Likewise, although traditionally not considered a security interest, administration and payment trusts have been used as enhancers in financing structures. 1.2 Please briefly describe whether your jurisdiction provides for a procedure of protection against creditors (usually initiated by a debtor at a time when the debtor is yet not insolvent) and if so what are its basic assumptions? In principle, Mexican law does not provide for a procedure of protection against creditors when the debtor is yet not insolvent. However, there are two cases where Mexican Law affords some creditor protection outside of insolvency: 1. In the absence of agreement to the contrary, in cases of partial payment of the underlying debt, the pledge or mortgage will be proportionally released where multiple assets are the subject matter of the pledge or mortgage, or the asset can be divided in the case of a pledge. 2

3 2. Relatively recent amendments to some local (state) laws incorporate the rebus sic stantibus principle under which, in the case of unforeseeable fundamental change of circumstances, a party to an agreement may petition the courts for a reduction of levies or a termination of the agreement. Federal commercial laws do not support this principle. It is unclear what are the consequences of invoking this protection in connection with the security interest securing the underlying obligation. 1.3 Please briefly describe the types of insolvency proceedings contemplated by your legislation (liquidatory proceedings; reorganisation or recovery proceedings). Mexican Insolvency Law provides for a single insolvency proceeding (concurso mercantil), encompassing two successive stages. The first is the reorganization stage (conciliación). The second is the liquidation stage (quiebra). Prior to a debtor being placed en concurso, the process includes a preliminary visit stage (visita) to verify whether the commencement standards have been met. The stated purpose of the conciliatory stage is to conserve or save the business enterprise through a restructuring plan (convenio concursal). The stated purpose of the liquidation stage is to liquidate the business as a going concern or by sale of productive lines or its individual assets, to repay debtor s recognized creditors pursuant to a statutory priority. Holders of secured claims and priority claims are senior to holders of unsecured claims. Insolvency proceedings can generally be initiated by the debtor or its creditors upon satisfaction of certain thresholds. 1.4 Please briefly describe the types of claw-back actions available in your jurisdiction. Please address, in particular, any of the following questions: General Aspects of Avoidance Some types of transactions carried out prior to the declaration of concurso can be set aside. The transactions subject to avoidance are grouped in four categories: (1) per se fraudulent transactions; (2) cases of constructive fraud; (3) objective preferences; and (4) subjective preferences. All pre-commencement per se fraudulent transactions are avoidable. All other avoidable transactions (cases of constructive fraud, objective preferences and subjective preferences) are avoidable if carried out within the retroactive period. The retroactive period is the period that begins 270 days prior to the declaration of business reorganization. The judge may extend such period to an earlier date upon the reasoned request of the conciliator 2, the conservators 3 or any creditor. Per Se Fraudulent Transactions Transactions entered into before the declaration of concurso in which debtor knowingly defrauds 2 The conciliator is appointed during the reorganization stage to oversee the process and the management of the enterprise by the debtor. The conciliator s main duties are to develop a list of recognized claims and propose the reorganization plan. 3 Conservators are representatives of creditors. Any creditor or group of creditors holding 10% or more of the recognized claims may appoint a conservator. 3

4 creditors, will be set aside if the transaction is gratuitous or, if not gratuitous, the third party shares the fraudulent intent. Cases of Constructive Fraud The following transactions carried out during the retroactive period will be set aside. These transactions are conclusively presumed to be fraudulent: o Gratuitous transactions. o Transactions under which the debtor pays consideration of a substantially higher value, or receives consideration of a substantially lower value, than that of its counterparty. o Transactions in which conditions or terms significantly differ from then-prevailing market conditions or from trade usage or practices. o Any debt remission made by the debtor. o Any payment of unmatured obligations. o The discount of debtor s payables by the same debtor. Objective Preferences The following transactions will be set aside if carried out in bad faith during the retroactive period. Bad faith is rebuttably presumed: o Granting of collateral or additional collateral if not originally contemplated in the transaction documents. o Payments-in-kind if such method of payment was not originally agreed to in the transaction documents. Subjective Preferences Transactions carried out between the debtor and its related parties during the retroactive period will be set aside if made in bad faith. Bad faith is rebuttably presumed. In addition to the avoidance powers the Insolvency Law affords to insolvency courts, civil laws afford the common courts the power to declare void any transaction of the debtor in prejudice of a creditor through the exercise of an Actio Pauliana. Some of the differences between the Actio Pauliana and an insolvency-related avoidance include: In the case of an Actio Pauliana: o The rights on which the plaintiff s claim is based must precede in time the voidable transaction. o The voidable transaction must cause the debtor s insolvency. Insolvency in this case means that the fair value of the assets of a debtor is less than the sum total of its debts (balance sheet test). o The transaction would be voided only if (1) it is a gratuitous transaction; or (2) if not gratuitous, both the debtor and its counterparty acted in bad faith. Bad faith consists of the knowledge of insolvency. 4

5 o The transaction would only be void with respect to the creditor plaintiff. It is not clear whether an Actio Pauliana can be exercised during the pendency of a concurso. (a) Is claw-back automatic or does it require a positive assessment of the existence of the relevant conditions by the court or the receiver? Claw-back is not automatic. The conciliator can petition the court to set aside a fraudulent or preferential transaction. The court would then have to determine the fraudulent intent, except where it is conclusively presumed. (b) Does your legislation differentiate between transactions (including the granting of security) with consideration and without consideration? Yes. Gratuitous transactions are generally conclusively presumed to be fraudulent. (c) Does your legislation differentiate, in cases of security in general, between security taken concurrently with the granting of the secured debt and security taken in a different period of time? Yes. Granting of collateral or additional collateral during the retroactive period, if not originally contemplated in the transaction documents, is rebuttably presumed to be in bad faith and, therefore, avoidable. (d) Are there special provisions for intra-group transactions and transactions between related parties? The Insolvency Law does not recognize or give effect to the principles of substantive consolidation (it does, however, provide for some level of procedural consolidation when dealing with corporate groups). Therefore, in principle, intra-group transactions and transactions between related parties are generally treated similarly to transactions with unrelated parties. However, transactions carried out between the debtor and its related parties during the retroactive period shall be set aside if made in bad faith. Bad faith is rebuttably presumed. Related parties of an individual debtor include (1) his/her spouse, concubine, blood relatives up to the fourth degree, in-law relatives up to the second degree, and adopted relatives; and (2) commercial companies in which the debtor or any of the persons mentioned in (1) is the manager or director, or directly or indirectly, together or alone, own more than 51% of the outstanding equity capital, or have decision-making powers at the shareholders meetings, are entitled to appoint a majority of the directors, or are otherwise entitled to make fundamental decisions for such companies. It is unclear why the definition of related parties in (2) above includes only commercial companies and not other types of entities such as civil partnerships or trusts, and whether the courts have any equitable powers to expand the concept to include them. Related parties of an entity debtor include (1) a manager or director; (2) the spouse, concubine, blood relatives up to the fourth degree, in-law relatives up to the second degree, and adopted relatives of a 5

6 manager or director; (3) individuals who directly or indirectly, together or alone, own more than 51% of such entity's outstanding equity capital, or have decision-making powers at its shareholders meetings, are entitled to appoint a majority of its directors, or are otherwise entitled to make fundamental decisions for such entity; (4) entities sharing managers, directors or principal officers; and (5) entities that control, are controlled by the debtor, or are under common control of the same entity that controls the debtor. 2. Specific questions 2.1 Is claw-back subject to specific rules with respect to any type of security available in your jurisdiction? If so, please describe any such rules. No. Claw-back is not subject to specific rules with respect to any type of security available. All security types are treated in a similar fashion. 2.2 Are there any total or partial exemptions from claw-back, depending on (for example): (a) The type of security; No. There are no total or partial exemptions from claw-back, depending on the type of security. (b) The type of transaction secured (including its legal form); No. There are no total or partial exemptions from claw-back, depending on the type of transaction secured (including its legal form). (c) The type of (wider) transaction within which the financing is granted and the relevant security is taken (e.g. financings granted in the context of certain reorganisation proceedings); No. There are no total or partial exemptions from claw-back, depending on the type of (wider) transaction within which the financing is granted and the relevant security is taken (e.g. financings granted in the context of certain reorganisation proceedings). (d) The nature of the grantor of security; No. There are no total or partial exemptions from claw-back, depending on the nature of the grantor of security. (e) The nature of the beneficiary of security; No. There are no total or partial exemptions from claw-back, depending on the nature of the 6

7 beneficiary of security. (f) Other. 2.3 How does your legal system address the claw-back of quasi-security transactions, e.g. a sale of a property in return for a price payable in instalments may hide a financing transaction secured by the property; which legal regime applies in this case: that of the claw-back of security, or that of the termination of pending (sale and purchase) agreements? Although not free from doubt, a Mexican court would generally put form over substance in this type of analysis, especially in cases where the contract in question is a regulated contract (i.e., a contract that is specifically recognized and covered by statute such as an installment sale). Therefore, a Mexican court would have little, if any, powers to re-characterize such transaction as a financing. Exceptionally, in the case of relative simulation 4 (i.e., the case where the parties expressed intent and their true intent are inconsistent), a court would re-characterize the pretended act to its true act. That being said, in principle, a Mexican insolvency court would treat such quasi-security transactions as an executory contract. As a general principle, the declaration of concurso does not affect the provisions of an executory contract, unless the conciliator rejects it on grounds that rejection is in the best interest of the estate. Any party to an executory contract with the debtor will be entitled to require the conciliator to declare whether he will assume or reject the contract. If the conciliator declares the assumption of the contract, the debtor must perform or guarantee performance thereunder. If the conciliator rejects the contract, or does not provide an answer within 20 business days, the debtor s counterparty may thereafter declare the termination of the contract. An unresolved issue is whether the conciliator has the authority to decide on a partial assumption of a contract. Prevailing opinion is that no such authority exists and the contract would have to be assumed or rejected in its entirety. A similar rule exists in the liquidation stage, when the sale of the estate is carried out as a transfer of the enterprise or parts thereof as a going concern. However, in this case, the rules and presumptions operate in an inverse sense: the receiver must notify each counterparty that they have 10 business days to decide whether to continue or reject the contract. Failure of a counterparty to respond shall be deemed as consenting to the continuation of the contract. Special rules also apply in the case of an executory sales contract. In the case of purchase agreements where the debtor is a purchaser, the seller is not required to deliver the subject matter of the contract (whether realty or chattel) unless its price is paid for or guaranteed. Similarly, a purchaser debtor cannot demand delivery of unpaid goods if the debtor does not pay or guarantee payment for the purchase price. If the payment is subject to an unexpired term, the seller may only demand guarantee of payment. A seller will be entitled to recover property sold pursuant to a promissory agreement, or to a purchase agreement that lacks all formalities required by law. The debtor, with the conciliator s authorization, may prevent such recovery by demanding that proper formalities be met (through an actio pro forma) or 4 Absolute simulation occurs when the pretended act is nonexistent. 7

8 if the action to demand annulment due to lack of formality is otherwise extinguished (e.g., by the lapse of the applicable statute of limitations). A seller of unpaid property that is en route for delivery to the debtor may oppose delivery by changing the delivery consignment (if permitted by law) or by stopping the delivery, even if the seller does not have documentation to effect a change to delivery consignment. In the case of the sale of property on a multiple-delivery basis (e.g., under a supply agreement) where some of the deliveries have been made but remain unpaid, the debtor must make payment for such deliveries. It is unclear whether this provision of the Insolvency Law refers to all cases, or only when debtor or conciliator has elected to assume the contract. 2.4 What are the legal consequences of the claw-back for the parties involved? For example: (a) Is an agreement, deed or transaction subject to claw-back invalid or just ineffective between the debtor and the party to the agreement; An avoidable transaction would be ineffective against the bankruptcy estate, except to the extent the bankruptcy estate benefits from such transaction. Outside of an insolvency proceeding, the exercise of an Actio Pauliana (cfr. Q. 1.4) would cause the challenged transaction to be ineffective only against the plaintiff creditor. (b) To what extent can claw-back affect the successful exercise or enforcement of security rights as may have occurred prior to the adjudication in bankruptcy (e.g. claims cashed by the secured lender under a security assignment of receivables prior to the adjudication in bankruptcy)? Is there any difference between the case of self-enforcing security (e.g. the cashing of claims referred to above) and a court-driven enforcement (e.g. the enforcement of a mortgage)? Mexico generally disallows self-help remedies. Therefore, it is difficult to envision a scenario where a creditor would self-enforce a security. Before the retroactive period (which could be extended by a judge as described before) and in the absence of fraud, there is substantially no chance of setting aside an exercise or enforcement of security rights. During the retroactive period (cfr. Q. 1.4), an exercise or enforcement of security rights could be set aside if the underlying obligation has not matured. Once a judgment that declares the debtor en concurso is entered, attachment and foreclosure on assets are stayed during the conciliatory stage, with the sole exception of cases involving privileged labor-related claims. The stay will apply to any and all attachment and foreclosure processes concerning the debtor s assets. It is still an unresolved matter whether the declaration of concurso will stay foreclosure procedures under a guaranty trust to which the debtor s assets were transferred prior to commencement. So, during the reorganization stage an exercise or enforcement of security rights would be prohibited. Any such post-petition exercise or enforcement would be set aside and the creditor could face further penalties for contempt of court. Once the reorganization stage finishes, the stay of execution is lifted. 2.5 What are the rights of the parties involved once the claw-back had been enforced (as a result of operation of law or court ruling)? 8

9 A third party that restores assets to the estate as a result of an avoidance action could, depending on the nature of the voided transaction, have an unsecured claim against the bankruptcy estate. This rule applies in connection with cases of constructive fraud (cfr. Q. 1.4), but is not clear whether it applies to other fraudulent or preferential transfers. 2.6 What is the claw-back regime for security granted by third parties/in respect of third party indebtedness? Please analyse from the perspective of the insolvency of the debtor and of the insolvency of the third party grantor of security. Does the possibility for the third party grantor to act in recourse against the insolvent debtor make a difference? Mexican law allows for a person to grant security to guaranty debts of third parties. This raises two different scenarios: (1) insolvency of debtor; and (2) insolvency of guarantor. A third scenario could be constructed encompassing the insolvency of both the debtor and the guarantor; however, since Mexican law does not recognize or give effect to the principles of substantive consolidation (cfr. Q 1.4(d)), an insolvency of both the debtor and the guarantor would be regulated by the insolvency of each of them separately. 1. Insolvency of Debtor The insolvency of the debtor will not stay the enforcement proceedings against assets of the guarantor. A creditor could begin or continue its enforcement proceedings against assets of the guarantor. A guarantor that pays the debts of a third person (insolvent or not), would in principle be subrogated in the rights of the original creditor. 2. Insolvency of Guarantor The insolvency of the guarantor would stay enforcement proceedings against the assets of the guarantor, and the guarantor will not be obligated to make payment of pre-petition debts. The insolvency of the guarantor will not impair the creditor s right to seek payment directly from the debtor. 2.7 What is the claw-back regime for security which has been agreed (i.e. the relevant security agreement has been executed) but not yet perfected at the time of the adjudication in bankruptcy of the debtor/grantor? Security agreed to by the parties but not perfected as required under Mexican law could, depending on the specific requirements omitted: (i) preclude the creation of a valid security interest, or (ii) be deemed as effective between the parties but not opposable to third parties. In both instances, these omissions could undermine the priority afforded to secured claims and could give rise to voidance actions by other creditors (i.e. claiming that a security interest agreed to prior to the retroactive period but perfected after the initiation of the retroactive period are voidable). 2.8 Other? 9

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