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Mexico: ‘Investor-friendly’ bankruptcy rules pass first test

Metrofinanciera takes advantage of new law; Seeks US Chapter 15 protection

Metrofinanciera, a Mexico-based mortgage provider, filed for US Chapter 15 protection in August after becoming the first company to pass through new Mexican bankruptcy rules. The rules, a 2007 amendment to a 2000 law, were designed to enhance the country’s international reputation with respect to bankruptcy legislation by increasing speed and collaboration in insolvency proceedings.

The application of the new rules should be a positive development for international investors, according to Salvador Fonseca, an international partner in Chadbourne and Parke’s Mexico City office. "The results of Metrofinanciera’s bankruptcy can be considered a success from a process standpoint. The fact that this first pre-negotiated plan case was approved by a Mexican court and that proceedings ended successfully in a relatively short term should be taken as a good sign for investors."

The 2000 law (Ley de Quiebras y Suspensión de Pagos – LQSP) was an adversorial approach to debt recovery and focused on liquidation rather than reorganization. In general, under LQSP, there were two alternatives: suspension of payments, or liquidation. Recognizing the deficiencies in the LQSP, a new framework was developed and eventually the Ley de Concursos Mercantiles (LCM) was drafted to overcome the LQSP’s deficiencies.

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