Bankruptcy recovery of preferred and fraudulent money transfers in Mexico

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Creditors can fraudulently transfer their debtors through an action for revocation, also known as a actio pauliana. This is not the same when the debtor is bankrupt. There is non-bankruptcy actio pauliana and bankruptcy actio pauliana. The former regulates the civil code, the latter the bankruptcy law. Creditors from non-bankruptcy actio pauliana have fewer rights and benefits than those who go bankrupt actio pauliana.

Only the creditors, creditors’ representatives and insolvency administrators are entitled to bring fraudulent transfer suits – not the debtor or own debtor.

1. Withdrawal Period / Retroactive Date

The bankruptcy decision includes the retrospective date, that is the two hundred and seventy calendar day prior to the decision date, which is doubled for subordinate creditors. However, through an auxiliary procedure, the retroactive date can be postponed further, but not more than three years. The limitation of the withdrawal of the bankruptcy judgment corresponds to the need for legal certainty with regard to past transactions. The period from the date of the judgment to the date of its withdrawal is known as the suspicion period.

2. Actions committed prior to the withdrawal period

For actions committed before the repayment deadline, the rules of the non-bankruptcy procedure apply actio pauliana apply. The petitioner does not have access to the legal presumptions provided by the Bankruptcy Act for acts committed within the repayment period and must therefore prove that the debtor and the third party knowingly defrauded the debtor’s creditors. This requirement is not required for actions that are free of charge. A contract is onerous, in which mutual benefits and burdens are agreed, and free of charge if the benefit only applies to one of the parties.

3. Actions committed within the subscription period

Some acts committed within the subscription period are subject to conclusive legal presumptions while others are subject to rebuttable legal presumptions.

3.1. Fraudulent promotions per se

The following acts committed within the repayment period are fraudulent per se and cannot be refuted unless the estate takes advantage of them or the third parties have returned what they received from the debtor.

a. Free acts. Irrespective of whether they were committed outside or within the relation-back period, unprovoked acts are fraudulent per se.

b. Funding with asymmetrical value. Acts and sales in which the debtor compensates a substantially higher value or a substantially lower value than his counterparty.

c. Means of transport that ignore market conditions. Transactions of the debtor for which terms or conditions have been agreed which differ significantly from those prevailing in the market in which they were executed on the day of their execution or the commercial uses or practices.

d. Debt forgiveness. Debt acquittals are baseless acts.

e. Payments for commitments that have not expired. Such payments are considered early payments.

f. discounts. The debtor’s deduction of a cash discount from his securities within the retroactive date is considered to be an early payment.

3.2. Fraudulent promotions unless in good faith is proven

The following acts committed within the Relation-Back period are fraudulent unless the third party proves good faith:

I. Granting guarantees or increasing the current guarantees if the original obligation did not include this guarantee or increase.

ii. The payment of material debts if it deviates from the originally agreed or if the agreed compensation is in cash (payment /datio in solutum).

a. When the debtor is a natural person. In the case of individual debtors, the following acts that were committed within the subscription period are considered fraudulent, unless the third party can demonstrate good faith:

ai Those who are executed with his spouse, concubine, blood relatives up to the fourth degree or up to the second degree if the relationship is by marriage, as well as relatives by civil kinship.

a.ii. Those that are executed with legal entities where the above persons or the debtor himself are directors or members of the board of directors; or jointly or separately, directly or indirectly, have voting rights in respect of more than fifty percent of the capital, have decision-making powers in their meetings, can appoint a majority of the members of the administrative body, or are otherwise authorized to make fundamental decisions on the legal person to meet.

b. When the debtor is a legal person. In the case of legal entities, the following acts committed within the withdrawal period are fraudulent unless the third party can demonstrate good faith:

bi Those who are executed with the administrator, the members of the board of directors or the competent employees of the debtor or the legal persons referred to in Article 117, paragraph IV, pursuant to Article 270 bis of the Bankruptcy Act or with the spouse, female or male concubines, blood relatives up to the fourth Degree, or up to the second degree, if the relationship exists through marriage, as well as relatives through civil relatives of the above-mentioned persons.

b.ii. Those who are enforced with those persons who, jointly or separately, directly or indirectly, have voting rights in relation to more than fifty percent of the debtor’s capital or those referred to in Article 117 (IV) of the Bankruptcy Law, who have decision-making power in their meetings, may have the majority appoint or be in any way empowered to make the fundamental decisions of the debtor.

b.iii. Those that run with the legal entities where the directors, directors or relevant directors coincide with those of the debtor.

b.iv. Those that are executed with legal entities that are directly or indirectly controlled by, have control over, or are controlled by the same company that controls the debtor.

For more information on bankruptcy law in Mexico, my work “Bankruptcy Law in Mexico” is available at https://works.bepress.com/francisco-rodrigueznepote/4/where it can be downloaded for free. You will also find a full translation of the legal text there.

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