Another form of extinction of a business entity is a consequence of bankruptcy proceeding.
Once the company has evidence of the existence of the causes of dissolution, the administrators should call for a general shareholders or partners meeting in order that this situation be noted and the proper measures taken. Although the Law seems to call for an automatic dissolution, in practice there is no such automatic procedure. The partners or shareholders shall adopt a resolution at a meeting which will be recorded in the Public Registry of Commerce. The legal personality of the company continues until final liquidation. The auditors of the company will usually put a note on the balance sheet of the company reporting the cause of dissolution.
If the registration is not made, even though the cause for dissolution exists, any interested party may appear before the judicial authority in a summary proceeding in order that said authority orders the registration of the cause for dissolution.
The directors or administrators of the company should not engage in new operations after the expiration of the term of the company, after the resolution of dissolution, or after having evidence of the existence of a cause of dissolution. If they breach these prohibitions, they may be jointly liable for the operations they perform.
Among the duties of the liquidators are the following: to conclude the operations of the company pending at the time of the dissolution, to collect all amounts due to the company and to pay its liabilities, and to sell the goods of the company.
The liquidators shall prepare a final balance sheet in which they determine the amount corresponding to each partner or shareholder of the remaining capital account. The final balance sheet of liquidation shall be published three times once every ten days in the Official Daily Gazette of the company's domicile. The shareholders may present their claims to the liquidators within the following fifteen days counted from the date of the publication. After this term is over, the liquidators will call a general shareholders meeting for final approval of the balance sheet. Once the balance sheet is approved the liquidators will pay each partner or shareholder the corresponding amounts against cancellation of their share certificates and will proceed with the cancellation of the registration of the company at the Public Registry of Commerce once the liquidation is concluded.
Liquidation in kind is possible and may include assets such as patents and trademarks to which the shareholders may have attached a value.
The liquidator should request the cancellation of the registration of the company at the Taxpayer's Registry.
The amounts received by the shareholders as reimbursement of capital will be tax free, as long as they are paid out of the Net Taxed Profit Account. (See Section XIV.C.4.m) hereinbefore). Liquidators are jointly liable for tax amounts which should have been paid on behalf of the company during the liquidation process, except if the company filed all notices and information in accordance with and as provided by Law.
Provisions of the Labor Law contemplate the right of employers to demand the termination of the collective labor contract and of work relationships by bringing an action before the competent board of conciliation and arbitration when there are justified causes, including any clear evidence of unprofitability in the operation.
The purpose of formally notifying the labor board is to establish a basis for negotiation with the union or the workers, to pay a reduced compensation to the workers. If the union or workers object to said negotiation, they have the right to request payment of the total indemnity calculated on the basis of their "integrated" salary.
The merger will produce effects three months after the registration of the merger resolution in the Public Re WÀf Commerce giving creditors of the merged companies the opportunity to oppose such merger, in which case, the merger may be suspended upon court resolution recognizing the opposition.
Upon expiration of the three month period the merger becomes effective; the surviving company or the newly created company shall acquire all rights and obligations of the merged companies.
However, the merger may produce effects upon the registration at the Public Registry of Commerce if: 1. the surviving company agrees to pay all liabilities of the merged companies, or 2. if the amounts owed are deposited in a bank, or 3. the creditors have granted their consent to the merger.
A business entity may change its legal form to another type of company by following the same procedure as herein mentioned, i.e., a S.R.L. or S.C. to S.A. (See Section XII hereinabove).
The surviving company shall present a notice of merger to the tax authorities within the month following the date of the merger.
It is necessary to present notices of cancellation of the registration at the Taxpayers' Registry for each merged company, attaching copy of the minutes of the shareholders meeting containing the resolution of merger. The merger of companies entails the obligation to audit the financial statements of the surviving company and of the merged company by an independent public accountant.
The surviving company shall present the last annual tax return of the merged company.
The Income Tax Law does not consider for income tax purposes that a merger produces transfer of property among the surviving company and the merged companies if the shareholders owning at least 51% of the shares with voting rights of the surviving company, or of the newly created company do not transfer their shares during a period of one year counted as of the date in which the notice of merger is presented before the tax authorities.
If real estate property is transferred as a consequence of the merger, the surviving or newly created company shall pay the Real Estate Acquisition Tax at the rate prevailing in each state, which currently throughout Mexico is 2% on the value of the property.
No VAT shall be paid in connection with property transferred as a result of a merger of companies. The balance of the Net Taxed Profit Account of the merged company may be transferred to the surviving or newly created company. Fiscal losses pending amortization in the merged company are not transferable to the surviving company.
A split-off can only be agreed by resolution of the partners or shareholders meeting adopted by the majority required for the modification of its charter.
Each one of the shareholders or partners of the original companies must have the same proportion in the capital of the new companies as they had in the original company.
The resolution approving the split-off shall contain a description of the terms and mechanisms for the transfer of the assets, liabilities and capital which correspond to each new company. The original company shall present audited financial statements. Also the obligations to be assumed by each new company shall be determined.
If any of the new companies breaches any of the obligations assumed by virtue of the split-off to creditors who did not approve said split-off, the original and other new companies shall be jointly liable for a three-year period counted as of the publications mentioned hereinafter. If the original company continues in existence it will be liable for all obligations.
The resolutions approving the split-off shall be protocolized before a Public Notary and recorded in the Public Registry of Commerce.
Also an extract of said resolution shall be published in the Official Daily Gazette and in one newspaper of wide circulation at the domicile of the original company together with a summary of the information regarding transmission of assets, liability and capital stock. After a period of 45 days counted as of the registration in the Public Registry of Commerce and after the publication, without any opposition from creditors or from shareholders, the split-off will produce full effects. For the creation of new companies it will be necessary to protocolize their charter and to register it in the Public Registry of Commerce.
If the split-off entails the extinction of the original company, its registration shall be cancelled from the Public Registry of Commerce, once the split-off produces effects.
Tax losses pending amortization may be divided between the original and the new companies in proportion to the division of capital. The balance of the capital account and the Net Taxed Profit Account may be transferred by the split-off as well as the right to credit VAT.
The exemption to newly formed companies of the 1.8% Asset Tax is not applicable in this case. (For explanation of Asset Tax see Section XIV.E.1).
A 2% Real Estate Acquisition Tax shall be paid in connection with a transfer of real estate property as a consequence of split-off.
The suspension of payments requires a court judgment. When debtors envision inability to meet payment obligations or already have ceased payment, they can request their creditors for an extension of time to pay debts and as a consequence enable such debtor to normalize the course of business. It is an opportunity granted to debtors in difficulties while permitting continuance of the business.
Bankruptcies in Mexico must also be declared by a court judgment. The debtor must be engaged in commerce and have ceased meeting payment of his debts.
If the judge grants the suspension the claims filed requesting the declaration of bankruptcy will be suspended.
After the debtor's request for suspension of payments is accepted, a creditor's hearing will take place at which time creditor's rights will be recognized and classified in order of preference.
During the procedure of suspension of payments the statute of limitations and judicial terms will be suspended against the debtor. However, it is possible to proceed judicially with those actions necessary to prevent deterioration to the debtor's assets or to preserve the rights of the parties. Judicial proceedings regarding claims for labor debts, alimony and credits with in-rem guarantee will not be suspended. During the procedure the business continues to be operated and managed by the debtor under the surveillance of the receiver.
The debtor can enter into an agreement with its creditors if there is sufficient vote of the creditors, in accordance with the percentages and requirements of the Law.
At any time of the procedure the judge may declare bankruptcy if the debtor breaches its commitments or decreases its assets or patrimony. Also, the judge may terminate the procedure of suspension of payments, if the debtor is incapable of continuing to comply with agreed obligations. The procedure may also terminate with the approval of the agreement to be executed by the creditors.
The presumptions may be rebutted if the debtor demonstrates ability to pay outstanding due accounts with its liquid assets.
The declaration of bankruptcy may be requested by the debtor, creditors or Attorney General. Neither the debtor nor the creditor who have requested the bankruptcy declaration may withdraw the demand even when all creditors are in agreement.
The judgment will be notified personally to the debtor and published three times in the Official Daily Gazette of the debtor's domicile, thus notifying the creditors who shall also be called to a meeting for the recognition, rectification and prioritization of credits. The meeting will take place within 45 days. Any judge may extend the time period in which a foreign creditor may file a claim and such foreigner should provide a mailing address in Mexico to receive correspondence related to the bankruptcy. Otherwise notification will be made via the Attorney General.
The bankruptcy judgment deprives the debtor of the right to administer and dispose of assets and prevents the debtor from leaving the city, situs of the procedure, without judicial authorization.
The judge and the receiver may authorize the continuance of business operations if closing down the operation could adversely prejudice the rights of the creditors.
From the moment of declaration of the bankruptcy, all pending obligations of the debtor shall be considered due and payable. Bilateral executory contracts may be honored by the receiver with prior authorization from the judge. Those who have contracted with the debtor may request the receiver to indicate either compliance or rescission of the contract. There are detailed rules concerning disposition of executory contracts, such as leases, service contracts, labor agreements, and purchase of goods not yet delivered.
All merchandise, credit instruments or any other types of goods which exist as part of the bankruptcy proceeding and which may be identified, whose property has not been transferred to the debtor under a definitive and irrevocable legal title, may be separated by the legal holders of title, through the exercise of the corresponding action before the bankruptcy judge. If there is no opposition to the request for separation the judge may declare the requested exclusion.
Once the creditors have been notified, they must request recognition in writing from the judge to exercise their rights against the mass of assets. The receiver analyzes each credit and issues a report. The bankruptcy law requires creditors meetings in certain matters and sets out how votes shall be counted.
Secured creditors must attend the secured creditors hearing to preserve their rights. Thereafter the judge issues a report with a list of all secured claims classified by type and priority declaring those claims that have been accepted, rejected or set aside. Priority of creditors is as follows:
Bankruptcy is classified as follows:
In case of a debt payable in foreign currency or outside of Mexico the judge will declare its payment in pesos in an amount equivalent to the foreign currency, at the exchange rate published for such purpose on the date of the declaration of bankruptcy.
Due to the prevailing economic difficulties of Mexico, the problems of suspension of payments, bankruptcy and reorganization, have been most prominent and both creditors and debtors are seeking more expeditious solutions to their liquidity and insolvency problems. There are currently various proposals of modifications to the Bankruptcy Law being discussed, which may be sent to the legislature in the very near future.
In a more interrelated and competitive world, Mexico has adopted several measures to assure its place in the new world. Mexico has also signed bilateral and multilateral commercial agreements, the most important of which are described below.
Upon signing GATT, Mexico committed to reducing its tariffs, eliminating import permits and reducing non-tariff barriers. Mexico also has signed various GATT supplementary agreements such as the Agreement on Customs Valuation Procedures, Agreement on Subsidies and Countervailing Measures, Agreement on Antidumping (for implementation of Article VI of GATT), Agreement on Technical Barriers to Trade and the Agreement on Import Licensing Procedures.
In 1994, pursuant to the Uruguay Round, 124 governments and the European Union signed the Marrakesh Declaration establishing the World Trade Organization (WTO) with a target date for implementation of the WTO and the Uruguay Round Final Act, in January 1995. Mexico was a party to these agreements and is thus considered to be one of the founding members of the WTO. The WTO, successor of the GATT, is an organization responsible for the functioning of the world international trade system providing a forum for trade negotiations and the resolution of disputes among members.
As a member, Mexico has promoted commercial missions from most of the countries in the Pacific Basin. Also, there have been several meetings with government representatives of the Asian Pacific Basin countries in order to negotiate the necessary steps to improve market access for Mexican products.
Inviting Mexico to join this organization was, in a sense, an acknowledgement of the far-reaching reforms the country has implemented in recent years and that its economic legislation and policies were consistent with that of other OECD member countries, such as, liberalization of trade and investment, major reform of the financial system, deregulation of the economy and a commitment to the privatization process.
OECD membership gives Mexico access to more effective channels of communication, along with a means to cooperate with the world's major economies. Membership also guarantees the continuity and consolidation of Mexico's economic, political and social policies, as well as encouragement for capital inflow with all the benefits this implies, including, for example, more and better-paid jobs, training and state-of-the-art technology.
Some of the implications related to investment in Mexico as a member of the OECD are, inter alia, non-discriminatory treatment to investors, further liberalization of investment regulations and increased accountability of the legal system.