In May 2000 a new commercial bankruptcy law, Ley de Concursos Mercantiles, was enacted by the Mexican Congress. The new law provides for a two-stage insolvency procedure, beginning with conciliation and moving forward, if required, to liquidation. The goal is to facilitate preservation of the bankrupt firm when possible. This legislation also adopts, with minor changes, the Model Law on Cross-border Insolvency developed by the United Nations Commission on International Trade Law. Most of Mexico's insolvency provisions are harmonized with U.S. bankruptcy law, although there are a few areas of divergence. Principal among these is the prioritization of wage claims over all other creditors. The International Monetary Fund reports in 2007 that an effort is being made to improve creditor protections and strengthen contract enforcement, a process that may include legislative changes. Nevertheless, there is no further publicly available information that directly addresses Mexico's compliance with the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems.

General Overview

There is scant material made publicly available that directly assesses Mexico's compliance with the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems. However, according to a 2007 paper by Jonatan Graham-Canedo for the Harvard Law School, the Mexican Congress passed a new commercial bankruptcy law (Ley de Concursos Mercahtiles) in 2000 that included cross-border insolvency provisions drawn directly from the Model Law promulgated by the United Nations Commission on International Trade Law (UNCITRAL). According to the paper, Mexico's action was part of a regional trend motivated in part by economic factors and in part by the broader global trend toward "trying to save troubled companies rather than see them in liquidation" (p. 3). Graham-Canedo notes that the current regime operates in two stages, with a reconciliation process preceding any formal liquidation action. The paper argues that, with the passage of NAFTA, the harmonization of Mexican and U.S. bankruptcy regimes was important, and that the fact that both countries have adopted the UNCITRAL model law has gone far to achieve that harmonization. However, the author does note that some differences exist. In the area of creditor prioritization, the author reports that Mexico places wages for the two years prior to bankruptcy at the head of the list, followed by the costs of administering the insolvency proceedings, the interests of secured creditors, and finally the interests of unsecured creditors. Another area of divergence with U.S. law is the lack of a "cramdown" provision in the Mexican legislation. Provisions vary, as well, with regard to control of a debtor who opts to remain in business during the insolvency proceedings. Mexican law requires that, in all cases, a "conciliator" is appointed to oversee the debtor's management and accounting -- a situation that Graham-Canedo points out is not universally required by U.S. law. In an allusion to Mexico's regime, the International Monetary Fund's 2007 Article IV Consultation report notes that Mexico's authorities are "working on a strategy to strengthen contract enforcement and to provide better creditor rights' protection, including by strengthening the judicial system" (p. 31). A more complete discussion of the specific provisions of the bankruptcy law in Mexico is offered in the 2006 presentation titled "Bankruptcy and Insolvency: Mexican Legal Framework" by Daniel del Rio, available on the Lexmundi website. This presentation discloses that, in broad form, the Mexican law is consistent with UNCITRAL provisions, and confirms the distinctions pointed out in the Graham-Canedo article. Finally, the 2004 U.S. Department of Commerce "Doing Business Guide" for Mexico notes that "the bankruptcy and lending reforms passed by Congress in 2000 and 2003 effectively made it easier for creditors to collect debts in cases of insolvency by creating Mexico's first effective legal framework for the granting of collateral."

The International Association for Insolvency Regulators (IAIR) website's Member Profile page for Mexico discloses that the legislation governing business insolvency and bankruptcy in Mexico include the Ley de Concursos Mercantiles, the Commercial Code, the Federal Civil Procedure Code, and the General Rules of the Insolvency Act, which are given by the Federal Institute of Business Reorganization Specialists (Instituto Federal de Especialistas de Concursos Mercantiles, or IFECOM). According to the IAIR website, IFECOM is a part of Mexico's judiciary branch. Mexican law perceives business insolvencies as falling under federal jurisdiction. Once the court declares a debtor insolvent, IFECOM appoints a conciliator to facilitate agreement between all parties to the insolvency. If reorganization is deemed possible, the conciliator serves as an intermediary responsible for recognizing creditors and prioritizing claims. If reorganization is not considered a possibility, IFECOM appoints a trustee to serve as executor. IFECOM maintains a register of specialists in the insolvency field from which to draw appointees and has established a fee schedule for service. IFECOM also develops insolvency-related statistics.

The World Bank's "Doing Business 2008" guide for Mexico evaluates, among other issues, the process by which a business closing is achieved according to three dimensions: time (in years), cost (as percentage of the debtor's estate), and recovery rate (expressed as cents on the dollar). According to the World Bank, these elements provide a snapshot of the weaknesses in insolvency laws and disclose areas where there may be administrative bottlenecks in the process. The World Bank provides this information in a comparative framework, offering average data for the region to which the assessed country belongs, as well as the average performance achieved by member countries of the Organization for Economic Cooperation and Development (OECD). For Mexico, it takes 1.8 years to complete the bankruptcy process, costing 18% of the estate and yielding a recovery rate of 63.9 cents. The regional average is 3.2 years, at a cost of 16.4%, with a recovery rate of 25.9 cents. For OECD countries, the average is 1.3 years, costing 7.5% of the estate, with a recovery rate averaging 74.1 cents on the dollar.