Mexico, the Challenge Continues

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In summary

Mexico continues to face unprecedented times and historical challenges since the new administration took office in December 2018. While a rather modest recovery appears to have started, the outlook remains challenging for businesses coexisting with government policies that have done little to support businesses. Rather, several sectors where private investors play a significant role seem to be under permanent scrutiny and examination. Even though the concurso remains useful to overcome difficult financial conditions, it has not been made use of as frequently as one would have expected.

Discussion points

  • The pandemic recovery
  • What are companies doing?
  • The concurso, still a useful tool
  • Concurso proceedings
  • Challenges ahead

Referenced in this article

  • Covid-19 pandemic recovery
  • The AMLO presidency
  • Aeroméxico
  • Interjet
  • Grupo Famsa
  • Accendo Banco
  • Commercial Insolvency Law
  • US Bankruptcy Code
  • Federal Institute of Commercial Insolvency Proceedings Specialists

The pandemic recovery

The contraction of the Mexican economy took place before the pandemic as the markets were expectant of a debutant administration blatantly defying open market policies after three decades of liberalising the economy. Both the pandemic and the policies and actions implemented by the government proved to be thoroughly disturbing. Challenges for companies operating in Mexico include the deepest political transformation in a century and a complicated relationship of the government with the private sector. Stunning actions started with cancellation of the ongoing construction of the new Mexico City Airport that was over 30 per cent complete and on which the public had spent of billions of dollars, followed by a continuous effort to dismantle an open energy market where billions of dollars have been invested.

The covid-19 pandemic did nothing but exacerbate an already deteriorating environment. In this perfect storm, the Mexican economy contracted by 8.2 per cent in 2020, a figure well in excess of the 1982 debt crisis, the 1994 peso crisis and the 2007–2008 global financial crisis in breadth, duration and severity,[1] and while a pale economic recovery started after main mobility restrictions were progressively lifted, the path for its sustained and successful recovery in full remains uncertain and challenging.

In October 2020, a report of the World Bank[2] on Mexico seemed to conclude that the heavy toll of covid-19 on the economy would not be successfully overcome without a more comprehensive fiscal policy response,[3] and if policy uncertainty with respect to private investment (including in the energy sector) is not lifted, if the state’s need of greater tax receipts is not properly assessed in a tax reform, and if the financial situation of Petróleos Mexicanos (Pemex) is not enhanced by relieving it from its tax and transfer obligations to the federal budget.

A more recent report of the World Bank[4] issued in late March 2021 concludes that the Mexican economy may expand by 4.5 per cent in 2021, but the gradual recovery could be slower as it relies significantly on a number of factors out of the country’s control such as the speed of rollout of covid-19 vaccines and the recovery of the US economy, and the report stresses again the need for the AMLO administration to:

  • deal differently with one of the most pressing pre-crisis challenges key for recovery: facilitating job creation by easing access to finance and labour markets, easing regulatory burdens and improving public services;
  • adjust its approach to the involvement of the private sector in key industries, including the energy sector;
  • enable a tax reform to afford fiscal space; and
  • facilitate a turnaround of Pemex’s financial situation.

What are companies doing?

Participants in the value chain seem to be operating in survival mode. A combination of the pandemic, the lack of public support and disruptive policies challenging private players has resulted in investments in the pipeline waiting for better times while ongoing projects defend their existing rights in court. Corporate balance sheets reflect this.

Although there are slim signs of recovery in specific sectors, tourism, entertainment, food service, transport and communication continue to struggle. In Mexico, as elsewhere, the decrease in air travel in the first months of the pandemic in 2020 significantly affected airlines. Unlike in many other countries, the federal government in Mexico has not extended the kind of short-term assistance that would help keep airlines afloat. Despite the calls by the International Air Transport Association (IATA) during the summer of 2020 for government–industry dialogue in Mexico to aid airlines, the government has not offered any assistance.[5] Any hope for government support seems to have been buried by recent communications of AMLO’s government entertaining the idea of opening a government-owned airline in the domestic market.

Although by September 2021 a number of Mexican carriers have been able to exceed the size of operations achieved in 2020, the industry overall has not yet reached pre-pandemic levels.[6] To make things worse, Mexico’s rating under the International Aviation Safety Assessment (IASA) by the US Federal Aviation Administration (FAA) dropped from category 1 to category 2 in May 2021, and at the time of writing remains category 2, there being no assurance that the Mexican aviation authority will be able to comply with International Civil Aviation Organization (ICAO) or FAA standards or that the FAA will raise Mexico’s IASA classification back to category 1. Mexican carriers depend on the Mexican government to maintain the category 1 rating to be able to open new routes to the US, increase the frequency of operations on those routes, and increase the number of aircraft serving these routes, and to share codes with US airlines. Failure to do so adversely affects the business and financial condition of already struggling carriers.

In July 2020, Mexico’s legacy flag carrier, Aeroméxico, filed for voluntary restructuring under Chapter 11 of the US Bankruptcy Code. Another critical player in the market, Interjet, a Mexican low-cost carrier, also returned a significant number of aircraft after a major drop in passengers transported during the first half of 2020, completely ceased operations in December 2020, and has since struggled to avoid an apparently unavoidable judicial insolvency proceeding (concurso mercantil) amid a handful of scandals dealing with creditor lawsuits, employee and union conflicts, tax fraud and shareholder litigation.

The banking sector is not indifferent to the situation. Even though well capitalised and in line with Basel III requirements and safeguards, the soundness on assets on the balance sheets is yet to be tested. In June 2020, the National Banking and Securities Commission (CNBV) revoked the banking authorisation of Banco Ahorro Famsa following its failure to meet the minimum capitalisation index and amid the filing under Chapter 11 of the US Bankruptcy Code by its holding company Grupo Famsa, and in September 2021, the CNBV also revoked the banking authorisation of Accendo Banco after it failed to meet the minimum capitalisation index.

The energy market, including the oil, gas and power (especially renewables) sectors, is also in the spotlight beyond a lack of support for new developments, as AMLO’s government is pushing on a number of fronts through both the executive and the legislative branches to take away the path travelled under the previous administration, often with measures of dubious legality. With a view to bringing the country’s energy companies to their former glory, policies have not only turned away investment and prompted internal legal struggle, but seriously endangered existing projects. An important number of existing projects may be forced to cease operations and struggle with insolvency issues unless legal protection can be obtained at judicial instances against this governmental wave of attacks. In all likelihood, the market will not turn around until sometime after AMLO’s term ends in 2024.

The review of the balance sheet and cash-flow projections of a company are an essential first step, along with the anticipation of potential disruptions in contractual obligations and the preparation of a business plan tailored to recognise a new business reality. Where feasible, the assistance of external financial and legal advice is of great help. Whether or not insolvency proceedings are to be faced, the more conscious the company is about its reality and the challenges ahead, the greater its chances of achieving a better outcome.

Insolvency proceedings are also an alternative to be carefully analysed in light of the actual conditions of a company and the particular needs to preserve its value.

Insolvency proceedings in Mexico

The concurso, still a useful tool

Historically, bankruptcy proceedings have been rare in Mexico. Many have attributed this to both cultural resistance and legal impediments to voluntary declarations under the former law.[7]

The Commercial Insolvency Law, in effect since May 2000 and amended in 2007 and 2014,[8] changed the way businesses and legal practitioners see insolvencies involving persons or property in Mexico. Enacted to help keep struggling businesses[9] in operation and to reactivate credit transactions in Mexico, the Commercial Insolvency Law aimed to minimise the negative effects of non-payment of debts on defaulting businesses, creditors and the Mexican economy as a whole.

By providing for a single insolvency proceeding (concurso mercantil) separated into two not necessarily successive stages – conciliation (reorganisation) and bankruptcy (liquidation) – the law aims to protect both debtors’ and creditors’ rights. A debtor and its creditors are initially compelled to try to reach a settlement agreement on mutually acceptable payment and restructuring terms during the conciliation stage, before a defaulting business and its assets may be sold off to pay its debts during the bankruptcy stage.

While a number of features of the proceeding remain controversial among practitioners, the concurso proceeding remains a useful tool to overcome struggling and extraordinary financial conditions in a relatively efficient manner following modern legal and financial trends in the international practice.

The World Bank has recognised this by assessing the following key indicators[10] on insolvency proceedings in Mexico and affording a score and ranking on Mexico’s legal regime for resolving insolvency higher than that of comparable economies in the Latin American region.[11]

Recovery rate (cents on the dollar)63.9
Time (years)1.8
Cost (% of estate)18
Outcome (0 piecemeal sale to 1 ongoing concern)1
Strength of legal framework index (0–16)11.5
Score (0–100)70.3
Ranking (out of approximately 190)33

However, insolvency proceedings remain far less common in Mexico than in other jurisdictions. Almost half a million bankruptcy cases have been filed in the United States in 2021 alone, for a total number of pending cases in excess of three-quarters of a million by June 2021.[12] As of early October 2021, only 838 concurso filings have been made under the Commercial Insolvency Law since it was enacted in May 2000.[13] Concurso has clearly been underused by debtors in Mexico, some of whom have even elected to initiate proceedings elsewhere (mainly before US courts following proceedings under the Bankruptcy Code).

As noted above, recent cases of Mexican companies filing for protection under Chapter 11 in the United States include Aeroméxico and Grupo Famsa. The reasons behind electing to have a US court as the main insolvency forum may vary, but may essentially have to do with the type of debt held, as well as other factors such as the availability and efficient recognition of debtor-in-possession (DIP) financing, a generalised stay of obligations and well-tested simpler and expedited proceedings in charge of specialised courts.

The concurso proceeding

The Commercial Insolvency Law applies to insolvencies of individuals or entities that fall under the definition of a debtor merchant. This definition includes the debtor’s assets held in trust when business activities are affected and entities holding more than 50 per cent of another company’s shares that give the holder voting rights. The definition also includes the branches of foreign companies although only regarding the assets located in Mexico.

Insolvency declaration

Only a debtor, one of its creditors or a federal public prosecutor may file a petition for an insolvency declaration judgment. To obtain the insolvency declaration, one must show that a debtor is in general default of payment of debts, which occurs when the debtor has debts to two or more different creditors and the debts are 30 calendar days or more overdue and represent 35 per cent or more of all the debtor’s debts, or the debtor does not have sufficient assets to pay at least 80 per cent of its outstanding debts.

A federal district court sitting in the debtor’s domicile has exclusive jurisdiction to declare a debtor insolvent and conduct the commercial insolvency proceeding. After admitting a petition to declare insolvency, the court asks the Federal Institute of Commercial Insolvency Proceedings Specialists (IFECOM) (a judicial agency) to appoint an examiner to inspect the debtor’s financial records for a period of 15 days, which can be extended for 15 additional days. If, after conducting the inspection, the examiner reports to the court that the debtor is in general default of payment of debts, the court evaluates the reports and the other evidence that appear in the file in order to declare the debtor insolvent by rendering an insolvency declaration judgment and, thereby, initiating the insolvency proceeding.

The debtor and the creditors representing more than 50 per cent of all debts of the debtor can agree on a pre-filing (or pre-packaged) settlement agreement. Once presented to the court, if the court finds that the settlement agreement satisfies the foregoing and all other legal requirements, the court will render an insolvency declaration judgment, initiating the insolvency proceeding directly within the reorganisation stage, thus avoiding the appointment of an examiner and the inspection of the debtor’s financial records. The proceeding will run its course and the settlement agreement will have to be finally and definitely approved by the court.


After the court declares a debtor insolvent, the debtor and creditors must submit to reorganisation. This first stage is held under the supervision of a conciliator appointed by the IFECOM and its purpose is to preserve the debtor’s business through a settlement agreement between the debtor and the recognised creditors. This stage lasts for a period of 185 calendar days beginning on the date the insolvency declaration judgment is published, unless the court grants an extension.

If, during the reorganisation stage, the conciliator and more than half of the recognised creditors believe a settlement is about to be reached, they may ask the court to extend the reorganisation term for up to 90 calendar days. If the debtor and at least 75 per cent of the recognised creditors request it, the court may grant an additional extension for up to 90 calendar days. In no event may the reorganisation period extend beyond the 365 days following the publication date. If an agreement is not reached within the original or extended term, the court will declare the debtor bankrupt.

During reorganisation, no one may attach or sell a debtor’s assets, even if judicially ordered. An exception is allowed for the attachment or sale of assets to pay labour-related debts.


For reorganisation purposes, the IFECOM appoints a conciliator upon the court’s request, who supervises the debtor’s business management, reviews financial records and receives creditors’ claims. The debtor, however, continues to manage and operate its business during reorganisation as DIP. A conciliator also decides whether to terminate agreements that are pending execution or performance and whether to take out new loans (DIP financing). New loans authorised by the conciliator to fund the debtor’s ordinary operation as the proceeding runs its course hold a superpriority claim against the debtor’s estate.

Debt recognition and management

Creditors may file to have their debts recognised during any of the periods the law allows. Even if some creditors do not file to have their debts recognised, the conciliator must request recognition of all debts, provided they have sufficient information for this purpose based on the debtor’s accounting.

To determine the amount of the debtor’s debts, all pending debts are considered due and, to the extent that the debtor’s debts are not secured, they no longer accrue interest. Any outstanding principal and interest in Mexican pesos are converted into inflation-linked units of account (UDIs). Regardless of the agreed place of payment, any principal and interest in foreign currency are converted first into Mexican pesos and then into UDIs. A secured debt is maintained in the original currency agreed upon and only accrues regular interest up to the value of the property that secures it.


Settlement agreements are only effective if the debtor and the recognised creditors representing more than 50 per cent of the total recognised common (unsecured) and secured or special privileged creditors sign it.

Once signed, a settlement agreement is presented to the court. If the court finds that the settlement agreement satisfies all legal requirements and is not contrary to public policy, and if the creditors do not file objections or veto the agreement, the court will render judgment approving the settlement. This judgment ends the insolvency proceedings and the approved agreement binds the debtor, all recognised common (unsecured) creditors and all recognised secured or special privileged creditors who either signed the agreement or whose debts are covered under the agreement.

Bankruptcy and liquidation

While the reorganisation stage aims to preserve the debtor’s business by achieving a settlement agreement among the recognised creditors, the purpose of the bankruptcy stage is to sell off the debtor’s assets in order to repay the recognised creditors.

The court may order an insolvent debtor bankrupt if:

  • the debtor files a request;
  • the reorganisation stage expires and a settlement agreement has not been filed for court approval; or
  • the conciliator files a request, citing a lack of cooperation between the debtor and creditors to reach a settlement.


After it renders a bankruptcy judgment, the court orders the IFECOM to appoint a receiver for the debtor’s assets.

The debtor must turn over to the receiver possession and management of all the assets and rights of the estate in liquidation. Receivers owe a fiduciary duty to the debtor’s estate and must inventory and sell the assets that integrate the debtor’s estate.

Effect of bankruptcy declaration

Generally, the judgment declaring the debtor bankrupt implies removing the debtor from the management of its business. The receiver must file reports with the court after it takes possession of the estate.

Debtor’s duties

Among the debtor’s principal duties is that of accompanying the receiver, either personally or through a legal representative, on matters related to the bankruptcy and refraining from undertaking certain acts without the receiver’s general or specific written authorisation.

Selling off estate assets

The receiver is entitled to begin selling the debtor’s assets and the rights that make up the estate. If selling the business as a productive unit may yield the highest sales proceeds, the receiver must consider the option of keeping the business as a going concern.

Order of preference and payment

For the purposes of payment of debts as agreed upon in the settlement agreement or liquidation during the bankruptcy stage, a debtor’s debts are paid based on the nature of the credit and in accordance with the following specified order of preference:

  • labour debts related to employee wages and severance for the two years preceding the insolvency declaration and certain superpriority debts (including, among others, those related to the examiner’s, conciliator’s and receiver’s fees, and to the repair, maintenance and management of the bankruptcy estate);
  • singularly privileged credits (applicable only if the debtor is an individual);
  • secured credits;
  • debts assumed to manage the business by the debtor with the conciliator’s authorisation (DIP financing);
  • labour-related debts (other than those identified above) and unsecured tax debts;
  • debts to creditors with a special privilege (pursuant to business statutes or by right of retention);
  • debts to common (unsecured) creditors; and
  • subordinated credits (including inter-company credits).

Conclusion of the proceedings

The court may conclude insolvency proceedings on its own motion or upon a valid request:

  • when a settlement agreement is reached;
  • when all recognised creditors are paid in full;
  • when recognised creditors are paid in accordance with insolvency proceeding quotas and there are no more assets to sell;
  • when the estate assets are insufficient to pay the necessary expenses in connection with labour obligations and insolvency proceedings; or
  • at any time the recognised creditors and the debtor file a request.

Special proceedings and cross-border insolvency

Special rules apply for insolvency proceedings involving a debtor that is a public service provider under government concession, a bank or an auxiliary credit institution.

The Commercial Insolvency Law also contemplates cross-border insolvency for handling cases (domestic and foreign) in which the debtor has assets in more than one country. Following the UNCITRAL Model Law on Cross-Border Insolvency, Mexican law on international cooperation allows access to Mexican courts to a person administering a foreign insolvency proceeding. It contemplates coordination in concurrent insolvency proceedings, allows Mexican courts to declare a foreign debtor’s business in Mexico insolvent and the debtor’s creditors to obtain interim orders to protect their rights against a foreign debtor.

Challenges ahead

Companies are uneducated when it comes to facing insolvency situations, let alone judicial voluntary or forced insolvency proceedings. Management is typically educated and expected to perform in a business-as-usual environment. Insolvencies are complex, costly, intensive and time- and energy-consuming processes. A culture of proactively using insolvency resources is being forcefully developed in Mexico, but it will still take time for companies to openly consider and embrace the advantages of a successful insolvency process. Relationships with constituents and stakeholders in an insolvency situation are not in the job description of board members and executives of Mexican companies. A new culture is required to adopt ad hoc governance structures, isolated from management (who is expected to continue operating the business), to deal with the situation, if and when insolvency arrives. One with a clear vision that the exit exists before entering into the process and the path to be walked to get there.

Simpler and expedited proceedings in the hands of specialised courts would definitely encourage wider use of the concurso in Mexico. New rules alone will not achieve a renewed insolvency practice.

Legal counsel holds a unique and privileged position towards a more educated business environment when it comes to making decisions in a stressed situation.


[1] Heath, Jonathan, ‘Identificación de los ciclos económicos en México: 30 años de evidencia’ in Realidad, Datos y Espacio. Revista Internacional de Estadística y Geografía, vol. 2, num. 2, May–August 2011, available at (accessed: 4 October 2021).

[2] The World Bank, The Cost of Staying Healthy. Semiannual Report of the Latin America and the Caribbean Region, available at (accessed: 4 October 2021).

[3] An October 2020 International Monetary Fund (IMF) working paper concluded that the AMLO’s government fiscal response to the pandemic was modest compared to its peers and it risked a weaker economic recovery (see: Hannan, Honjo, and Raissi, Mexico Needs a Fiscal Twist: Response to Covid-19 and Beyond, available at (accessed: 4 October 2021)).

[4] The World Bank, Renewing with Growth. Semiannual Report of the Latin America and the Caribbean Region, available at (accessed: 4 October 2021).

[5] International Air Transport Association, Airlines in Latin America and Caribbean in Peril, Urgent Government Support Needed, available at (accessed: 4 October 2021).

[6] Secretaría de Comunicaciones y Transportes, Reporte Mensual de Estadística Operacional, Agosto 2021, available at (accessed: 4 October 2021).

[7] The Bankruptcy and Suspension of Payments Law enacted in 1943. By the 1980s and 1990s, Mexican business had outgrown the law. The few businesses that did invoke the statutory protections were known to do so as a ruse, to avoid paying their debts by delaying enforcement and foreclosure proceedings indefinitely.

[8] Additional minor amendments were passed in 2019 and 2020 exclusively to provide and accommodate for the enactment of the National Property Forfeiture Law.

[9] The federal statute does not regulate civil insolvency, which is regulated locally under civil code law and is subject to constitutional protection.

[10] World Bank Group, Doing Business 2020, Mexico, available at (accessed: 4 October 2021).

[11] The World Bank, ‘Resolving Insolvency’ in Doing Business, available at (accessed: 4 October 2021).

[12] US Bankruptcy Courts, current statistics report on bankruptcy cases commenced, terminated and pending during the 12-month periods ending 30 June 2020 and 2021, available at (accessed: 4 October 2021).

[13] Instituto Federal de Especialistas de Concursos Mercantiles, current statistics report on proceedings per stage, available at (accessed: 4 October 2021).

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