By: Luis Gerardo Ramírez Villela
In accordance with the Federal Civil Code (the “Civil Code”), in the event that any company acts as a joint and several obligor with respect to the fulfillment of the obligations of a debtor, said obligation will become enforceable against the debtor and the obligor upon the occurrence of an event of breach. In such a case, the affected third party may demand compliance with the obligations contracted with the debtor or with his joint and several obligor, and said obligations will be fulfilled at all times by any of them.
You should consider that the Commercial Bankruptcy Law does not establish any limitation for third parties to request the guarantors (including, among others, guarantees, joint and several obligors, guarantors, etc.) the payment or execution of the obligations guaranteed by them. For this reason, when the commercial bankruptcy is declared, the guarantors will be obliged to comply with their guarantees; provided that, then, the rights and obligations of said third party will be subrogated to collect the corresponding payment from the debtor.
For such purposes and as an example, in the event that any Mexican company issues a promissory note in favor of a third party, the foreign holding company that signs said promissory note as guarantor (“guarantee”), when the corresponding Mexican company declares bankruptcy, Said promissory note would be payable and, therefore, the third party would have the right to request full payment from the foreign holding company.
Notwithstanding the foregoing, the exposure of the guarantee would be limited to the amount guaranteed in accordance with the terms and conditions established in the respective contract/document.
It is important to mention that, in accordance with the Commercial Bankruptcy Law, at the time of the declaration of bankruptcy, the debtor will suspend the payment of all amounts owed prior to the declaration of bankruptcy (except for those payments necessary to continue with its bankruptcy operations). day-to-day business). There is no provision in the Commercial Bankruptcy Law that limits the payment obligations of the guarantors by virtue of any obligation guaranteed as a result of the commercial bankruptcy of the principal debtor.
Potential exposure from triangular netting provisions
The Civil Code provides that the compensation will proceed as long as the debtors and creditors become debtors and creditors among themselves and will only proceed to the extent that the debt is an amount of money or any other thing of the same quality and quantity. Likewise, the compensation will operate when both debts are payable and payable or when the parties agree for such compensation.
Although there are no provisions applicable to triangular netting provisions under Mexican law, we believe that the netting provisions would be enforceable against the foreign holding company or other subsidiaries or affiliates depending on the validity of the underlying agreements entered into by the Mexican companies with Your clients.
