Bill to Permit the Piercing of the Corporate Veil of Legal Entities in Mexico

We cannot overlook the impact of Enron and Worldcom as two of the biggest cases of corporate corruption. The United States and other countries are enacting statutory and regulatory changes to deter abuses in the securities markets and in other sectors. Mexico is not an exception. The Master Release (“Circular Única”) recently issued by Mexico National Banking and Securities Commission is an example of this type of efforts in Mexico which, among other matters, establishes the new disclosure requirements on listed companies. Another example of this aggressive anti-abuse attitude is proposal for the enactment of the “Piercing of the Corporate Veil of Legal Entities Act” introduced in the Mexican Senate by a group of congressmen in November 2002.

This bill seeks to avoid the abusive use of the corporate veil of legal entities in the event of acts of fraud against the law or infringement upon the rights of creditors, by providing plaintiffs a remedy to hold controlling members of a legal entity personally liable, that is to make interest-holders in legal entities responsible for the actions of the entities. If this bill is passed, judges could pierce the corporate veil of legal entities, making interest-holders, shareholders, members or other individuals with dominant influence in an entity responsible for such entity’s civil liability. In a nut-shell the draft statute provides recourse against the personal assets of shareholders and members of legal entities for the wrongful acts their limited liability companies.

Under the bill the remedy to pierce the veil of limited liability is not only available for civil partnerships or merchant companies or corporations but also for social interest entities and, in some events, in certain state-owned companies.

There is no question about the bill’s justified purpose; however, if approved as proposed, it would trigger the review and re-definition of corporate, labor and tax structures which, although legally implemented under current law, could be jeopardized through implementation of this bill. Fortunately, the recently introduced bill is in the initial stage of the legislative process. Therefore, this is the time to evaluate its impact on your operations and, if convenient, perform active lobbying efforts or implement the appropriate measures.

We will be glad to keep you informed on the developments of this bill. If you need additional information regarding this bill, other proposals or about the Master Release (“Circular Unica”) issued by the National Banking and Securities Commission, please contact:

Monterrey:

Ernesto Silvas Medina
esm@sanchezdevanny.com

Ed. Torre Alta, Ave. Roble 300,Desp. 1201
Col. Valle del Campestre
Garza García, N.L.,
México, 66220

Tel.: 52.81.8153.3906
Fax: 52.81.8153.3901

Mexico City:

Carlos Cornejo Jurgensen
ccj@sanchezdevanny.com

World Trade Center Mexico City
Montecito 38 piso 10 Of. 16
Col. Nápoles, 03810,
Cd. de México, D.F.

Tel.: 52.55.5488.2668
Fax: 52.55.5488.2667