Opposition Brief — Ecoban Finance Ltd. v. Grupo Acerero del Norte, S. A. de C. V.
Supreme Court brief2001
Ask Donna
What actually matters in this document.
Text
) Supreme Gore -
PILE
No. 00-1597 ,
sai tee
IN THE
. K
Supreme Court of the Un isa
ECOBAN FINANCE LIMITED,
Petitioner,
v.
GRUPO ACERERO DEL NORTE, S.A. DE C.V.,
Respondent.
ECOBAN FINANCE LIMITED,
Petitioner,
v.
ALTOS HORNOS DE MEXICO, S.A. DE C.V.,
Respondent.
ON PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES CouRT OF APPEALS FOR THE SECOND CIRCUIT
BRIEF IN OPPOSITION
GERALD J. FIELDS STEVEN H. REISBERG*
PAUL, HASTINGS, JANOFSKY WILLKIE FARR & GALLAGHER
& WALKER L.L.P. 787 Seventh Avenue
75 East 55th Street . New York, NY 10019-6099
New York, NY |0022 (212) 728-8000
(212) 318-6000 Counsel for Respondent
Counsel for Respondent Altos Hornos De Mexico,
Grupo Acerero Del Norte, S.A. de C.V.
A. de CV.
— * Counsel of Record
COUNSEL PRESS
(800) 274-3321 * (800) 359-6859
l
COUNTERSTATEMENT OF THE
QUESTIONS PRESENTED FOR REVIEW
1. Does the Court of Appeals’ decision affirming the
dismissal of this case on grounds of international comity in
favor of prior filed bankruptcy proceedings by the
Respondents pending before the Courts of Mexico pursuant
to the Law of Bankruptcy and Suspension of Payments
present an appropriate issue for review?
2. Whether the courts below erred in holding that, in a
case in which the District Court’s subject-matter jurisdiction
was based upon the diverse citizenship of the parties, New
York state law, rather than federal law, governed the question
of dismissal on the ground of international comity.
3. Whether the dismissal of Petitioner’s complaints on
grounds of international comity with prejudice should be
reversed for purportedly depriving Petitioner of an
adjudication on the merits of Petitioner’s underlying claims,
where Petitioner’s underlying claims will be adjudicated
either by the Courts of Mexico in the Suspension of Payment
Proceedings or if the Mexican Suspension of Payment
Proceedings are not completed, the District Court has stated
that it will adjudicate such claims.
ii
STATEMENT PURSUANT TO RULE 29.6
Pursuant to Rule 29.6 of the Rules of the Supreme Court
of the United States, (1) Respondent Altos Hornos de Mexico,
S.A. de C.V. (“AHMSA”) certifies that: Grupo Acerero del
Norte, S.A. de C.V. (“GAN”) is the parent corporation of
AHMSA and no publicly held corporation owns 10% or more
of the stock of AHMSA; and (ii) Respondent GAN certifies
that there is no parent corporation of GAN and no publicly
heid corporation owns 10% or more of the stock of GAN.
ee a ee
—
* a —
reel OO a ete ge NT Ne
a ER sp tT” eee me
iii
TABLE OF CONTENTS
COUNTERSTATEMENT OF THE QUESTIONS
PRESENTED FOR REVIEW .........000...
STATEMENT PURSUANT TO RULE 29.6 .....
pp kk ge oe errr rer err
TABLE OF CITED AUTHORITIES ............
COUNTERSTATEMENT OF THE CASE .......
ee oa 5 are ain. Ono nee ease
oe RRS rrr rs.
B. Proceedings Below ..........2.cceceees
1. Nature of the Instant Actions ...... e
2. The District Court’s Decision........
3. The Second Circuit’s Decision .......
eae an av ts ped teKKa eed > oa
IL THE DISMISSAL OF PETITIONER’S
CLAIMS ON GROUNDS OF INTERNATIONAL
ee ek GS ee
A. The Enforcement of the Mexican
Bankruptcy Law, Like Chapter 11 of the
U.S. Bankruptcy Code, Requires the
Dismissal of Petitioner’s Wrongfully
Commenced Actions. ..............
Page
iv
Contents
Page
B. The Circuit Courts of Appeal Are In
PS nk EGAGS sos ROR Rei Ks 11
C. Quackenbush and Hartford Fire
Insurance Do Not Address the Comity
oh Togme te NG COBO, oo ike caw cccess 14
II. FEDERAL LAW GOVERNS THE ISSUE
OF INTERNATIONAL COMITY. ....... 16
II. A DISMISSAL WITH PREJUDICE ON
GROUNDS OF INTERNATIONAL
COMITY DOES NOT PRECLUDE
ADJUDICATION OF THE CLAIMS ON
REO DUUMEESGS 640 ctcssanpaddnnnteackws 18
ete 8 ere ee re Teer ere Try Tree 19
Vv
Contents
APPENDIX
DECLARATION OF JAIME GARCIA PRIANI IN
SUPPORT OF THE MOTION OF ALTOS
HORNOS DE MEXICO, S.A. DE C.V. TO
DISMISS ON THE GROUND OF COMITY
AND IN OPPOSITION TO PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT .....
Exhibit A to the Declaration of Jaime Garcia Priani:
Translation of the Mexican Law of Bankruptcy
and Suspension of Payments ................
Exhibit B to the Declaration of Jaime Garcia Priani:
Articles 408 and 409 of the Mexican Law of
Bankruptcy and Suspension of Payments ......
[Remainder of Exhibit B Intentionally Omitted]
[Exhibit C to the Declaration of Jaime Garcia Priani
Intentionally Omitted]
Page
la
34a
176a
vi
TABLE OF CITED AUTHORITIES
Page
Cases:
Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398
(EDOM vc cdcrcoccanches cktndsbeasabaeae 16
Boushel v. Toro Co., 985 F.2d 406 (8th Cir. 1993)
60 0dbacgtees 64eenben ue tnaae ae a, t2%, 83
Burford v. Sun Oil Co., 319 U.S. 315 (1943) ..... 15
Canada S. Ry. v. Gebhard, 109 U.S. 527 (1883) ..
pwsevees eee e500 46 6b es One 6, 7, 8, 16
Crosby v. National Foreign Trade Council, 530 U.S.
SES CHOOT cc ccccccavcescnsdssuxsuecenoas 16
In re Culmer, 25 B.R. 621 (Bankr. S.D.N.Y. 1982)
1s'ckebabh eee? tae eeeeee PPR RN ee
Drexel Burnham Lambert Group Inc. v. Galadari,
eee freee fC > Re Cer ke 17
E. Equip. & Servs. Corp. v. Factory Point Nat’l
Bank, 236 F.3d 117 (2d Cir. 2001) ........... 10
Hamm yv. R.H. Macy & Co., No. 93 Civ. 1446 (LAP),
1994 WL 507717 (S.D.N.Y. Sept. 13, 1994) ... 9,10
Hartford Fire Ins. Co. v. California, 509 U.S. 764
(ESSE) . ce echisvevegaskucneeehaea eee 14, 16, 17
vil
Cited Authorities
Page
Hilton v. Guyot, 159 U.S. 113 (1895) .........-. 6
Ingersoll Milling Mach. Co. v. Granger, 833 F.2d
680 (7th Cir. 1987) .........--- ee eeeeees $1, 32, 15
Kenner Prods. Co. v. Societe Fonciere et Financiere
Agache-Willot, 532 F. Supp. 478 (S.D.N.Y. 1982)
s ee und does an sued naeeenanrueesebnarsaees 17
Philadelphia Gear Corp. v. Philadelphia Gear de
Mexico, S.A., 44 F.3d 187 (3d Cir. 1994) ...... 13, 14
Posner v- Essex Ins. Co., Ltd., 178 F.3d 1209 (11th
Ces BI cc kcncdnadisceducussacsneyeas 11, 12, 15
Quackenbush v. Allstate Ins. Co., 517 U.S. 706
| Serr rrrrrry et et 12, 14, 15, 16
Remington Rand Corp.-Delaware v. Bus. Sys., Inc.,
830 F.2d 1260 (3d Cir. 1987) .........-.----- 13
SEC v. Brennan, 230 F.3d 65 (2d Cir. 2000) ..... 11
SNR Holdings, Inc. v. Ataka Am., Inc., 54 A.D.2d
406, 388 N.Y.S.2d 909 (Ist Dep’t 1976) ...... 17
In re Stoddard, 242 N.Y. 148, 151 N.E. 159 (1926)
Vili
Cited Authorities
Page
Statutes:
RR Soa | Bile uc. apie prego pepe ers ee 8-9, 10, 11
Rules:
Py ie Sa ass 8 ocd ieekobcuws buweces 19
Other Authorities:
3 Collier on Bankruptcy 4 362.03 (15thed. 2001)... 11
1
BRIEF OF RESPONDENTS ALTOS HORNOS
DE MEXICO, S.A. DE C.V. AND GRUPO ACERERO
DEL NORTE, S.A. DE C.V. IN OPPOSITION TO
PETITION FOR A WRIT OF CERTIORARI
COUNTERSTATEMENT OF THE CASE
A. Statement of Facts
1. Background
Respondent Altos Hornos de Mexico, S.A. de C.V.
(“AHMSA”) is a corporation organized under the laws of
the United Mexican States. AHMSA has been in the steel
industry for more than 50 years and is the largest steel
producer in Mexico. Respondent Grupo Acerero del Norte,
S.A. de C.V. (“GAN”) is a holding company of subsidiaries
in the business of manufacture, distribution and sale of stvel,
fertilizer, petrochemicals, and oxidants. AHMSA is the main
operating company of GAN.
As a result of significant financial distress, GAN,
on May 18, 1999, and AHMSA, on May 24, 1999, filed
petitions to be declared in Suspension of Payments (“SOP”)
pursuant to the Law of Bankruptcy and Suspension of
Payments (“Ley de Quiebras y Suspension de Pagos” or
“LOSP”) (the “Mexican Bankruptcy Law”) in the Mexican
Courts. A Suspension of Payments Proceeding is much like
a chapter 11 proceeding under U.S. law, and is intended to
relieve a debtor from the immediate pressure of creditors’
claims and suits in order that they can reorganize their affairs
and restructure their debts. See Declaration of Jaime Garcia
Priani, dated December 22, 1999 (“Garcia Priani Decl.”) 4 22
(Respondents’ Appendix (“Respondents’ App.”) at 16a);
2
Memorandum & Order Dismissing Creditor’s Claims
Because of Comity, dated August 8, 2000 (“District Court’s
Opinion”) (Petitioner’s Appendix (“Petitioner’s App.’’) at
2a, 4a).
The Mexican Courts, by judgments issued on May 24,
1999 in the case of GAN, and on May 25, 1999 in the case
of AHMSA, declared each to be in Suspension of Payments
under the LQSP (the “SOP Judgments”).
Upon entry of the SOP Judgments, Articles 408,
409 and 410 of the LQSP impose an automatic stay of
claims against the debtor. See Garcia Priani Decl. FJ 12, 54
(Respondents’ App. at 6a-7a, 28a-29a). Article 411 of the
LQSP states that the granting of security interests by the
debtor shall be ineffective as against creditors during
the pendency of a suspension of payments proceeding.
Id. {J 13, 54 (Respondents’ App. at 7a, 28a-29a).
Accordingly, a moratorium on legal actions against
AHMSA and GAN became effective as of the entry of the
SOP Judgments. Jd. ¥ 12-14, 54 (Respondents’ App. at 6a-
9a, 28a-29a). AHMSA and GAN are not permitted to pay
any pre-petition claims and all suits against AHMSA and
GAN that have as their purpose claiming compliance with a
general unsecured monetary obligation are stayed. Jd. J 12
(Respondents’ App. at 6a-7a). The Suspension of Payments
Proceeding is intended to be comprehensive as to all of
AHMSA’s and GAN’s assets located in and outside of
Mexico, including, but not limited to, those assets located
in the United States. Jd. § 14 (Respondents’ App. at 8a-9a).
Also, all claims against AHMSA and GAN, whether or not
in litigation, can and must be brought before the Mexico
Court. Jd. | 16 (Respondents’ App. at 9a-10a). The equitable
3
and orderly reorganization of AHMSA and GAN, as is the
case with any bankruptcy proceeding under U.S. Bankruptcy
Code, requires that all claims against the limited assets of
the debtor proceed in a single proceeding.
B. Proceedings Below
1. Nature of the Instant Actions
Petitioner Ecoban Finance Limited (“Ecoban”) is a
creditor of AHMSA and GAN. On June 13, 1999, Ecoban
appeared in court in Mexico and acknowledged receipt of
AHMSA’s SOP notice. On June 18, 1999, Ecoban appeared
before another court in Mexico and acknowledged receipt
of GAN’s SOP notice.
On October 1, 1999, more than three months after
Ecoban first appeared in the AHMSA and GAN SOP
Proceedings in Mexico, Ecoban, in violation of the SOP
Proceedings and more specifically, the LQSP’s automatic
stay, commenced these actions by filing separate Complaints
against GAN and AHMSA in the Southern District of New
York. The Complaints allege that AHMSA and GAN have
defaulted in payment on certain promissory notes which
became due and payable roughly two to four months after
the entry of the SOP Judgments. The basis of the Complaints
are identical to the claims Ecoban has made in the GAN and
AHMSA SOP Proceedings pending in Mexico.
By Orders To Snow Cause dated October 19, 1999 and
October 20, 1999, Ecoban moved for Orders of Attachment.
On October 28, 1999, the District Court granted the Orders
of Attachment, but without prejudice to the right of GAN
and AHMSA to move to dismiss the actions and vacate the
attachments on grounds of international comity.
4
The Complaints filed herein commencing these actions
as well as all subsequent steps taken by the Ecoban to attach
AHMSA’s and GAN’s assets thus constitute a violation of
the automatic stay imposed by the LQSP.
Ecoban filed motions for summary judgment against
AHMSA and GAN on November 30, 1999 and December 8,
1999, respectively. GAN and AHMSA filed their motions
to dismiss the Complaints and in opposition to the motions
for summary judgment on December 23, 1999. In connection
with the motions, GAN and AHMSA included the sworn
declaration of an expert on Mexican bankruptcy law, together
with a full translation of the LOSP. Ecoban in its opposition
submitted an extensive report by its own expert in the
bankruptcy laws of Mexico.
2. The District Court’s Decision
On August 8, 2000, the District Court dismissed the
Complaints on the ground of international comity.
The District Court also denied Ecoban’s motion for summary
judgment as moot and vacated the Orders of Attachment.
The District Court, in a well-reasoned, 12-page decision,
held that “[hJaving examined the Mexican law on SOP’s,
and considered expert reports from each side, I hold that the
SOP’s are not fundamentally procedurally unfair, or in
violation of American public policy, and that comity is
appropriate in the circumstances of these cases.” District
Court’s Opinion (Petitioner’s App. at 2a) (footnote omitted).
The District Court concluded that “[i]n general, an SOP
resembles an American Chapter 11 reorganization.” Jd.
(Petitioner’s App. at 4a).
5
The District Court held that U.S. courts should defer to
foreign bankruptcy proceedings as long as fundamental
standards of procedural fairness are observed, and state and
federal public policy are not violated. Jd. (Petitioner’s App.
at 6a). Finding no reason to deny the exercise of comity in
this case, the District Court concluded:
In the end, we are left with the simple case of
an American creditor of a Mexican corporation
asking this Court to give it a preference over other
creditors by releasing it from the obligations
imposed by Mexican bankruptcy law. Principles
of international comity and a strong public policy
favoring the administration of all claims against
a debtor in a single forum preclude this Court from
doing so.... The public policy and procedural
fairness exceptions to the exercise of comity,
under both New York and federal law, are
intended as shields to protect American citizens
and corporations from fundamentally unfair
treatment abroad. They are not swords to be
wielded by American creditors to frustrate and
evade foreign bankruptcy laws.
Id. (Petitioner’s App. at 9a-10a) (citations omitted).
3. The Second Circuit’s Decision
On January 12, 2001, the United States Court of Appeals
for the Second Circuit affirmed the District Court in a
Summary Order.
6
ARGUMENT
I. THE DISMISSAL OF PETITIONER’S CLAIMS ON
GROUNDS OF INTERNATIONAL COMITY WAS
PROPER.
A. The Enforcement of the Mexican Bankruptcy Law,
Like Chapter 11 of the U.S. Bankruptcy Code,
Requires the Dismissal of Petitioner’s Wrongfully
Commenced Actions.
For over a century, this Court has defined comity as:
the recognition which one nation allows within its
territory to the legislative, executive, or judicial acts
of another nation, having due regard both to
international duty and convenience, and to the rights
of its own citizens, or other persons who are under
the protection of its laws.
Hilton v. Guyot, 159 U.S. 113, 164 (1895). The District Court
applied this principle to determine whether or not to grant
recognition to the legislative and judicial acts of the Republic
of Mexico, namely the Mexican Bankruptcy Law or LQSP.
The importance of extending comity to bankruptcy
proceedings has been well-established for over 100 years. This
Court first articulated the particular need to recognize foreign
reorganization proceedings in Canada Southern Railway v.
Gebhard, 109 U.S. 527 (1883). In that case, which involved a
challenge by citizens of New York to a scheme of arrangement
for the Canada Southern Railway Company, this Court
explained that:
Unless all parties in interest, wherever they reside,
can be bound by the arrangement which it is sought
7
to have legalized, the scheme may fail.
All home creditors can be bound. What is needed
is to bind those who are abroad. Under these
circumstances the true spirit of international
comity requires that schemes of this character,
legalized at home, should be recognized in other
countries.
Id. at 539. Significantly, this Court further explained:
[E]very person who deals with a foreign
corporation impliedly subjects himself to such
laws of the foreign government, affecting the
powers and obligations of the corporation with
which he voluntarily contracts, as the known and
established policy of that government authorizes.
To all intents and purposes, he submits his
contract with the corporation to such a policy of
the foreign government, and whatever is done by
that government in furtherance of that policy,
which binds those in like situation with himself,
who are subjects of the government, in respect to
the operation and effect of their contracts with
the corporation, will necessarily bind him... .
It follows. therefore, that anythii'g done at the
legal home of the corporation, under the authority
of such laws, which discharges it from liability
there, discharges it everywhere.
Id. at 537-38.
In light of these principles, this Court enforced the terms
of the Canadian “scheme of arrangement” which required
the dismissal of the action filed in the United States
8
subsequent to the authorization and approval of the scheme.
Petitioner cannot distinguish Canada Southern Railway from
this case.
In this case, the Petitioner commenced its actions against
debtors AHMSA and GAN after they had been declared in
bankruptcy by the Mexican Courts. The District Court
held that Petitioner, doing business with Mexican
corporations, was charged with the knowledge of the
Mexican Bankruptcy Law and could not now circumvent
what that law mandates. District Court’s Opinion
(Petitioner’s App. at 1la). Accordingly, once the District
Court determined that the Mexican Bankruptcy Law accords
with U.S. principles of fundamental fairness, the doctrine
of international comity required the recognition and
enforcement of the Mexican Bankruptcy Law. /d. (Petitioner’s
App. at 6a). Petitioner does not question either the factors that
the District Court considered in determining whethe: to
recognize the Mexican Bankruptcy Law or the District Court’s
application of those factors to the Mexican Bankruptcy Law.
In fact, the District Court found that Petitioner conceded that
the Mexican Bankruptcy Law is essentially fair as written. /d.
(Petitioner’s App. at 7a). Thus, Petitioner’s difficulty is not with
the District Court’s application of international comity, but
rather with the result mandated by the terms of the Mexican
Bankruptcy Law.
Significantly, the District Court’s recognition and
enforcement of the Mexican Bankruptcy Law is no different
than if the District Court recognized and enforced the
U.S. Bankruptcy Code had AHMSA or GAN commenced a
chapter 11 proceeding in the United States. In particular, Section
362(a) of the U.S. Bankruptcy Code provides for an automatic
stay of:
9
the commencement or continuation, including the
issuance or employment of process, of a judicial,
administrative, or other action or proceeding
against the debtor that was or could have been
commenced before the commencement of the case
under this title, or to recover a claim against the
debtor that arose before the commencement of the
case under this title.
11 U.S.C. § 362(a)(1). Similarly, Articles 408 through 410
of the Mexican Bankruptcy Law require an automatic stay
of all actions pending against debtors. Garcia Priani
Decl. $4 12, 54 (Respondents’ App. at 6a-7a, 28a-29a).
Specifically, Article 409 provides that:
ARTICLE 409. With the exception of claims for
debts for employment obligations, for food and
alimony, or for claims with a guarantee, all suits
against the debtor that have as their purpose
claiming compliance with a monetary obligation
shall be suspended; but actions tending to prevent
damage to things covered by the litigation or to
conserve entirely the rights of the parties may be
undertaken.
Under both the U.S. Bankruptcy Code and the Mexican
Bankruptcy Law, the effect of an automatic stay on an action
commenced outside the bankruptcy proceeding depends
on one key procedural fact — when the action was filed.
Hamm vy. R.H. Macy & Co., No. 93 Civ. 1446 (LAP), 1994
WL 507717, at *2 n.1 (S.D.N.Y. Sept. 13, 1994). If a
bankruptcy proceeding has been commenced under chapter
11 and a creditor subsequently attempts to bring an action
outside of the chapter 11 bankruptcy proceeding, whether in
another forum in the United States or abroad, that action
10
will be dismissed because it is deemed wrongfully
commenced. See, e.g., E. Equip. & Servs. Corp. v. Factory
Point Nat'l Bank, 236 F.3d 117, 120-21 (2d Cir. 2001);
Hamm, 1994 WL 507717, at *2 n.1. Similarly, the application
of the Mexican Bankruptcy Law to those circumstances
requires that the subsequent action, brought outside the
bankruptcy proceeding, whether in a forum in Mexico or
abroad, be dismissed for the same reason. Garcia Priani Decl.
{4 12-16 (Respondents’ App. at 6a-10a).
However, if a party commences a chapter 11 bankruptcy
proceeding after an action has been filed and is pending,
the action will be stayed pursuant to Section 362 of
the U.S. Bankruptcy Code because it would be deemed
wrongfully continued. Hamm, 1994 WL 507717, at *2 n.1.
Articles 408 through 410 of the Mexican Bankruptcy
Law mandate the same result. Garcia Priani Decl. #9 12, 54
(Respondents’ App. at 6a-7a, 28a-29a).
The District Court properly concluded that it would as a
matter of international comity grant recognition to the
judicial acts of the Mexican Courts in declaring AHMSA
and GAN in Suspension of Payments under the Mexican
Bankruptcy Law. It is then a matter of the enforcement of
the Mexican Bankruptcy Law that determines whether the
action is to be dismissed or stayed. Here, because the lawsuits
were commenced more than three months after the debtors
SOP Proceedings had been commenced, under the Mexican
Bankruptcy law the actions had been wrongfully commenced,
in that the commencement of the actions is a violation of
Mexican law, and the proper remedy is for the actions to be
dismissed.
As stated above, the result in this case would have been
no different if the Respondents filed a chapter 11 proceeding
11
and the Petitioner then commenced an action in a court
outside the bankruptcy proceeding. As the U.S. Bankruptcy
Code has long recognized, the protection of debtors and
creditors requires centralization of all actions involving a
debtor’s property in one forum. See SEC v. Brennan, 230
F.3d 65, 70 (2d Cir. 2000); 3 Collier on Bankruptcy { 362.03,
at 362-13-14 (15th ed. 2001). But if Petitioner’s contention
is true, then actions against chapter 11 debtors may be
commenced or continued in any forum outside a chapter 11
bankruptcy proceeding, whether in the United States or
abroad, in violation of Section 362(a) of the U.S. Bankruptcy
Code. This result would undermine the entire structure of
the U.S. Bankruptcy Code.
Thus, international comity requires that once a foreign
reorganization scheme, such as the Mexican Bankruptcy
Law, is held fundamentally fair, it must be enforced as the
U.S. Bankruptcy Code would be enforced. Because the
automatic stay provision of the U.S. Bankruptcy Code is
consistently enforced without the implication of the doctrine
of abstention, so too should the enforcement of the automatic
stay provision of the Mexican Bankruptcy Law.
B. The Circuit Courts of Appeal Are In Accord.
Petitioner misrepresents to the Court that there is a
“split” in authority among the circuit courts of appeal with
respect to the propriety of the dismissal on grounds of
international comity. Petitioner’s Brief at 11. There is not.
Petitioner cites Posner v. Essex Insurance Co., Ltd., 178
F.3d 1209 (11th Cir. 1999), Ingersoll Milling Machine Co.
v. Granger, 833 F.2d 680 (7th Cir. 1987) and Boushel v.
Toro Co., 985 F.2d 406 (8th Cir. 1993) as inconsistent with
12
the holding of the Second Circuit. However, those cases do
not even address the kind of comity at issue in this case —
that is, comity which recognizes a foreign law, and in
particular a foreign bankruptcy scheme, the enforcement of
which requires the dismissal of a case wrongfully
commenced in the United States.
Rather, Posner, Ingersoll, and Boushel address a
different form of comity known as “comity of courts.”
See Posner, 178 F.3d at 1209 (stay of Florida action in favor
of pending parallel proceeding in Bermuda); /ngersoll, 833
F.2d at 680 (granting stay of employment action after
judgment rendered in parallel Belgium proceeding); Boushel,
985 F.2d at 406 (affirming stay of action in favor of
simultaneously pending Canadian proceeding). In these
cases, the issue is whether an action properly commenced in
the United States should be stayed in light of a parallel
foreign proceeding, also properly commenced. This kind of
comity is analogous to the doctrine of forum non conveniens
which considers the dismissal of an action in favor of another
forum which is more convenient in terms of witnesses and
evidence.' In Posner, Ingersoll, and Boushel, as with a forum
non conveniens case, the only issue was which forum is better
suited to adjudicate the case, not, as it is here, whether the
action was wrongfully commenced.
' Significantly, in Quackenbush v. Allstate Insurance Co., 517
U.S. 706, 721 (1996), this Court held that when applying the doctrine
of forum non conveniens, a federal court may relinquish jurisdiction in
favor of another forum. This Court noted that that “our abstention
doctrine is of a distinct historical pedigree, and the traditional
considerations behind dismissal for forum non conveniens
differ markedly from those informing the decision to abstain.”
Id. at 722-723.
13
Philadelphia Gear Corp. v. Philadelphia Gear de
Mexico, S.A., 44 F.3d 187 (3d Cir. 1994), which is the only
case cited by Petitioner which addresses whether to extend
comity to recognize a foreign bankruptcy proceedings, is
completely consistent with the Second Circuit’s holding in
this case.? Petitioner misrepresents to the Court that
Philadelphia Gear holds that the Third Circuit will only stay,
rather than dismiss, an action filed in the United States
against a debtor which is the subject of a foreign bankruptcy
proceeding. Petitioner’s Brief at 13. This assertion is
incorrect.
As stated above, under both the U.S. Bankruptcy Code
and the Mexican Bankruptcy Law, the effect of the automatic
stay is determined by the sequence of the debtor’s filing of
the bankruptcy and the creditor’s filing of the separate action.
Where a creditor’s action is already pending before the debtor
files for bankruptcy protection, the creditor’s action shall be
stayed or transferred because its continuation is wrongful.
If the bankruptcy is filed first, and a creditor attempts to
circumvent the proceeding by filing an action outside of the
bankruptcy proceeding, the creditor’s action will be
dismissed because it was wrongfully commenced.
Unlike Ecoban in this case, the creditor in Philadelphia
Gear filed its action against the debtor in the United States
over a year before the debtor filed for protection under the
Mexican Bankruptcy Law. 44 F.3d at 190. In light of the
2 Although the Petitioner cites to Remington Rand Corp.-
Delaware v. Business Systems, Inc., 830 F.2d 1260 (3d Cir. 1987),
in which the defendant entered suspension of payment proceedings
in The Netherlands, that case did not deal with the issue of dismissing
an action filed in the U.S. because of the existence of a pending
foreign bankruptcy proceed:ng.
a
debtor’s supervening Mexican bankruptcy proceeding, the
Third Circuit recognized the Mexican Bankruptcy Law and
properly enforced its terms by directing a stay or transfer of
the U.S. action. Jd. at 193. The Court specifically held that
the debtor presented a “prima facie case that Mexican
Law mandates a stay of the district court proceedings.” Jd.
The Court also noted that “[c]onceivably, on remand the
district court might conclude that it should transfer the
proceedings to the Mexican court. We do not reach that issue
and thus express no opinion on the point.” /d. at 194 n.7.
Thus, the holdings of the Third Circuit in Philadelphia
Gear and the Second Circuit in this case are completely
consistent. Both Circuits have recognized the Mexican
Bankruptcy Law as fundamentally fair and then have
enforced it as Mexico would. Accordingly, the different
outcomes were not a result of inconsistent applications of
the doctrine of international comity. Rather, it is the
application of the Mexican Bankruptcy Law itself which
mandated different outcomes in the cases, depending upon
whether the U.S. creditor filed its action before or after the
debtor’s commencement of the bankruptcy proceeding.
C. Quackenbush and Hartford Fire Insurance Do Not
Address the Comity at Issue in this Case.
Ecoban’s assertion that this action should have been
evaluated under Quackenbush v. Allstate Insurance Co., 517
U.S. 706 (1996), which is a discussion of the doctrine of the
Burford abstention, should be rejected. Ecoban essentially seeks
to have this Court ignore the well established standard of
international comity, especially in the context of foreign
bankruptcy reorganizations, and apply the doctrine of the
Burford abstention, which addresses a completely different kind
15
of comity. Quackenbush, like Posner, Ingersoll, and Boushel,
addresses the application of the “comity of courts” to determine
the more appropriate forum as between paraliel proceedings,
neither of which were improperly commenced or continued.
In Quackenbush, the California Insurance Commissioner,
in its capacity as trustee for an insolvent insurance company,
brought a state court action against Allstate Insurance Company
for breach of reinsurance agreements. 517 U.S. at 709.
The action was removed to federal court on grounds of diversity.
The issue presented was whether the District Court had been
correct in remanding the action to state court under
“the abstention doctrine first recognized in Burford v. Sun Oil
Co., 319 U.S. 315 (1943).” Id. This Court held that a federal
court sitting in diversity should have exercised its jurisdiction
to adjudicate certain state law claims which were simultaneously
being adjudicated in a state insolvency proceeding. Jd. at 731.
Quackenbush does not even purport to address issues of
international comity. Indeed, to the contrary, this Court held
that its ruling was limited to the Burford abstention, a
doctrine that arises out of principles of federalism which may
require a federal court to yield in certain situations of
“federal-state conflict.” Jd. at 723 (citation omitted). Further,
this Court specifically held that its ruling did not apply
to damages action under the doctrine of forum non
conveniens, noting that such doctrine dealt with cases where
“the alternative forum is abroad.” Jd. at 722 (citation
omitted).
More significantly, »co2use no state law can prohibit
the filing or continuation of a federal action, whether the
federal court in Quackenbush was precluded from
adjudicating certain claims by another forum’s law was not
at issue as it is in this case.
16
Finally, to the extent that Petitioner asserts that Hartford
Fire Insurance Co. v. California, 509 U.S. 764 (1993), is
relevant, that case addresses a third form of comity, known
as legislative comity, which is also different from that applied
in this case. Hartford Fire Insurance did not involve whether
to grant comity to a separate ongoing proceeding in a
different forum. In fact, in Hartford Fire Insurance, there
was no issue of concurrent jurisdiction. Rather, Hartford Fire
Insurance dealt with the extent of the extraterritorial reach
of the Sherman Act (15 U.S.C. § 1, et seq.) to British
reinsurance companies located in London and the comity
concerns raised in interpreting the proper scope of the Act.
Id. at 779 n.9.
Accordingly, because neither Quackenbush nor Hartford
Fire Insurance dealt with the comity issues raised in this
case, where the application of another forum’s law requires
the preclusion or transfer of an action wrongfully commenced
or continued, they do not govern these circumstances.
Il. FEDERAL LAW GOVERNS THE ISSUE OF
INTERNATIONAL COMITY.
As this Court stated in Banco Nacional de Cuba v.
Sabbatino, 376 U.S. 398, 425 (1964) “our relationships with
other members of the international community must be
treated exclusively as an aspect of federal law.” As a result,
this Court has consistently applied federal law to cases
implicating foreign relations. See, e.g., Crosby v. National
Foreign Trade Council, 530 U.S. 363 (2000) (federal
preemption law applied to state foreign trade law boycotting
Burma); Banco Nacional de Cuba, 376 U.S. at 425 (federal
law determined scope of act of state doctrine regarding Cuban
expropriation decree); Canada S. Ry., 109 U.S. at 537
17
(federal law applied to grant comity to Canadian scheme of
arrangement). In addition, this Court has also applied federal
law in cases dealing with comity as between federal and state
courts. See Hartford Fire Insurance, 509 U.S. 764. Therefore,
the federal law of international comity should be applied in
this case.
However, even if state law of international comity is
applied in this case, as the District Court held, the outcome
would be the same. District Court’s Opinion (Petitioner’s
App. at 5a-6a). The Second Circuit has summarized the law
of New York on the issue of granting comity to foreign
bankruptcy proceedings.
In New York, whose law controls this diversity
action, courts will defer to an alien bankruptcy
proceeding only so long as the foreign authority
has jurisdiction over the bankrupt and “the foreign
proceeding has not resulted in injustice to New
York citizens, prejudice to creditors’ New York
statutory remedies, or violation of the laws or
public policy of the state.”
Drexel Burnham Lambert Group Inc. v. Galadari, 777 F.2d
877, 880 (2d Cir. 1985) (quoting Clarkson Co. v. Shaheen,
544 F.2d 624, 629 (2d Cir. 1976)); Kenner Prods. Co.
v. Societe Fonciere et Financiere Agache-Willot, 532
F. Supp. 478, 479 (S.D.N.Y. 1982) (applying New York
law); In re Stoddard, 242 N.Y. 148, 151 N.E. 159 (1926);
see SNR Holdings, Inc. v. Ataka Am., Inc., 54 A.D.2d 406,
408, 388 N.Y.S.2d 909, 911 (1st Dep’t 1976) (“Generally,
comity is extended when the foreign court has jurisdiction
over the parties and recognition of its actions would not
menace public welfare or violate ‘some fundamental
18
principle of justice, some prevalent conception of good
morals, [or] some deep-rooted tradition of the common
weal.” ”) (citation omitted).*
Accordingly, because the law of international comity
under federal and New York is the same, the question of
which law should have been applied would not alter the
outcome and is not appropriate for review by this Court.
III. ADISMISSAL WITH PREJUDICE ON GROUNDS
OF INTERNATIONAL COMITY DOES NOT
PRECLUDE ADJUDICATION OF THE CLAIMS
ON THE MERITS.
Petitioner’s assertion that it has been denied the
opportunity for an adjudication on the merits of its claim is
flatly wrong. First, the District Court’s dismissal on grounds
of international comity was based on deference to the SOP
Proceedings in Mexico, which the Court found to be
fundamentally fair. Accordingly, Ecoban’s claims on the
promissory notes against GAN and AHMSA, together with
other creditors’ claims, will be adjudicated by the Mexican
courts presiding over the SOP Proceedings. However, if the
SOP Proceedings are not completed and Ecoban’s claims
are not adjudicated, the District Court specifically held that
Ecoban could re-file its claims in that Court. District Court’s
Opinion (Petitioner’s App. at 9an.5). Thus, while the District
Court’s judgment as to propriety of extending comity to the
SOP Proceedings was final, it did not purport to adjudicate
the merits of Ecoban’s underlying claims on the promissory
notes.
> In Jn re Culmer, 25 B.R. 621, 629 (Bankr. S.D.N.Y. 1982),
the court stated that the “[c]ourts in New York have even more
narrowly construed ti.e exceptions to the comity doctrine.”
19
Second, to the extent that Ecoban seeks to clarify
the scope and finality of the judgment, Fed. R. Civ. P. 60(a)
provides the appropriate procedura! device. Specifically,
Ecoban asserts that the District Court erred in its failure to
state explicitly that the judgment was without prejudice as
to the underlying merits. At best, the judgment may suffer
from a clerical “mistake” which Ecoban may seek to cure
pursuant to Fed. R. Civ. P. 60(a). However, to date, Ecoban
has not done so. Accordingly, whether the judgment was
appropriately dismissed with prejudice is not a proper |
question for review by this Court.
CONCLUSION
a a ee
For the foregoing reasons, the Petition for a writ of
certiorari should be denied.
Respectfully submitted,
GERALD J. FIELDS STEVEN H. REISBERG*
PauL, HASTINGS, JANOFSKY WILLKIE FARR & GALLAGHER
& WALKER L.L.P. 787 Seventh Avenue
75 East 55th Street New York, NY 10019-6099
New York, NY 10022 (212) 728-8000
(212) 318-6000 Counsel for Respondent
Counsel for Respondent Altos Hornos De Mexico,
Grupo Acerero Del Norte, S.A. de C.V.
S.A. de C.V. * Counsel of Record
APPENDIX
Sat
ries
so
=
os
la
APPENDIX — DECLARATION OF JAIME GARCIA
PRIANI IN SUPPORT OF THE MOTION OF ALTOS
HORNOS DE MEXICO, S.A. DE C.V. TO DISMISS ON
THE GROUND OF COMITY AND IN OPPOSITION TO
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
DATED DECEMBER 22, 1999
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
99 Civ. 10202 (AKH)
ECOBAN FINANCE LIMITED,
Plaintiff,
— against —
ALTOS HORNOS DE MEXICO, S.A. DE C.V.,
Defendant.
DECLARATION OF JAIME GARCIA PRIANI IN
SUPPORT OF THE MOTION OF ALTOS HORNOS DE
MEXICO, S.A. DE C.V. TO DISMISS ON THE GROUND
OF COMITY AND IN OPPOSITION TO PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT
JAIME GARCIA PRIANI, pursuant to 28 U.S.C. § 1746,
hereby declares under penalty of perjury as follows:
1. I submit this declaration in support of the motion by
Altos Hornos de Mexico, S.A. de C.V. (*“AHMSA”) to
dismiss the instant action on the ground of comity and in
opposition to the Plaintiff's motion for summary judgment.
2a
Appendix
2. I have been duly licensed to practice law by the
Federal Government of Mexico for 23 years and hold
professional license number 423996. I am the senior member
of the law firm of Bufete Garcia Jimeno located in Mexico
City, Mexico. I specialize in the practice of civil and
commercial litigation and in suspension of payments and
bankruptcy law. Since 1982, I have represented many
companies involved in suspension of payments under the
Ley de Quiebras y Suspension de Pagos, the Law of
Bankruptcy and Suspension of Payments (the “Bankruptcy
Law” or “B.L.”) adopted by Mexico, an English translation
of which Bankruptcy Law is annexed hereto as Exhibit A.
Since 1993, I have also served as a professor at Universidad
Panamericana in Mexico City where I teach courses
pertaining to the theory of suspension of payments and
bankruptcy under Mexican law. Since 1998, I have also been
a professor at Universidad Del Mayab in Merida, Yucatan
where I have taught graduate and post-graduate studies of
the law of bankruptcy and suspension of payments. Since
1994, I have taught courses in bankruptcy and suspension of
payments law to attorneys and accountants and others at the
Instituto Para La Especializacion de Ejecutivos in Mexico
City. I have also taught courses in civil proceedings at
Universidad Anahuac in Mexico City from 1976 to 1983 and
taught courses in civil law at Escuela Libre de Derecho in
Mexico City from 1984 to 1985. I have participated in many
conferences and seminars pertaining to the law of suspension
of payments and bankruptcy. If called upon as a witness,
I could testify competently from my own knowledge to
matters set forth hereinafter.
690179.2
3a
Appendix
1. AHMSA DECLARED TO BE IN SUSPENSION OF
PAYMENTS.
3. | have reviewed the Complaint and the Order of
Attachment, in each instance together with all exhibits
annexed thereto (including, without limitation, the
promissory notes at issue). Based on my review of these
promissory notes, I am of the view that the Plaintiff herein
is acommon (unsecured) creditor under Mexican law. I have
also reviewed the Declaration of Alfonso Passapora Mora,
dated October 27, 1999.
4. [have reviewed the Declaration of Andres Gonzalez
Saravia in Support of Motion of Altos Hornos de Mexico,
S.A. de C.V. to Dismiss on the Ground of Comity and in
Opposition to Plaintiff's Motion for Summary Judgment,
which has been filed herewith, together with all exhibits
thereto (the “Gonzalez Saravia Declaration”). The Gonzalez
Saravia Declaration sets forth at length the financial and other
difficulties that led to the filing of the petition by AHMSA
to be declared in suspension of payments. I have reviewed
the Declaration of Madiyn Gleich Primoff in Support of
Motion of Grupo Acerero Del Norte, S.A. de C.V. to Dismiss
on the Ground of Comity (the “Primoff Declaration”).
5. Ihave reviewed the petition together with all exhibits
thereto (the “Petition”) filed by AHMSA on May 24, 1999
with the First Court of First Instance in Monclova (Coahoila)
Mexico (the “Mexico Court”). Pursuant to the Petition,
AHMSA sought to be declared in suspension of payments
under Title VI of the Bankruptcy Law and Articles 394 and
395 thereof in particular. The Bankruptcy Law is derived
690179.2
4a
Appendix
from and based on the civil law of Spain, Italy, France and
other European nations. A copy of the Petition together with
an English translation thereof is annexed to the Gonzalez
Saravia Declaration as Exhibit B thereto.
6. As required by Article 398 of the Bankruptcy Law,
AHMSA’s proposed preventive agreement with its creditors
(the “Preventive Agreement”) was filed shortly after the
Petition. I have reviewed the Preventive Agreement, a copy
of which together with an English translation thereof is
annexed to the Gonzalez Saravia Declaration as Exhibit C
thereto. The Preventive Agreement is a proposed agreement
between a company and its creditors which addresses the
manner of resolution of all claims against the company. In
general, the proposed Preventive Agreement provides for the
repayment of the recognized principal amount of all claims
against AHMSA within 3 years after the acceptance of such
Preventive Agreement by the requisite majorities of
AHMSA’s creditors. If the Preventive Agreement is accepted
by AHMSA’s creditors and approved by the Mexico Court,
AHMSA’s proceedings under the Bankruptcy Law will be
successfully concluded.
7. I have reviewed the judgment which was issued by
the Mexico Court on May 25, 1999, declaring AHMSA to
be in suspension of payments in accordance with Articles
404 through 406 of the Bankruptcy Law (the “SOP
Judgment”). A copy of the SOP Judgment together with an
English translation thereof is annexed to the Gonzalez
Saravia Declaration as Exhibit D thereto.
8. I have been informed based on the Gonzalez Saravia
Declaration that notice of AHMSA’s suspension of payments
690179.2
Sa
Appendix
proceeding has been provided by actual notice sent to
creditors whose addresses are known, including Plaintiff
herein, and by publication in Diario Oficial de la F ederacion,
the official Mexican gazette, and in major national
newspapers in Mexico (see B.L. Arts. 15-17). Publication
was effected on October 4, 5 and 6 of 1999.
9. The SOP Judgment, among other things, included a
notice to AHMSA’s creditors to submit their claims for
review within 45 days, beginning the day after the final
publication of the SOP Judgment. As set forth in the
Gonzalez Saravia Declaration, the last publication of the SOP
Judgment was made on October 6, 1999, thereby initially
giving © reditors until December 13, 1999 (because of
weekends and court holidays) to submit their claims. The
Mexico Court, however, recently expanded the time for
creditors to file claims until March 23, 2000.
10. In accordance with Articles 28-30, 44, 46, 48-52,
54, 57, 415 and 416 of the Bankruptcy Law, the National
Chamber of the Transformation Industry (Camara Nacional
de la Industria de Transformacion), who designated Javier
Francisco Gaxiola as its representative, was appointed to
serve as AHMSA’s trustee by order of the Mexico Court
dated August 6, 1999. I have reviewed such order, a copy of
which together with an English translation thereof is annexed
to the Gonzalez Saravia Declaration as Exhibit E thereto.
11. I have been informed based on the Gonzalez Saravia
Declaration that AHMSA has approximately 1,471 creditors,
the vast majority of which are common (unsecured) creditors.
690179.2
6a
Appendix
Il. THE INSTANT ACTION IS IMPERMISSIBLE AS
A MATTER OF MEXICAN LAW.
12. The Bankruptcy Law contains a statutory stay,
prohibiting the commencement and prosecution of this action
by Plaintiff herein. Articles 408, 409 and 410 of the
Bankruptcy Law provide as follows:
ARTICLE 408. While the proceeding is in
progress, no credit established previously may be
required or executed against the debtor, nor may
he pay it, the statute of limitations shall not run
and the suits cited in the subsequent article shall
remain in suspense.
However, such protests as are allowable by
law shall be filed.
ARTICLE 409. With the exception of claims
for debts for employment obligations, for food
and alimony, or for claims with a guarantee, all
suits against the debtor that have as their purpose
claiming compliance with a monetary obligation
shall be suspended; but actions tending to prevent
damage to things covered by the litigation or to
conserve entirely the rights of the parties may be
undertaken.’
ARTICLE 410. During the proceedings, the
debtor preserves the administration of assets and
' A certified translation of Articles 408 and 409 is annexed
hereto as Exhibit B
690179.2
ih ast imal
7a
Appendix
shall continue the ordinary operations of his
business, under the care of the trustee.
Based upon the above-quoted provisions of the Bankruptcy
Law, upon the entry of the SOP Judgment, (a) AHMSA is
not permitted to pay any prepetition claims, and (b) all suits
against AHMSA that have as their purpose claiming
compliance with a monetary obligation shall be in suspension
except for labor proceedings, proceedings for the collection
of alimony payments and proceedings for the enforcement
of a security interest in rem (e.g., mortgage, pledge, etc.).
In other words, a moratorium on legal actions such as the
instant action commenced by Plaintiff became effective as
of the entry of the SOP Judgment. Accordingly, the complaint
filed herein commencing this action as well as all subsequent
steps taken by Plaintiff to attach AHMSA’s assets constitute
a violation of the stay imposed by the Bankruptcy Law.
13. Pursuant to Article 411 of the Bankruptcy Law,
the debtor is prohibited from granting security interests
during the pendency of a suspension of payments proceeding.
The purpose underlying this provision is to maintain the
equality of distributions to all creditors of the same rank and
priority, which is a critical underpinning of the Bankruptcy
Law. If a debtor is found to have improved the position of
one of its creditors vis-a-vis (and at the expense of) its other
creditors, the debtor may both be sanctioned by the Mexico
Court and also have its suspension of payments proceeding
converted to a bankruptcy/liquidation proceeding. Thus,
AHMSA cannot permit the attachment by Plaintiff of
AHMSA’s assets and Plaintiff's attempted circumvention
of Mexican law to occur.
690179.2
pete eA SOE RI UL Hel ly oR ae oe ee AN ae
8a
Appendix
14. Pursuant to Articles 6(d), 13, 14, 26 and 408-410 of
the Bankruptcy Law, the suspension of payments proceeding
is intended to be comprehensive as to all of AHMSA’s assets
located in and outside of Mexico, including but not limited
to those assets located in the United States. It is a general
principle of the Bankruptcy Law that a suspension of
payments proceeding is intended to be universal, not
territorial. Indeed, Article 13 of the Bankruptcy Law
provides:
The following have jurisdiction to hear the
bankruptcy of an individual merchant: the District
Judge of the Trial Court of the place where the
merchant has his principal place of business, or,
if there is none, where he lives.
With regard to companies, jurisdiction shall
be proper in the place where the main office is
located and if there is none, in the place where
it has its principal place of business.
Branches of foreign businesses may be
declared bankrupt, without consideration of any
jurisdiction which may pertain to foreign judges.
This bankruptcy shall affect assets located in the
republic and creditors of the operation carried out
by the branch.
The third paragraph of Article 13 sets forth an exception to
the general rule of universality which is embodied in the
second paragraph of Article 13. The third paragraph indicates
that a foreign branch of a business may be declared bankrupt
690179.2
9a
Appendix
under Mexican law, but that such bankruptcy shall affect
only those assets located in Mexico. However, the second
paragraph of Article 13 reflects the principle that all assets
of AHMSA — whether located in Mexico, the United States
or elsewhere — are subject to the jurisdiction of the Mexico
Court.
15. This reading of Article 13 is confirmed by Article
1097 of the Code of Commerce (Codigo de Comercio),
a Federal code supplementary to the Bankruptcy Law, which
states as follows:
The court hearing the bankruptcy and
suspension of payments proceeding is competent
to hear all actions against the debtor, including
those filed against co-defendants acting as joint
and several obligors, guarantors, or persons bemg
sued for any reason for monetary obligations,
whether those actions are asserted in mercantile
or civil proceedings, so that those actions may be
joined in the universal and attractive bankruptcy
process in which alli assets are under the scrutiny
of the court, in order for such third parties to
litigate their rights in that procedure.
Exceptions to the foregoing are claims
derived from mortgages or secured loans, or
claims in which the final decision of first instance
has already been issued and notified.
16. The Bankruptcy Law further provides that all claims
in litigation or otherwise against the debtor must be brought
690179.2
10a
Appendix
to the Mexico Court. See B.L. Arts. 126, 220, 221, 408-410,
429; Code of Commerce Art. 1097. Because AHMSA has
been declared to be in suspension of payments, the
enforceability of the promissory notes at issue is governed
by the Bankruptcy Law of Mexico and any claim to recover
“on the notes must be brought in AHMSA’s pending
suspension of payments- proceeding. Moreover, effective
upon the entry of the SOP Judgment, interest ceases to accrue
on the notes and recovery of any default rate of interest or of
costs and expenses by Plaintiff are not allowed. Further,
under Mexican law, all obligations of AHMSA are converted
into pesos as of the entry of the SOP Judgment in order to
assure equality of treatment of creditors.
17. Foreign judgments, such as a stay imposed by a
bankruptcy court or other court in the United States, would
be enforced in Mexico. Article 14 of the Bankruptcy Law
provides that foreign bankruptcies are honored in Mexico
so long as it can be shown that (i) the formalities for filing
under the foreign bankruptcy law were complied with, and
(ii) the foreign bankruptcy would satisfy the provisions of
the Mexican Bankruptcy Law with respect to the declaration
of bankruptcy. In addition, other provisions of Mexican law
confirm that an order of this Court or another court in the
United States imposing a stay would be enforced in Mexico:
(a) Articles 604-608 of the Codigo de Procedimientos Civiles
para el Distrito Federal (Code of Civil Procedure for the
Federal District of Mexico), which is applicable in AHMSA’s
suspension of payments proceeding; (b) Articles 569-577 of
the Codigo Federal de Procedimientos Civiles (Federal Code
of Civil Procedure), which is applicable in AHMSA’s
suspension of payments proceeding pursuant to Article 6 of
690179.2
-
lla
Appendix
the Transitory Provisions (addendum) of the Bankruptcy
Law; and (c) Articles 1347-A of the Code of Commerce.
(Such statutes together with an English translation thereof
are annexed hereto as Group Exhibit C.)
(a) Article 605 of the Code of Civil Procedure
for the Federal District of Mexico states:
Decisions and other foreign resolutions shall
be effective and shall be recognized in the
Republic in all matters which are not contrary to
the internal public order under the terms of this
Code, of the Federal Code of Civil Procedures
and other applicable laws, except that which is
stipulated by treaties and conventions to which
Mexico is a party.
In the case of jurisdictional decisions or
resolutions which are only going to be used as
evidence, it shall be sufficient that they meet the
requirements necessary to be deemed authentic
certified documents.
The effects which foreign decisions or
arbitration rulings have in the Federal District
shall be governed by the Civil Code, by this Code
and the Federal Code of Civil Procedures and
other applicable laws.
(b) Article 569 of the Federal Code of Civil ©
Procedure provides:
690179.2
12a
Appendix
Decisions and private arbitration decisions
and other foreign jurisdictional resolutions shall
be effective and shall be recognized in the
Republic in all matters which are not contrary to
the internal public order under the terms of this
Code, of the Federal Code of Civil Procedures
and other applicable laws, except that which is
stipulated by treaties and conventions to which
Mexico is a party.
In the case of jurisdictional decisions or
resolutions which are only going to be used as
evidence before Mexican courts, it shall be
sufficient that they meet the requirements
necessary to be deemed authentic documents.
The effects which foreign decisions or
arbitration rulings have in the national territory
shall be governed by the Civil Code, by this Code
and other applicable laws.
(c) Article 1347-A of the Code of Commerce
provides:
Decisions, arbitration rulings and resolutions
issued abroad may be enforceable if they meet
the following conditions: ;
I. That the formalities stipulated in the
treaties and conventions to which Mexico is a
party have been satisfied with respect to letters
rogatory coming from abroad; in the case of the
690179.2
13a
Appendix
enforcement of arbitration decisions, no letter
rogatory shall be required;
Il. That they have not been issued as a result
of the exercise of an action in rem;
Ill. That the deciding judge or court had
jurisdiction to hear and judge the matter pursuant
to the rules recognized in the international sphere
which are compatible with those adopted by this
Code;
IV. That the defendant has been notified or
summoned personally in order to ensure him the
guarantee of a hearing and the exercise of his
defenses;
V. That they have the character of a
res judicata in the country where they were issued,
or that no ordinary appeal exists against them,
VI. That the action which gave rise to them
is not a matter which is pending between the same
parties before Mexican courts and in which a
Mexican court has issued preliminary measures
or at least when the letter rogatory for summons
has been processed and delivered to the Department
of Foreign Affairs or to the Government authorities
where the summons is to be performed. The same
rule shall apply when a final decision is issued;
690179.2
14a
Appendix
VII. That the obligation whose performance
is being enforced is not contrary to the public
order in Mexico; and
VIII. That they meet the requirements to be
considered authentic.
Notwithstanding the performance of the
preceding conditions, the court may deny
execution if it is proved that foreign decisions,
jurisdictional resolutions or arbitration rulings are
not enforced in analogous cases.
Based on the foregoing, I believe that if the situation were
reversed — i.e., if the Mexico Court were asked to uphold a
stay imposed by a bankruptcy court or other court in the
United States — the Mexico Court would resolve that
question in favor of giving effect to the stay.
18. Pursuant to Article 128 of the Bankruptcy Law, upon
the entry of the SOP Judgment (i) all of AHMSA’s
obligations matured, (ii) interest ceased to accrue on such
obligations except in the case of certain secured claims, and
(111) the offset of claims against AHMSA’s assets held by a
creditor was prohibited except in certain limited
circumstances.
690179.2
15a
Appendix
Ill. BY THIS ACTION, PLAINTIFF WRONGFULLY SEEKS
TO CIRCUMVENT THE MEXICAN SUSPENSION OF
PAYMENTS PROCEEDING AND IMPROPERLY
ELEVATE ITS POSITION VIS-A-VIS AHMSA'S OTHER
COMMON CREDITORS.
19. By. means of the instant action, Plaintiff is
wrongfully seeking both to circumvent the suspension of
payments proceeding pending for AHMSA in Mexico and
also to elevate the priority of its position vis-a-vis other
creditors from a common (general unsecured) claim, which
would be treated ratably with the vast majority of AHMSA’s
other creditors under the Bankruptcy Law, to a claim that
would be paid improperly and unfairly ahead of such
creditors through the attachment mechanism. By this action,
Plaintiff is seeking to obtain improperly an advantage — to
the detriment of all creditors — that it would not be entitled
to under the Mexican Bankruptcy Law or, for that matter
(based upon my reading of the Primoff Declaration), title 11
of the United States Code (the “U.S. Bankruptcy Code”).
20. The granting by this Court of the remedy of attachment
in favor of Plaintiff — a common creditor in AHMSA’s
pending suspension of payments proceeding — not only
would enable Plaintiff to circumvent such suspension of
payments proceeding, but also would be in direct violation
of Articles 408-410 of the Bankruptcy Law and, by analogy,
Article 411 as well.
690179.2
l6a
Appendix
IV. OVERVIEW OF LAW ON SUSPENSION OF
PAYMENTS.
Z1. In this section, I intend to furnish an overview of
those provisions of the Bankruptcy Law that are most
relevant to a suspension of payments proceeding. While Title
VI of the Bankruptcy Law, which is entitled “Prevention of
Bankruptcy,” is addressed to suspension of payments
proceedings, Article 429 of the Bankruptcy Law (which is
included in Title VI) expressly provides: “In all that is not
set forth expressly for the suspension of payments and
preventive agreement, the rules of bankruptcy and the
agreement for the same shall apply as long as they do not
contradict the essence and character of the suspension of
payments.” Also, as indicated above, pursuant to the Sixth
Transitory of the Bankruptcy Law, the Code of Commerce
and the Federal Code of Civil Procedure aiso apply in
suspension of payments proceedings.
22. Under the Bankruptcy Law, there are two primary
types of proceedings: (i) a suspension of payments
proceeding, which I understand based on the Primoff
Declaration is analogous to a reorganization case under
chapter 11 of the U.S. Bankruptcy Code; and (ii) bankruptcy,
which is a liquidation and which I understand based on the
Primoff Declaration is similar to a case under chapter 7 of
the U.S. Bankruptcy Code. The principal purpose of a
suspension of payments proceeding is to prevent the
bankruptcy/liquidation of a merchant through the means of
a preventive agreement between the merchant and its
creditors.
690179.2
OO eEOO~7
17a
Appendix
Rights and Powers of Debtor and Trustee
23. In a suspension of payments proceeding, the debtor
preserves the administration of its assets and continues the
ordinary operations of its business under the care of a trustee.
See B.L. Art. 410. The trustee is an officer of the court and
is a fiduciary, see B.L. Art. 44, and shall be selected and
shall have the rights and obligations set forth in Articles 410
and 416 of the Bankruptcy Law. While the debtor remains
in control of its day to day operations, the trustee supervises
the debtor with respect to the administration of the debtor’s
estate. The trustee is required to communicate any
irregularities in the business of the debtor to the judge before
whom the suspension of payments proceeding is pending.
B.L. Art. 41 6(III).
Preventive Agreement
24. A fundamental element of the suspension of
payments proceeding is that the debtor must file a proposed
preventive agreement upon the commencement of such
proceeding. B.L. Art. 398. Such preventive agreement must
maintain the most absolute equality in the treatment of non-
privileged creditors such as Plaintiff herein. B.L. Art. 304.
The preventive agreement may propose the partial payment
of claims on the deferral of payment of claims or both.
See B.L. Arts. 317-322, 400. In addition, a preventive
agreement must include adequate assurance of the debtor’s
compliance therewith, a timetable for repayment and the
mechanisms for the debtor to carry out the terms of the
preventive agreement. B.L. Arts. 337, 420. The Preventive
Agreement filed by AHMSA, which provides for the
690179.2
| Appendix
repayment of the recognized principal amount of all claims
| against AHMSA within three years after acceptance of the
Preventive Agreement by the requisite majorities of
| AHMSA’s creditors, satisfies all of these requirements.
25. Pursuant to Articles 304, 305, 313, 316, 317, 321,
322, 401, 403, 418 and 419 of the Bankruptcy Law, all of
AHMSA’s creditors have the right to accept or reject
AHMSA’'s proposed Preventive Agreement. Votes are tallied
| based on both the number of creditors present at the meeting
| called for the purpose of voting on a preventive agreement
| and also the amount of claims held by such creditors.
| Minimum voting requirements vary depending upon the
terms of a proposed preventive agreement. In general, as the
percentage to be paid in respect of claims decreases or the
time frame in which such claims are to be satisfied increases,
the voting requirements likewise increase. See B.L. Arts. 317-
322. With respect to AHMSA’s Preventive Agreement, the
following three conditions must be satisfied in order for the
Preventive Agreement to be deemed approved by the
requisite majorities: (i) an absolute majority of creditors by
claim amount (as distinguished from number of claim
holders) must vote in favor of the Preventive Agreement,
(ii) an ‘absolute majority of claim holders (creditors), by
number and not amount of claims, must attend in person or
by proxy the meeting of creditors at which approval of the
Preventive Agreement will be considered and (iii) a third of
the creditors (by number and not amount of claims) attending
the meeting in person or by proxy must vote in favor of the
Preventive Agreement. B.L. Arts. 317, 321, 322, 400, 403.
26. In all events, affiliates and insiders may not vote on
a preventive agreement and the amount of their claims against
690179.2
erectile
19a
Appendix
the debtor are deducted for the purposes of computing
whether the requisite percentage of total claims have voted
in favor of the preventive agreement. B.L. Arts. 325, 326. If
the preventive agreement is not accepted, the judge
overseeing the suspension of payments proceeding is required
to proceed with a declaration of bankruptcy whereupon the
assets of the debtor are liquidated. See B.L. Art. 419.
27. If the requisite majorities vote in favor of the
preventive agreement, it will be submitted to the judge
overseeing the suspension of payments proceeding for
approval. See B.L. Arts. 337, 420. Approval will be granted
if the following requirements are met: (a) the debtor was not
ineligible to be declared in suspension of payments pursuant
to Article 396 of the Bankruptcy Law, (b) the amount offered
under the preventive agreement was not less than the
possibilities of the debtor and (c) the debtor’s performance of
the agreement is sufficiently guaranteed in view of the assets
of the debtor. B.L. Art. 420. In addition, the judge will examine
the preventive agreement to make certain that it maintains
the most absolute equality in the treatment of non-privileged
creditors such as Plaintiff herein. B.L. Art. 304.
28. The approval of the preventive agreement means that
the debtor will not go bankrupt (i.e. be liquidated), and
produces the same effects as an agreement in bankruptcy.
See B.L. Art. 423. In this connection, an order approving a
preventive agreement binds the debtor and the creditors to
the terms of the preventive agreement, and discharges the
debtor from liability on its prepetition debts to the extent
the agreement provides for payment of such debts. B.L. Arts.
359, 360.
690179.2
20a
Appendix
V. PROCESSING OF CLAIMS; ROLE OF CREDITORS.
29. As indicated above and as required by Article 16 of
the Bankruptcy Law and the SOP Judgement, notice of
AHMSA’s suspension of payments proceeding has been
provided by actual notice sent to creditors whose addresses
are known, including Plaintiff herein, and by publication.
See B.L. Arts. 15-17. The SOP Judgment included a notice
to AHMSA’s creditors to submit their claims for review
within 45 days, beginning the day after the final publication
of the SOP Judgment. The last publication of the SOP
Judgment was made on October 6, 1999, which initially gave
creditors until December 13, 1999 to submit their claims.
The Court recently expanded the time for creditors to file
claims until March 23, 2000.
30. The procedures with respect to filing and recognition
of claims are set forth in Articles 220 through 259 of the
Bankruptcy Law. A creditor shall petition the Mexico Court
for recognition of its claim, attaching to the petition the
documents justifying the claim and copies of the same. B.L.
Art. 221. The debtor and all creditors have the right to be
heard with respect to the allowance or disallowance of any
claim. B.L. Art. 243. All parties have the right to appeal
from the Mexico Court’s allowance or disallowance of claims
to a superior appellate court. See B.L. Arts. 249-254.
31. The Bankruptcy Law contains no preference
whatsoever for Mexican creditors over non-Mexican
creditors. See B.L. Art. 261. In fact, Article 223 of the
Bankruptcy Law permits the Mexico Court to extend for
non-Mexican creditors the period for presenting their claims,
up to the day set for the meeting of creditors.
690179.2
2la
Appendix
32. Pursuant to Articles 58 and 417 of the Bankruptcy
Law, one, three or five representatives of the creditors —
called intervenors — will be appointed by the Mexico Court
to represent the interests of the creditors in AHMSA’s
suspension of payments proceeding. The intervenors are ~
recognized by the Mexico Court and elected by the creditors.
33. The intervenors have all measures available to them
which are relevant in the interest of the debtor’s estate and
the rights of the creditors, including (a) appealing decisions
of the Mexico Court and opposing those of the trustee which
they consider prejudicial to the interests of the creditors;
(b) requesting removal of the trustee and exercising actions
of responsibility against the Mexico Court, (c) requesting
the Mexico Court to order the debtor to appear before them
so that they can be informed about the activities of the debtor;
(d) designating one or more intervenors to attend all activities
regarding the administration of the debtor’s estate and/or
watch over all operations of the trustee and the debtor;
(e) informing the Mexico Court of all acts of extraordinary
administration which it should authorize; (f) requesting the
Mexico Court to convene an extraordinary meeting of
creditors; (g) informing creditors of the progress of the
suspension of payments proceeding; and (h) performing other
duties which the law expressly designates to them or which
it gives, in general, to the creditors. See B.L. Art. 67.
VI. DISTRIBUTION OF ASSETS AND TREATMENT OF
COMMON CLAIMS.
34. The provisions with respect to classification,
prioritization and distribution in respect of claims is set forth
690179.2
22a
Appendix
in Articles 260 through 273 of the Bankruptcy Law.
AHMSA’s Preventive Agreement adheres to all of these
requirements. The Mexico Court is required in a suspension
of payments proceeding to determine the class and priority
for each claim. B.L. Art. 260.
35. A distribution to the creditors of one class may not
begin until the creditors of each class having a higher priority
have been paid. B.L. Art. 269.
36. The following are claims against the debtor’s estate
that shall be paid with priority over any other claims:
(a) expenses for the safekeeping, preservation and
administration of the property of the debtor’s estate; and
(b) claims arising from judicial or non-judicial proceedings
for the common benefit, provided such proceedings were duly
authorized. B.L. Art. 270.
37. Claims against the estate are classified as follows,
in descending order of priority:
(a) creditors who are exclusively privileged;
(b) secured creditors;
(c) creditors with special privilege;
(d) common creditors due to mercantile
operations; and
(e) common creditors based on civil law.
B.L. Art. 261.
690179.2
23a
Appendix
38. “Exclusively privileged” creditors include
(a) creditors having claims for burial expenses, (b) creditors
having claims for medical expenses for an illness that caused
the death of the debtor where bankruptcy was declared after
death and (c) employees owed salaries for services rendered
within 12 months prior to the suspension of payments
declaration. B.L. Art. 262.
39. Secured creditors receive payments from the
proceeds of their collateral in the order in which their security
interests were recorded. Only the remaining equity, if any,
in such collateral over and above the secured debt is then
available for other creditors. B.L. Art. 263.
40. “Specially privileged” creditors are creditors that
in accordance with the Code of Commerce or other statute
have a special privilege (e.g., mechanics liens, etc.). See B.L.
Art. 264. Like mortgage creditors, specially privileged
creditors are entitled to be paid first out of the proceeds of
the sale of their collateral, but if several claims arise from
the same good or asset, a pro rata distribution shall be made
without distinction for dates except where the law states to
the contrary. See B.L. Art. 265.
41. The claims of tax authorities have priority over
distributions to all other creditors except for certain secured
creditors, alimony creditors and claims for wages for work
performed during the last 12 months before the debtor was
declared bankrupt. B.L. Arts. 261, 262.
42. Common creditors, like Plaintiff, whose claims are
based upon mercantile operations collect pro rata without
regard to the date on which their claims arose. B.L. Art. 266.
690179.2
24a
Appendix
43. Common creditors whose claims arose from civil
law obligations not arising out of the normal course of
business (such as claims by professionals for services
rendered, certain personal injury claimants, service providers,
etc.) also collect without regard toe the date on which their
claims arose. B.L. Art. 267. These claims rank junior to the
claims of common creditors whose claims arose from
mercantile operations. See B.L. Art. 269.
44. There is no restriction in the Bankruptcy Law on
the right of non-Mexican creditors to participate equally with
local creditors in a distribution of a debtor’s assets. Nor does
the Bankruptcy Law discriminate in any way against foreign
creditors, who stand on the same footing as local creditors.
Indeed, Article 304 of the Bankruptcy Law provides that a
preventive agreement shall maintain the most absolute
equality in the treatment of non-privileged creditors, unless
all creditors in the same class consent.
45. Under Mexican Law, all obligations of the debtor
shall be converted into pesos as of the entry of the SOP
Judgment in order to assure equality of treatment of creditors.
The rate of conversion is fixed as of the date of entry of the
SOP Judgment — 9.5 pesos to the dollar in AHMSA’s case.
VII. THE INSTANT ACTION SHOULD BE DISMISSED
BASED ON COMITY.
46. I have been informed that under the relevant case
law in the Southern District of New York it is appropriate to
defer to, and grant comity to, the Mexico Court with respect
to the determination and resolution of Plaintiff's claims as
690179.2
a
25a
Appendix
long as it can be shown that the Mexico Court abides by
fundamental standards of procedural fairness. I have been
further informed that, with respect to the suspension of
payments proceeding pending for AHMSA before the
Mexico Court, this Court will examine the foiiowing factors
as indicia of procedural fairness:
(a) Whether creditors of the same class are treated
equally in the distribution of assets.
(b) Whether AHMSA or the Mexican trustee are
considered fiduciaries and are held accountable to the
Mexico Court.
(c) Whether creditors have the right to submit
claims which, if denied, can be adjudicated by the
Mexico Court.
(d) Whether AHMSA or the Mexican trustee are
required to give notice to the debtor’s potential
claimants.
(ec) Whether the Bankruptcy Law provides for a
creditors’ meeting.
(f) Whether Mexico’s insolvency laws favor its
own citizens.
(g) Whether all of AHMSA’s assets are marshalled
before one body for centralized distribution.
690179.2
26a
Appendix
(h) Whether the suspension of payments proceeding
includes an automatic stay and provides for the lifting
of such stay to facilitate the centralization of claims.
(i) After carefully reviewing the foregoing indicia
of procedural fairness, I am of the view that AHMSA’s
suspension of payments proceeding and the Bankruptcy
Law amply satisfy each and every one of these indicia.
47. Creditors of the same class are treated equally.
As set forth in Section VI above, creditors of the same class
are treated equally in the distribution of assets. See B.L. Arts.
266, 267, 269, 304.
48. The debtor and the Mexican trustee are considered
fiduciaries and are held accountable to the Mexico Court.
Pursuant to the Bankruptcy Law, the debtor and the Mexican
trustee have duties of care and loyalty to their creditors and
others and are held accountable to the Mexico Court.
See B.L. Arts. 44, 410, 411, 416. In this connection, the
trustee is required, inter alia, to (a) deliver to the Mexico
Court, prior to the meeting of creditors, a detailed report
about the causes of AHMSA’s suspension of payments, the
state of AHMSA’s books and other information that the
trustee deems relevant, B.L. Art. 46; (b) make recommendations
to the Mexico Court with respect to AHMSA’s estate,
B.L. Art. 48(III); and (c) deliver every three months
accountings of the trustee’s actions and a report on the status
of the suspension of payments proceeding. B.L. Art. 50.
49. Creditors have the right to submit claims for
adjudication by the Mexico Court. As set forth in
690179.2-
a CI PESO cI TUS SERIA
27a
Appendix
paragraphs 9 and 29 through 31 above, creditors of AHMSA
have the right to submit claims to the Mexico Court for
adjudication. Article 220 of the Bankruptcy Law provides
that creditors who want to perfect their claims against
AHMSA’ s estate should request recognition of their claims,
which shall be done by the Mexico Court at a creditor’s
meeting convened especially for such purpose. The
determination of the Mexico Court with respect to any claim
is subject to appeal. See B.L. Art. 249.
50. Notice is required to be given to AHMSA’s potential
claimants. Pursuant to Articles 15(V), 16 and 405 of the
Bankruptcy Law, the judgment of declaration of suspension
of payments must contain an order requiring that creditors
be notified that they have 45 days, beginning the day after
the final publication of the judgment, to present their claims
for review. As indicated in paragraph 8 above, notice of
AHMSA’s suspension of payments proceeding has been
provided by actual notice sent to creditors whose addresses
are known, including Plaintiff herein, and by publication, as
required.
51. The Bankruptcy Law contains provisions for a
creditors’ meeting. Articles 15(V1), 26(III) and 73 through
82 of the Bankruptcy Law provide for and prescribe the
conduct of creditors’ meetings. Creditors’ meetings are either
ordinary or extraordinary. B.L. Art. 73. An ordinary meeting
is one that is required to take place pursuant to the
Bankruptcy Law, including meetings for (a) the recognition
of claims, B.L. Arts. 220, 235, 240, (b) the appointment of
intervenors, B.L. Arts. 60, 417, (c) approval of the preventive
agreement, B.L. Arts. 418, 305, 311, 314, 315, 297, 331,
690179.2
a erences
28a.
Appendix
and (d) approval of the accounts of the trustee. B.L. Art.
416(IV). Extraordinary meetings are those called in
connection with other subjects. B.L. Arts. 61, 67(VI).
Creditors’ meetings are convened and presided over by the
Mexico Court. B.L. Arts. 74, 76, 82. Notice of the meetings
are published. B.L. Art. 7¢. Resolutions are generally valid
if they were set forth on the agenda for the meeting and
approved by the majority of creditors attending the meeting
in person or by proxy. B.L. Arts. 75, 77-79.
52. Mexico’s insolvency laws do not favor citizens of
Mexico. As indicated in paragraphs 31 and 44 above, the
Bankruptcy Law contains no preference whatsoever for
Mexican creditors over non-Mexican creditors.
53. All assets are consolidated before one body for
centralized distribution. As set forth at length in paragraphs
14 through 17 above, Articles 26(III) and (XI) and 429 of.
the Bankruptcy Law provide that the suspension of payments
proceeding is intended to be comprehensive as to all of
AHMSA’ s assets located in and outside of Mexico, including
but not limited to those assets located in the United States.
As a general principle, the suspension of payments
proceeding is intended to be universal, not territorial. The
Bankruptcy Law further provides that all claims in litigation
or otherwise against the debtor must be brought to the Mexico
Court. See B.L. Arts. 126, 220, 408-410, 429; Code of
Commerce Art. 1097. The intent of these provisions is to
accumulate all of AHMSA’s assets before the Mexico Court
for centralized distribution.
54. The Bankruptcy Law contains an automatic stay.
As described in detail in paragraphs 12 through 16 and 18
690179.2
29a
Appendix
above, upon entry of the SOP Judgment, Articles 408 through
410 of the Bankruptcy Law imposed a statutory stay of claims
against AHMSA. Article 411 of the Bankruptcy Law states
that the granting of security interests by the debtor shall be
ineffective as against creditors during the pendency of a
suspension of payments proceeding. A moratorium on legal
actions such as the instant action commenced by Plaintiff
became effective as of the entry of the SOP Judgment.
B.L. Art. 409. The complaint filed herein commencing this
action as well as all subsequent steps taken by the Plaintiff
to attach AHMSA’s assets thus constitute a violation of the
stay imposed by the Bankruptcy Law.
VIII. DISMISSAL OF THE INSTANT ACTION WILL BEST
ASSURE THE ECONOMICAL AND EXPEDITIOUS
ADMINISTRATION OF AHMSA'S ESTATE.
55. I have been informed that section 304(c) of the
U.S. Bankruptcy Code provides authority for dismissal of
the instant action, and that in determining whether to grant —
such relief the Court shall be guided by what will best assure
an economical and expeditious administration of AHMSA’s
estate, consistent with —
(a) just treatment of all holders of claims against
the estate;
(b) protection of claim holders in the United States
against prejudice and inconvenience in the processing
of claims in AHMSA’s suspension of payments
proceeding;
690179.2
30a
Appendix
(c) prevention of preferential or fraudulent
dispositions of property of AHMSA’s estate;
(d) distribution of proceeds of AHMSA’s estate
substantially in accordance with the order prescribed by
the U.S. Bankruptcy Code; and
(e) comity.
I have been asked to comment on each of these factors.
56. The suspension of payments proceeding affords just
treatment to all of AHMSA’s creditors. As discussed at
length above, AHMSA’s creditors will have been afforded
sufficient opportunity to submit their claims for
determination. A creditor is permitted to appeal an adverse
determination. Pursuant to the Bankruptcy Law, creditors
have the right to call and attend meetings of creditors.
Creditors will have the right to accept or reject the proposed
Preventive Agreement. Creditors also have the right to seek
the appointment of an intervention.
57. With respect to distributions to creditors, as detailed
more particularly above, the Mexico Court is required in
AHMSA’s suspension of payments proceeding to determine
the class and priority for each claim. A distribution to the
creditors of one class may not begin until the creditors of
each class having a higher priority have been paid. Certain
claims described above shall be paid with priority over any
other claims. The most absolute equality in the treatment of
non-privileged creditors is strictly required unless all
creditors in the same class consent. Creditors who are
690179.2
31a
Appendix
outvoted or believe that they have been placed in the wrong
class may obtain a hearing on such issue before the Mexico
Court and take an appeal from an adverse determination.
58. Claim holders in the United States will not suffer
prejudice in the processing of claims in AHMSA's suspension
of payments proceeding. There are no provisions in the
Bankruptcy Law which create any special prejudice or
inconvenience for the processing of claims of United States
creditors, including the Plaintiff herein, in AHMSA’s
suspension of payments proceeding. In fact, as indicated
above, Article 223 of the Bankruptcy Law permits the
Mexico Court to extend for non-Mexican creditors the period
for presenting their claims, up to the day set for the meeting
of creditors.
59. The Bankruptcy Law prevents preferential or
fraudulent dispositions of property of AHMSA’s estate.
The Mexico Court has the power to avoid preferential or
fraudulent dispositions of a debtor’s property (or assets)
made to the detriment or prejudice of creditors. See B.L.
Arts. 93, 96, 168-170, 172, 173, 297. Transactions that are
intentionally fraudulent or transactions that are made for less
than fair consideration may be set aside. Setting aside the
transaction would enable the debtor to recover the property
or assets transferred.
60. The proceeds of AHMSA'’s estate will be distributed
substantially in accordance with the order described by the
U.S. Bankruptcy Code. Although I am not in a position to
testify to the meaning of the U.S. Bankruptcy Code, I believe
that the rules and principles governing the distribution of
690179.2
32a
Appendix
the assets of AHMSA’s estate under the Mexican Bankruptcy
Law and the case law thereunder are substantially similar to
the rules and principles which would govern distribution
under the U.S. Bankruptcy Code. (See the Primoff
Declaration in this regard.) It is readily apparent that both
the Mexican Bankruptcy Law and the U.S. Bankruptcy Code
provide for equal and ratable distributions to be made to
creditors having the same rank and priority. In this
connection, both statutory schemes classify claims with
distributions to creditors being made based on the priority
of the class in which a creditor’s claims is placed. Secured
creditors naturally have a higher priority than common
(unsecured) creditors. Claims for expenses relating to the
administration of the debtor’s estate also have priority.
Distributions to common (unsecured) creditors are made on
a pro rata basis.
61. Principles of comity favor granting dismissal.
For all of the reasons discussed at length above in Section
VII, principles of comity favor dismissal of the instant action.
As I explained in detail in paragraphs 14 through 17 above,
a judgment of this Court may be enforced in Mexico. And,
if the situation were reversed — i.e. if the Mexico Court
were asked to uphold a stay imposed by a bankruptcy court
or other court in the United States — the Mexico Court would
resolve that question in favor of giving effect to the stay.
62. In view of the foregoing, I believe that dismissal of
the instant action will promote the economical and
expeditious administration of AHMSA’s estate.
690179.2
33a
Appendix
IX. CONCLUSION.
63. The Plaintiff's action, and the remedy it seeks of
various “self-help” measures such as attachment, constitutes
a serious threat to AHMSA’s other creditors and, therefore,
to the success of AHMSA’s suspension of payments
proceeding. Such measures are strictly forbidden by the
Mexican Bankruptcy Law; unless the instant action is
dismissed by this Court, this action will jeopardize the
orderly administration of AHMSA’s estate. As indicated in
paragraph 22 above, Plaintiff is wrongfully seeking to
circumvent the Mexican suspension of payments proceeding
and improperly elevate its position vis-4-vis AHMSA’s other
common (unsecured) creditors. Plaintiff herein seeks to
enhance its position at the expense of the vast majority of
AHMSA’s other creditors through the attachment mechanism
and to obtain a benefit that it simply is not entitled to as a
matter of Mexican law or (I believe, based on the Primoff
Declaration), for that matter, United States law. Furthermore,
unless dismissed, the instant action might result in the
dismemberment of AHMSA’s assets and foster inequitable
treatment of creditors with similar claims, whether such
creditors are located in the United States, Mexico or
elsewhere.
| declare under penalty of perjury under the laws of the United
States of America that the foregoing is true and correct.
Executed on this [22nd]th day of December, 1999.
Is! Jai escia Prienl
Jaime Garcia Priani
690179.2
34a
Appendix
EXHIBIT A TO PRIANI DECLARATION
APPENDIX 8
LAW OF BANKRUPTCY AND |
SUSPENSION OF PAYMENTS
(Part Five of the Code of Commerce)
Diario Oficial, 20 April, 1993
TITLE I
The Concept _ Declaration of Bankruptcy
Chapter I
Requirements for the Declaration
of Bankruptcy
ARTICLE 1. A merchant who ceases to pay his
obligations may be declared to be in a state of bankruptcy.
ARTICLE 2. It shall be presumed, except upon proof
to the contrary, that a merchant ceased making his payments
in the following cases and any others of an analogous nature:
I. General non-compliance with the payment of his
current and outstanding obligations;
II]. The non-existence or insufficiency of assets upon
which to levy execution of a lien due to non-compliance with
a debt or upon executing a judgment;
35a
Appendix
III. The concealment or absence of the merchant without
leaving someone at his business who could legally comply
with his obligations;
IV. Under the same circumstances as the preceding case,
the closing of the offices of his business;
V. An assignment for the benefit of creditors,
VI. Resorting to ruinous, fraudulent or fictitious means
to discharge or avoid discharging his obligations;
VII. Petitioning for a declaration of bankruptcy,
VIII. Petitioning for a suspension of payments, which
is denied, or, if it is granted, an agreement of creditors is not
reached; ;
IX. The non-compliance with obligations contracted for
in an agreement reached for a suspension of payments.
The presumptions alluded to in this article shall be
overcome by proof that the merchant can pay his current
and outstanding obligations with his available funds.
ARTICLE 3. Within the two-year period following the
death or the retirement of a merchant, he may be declared to
be in a state of bankruptcy when there is proof that he had
ceased paying his obligations before his death or retirement,
or in the year following either.
36a
Appendix
The estate of a merchant may be declared to be in
bankruptcy when the business of which the merchant was
the owner continues.
ARTICLE 4. The bankruptcy of a partnership also
causes the general partners to be considered bankrupt for all
purposes.
The respective liquidations shall be kept separate.
The bankruptcy of one or more partners does not by itself
cause the bankruptcy of the partnership.
Mercantile partnerships in liquidation and joint ventures
may be declared to be in a state of bankruptcy.
The bankruptcy of a joint venture shall cause the
bankruptcy of the general partners and of those against which
there is proof that, without any objective reason therefor,
they were designated as limited partners. Other than the
exceptions expressly indicated by this law, all provisions
concerning the bankruptcy of partnerships shall apply to joint
ventures.
37a
Appendix
Chapter II
The Declaration of Bankruptcy
FIRST SECTION
Initiation of the Declaration
ARTICLE 5. A declaration of bankruptcy may be made
by official act in the cases for which the law so provides, or
by written petition by the merchant, by one or more creditors
or by the Public Ministry.
ARTICLE 6. The merchant who intends to declare a state
of bankruptcy should present before the judge having
jurisdiction a petition signed by the merchant by his legal
representative or by his special attorney in fact, in which he
states the reasons for his situation and which is accompanied by:
a) The accounting books he was obligated to keep and
those which he voluntarily had adopted;
b) The balance sheet for his business,
c) A list which contains the names and addresses of his
creditors and debtors, the nature and amount of his pending
debts and obligations, the status of the losses and gains of
his business in the last five years;
d) A description of the value of all his movable and
non-movable property, securities-stocks, merchandise and
rights of any other kinds;
e) A complete valuation of his business.
38a
Appendix
When the number of creditors exceeds one thousand or
when it is impossible to determine the number of claims, it
shall be sufficient to list, with reference to the final balance
sheet of the situation, the approximate number of them, the
names and addresses of the known creditors and the total
amount of their claims.
ARTICLE 7. If the merchant is a company, the petition
should be signed by the persons who are empowered to sign
the firm name; in the cases of companies in liquidation, by
the liquidators, and in those cases of an estate, by the
executors.
ARTICLE 8. The petition of a company for a declaration
of bankruptcy should be accompanied by a copy of the
articles of incorporation or partnership agreement and by a
copy of its registration in the Public Commercial Register,
if they exist.
ARTICLE 9. The creditors and the Public Ministry,
when requesting a declaration of bankruptcy, shall
demonstrate-that the debtor falls within one of the categories
referred to in the previous chapter.
ARTICLE 10. If, during the course of a trial, the judge
becomes aware of a suspension of payments, he shall proceed
to make a declaration of bankruptcy, if he has jurisdiction to
do so, or he shall report it immediately to a judge with such
jurisdiction.
If he only has serious and well-founded doubts about
the situation of a suspension of payments, he shall notify
39a
Appendix
the creditors and the Public Ministry, so that they can request,
in the appropriate case, a declaration of bankruptcy within a
period of one month following the notification. In the
meantime, the judge shall adopt the measures authorized in
the second paragraph of the following article, which shall
cease, if in the period of one month the declaration of
bankruptcy is not sought.
ARTICLE 11. In all cases, the judge, in order to make
the declaration of bankruptcy, shall give to the debtor and
the Public Ministry within five days, notice of a hearing in
which evidence shall be brought forth and the corresponding
decision shall be rendered.
General partners shall be notified at the partnership
address.
The judge, according to his authority, shall adopt
provisional measures in the meantime which are necessary
for the protection of the interests of the creditors.
ARTICLE 12. Neither the debtor nor the creditors who
have petitioned for a declaration of bankruptcy may withdraw
their petition, even when all creditors agree.
SECOND SECTION
Jurisdiction of Bankruptcy
ARTICLE 13. The following have jurisdiction to hear
the bankruptcy of an individual merchant: the District Judge
or the Judge of the Trial Court of the place where the
40a
Appendix
merchant has his principal place of business, or, if there is
none, where he lives.
With regard to companies, jurisdiction shall be proper
in the place where the main office is located and if there is
none, in the place where it has its principal place of business.
Branches of foreign businesses may be declared
bankrupt, without consideration of any jurisdiction which
may pertain to foreign judges. This bankruptcy shall affect
assets located in the republic and creditors of the operations
carried out by the branch.
ARTICLE 14. Except for that set forth in the international
conventions and agreements, declarations of bankruptcy
abroad shall not be honored in the republic, except after
verification of the formal requirements of the same and
assuring that they have acknowledged the provisions of this
law in the declaration of bankruptcy.
The effects of the declaration of bankruptcy shall be
subject to this law.
Chapter III
The Judgment Declaring Bankruptcy and its
Publication, Opposition and Revocation
ARTICLE 15. The judgment in which a declaration of
bankruptcy is adjudicated shall contain:
I. The name of the trustee and of the auditor;
4la
Appendix
Il. The order to the bankrupt to present his balance sheet
and accounting books within twenty-four hours, if they were
not presented with the petition;
Ill. The order to secure and give possession to the trustee
of all assets and claims, the administration of which the
debtor is now deprived due to the judgment, as well as the
order to the post office and telegraph to deliver all
correspondence of the bankrupt to the trustee;
IV. The prohibition against making payments and
delivering assets or goods of any kind to the debtor, under
penalty of receiving payment secondary to the other creditors
in the case;
V. The notice to creditors to present their claims for
review within a period of forty-five days, beginning the day
after the final publication of the judgment,
VI. The order convening a meeting of creditors to
recognize, correct and classify all claims, which shall be done
within a period of forty-five days, beginning fifteen days
after the day on which the period set forth in the preceding
section ends, at the place and time fixed by the judge,
according to the circumstances in the case.
For good cause, the meeting may be held within a
maximum period of ninety days;
VII. The order to register the judgment in the Public
Register where the registration of the merchant is found, and,
in its absence, in the Public Register of the place of residence
42a
Appendix
of the judge having jurisdiction of the case and in the Public
Commercial Registers and Public Property Registers in the
places where assests [sic] or eStablishments of the debtor
are located;
VIII. The order issuing to the trustee, the bankrupt, the
intervenors or to any creditor who so requests, certified
copies of the judgment;
IX. The date on which the purposes of the bankruptcy
take effect.
Upon the declaration of bankruptcy of a partnership, the
judgment shall also indicate the names, surnames and
addresses of the partners referred to in Article 4.
Along with the date of the judgment, the hour on which
it was rendered shall be set forth.
ARTICLE 16. The judgment which declares the
bankruptcy shall be reported to the debtor, the Public
Ministry, the intervenors, the secured creditors, the privileged
creditors and the other creditors whose addresses are known,
either personally or by certified mail, return receipt requested,
or by official telegram before fifteen days pass from the day
on which the judgment was rendered.
During the same period the Public Registers, in which
the judgment shall be registered, shall be notified.
Within the same period an excerpt of the judgment shall
be published on three consecutive occasions in the Diario
43a
Appendix
Oficial of the Federation and in two newspapers of major
circulation in the place where the declaration of bankruptcy
was made, and, if it is necessary in the opinion of the judge,
in the locations where important establishments of the
business of the bankrupt were situated.
ARTICLE 17. The official in charge of giving the
notices shall insure that the notices, communications and
publications established in the previous article are made
without excuse or delay in the form and during the periods
set forth.
The same obligation shall rest on the trustee.
ARTICLE 18. Any violation of that set forth in the
previous article shall be punishable, when dealing with the
official in charge of giving the notices, by a fine up to two
hundred pesos and, in the case of a reoccurrence of the violation,
the suspension of employment for a period of one month. When
dealing with the trustee, it shall be punishable by his removal
and the loss of any fees that he may have earned.
The respective decision shall be appealable without
execution thereof being suspended.
One month after the declaration of bankruptcy, without
everything ordered in Article 16 having been complied with,
the parties, including the creditors not yet recognized, shall be
able to appear before the court of appeals, which, in a period or
seventy-two hours, shall issue the relevant instructions
omitted by the judge and shall submit the facts to the Public
Ministry for the purposes of the duties of such Ministry.
44a
Appendix
ARTICLE 19. Against a judgment which denies the
declaration of bankruptcy, exists the recourse of appeal for
all purposes. The appeal shall be brought without suspension
of execution of the judgment being carried out against the
person declaring bankruptcy.
ARTICLE 20. Once the evidence has been received, the
court of appeals, within two days, shall decide upon the
admissibility of the appeal according to that set forth in the
Code of Civil Procedure.
Also applicable shall be that set forth in the Code on
damages, and from these codes notice shall be given to the
other parties for a period common to them all. The periods
for declaring and answering damages shall be three days.
In the petitions for damages and the answers, the parties
should offer proof, specifying the points on which they should
argue, which shall never deviate from the debated issue.
Within the third day the court shall decide on the
admission of the proof, opening up an evidentiary period,
which shall not exceed fifteen days.
From the act of admission until the periods for arguing
the evidence have passed, a confession may be made. In case
of an implied confession the judge shall examine carefully
the presumption which is produced against the documents
and records of the proceedings.
ARTICLE 21. Once the damages are answered, if not
through the production of evidence, or once it has been
45a
Appendix
produced, there shall be a period of three days for the
appellant to argue, and another three days for the other parties
to argue. The passage of these periods shall suffice to place
the business on notice that the couct is ready to issue its
judgment.
The judgment which confirms or revokes the declaration
of bankruptcy shall be issued within the ten-day period
following the notice that the court is ready to announce
judgment.
ARTICLE 22. The previous provisions shall apply as
long as this law, without setting forth anything to the
contrary, allows for the appeal of a judicial decision.
ARTICLE 23. The judgment which denies a declaration
of bankruptcy shall be registered in the Public Registries in
which the declaration was registered and shall be
communicated, in order to cancel the registrations, to the
commercial and property registers in which the judgment of
the declaration of bankruptcy had been recorded.
The judgment denying the bankruptcy shall be
communicated and published just as the declaration of
bankruptcy is.
ARTICLE 24. Once the judgment declaring bankruptcy
is revoked, all things shall return to the state in which they
were before the declaration was made, having respect,
however, for the administrative acts legally carried out by
the organs of bankruptcy and the rights acquired during the
same period by good faith third parties.
46a
Appendix
| ARTICLE 25. If a revocation of the judgment of
declaration of bankruptcy is obtained, an action may be
brought against those that petitioned for it or against the judge
who officially declared it for compensation for the damages
suffered, if the former proceeded with malice, known
injustice or gross negligence.
TITLE Il
The Organs of Bankruptcy
Chapter I
The Bankruptcy Judge
ARTICLE 26. The following shall be powers of the
judge:
I. To authorize the acts of seizure of all assets and books,
documents and papers of the bankrupt concerning his
business, and to intervene personally in such acts, if he deems
it necessary;
: Il. To examine the aforementioned assets, books,
documents and papers of the bankrupt;
III. To order the measures necessary for the security and
preservation of the assets of the estate;
IV. To convene the meetings of the creditors prescribed
by law and those which he deems necessary and to preside
over them;
maniacal
47a
Appendix
V. To authorize the naming of the personnel or
professionals necessary in the interest of the bankruptcy, to
watch over their actions and to remove them for just cause;
VI. To resolve the claims that are presented against the
acts or omissions of the trustee;
VII. To authorize the trustee to:
a) Initiate lawsuits when the latter so requests and
intervene in all phases of their activity;
b) Settle or dismiss certain actions and, in general, carry
out all acts which exceed those which are purely acts of
ordinary preservation and administration of the estate;
VIII. To inspect the activities of the trustee, to assure
his compliance with the actions or the performance of useful
actions for the estate and to guard the good management
and administration of the assets of the same;
IX. To remove the trustee by means of an official
decision or upon the petition by an interested party;
X. To examine and verify the claims and to watch over
the preparation of the balance sheet to be presented at the
creditor’s meeting.
XI. In general, to do all things necessary for the
management, care and administration of the bankruptcy and
its operations.
48a
Appendix
ARTICLE 27. The decisions made by the judge, with
the exceptions provided by law, do not need to be
communicated personally to the parties, unless the judge
deems it necessary.
Chapter II
The Trustee
ARTICLE 28. The trustee shall be picked from one of
the institutions or persons who are indicated as follows,
according to the order of preference:
I. Credit institutions legally authorized to be trustees;
II. Chambers of Commerce and Industry;
III. Commercial companies and individuals duly
registered in the Commercial register.
ARTICLE 29. Credit institutions shall carry out
trusteeships in bankruptcies in the manner set forth for
fiduciary functions.
Chambers of Commerce and Industry shall carry out
trusteeships through one of the members of their board of
directors, or through the delegation of the duty, in each case,
to one of their members or attorneys, to whom they shall
give ample special powers and whom they may substitute at
their discretion.
az
49a
Appendix
Chambers of Commerce and Industry shall be responsible
for the actions of their agents, without this fact removing
the responsibility which the agents incur personally.
Mercantile companies shall carry out their duties through
one of their partners or directors who is authorized to use
the firm signature, or through that person to whom they have
granted ample special powers; however, they shall assume
responsibility for the actions of their representative.
ARTICLE 30. The following may not serve as trustees
nor act as the agents of the entities mentioned in Article 28:
I. Relatives within the fourth level of consanguinity or
second level of affinity to the bankrupt;
Il. Those who are relatives within said levels to the
members of the Board of Directors or managers of
corporations or limited liability companies in bankruptcy,
or to persons authorized to use the firm signature when
dealing with partnerships or limited partnerships;
III. Relatives within the levels referred to above of the
judge who is presiding over the bankruptcy;
IV. Intimate friends or known enemies, the attorney in
fact, the partners or persons who have interests in common
with the bankrupt or with the members of the companies
mentioned in Section II.
The incompatibility referred to in Section IV shall be
liberally interpreted by the judge.
50a
Appendix
ARTICLE 31. The following may not be included in
the lists of trustees:
I. Persons who do not have full exercise of their civil
and political rights;
II. Those who, having been declared to be in bankruptcy,
were not rehabilitated;
III. Persons who do not have an unimpeachably good
reputation.
ARTICLE 32. Whenever it is possible, the choice of a
trustee shall fall on an institution or merchant which resides
in the place where jurisdiction over the bankruptcy lies.
This circumstance shall allow a change, if the judge
deems it necessary, in the order of preference established in
Article 28.
When the choice of trustee falls on the commercial
entities or merchants referred to in Section III of Article 28,
preference shall be given to those which are dedicated to the
same activities as the bankrupt, or those which are the most
similar.
ARTICLE 33. In each trial court there shall be lists of
institutions and persons who may be designated as trustees.
These lists shall be made in the manner and under the
conditions listed as follows:
Sila
Appendix
I. The National Banking Commission shall insure that
every two years a list of the credit institutions which have
the necessary attributes to carry out the duties of trustee,
along with information about the branches and
establishments which they have in the nation, is made, printed
and delivered to all trial courts in the nation.
Any exclusions from this list shall be communicated
immediately to the corresponding courts;
II. The National Ministry of the Economy shall proceed
in the same manner to establish a list of the Chambers of
Commerce and Industry;
III. The civil trial judges and district judges shall
request, every two years, from the Chambers of Commerce
and Industry whose addresses are located within their
jurisdiction, a list of the mercantile companies and merchants
who are their members.
Said Chambers of Commerce and Industry shall be
undeniably obligated to supply said lists in the maximum
period of fifteen days, as well as to communicate twice a
year the additions and deletions to such list.
When there are several judges of equal position in the
same jurisdictional area, the request shall be made by the
least number, who shall be obligated to send copies of the
lists obtained to the others.
ARTICLE 34. For the reasons set forth in the judgment
of declaration of bankruptcy, judges may name as trustees
52a
Appendix
institutions or persons who are not included in the above-
mentioned lists.
Interested parties may appeal this decision and the
Superior Court shall decide if the reasons indicated by the
judge are justified.
ARTICLE 35. For the choice of trustee, the judges shall
designate one of the institutions included in the list of credit
institutions.
If none of these accept or are not suitable, he shall
designate one of the Chambers of Commerce and Industry
on the list.
If none of these is possible, he shall name, according to
alphabetical order, one of the commercial companies or
individuals in the respective list, taking into account what is
set forth in the last paragraph of Article 32.
ARTICLE 36. An individual merchant or company shall
not be named for a new trusteeship if it already has served
as trustee, unless none of those who can serve in the
corresponding category accept.
ARTICLE 37. In order to increase the brevity of the
procedure for naming the trustee, the judge can designate
separately and simultaneously as the trustee of a bankruptcy
several institutions or persons, indicating to all of them that
they are proposed trustees and the alphabetical order of
preference in which their acceptances shall be considered,
according to that set forth in the following articles.
53a
Appendix
ARTICLE 38. Within the twenty-four hour period
following the communication of his appointment, the trustee
designated shall inform the judge whether he shall accept
the duties.
ARTICLE 39. Acceptance is voluntary, but once made
it may not be relinquished except by a declaration of grave
supervening reasons, which shall be freely appraised by the
judge.
The only recourse against the decision of the judge is
responsibility.
ARTICLE 40. The denial of acceptance of the initial
designation obligates the judge to name a new trustee.
If circumstances justifying the denial are alleged and
the designate requests judgment on them, the judge shall
consider them and if he does not admit them he can confirm the
designate in his duties. All this must be done within two days.
ARTICLE 41. If, once the duties of trusteeship are
accepted, the appointed trustee fails to discharge his duties,
he shall be responsible for all damages caused by such failure
to the bankruptcy, and he shall incur a fine of fifty to five
hundred pesos.
ARTICLE 42. Within the twenty-four hours following
the communication of resignation, or of the existence of a
legal reason of incompatibility or incapacity, the judge shall
pass judgment on the alleged reasons and, where appropriate,
shall name a new trustee.
54a
Appendix
. ARTICLE 43. The judge shall order that the trustee,
within the fifteen days following his appointment, furnish a
substantial bond, in the judgment and under the responsibility
of the judge.
Credit institutions shall be regulated in these matters by
that set forth in their special laws. The expenses and
premiums paid for the creation and maintenance of the bond
shall be charged to the estate of the bankruptcy.
ARTICLE 44. The trustee shall be deemed an assistant
in the administration of justice.
ARTICLE 45. The trustee may not delegate his duties;
but for the purpose of carrying out the functions corresponding
to him in the order for the administration and liquidation of
the bankruptcy, without the consent of the court, he may use
agents and representatives, whose designation the judge may
acknowledge. The judge, by official act or upon the request
of the trustee, may order that such agents and representatives
carry out the demands for their compliance with the necessary
actions or operations.
ARTICLE 46. The rights and duties necessary for the
good preservation and ordinary administration of the assets
of the estate shall belong to the trustee, and among them are
the following:
I. Taking possession of the business and other assets of
the bankrupt;
II. Making an inventory of the business and other assets
of the bankrupt;
‘
. " ROT EY TILT TS EE BTR BE = Migtaa freAGs DMT Pf te fTh siNlos ape TRIKE PAAR Or ere ys cea ma
“se sg ai cet a a ec begat eat hy MPR ARR NAVE SCR RARER BO MIRCEA ARN MS SUMO CII RENT NORE MOAN a Been :
55a
Appendix
III. Making the balance sheet, if the bankrupt has not
presented it, and if he has, correcting it if necessary or looking
it over carefully;
IV. Receiving and examining the books, papers and
documents of the business and noting in the first pages of
each that he has reviewed them;
V. Depositing within seventy-two hours the money
collected in the company or from the sale of other seized
assets for credit, which the judge has indicated.
When the law does not set a period for compliance with
the obligations imposed upon the trustee, the judge shall set
a period within which they should be carried out.
Any delay in compliance with this, besides obligating
the trustee to pay the interest the estate should have received,
shall be cause for removal.
VI. Delivering to the judge, before the meeting of
creditors referred to in Section VI of Article 15 is held, a
detailed report, based upon the memory of the bankrupt if
he is present, about the causes of the bankruptcy, particular
circumstances about the functioning of the business, the state
of the books, the period to which the bankruptcy dates back,
personal and family expenses of the bankrupt, as well as
other information which he deems relevant;
VII. Establishing a provisional list of privileged creditors,
as well as of ordinary creditors who were presented;
56a
Appendix
VIII. Making the proposals of personnel necessary in
the interest of the bankruptcy;
IX. Taking care of the accounting of the bankruptcy,
with the requirements established in the Commercial Code.
ARTICLE 47. The trustee, if he is an attorney, may be
the legal employer in the bankruptcy.
ARTICLE 48. The following also pertain to the trustee:
I. Presenting to the creditor’s meeting proposals for
agreement, after receiving judicial approval;
Il. Exercising and following all the rights and actions
which pertain to the debtor, with regard to his assets, and to
the group of creditors against the debtor, against third parties
and against certain creditors of theirs;
III. Proposing to the judge the continuation of the
business of the bankrupt, its sale, or the sale of some of its
parts, or of other assets of the bankruptcy, under the
circumstances and with the effects which the law determines.
as well as all other extraordinary measures advised for the
good of the estate of the bankruptcy.
ARTICLE 49. Against any act or omission of the trustee,
the bankrupt, the intervenors, any creditor and the agent of
the Public Ministry may make a claim before the judge, who
shall resolve it within three days. Against this decision, there
is an appeal, without execution of the decision being
suspended.
57a
Appendix
ARTICLE 50. The trustee, every three months, shall
deliver accountings of his actions and a report on the state
of the bankruptcy. The report and accounting shall be shown
to the bankrupt and the intervenors for three days, and, ina
hearing held within the three following days, the judge shall
issue a decision, approving or disapproving the accountings.
Whenever the judge so decides, either by official act or
upon the petition of the intervenors, the bankrupt or the
trustee, an accounting shall be rendered and a report on the
state of the bankruptcy shall be presented within a period of
three days from the day on which the judge so decided.
The decision made which called for the accountings is
appealable without execution thereof being suspended.
The books and documents of the bankrupt shall always
remain with the business if it has continued with its activities.
ARTICLE 51. The intervenors have the duty to
communicate to the creditors the information relative to the
accountings and state of the bankruptcy, so that they may
use their rights relative to the decisions adopted.
ARTICLE 52. The appointment of the trustee may be
opposed by the bankrupt or by any creditor within the three
days following its publication.
The opposition, which shall be based upon legal
reasoning, shall be carried out as a trial.
58a
Appendix
ARTICLE 53. The trustee shall be removed immediately
if he fails to deliver the extraordinary or trimestria!
accounting, or to guarantee his conduct according to the terms
of the law.
He shall be removed on the request of a party, after a
trial, for improperly carrying out his duties or for doing one
of the improper actions referred to in this law.
In these same circumstances, the judge may remove him
by official act.
ARTICLE 54. The opposition to the appointment of the
trustee made by the bankrupt or by the creditors shall not
suspend the continuation of the bankruptcy, nor shall it
impede the trustee in the exercise of his functions.
The judge may, nevertheless, order the contrary, taking
into account that set forth in Section III of Article 26.
ARTICLE 55. The trustee who ceases to carry out his
duties shall not be free from responsibilities, nor shall he
have the right to receive his fees until a substitute has taken
possession and, upon receiving and reviewing his report, the
judge so decides.
ARTICLE 56. The trustee shall be responsible to the
estate for the damages caused in carrying out his functions
by not proceeding as a diligent merchant in the manner of a
proper business.
59a
Appendix
ARTICLE 57. The trustee shall receive as his sole fees:
I. Eight percent of the amount of the sales made for the
good preservation and ordinary administration of the assets
of the bankruptcy;
II. When the sales are made to liquidate the assets of
the estate:
a) Eight percent of the product of the sale of the same,
if this does not exceed twenty-five thousand pesos;
b) Four percent of the excess up to two hundred
thousand pesos;
c) Two percent of any excess amount;
III. When the business continues with its activities until
the liquidation of its existing activities, the fees shall accrue
according to the scale of the previous clause with an increase
of two percent;
iV. If the enterprise continues temporarily and then
proceeds to liquidation in the aforementioned ways, that set
forth in the previous clauses shall be taken into account;
V. If the business is sold as a whole, the percentage
shall be the same as that established in Section II on the
amount of the same, increased by two percent,
VI. If the bankruptcy concludes by agreement, the rules
set forth in the previous sections shall apply; but if the assets
60a
Appendix
return to the administration of the bankrupt, they shall be
considered sold only for purposes of this article.
Chapter III
The Intervenors
ARTICLE 58. In order to represent the interests of the
creditors in the vigilance of the actions of the trustee and of
the administration of the bankruptcy, one, three or five
intervenors shall be appointed, in the judgment of the judge,
according to the amount and importance of the bankruptcy,
who shall form the intervention in the same.
The necessary substitutes may also be named.
ARTICLE 59. The judge, in the judgment which declares
the bankruptcy, shall provisionally name the intervenors
until, in the creditors’ meeting, the final appointments are
made.
Only in cases where the judge does not know who the
creditors of the bankrupt are may he designate as intervenors
persons who do not fulfill the above-mentioned condition.
In this case, they shall proceed to the immediate
substitution of the provisional intervenor or intervenors who
are not creditors as soon as they have the necessary
information.
ARTICLE 60. The appointment of intervenors shall be
made by the meeting of the creditors in nominal voting.
6la
Appendix
If it is necessary to elect three intervenors, two shall be
elected by the votes which represent the majority of claims
present. The third intervenor shall be named by the creditors
present who do not form the majority.
The same shall be done if there are to be five intervenors,
but then the minority shall name two of them.
For these purposes, each creditor present shall be able
to vote only for two or three intervenors, according to whether
three or five intervenors are to be named.
In the same meeting in which the intervenors are
designated and in the same manner in which that is done,
substitutes may be named.
ARTICLE 61. Either by official act or upon the request
of any creditor or provisional intervenor, the judge may
convene a meeting of the creditors for the purpose of naming
the permanent intervenors.
ARTICLE 62. The intervenors shall carry out their
duties during the entire time in which the bankruptcy
continues, but they may be removed by the judge in the same
cases and circumstances as the trustee.
The meeting of creditors may remove all or some of the
intervenors, as long as they designate substitutes, if there
are none already.
The removal of the intervenors designated by the
minority, if it is not consented to by two-thirds of the
minority, signifies the removal of all intervenors.
62a
Appendix
In order for the creditors’ meeting to validly agree on
the removal, it is necessary that the majority of the creditors
representing the majority of the debt attend the meeting.
ARTICLE 63. The judge shall notify their designation
to the creditors elected as intervenors, who were not present
at the meeting in which they were named, through personal
notification and shall call a meeting of all of them which
shall be held within six days from the date on which they
were notified, in order to advise them of the necessary
measures to be taken in order to function as intervenors and
to Guly carry out the tasks with which they are confronted.
ARTICLE 64. All agreements of the intervenors shall
be made by an absolute majority of the votes of all the
intervenors.
ARTICLE 65. The creditors designated as intervenors
and their substitutes shall accept or reject their duties within
seventy-two hours of their notification of being named as
intervenors.
Acceptance of the duties of intervenor is voluntary, but
once accepted, it may not be abandoned, except for grave
cause, in the discretion of the judge, who shall pass judgment
on the reasons immediately and from which judgment there
shall be no other recourse than responsibility.
ARTICLE 66. If there are no substitutes, vacancies in
the intervenors’ positions shall be covered by the creditors
designated by the judge within twenty-four working hours
following the opening of a vacancy, unless the creditors use
their rights according to Article 60.
63a
Appendix
ARTICLE 67. The intervenors have all measures
available to them which are relevant in the interest of the
bankruptcy and of the rights of the creditors, among which
are the following:
I. Appealing the decisions of the judge and opposing
those of the trustee which they consider prejudicial to the
interests of the creditors or the rights granted to them by law;
II. Requesting the removal of the trustee and exercising
actions of responsibility against the judge;
III. Requesting the judge to order the appearance before
them of the bankrupt or the trustee so that they can inform
them about the activities of the bankruptcy. The iudge shall
do whatever is necessary to comply with their request, except
for just cause, of which he shal! inform them;
IV. Designating one or more intervenors to attend all
activities of the administration of the bankruptcy or of the
liquidation of those which are specifically set out,
V. Informing the judge of all acts of extraordinary
administration which he should authorize, and of all other
acts of administration which they deem necessary or which
the judge or trustee request;
VI. Requesting the judge to convene an extraordinary
meeting of the creditors;
VII. Informing, every two months, in writing, the other
creditors of the progress and state of the bankruptcy, and
64a
Appendix
when appropriate, of the decisions of the trustee or judge
which may affect their collective or individual interests;
VIII. Performing other duties which the law expressly
designates to them or which it gives, in general, to the
creditors.
ARTICLE 68. The intervenors shall designate one of
their members to meet with the judge or trustee and who
shall represent them in civil proceedings.
ARTICLE 69. The intervenors, in order to accurately
comply with their duties, shall have, together and
individually, the most ample freedom to examine the books,
correspondence and other papers of the bankruptcy.
ARTICLE 70. The intervenors shall have the right to a
fee, which shall be set by the judge, and which shall not be
given to them until the conclusion of the bankruptcy.
The decision of the judge shall be appealable.
ARTICLE 71. The intervenors shall be responsible to
the creditors under the same terms as those set for the
responsibility of the trustee to the estate.
ARTICLE 72. Ifthe intervenors group cannot be set up
even provisionally, because there is an insufficient number
of creditors, because they will not accept the duties designated
to them, because of their residence outside the jurisdiction
of the bankruptcy or because of other similar reasons, the
judge shall issue a decision expressing the reasons which
prevent the existence or functioning of the intervenors.
65a
Appendix
If at any later time it becomes possible to designate
intervenors or the continuation of their functions, the judge
shall do so by official act or at the request of any creditor,
the trustee or the bankrupt.
Chapter IV
The Creditors’ Meetings
ARTICLE 73. A meeting of the creditors shall be held
ordinarily in the cases provided for by the law and in the
special cases which are necessary.
ARTICLE 74. The meeting of creditors shall be
convened by the judge. The meeting shall be reported, by
personal notification, to the intervenors, the bankrupt and
the trustee.
The other creditors shall have legal notification through
the publication of the meeting according to this law.
ARTICLE 75. Any resolution which deals with matters
not included in the agenda shall be null, unless all those who
should have been notified are present and agree.
ARTICLE 76. Notices of meeting of creditors shall be
published in the same manner as that established for the
judgment of the declaration of bankruptcy.
ARTICLE 77. The creditors shall attend the meeting
themselves or by proxy, which may be done by a document
which is not a public document or by a telegram sent to the
judge, not subject to ratification.
66a
Appendix
In the latter case, the manager of the issuing office shall
certify the identity of the person who made the representation.
The proxy shall be stamped before the judge in the hearings.
The bankrupt may also be represented by proxy, unless
the judge has ordered his personal appearance.
Those who represent several creditors shall have as many
votes and as much voting power as the people they represent
would have had if they had attended the meeting.
The judge shall provide all necessary elements for the
proper functioning and order of the meetings of creditors.
ARTICLE 78. The meeting shall be convened no matter
how many creditors attend or how many claims are
represented.
ARTICLE 79. Each creditor shall have a vote, and,
except in cases where the law requires special majorities or
majorities of capital, the meeting may adopt agreements by
a simple majority of the creditors present.
Upon voting, each creditor shall recor .ne amount
which, for these purposes, has been recognized for him.
The assignees of divided claims shall only have between
them the vote which corresponds to the assignor, unless they
prove with authentic documents that the assignment and
division were done before the date to which the declaration
of bankruptcy is retroactive.
67a
Appendix
ARTICLE 80 Creditors whose demands for recognition
of their claims have been declared admissible by the trustee
and the intervenors may attend the meetings of creditors.
In the case of discrepancy, the judge must resolve it and
shall show the claim that is recognized to the creditor for his
participation in the meetings.
The judge may proceed in the same manner when he
deems it necessary without considering the reports of the
trustee and intervenors.
ARTICLE 81. If, on the day established for the meeting,
all items on the agenda cannot be handled, the meeting shall
be continued on the following working day.
The judge, before ending the session, shall indicate the
hour on which the meeting shall be continued.
~
ARTICLE 82. The judge, as chairman of the meeting,
shall provide for the drawing up of the minutes of the
meetings which shall be signed by the secretary, the trustee
and the intervenors.
_ ies,
68a
Appendix
TITLE Ill
The Effects of the Declaration of Bankruptcy
Chapter I
Effects on the Bankrupt
FIRST SECTION
Limitations on the Capacity and Exercise
of Personal Rights
ARTICLE 83. By the judgment declaring the bankruptcy,
the bankrupt is deprived of the right to the administration
and disposition of his assets and those assets he acquires,
until the bankruptcy is finalized.
ARTICLE 84. Although the judgment declaring
bankruptcy docs not limit the civil rights of the bankrupt,
except in the cases established by law, the bankrupt cannot
carry out any activities which require full possession of such
rights.
ARTICLE 85. The judge shall have the judgment
declaring bankruptcy communicated to the post office,
telegraph and other analogous offices. By virtue of this
notification, the directors of those offices shall assure that
the correspondence and communications directed to the
bankrupt are delivered to the trustee.
The trustee shall open such, in the presence of the
bankrupt or his agent, if he attends, returning to him
69a
Appendix
immediately all such correspondence and communications
which have no relation to the interests of the bankruptcy.
ARTICLE 86. The divulgence of the information so
acquired shall be cause for removal of the trustee, carried
out by a trial, without waiving the penalties which are
appropriate.
ARTICLE 87. The judgment declaring bankruptcy
produces all the civil and penal effects of bail for the
bankrupt, who cannot leave the place of the bankruptcy
without the judge authorizing it and without leaving an agent
sufficiently empowered to represent him.
The judge shall have to consult with the intervenors in
the case where he is considering granting permission to the
bankrupt to leave the jurisdiction.
Whenever it is required by the judge, the bankrupt shall
appear before him, the trustee, the intervenors or the
creditors’ meeting, except where, due to a legitimate conflict,
the judge authorizes him to appear through an agent or
attorney in fact.
ARTICLE 88. The general partners shall be subject to
the requirements established by this law for a bankrupt.
ARTICLE 89. In bankruptcies of corporations, these
shall be represented by those set forth in their bylaws and,
if they are not, by their administrators, managers or
liquidators, who shall be subject to all obligations imposed
by this law on a bankrupt.
70a
Appendix
In the absence of the above, the corporation shall be
represented by an agent of the Public Ministry.
ARTICLE 90. In the case where the merchant dies after
the declaration of bankruptcy or when his estate has declared
bankruptcy, the executors and the heirs shall have, in the
course and proceedings of the bankruptcy, the obligations
which correspond to the bankrupt, with the exception of when
they are bonded.
SECOND SECTION
The Penal Responsibility of the Bankrupt
ARTICLE 91. For legal purposes, there are three classes
of bankruptcy:
1. Accidental bankruptcies;
2. Culpable bankruptcies;
3. Fraudulent bankruptcies.
ARTICLE 92. An accidental bankruptcy is understood
to be where a merchant suffers misfortune, arising
accidentally in the regular and prudent activities of the good
administration of his business, which reduces the capital of
the business ic the extreme of having to cease making its
payments.
ARTICLE 93. A culpable bankruptcy shall be considered
to be where a merchant, by actions contrary to the requirements
Tia
Appendix
for good administration of his business, has caused,
augmented or worsened the state of cessation of payments,
such as:
I. Where domestic and personal expenses have been
excessive and disproportionate to the economic possibilities
of the business;
Il. Where there are disproportionate sums lost due to
gambling, bets and similar operations in stock or other
exchanges;
III]. Where there are losses as a result of purchases, sales
or other operations to delay the bankruptcy;
IV. Where, within the period to which the bankruptcy
is retroactive, there were sales with losses, for less than the
market price, of items bought on credit and on which money
was still owed;
V. Where the expenses of the business are much greater
than the accounts receivable, according to its capital, its
activity and other analogous circumstances.
ARTICLE 94. A culpable bankruptcy shall also be
considered to be, except in cases where they allege and prove
their innocence, where a merchant:
I. Has not maintained his accounting records for his
business according to the requirements of the code, or if he
has, there has been an error which has caused damages to a
third party;
72a
Appendix
II. Does not file his declaration of bankruptcy in the
three days following that established as the day of cessation
of payments;
Ill. Fails to present the documents required by this law
in the manner, circumstances and periods set forth.
ARTICLE 95. Those declared to be in bankruptcy who
are determined to be culpable shall be punished by one to
four years in prison.
ARTICLE 96. A fraudulent bankruptcy shall be considered
to be where a merchant:
I. Absconds with all or part of the assets, or fraudulently
commits, before the declaration but after the date to which
the bankruptcy is retroactive, acts or operations which
increase his liabilities or decrease his assets;
II. Does not keep accounting books, or alters, falsifies
or destroys them in order to make it impossible to
comprehend the true situation of the business;
III. Favors, after the date to which the bankruptcy is
retroactive, one creditor by making payments or granting
him guarantees or preferences to which he had no right.
ARTICLE 97. The bankruptcy of brokers shall be
deemed fraudulent when it is proven that they committed
some act or operation different from those of their profession
for their own account, either in their own name or that of
another, even when the reason for the bankruptcy is not a
result of these actions.
73a
Appendix
If the bankruptcy comes about due to the broker’s having
made a guarantee of the operations in which he was involved,
a fraudulent bankruptcy is presumed, except on proof to the
contrary.
ARTICLE 98. The bankruptcy of a merchant whose real
situation cannot be understood from his books, shall be
presumed fraudulent, except on proof to the contrary.
ARTICLE 99. Merchants declared to be in fraudulent
bankruptcy shall be punished by five to ten years in prison
and a fine, which may be as high as ten percent of the
liabilities.
The amount of these fines shall be paid from the assets
which remain after paying creditors or from those which the
bankrupt has or acquires after the conclusion of the
bankruptcy.
ARTICLE 100. An agreement reached in a suspension
of payments or a bankruptcy shall not prevent the
corresponding penalties from being applied according to the
judgment issued in the penal proceeding which would have
followed.
But, if the judgment declared the bankruptcy culpable,
execution shall be suspended against the debtor who entered
the agreement, unless he is later judicially declared to be in
noncompliance with his agreement.
ARTICLE 101. When the bankruptcy of a corporation
is classified as culpable, the responsibility shall fall on the
74a
Appendix
directors, administrators or liquidators of the same who are
responsible for the acts which so classify the bankruptcy.
ARTICLE 102. Guardians who perform the business for
minors or incompetents, in the cases set forth in civil
legislation, or the agents who substitute for them in the case
of their incapacity or incompatibility in the performance of
the business, shall be subject to the rules set forth in the
preceding articles for culpable or fraudulent bankruptcies.
ARTICLE 103. Those who aid or cooperate in any way,
by previous or later agreement, or who directly cause
someone to commit the crimes typified in this section, shall
be punished by the penalties set forth in Articles 95 and 99
hereinabove.
ARTICLE 104. Persons included in the cases set forth
in the previous article, without removing the penalties which
correspond to them, shall also be condemned:
1. To losing any right which they may have to the estate
of the bankruptcy;
II. To returning to the estate the assets, rights or actions,
the loss of which was determined to be their responsibility,
along with interest and damages.
ARTICLE 105. The spouse, consanguine ascendants or
relatives of the bankrupt, who, without his consent have
removed or hidden assets belonging to the bankruptcy, shall
not be deemed to be accomplices to the fraudulent
bankruptcy, but shall be considered guilty of robbery.
75a
Appendix
ARTICLE 106. Merchants and others acknowledged to
be guilty of either culpable or fraudulent bankruptcy may
also be condemned:
I. To not doing business during the time of the principal
punishment,
Il. To not performing any duties of administration or
representation of any kind for mercantile companies during
the same time.
ARTICLE 107. The person who by himself or through
another seeks the recognition of a false claim in the
bankruptcy or suspension of payments shall be considered
the perpetrator of the crime referred to in Article 389 of the
Penal Code.
ARTICLE 108. Trustees of bankruptcies shall be subjected
to the rules issued in Titles X and XI of the indicated
Penal Code.
ARTICLE 109. The previous provisions are applicable
to trustees in suspensions of payments, and to the people
referred to in Articles 29 and 45 of this law.
ARTICLE 110. The creditor who agrees, with the
bankrupt or another, for his own interests, to benefits in
exchange for voting in a certain way in any creditors’
meeting, shall be punished by imprisonment from three
months to three years and by a fine of five hundred to five
thousand pesos and by the loss of his claim for the benefit of
the estate.
76a
Appendix
The same penalties of prison and fine shall be imposed
on the bankrupt or the person who represented him.
ARTICLE 111. Action shall not be taken against the
crimes defined in this section without the competent judge
having declared the bankruptcy or suspension of payments.
ARTICLE 112. A culpable or fraudulent bankruptcy
shall be pursued upon the accusation of the Public Ministry.
ARTICLE 113. The classification of the bankruptcy
shall be made in the corresponding criminal trial, for which
the judge who makes the declaration of bankruptcy shall
notify such declaration to the Federal Public Ministry.
ARTICLE 114. In cases of culpable or fraudulent
bankruptcy, the responsible party may be detained, but the
civil judge may require the presence of the bankrupt before
him or before the organs of the bankruptcy, whenever be
deems it necessary.
Chapter Il
Effects on the Assets of the Bankrupt
ARTICLE 115. The bankrupt shall maintain the
disposition and administration of the following assets:
I. Rights which are strictly personal, such as those
related to his civil or political status, although they indirectly
have an effect on the estate;
77a
Appendix
II. Assets which legally constitute the estate of the
family;
III. The rights to assets of another which are not
transferable by their nature or for whose transfer the consent
of the owner is necessary;
IV. Earnings the bankrupt obtains after the declaration
of bankruptcy through personal activities;
The judge may limit the exclusion, taking into account
the necessities of the bankrupt and his family;
V. Food assistance, within the limits set by the judge,
in accord with that indicated in the previous clause.
VI. Those which are legally not attachable, with the
exceptions required by the universal character of the
proceedings of bankruptcy and with the limitations deemed
necessary by the judge.
ARTICLE 116. All acts of control or administration
done by the bankrupt regarding assets included within the
estate from the moment in which the judgment declaring
bankruptcy is issued are void as against creditors.
The declaration of nullity shall not proceed when the
estate gains from the prices obtained by the bankrupt.
ARTICLE 117. The judge, after seeing the report of the
trustee and of the intervenors, shall decide on the extension,
duration and quantity of the food assistance for the bankrupt
78a
Appendix
and his family. This decision may be appealed by
any interested party.
ARTICLE 118. The date to which the effects of the
bankruptcy should be retroactive, set out in the judgment,
may be modified by official act, according to the
circumstances of the records in the case and the
considerations of justice resulting from those records, or on
the petition of the trustee, the intervenors or any creditor,
whenever, respectively, the judgment is issued or the
demands are made before the day set forth for the recognition
of claims.
ARTICLE 119. The same notice given about the
judgment of the declaration shall be given about those which
modify the date of retroactivity.
ARTICLE 120. The provisionai decisions of the judge
regarding the date of retroactivity shall not be appealable.
ARTICLE 121. Within the twelve days following the
recognition of claims, the judge shall permanently fix the
date of retroactivity.
Chapter III
Effects Regarding the Judicial Proceeding
ARTICLE 122. The actions taken and suits pursued by
the bankrupt and those taken and pursued against him, which
have anything to do with the estate, shall be continued by
the trustee or with him, with the intervention of the bankrupt,
in the cases in which the law or the judge so disposes.
79a
Appendix
ARTICLE 123. All suits exclusively dealing with goods
or rights whose administration and disposition are maintained
by the bankrupt are excepted from the above.
ARTICLE 124. The bankrupt may also intervene in
other suits, if they affect goods or rights included in the
previous article.
ARTICLE 125. The bankrupt may intervene in all cases
as a third party assisting the bankruptcy.
ARTICLE 126. All pending suits against the bankrupt
shall be tried jointly with the bankruptcy proceedings, except
the following and without interference with that set forth in
Article 122 and the powers given to the trustee to sell all
assets:
I. Those in which the judgment has already been
declared in the trial court;
II. Those dealing with secured claims or collateral.
ARTICLE 127. In both cases, when there is a writ of
execution, they will be joined with the bankruptcy for
purposes of classification and payment.
80a
Appendix
Chapter IV
Effects On Pre-existing Legal Relationships
FIRST SECTION
Obligations in General
ARTICLE 128. From the moment of the declaration of
bankruptcy:
I. For purposes of the bankruptcy all current obligations
of the bankrupt shall mature.
If payment of debts which do not draw interest is made
before the time set, a discount shall be made for interest at
the legal rate for the time remaining from the moment of
payment to that on which the claim should have matured;
II. The debts of the bankrupt shall cease accruing interest
against the estate.
Secured claims are excepted up to the amount of the
respective guarantee;
III. The claims of bondholders of corporations shall be
calculated by the value of the issuance, with deduction made
for any amount paid as redemption or refund;
IV. The debts of the bankrupt may not be legally offset,
even by an agreement of the parties.
8la
Appendix
The following are excepted:
a) The debts of the estate which are related to the claims
of the bankrupt.
The offset shall not proceed when the claim against the
estate or against the bankrupt was acquired by assignment,
gift or other analogous way, after the date on which the
effects of the bankruptcy arose;
b) The debts produced by a contract which is a current
account;
c) Special partners, stockholders of corporations and
partners in joint ventures which at the same time are creditors
of the bankruptcy, of the corporation or of the joint venture,
do not form part of the liabilities of the estate, except for the
resulting difference owed to them after considering the
amounts they were required to contribute as partners or
stockholders.
V. Claims which are suspended shall be demandable
against the bankruptcy.
The amounts which should be received from these claims
shall be deposited in the credit institution designated by the
judge, until, once the condition has passed, they are paid to
the creditors.
If, before the condition has been met, the bankruptcy is
concluded, the amounts should be paid to the debtor, if a
full payment is made, or they shall be distributed among the
other creditors.
82a
Appendix
ARTICLE 129. Claims subject to defeasance are
considered unconditional.
ARTICLE 130. The creditor of a life annuity shall have
the right to be given a life annuity in an insurance company
which is equal or proportional, according to the reduction
suffered in capital which was necessary at the moment of
the declaration of bankruptcy to make the dividend.
ARTICLE 131. The guarantor or the bankrupt may not
be obligated to make any payment until the obligation
matures under the conditions agreed on and he shall preserve
all the rights against the bankruptcy that civil legislation
grants to him.
ARTICLE 132. In order to exercise the rights
corresponding to obligations or the bankrupt which are not
pecuniary or which have an undetermined or uncertain value,
it is necessary to value them in terms of money.
ARTICLE 133. The amount of the claims for periodic
loans or continuous loans shall be determined through the
amount of the established payments, and to each one of those
paymenrits that so set forth, discounts for early payments shall
apply.
ARTICLE 134. Ifthe special partners, the stockholders
or the limited partners have not delivered at the time of the
declaration of bankruptcy the total amounts that they were
obligated to contribute to the company, the trustee shall have
the right to demand the installment payments which are
necessary within the respective limit of responsibility.
83a
Appendix
SECOND SECTION
Individual Liability
ARTICLE 135. If several or some or the debtors of an
obligation owed jointly are declared in bankruptcy, the
creditor has the right to receive from each estate the amount
which corresponds to his claim until the debt is paid in full.
If the total amount of the payments received by the
creditor from several debtors who are liable jointly for the
debt exceeds the amount of the claim, the difference shall
be returned to each estate in proportion to the amount which
had been paid. If the bankrupt parties made guarantees to
pay in a certain order, the amount in excess shall be paid to
the last of the guarantors and the others who had overpaid,
successively, before him, until the total is repaid.
ARTICLE 136. The bankruptcy or bankruptcies of
individual debtors who are jointly liable to a common creditor
have the right to require from the others the payment of their
corresponding portion of the debt.
ARTICLE 137. Partial payment of an obligation before
a declaration of bankruptcy limits the amount of the claim
against the estate.
The debtor who paid may register in the bankruptcy of
his co-debtor the amount of the payment made, but the
portion that corresponds to him shall be delivered to the
creditor, if he requests it, if the whole payment had not been
made, up to the amount necessary to pay it.
84a
Appendix
ARTICLE 138. The amount which corresponds in the
bankruptcy to a co-debtor or guarantor of the bankrupt shall
remain a credit in favor of the creditor until the acceptance
of his claim if said amount was secured by assets of the
bankruptcy in guarantee of such claim.
THIRD SECTION
Pending Bilateral Contracts
ARTICLE 139. Bilateral contracts which are pending
execution either totally or partially may be carried out by
the trustee, upon authorization of the judge and a hearing
with the intervenors. |
Ls
Anyone having contracted with the bankrupt may
demand that the trustee declare whether he is going to affirm
or rescind the contract even before the terms of the contract
require compliance.
The contracting party not in bankruptcy may delay
execution of the contract until the trustee complies or
guarantees compliance with the contract.
ARTICLE 140. Ifthe business of the bankrupt is continued,
all contracts related thereto must be complied with.
ARTICLE 141. Contracts of deposit, to open credit,
commissions, and the like are rescinded by the bankruptcy
of one of the parties, unless the trustee, upon authorization
by the judge and a hearing with the intervenors, assumes the
obligation, in agreement with the other contracting party.
85a
Appendix
That set forth in the Commercial Code regarding powers
conferred to agents is not hereby disturbed.
ARTICLE 142. A declaration of bankruptcy suspends
the activities of the active accounts, which shall be liquidated
in order to exact or cover their balance in the manner and
way which so corresponds.
ARTICLE 143. The bankruptcy shall not affect
contracts made regarding assets or affecting those whose
administration and disposition is maintained by the bankrupt,
anc, in general, contracts which are strictly personal and do
not affect the assets of the estate.
ARTICLE 144. If the bankruptcy had purchased
personai or real property from a party who had not yet
delivered it, the seller cannot be required to deliver it unless
the price therefor is paid or guaranteed to be paid to the
satisfaction of the seller.
If the delivery had been made only due to a promise of
sale, the seller may recover the item, as well as when the
contract of sale was not written as a public document, when
this is a legal requirement.
ARTICLE 145. If the seller of real property declares
bankruptcy, the buyer has the right to demand the delivery
thereof, after paying the price therefor, if the sale was
perfected.
ARTICLE 146. The seller of personal property, which
has not been paid for and which is en route for delivery to
86a
Appendix
the buyer in his storehouse or in the place agreed upon, may,
if the buyer declares bankruptcy:
I. Change the payment according to legally allowed
terms;
II. Detain the goods, although he does not have the
necessary documents to change the payment. The opposition
to delivery shall be substantiated in a hearing between the
seller, buyer and the trustee.
ARTICLE 147. If, according to that set forth in this law,
they decide to perform the contract, and the price has been
set to be paid in installments, the seller may require a deposit.
The trustee may pay the price all at one time, obtaining
a discount for immediate payment, expressed or implied in
the contract, and lacking that, according to the market.
Lacking both, the discount may be that set forth for early
payment.
ARTICLE 148. When sales involve deliveries and some
deliveries have already been made without being paid for,
the trustee shall be obligated to pay for them, which shall be
a requirement in order for the compliance set forth in Articles
147 and 162.
ARTICLE 149. In spite of the bankruptcy of the seller
of personal property, the buyer may demand compliance with
the contract if the property had been specified before the
declaration of bankruptcy.
87a
Appendix
ARTICLE 150. In contracts for borrowing securities,
the bankruptcy of the party borrowing the securities
authorizes the trustee, at the maturity of the contract, to
deliver the securities and demand the price. If this is not
done, the party lending the securities may register in the
estate the amount of the securities prior to the payment of
the price agreed upon.
If the bankrupt is the party lending the securities, the
trustee could pay the price and receive the securities. If that
is not done, the party borrowing the securities could deliver
the securities and register in the bankruptcy the price which
corresponds.
ARTICLE 151. The trustee shall comply with contracts
for futures which mature after the declaration of bankruptcy,
through the recognition of or demand for the claim which
results according to the terms of the same.
The difference shall be liquidated according to the value
of the things or securities on the day of the agreed maturation.
ARTICLE 152. The bankruptcy of a partner of a general
partnership, of a limited liability company or of a limited
partnership or joint stock company, gives the right to the
trustee to request his contribution and the corresponding
profits therefrom, according to the last balance sheet of the
entity, or to continue with the entity, if the judge so
authorizes, after a hearing with the intervenors, as long as
the other partners or shareholders do not prefer to exercise
the right of partial dissolution of the entity, unless the
partnership agreement or incorporation papers provide for
a different solution.
sili =
es, OO pa
88a
Appendix
ARTICLE 153. The bankruptcy of the lessor does not
rescind the lease, except upon agreement to the contrary, for
real property.
The bankruptcy of the lessee authorizes the trustee to
rescind the contract, after paying a fair indemnification in
the appropriate case, which shall be set by the judge if the
parties cannot reach an agreement therefor, after a hearing
with the trustee, the intevenors and the lessor.
ARTICLE 154. Contracts for the rendition of services
and for labor, of a strictly personal type, which are to the
benefit of the bankrupt or which he is charged with
performing, are not rescinded.
Those that are necessary for the continuation of the
business or for the administration or liquidation of the
bankruptcy may be continued by the trustee.
ARTICLE 155. A contract for work at a fixed price shall
be rescinded by the bankruptcy of one of the parties, unless
the trustee, with the consent of the other contracting party
and after judicial authorization, agrees to comply with the
contract.
ARTICLE 156. The bankruptcy of the insured does
not rescind the insurance contract if the object insured is
real property, but if it is personal property, the insurer may
rescind it.
If the trustee of the bankruptcy docs not notify the insurer
of the declaration of bankruptcy within thirty days thereafter,
the insurance contract shall be rescinded from that date.
89a
Appendix
In life insurance or mixed insurance, the trustee of the
bankruptcy of the insured may give up the insurance policy
or obtain a reduction in the amount of insurance in proportion
to the premiums already paid according to the calculations
considered by the insurer in making the contract and taking
into account the risks incurred by the insurer. At the same
time, they can make any other arrangement which would be
of economic benefit to the estate.
That set forth in the last paragraph is applicable to
contracts for investments.
ARTICLE 157. The bankruptcy of the insurance
company rescinds the insurance contract, if in the maximum
time of one month from the declaration, the trustee, with the
authorization of the judge and after a hearing with the
intervenors, does not insure the insured risks with another
company or does not guarantee that the business will continue
functioning.
FOURTH SECTION
Removal from the Bankruptcy
ARTICLE 158. Goods, securities or any kinds of assets
which are part of the estate of the bankrupt and which are
identifiable, whose ownership was not transferred to the
bankrupt by a definite and irrevocable legal title, may be
removed by their legal owners, by the exercise of the
corresponding action before the judge of the bankruptcy.
If there is no opposition to the request for removal, the
judge may grant, with no further proceedings, the removal
90a
Appendix
requested. If there is opposition, the dispute shall be resolved
through trial proceedings.
The decisions issued by the judge, whether cr not through
litigation, shall be appealable, without execution of the
decisions being suspended, by any interested party.
The trustee shall exercise the rights and shall comply
with the obligations which the bankrupt has over these assets.
ARTICLE 159. As a result, assets which are found in
the following situations or others of an analogous nature,
may be removed from the estate:
I. Those which may be claimed according to law;
II. Real property sold to the bankrupt but not paid for
by him, when the sale was not duly registered;
III. Personal property bought for cash if the bankrupt
has not paid the total price at the time of the declaration of
bankruptcy;
IV. Real or personal property purchased on credit if they
had agreed upon rescission based on non-compliance and if
there is documentation of that in the corresponding public
registers;
V. Securities issued or endorsed to the bankrupt as
payment for sales made for the account of another, as long
as there is proof that the obligations arise from them and the
item is not recorded as a current account between the
bankrupt and his constituent;
9la
Appendix
VI. Assets which the bankrupt should return because
they are under his control for one of the following reasons:
a) Deposit, administration, lease, rental, usufruct, irust
or consignment based upon appraisal contracts, if in this case
the bankruptcy was declared before the manifestation by the
buyer that he is going to take back these items, or if the
period set forth for doing so has not passed;
b) Commission for purchase, sa
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.