BANKRUPTCY OF THE BANKING SYSTEM AND GUARANTEES' REGULATION IN MEXICO^*
Elvia Arcelia Quintana Adriano^**

SUMMARY
I. Introduction. II. General aspects of the financial system. III. The Mexican financial system. IV. Insolvency proceedings in credit institutions. V. Regulation of guarantees. VI. Conclusions. VII. Bibliography.

I. INTRODUCTION

The present study is focused to analyze the new legal frame related with a possible bankruptcy of the banking system and the guarantees’ regulation in Mexico, paying attention, mainly, to those proceedings duly foreseen to be used in case of a new financial crisis which might lead as a natural consequence to bankruptcy of a credit institution, the authorities which would participate in it and the corresponding jurisdictional functions for the filing of a commercial insolvency proceeding; the above in order to assert that in Mexico the body of laws in this type of conflicts was created to correct the unmanageable results to enforce the guarantees in the financial crisis originated in 1994 produced by external and internal impacts of the economic platforms from several countries. In this analysis is also highlighted the importance of a generalized default in the obligations contracted with the banking system by debtors affecting all those individuals and entities linked with the banking system, as well as the respective guarantees' regulation related with the function of increasing objectively the expectations to satisfy a principal obligation.

Banking crises have their origin in different factors concurring simultaneously so much so, that, in several occasions they cause precisely these effects due to an inappropriate applicability of the rules frame in the financial system, which leads to a growing frailty of the banking system itself.

Mexico, at the time of facing the financial impact suffered in 1994, with the participation of the Federal Government through the corresponding authorities, began a series of measures to support the banking system in order to counteract the devastation of the initial effects of the financial crises, such as the establishment of a wicket for liquidity issues in dollars, to be used by commercial banks to guarantee the compliance of its obligations in foreign currency, which produced immediate liquidity in said foreign exchange by means of loans. Another measure included the implementation of Temporary Capitalization Programs (PROCAPTE), in order that the banks had a term to earn capital and pay their debt, as well as a series of legal reforms to allow a wider foreign participation in national banks and the acquisition of a portfolio by means of the Banking System Savings Protection Fund (FOBAPROA),¹ since such debt could not be performed due to the weak legal regulations on credit guarantees.

In spite of the multiple recommendations set forth by organizations such as the Inter-American Bank (IDB) and the International Monetary Fund (IMF) it was not possible to control the Mexican financial crisis successfully, because it was decided that the banking system had to be rescued, instead of assuming its own responsibility, in accordance with the risks involved.

Besides, the financial authorities, by means of funding to banks duly backed with notes guaranteed by the Federal Government, allowed to continue extending the credit to high-risk borrowers, even with the existence of a virtual failure of several institutions, due to the generalized default in payment obligations affecting, as a direct consequence, all economy sectors.

In confronting this dilemma, the Mexican Government decided to perform thirteen interventions and not to declare a single bankruptcy.² At the same time, the efforts of banks to recover overdue credits were minimal, since the old Law of Bankruptcy and Temporary Receivership (LQSP) that ruled a long and tortuous proceeding, was used as a pretext for the banks to avoid the filing of judicial actions to recover the overdue credits; besides, the absence of a political decision from the Government was a definitive factor to inhibit the solution in depth of the financial problem.

Standing up to the future with the predicaments above cited, it was proposed, approved and published the Law of Commercial Insolvency Proceedings (LCM),³ which repeals the old Law of Bankruptcy and Temporary Receivership of 1943, providing among other substantial changes, the adjustment of the insolvency proceeding to public concessionaires, credit institutions and auxiliary credit organizations.⁴

The insolvency proceedings are novel, since they try to harmonize these type of proceedings of these institutions with some special provisions that rule them, and establish a due participation of the entities who authorize, rule and supervise.⁵

As to the Mexican legal régime on guarantees, the body of laws substitutes the extremely complex requirements available for the formation, perfection and enforcement of different types of guarantees, establishing two new figures for the reinforcement of the credit sector: the pledge without transfer of possession and the guarantee trust, inasmuch as they seek to create a compulsory link in which the creditor may assure or reinforce his credit, since it also includes the patrimonial element used if the debtor does not want to, or is not able to comply with the principal obligation.

II. GENERAL ASPECTS OF THE FINANCIAL SYSTEM

Maintain the solvency and stability of a financial system are the two big responsibilities that any country of the world has to face. The frailty of the financial system represents, unquestionably, an obstacle for any nation with a desire to be out of an economic standstill.

The OECD⁶ has prepared interesting studies on the phenomenon called "financial frailty" which is defined as "a deterioration in banks’ balances as a result of the bad quality of the assets and a yield sloping".⁷ Such a description seems to refer to a good portion of the financial systems from industrial nations, although, it shows different features from one country to the other.

Traditionally, authorities have pursued two main objectives in the financial systems:

a) Maintain the stability and reliance on institutions, to be defined as prevention of systematic risks,⁸ and

b) The need to assure efficient financial markets for the participation of competition forces, that is, the promotion of the systematic efficiency.⁹

The prevailing policy in the world up to the seventies and, specifically, in Mexico up to the eighties, was to maintain the stability and reliance in the financial system, but such situation was not possible to sustain because in the beginning of the eighties a cyclical financial crisis of overaccumulation entered the picture in the Mexican economy.

In this order of ideas, the financial crises imply a sustainability problem at a long term, due to the growing deficit of the public sector, to be financed by means of inorganic monetary expansions, leading to serious destabilization processes at a micro and macroeconomic levels¹⁰, therefore, it is possible to place the origin of the same, taking into consideration the following aspects:

1) External impacts.

2) Stabilization programs.

3) Deregulation of financial sector and opening of capital account.

4) Deposit insurance.

5) Instability and failures of financial markets.

1. External impacts

Banking crisis have their origin in sudden changes in terms of exchange and in international interest rates, in this manner, the crises are incubated during the period of time in which the country faces a positive impact in aspects related with the exchange and international interest rate, or in its internal conditions. These circumstances favor the economy, induce a potential entry for capitals and a quick expansion of internal credit. The consequence of such economic apogee is easily financed by means of a foreign indebtedness, in virtue that the country has a wide access to international capital markets. The increase in price of the assets produce speculative bubbles,¹¹ and at the same time they feed the demand of credit, since such assets are used as a guarantee to acquire new credits.¹²

In this frame of reference, the financial system becomes vulnerable to possible adverse movements in terms of exchange and international interest rates. In this manner, at the time the international perimeter deteriorates, the internal situation reverts and the following conditions appear:

• Flight of capitals.
  
• Pressure on the exchange rate.
  
• Domestic interest rates increase, included more than the proportion applicable to international rates.
  
• The speculative bubble.

The reduction in the value of banking guarantees, united to high domestic interest rates, has as a consequence a fall in the economic activity affecting the paying capacity of the debt by corporations and individuals, which produces a strong increase of overdue portfolio of banks, and it is reduced, and eliminates its capital, producing consequently the burst of the banking crisis.¹³

2. Stabilization programs

Another factor that causes the financial crises is, unquestionably, the implementation of stabilization programs defined as an initial improvement in the expectations of the agents and a higher economic activity; in spite of it, when they do not reduce sufficiently the domestic interest rates, it is maintained a differential abroad adjusted by a risk of devaluation relatively high which encourages the entry of capitals and foreign indebtedness of banks. In principle, the entry of capitals allow to finance easily the deficit of current account; in spite of it, the increase in private expense, that sometimes is very high, united to macroeconomic policies that in general term the are procyclical, make the deficit of current account to grow rapidly.¹⁴

If the expectations are reverted and the deficit of current account becomes difficult to finance, strong pressures on the exchange rate are produced and the domestic interest rate increases brusquely. The referred increase causes a fall in the economic activity which is magnified when a devaluation of the exchange rate appears, the above occasions the severity of the banking crisis, provoking as a direct consequence a contraction of the economic activity, and the banks for the reason of the accumulation of a higher number of liabilities abroad, present additional losses derived from a direct increase in their value facing problems to refinance said liabilities.¹⁵

3. Deregulation of financial sector

The banking crises may have an origin in programs of structural change of the financial sector. One of the principal measures for the deregulation of the financial sector is the elimination of controls to interest rates, with the purpose of promoting a more efficient financial intermediation.

The deregulation of the interest rates and the opening of the capitals account, on one side allow a more efficient canalization of savings addressed to productive activities which have contributed to the economic development; besides, they facilitate banks their incursion in new markets, as it is reflected generally in credit portfolios with quite risky features;¹⁶ on the other hand, the deregulation allows an excessive external debt and an accelerated development of banks’ portfolio.

Some countries¹⁷ have had an inappropriate and insufficient regulatory frame, since the capitalization requirements have resulted in reason of a high level of risks by the banking institutions; since they had neither impeded nor penalized unclear activities carried out by banks, then said situations produced bigger consequences in crises.

Therefore, the financial deregulation, when it is linked to an inappropriate frame and insufficiently developed, as well as a weak supervision, contributes to the deterioration of banking assets and the existence of banking crises.

Other important aspect to consider is that the regulators and administrators of banks do not have experience to operate in the new deregulated environment, which represents an important factor to increase the vulnerability of the financial system.¹⁸

On the other hand, the banking crises have been a result connected with the new owners of the banks, who appear in the privatization process, carry out operations extremely risky and fraudulent as well, a clear example is the case of the Mexican banking system in 1994,¹⁹ considered as a situation that places, for the second time, a crisis in the Mexican banking system.

4. Deposit Insurance

The financial deregulation occurs generally in a context that provides an implied or expressed government guarantee for the protection to banking deposits,²⁰ which induces to sub-capitalized banks to receive deposit and use these resources to highly risky and not so productive activities.²¹ In this manner, the guarantee constitutes an important factor that distorts banks’ decisions, generates inefficiencies and increases the costs of financial crises.

5. The instability and failures of financial markets

The volatility of prices applicable to financial assets has provoked financial crises in those cases in which the banks are excessively exposed to changes in prices of said assets such as the exchange rate, the price of real estate and price of shares that have a strong incidence in the banking system.²²

Frequently, it is observed that the crack of banking crises²³ is associated with the burst of speculative bubbles in the share market and real estate. The financial system nurtures the bubble when canalizing important amounts of resources to markets, which assets are useful as a guarantee for new loans. As a general rule, the speculative bubble raises artificially the demand of credit of the economy, which has the tendency to increase the domestic interest rate and reduce the availability of more productive financing activities.

Previously that causes have been delineated, which create the financial crises, as one point of coincidence among experts in the field,²⁴ it is convenient to remember that the financial system reflects the general economic situation of any country; the solidity of the institutions falls into the recovery and development. In this context, the overdue portfolio is considered as one of the most important problems to solve, because it constitutes a prior requirement for the economic recovery.

The big banking consortiums and the proliferation of a lot of specialized institutions require the consolidation, regulation and harmonization of the rules of the financial system; besides, the should precise with clarity in which areas the authority is responsible if financial crises have been formed and appeared in conjunctural moments such as those suffered in Mexico during the eighties²⁵ and the nineties,²⁶ since the narrow maneuver margins imposed to the State to solve them, lead it to implant radical measures as a manner to fight the structural lack of equilibrium and trying to solve the contradictions accumulated in the economy.²⁷

For the above reasons, the banking crisis suffered in 1994 in Mexico, present several cases of banks’ insolvency, which shareholders did not have the capacity to contribute with necessary resources to capitalize them and face their obligations before savers. The new banking interest rate did not contribute to revaluate the peso, but they increased drastically the overdue portfolio, raising the refinancing cost of liabilities in foreign currency up to one thousand basis points and deeply caused the virtual bankruptcy of the banking system. Before this overall view of a forcible instability, institutional investors did not return to the local market but after the elapse of several months, in consequence, the Mexican government rescued the banks through the purchase of the overdue portfolio.

III. THE MEXICAN FINANCIAL SYSTEM

The Mexican banking system is the result of a long experience by means of which several organizations were forming structures in order to adapt the changing needs to every social stages that we lived through our history.²⁸

In the last decades of the Mexican financial system has faced three important changes:

• The transition of the public banking system to a private system; which meant important changes of administration and, therefore, of approaches, policies and even people; besides they had to absorb the paid prices.
  
• The transformation of a system regulated in a traditional manner to a new liberalized system with a growing competition.
  
• The change of a close national system as to banks and companies to one that is now open to competition of products and financial services.²⁹

In search for a more competitive financial system, Mexico undertook a transformation based on the deregulation of the financial markets; the modernization of the legal frame of the system itself, the separation of the commercial banking system, the opening the system by means of the authorization of new national and foreign brokers, as well as an improvement of the prudential regulation and supervision. Besides, the country has the autonomy of the Bank of Mexico, which represents a very important piece in the orientation of the Mexican financial system, supported by a protection fund and bank insurance, which high saving volumes come from the time of the nationalization that increase them because of the risk premium contributed by the banking system.

In this order of ideas, the Mexican financial system is organized through the Financial Rectory³⁰ of the State³¹ that distinguishes two wide fields, the one of the authorities which is integrated by the activities carried out by the Federal Government by constitutional mandate, and such of the financial institutions.

The authorities in the current Mexican Financial system³² are, the Ministry of Finance and Public Credit³³ (SHCP), Banking and Securities National Commission (CNBV),³⁴ Bank of Mexico (BM),³⁵ National Commission for the Protection and Defense of the Users of the Financial System (CONDUSEF),³⁶ and the Institute for the Protection of Bank Savings (IPAB).³⁷

The financial entities have as purpose to transfer the financial resources of the entities or surplus persons to subjects demanding credit and they are integrated inconformity with Article 3 of the Law for Banking and Securities National Commission (CNBV)³⁸ as follows:

• Holding Corporations of Financial Groups.
  
• Credit Institutions.
  
• Stock Market Houses.
  
• Stock Market Specialists.
  
• Stock Markets.
  
• Investing Corporations.
  
• Operator Corporations for Investing Companies.
  
• Corporations for the Distribution of Shares of Investing Companies.
  
• General Deposit Warehouses.
  
• Credit Unions.
  
• Financial Leasing Corporations.
  
• Financial Factoring Corporations.
  
• Savings & Loans Corporations.
  
• Money Exchange Houses.
  
• Limited Liability Financial Corporations.
  
• Securities Deposit Institutions.
  
• Central Counterparts.
  
• Securities Ratings Institutions.
  
• Credit Information Corporations.
  
• Individuals operating in the capacity of Popular Savings & Credit Entity.
  
• Other institutions and public trusts carrying out financial activities in which the Commission acts in its capacity as their supervisor.

The credit institutions, in their structure, are integrated by the multiple banking, development banking and by those organizations which assist credit operations.³⁹

The credit institutions are immersed in a deep restructuring process, since at present, with the purpose of making the banking system more efficient and improve its managerial procedures, they merge and create strategic alliances with foreign banks; however, it is difficult to expect a significant reactivation of domestic credit meanwhile there is not a deep restructure of delinquent credits and overcome the difficulties caused by the overdue portfolio.

For the reason above, the experience of financial crises confirm the need to revise and, if applicable, improve the supervision and regulations efforts of the financial entities, establishing prudential regulatory provisions leading to preserve the liquidity, solvency, security, reliance and honesty of the financial and banking entities;⁴⁰ without mentioning the protection that requires the value of a corporation with deficit, in the specific case of the banking sector, to preserve its operation and the employments that the same generates in order to maintain the equilibrium among the merchandiser and his creditors, by means of a written, fast and fair procedure which allows to strengthen the legal security and conviction of all those involved in case of arising an insolvency proceeding.

In this reference frame, in the field of insolvency proceedings, Mexico has begun a new phase as of the promulgation of the Law for Commercial Insolvency Proceedings⁴¹ and the abrogation of the old Law for Bankruptcy and Suspension of Payments,⁴² since the financial analysts and the owners of the capital considered that an amendment in the field of guarantees and insolvency would reactivate the credit in our country, in other words, it would give certainty to credit and its eventual recovery, creating a propitious legal frame and notoriously appropriate for the efficient reassignment of resources.

IV. INSOLVENCY PROCEEDINGS IN CREDIT INSTITUTIONS

In Mexico, the credit institutions are regulated by different bodies of laws, among them, the Political Constitution of the United Mexican States (CPEUM); the Organic Law of the Federal Public Administration; the Organic Law of the Bank of Mexico and its Regulations; the Commercial Legislation; the Law for the Banking and Securities National Commission, the commercial and banking uses and practices, but mainly the Law of Credit Institutions,⁴³ which purpose is to regulate the banking and credit service,⁴⁴ the organization and functioning of the credit institutions, the activities and operations that the same will be authorized to perform, their healthy and balanced development, the protection of interest of users, and the terms in which the State will perform the Financial Rectory of the Banking System.

If it is considered the keystone, in the economic development of modern states, we can find the force of credit; without such power it is not possible to conceive the commercial traffic.

For that reason, it is the credit force, established in the contracts, the way to purchase, produce and sell all commodities and service of commerce. In this order of ideas, the lack of fulfillment by a debtor to his obligations, it is always serious, but in case of a commercial corporation, whether it is an individual or a legal entity, is disastrous because of the so important incidence or repercussion for many other companies, inasmuch as the closing of a business always means the loss of an employment source.⁴⁵

In the bankruptcy⁴⁶ exists different interests that claim the protection of the law, such as: the legitimate interest of creditors, the own interest of the bankrupt as to his honor, if the bankruptcy is not judged as guilty, then such decision affects the loss of position and administration, establishment and distribution of those which were at certain time, his goods and property, and the debts definitely exposed to the eyes of everyone.⁴⁷

The bankruptcy of a merchant is an exceptional state in the Mexican public order. For that reason, in this field there has been substantial changes related with the procedure,⁴⁸ since it is intended with the new Law on Commercial Insolvency Proceedings to make a more expedite procedure and, above all, enjoy a renewing spirit, in order to lead to preserve the companies and avoid the generalized default of the payment obligations.

The Law of Commercial Insolvency Proceedings (LCM)⁴⁹ has as a purpose to preserve the companies and avoid that the generalized default of the payment obligations put their feasibility at risk, as well as their related business parties, that is, the law is intended to protect the company to preserve its operation and the employments created by the same, in order to maintain the equilibrium among the merchant and his creditors, by means of written, clear, fast and fair procedure to give strength to legal security and legal conviction of all those parties involved in the insolvency proceeding itself.

The procedure for the insolvency proceeding is integrated by two successive stages, known as conciliation and bankruptcy.⁵⁰ The first one seeks for the preservation of the merchant’s company, by means of an agreement subscribed with his acknowledged creditors;⁵¹ the second stage, known as the bankruptcy, has as a purpose the sale of the merchant’s corporation, his productive units or his property which integrate them for the payment to acknowledged creditors.⁵²

1) Supposition in the insolvency proceeding.⁵³ There should be two hypothesis for filing insolvency proceedings to a merchant if he defaults in a general manner in the payment of his obligations:

a) The merchant requests his declaration of commercial insolvency proceedings if his obligations have matured at least in thirty days, represent the 35% or more of all the obligations in charge of the merchant, or, if they do not have sufficient assets to face at least the 80% of their obligations on the claiming date, and/or

b) Any creditor or the District Attorney sues for the declaration of commercial insolvency proceedings when the two hypothesis above mentioned are completed.

2) Presumption of default.⁵⁴ The inexistence of insufficiency of goods presumes the state of insolvency, another fact to include is the cessation by the merchant to liquidate his obligations to two or more different creditors; or if the merchant does not leave someone in the administration of the company with the capacity to fulfill his obligations; closes the establishments of his company; makes ruinous, fraudulent or false practices as well as other similar practices.

1. Procedure for a declaration of insolvency proceedings⁵⁵

The jurisdiction to know on the facts related to the commercial insolvency proceedings is given to the District Judge or the Court Equity Judge, with jurisdiction in the place where the merchant has his domicile and such domicile is, in principle, the corporate domicile; but if it is unreal, it will be presumed as a domicile the place where is located the principal administration of the company. Besides, if a judge during the filing of a commercial trial finds out the merchant is located in the legal hypothesis, the judge will report such fact to the District Attorney so that, if applicable, he sues for the declaration of the insolvency proceedings.⁵⁶ To put it more exactly, the judge never requests the District Attorney to sue for the insolvency proceedings, but rather, he reports the District Attorney on the existence of the hypothesis foreseen in the legal provision in order that said criminal authority in observance of the faculty provided by the rules; as it is concluded from the expression "if applicable" exercises the action by means of filing the claim.

For the above expressed, any Judge, whether he is a District Judge or from a Court of Equity, is authorized to declare its jurisdiction, observing the concurrent jurisdiction provided by Section I of Article 104 of the Mexican Constitution, since both have the aptitude of paying attention to controversies derived from the applicability of federal laws, as it occurs in the case of commercial legislation. This affirmation has been sustained by the Supreme Court of Justice of the Nation (SCJN) in Mexico, that according to the provision above cited, it is foreseen the concurrent jurisdiction, when private interests are affected only, and in the controversy federal laws should be applied, upon election of the claimant the jurisdiction is granted in favor of the local court or such with a federal venue.

The exceptions to be presented, of a procedural nature, including the lack of jurisdiction of the judge and absence of legal personality, will neither suspend the proceeding, nor suspend the procedure for the declaration of commercial insolvency proceedings due to the intervention and filing of remedies against the resolutions decreed by the judge for such effects. The above mentioned avoid the prolongation of the trial affecting the creditors.

Another important aspect of the procedure for the declaration of insolvency proceedings is presented as to the reference that in case of request is sufficient to frame the merchant within one of the hypothesis only, which are contained in Sections I and II of Article 10; that is, "I... For such matured obligations, having at least thirty days of maturity, represent the thirty five percent or more of all the obligations in charge of the merchant up to the date in which the claim was filed or the request for insolvency proceedings; and II. If the merchant does not have assets to face at least the eighty per cent of his matured obligations up to the claim's date..."; meanwhile in case of a claim the two hypothesis above cited should be proved.⁵⁷

Now then, the claim for commercial insolvency proceedings should be signed by the person who files it and it should contain: 1) Name of court before this claim is filed; 2) Full name and domicile of the claimant; 3) Name, corporate name and domicile of the merchant who is acting as respondent, including, if available the domicile of his diverse offices, plants, warehouses or storehouses; 4) The facts that motivate the petition, relating them briefly with clarity and precision; 5) The legal grounds, and 6) The request to declare the merchandiser in insolvency proceedings.

At the time the creditor files the claim, said document should enclose documentary evidence to prove his capacity as such, as well as the document evidencing in an authentic manner that the payment guarantee has been granted related to the professional fee of the inspector.⁵⁸ If the creditor does not have the available document showing the documentary evidence or the document evidencing the payment guarantee related to the inspector's professional fee, then, he should provide the file or place in which the originals are placed, so that before the claims continues in the filing process upon the respondent's cost, the judge orders to issue copies thereof.⁵⁹

A. Guarantee⁶⁰ to file a insolvency proceedings trial

Once the claimed is admitted by the judge, the claimant should have guaranteed the inspector's professional fee, or he should do it within the three following days as of the resolution that contains the admittance of the claim, for an amount equivalent to one thousand days of minimum wage. In case of the absence of guarantee for the professional fee in the period of time set forth above, the resolution of admittance of the claim or request, shall cease to produce its legal effects. The District Attorney is excepted to present this guarantee, if he was the one who filed the claim⁶¹.

B. Precautionary measures

The precautionary measures decreed by the judge in charge of the legal cause in reference, shall be ruled by provisions contained in the Commercial Code (Cco).⁶²

When the precautionary measures are decreed, the judge should avoid to risk the feasibility of the company as a consequence of the claim, or other claims presented during the inspection, with the purpose of safeguarding the public interest.⁶³

The inspector is able to request the judge during the time of the inspection, the adoption, modification or the lifting of the following precautionary measures:⁶⁴

• The prohibition of payment of matured obligations prior to the admittance date of the request or claim for insolvency proceedings.
  
• The suspension of any executory process against the merchant's goods and rights.
  
• The prohibition applicable to the merchant to carry out operations related to the sale or lien of principal goods of his company.
  
• The embargo of goods.
  
• The intervention of the cashbox.
  
• The prohibition to carry out transfers of resources or securities in favor of third parties.
  
• The order to confine the merchant for the sole purpose of not letting him to separate from the place of his domicile without appointing, by means of a power of attorney, an attorney in fact, with sufficient instructions and defrayals. If someone who has been confined proves that he has fulfilled the above, the judge will lift the confinement.
  
• Any other of a similar nature.⁶⁵

It is important to point out that the judge will be able to decree the precautionary measures he deems as necessary, the above once he has received the request, or ex officio; besides, the judge himself is the one who will lift them.

C. Admission of the claim

Once the claim is admitted, the judge will summon the merchant, whom will have a term of nine days to respond it; after said term has elapsed, the next day the judge will declare that his right has precluded, presuming as truth the claimed facts to declare the commercial insolvency proceedings, and the judge will decree in a judgment the commercial insolvency proceedings within the following five days.⁶⁶

D. Response to the claim

The next day, after the response was received or, if applicable, once the facts were presumed as a truth, the claimant will be notified so that in a term of three days he expresses the convenient arguments to defend his rights.

In the response to the claim the documentary evidence and experts' opinions will be admitted, they should enclose the necessary documents and information useful to accredit the experience and technical knowledge of each one of the experts who are cited. With the response given to the claim, the merchant will have the possibility to offer, in addition to the evidence mentioned in the paragraph above, those evidence that directly change the generalized default in the payment of his obligations, and the judge will be able to order the release of the evidence he deems as appropriate, considering that the release of all of them will not exceed a thirty days term⁶⁷.

E. Inspection for verification

Once the claim was admitted, a copy thereof should be sent to the Federal Institute of Commercial Reorganization Specialists,⁶⁸ providing the order to appoint an inspector within the five days after the reception of said communication. In the same manner, a copy thereof should be reported and sent to the competent tax authorities for the legal effects which may take place, sending immediately the respective official letters.⁶⁹

Not later than the next day to the appointment of the corresponding inspector, the Institute should report the judge as well as the appointed inspector. The inspector within the five days following to his appointment, will communicate the judge the name of the persons who will help him for the performance of his duties, and any unauthorized persons will not be able to act during the inspection. The next day after the judge was reported in regard to such appointments, shall decree a resolutions informing the interested parties,⁷⁰ and he will order the inspection.⁷¹

On his part, the judge shall express in the corresponding resolution the following:

• Name of the inspector and his assistants.
  
• Place in which the inspection will take place.
  
• Books, registrations and other documents dealing with the inspection, and the period of time in which said inspection will be framed.

The resolution ordering the inspection will have the effects of a commandment addressed to the merchant so that he allows the performance of the inspection.

The inspector shall practice the inspection in the domicile of the merchant, within the five days after the order for the inspection was issued, and the inspector is compelled to show his ID before he starts the inspection.

The inspection will have as a purpose to decree if there is a generalized default in the payment of his obligations, in case of being within this hypothesis, the visitor shall suggest to the judge to adopt, modify or lift the precautionary measures which are necessary to protect the mass and rights of creditors.

If the inspector does not have an attendance in the domicile of the merchant within the five days set forth before, the judge ox officio or the creditors who claimed through the judge, will be able to request the Institute the appointment of a substitute inspector. Once the substitute inspector has been appointed, the Institute will report this matter to the judge to modify the order inspection.⁷²

If the inspector is present at the domicile of the merchant and he does not find the merchant or his representative, he will leave a summon with the person available in said place in order to wait for him at the hour the inspector sets in the next day. If there is not any person to attend the inspection, a request shall be made to the judge so that, prior inspection practiced by the secretary of resolution attached to the insolvency proceedings court, said judicial authority warns the merchant that in case of continuing with his omission, the action for insolvency proceedings be admitted.⁷³

During the inspection, the merchant and his personnel are compelled to cooperate with the inspector and his assistants, if not doing so, the judge will be able to impose the precautionary measures that he deems as convenient, warning the merchant that in absence of his lack of cooperation he shall be declared in insolvency proceedings.⁷⁴

The inspection will conclude with the drawing up of a minute to certify in an authentic manner the facts or omissions known and provided by the inspector and his assistants related to the subject matter of the inspection. In the minute above cited, the merchant should mention the elements of evidence that he holds.⁷⁵

After the inspector concludes the writing up of the minute related to the inspection, the judge should render, in a term of fifteen calendar days, as of the inspection's initial date, a decision duly reasoned and formalized, taking into account the facts set forth in the claim as well as in the response to the claim, enclosing to such decision the inspection's minute.⁷⁶ The inspector will be able to, because of a justified cause, ask for an extension, not to exceed fifteen calendar days to submit his opinion.

One day after the opinion has been submitted, the judge will communicate it to the merchant, his creditors and the District Attorney, so that in a common term of ten days they file their allegations in writing, and for the other legal effects duly foreseen in this Law.⁷⁷ Once the term has elapsed, the judge should decree the corresponding judgment declaring the insolvency proceedings within the five following days; however, it is feasible to deny such declaration, ordering that things return to the state they had previously to said declaration.⁷⁸

As of the judgment date related to the insolvency proceedings and up to the end of the conciliation stage, it is not authorized to enforce and lifting applicable to an embargo or enforcement against the property and rights of the merchant.⁷⁹

As of the judgment related to the insolvency proceedings, and up to the expiration of the term for the conciliation stage, the administrative procedures of enforcement of tax credits shall be suspended. The tax competent authorities will be able to continue with the necessary acts to the determination and the temporary lien of the tax credits in charge of the merchant.⁸⁰

The judgment related to the insolvency proceedings declaring a merchant in bankruptcy implies the immediate removal without an additional judicial order of the merchant in the administration of his company to be substituted by the corresponding receiver,⁸¹ who shall proceed to the sale of the property or rights which integrate the mass, procuring the highest possible product derived from their sale.⁸²

The sale of the goods will be made by means of a public auction, within a term not shorter than ten calendar days and no longer than ninety calendar days as of the date of publication related to the first call.⁸³

V. REGULATION OF GUARANTEES

In the subject matter of credit protection, we have an important advance towards new schemes of guarantees available for the preservation of credit, as of the traditional formulas up to the novel conceptions of the same, in other words, the right in rem of pledge without transfer of possession, mortgage and guarantee trust.

The economy’s stability, together with the process suffered by the banks has impelled the banking institutions to hold with their customers more consistent and stable relations, within the frame that creates and develops the diverse operations by means of which the credit assistance makes a crucial presence.

In Mexico there is a strong predisposition to grant credits only in favor of those persons who are in conditions to grant real estate as a guarantee, or the endorsement of a person who holds said property; while creditors offer resistance to take guarantees on personal property for several reason, among them: an inappropriate legislation, the need for legal reason or risk that the good that has been given would be delivered to the creditor, and the fact that the proceedings for the recovery and enforcement of guarantees⁸⁴ are slow and expensive. For that reason, the traditional modalities of successive and varied contracts has become unpractical and onerous in connection with the constitution of singular guarantees in their correct meaning, for each one of the concerted operations.

In this reference frame, the Mexican legal systems on guarantees, inspired in theories written in the XVIIth Century, established several requirements for the constitution, perfection and enforcement of the different types of guarantees,⁸⁵ such as the traditional surety bond, the aval, the mortgage and the pledge, evidencing an ankylosing and not too much creativity by the lawmakers to adapt the guarantees system to the changing commercial world. For that reason, as of 1994, the code of laws before mentioned tried its own transformation, seeking for a solution to the undeniable difficulty resulted from the guarantees’ enforcement.

In this manner, by reason of the natural evolution shown by the Commercial Law Science, the Mexican code of laws in this field required to have other juridical institutions to enable the fulfillment of commercial operations, concretely, in respect to certain commercial transactions adapted to the economic and commercial context of the current financial operations, in order to avoid any limitation, including the individuals who are able to grant certain type of credits as well as the types of personal property susceptible of being offered as a guarantee.

For the above expressed, by means of a Decree dated May 23, 2000, published in the Official Gazette of the Federation, several provisions were amended, added and repealed in specific of the Cco, the LGTOC and the Law of Credit Institutions (LIC), incorporating two new juridic institutions for the constitution of guarantees known as pledge without transfer of possession and the guarantee trust; it was also established new procedures for the enforcement of the guarantees granted with the purpose of securing the creditor so that in case of default by the debtor and after the fulfillment of all requirements to be provided, the corresponding guarantee may be enforced in an expeditious manner, having a favorable repercussion on the cost of credits and their corresponding granting procedure.

1. The pledge without transfer of possession

The pledge⁸⁶ agreement intends to guarantee the fulfillment of an obligation, constituting in favor of the creditor a right "in rem".⁸⁷ In this order of ideas, the debtor delivers the thing to the creditor and confers on him the right to receive the thing as a payment; to put it in other words, the personal property owned by the debtor or by a third party guarantees the fulfillment of an obligation, by means of which the creditor is able to obtain, with preference above other creditors, the satisfaction of a debt with the amount derived from the sale of said good.

With the purpose of making more efficient the guarantees system, the commercial legislation includes in Mexico a new modality of pledge known as "without transfer of possession", published in the year 2000, integrating a right in rem on personal properties that have as a purpose to guarantee the fulfillment of an obligation and its preference in payment, in which the debtor preserves the material possession of such goods. In exceptional cases, it is possible to agree with the creditor or a third party to hold the material possession of the pledged goods,⁸⁸ besides of including all kind of rights and personal goods.⁸⁹

In this order of ideas, the essential characteristic of the pledge without transfer of possession consists on the possibility of granting in guarantee all kind of personal properties recorded in the patrimony of the debtor, or those resulting from the production process including those derived from the sale of such goods, and the debtor will preserve the possession on them, the above will allow the debtor to capacity to give in guarantee "all personal properties that he uses to execute his preponderant activities, and in such case those goods will be identified in a generic form".⁹⁰

At the same time, in the pledge agreement without transfer of possession, the amount of the guarantee may be an amount determined at the time of the constitution of the guarantee or determinable at the time of its enforcement, and additionally, it may include the ordinary interests and interests in arrears provided in the respective agreement and the expenses incurred in the enforcement process.⁹¹

If the debtor is authorized to make partial payments, the guarantee will be reduced, of course, but in a proportional manner in respect to the payments mad; if it falls on several objects or they are easy to divide in consideration of his juridical nature, without reducing its value and as long as the creditor's rights are duly guaranteed.⁹²

In the reference frame, the Cco was also amended to include the Title Three Bis, entitled: "Enforcement Proceedings of the Pledge without Transfer of Possession an the Guarantee Trust", which was divided in a proceeding performed out-of-the-court and another subject to the strict compliance of the law or also called judicial proceeding.

By means of the out-of-the-court proceeding it is filed the payment of due credits and the obtention of the possession of goods subject mater of the granted guarantees, as long as there is not any existence of controversies as to the demand for the credit, the claimed amount and the delivery of the possession of the before mentioned goods.⁹³

By means of the strict or judicial proceeding, any trial will be filed as long as it has the purpose to pay certain, liquid and demandable credit and the obtention of the material possession of goods that guarantee such credit, as long as the guarantee has been paid by means of a pledge without transfer of possession or guarantee trust.⁹⁴

Enforcement Proceedings

As it was detailed above, the pledge constitutes a secondary obligation linked to a principal obligation, but its preponderant distinctive note is that the same implies the actual or symbolic delivery of a movable good, in respect of which the pledge may obtain with the intervention of the judicial authority, informing the interested party, the sale of the thing to satisfy a credit.

From the above, it is inherent that the pledge agreement, once the principal obligation has matured, the creditor requests judicially the sale of goods given in pledge, as long as the debtor does not appear to object by means of a payment or changing the precedence of the sale because the fundamental hypothesis is not configured specifying the principal obligation has matured.

Prior to the amendment dated on May 2000, the Article 341 of the LGTOC provided that once the guaranteed obligation has matured, the creditor was able to request the judge the sale of goods or negotiable instruments given in guarantee, for such effects the debtor had a term of ‘three days’ to object the sale showing the amount of the debt; as a consequence of the amendment before cited, such provision was modified, extending the term to ‘fifteen days’ as of the creditor’s petition to object the defenses and exceptions available in order to prove the lack of legal grounds of the same; in such case the judge will resolve in a term not to exceed fifteen days. If the debtor asserts this right, the judge will authorize the sale.

In effect, the literal analysis derived from said provision, in the sale proceeding for the commercial pledge, the debtor has fifteen days to appear and then object by means of defenses and exceptions in order to prove the lack of legal grounds of the same, with the elements above some procedural aspects are now ruled, but before they were not contemplated in an expressed manner. At the same time, if it is considered that any action exercised in trial, presupposes the collection of indispensable elements to have grounds, and the jurisdictional body is compelled to study, even to study the case ex officio, as it has been sustained by the SCJN in Mexico,⁹⁵ then it is necessary that the pledge accredits in an authentic manner, before the judge, that the principal guaranteed obligation has matured, in specific, that the term has elapsed and therefore, the obligation is enforceable.

In the reference frame, in the controversies that come up because of the pledge with transfer of possession, the provisions o the Commercial Code shall rule.⁹⁶ The amount of the guarantee may be a determined sum at the time of its constitution or may be determinable at the time of its enforcement.⁹⁷

If the debtor is subject to an insolvency proceeding, the credits charged to him and duly guaranteed by means of a pledge without transfer of possession will be enforced as of the declaration date, and shall continue accruing the provided ordinary interests up to the value of the respective guarantee.⁹⁸

In case of the debtor’s insolvency proceedings or bankruptcy, the assets subject matter of the pledge without transfer of possession existing in the mass, may be enforced by the pledge by means of the corresponding action in conformity with the applicable law before the judge for insolvency matters whom will decree without any other formality, the requested enforcement.⁹⁹ For that reason, the action for separation will proceed if the assets are in possession of the merchant as of the moment of the declaration of the insolvency proceedings;¹⁰⁰ besides, as long as the separable assets were given in pledge to third parties acting in good faith, the pledge will be able to object the delivery while the secured obligation is not paid to him, including the fixtures the pledge might be entitled to.¹⁰¹

On the other hand, the creditor will be bound to release the pledge when the principal credit is paid in its entirety, including the interests and other debt's fixtures, and for such effects the same formalities will be used for their constitution.¹⁰²

The pledge agreement does not transfer neither the property nor the possession to the creditor in his correct meaning. It is pertinent to point out that the constitution of the pledge implies a dismemberment of the property right; since the debtor at the moment of delivering the good given in pledge in actual or symbolic delivery, he cannot dispose of it validly any more because with said good he guarantees the fulfillment of an obligation, giving to the creditor the certainty and the faculty to request the judicial authority¹⁰³ the sale of the good, in order to recover his credit provisionally which is equivalent to the complete fulfillment of the debtor in respect to the principal secured obligation.

The Commercial Law Science is agile and it evolves in accordance with the needs of the commercial traffic. Nowadays many credit agreements are executed which contain as a guarantee the pledge that is not exactly a special act, but exclusively, represents a guarantee of a principal obligation agreed among the parties to secure the payment of said principal obligation.

2. Mortgage¹⁰⁴

Among the collateral securities it is to mention the mortgage,¹⁰⁵ as one of the types that better satisfies the operative demands within the current commercial relations. This juridical figure represents a real "watershed" by means of which the mortgaged real estate is affected as a guarantee of all the present or future obligations the debtor contracts within a term and up to a determined amount, avoiding, in this manner, the successive constitution of new liens.

The specialty of the mortgage,¹⁰⁶ which essential requirement is that it shall be imposed on an specifically determined asset,¹⁰⁷ it should not be understood as constituted in a generic manner on all debtor's assets, but only in those expressly encumbered; besides, for a certain and determined amount of money, that is, the amount by which the real estate is backed through the mortgage. For that reason, the mortgage's right in rem, as any guarantee, is accessory to the credit the same secures.

The mortgage may include all debtor’s assets, if they are encumbered expressly, without for this reason it is wanted to make reference to a general mortgage. When the debtor responds with all his assets, the principle of specialty of the mortgage is not infringed, then although only some assets are mortgaged with such number it would be fulfilling the principle above referred.

Independently of the above stated, the other non mortgaged assets may be also attached for the debt payment, with the difference that on such non mortgaged assets the creditor does not have any preference and he should be considered as a common creditor.

The mortgage may be transferred only with the secured credit and always in favor of the credit’s assignee. Besides, the credit transfer and such of the mortgage as well does not mean that they work simultaneously in favor of the assignee, but that exclusively the mortgage may be transferred only with the credit guaranteed by the mortgage.

Another characteristic foreseen by Mexican rules is that the mortgage may be imposed not only on real estate, but also on personal property, as it is established in the following provisions:

a) Law of Credit Institutions (LIC), acknowledges the mortgages constituted in favor of credit institutions on the complete unit of a company, whether it is an industrial, agricultural, a cattle dealing company or a service company, which shall include the concession or respective authorization, if applicable, all the material elements whether they are personal property or real property affected to the exploitation, considered in their unit.¹⁰⁸

b) Navigation Law (LN)¹⁰⁹ provides that a mortgage may be constituted related to a vessel or a naval appliance constructed or in construction process by the owner by means of a contract. The maritime mortgage is extended to freight, if it is so agreed.¹¹⁰ The lien in rem of the mortgage will have preference on any other credit that it could encumber to the vessel or naval appliance.¹¹¹ The owner of the vessel or mortgaged naval appliance is not susceptible of an encumbrance without the expressed consent of the mortgagee.¹¹² The foreclosure proceedings prescribe in three years, as of the secured credit’s maturity date.¹¹³

The mortgage agreements on Mexican vessels and naval appliances should be recorded in the National Maritime Public Registry, but in case of the lack of registration, the agreement will produce its legal effects among the parties only, but never before third parties.¹¹⁴

At the time of enforcing the secured obligation by means of the mortgage, the mortgagee is entitled to claim judicially the mortgaged thing, sell it and be paid with the value of the assets, in the preferential degree established by law¹¹⁵ because the agreed obligation has been defaulted. Consequently, if the credit has a collateral security, the creditor is able to take actions in commercial execution proceedings,¹¹⁶ regular proceedings or the applicable proceedings for the specific case,¹¹⁷ preserving the collateral security and his preference even if the encumbered assets are appointed to practice the execution.¹¹⁸

The mortgage is extinguished as a result of a consequence at the time of extinguishing the principal obligation backed by the security interests; however, the mortgage is able to subsist in spite of the credit’s extinction, expressly at the moment in which the credits assignment¹¹⁹ is originated and a new credit is born, as long as a reserve for the collateral security has been made. In Mexico such situation is a frequent matter derived from the execution of the North American Free Trade Agreement (NAFTA),¹²⁰ since foreign banks when buying "overdue portfolio", acquire the debt and lends the mortgagor to pay the creditor bank, and it is so recorded in the entries of the corresponding public deed.¹²¹

3. Guarantee Trust¹²²

Without any doubt, the guarantee trust has been has been going ahead from the pledge and the mortgage as well, making easier, flexible and secure the management of a credit. As of the 2000 amendment, it is incorporated the juridical figure of the guarantee trust by means of which the trustor transfers in favor of the trust company the ownership of certain assets in order to guarantee the beneficiary the fulfillment of an obligation and his payment preference;¹²³ different to the trust in which certain assets are used exclusively to a determined legal purpose when they are assigned to a trust company to carry out this objective.

Traditionally, the trust is an act held between living person or by means of a will, by means of which the trustor assigns certain assets or rights to a determined legal purpose, entrusted to a financial institution to carry out such purpose. In this order of ideas, the fiduciary relation has a contractual nature, as it is provided in Article 407 of the LGTOC, in which it is possible to establish rights and obligations for the three contracting parties or some of them; whether it is the fiduciary,¹²⁴ the trustor¹²⁵ or the beneficiary.¹²⁶

In Mexico, this juridical figure is regulated by the General Law of Negotiable Instruments and Credit Operations as a commercial agreement, by means of which the trustees for a guarantee trust car rely on the capacity of the credit, insurance and bonding institutions, financial corporations on limited liability financial corporations as well as general deposit warehouses,¹²⁷ however it is considered that anybody may encumber an asset in a trust, but only and exclusively the owner is able to do so, in order to guarantee a credit; therefore, it will be sufficient an unilateral statement of the assent providing the terms in which said asset will be encumbered, expressing the parties their will to agree and convene in a juridical act intended to generate multiple relations. In these order of ideas, although it is true that the wills concur to create, modify or extinguish rights and obligations, we can also firmly assert that Article 407 of the LGTOC perpetrates a clear juridical aberration when providing that the trust is an agreement, in reality ‘the trust because of its origin or cause presents the legal characteristic of being a consensual juristic act’, since it is sufficient one will of the parties to be perfect and produce legal effects within the filed of the rights in rem.¹²⁸

In this order of ideas, the fiduciary institution becomes the owner or fiduciary acting as holder of the assets and at the time of extinguishing the trust,¹²⁹ the assets in trust in possession of said trustee may be returned from the fiduciary institution to the trustor. In this hypothesis, dealing with real estates or rights in rem on them, it is necessary that the fiduciary itself makes the related entry in the document which provides authentically the constitution of the trust and its recording the Public Registry of Property.¹³⁰

The law grants to the fiduciary institution all rights and actions it may require for the fulfillment of the trust, therefore, all and each one of the owner’s rights, in specific, administer, lease, mortgage and even the right to sell the thing when necessary in order to fulfill the trust.

Therefore, the fiduciary institution may perform acts of property to let it reach the purposes of the trust;¹³¹ the fiduciary institution is also authorized to appear and act before third parties as owner of the asset or assets¹³² in trust, including the right to defend said patrimony;¹³³ however, this property is also limited, because the owner is restricted or subject as such, in order to frame his decisions exclusively to the purposes of the trust.

In the Mexican legislation, the fiduciary has the ownership, which does not have the elements to define the traditional ownership, more exactly, it is considered as a temporary, proprietary or limited,¹³⁴ restricted to the purposes specified in the constitution of the trust.¹³⁵ Besides, the trust constituted as a creditors’ fraud may be attacked at all times of nullity by the interested parties, granting them the right to take the revocatory action to nullify fraudulent acts.¹³⁶

In effect, the encumbrance of assets given in a trust may be objected by those whom eventually said encumbrance might cause certain impairment, for example, in case of the mass of creditors of the merchant acting as debtor, whom the reduction of the patrimony of the insolvent might represent a loss. Making use of the statement above the Law of Commercial Insolvency Proceedings (LCM), provides¹³⁷ diverse hypothesis of acts performed by the common debtor which might cause an impairment to his creditors.

Nowadays, in Mexico the guarantee trust allows debtors to grant personal property and real estate as guarantees; for the reason above presented, a specific characteristic of this king of trusts, is expressed in the possibility of constituting a new trust to guarantee simultaneous or successive obligations of the debtor,¹³⁸ which represents an important advantage for him, since it is not necessary to create a trust per creditor who, at a certain moment, any debtor might have. Besides, the inclusion of the trust in the patrimony within the insolvency mass, is made with the purpose of avoiding the fraud committed against creditors and protect their interests, without allowing the debtor to encumber his patrimony to reduce his assets. In this manner, the mass in trust leaves the trustor’s patrimony and it does not integrate such of the parties who participate in said patrimony, in specific, a separate and autonomous patrimony of the contracting parties is constituted.

In effect, the guarantee trust may have one or more creditors as beneficiaries, who will be able to enjoy the guarantee in a joint, alternated, consecutive or successive manner, or even work in a rotating manner; the guaranteed credits may be prior to the execution of the same, or they may be simultaneous or subsequent, and the offered and lent guarantee may give or not a preference to the payment of a credit from any beneficiary, always without affecting the guaranteed creditors’ rights in first order, whom, at the same time, will be able to assign their priority order to other beneficiaries.¹³⁹

The procedure in the guarantee trust

By means of the out-of-the-court proceeding, as it was indicated before, it is filed the payment of matured credits and the obtention of the possession of assets subject matter of the granted guarantees, as long as there are any controversies as to the enforceability of the credit, the claimed amount and the delivery of the possession of the assets above mentioned.¹⁴⁰

The value of the assets subject matter of the granted guarantees will be calculated by the opinion provided by the expert appointed by the parties for such purpose as of the execution date of the agreement or on a subsequent date, or by any other proceeding agreed in writing by the parties.

In the guarantee trust, the two acts performed by the fiduciary are the acts of administration and property, and it is precisely that the acts of property are conditioned to the hypothesis of default by the trustor regarding the principal obligation.

For the above reason, and derived from the presence of the default above cited, the fiduciary shall proceed to the sale of assets, which will demand the trustor, by means of the person authorized to authenticate documents,¹⁴¹ for the payment and material delivery of the asset¹⁴² given as a guarantee in order to start the proceeding inclined to satisfy the pending credit.¹⁴³

If the fiduciary is not able to obtain the possession of the assets,¹⁴⁴ the enforcement proceedings will take place.¹⁴⁵ Notice will be given regarding the continuation of the enforcement proceedings informing the trustor that he has lost its right. At the same time, after the appraisal of the asset,¹⁴⁶ a call will be announced to hold the public bidding, which shall fulfill the requirements provided in the call for public sale,¹⁴⁷ besides, the debtor will be also notified in five days in advance prior to the notice of sale of assets,¹⁴⁸ if there is not response, then the transfer of property related to the asset will proceed in favor of the winning bidder in public auction.¹⁴⁹

Notwithstanding the above cited, the Mexican banking system operates in terms of certain indicators. For that reason, it is true that there have been improvements in the regulatory frame, however, there is still a lot to demonstrate in connection to the usefulness of the new bankruptcy proceedings and the practice of the new regulations for credit guarantees, because they still face high legal costs, slow procedures and a deficient obligation to fulfill them. In this manner, it would be necessary that the authorities themselves increase the available resources for the judicial authorities and consider the option of creating independent commercial courts with competence to resolve controversies related with the financial sector.

VI. CONCLUSIONS

1. The amendments in the field of credit applied in the Mexican legislation intend to give strength to the guarantees, in specific the pledge without transfer of possession and the guaranty trust, by means of an execution proceeding applicable to personal property and real estate that ensures the debtor, in his right for a defense as well as the preservation of the value of assets transferred as a guarantee, including the assurance for the beneficiary on collecting his credit in a fast manner and by means of an out-of-the-court arrangements.

2. In Mexico, the Science of Commercial Law at this time provides juridical figures that allow in the subject matter of guarantees, and in an expressed manner, the pledge without transfer of possession and the guaranty trust, and enables the fulfillment of commercial operations, in respect of certain commercial acts within an economic and commercial context, in the development of current financial operations, in accordance with the demands related to needs of modern commercial traffic.

3. In the Law of Commercial Insolvency Proceedings, the merchant has the possibility of preserving the company, by means of an agreement subscribed with his creditors, not permitting, with the document above, the generalized default of the payment obligations putting not only the company at a high risk, but also the other companies that maintain a business relationship with him; however, it is important to point out that the current law keeps a notorious disadvantage for the bankrupt, who also may be removed from the administration, if it is so considered and requested by the conciliator.

4. The legal procedure contemplated by the Law of Commercial Insolvency Proceedings seeks to be more expeditious, clear and fair, providing a renewing spirit inclined to preserve the companies and avoid the generalized default of the payment obligations, giving strength to the juridical security and conviction of all individuals and entities involved in the commercial insolvency proceedings.

5. By means of the pledge without transfer of possession, the right in rem constituted on personal property seeks to guarantee the fulfillment of an obligation and its payment preference, in which the debtor preserves the material possession of the assets in question, therefore, it does neither transfer the possession mentioned above, nor the faculty to dispose freely of the asset, causing a benefit, upon these terms, for the debtor, who will be able to continue working on his activity with the asset in guarantee to fulfill the principal obligation that was contracted. We should not forget that the possession, dispossession and sale of the pledge are the inherent effects of this guarantee, since they are the juridical hypothesis that produce their effectiveness when providing comfort and efficacy to this figure in the commercial traffic, and the same, as a result, is one of the simplest legal figures available with lower costs in the market.

6. In Mexico, the right in rem, in specific, the mortgage, is considered as any guarantee acting as an accessory to the credit that the same guarantees, therefore, its existence is not conceived, if the same is not to guarantee a determined credit. In these order of ideas, all types of mortgages demand inexcusably certain credit that is accessory to the mortgage, which may be transferred only with the credit attached thereto. Besides, it is a right in rem that is constituted on determined assets, generally they are real estate, susceptible of being sold to guarantee the fulfillment of a principal obligation, without dispossessing the owner of the encumbered asset. Among its requirements we can find the determination of the amount in domestic or foreign currency to be guaranteed, the frame in time of a term to fulfill the obligation, as well as the determination of the real estate or rights in rem on them, in such a manner that the creditor may sell them in case of a matured date for the obligation, and if the same is not paid in due time.

7. The guarantee trust, may be considered as the figure with more advantages when compared with the traditional pledge guarantees, mortgage and bonds, granting a benefit in a mediate manner for the markets, and immediately for the companies; since the trust intends to make agile the granting of credits allowing to reach the maximum benefit of the assets’ value, the above gives a wider horizon to the possibility of the credit, relieves the effects of financial crises in companies, and gives the possibility to a better and bigger access to financial resources for risky debtors.

8. The trust constitutes a guarantee with the characteristic of being susceptible of a self-liquidation, at a low cost for its implementation which allows to consider it as an indispensable credit tool, because in a contrary sense to the collateral securities represented in the mortgage and pledge that need for their structural applicability the world of material things, eliminating the possibility to offer as a guarantee other assets, which are not things in essence, such as rights, credits and all items containing a patrimonial content susceptible of having a value.

9. The Mexican code of laws considers the trust as a juridical act of disposition, which purpose is to guarantee the fulfillment of an obligation susceptible of being combined with a juridical business for a patrimonial transaction and administration of the assets in trust. The procedure used with this guarantee resolves the conflicts in a faster manner to recover the creditor's investment at the lowest price available, and with more security to preserve the value of the debtor’s assets, since a guarantee with self-liquidation has the preference on other with slow and onerous results.

VII. BIBLIOGRAPHY

AMOROS GUARDIOLA, M., "The Patrimonial Guarantee and its Forms", Legislation and Jurisprudence Review, No. 5, May 1972, tome LXIV.

BATIZA, Rodolfo, The Trust, 4th edition, Mexico, Porrúa, 1980.

DIEZ-PICAZO, Luis, Fundamentals of Patrimonial Civil Law, Madrid, Civitas, tome II, 1993.

EBRARD CASAUBÓN, Marcelo, "Fobaproa, a lost opportunity", Fobaproa and Ipab, the Agreement that Should Not Be, Mexico, Océano, 1999.

GIRÓN GONZÁLEZ, Alicia, "Instability and Financial Frailty of the Mexican Peso", Problems of Development, Latin American Magazine of Economy, Mexico, Vol. 32, No. 124, January-March 2001.

MUÑOZ, Luis, The Trust, Mexico, Cárdenas Editor y Distribuidor, 1980.

ORMAECHE, Carolina, "The Practice of the Trust Agreement with Guarantee Purposes", Notarial Review, Buenos Aires, Argentina, No. 936, 2001.

QUINTANA ADRIANO, E. Arcelia, Legal and Economic Aspects of the Banking Rescue, Mexico, UNAM-Legal Research Institute, 2002 (publication in printing process).

———, Rights of Users of the Banking System, Mexico, UNAM-Legal Research Institute, 2000.

———, Commercial Law, Mexico, Mc Graw-Hill, 1997, Overview of Mexican Law Collection.

———, "The Receiver in the Voluntary Dismissal of Actions in Favor of Bankruptcy", Mexican Bulletin of Comparative Law, Mexico, new series, year XXXV, No. 104, May-August 2002.

———, "Guarantees in the Mexican Bankruptcy and Suspension of Payments Law", Private Law Journal, Mexico, year 8, No. 22, January-April 1997.

———, Theory and Doctrine of the Commercial Law Science and its Institutions, Mexico, UNAM-Legal Research Institute, 2002 (publication in printing process).

———, The rural mortgage documents, professional thesis, Mexico, UNAM 1969.

MARGADANT, Guillermo, Roman Law, Mexico, Esfinge, 1960.

SPANISH ROYAL ACADEMY, Dictionary of the Royal Academy of Spanish Language, Madrid, Spain, Espasa Calpe, 1992.

SUÁREZ DÁVILA, Francisco, "Liberation, Regulation and Supervision of the Mexican Banking System", Foreign Trade, Mexico, vol. 44, No. 12, December 1999.

VILLAGORDOA LOZANO, José Manuel, General Doctrine of the Trust, Mexico, Porrúa, 1976.

VILLAR, Rafael del et al., "International Experience in the Resolution of Banking Crises", research works by the Bank of Mexico, Mexico, December 1997, www.banxico.org.mx.

http://www.Nafta-sec-alena.org/spanish/index.htm.

http://www.rtn.net.mx/ocde/ocde.html.

SEQUEIRA G., Luz Elena, "The Year 2000 and the Financial Crises in Latin America", El observador economico, http://www.elobservadoreconomico.Com.ni/107/crisis.htm.

1. Legislation

Federal Civil Code.

Purpose recitals delineating the reasons to enact the Law of Commercial Insolvency Proceedings.

Purpose recitals delineating the reasons to enact the bill for the Federal Law of Credit Guarantees submitted before the Congress of the Union on April 7, 1999.

Law of Commercial Insolvency Proceedings.

Law of Credit Institutions.

Law of the Banking and Securities National Commission

Navigation Law.

Law of Protection of bank savings.

Law of Credit Institutions.

Organic Law of the Federal Public Administration.

General Law of Negotiable Instruments and Credit Operations.

2. Diario Oficial de la Federación (Official Gazette of the Federation)

Official Gazette of the Federation dated on July 18, 1990.

Official Gazette of the Federation dated on April 28, 1995.

Official Gazette of the Federation dated on January 18, 1999.

Official Gazette of the Federation dated on May 12, 2000.

Official Gazette of the Federation dated on May 23, 2000.

3. Thesis of Jurisprudence

"Action filed taking as a basis the advanced maturity of a credit agreement by default of agreed installments. It does not have legal grounds if it is not specified in the claim the default date", Judicial Review of the Federation and its Gazette, Tome XIII, January 2001, Thesis Vi.3rd.C. 74 C, p. 1672.

"Action filed because of the advanced maturity of the credit agreement derived from a default in the agreed payments. The indication of the default date is an element of the same", Judicial Review of the Federation and its Gazette, Tome III, January 2000, Thesis VI. 3rd. C.75 C. p. 1672.

"Concurrent jurisdiction, in reference to a national credit corporation or a State company with the majority of shares", Judicial Review of the Federation, I. Second Part I, January-June 1988, p. 172.

"Agreements, the will of the parties is the Supreme Law of the Agreements", Judicial Review of the Federation, 5th. epoch, Justices in full session, Tome XX, p. 243.

"Agreements", Judicial Review of the Federation, 5th epoch, Justices in full session, Tome XVI, p. 817.

"Credit encumbered in a trust. It also includes the mortgage security and the personal guarantee that was constituted to grant it", Judicial Review of the Federation, Tome IX, May 1999, Thesis III, 3rd C. 93 C, p. 1016.

"Trust. It is not a cause of nullity the fact of the participation in such trust of two credit institutions that integrate the same financial group", Judicial Review of the Federation, Tome X, December 1999, Thesis III, 3rd C, 102C.

"Concurrent jurisdiction in matters in which a national credit corporation is a party when affecting private interests", 3rd courtroom, Tome IV, SCJN portion, 1995 Appendix Judicial Review of the Federation, p. 250.

"Commercial executive proceedings. They are unlawful if they are filed against the guarantor of a mortgage if he has, at the same time, the capacity of accredited borrower or joint debtor (Articles 68 and 72 of the Law of Credit Institutions)", Contradiction of thesis 40/2001-PS and thesis of jurisprudence 5/2002, Approved by the 1st Courtroom of this Supreme Court, in session held on February 6, 2002, by an unanimous resolution integrated by 4 votes. Judicial Review of the Federation.

"Direct ‘Amparo’ 3778/56. Jorge Negrete Moreno; Judicial Review of the Federation. Sixth epoch, Fourth portion, Volume III, p. 153. In a clear manner the law provides the possibility of constituting a right in a negotiable instrument on certain right for purposes of a guarantee.

Notes
* Abbreviations: Art., arts.: article, articles; IDB: Inter-American Development Bank; BM: Bank of Mexico; CCF: Federal Civil Code; Cco: Commercial Code; CNBV: Banking and Securities National Commission; CONDUSEF: National Commission for the Protection and Defense of the Users of the Financial System; DO: Official Gazette of the Federation; FMI: International Monetary Fund; FOBAPROA: Banking System Savings Protection Fund; Sect., sects.: Section, sections; Ibidem, Idem: the same; IPAB: Institute for the Protection of Bank Savings; LCM: Law of Commercial Insolvency Proceedings; LCNBV: Law of the Banking and Securities National Commission; LGTOC: General Law of Negotiable Instruments and Credit Operations; LIC: Law of Credit Institutions; LN: Navigation Law; LOAPF: Organic Law of the Federal Public Administration; LQSP: Law of Bankruptcy and Temporary Receivership; OECD: Organization for Economic Co-operation and Development; op. cit.: opere citato (from the work already quoted); p., pp.: Page, pages; PROCAPTE: Temporary Capitalization Programs; SCJN: Supreme Court of Justice of the Nation; SHCP: Ministry of Finance and Public Credit; ss.: following; t.: Tome; NAFTA: North American Free Trade Agreement; UNAM: National Autonomous University of Mexico.
The titles of the books, articles and the jurisprudence consulted for this essay, and including those of bibliography, have been translated to English.
** Regular professor by competitive examination of Commercial Law, Economic Law and History of Economic Thought in Faculty of Law at the National Autonomous University of Mexico (UNAM) for LL. B. and Postgraduate Programs. UNAM University Professor. Regular Researcher by competitive examination in the Legal Research Institute at UNAM. Member of the National System of Researchers for the National Council of Science and Technology (CONACYT).
1 Del Villar, Rafael et al., "International Experience in the Resolution of Banking Crises", research works by the Bank of Mexico, Mexico, December 1997, p. 73, www.banxico.org.mx.
2 Ebrard Casaubón, Marcelo, "Fobaproa, a Lost Opportunity", Fobaproa and Ipab, the Agreement that Should Not Be, Mexico, Océano, 1999, p. 40.
3 Official Gazette of the Federation (DOF), May 12, 2000.
4 See purpose recitals delineating the reasons to enact the Law of Commercial Insolvency Proceedings.
5 Idem.
6 THE OECD has its roots in 1948, in the Organization for the European Economic Co-operation which objective was to manage the Marshall Plan for the European reconstruction. In 1960, The Marshall Plan fulfilled its goal and the member countries agreed to invite the United States and Canada in the creation of an organization to coordinate the policies among occidental countries. The new organization was called Organization for Economic Co-operation and Development; its headquarters are located in Paris. The OECD is a governmental organization which assembles the member countries to exchange information and harmonize policies with the purpose of maximizing their economic growth and collaborate with their development and such of the member countries as well. The OECD is the largest/biggest worldwide producer of publications in Economics and social issues with more than 500 titles yearly, plus working documents and other products. http//www.rtn.net.mx/ocde/ocde.html.
7 The financial frailty may be conjunctural or structural. The first is related with the economic cycle phenomenon. At the height of splendor or economic expansion, the credit grows easily; when the situation reverts and the demand descends, the earnings compress and several companies enter into the process of an overdue portfolio. The second, in specific, the structural frailty refers to several factors which have affected the banking system in a negative manner during several years. Dávila, Francisco, "Liberation, Regulation and Supervision of the Mexican Banking System", Foreign Trade, Mexico, vol. 44, No. 12, December 1999, pp. 1049 and 1050.
8 In the stability, we start from the concern that competition without limits produces distortions and weakens the solvency of the institutions. The mechanisms to be used to achieve those objectives are: prices control, in particular setting rules of interest rate and commissions, as well as rules to give direction to credit; impose limits to the range of activities which are authorized to institutions, in other words, the level of specialization, for example, in the banking system, securities or insurance; to determine the relationship which might exist among the banking system and the commercial and industrial corporations, and establish the participation in foreign entities. Ibidem, p. 1050.
9 The principal factor to promote the efficiency is the promotion of the competition; however, at present, certain rules appear on the adjustment of capital and the appropriate diversification of risks, observing some trends addressed to reform and modify the quality of the regulation or, frankly speaking, towards regulation. Idem.
10 See Sequeira G., Luz Elena, "The Year 2000 and the Financial Crises in Latin America", El observador economico, http//www.elobservadoreconomico.Com.ni/107/crisis.htm.
11 The speculative bubble raises artificially the demand of credit for the economy, which leads to increase the domestic interest rate and reduce the availability of financing of more productive activities. Villar, Rafael del et al., International Experience in the Solution of Banking Crises, Mexico, 1997, p. 11, http://banxico.org.mx.
12 Ibidem, pp. 6 and ss.
13 Idem.
14 Ibidem, p. 7.
15 In respect to Latin America, this type of banking crises has been experienced by Venezuela and Brazil; in the countries of Eastern Europe, Hungary as a consequence of the contraction of public expense, at the end of the eighties to stabilize the inflation and the relatively restrictive monetary policy implanted at the beginning of the nineties, bring about, as a consequence the increase of domestic interest rates, which provoked a potential entry of capitals. For that reason, in 1992 there was a strong credit growth casing a deterioration in the quality of the banks’ portfolio. Poland adopted the Program for the Economic Transformation in January 1990, which included the elimination of price controls and the commercial opening. This policy produced serious financial problems for semi-state companies, and, in consequence, for the banks. Ibidem, pp. 7 and 8.
16 Ibidem, p. 8.
17 An incomplete regulatory frame is practically observed in Argentina from 1980 to 1982; In Venezuela, a bad banking administration and excessive credit concentration, before an inappropriate supervision produced a portfolio extremely risky, in such a level that one proportion of the resources was canalized to corporations associated with the banks themselves, as well as in Thailand. Ibidem, pp. 8 and 9.
18 An example is the case of Estonia, where there was a predomination of commercial banks without experience, without the compulsory capital, and without sufficient technical knowledge. In Hungary and Poland the authorities have made an effort to receive foreign investment to the banking sector, with the purpose of substitute the deficiency in human resources and technology. Idem.
19 In Mexico, in 1994, the inexperience of new bankers and the inexistence of credit information regarding the agents produced that banks made wrong decisions on the granting of credits. In Argentina, in 1995, is considered that the inexistence of credit information companies until 1996, and the above caused difficulties to banks the appropriate selection of subjects to credit. The increase in the amount of the overdue portfolio from 1991 to 1994 is attributed partly to the inexistence of this information. One similar situation was experienced in Spain, the Baltic countries, Hungary and Poland. Idem.
20 In those cases in which the deposit insurance is expressed, the premiums that the banks bear or provide to the insurance do not reflect in their entirety the coverage of risks by such insurance, therefore, the subsidy to the financing of risky activities is not deleted. Besides, these type of guarantees reduce the incentive of depositors to evaluate and supervise the correct functioning, and as consequence, the financial activity of the banks. Ibidem, p. 10.
21 Under this situation we can find Argentina from 1980 to 1982, since there was an expressed deposit insurance which created harmful incentives to banks. Another example of an insurance is the FOGADE in Venezuela, the FOBAPROA in Mexico, the FPA in The Philippines and the Corfo in Chile, Idem.
22 Ibidem, p. 10.
23 With the purpose of avoiding financial crises, "it is necessary to acknowledge that sudden increases in prices of assets non justified in the fundamentals of the economy have the tendency to increase and make more vulnerable the financial system. When the bubble bursts, the value of banking guarantees falls, and the incentive for payment of debtors is reduced, especially if the value of such guarantees falls below the debt value. Before the deterioration of the guarantees’ value, the overdue portfolio of banks increases rapidly". Ibidem, p. 11.
24 Villar, Rafael del et al., op. cit., pp. 6 and ss.
25 The financial authorities, on September 10, 1982, decreed the nationalization of the banking system and the applicability of exchange control with the purpose of stopping the outflow of capitals. The Mexican private banks accumulated liabilities in foreign currency higher than 40% of their total capital; the capital flight was unavoidable and a need to face future exchange dispositions, including the funds obtained through the IMF and foreign banks, to meet the external debt service, in its two aspects: public and private. Girón González Alicia, "Instability and Financial Frailty of the Mexican Peso", Problems of Development, Latin American Magazine of Economy, Mexico, vol. 32, No. 124, January-March 2001, p. 41.
26 As of 1994, several banking insolvency cases appeared, and their shareholders did not have the capacity to contribute the necessary resources to capitalize them and face their liabilities with savers. In effect, the financial crisis in 1994 exploited when deposit banks, after they were reprivatized , accumulated liabilities in foreign currency above four billion dollars, without the possibility of sharing them with assets in foreign currency, with the aggravating circumstance that around a 50% were short-term liabilities. Another problem was the due dates for debt contracted by the development bank. Suárez Dávila, Francisco, "Liberation, Regulation and Supervision of the Mexican Banking System", Foreign Trade, Mexico, vol. 44, No. 12, December 1999, pp. 1054 and 1055.
27 To expand this topic, see Quintana Adriano, Elvia Arcelia, Legal and Economic Aspects of the Banking Rescue, Mexico, UNAM-Legal Research Institute, 2002, pp. 12-268. Also see Quintana Adriano, Elvia Arcelia, "The receiver in the voluntary dismissal of actions in favor of bankruptcy", Mexican Bulletin of Comparative Law, Mexico, new series, year XXXV, No. 104, May-August 2002, pp. 559-588.
28 Cfr. Quintana Adriano, Elvia Arcelia, The rural mortgage documents, professional thesis, Mexico, UNAM, 1969, p. 1.
29 Suárez Dávila Francisco, op. cit., p. 1051.
30 "In the frame of responsibilities that the President of the Republic of Mexico (Executive Power) has, it is to mention such of exercising the economic rectory of the country, with the sole and exclusive purpose of obtaining in favor of Mexicans the fair distribution of income and wealth; as well as the promotion of employment sources, among other tendencies to achieve the objective. Quintana Adriano Elvia Arcelia, Rights of Users of the Banking System, Mexico, UNAM-Legal Research Institute, 2000, p. 5.
31 "The State will exercise the Rectory of the Mexican Banking System, in order that the same orientates his activities primarily to support and promote the development of the productive forces of the country and the growth of national economy, based on a sovereign economic policy, promoting the savings in all sectors and regions of the Republic and its appropriate canalization to a wide regional coverage to cause the decentralization of the system itself, with respect to healthy banking uses and practices". Article 4 of the Law of Credit Institutions (LIC).
32 For a wider analysis of this topic, see Quintana Adriano, Elvia Arcelia, Rights of Users…, cit., pp. 3 and ss.
33 The SHCP is a centralized agency assigned to the Federal Public Administration of Mexico. Its jurisdiction is provided in Article 31 of the Organic Law of the Federal Public Administration, and has as faculties in the banking field, to forecast and coordinate the national planning for development and prepare the same with the participation of interested social groups; to plan, coordinate, evaluate and supervise the banking system of the country which includes the Development National Development Banking, and other institutions in charge of rendering the banking and credit service.
34 The Banking and Securities National Commission (CNBV) has as a purpose to supervise and regulate, in the scope of its jurisdiction, the financial entities, in order to procure their stability and correct functioning, as well as keep and promote a healthy and well-balanced development of the financial system as a whole, in protection of the interests of the users. Besides, this body has attributions to act as a consulting body of the Federal Government in financial affairs to authorize the constitution and operation of the financial entities, as well as determine the minimum capital of financial entities; to order the suspension of the same; to inspect administratively or managerially the entities on which the Commission exercises its supervision faculties, with the purpose of suspending or getting back to normal or solving the operations endangering their solvency, stability or liquidity, or those infringing the laws that regulate them or infringing the general provisions derived from those laws. See Official Gazette of the Federation, April 28, 1995.
35 The Bank of Mexico is an entity created by Public Law with autonomous capacity. One of its objectives is to supply country's economy with domestic currency procuring the stability of the economy's purchasing power, foster a healthy development of the financial system and favor the appropriate operation of the payment systems.
36 The National Commission for the Protection and Defense of the Users of the Financial System (CONDUSEF) is a public decentralized entity with juristic personality and assets of its own. This Commission has as a purpose to promote, advise, protect and defend the rights and interests of users before the financial institutions, arbitrate its deficiencies in an impartial manner and provide an equality principle in the relations among them. At the same time, CONDUSEF is authorized to act as conciliator among the financial institutions and the users, with the purpose of protecting the interests of the same. For a wider expansion on this topic see Quintana Adriano, Elvia Arcelia, Legal and Economic Aspects of the Banking Rescue…, cit., note 19, pp. 18-91.
37 The Institute for the Protection of Bank Savings (IPAB) is a public decentralized entity of the federal public administration with juristic personality and assets of its own, which purpose is to provide the Multiple Banking Institutions of a system for the protections of Bank Savings to guarantee the payment, the assumption of obligations in charge of said institutions in a subsidiary and limited manner, while it manages the financial cleanup programs for the benefit of savers and users of the banking system, safeguarding at all times, the national payment system. For the IPAB, the issuance of savings protection bonds is a fundamental element in its strategy for the consolidation of the financial system in the medium term. See Law for the Protection of Bank Savings published in the Official Gazette of the Federation on January 19, 1999.
38 Published in the Official Gazette of the Federation on April 28, 1995, and in effect as of May 1st., 1995.
39 There are comments supported by doctrine that assert that the banking system in Mexico is ruled by credit institutions and by inspection and supervision authorities. In this order of ideas, one portion of the supervision to the financial system is carried out by means of inspection visits, verification of operations and audits of entries and systems in the installations or automated equipments of financial entities to corroborate the status they have. The supervision is carried out by means of the analysis of economic and financial information that the entities are compelled to send periodically to the Commission, in order to measure possible effects on them including the financial system as a whole. The prevention and correction will be performed by means of the establishment of compulsory programs for the financial entities, with the purpose of eliminating the irregularities. See Quintana Adriano, Elvia Arcelia, Legal and Economic Aspects of the Banking Rescue…, cit., pp. 83, 84 and 116. See also Article 4, Sections XVII, XIX and XXVII of the LCNBV.
40 Article 274 of the LCBV.
41 Published in the Official Gazette of the Federation on May 12, 2000.
42 Article 2 (Transitory Article) of the Insolvency Proceedings Law, it is abrogated the Law of Bankruptcy and Suspension of Payments published in the Official Gazette of the Federation on April 20, 1943, and repeals or modifies all other legal provisions contrary to this law.
43 Official Gazette of the Federation, July 18, 1990.
44 It considered the banking and credit service, the reception of resources form users in the domestic market for their placement among the users, by means of actions causing direct or contingent liabilities, and the broker is compelled to pay for the principal and, if applicable, the financial fixtures of the received resources. It is not considered as banking and credit operations, in the exercise of their own activities, such executed by financial brokers different to credit institutions duly authorized in conformity to the applicable laws. Said brokers, in any case, are not authorized to receive irregular money deposits in checks accounts. Article 2 of the LIC.
45 Quintana Adriano, Elvia Arcelia, "Guarantees in the Mexican Bankruptcy and Suspension of Payments Law", Private Law Journal, Mexico, year 8, No. 22, January-April 1997, pp. 35 and 36.
46 "The bankruptcy is a juristic condition produced directly by a judicial sentence. It is a judicial and attractive sentence, a juridic-administrative proceeding subject to enforcement of judgment in which is submitted a merchant when he cannot accomplish his debts, during such proceeding it is joined the mass of assets of a common debtor to liquidate the mass of liabilities based on the classification and legal preference of credits acknowledge and approved judicially". Quintana Adriano, Elvia Arcelia, Commercial Law, Mexico, Mc Graw-Hill, 1997, Overview of Mexican Law Collection, p. 51.
47 Quintana Adriano, Elvia Arcelia, "Guarantees in the Mexican…", op. cit., p. 35.
48 The companies are submitted to a proceeding if they cease to pay their obligations, the commercial corporations in liquidation and the irregular corporations. See, Quintana Adriano, Elvia Arcelia, Commercial Law, cit., p. 51.
49 The commercial insolvency proceeding with the current content given by the Juridic Science is the result of an evolution in time. The authors placed it in Rome, through the manus injectio, considered as an action in favor of creditors, to enforce their right before debtors, and was exercised when they refused to fulfill a judicial sentence, or bye means of an obligation acknowledged before the judicial authority, and finally by reimbursement to his guarantor the amount to be paid by the debtor. In these circumstances, the creditor was able to take the debtor before the Roman judge of a lower court, and preach before him the specific formula to counterclaiming certain terms, that according to some authors, included to hold the debtor by the neck, and if the one who exercised the action fulfilled correctly the formalities, the Roman judged pronounced the word "Addico", I attribute it to you, and such fact entitled the creditor to take the debtor to his private jail. Margadant, Guillermo, Roman Law, Mexico, Esfinge, 1960, p. 144.
50 Article 2 of the LCM.
51 Article 3 of the LCM. The term conciliation comes from the latin expression conciliatio, -onis at the same time from conciliare, action and effect of conciliating or agree. In the conciliation stage, the purpose is the preservation of the companies and their employment resources.
52 During the bankruptcy stage, all credits are paid for the amount which allows the product derived from the sale of the asset.
53 Articles 9 and 10 of the LCM.
54 Articles 11 and 12 of the LCM.
55 Articles 17 and 18 of the LCM.
56 Articles 10 and 11 of the LCM.
57 See "CONCURRENT JURISDICTION, IN REFERENCE TO A NATIONAL CREDIT CORPORATION OR A STATE COMPANY WITH THE MAJORITY OF SHARES", Judicial Review of the Federation, Second Part I, January-June, 1988 p. 172. See also "CONCURRENT JURISDICTION IN MATTERS IN WHICH A NATIONAL CREDIT CORPORATION IS A PARTY WHEN AFFECTING PRIVATE INTERESTS", 3rd Courtroom, t. IV, SCJN portion, 1995 Appendix Judicial Review of the Federation, p. 250.
58 Articles 23, Section II and 24 of the LCM.
59 Articles 23, Section III of the LCM.
60 The guarantee is any mean to ensure the fulfillment of an obligation. The guarantee may be acquired with two types of means, surety and security means. Concretively, the compulsory link may be reinforced with the constitution of a new obligation (assumed by a third party); or, with the constitution of a particular right on a certain thing. See Diez-Picazo, Luis, Fundamentals of Patrimonial Civil Law, Madrid, Civitas, 1993, t. II, p. 395.
61 Article 24 of the LCM.
62 Articles 1168 to 1193 of the Cco.
63 Article 26 of the LCM.
64 Article 37 of the LCM.
65 Idem.
66 Article 26 of the LCM.
67 Article 27 of the LCM.
68 The Federal Institute of Commercial Reorganization Specialists (IFECOM) was created by provision of the Law of Commercial Insolvency Proceedings, published in Official Gazette of the Federation on May 12, 2000. It is an auxiliary agency with technical operative autonomy, which main function is to authorize the registration of persons who accredit the completion of necessary requirements to carry out the duties as inspector, conciliator or receiver, who give assistance to justice in reorganization matters in the technical aspects involved in commercial insolvency proceedings.
69 Article 29 of the LCM.
70 Idem.
71 Article 31 of the LCM.
72 Article 32 of the LCM.
73 Article 33 of the LCM.
74 Article 35 of the LCM.
75 Idem.
76 Article 40 of the LCM.
77 Article 41 of the LCM.
78 Article 48 of the LCM.
79 Article 65 of the LCM.
80 Idem.
81 Article 178 of the LCM.
82 Article 197 of the LCM.
83 Article 198 of the LCM.
84 The voice guarantee points at the idea of security, that is, it is intended to guarantee the obligation or the credit simply to provide it with more security and interest for the creditor. See Amoros Guardiola, M., "The Patrimonial Guarantee and its Forms", Legislation and Jurisprudence Review, No. 5, May 1972, t. LXIV, p. 565.
85 See purpose recitals delineating the reasons to enact the Federal Law of Credit Guarantees submitted before the Congress of the Union on April 7, 1999. However, it was not approved, but diverse purpose recitals were submitted instead on December 8, 1999. The document before referred provided that , "the debtors will be able to offer as a guarantee personal property recorded in the patrimony at the moment of receiving the credit, as well as the personal property to be acquired in the future, the one resulted from the manufacturing or transformation processes, including the personal property the debtors receive as a product of a sale. It is also possible to offer as a guarantee all goods used in the execution of the preponderant activity or just a part of them. In the first case, they will keep the property of acquiring new goods and give them as a guarantee to the person who provides them the necessary resources to acquire such goods and, in this manner, increase their production capacity, but said situation in the current system is not available".
86 Pledge, from latin, pignora, plural of pignus-oris, pledge, surety, guarantee. In its original sense, means an object given in guarantee. The dictionary of the Royal Academy of the Spanish Language defines the pledge , in its juridic meaning, as the movable thing that is subject especially to the security or fulfillment of an obligation. The pledge agreements presents two important characteristics: the first is expressed in the pledge agreement which does not transfer the property of the good to the creditor; the second reveals that the clause authorizing the creditor to obtain the payment of a debt, with the amount derived from the sale of the good, is an essential element of the agreement in reference.
87 The nature of the pledge is contractual. By means of the pledge the debtor of a third party delivers a movable thing to the creditor, and confers on him the right to receive the thing as a payment with preference above all the other creditors, if the credit is not satisfied. See Article 2856 of the CCF. Because the nature of the pledge is an agreement, the will of the parties is the supreme law of the agreements; as it has been so sustained by the SCJN since, "the contracting parties have the faculty to include all clauses they deem as convenient, it is evident that in order to determine the rights and obligations derived from any agreement, it is necessary to attend, above all, to the expressed will of the parties, which is the supreme law of the agreements; exception made to provisions contrary to ethics and public order". Thesis: "AGREEMENTS", Judicial Review of the Federation, 5th epoch, Justices in full session, t. XVI, p. 817. See also: "AGREEMENTS, THE WILL OF THE PARTIES IS THE SUPREME LAW OF THE AGREEMENTS", Judicial Review of the Federation, 5th epoch, Justices in full session, t. XX, p. 243.
88 Article 346 of the LCM.
89 Article 353 of the LGTOC.
90 Article 354 of the LGTOC.
91 Article 348 of the LGTOC.
92 Article 349 of the LGTOC.
93 Article 1414 Bis of the LGTOC.
94 Article 1414 Bis 7 of the LGTOC.
95 See "ACTION, EX OFFICIO STUDY OF ITS LACK OF LEGAL GROUNDS. The lack of grounds of the action, for the absence of any of its elements, it may be studied by the judge, even ex officio, since it is dealing with a matter of public law", Judicial Review of the Federation, t. XIII, February 1994, p. 251. See also "ACTION FILED BECAUSE OF THE ADVANCED MATURITY OF THE CREDIT AGREEMENT DERIVED FROM A DEFAULT IN THE AGREED PAYMENTS. THE INDICATION OF THE DEFAULT DATE IS AN ELEMENT OF THE SAME", Judicial Review of the Federation and its Gazette, t. III, January 2000, Thesis VI. 3rd. C.75 C. p. 1672. See also "ACTION FILED TAKING AS A BASIS THE ADVANCED MATURITY OF A CREDIT AGREEMENT BY DEFAULT OF AGREED INSTALLMENTS. IT DOES NOT HAVE LEGAL GROUNDS IF IT IS NOT SPECIFIED IN THE CLAIM THE DEFAULT DATE", Judicial Review of the Federation and its Gazette, t. XIII, January 2001, Thesis VI.3rd.C. 74 C, p. 1672.
96 Articles 1049 and 1050 of the Cco.
97 Article 348 of the LGTOC.
98 Article 350 of the LGTOC.
99 Article 351 of the LGTOC.
100 Article 72 of the LCM.
101 Article 72, Section VI of the LCM.
102 Article 364 of the LGTOC.
103 The authorization or resolution of the judge who orders the sale of the good is a declaratory resolution, but it does not constitute any rights; while in the order for sale, the judge expressly acknowledges, declares and confirms that there is a preconstituted right of the creditor, related to a principal matured obligation matured now guaranteed by a good given in pledge. Consequently, the judge should confirm: 1. The existence of a principal matured obligation, 2. The existence of the pledge, 3. The legitimation in the cause of the petitioner and, if applicable, the legal personality who acts on behalf of the creditor.
104 The mortgage is a right in rem that is constituted on determined assets, generally real estate, susceptible of being sold, to guarantee the fulfillment of a principal obligation, without dispossessing the owner of the encumbered good, and grants to its holder the right to be paid with the value of the assets, in the degree of preference established by law. See Article 2893 of the CCF.
105 It is an agreement that secures the fulfillment of a principal obligation, affecting especially real estate or rights in rem imposed on them. They have an accessorial nature; their role is indivisible as to the credit and divisible in respect to the encumbered assets. The mortgage is accessory, therefore, once the principal obligation is extinguished, the mortgage is extinguished as well. For example, a credit agreement is executed and it is granted a mortgage security, the credit is paid and the mortgage is extinguished.
106 Article 2895 of the CCF.
107 The CCF, when not demanding in an expressed manner that the mortgage be imposed on a real estate, but on property which may be considered as personal, did not try to eliminate the element of which the mortgage be imposed on the first ones, but rather to leave open the possibility of which the mortgage may include also some special cases of mortgages constituted on personal property.
108 Article 76 of the LIC. "They will include also the money deposited in current operation box and credits in favor of the company, produced by their operations, without affecting the possibility to have them and substitute them in the normal movement of the operations, without the creditor's consent, excepting the existence of an agreement contrary to this provision…".
109 The LN, published in the DO dated on January 04, 1994. This Law repeals the Law of Navigation and Maritime Commerce.
110 Article 90 of the LN. The order of recording in the National Maritime Public Registry will determine the preference degree of the mortgages. The cancellation related to a recording of a mortgage is executed by the expressed will of the parties or by judicial resolution.
111 Article 91 of the LN.
112 Article 93 of the LN.
113 Article 94 of the LN.
114 Article 14 of the LN. The recording requirements is not applicable to acts and documents related with small vessels and naval appliances provided by the respective regulations.
115 Article 2893 of the CCF.
116 The SCJN has sustained that the commercial execution proceedings is lawful if the claim has as a consequence the corresponding execution. Therefore, if a credit granted by a credit institution has a collateral security, said juridic figure will be able to take actions in commercial executory proceedings, but only in respect to the defendant or defendants who have the quality of accredited parties, borrowers or joint debtors. "COMMERCIAL EXECUTIVE PROCEEDINGS. THEY ARE UNLAWFUL IF THEY ARE FILED AGAINST THE GUARANTOR OF A MORTGAGE IF HE HAS, AT THE SAME TIME, THE CAPACITY OF ACCREDITED BORROWER OR JOINT DEBTOR (ARTICLES 68 AND 72 OF THE LAW OF CREDIT INSTITUTIONS)". Contradiction of thesis 40/2001-PS and thesis of jurisprudence 5/2002, Approved by the First Courtroom of this Supreme Court, in session held on February 6, 2002, by an unanimous resolution integrated by 4 votes. Judicial Review of The Federation.
117 If it is considered that the document used as a legal foundation to take the action is the public deed related to the mortgage, the lawful procedure is the civil summary proceeding, but not properly the commercial executory proceedings. In reality it is upon the creditor's election to choose the mortgage civil summary proceedings or the commercial executory proceedings.
118 Article 72 of the LIC.
119 See Article 2926 of the CCF which provides the following: The credit can be assigned in whole or in part as long as the assignment is made in the manner provided for the constitution of a mortgage by Article 2917, notice is given to the debtor and the assignment is recorded in the Public Registry. If a mortgage is constituted to secure obligations to the order of, they may be transferred by endorsement of the instrument without notifying the debtor or the Registry. The mortgage constituted to secure an obligation to bearer shall be transferred by simple delivery of the instrument, without any further requirements.
120 See Chapter XIV: Financial Services, Articles 1401 to 1403. The NAFTA is in effect as of January 1st, 1994 executed among Mexico, United States and Canada. The NAFTA is a group of rules to promote the exchange and the investment flows among the countries, by means of the continuous elimination of tariffs or taxes paid by the products as a reason of their access into another country; the establishment of rules to be respected by the producers of those three countries, and the mechanisms to solve the differences that may arise. The NAFTA has the following objectives: a) integrate a region in which trade of goods and services and investment flows be more intense, expedient and organize for the benefit of consumers and investors; b) eliminate the barriers to trade of goods and services and support conditions for a fair competition; c) increase the investment opportunities; d) protect the intellectual property rights; e) create effective procedures for the implementation and application of this Agreement and the solution of controversies; f) promote the trilateral, regional and multilateral cooperation. http://www.Nafta-sec-alena.org/Spanish/index.htm.
121 The NAFTA opened the doors to foreign investment, but protected the Mexican bankers. It also authorized foreign banks a progressive expansion in the Mexican market, providing that in case of obtaining more than 25% of the Mexican markets by the Canadian and US banks, our country would freeze during three years such participation level. After the crisis, the foreign capital sector opened in order to recapitalize the banking system. But any foreign investor would not have compromised resources with banks in bankruptcy or close to a bankruptcy. The purchase of overdue portfolio with notes from Fobaproa constituted the incentive to attract foreign capital.
122 There are different opinion trends to explain the juridic nature of the trust; they could be classified in three principal theories: 1. Theory of the mandate, 2. Patrimony of encumbrance, 3. Theory of the unfolding of property rights. The theory of property rights is acknowledged by our legislation when providing that in virtue of the fiduciary business, the trustor transfer the ownership of certain assts, rights and obligations, in favor of the beneficiary, who does not merge them with his own patrimony; on a contrary, he integrates an independent patrimonial mass, exercising the ownership on such mass, with the sole purpose of accomplishing the aims established in the fiduciary business. See Villagordoa Lozano, José Rodolfo, General Doctrine of the Trust, Mexico, Porrúa, 1976, pp. 85-122; see also Batiza Rodolfo, The Trust, 4th ed., Mexico, Porrúa, 1980, pp. 159-214.
123 Article 395 of the LGTOC.
124 The trustee is the credit institution that has the concession of the Ministry of Finance and Public Credit (SHCP), to act as such.
125 The trustor is the person who holds the assets or rights to be transferred to the trustee, for the fulfillment of a legal purpose, and, of course, it should have the legal capacity to be bound and make use of the assets.
126 The beneficiary is the persons who receives the benefit (such person or entity does not always exist) of the trust, or the one who receives the balance once the purpose has been completed.
127 Article 399 of the LGTOC.
128 For a wider explanation on this topic, see Quintana Adriano, Elvia Arcelia, Theory and Doctrine of the Commercial Law Science and its Institutions, Mexico, Legal Research Institute-UNAM, 2002, Chapter VI.
129 Article 358 of the LGTOC.
130 Article 393 of the LGTOC, it is provided that "once the trust has been extinguished, the assets given in said trust, and withheld by the fiduciary institution, will be then returned by the same in favor of the trustor or its heirs. In order that this return produce its legal effects when dealing with real estate or rights in rem on them, it will be enough that the fiduciary institution record it in said terms in the document which constitutes the trust, and said representation should be recorded in the same Registry of Property used to record the trust subject matter of this Article".
131 Article 391 of the LGTOC.
132 The SCJN has provided that "...the goods in trust, are considered as encumbered for the purpose they are designated and, consequently, it is permitted to exercise in connection thereof exclusively, the rights and actions mentioned in its purpose, except those expressly reserved by the trustor, including the trustor's rights and actions derived from the trust itself in favor of said trustor, or those acquired legally and related to such assets, prior to the constitution of the trust, by the beneficiary or by third parties...". "CREDIT ENCUMBERED IN A TRUST. IT ALSO INCLUDES THE MORTGAGE SECURITY AND THE PERSONAL GUARANTEE THAT WAS CONSTITUTED TO GRANT IT", Judicial Review of The Federation, t. IX, May 1999, Thesis III, 3rd C. 93 C, p. 1016.
133 The patrimony in trust, is constituted as a universality of assets and rights to work for a lawful, determined and possible purpose by the trustor, and said purpose is committee to a fiduciary institution, who holds the ownership of this ensemble of assets, with all rights, actions, obligations and faculties, that supposes the execution of the trust, including the limitations provided in the trust itself, in conformity with Article 391 of the LGTOC.
134 The fiduciary’s property right is not similar to the regular property right because the trustee has obligations in front of the beneficiary or the trustor, therefore, when said party exercises such right, it does not practice it in a personal manner, but rather in the fulfillment of an obligation previously agreed.
135 In the Mexican trust the following elements make a distinction: a) the existence of a patrimony or assets, b) said assets are for a lawful, determined and possible purpose, c) in said act there is a participation of different persons, such as the trustor, the beneficiary and the fiduciary institution.
136 Article 386 of the LGTOC. The revocatory action to nullify fraudulent acts is intended to declare null all those acts and agreements executed by the debtor who commits fraud against his creditors. For the filing of said action it is important to that is necessary to distinguish between onerous and gratuitous juridic acts; however, the common requirements for the filing of such action are the following: the act should have been executed by the debtor or his representative; it does not deal with a material act, since it could be rescinded or nullified; it should be a cause for the debtor's insolvency and the credit which intends to support the filing of the action, has to be prior to the execution of the act. See Muñoz, Luis, The Trust, Mexico, Cárdenas Editor y Distribuidor, 1980, pp. 751-753.
137 See Articles 112 to 119, Title Three, Chapter VI, The acts committing fraud against creditors in the LCM.
138 Article 398 of the LGTOC.
139 Cfr. Ormaeche, Carolina, "The Practice of the Trust Agreement with Guarantee Purposes", Notarial Review, Buenos Aires, Argentina, No. 936, 2001, p. 463.
140 Article 1414 Bis, Sections I and II of the Cco.
141 The person authorized to authenticate documents shall draw up the corresponding minute, as well as a detailed inventory of the assets. Article 1414 Bis 3 of the Cco.
142 Article 1414 Bis 8 of the Cco.
143 The Cco does not provide any term; however, for suppletory reasons in this legal field it is applied the general term of nine days to respond the claim.
144 If the debtor does not deliver the assets foreseen in the legal errand, the judge will proceed to enforce the decreed temporary measures and he will also prescribe the applicable measures to achieve the fulfillment of his resolution. Article 1414 Bis 9 of the Cco.
145 Article 1414 Bis 5 of the Cco.
146 Article 1414 Bis of the Cco.
147 The sale, upon the election of the creditor or fiduciary, may be executed before the judge who admitted this proceeding or before the person who is authorized to authenticate documents, by means of the persona notification given to the debtor setting forth date and hour to hold the sale of assets.
148 Article 1414 Bis 17, Section II, subsection b of the Cco.
149 After "...the sale of assets has been completed, if the selling price of the same ws higher to the amount of the debt, the creditor will proceed to deliver the balance which may be applicable in favor of the debtor in a term not to exceed five days, once a deduction has been accomplished of the amount related to the granted credit...". Article 1414 Bis 17 Section II, subsection c, of the Cco.