Commercial bankruptcy is a legal procedure designed to preserve the continuity of viable companies and prevent widespread non-compliance with their obligations for the continuation of their business relationship. In addition, it is responsible for guaranteeing protection to creditors against the detriment of the assets of companies that enter into commercial bankruptcy in terms of article 1 of the Commercial Bankruptcy Law (“LCM”).   

In this context, it is essential to understand the legal mechanisms that operate during this procedure, especially those designed to protect the merchant's assets and the limits of such protection in relation to third parties that may be linked to the merchant relationship, such as jointly liable parties.

Precautionary Measures in Commercial Bankruptcy.

According to articles 25 and 37 of the LCM, the District Judge Specialized in Commercial Bankruptcy has the power to dictate precautionary measures or orders from the moment the procedure is admitted for processing and once the visit by the specialist designated by the Federal Institute of Commercial Bankruptcy Specialists has been carried out, the measures may be modified, adopted or lifted. These measures are dictated with the objective of protecting the assets and rights integrated into the merchant's assets.

Among others, the measure that suspends any act of seizure or execution on the assets and rights of the bankrupt merchant stands out. These measures seek to preserve the merchant's assets so that the available resources can be distributed equitably among all recognized creditors.

However, it is important to note that these restrictions have a specific and limited scope: They only protect the assets and rights of the bankrupt merchant.This means that the precautionary measures do not benefit other people who may be linked to the company's debts, such as joint debtors, guarantors or sureties. Consequently, creditors can continue with the legal actions they deem appropriate to collect the company's debt directly from the joint debtors, who remain exposed to compliance, regardless of whether they are closely linked to the merchant.

Commercial bankruptcy ruling.

Article 65 of the LCM states that once the inspection stage has been carried out and it has been confirmed that the merchant complies with the conditions set out in Article 10 of the LCM, the Judge must issue a ruling declaring the merchant in commercial bankruptcy.

From this declaration, and until the end of the conciliation stage, the execution of seizure orders or any act of execution against the assets and rights of the bankrupt merchant is prohibited.

Jointly liable: responsibilities that persist.

Jointly liable parties are those who, by prior agreement, assume the responsibility of guaranteeing payment of the principal debtor's debts. This role implies that they are legally obliged to respond with their own assets in the event that the principal debtor does not comply.

Since the jointly liable parties have assets completely independent of those of the bankrupt, they would not be protected by the precautionary measures issued in the proceedings.

Recently, a criterion was published which made it clear that bankruptcy does not suspend the rights of creditors to demand payment of debts from jointly liable parties. It even mentions that if an agreement is reached between the merchant and its creditors within the bankruptcy, this agreement does not modify or extinguish the obligations of the jointly liable parties, guarantor or surety, as established in article 166 of the LCM.

Judicial criterion.

A novel criterion specifically addresses the situation of jointly liable parties in bankruptcy proceedings and offers an in-depth analysis of this issue[1].

The criterion establishes that the declaration of bankruptcy of a company does not restrict the right of creditors to collect the debt directly from jointly liable parties, guarantors, sureties or other guarantors who are independent of the bankrupt merchant. This is because the protective measures of bankruptcy, such as the suspension of seizures and executions on the merchant's assets, are intended exclusively to preserve the assets of the principal debtor to ensure an equitable distribution among creditors within the bankruptcy procedure.

The criterion explains that the essence of a joint obligation lies in its autonomous and non-subsidiary nature with respect to the principal debtor. Therefore, the creditor is not obliged to wait for the merchant's non-compliance in order to demand payment from the jointly liable party.

Pursuant to Articles 166 of the LCM and 1987 and 1989 of the Federal Civil Code, it is established that a jointly liable party assumes full and immediate liability before the creditor, who may choose to sue any of the debtors for the entire obligation.

Furthermore, the criterion underlines that this autonomy is precisely one of the objectives of joint guarantees: to allow the creditor to obtain payment even when the principal debtor faces insolvency or bankruptcy. In this sense, joint guarantees ensure that creditors can safeguard their rights even in adverse scenarios for the debtor company.

For example, if a bankrupt company negotiates a debt reduction or a delay with its creditors within the framework of the bankruptcy, these conditions do not affect the jointly liable parties. A creditor could sue the jointly liable party for the full original amount of the debt, without being limited by the restrictions of the bankruptcy procedure or the agreements reached therein.

Exception.

Notwithstanding the above, although as a general rule the assets of the jointly liable party are completely independent of the bankrupt merchant, there is a limited exception. It is possible to grant precautionary measures aimed at suspending the execution of specific assets and rights of the jointly liable parties only when it is demonstrated that said assets or rights are strictly indispensable to maintain the ordinary operation of the bankrupt company and, therefore, its viability. This is in the public interest of preserving the company as an economic unit.

To justify this exception, two key elements must be proven:

1. That the embargo on the assets of the jointly liable party prevents the development of essential functions within the operation of the bankrupt company and places it in a vulnerable situation.
2. That the asset or right of the jointly liable party that is the object of the embargo is essential for the development of the merchant's corporate purpose.

That is, it must be demonstrated how the execution of the assets of the jointly liable party directly affects the operational capacity of the bankrupt company. If these elements are not proven, the assets of the jointly liable party will continue to be fully enforceable, in accordance with the principle of autonomy of joint obligations.

Conclusion.

The commercial bankruptcy protects the assets of the bankrupt merchant and seeks to facilitate its restructuring or orderly liquidation, but -At first-, does not extend this protection to jointly liable parties. This legal framework ensures that creditors have effective mechanisms to recover their debts, while obliging jointly liable parties to assume the consequences of their obligations.

[1] Supreme Court of Justice of the Nation, Digital Registry 2028725, Eleventh Period, Subject(s): Civil, Thesis: I.15o.C.15 C (11a.), Circuit Collegiate Courts, Isolated Thesis, Judicial Weekly of the Federation, Publication: Friday, May 10, 2024, 10:15 hours. “COMMERCIAL BANKRUPTCY. THE RELATIVE DECLARATION DOES NOT PREVENT THE CREDITOR FROM COLLECTING THE CREDIT FROM JOINTLY LIABLE PARTIES WHO ARE NOT PART OF THE BANKRUPTCY." https://sjf2.scjn.gob.mx/detalle/tesis/2028725

Since the “Judicial Reform” became final after the Plenary Session of the Supreme Court of Justice of the Nation rejected the corresponding draft ruling, said reform will have full applicability in the Mexican legal system.

The above implies, in a prominent manner, the following:

1. New composition of the Supreme Court of Justice of the Nation:

1. Reduction in the number of Ministers, from 11 to 9.
2. Reduction of the term of office, from 15 to 12 years.
3. Elimination of the Chambers that make up the Court, so that it will only operate in Plenary Session.

2. Election by popular vote to elect all Magistrates and Judges.

1. Popular election of the Magistrates of the Electoral Tribunal of the Judicial Branch of the Federation.
2. Popular election of Circuit Magistrates and District Judges. This means that 1,700 federal judge positions will be elected by vote by 2025, and another 1,800 will be elected in 2027.

3. Elimination of the Federal Judicial Council:

1. Creation of the Judicial Disciplinary Court.
2. Creation of a Judicial Administration Body.

4. Establishment of new procedural rules:

1. A maximum period of six months is established for the resolution of tax matters and one year for criminal matters.
2. Prohibition of granting suspensions against laws with general effects in amparos, constitutional controversies and actions of unconstitutionality.

Once all the measures entailed by the Judicial Reform are implemented, we believe that the federal judicial system will enter a period of transition and adjustments that will invariably trigger a change in the way in which amparo trials are processed and resolved.

The above will give rise to those individuals and legal entities that are affected by an act of authority to seek alternative means to resolve the controversy in light of the changes in the Judicial Branch of the Federation and the uncertainty that could be generated by the changes in the structure and operation that will take place.

It should be noted that in the face of such uncertainty, the different means available to individuals to avoid damage caused by acts of authority must be recognized, with the General Law on Alternative Dispute Resolution Mechanisms ("LGMASC") being relevant, which aims to establish the bases, general principles and distribution of powers for alternative dispute resolution mechanisms, which may even be initiated before the authorities.

What the LGMASC seeks is to promote the culture of dialogue and negotiation, by encouraging the peaceful resolution of disputes through guaranteeing access to alternative justice other than jurisdictional or contentious justice, with a confidential, voluntary, complete, neutral, independent, flexible, equal, legal, prompt and expeditious character.

That is to say, this Law seeks to resolve disputes between the governed and public entities in a prompt and accessible manner through agreements that will have legal effects, achieved through various mechanisms that the Law itself indicates.

The LGMASC speaks of the following five alternative means of dispute resolution:

• Negotiation. Process by which the parties, by themselves with or without intermediaries, propose solutions through dialogue, in order to resolve a controversy or conflict.

• Collaborative Negotiation. Process through which the parties seek a peaceful and equitable solution to their conflict, through dialogue and, if necessary, the support of third parties.

• Mediation. Voluntary procedure through which the parties agree to resolve a controversy or conflict partially or totally, peacefully or to prevent a future one, only with the assistance of an impartial third person called a facilitator.

• Conciliation. Voluntary procedure by which the parties involved in a controversy or conflict agree to resolve it partially or totally, peacefully or to prevent a future one, not only with the assistance of a third party, but with the latter having an active participation in the process.

• Arbitration. Process for resolving disputes or conflicts other than within state jurisdiction, by which the parties voluntarily decide, through an agreement or arbitration clause, to submit all or certain differences that have arisen or may arise between them, regarding a certain legal relationship, with the participation of a third person called an arbitrator who issues an award in accordance with the rules established in the applicable regulations.

In relation to the above, it is important to note that in accordance with the LGMASC, alternative dispute resolution mechanisms will not be processed with respect to the following matters and/or disputes:

• Final resolutions imposing administrative sanctions on public servants, as well as those decided by administrative appeals in this matter.
• In agricultural matters.
• The matters provided for in Article 94 of the Foreign Trade Law.
• The programs or goals of the Centralized and Decentralized Public Administration at the Federal and Local levels are affected.
• Public order is violated or the rights of third parties are affected.
• In labor disputes with the Public Administration.
• In cases where administrative authorities file a lawsuit against resolutions favorable to individuals.

Additionally, various federal entities already provide in state legislation alternative means of dispute resolution to resolve conflicts that arise between the governed and the public administration, among which the following stand out:

• Mexico state.

The Code of Administrative Procedures of the State of Mexico establishes that at any time during the processing of the administrative process before the Administrative Court of Justice of the State of Mexico, the parties may reach conciliatory arrangements that put an end to the matter, with the agreements reached having the same effects as a final judgment.

• New Lion.

In the case of a nullity trial before the Administrative Court of Justice of the State of Nuevo León, the Law of Administrative Justice for the State and Municipalities of Nuevo León establishes that from the admission of the claim and until the sentence is issued, the Magistrate will promote conciliation between the parties.

Conclusion

Taking into account the above and due to the uncertainty that may be generated with the implementation of the Judicial Reform and the transition period that it will have, it is considered convenient to take into account the alternative means of dispute resolution established in the LGMASC and other state legislations, in case there is any affectation by the federal and local public administration and an agreement is sought that does not involve a jurisdictional procedure, such as the amparo trial.

In a global scenario like the current one, in which a large part of the development of economies revolves around the mass purchase and sale of products and services in which various economic actors participate, it becomes imperative that society has at its disposal a legal action that can be taken against possible violations of the rights of a community. Mexico is no exception to the above.

Consequently, since August 30, 2011, the Federal Code of Civil Procedure (“CFPC”) was reformed in our country, to add the regulation of class actions.

Although it may not seem to be a new topic, class actions in Mexico continue to be a procedural mechanism that is little or improperly used. This is largely due to the lack of knowledge of this topic by the majority of our society.

To give a very simple definition to this concept, it could be said that class actions are a legal tool through which a group of people defend their rights against a third party who violates them. One of the most relevant advantages of exercising an action of this type is the reduction of costs and time to obtain a definitive resolution, since the claims of an entire group can be concentrated in a single lawsuit.

Now, it is important to note that the CFPC regulates three different categories of class actions:

• Diffuse collective action: It is indivisible in nature and is exercised to protect the rights of a group of undetermined persons. In this type of collective action, it is not necessary for there to be a legal link between the group and the defendant.

Its purpose is the restoration of things to the state in which they were before the damage, or where appropriate, substitute compliance.which is an alternative way of complying with a sentence– according to the impact on the rights of the community.

• Collective action in the strict sense: It is indivisible in nature and is exercised to protect the rights of a group of determined or determinable persons. In this case, there is a legal link by mandate of law between the group and the defendant.

Its purpose is to repair the damage by carrying out one or more actions (or refraining from carrying them out), and to cover the damages individually to the members of the affected group.

• Homogeneous individual collective action: It is divisible in nature and is exercised to protect individual rights of collective incidence. That is, various individuals grouped together based on common circumstances. In this case, there is a legal link between the collective and the defendant.

Its purpose is to claim the forced fulfillment of a contract or its termination, with its consequences and effects according to the applicable legislation.

On the other hand, it is also relevant to clarify that not anyone can initiate a class action in Mexico. According to the CFPC, only the following can initiate such an action: (i) the Federal Consumer Protection Agency; (ii) the Federal Attorney's Office for Environmental Protection; (iii) the National Commission for the Protection and Defense of Users of Financial Services; (iv) the Federal Economic Competition Commission; (v) the common representative of a community made up of at least thirty members; (vi) any of the non-profit Civil Associations duly authorized by the Federal Judicial Council; and (vii) the Attorney General of the Republic.

The CFPC also establishes that only District Judges can hear class actions. That is, all local court judges are prevented from hearing and processing this type of proceedings.

Having laid the foundations for what Mexican law defines as class actions, their types, who is entitled to initiate them and who is entitled to resolve them, it would seem that there is a path laid out to promote class actions as a way of protecting the rights of a community, but why have class actions in Mexico not yet generated the expected impact?

In the opinion of the author, and as already stated, much of this is due to the general lack of knowledge on the subject. There is a need for greater dissemination of information on what a collective action is, in what cases it is appropriate and the advantages it has –especially for the less favored social groups-.

Likewise, it is necessary for litigants to devote themselves with greater interest to the study and proper exercise of this type of action contemplated in the Mexican legal system. It is not uncommon that, in practice, there are lawsuits where one type of collective action is asserted when in reality it is a different one, or that this type of process is used as a method of pressure by some interested parties in obtaining disproportionate or even clearly inappropriate compensation.

The complexity of exercising collective actions also lies in the thorough analysis that must be carried out when studying a matter of this nature, because as we have already seen, this type of action not only protects collective and diffuse rights, but also individual rights that can be defended more effectively collectively.

Several authors have even criticised the current regulation in Mexico regarding class actions, describing it as limited and unclear. First, it is considered that the grounds for the admissibility of a class action are very limited and several important areas, such as cultural heritage, are left unprotected. Second, it is considered that there are gaps within the procedural regulation that limit access to justice.

The truth is that collective rights change based on changes in social realities, so it will be necessary, in the not too distant future, to carry out a new analysis of the multiplicity of rights of a community that may be affected by a third party and thus, said rights are protected in a more comprehensive and effective way.

It should also be stressed that only practice will allow us to continue identifying areas of opportunity in the legislation on collective actions, and to increase the interpretation of current regulations by both the Circuit Collegiate Courts and the Supreme Court of Justice of the Nation.

For the time being, the new National Code of Civil and Family Procedures, which will soon come into force, does not foresee any substantial changes in this area.

Executive Summary:

• In every public limited company there are those who are obliged to provide accounts and documentation both on a regular basis and when requested by a shareholder. The obligation to do so is particularly important for directors and shareholders, but not exclusively so.
• In practice, cases are often observed where the subjects obliged to do so do not do so, or attempt to comply in an incomplete or derisory manner, thus hindering the rights of a shareholder to know the information of the company of which he is a part.
• In commercial legislation, there are processes called "Preparatory Means for Trials", which, in the case of obtaining accounts or documentation from a company for a shareholder, present considerable advantages as opposed to a direct trial.

Introduction.

Accountability, in general, is an action that corresponds to the person who has a legal link by which another is obliged to inform him of the way in which he has managed the assets or the representation or management carried out by the other.

In a corporation, those obliged to account to the shareholders are mainly the directors, the auditor and the partners themselves, among them. However, recently the Judicial Courts in Mexico have interpreted criteria that it is also feasible to request information or documentation directly from the company itself (hereinafter "Obligated Subjects").

As an example, and in the specific case of administrators, it is mentioned that, by express provision of the General Law of Commercial Companies ("LGSM"), they must present an annual report to the Shareholders' Meeting, whose requirements highlight that it must contain: (i) the state of the financial situation, (ii) the results of the exercise, (iii) social heritage, among others.

Occasionally, the case arises where Obligated Subjects do not exhibit or are not transparent with the information and/or documentation of the company when requested to do so by a shareholder, despite the latter formally requesting it.

Considering the material difficulties that a shareholder has in obtaining the information or documentation to which he is entitled when faced with refusals from those who have it, the filing of Preparatory Means for Trial (“MPJ”) appears to be a great alternative solution.

Developing.

MPJ are those pre-trial procedures that tend to provide those who promote them with elements of knowledge or evidence that allow them to promote a subsequent trial.

The possibility of filing MPJs by a shareholder against the Obligated Subjects is based on section IV of article 1151 of the Commercial Code.

The MPJ on accountability begins with an initial writing of the shareholder - justifying such character - before the competent Commercial Judge and with respect to the Obligated Subjects that prove they are suitable to provide what is intended.

Procedure that presents the following notable advantages compared to a traditional trial:

Advantages

• From the admission of the procedure, the Judge orders to personally notify the Obligated Subjects subject to the process and requires them to present to the Court within a certain period the information and documentation requested by the shareholder, thus avoiding processing a complete trial for this.

• The Judge has express powers in the Commercial Code to warn the required persons about applying any means of coercion that he deems appropriate to enforce his determination, in the event of unjustified refusal.

• The release of some MPJ first and the effective obtaining of the required information, allows the shareholder to promote, if applicable, the corresponding claim with greater evidence and have more clarity about their rights to claim, such as, for example, accounting or financial information related to the progress and operation of the company.

• Currently, there is greater rigor from the Judicial Authorities to ensure that accountability is fulfilled, so it is not enough for the Obligated Subjects to "display diverse information" but, for example, in the case of financial information, it must be accompanied by supporting documents and possible verification. What turns out to be more practical is to revert to some MPJ if such an attempt occurs.

• The resolution that admits a MPJ does not admit an ordinary appeal and, in fact, the Judicial Authorities have established in recent criteria that the challenge of a MPJ, through an Indirect Amparo Trial, only proceeds until the last resolution is issued. The above with an exception if the judicial determination materially affects substantive rights.

Conclusions.

The MPJ is an ideal process for a shareholder to judicially obtain the accounting and documentation that he/she wants from the Obligated Subjects, unlike a traditional trial. It is notable for the agility that is available from the beginning of the procedure to obtain what is sought, as well as the regulatory discretion that the Judge has to make his/her determinations effective in the event of omission.

Despite the above, it should also be mentioned that the Obligated Subjects required in a MPJ also have the right to present an opposition before the Judge regarding the request, which will correspond to the Judge to assess whether this is sufficient to refrain from continuing with the MPJ, or whether the opposition is not admissible and the MPJ is continued.

Finally, for more information on a Preparatory Means for Trial on a shareholder's right to accountability or documentation, we invite you to contact our experts.

Authentic Brands Group acquires iconic sportswear brand Champion. This strategic transaction, valued at $1.2 billion, represents a significant expansion of Authentic Brands Group’s portfolio in the athletic apparel sector.

As part of this transaction, Ames Watson, a private investment firm, will manage Champion's sportswear business, which generates nearly $3 billion annually in sales. retailThis transaction is the second largest brand acquisition in the history of Authentic Brands Group.

Santamarina y Steta provided comprehensive legal advice during the acquisition process to Ames Watson led by partner Juan Carlos Machorro and associates Raziel Celis and Redy Martínez, together with partner Juan Carlos de la Vega in labor aspects. Santamarina y Steta's participation highlights its solid experience in high-profile mergers and acquisitions within the global sportswear market.