New approaches to liquidation of assets during the bankruptcy stage in commercial insolvency proceedings

Executive Summary:

• The Supreme Court of Justice of the Nation has issued a jurisprudence that significantly impacts commercial insolvency in Mexico, by prohibiting the suspension of the alienation of assets during the bankruptcy stage.
• This measure prioritizes social interest and public order, guaranteeing a rapid and efficient liquidation of insolvent companies, which maximizes the value of assets and generates legal certainty for both creditors and the country's economic development.
• The ruling underlines the importance of prioritising speed in bankruptcy proceedings, contributing to the stability of the economic system and protecting the parties involved.

Recently, the Supreme Court of Justice of the Nation (“SCJN”) has issued a jurisprudence that has a significant impact on bankruptcy proceedings within commercial insolvency proceedings, whose heading reads: “BANKRUPTCY. THE PROMPT DISPOSAL OF THE BANKRUPTCY'S ASSETS IS OF SOCIAL INTEREST AND PUBLIC ORDER, THEREFORE ITS SUSPENSION IS NOT APPLICABLE" [1].

Case law establishes that it is not appropriate to grant the suspension of acts aimed at the alienation of assets during the bankruptcy stage, since this would contravene the social interest and public order. The underlying reason lies in the executive nature of the bankruptcy stage –which involves the liquidation, alienation and/or immediate realization of the assets of the bankrupt company-, which implies prioritizing the speed that is crucial to maximize the value of the assets and ensure efficient liquidation, generating viability not only for creditors, but also for the general economic development of the country.

According to Articles 1 and 3 of the Bankruptcy Law, the purpose of bankruptcy proceedings is to preserve the value of companies and, when this is not possible, to ensure that the liquidation of their assets is as efficient and beneficial as possible for the bankrupt's creditors. The law highlights that one of the main objectives is to prevent non-compliance with obligations from jeopardizing the viability of companies and, by extension, of the economic system in general.

The prompt disposal of assets during the bankruptcy stage responds to this legal design and is seen as a key factor in generating certainty and confidence in the resolution of conflicts arising from a commercial bankruptcy. The SCJN's criteria indicate that any suspension of these acts, which are essential for the liquidation of the company, can cause multiple effects, both direct and indirect, to a wide range of people.

These effects worsen over time, which justifies that the social interest and public order prevail over the private interest that any creditor may have who, by promoting an amparo trial, seeks to obtain the suspension of acts related to the alienation of assets.

Article 1 of the Bankruptcy Law establishes that the law is of public interest and its objective is to regulate bankruptcy proceedings in order to preserve companies and protect creditors. This provision underlines that all actors involved in a bankruptcy process must govern their actions under the principles of transcendence, procedural economy, speed, publicity and good faith.

The criterion in question reinforces this legal framework by prioritizing the collective interest over the individual, particularly at the bankruptcy stage. It is recognized that, although some consequences may be irremediable, the need to protect the public interest and economic order justifies the prohibition of suspending the sale of assets at this stage of bankruptcy.

Through this jurisprudence, the SCJN underlines the importance of a fast and efficient execution in the bankruptcy stage of a commercial insolvency proceeding, reaffirming that social and public interests must prevail over individual interests in these cases. Companies in bankruptcy represent a significant value for the national economy, and their rapid liquidation not only benefits creditors, but also contributes to the economic development of the country as a whole.

This new criterion is of great importance, as it provides legal certainty, especially to creditors recognized in a bankruptcy proceeding. In many cases, these creditors represent a large number of people and entities that depend on the correct and rapid liquidation of the company's assets in the bankruptcy stage in order to recover their recognized credit.

In addition, in recent years, complaints and applications for bankruptcy proceedings have been increasing, reflecting the growing use of this legal tool in the face of widespread breaches of obligations. In this context, bankruptcy proceedings have become a popular way to protect the interests of companies and their creditors.

It is important to note that any company could be involved in bankruptcy, either because it cannot meet its own obligations or because a key client or supplier is insolvent. This scenario highlights the importance of having a legal framework that provides stability and predictability, ensuring that the bankruptcy process is carried out in an orderly and fair manner for all parties involved.

[1] Supreme Court of Justice of the Nation, Digital Registry 2029135, Eleventh Period, Subject(s): Common, Civil, Thesis: PR.ACCS. J/1 C (11th), Regional Plenums, Jurisprudence, Judicial Weekly of the Federation, Publication: Friday, July 5, 2024, 10:12 hours. “BANKRUPTCY. THE PROMPT DISPOSAL OF THE BANKRUPTCY'S ASSETS IS OF SOCIAL INTEREST AND PUBLIC ORDER, THEREFORE ITS SUSPENSION IS NOT APPLICABLE. " Detail – Thesis – 2029135 (scjn.gob.mx)