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This article analyzes the process of separating assets in a guarantee trust when the settlor faces insolvency, focusing on a judicial decision in the Amparo Directo 188/2021 case. The author argues the ruling contradicts legal principles and undermines asset separation validity.
In Mexico, the trust has emerged as an indispensable legal tool, playing a pivotal role in reshaping the nation’s financial terrain and enhancing access to financing. This transformation is in large part a response to the ripple effects of globalization, which has reconfigured the global market economy, especially within the financial and capital markets sectors. Such shifts have fostered capital movement across borders, leading to the normalization of financing patterns.
Consequently, a plethora of methods for obtaining credit and investment has emerged, each tailored to the unique requirements of creditors and debtors.
This ebb and flow of financing supply and demand is largely dictated by the risk and profitability associated with the assets in play. A pivotal aspect to consider here is the “country risk,” which bears directly on profitability. This risk is intertwined with the solidity of a nation’s legal framework and its institutional integrity.
In this global backdrop, legal constructs that aid investors in mitigating debtor insolvency risks have gained significant traction. The trust serves as a testament to this trend. Operating on the “bankruptcy remoteness” principle, this mechanism aims to segregate a debtor’s assets, ensuring their accessibility during insolvency and shielding them from potential claims by other creditors.
Employing trusts in credit transactions brings forth benefits such as risk dispersion and optimized asset management. Furthermore, they bolster investor confidence by guaranteeing investment safety, thereby ushering in attractive financial terms and heightened operational structure flexibility. Cumulatively, this tactic not only safeguards investors but also propels credit accessibility and invigorates the broader economy.
In the quest to lure investments, numerous countries are striving to create a legally certain structure, preserving financial stability, and implementing regulatory reforms. By integrating itself into global financial markets to augment capital inflow, Mexico has underscored its dedication to bolstering legal security and buttressing commercial and financial entities. This dedication is epitomized by the financial reform of 2014. Yet, it is imperative to emphasize that the consistent and precise interpretation and enforcement of laws are foundational to the efficacy of such endeavors.
Judicial missteps can profoundly reverberate within both financial and legal spheres. The ruling by the Second Collegiate Court in Civil Matters of the Seventh Circuit is illustrative of this. This ruling has sparked discussions on the validity of the trust’s property separation actions concerning assets related to the bankruptcy estate. A parallel can be drawn to the judgment passed by the Third Collegiate Court in Civil Matters of the First Circuit on May 28, 2015. While that decision explores the trust’s legal implications and the protection it affords in financial and business endeavors, its nuances will not be addressed here. The emphasis of the resolution moves away from property separation, instead probing the implications of the insolvency declaration (Concurso) and the use of interim measures (medidas cautelares) within the Concurso process– topics that fall outside the scope of this paper.
Therefore, this article focuses on the decision rendered by the Second Collegiate Court in Civil Matters of the Seventh Circuit (hereinafter, the Court) concerning the direct amparo trial 188/2021.1 It is important to note that although this verdict is not binding (as it does not form jurisprudencia), it presents several deficiencies that have the potential to undermine Mexico’s financial structures. Such vulnerabilities could, in turn, erode investor confidence and elevate credit costs in Mexico by increasing default risks and intensifying the expense of securing credit.
In Mexico, the trust has emerged as an indispensable legal tool, playing a pivotal role in reshaping the nation’s financial terrain and enhancing access to financing. This transformation is in large part a response to the ripple effects of globalization, which has reconfigured the global market economy, especially within the financial and capital markets sectors. Such shifts have fostered capital movement across borders, leading to the normalization of financing patterns.
Consequently, a plethora of methods for obtaining credit and investment has emerged, each tailored to the unique requirements of creditors and debtors.
This ebb and flow of financing supply and demand is largely dictated by the risk and profitability associated with the assets in play. A pivotal aspect to consider here is the “country risk,” which bears directly on profitability. This risk is intertwined with the solidity of a nation’s legal framework and its institutional integrity.
In this global backdrop, legal constructs that aid investors in mitigating debtor insolvency risks have gained significant traction. The trust serves as a testament to this trend. Operating on the “bankruptcy remoteness” principle, this mechanism aims to segregate a debtor’s assets, ensuring their accessibility during insolvency and shielding them from potential claims by other creditors.
Employing trusts in credit transactions brings forth benefits such as risk dispersion and optimized asset management. Furthermore, they bolster investor confidence by guaranteeing investment safety, thereby ushering in attractive financial terms and heightened operational structure flexibility. Cumulatively, this tactic not only safeguards investors but also propels credit accessibility and invigorates the broader economy.
In the quest to lure investments, numerous countries are striving to create a legally certain structure, preserving financial stability, and implementing regulatory reforms. By integrating itself into global financial markets to augment capital inflow, Mexico has underscored its dedication to bolstering legal security and buttressing commercial and financial entities. This dedication is epitomized by the financial reform of 2014. Yet, it is imperative to emphasize that the consistent and precise interpretation and enforcement of laws are foundational to the efficacy of such endeavors.
Judicial missteps can profoundly reverberate within both financial and legal spheres. The ruling by the Second Collegiate Court in Civil Matters of the Seventh Circuit is illustrative of this. This ruling has sparked discussions on the validity of the trust’s property separation actions concerning assets related to the bankruptcy estate. A parallel can be drawn to the judgment passed by the Third Collegiate Court in Civil Matters of the First Circuit on May 28, 2015. While that decision explores the trust’s legal implications and the protection it affords in financial and business endeavors, its nuances will not be addressed here. The emphasis of the resolution moves away from property separation, instead probing the implications of the insolvency declaration (Concurso) and the use of interim measures (medidas cautelares) within the Concurso process– topics that fall outside the scope of this paper.
Therefore, this article focuses on the decision rendered by the Second Collegiate Court in Civil Matters of the Seventh Circuit (hereinafter, the Court) concerning the direct amparo trial 188/2021.1 It is important to note that although this verdict is not binding (as it does not form jurisprudencia), it presents several deficiencies that have the potential to undermine Mexico’s financial structures. Such vulnerabilities could, in turn, erode investor confidence and elevate credit costs in Mexico by increasing default risks and intensifying the expense of securing credit.
