# Opposition Brief — Ecoban Finance Ltd. v. Grupo Acerero del Norte, S. A. de C. V. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386010_1093%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 2001 - **Citation:** 534 U.S. 814 ## 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 duti [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386010_1093%3A2. Public record. Not legal advice.