1. OVERVIEW ON MEXICAN COMMERCIAL INSOLVENCY LAW

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1 1. OVERVIEW ON MEXICAN COMMERCIAL INSOLVENCY LAW The current Commercial Insolvency Law ( Ley de Concursos Mercantiles ) enacted in year 2000, after the abrogation of the Bankruptcy and Suspension of Payments Law (1943) was intended for the protection of the company as a source of jobs and wealth, and as a legal mechanism to ensure that the company continues operating for the benefit of its employees, shareholders, creditors, suppliers and commercial partners, customers and any other party related to the commercial activity of the insolvent company or in a distressed situation; therefore, the main purpose and essence of the Commercial Insolvency Law is to reincorporate the insolvent company back to its normal operations, by reaching a conciliation and settlement agreement between the group of creditors and debtor, when possible, or to establish an organized liquidation and sale of the assets for the best interest of all the involved parties. 2. JUDICIAL INSOLVENCY AND BANKRUPTCY PROCESS STAGES.- The judicial procedure of business reorganization and bankruptcy is governed by the Commercial Insolvency Law, which set forth different and successive stages within the same process, consisting basically on: (i) conciliation and settlement phase; and (ii) liquidation and sale of assets phase, in that order. During the conciliation stage, a conciliator is appointed and his duty is to seek a reorganization plan and the execution of a final agreement with the creditors (those whose credits were acknowledged). In case the reorganization plan was not achieved, the Judge declares the formal bankruptcy of the debtor company, and a trustee receiver is appointed, whom will become the manager and director of the company and will carry out the sale of assets and rights of the company in order to pay the debts recognized in favor of creditors. The sales of assets are performed through public auctions or other alternative sale mechanisms when the receiver considers that will obtain a higher value from the assets. The duration of the conciliation stage is 185 calendar days, with the option to extend for two periods of 90 calendar days each, upon the approval of the creditors with certain majorities. The court approval of a reorganization plan may be appealed. After a successful appeal dismissing the plan, a new plan can be proposed. Otherwise, if the reorganization does not succeed, the case turns into a liquidation.

2 The liquidation concludes when the sale of all the assets is completed, and the creditors are paid with the proceedings of the sale. The Court must render a resolution declaring the liquidation terminated. JURISDICTION.- The process is handled by District Courts (Federal Level) with competent jurisdiction in the company s or merchant s domicile, which are the authorities that will direct the reorganization process. Also, some other specialists participate in the process by assisting the Court with technical decisions and/or analysis. Those specialists are: inspectors, conciliators and bankruptcy receivers. IFECOM.- The Federal Institute of Business Reorganization Specialists ( Instituto Federal de Especialistas en Concursos Mercantiles IFECOM) is the entity that grants the authorization to those specialists (inspectors, conciliators and receivers) to get involved in reorganization and bankruptcy proceedings, and keeps the records and credentials of those experts. ENTITIES SUBJECT TO THE LAW.- The Commercial Insolvency Law governs the insolvency and reorganization procedures in regard to commercial entities that qualify as merchants -according to the definition of the Mexican Commerce Code-, which are in a distressed situation or insolvency scenario. Also, the same Law governs the insolvency of a government-owned enterprise, when it is incorporated as a regular commercial corporation. The insolvency of non-merchant individuals is governed by the civil legislation, and the insolvency of financial institutions, insurance, bonding and reinsurance companies is governed by their corresponding special laws. INSOLVENCY.- The general rule to consider a merchant in insolvency is that the commercial entity has entered in a general default of payment of its obligations when due, under the following conditions: - Failure to pay obligations of at least 2 or more creditors; - At least 35% of all company obligations are more than 30 days overdue; and - The company has insufficient liquid assets to satisfy at least 80% of its matured obligations on the date of petition. The initial request for the judicial insolvency and restructuring procedure may be filed by the debtor company itself or by two or more creditors.

3 TYPES OF CREDITS AND PRIORITY.- In order to participate in the judicial procedure of bankruptcy and in the negotiation and execution of the creditors agreement, creditors must submit a motion requesting the formal acknowledgment and approval of their corresponding credits before the conciliator. The creditor s claims in judicial insolvency procedures, are ranked under the following categories: - Creditors against the estate - Singularly privileged creditors (disease and burial expenses) - Secured creditors (i.e. mortgage or pledges) - Labour creditor and tax creditors - Creditors with special privilege (i.e. right of retention) - Unsecured creditors - Subordinated creditors (individuals or companies related with the merchant). Foreign creditors have the same treatment as domestic creditors. As mentioned above, in order for a creditor to become a recognized creditor and be able to participate in the discussion, approval, agreement and veto of the reorganization plan, must submit evidence of the existence, amount and type of credit, before the conciliator, through a written format for proofs of claim. SUBORDINATED CLAIMS.- In 2014 the Commercial Insolvency Law was amended, and included the subordinated or intercreditors debt creating this new ranking of credits. In order to prevent fraudulent conveyance of intercompany indebtedness and to give certainty to investors and creditors that their debts would be paid first before certain intercompany obligations, the 2014 amendment provides that the following credits must be considered as subordinated (the lowest priority in ranks): - Subsidiaries and affiliates of the debtor - The director, board of directors and key officers of the debtor, subsidiaries and affiliates - Corporations with the same managers, members of the board of directors or key officers similar to those of the debtor The claims held by shareholders and the holding company of the merchant were not included in this classification. EFFECTS IN CONTRACTS.- The most important effects of the insolvency proceedings, are:

4 - Payments are suspended, except those necessary during the ordinary course of business of the merchant. - The pre-assumed contractual obligations shall be performed, with some exceptions established in the Insolvency Law. - Mature debts stop accruing interests. In case of obligations or debts secured by a mortgage or pledge, interests will continue to accrue. - The assets that form part of a business trust (fideicomiso) are not considered part of the estate, and may be separated while in the possession of the debtor. - Performance of executory, preliminary or final contracts shall be complied with by the debtor, unless the conciliator opposes considering that such compliance may harm or diminish the estate. SUSPECT PERIOD.- The Mexican Commercial Insolvency Law prescribes a 270-calendar day suspect period for the review of fraudulent or preferential acts in order to declare them null and void. The abovementioned term may be doubled for subordinated credits. 3. CROSS BORDER INSOLVENCY UNCITRAL MODEL LAW.- Mexico incorporated and adopted the UNCITRAL Model Law on Cross-Border Insolvency in year According to this, all foreign resolutions rendered in insolvency proceedings are recognized. As mentioned before, foreign creditors have the same treatment and priority than domestic creditors. Although Mexico has no international treaties on insolvency, bankruptcy or reorganization matters, it was the first jurisdiction to recognize foreign bankruptcy proceedings under the Model Law and to grant international insolvency cooperation thereto. Actually, the Commercial Insolvency Law incorporated the UNCITRAL Model Law. According to this, it is important to take into consideration the following aspects: - International cooperation may be conducted through Mexican Courts and Mexican representatives. - If a merchant/debtor has an establishment in Mexico, full insolvency proceedings under the Commercial Insolvency Law shall be conducted. Otherwise, foreign proceedings may be recognized in summary proceedings. - Some preventive measures may be granted, upon the request for recognition of the foreign proceedings.

5 - Cooperation and communication between Mexican and foreign courts may be direct, without having to use letters rogatory or any other formalities. - There have been cases for international collaboration in insolvency cases, specifically between Mexican and US Courts - There are some jurisprudential criteria, on cross-border insolvency proceedings and their recognition in Mexico, reiterating that the inclusion of the UNCITRAL Model Law does not contravene public policy principles nor the Mexican Constitution. - The inclusion of the UNCITRAL Model Law has created an effective vehicle for granting protective measures, service of process, taking of evidence abroad, sale of assets, criminal prosecution, among others.