Mitigating the
Mitigating the "Vitro Effect": Mexican Lawmakers Approved the Most Ambitious Bankruptcy Law Reform Since Its Enactment back in 2000, Aiming to Ensure Creditors' Rights

Mitigating the "Vitro Effect": Mexican Lawmakers Approved the Most Ambitious Bankruptcy Law Reform Since Its Enactment back in 2000, Aiming to Ensure Creditors' Rights

On January 10, 2014, the Federal Executive Branch of México published in the Official Gazette the legal amendments to México's Commercial Bankruptcy Law (Ley de Concursos Mercantiles, or LCM), effecting the most comprehensive set of changes to the LCM since its enactment over 13 years ago, and establishing new rules for bankruptcy proceedings in México with the intent to improve the position of creditors dealing with the insolvency of local companies.

The law reform made several major changes to bankruptcy law eliminating long-standing bankruptcy-law loopholes that undermined México’s consideration as a safe jurisdiction for the adjudication of legitimate claims. Among other relevant changes, the LCM now subject intercompany debtholders to stricter rules in forming a sufficient majority for approvals of a reorganization plan in order to minimize the abuse in using intercompany debt to "cramdown" other creditors (as experienced in the case of Vitro, SAB de CV), establishes the subordination of intercompany loans, sets forth clear rules for DIP financing and creates creditor-protection measures that ensure the effective rights to recover claims from financially distressed debtors, among others.

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