Distributing Dividends from a Private Company in Mexico
When shareholders invest in a company, they expect to receive a cash return on their investments. A company can provide returns to shareholders in a number of ways, but the most popular method in Mexico is through some form of dividend.
Our partner Alberto Saavedra, counsel Karina Robledo, and associates Inigo Garcia, Esteban Soto and Arturo Y. Alvarado, in collaboration with Thomson Reuters® Practical Law, explain what dividends are under Mexican law and analyze the legal procedure and practice surrounding the declaration and payment of dividends by private companies in Mexico.
Thomson Reuters® Practical Law is a source of practical guidance for a better understanding of international legal systems, cultural and market practices in more than 100 countries and 14 practice areas.
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Reproduced from Practical Law with the permission of the publishers. For further information, visit practicallaw.com
The Supreme Court of Justice of the Nation declares the Reform to the Electricity Industry Law of 2021 unconstitutional
Executive Summary:
- On January 31, 2024, the Second Chamber of the Supreme Court of Justice of the Nation (SCJN) granted the first amparo against the reform to the Electricity Industry Law of 2021, resolving the Amparo in Review 164/2023 filed by various private companies claiming the unconstitutionality of the Reform to the Electricity Industry Law published on March 9, 2021.
- The said protection was granted by majority vote, with the votes of Ministers Luis María Aguilar Morales and President Alberto Pérez Dayán, who in terms of Article 56, first paragraph, of the Amparo Law, cast his casting vote. Ministers Yasmín Esquivel Mossa and Leina Batres Guadarrama voted against, after evaluating the excuse raised by Minister Javier Laynez Potisek.
The Second Chamber of the SCJN determined that seven articles of the Reform to the Electricity Industry Law are unconstitutional on the grounds that they violate, among other principles, competition and free competition in the electricity generation sector, contravening the constitutional mandate that provides for the creation of a competitive electricity market.
The reform to the LIE, in addition to reducing private participation in the market, sought to grant benefits to CFE by granting it preference in electricity dispatch, modifying the rules for granting Clean Energy Certificates and limiting the conditions of competition in the electricity sector.
The figure of electricity coverage contracts, through which it was intended to grant a benefit in the electrical dispatch to the CFE to the detriment of individuals, is declared unconstitutional. The Second Chamber of the SCJN determined that, according to the Federal Constitution in its text derived from the energy reform of 2013, the order of priority in the dispatch of electrical energy regulated in the Electricity Industry Law of 2021, which constitutes the mechanism by which it is decided which electricity generating plants inject their energy first into the national grid, violates the principles of competition and free competition.
The Second Chamber ruled that the fact that, by virtue of the requested legal reform, the State Power Plants can access the assignment of an electrical coverage contract (for the purchase and sale of energy) through an interconnection contract, being exempted from resorting to auctions as the form that private companies are obliged to satisfy for this purpose, implies a differentiated and privileged treatment that eliminates an area of healthy competition, for which reason it is declared unconstitutional.
Regarding the issue of Clean Energy Certificates, the Second Chamber decided that the requested legal reform, which authorized not only new plants but also legacy plants to receive Clean Energy Certificates, would cause an excessive issuance of clean energy certificates to satisfy the demand of all participants, discouraging the effective production of said clean energy in contravention of the imperative of the permanent Constituent that provides for the principle of sustainable development for energy matters, for which reason it declared the proposed modification unconstitutional.
It is worth noting that the Court considered that the alleged strengthening of state-owned companies is not a reason to ignore the constitutional framework on electricity, since it cannot be ignored that, in certain activities, such as electricity generation, CFE is another competitor in the market and even has a structure that allows it to compete on equal terms.
While it is true that the protection was resolved in favor of the complaining companies, it is also true that, in order for the removal of the legal reform requested in their situation to materialize, the same consequence will necessarily be generated for the rest of the agents that participate in the wholesale electricity market, since otherwise, undue advantages and distortions would be caused in the same.
This is the first resolution of the hundreds of appeals filed against the reform to the LIE, which will begin to be resolved according to the criteria upheld by the majority of the Second Chamber of the SCJN. It may be the case that, at the request of the Federal Executive, the Attorney General's Office or some of the ministers, the Plenary of the Court may attract some appeals for discussion and analysis by all the Ministers. In that case, a simple majority will be enough to declare the unconstitutionality.
Publication of the General Law on Alternative Dispute Resolution Mechanisms: Relevant information and possible future problems
Executive Summary:
- Over the past decades, Alternative Dispute Resolution Mechanisms have been a widely used means for the amicable resolution of disputes. Until now, this matter has been regulated locally; for example, in Mexico City since 2008 there has been the Alternative Justice Law of the Superior Court of Justice of Mexico City (“Alternative Justice Law of CDMX”).
- On January 26, 2024, a Decree was published in the Official Gazette of the Federation issuing the new General Law on Alternative Dispute Resolution Mechanisms ("MASC Law
- This law will mark a new regulatory stage in the resolution of conflicts through alternative means, offering citizens an accessible and effective procedure for resolving disputes, prioritizing rapid solutions over lawsuits before courts.
- The main goal of the MASC Law is to promote a culture of conflict resolution through accessible mechanisms, reducing formalities that may hinder the administration of justice.
The explanatory memorandum and opinion of the MASC Law underline the intention to guarantee alternative conflict resolution as a palpable human right in everyday life. The MASC Law also seeks to promote restorative justice and to expeditiously resolve everyday conflicts in civil, commercial, family and administrative matters.
Some key considerations of the MASC Law:
- The figure of the “Facilitator” is created, an expert in charge of resolving disputes through agreements.
- The Center for Alternative Dispute Resolution Mechanisms is hereby created, which will serve as an auxiliary body of the Judicial Branch of the Federation and the state judicial branches and which will also regulate the actions of the “Facilitators,” among other issues.
- The processing of an alternative mechanism for disputes that are being heard by a judge is contemplated, even with the possibility of suspending the respective trial.
- A procedure is also provided for resolving disputes that do not arise from a judicial dispute; that is, those that are presented directly to be resolved through an alternative mechanism. In these cases, an abbreviated procedure is designed that should not exceed three months.
The MASC Law also focuses on Restorative Justice, encouraging the Facilitator to seek to guarantee comprehensive reparation of damages, for which he may even rely on experts in specific areas, in addition to regulating "restorative processes" -in certain matters - ensuring the psychological and emotional well-being of the parties.
While it appears that the MASC Law will bring improvements to the dispute resolution system in Mexico, it should also be noted that there are certain areas that deserve reflection and give rise to reservations, for example:
- In the case of mediation, the CDMX Alternative Justice Law regulated six clear stages for its processing. The MASC Law only provides that the Facilitator can propose preventive actions of giving, doing and not doing until reaching an Agreement, as well as holding meetings with the parties.
- The potential complexities in the application of the ADR Law, in particular its implications for local laws, raise significant questions. When examining the transitional articles, especially its fourth article, questions arise as to the direct application of the ADR Law and how local laws should be updated, or whether direct application of the ADR Law should be the preferred option.
- It is also not entirely clear how the General Congress and the Local Congresses should update the existing laws on the matter.
- It is also noteworthy that the MASC Act provides for civil liability sanctions for Facilitators in the event of negligent or deficient drafting of a Convention. From a practical point of view, this could discourage persons seeking to register and act as Facilitators.
- The MASC Law limits the participation of Mediators, since only persons of Mexican nationality can obtain Certification as a Facilitator. This restriction excludes all foreign persons who wish to work as Facilitators.
On the other hand, the MASC Law also provides for a Chapter on online procedure processing, which seeks to bring the procedure closer and modernize it by carrying out all the proceedings remotely and with virtual hearings.
Speaking of dispute resolution, Santamarina + Steta has a well-established track record and a team of highly-trained professionals. The Firm prides itself on offering exceptional expertise in the field of legal negotiations.
We have played a key role in numerous mediations, re-mediations and successful settlements in a wide variety of cases. Our strategic approach has been key to achieving beneficial settlements for our clients. This includes designing effective strategies for clients to obtain enforcement of their settlements.
By choosing Santamarina + Steta, our clients not only gain an experienced legal team, but also partners committed to achieving effective results at all stages of dispute resolution.
If you would like to learn more about the new MASC Law and how it may impact your business, operations and interests, please do not hesitate to contact our experts:
Reform of the Federal Labor Law and the Social Security Law on labor rights of agricultural workers
Executive Summary:
- On January 24, 2024, a decree was published amending, adding to, and repealing various provisions of the Federal Labor Law and the Social Security Law regarding the labor rights of agricultural workers.
- The changes, which will come into effect on January 25, 2024, recognize the different ways in which farm workers can be hired and impose various obligations on employers.
- In order to ensure compliance with the obligations by employers, Labour Inspectors are given the power and duty to carry out inspection visits at least once a year and during the production season.
On January 24, 2024, the decree amending, adding and repealing various provisions of the Federal Labor Law and the Social Security Law regarding the labor rights of agricultural workers was published in the Official Gazette of the Federation.
This reform establishes measures to guarantee the rights of agricultural workers.
The changes, which will come into effect on January 25, 2024, recognize the different modalities by which farm workers can be hired: permanent or temporary - for a job, a specific period of time or a season -, establishing that all will have the right to social security; in addition, it is established that temporary workers who work continuously for more than twenty-seven weeks will be presumed to be permanent.
Hiring in any form must be formalized by means of a written contract, detailing the working conditions and the mechanisms to inform farm workers about the labor authorities to which they can turn when they consider that their rights have been undermined. The salary will be set by the National Commission on Minimum Wages, without this preventing the parties from agreeing on a remuneration higher than the minimum wage.
Under this tenor, employers must now keep a special register of temporary farm workers to record the accumulation of contracted time, which will be used to calculate the proportional part of vacations, vacation bonus, Christmas bonus and any other benefit that corresponds to them at the end of the work, a specific time or season.
Additionally, various obligations were imposed on employers, including:
- Provide workers with accommodation that meets the minimum construction, safety and hygiene requirements. In all cases, the rooms must have a solid floor, drinking water, bathrooms, showers, sinks and dining rooms.
- Provide healthy, sufficient and varied food; water suitable for human consumption and use, in sufficient quantities; and adequate sanitation services.
- Transfer farm workers to the medical services of the Mexican Social Security Institute. In those places where the Institute does not have facilities, it must provide free medical assistance.
- Provide childcare services to the children of farm workers for the entire duration of the working day, regardless of the hiring scheme.
- Guarantee agricultural workers equal access to the training or certification schemes for work skills that it implements.
- Respect the pre- and postnatal breaks of pregnant workers, who must have job stability during pregnancy and until the end of the postpartum period. It should be noted that temporary farm workers who are pregnant during the time of effective service provision have the right to the benefits corresponding to the Sickness and Maternity Insurance, related to medical and hospital services.
In relation to the above, in order to ensure compliance with the obligations by employers, Labor Inspectors are given the power and duty to carry out inspection visits at least once a year and during the production season, establishing potential fines for employers of 250 to 2,500 times the Unit of Measurement and Update for non-compliance with the corresponding standards. This fine can be applied for each affected field worker.
In short, this reform seeks to strengthen the labor rights of agricultural workers, sanctioning those who fail to comply with the provisions, ensuring fair, safe and healthy conditions.
Below is the link to the official publication of the reform in the DOF: https://www.dof.gob.mx/nota_detalle.php?codigo=5715043&fecha=24/01/2024#gsc.tab=0
Circuit Collegiate Court declares the unconstitutionality of the Internal Regulations of the National Customs Agency of Mexico
Executive Summary:
- A Circuit Collegiate Court recently declared the Internal Regulations of the National Customs Agency of Mexico (“ANAM”) unconstitutional, considering that it contravenes the principle of hierarchical subordination to the Tax Administration Service Law.
- Although this is currently an isolated criterion, the unconstitutionality of the Internal Regulations can be used to challenge fines and/or resolutions issued by the National Customs Agency and its administrative units.
On May 24, 2022, the “Decree amending and adding various provisions of the Internal Regulations of the Ministry of Finance and Public Credit and the Internal Regulations of the Tax Administration Service, and issuing the Internal Regulations of the National Customs Agency of Mexico.”
This Decree established that the Ministry of Finance and Public Credit will be assisted, in the resolution of matters within its jurisdiction, by decentralized bodies, and was added as such to ANAM.
In this regard, the Internal Regulations of the National Customs Agency of Mexico reiterated that the agency is a decentralized body of the Ministry of Finance and Public Credit and, in addition, that it is endowed with technical, operational, administrative and management autonomy, with the character of customs and fiscal authority with respect to federal customs revenues, with powers to issue resolutions within the scope of its competence.
It was also specified that said agency, in aid of the Tax Administration Service, is exclusively in charge of the direction, organization and operation of customs and inspection services, to apply and ensure compliance with the legal regulations that govern the entry and exit of goods from the national territory, the collection of federal customs revenues, as well as those that are expressly instructed by the head of the Ministry of Finance and Public Credit.
In this regard, the subject matter of the appeal resolved by the Circuit Collegiate Court (“TCC”) focused, essentially, on elucidating whether the President of the Republic, in exercising his regulatory power, was able to grant exclusive powers in customs matters to the National Customs Agency of Mexico in its capacity as a decentralized body of the Ministry of Finance and Public Credit or, where appropriate, whether the Executive Branch was invading powers granted exclusively by the Legislative Branch to the various decentralized body called the Tax Administration Service in the law that regulates it.
That is to say, the controversy was not regarding the creation, considered in itself, of a different decentralized body of the Ministry of Finance and Public Credit, but regarding the fact that said body (ANAM) was endowed with the powers in customs matters that were granted in its law to the Tax Administration Service.
In this regard, the Collegiate Court concluded that the reform sought by the aforementioned Decree contravenes the principle of hierarchical subordination and legal reserve, by granting various powers in customs matters to ANAM that are exclusive to SAT, as established in the Tax Administration Service Law.
Based on the criteria indicated above, we consider that the position upheld by the Collegiate Court supports the illegality of the fines and/or resolutions issued by the National Customs Agency and its administrative units, making it reasonable to challenge them through an administrative appeal and/or a nullity trial, since these are acts issued by an authority that lacks the authority to issue such administrative resolutions.
CRE establishes the regularization and continuity procedure in requests for transfer of hydrocarbon permits
Executive Summary:
- The Agreement was published on January 12, 2024 No. A/080/2023 by which the Energy Regulatory Commission establishes the procedure to regularize the unfulfilled obligations of hydrocarbon permit holders and guarantee the continuity of the service for the benefit of the public interest.
- The Agreement focuses on allowing the CRE to continue its regulated activities, regulate the market and protect the interests of end users.
- The Agreement is applicable to those permit holders who voluntarily wish to regularize non-compliance or offer to transfer their permit.
On January 12, 2024, the Agreement was published in the Official Gazette of the Federation (“DOF”) No. A/080/2023 (the “Agreement”) by which the Energy Regulatory Commission (“CRE”) establishes the procedure to regularize the obligations unfulfilled by the permit holders and guarantee the continuity of the service for the benefit of the public interest, in the attention of requests for transfer of permits for sale to the public, through a service station for the specific purpose of petroleum products, Natural Gas or Liquefied Petroleum Gas, as referred to in Article 53 of the Hydrocarbons Law.
The Agreement aims to establish an efficient regularization mechanism for hydrocarbon sales permit holders. It focuses on allowing the CRE to continue its regulated activities, regulate the market and protect the interests of end users.
The Agreement is applicable to those permit holders who voluntarily wish to regularize non-compliance or offer to transfer their permit, provided that they comply with the requirements established in the Hydrocarbons Law (“LH”). If this is not the case, it is emphasized that the CRE will retain its supervisory and sanctioning powers, including the revocation or fine of permit holders who act in an irregular manner.
In accordance with the Agreement, it is emphasized that the transfer of permits or regulated activities, as provided for in article 53 of the LH, requires prior authorization from the CRE. To obtain this authorization, it is necessary that the permits are valid, the transferor has complied with all obligations and the transferee meets the requirements to be a permit holder. In addition, transfer requests must be processed through a permit modification request, following the procedure established in article 48 of the LH Regulations (“The Regulations”).
Under the Agreement, it is noted that the LH, the Regulation and the permit title establish the obligations of permit holders in the regulated activities. The analysis of the Hydrocarbons Unit reveals that the majority of permit holders with pending transfer applications have failed to comply with regulatory obligations. Among the most common breaches are:
- Lack of insurance contracting.
- The omission of annual opinions on compliance with Mexican Official Standards.
- Failure to pay the annual supervision fee for the fiscal year corresponding to the date on which the request for modification due to transfer of the Permit is submitted, as well as for other previous fiscal years with debts.
- Making transfers without the corresponding authorization.
These breaches are considered infractions under the LH, which gives the CRE the power to impose administrative sanctions, such as revocation or fines, in accordance with articles 56 and 86 of the LH.
The regularization procedure includes steps such as notification of the origin of the adhesion, the statement of allegations by the permit holder and the accreditation of compliance with the sanction. An exception is established for regularization, limiting its benefit to a single occasion for each permit. The transfer of permits in cases of succession is also addressed, ensuring the legal designation of executors or heirs to comply with the obligations.
Furthermore, in situations where the transfer of the permit is authorized under this Agreement, a new transfer will only be possible after a period of five years from the notification of the document certifying compliance with the corresponding sanction. This approach aims to ensure the continuity of the regulated activity and prevent speculation and improper practices that could affect users.
Finally, the initiative imposes strict requirements for the transfer of permits, highlighting the need to comply with regulatory obligations. It also underlines the CRE's ability to impose sanctions in the event of non-compliance, promoting responsibility and transparency in the sector. The temporary restriction on new transfers is intended to prevent speculation and improper practices.
In summary, this Agreement reflects CRE's commitment to effective regulation and the protection of public interests in the hydrocarbon sector.
Link to publication: