Mexico
1. Are freezing orders (or their equivalent referred to below) available in civil legal proceedings in this jurisdiction and what is their effect?
Yes – both domestic and international. These orders are called embargos, which means the attachment or seizure of property. The effect of the orders is that the respondent is prohibited from dealing or disposing with the assets referred to in the freezing order until further order of the Court.
2. Are other interim orders commonly made in conjunction with a freezing (or equivalent) order?
Yes. In Mexico, the applicant may also request an order:
(i) prohibiting the respondent from leaving the jurisdiction; and
(ii) to secure specific records or documents relevant to the underlying litigation.
3. Briefly what is the relevant legal test?
The applicant must show that it has reason to believe that the respondent may hide or dispose of its property, in order to avoid compliance with a judgment. The applicant is also required to:
(i) evidence the existence of a debt which is due to be paid by the respondent to the applicant;
(ii) indicate the value of that debt;
(iii) identify the respondent’s assets to be frozen; and
(iv) present a guarantee for damages, in the event that damage is caused to the respondent (either because the underlying claim is not filed within three business days following the date upon which the freezing order is executed, or the respondent successfully defends the underlying claim).
4. Briefly what is the process for obtaining a freezing (or equivalent) order?
The applicant makes an application to the Court setting out the reasons for the petition and the basis on which the relevant test is met. If the application is made before the underlying claim is brought against the respondent, then the respondent will not be notified until the order is executed (otherwise, the respondent is notified of the application).
In both scenarios, the respondent:
(i) is legally entitled to appeal the order; and
(ii) may deposit the value of the claim with the Court or present a counter-guarantee for the order to be discharged.
The National Procedural Code in Civil and Family Matters, which was published on June 7, 2023 and which will become effective by no later than April 1, 2027, will divide the procedure for granting a freezing order into two stages, namely:
(a) the provisional stage with the petition of applicant as to the need for the order, without summoning the respondent, and if the order is granted, it will be in effect until the definitive decision on the order in passed; and
(b) final decision which will be passed after hearing the respondent. Should the freezing order be executed before the underlying claim is filed, the term for applicant to do so is of fifteen days (rather than three days).
5. Does the applicant have to provide any form of security or commit to compensation if its claim is ultimately unsuccessful and any freezing (or equivalent) order granted causes loss and damage to the respondent?
Yes.
6. Can it be sought against third parties?
No. Freezing orders can only be issued against defendants to an underlying claim. However, financial institutions and debtors of the respondents can be ordered to hold any assets owned by the respondent, at the Court’s disposal. In the event that property belonging to third parties is included within the scope of a freezing order, those third parties can seek for their property to be excluded. In theory, a freezing order applies to any third party, whether domiciled in Mexico or abroad, provided it receives formal notice of the order. However, compliance depends on the law of the Courts in which the third party is domiciled.
7. What assets are covered by a freezing (or equivalent) order?
Any assets owned by the respondent can be the subject of a freezing order, whether located within the jurisdiction of the Mexican Courts (a domestic freezing order) or abroad (an international freezing order). There is an exception in relation to certain property which cannot be the subject of a freezing order, such as: the homestead (within certain limits), non-luxury clothing and house furnishings.
8. Can a freezing (or equivalent) order be made in support of substantive proceedings abroad?
Yes.
9. Can a freezing (or equivalent) order be made in support of arbitration proceedings or awards?
Yes.
10. At what stage of proceedings can a freezing (or equivalent) order be sought?
A freezing order can be sought at any stage. However, where the application is made pre-action, the applicant must file the underlying claim within three business days from the date upon which the freezing order was executed. A freezing order can also be issued following judgment to assist with enforcement.
11. Are there typically any exceptions to the general prohibition on the respondent’s use of assets subject to a freezing (or equivalent) order?
The use by the respondent of those frozen assets which are in its possession is subject to the supervision of the Court, whether those assets are to be used in the ordinary course of business/to generate income, or as living expenses.
12. What happens after a freezing (or equivalent) order is granted?
The Court will notify third parties (such as banks and debtors) who hold assets owned by the respondent of the freezing order. The freezing order must also be recorded in the Public Registry of Property.
13. Who pays the costs of the application for a freezing (or equivalent) order?
The applicant must pay the costs of obtaining the freezing order.
14. What protections are there typically in a freezing (or equivalent) order for third parties to such orders?
Yes, for example:
(i) a third party does not need to enquire as to monies withdrawn by the respondent if the withdrawal is permitted by the freezing order. However, if the withdrawal is clearly prohibited, then the third party must formally request the Court’s authorization. In any event, the third party’s records have to be kept in a manner that allows it to evidence the relevant transactions;
(ii) unless the order states otherwise, applicants are required to pay the reasonable costs incurred by any third party in complying with the order.
Third parties who are unsecured creditors of the respondent (including financial institutions) cannot exercise rights of set-off after they have been notified of the freezing order.
15. What are the consequences of breach of a freezing (or equivalent) order?
A respondent who disobeys a freezing order may be held in contempt of Court and may be imprisoned, fined or have its assets seized. A third party will be in contempt of Court if it aids or permits a respondent to breach the terms of the order and will be obligated to deliver to the Court any amounts, or restitute those assets, which were improperly disposed.
16. Does a third party notified of (but not a party to) a freezing (or equivalent) order owe a duty of care to the applicant (meaning it can be liable to the applicant for non-compliance)?
Yes.
17. Can a freezing (or equivalent) order be enforced abroad?
Yes, Mexican law recognizes the importance of international judicial cooperation, and Mexican Courts can request the assistance of foreign competent authorities based on international treaties signed by Mexico or, in the alternative, according to the principle of reciprocity. However, actual enforcement of a freezing order will depend on local laws.
18. Can freezing (or equivalent) orders from overseas jurisdictions be enforced in this jurisdiction?
Yes, provided that the order is granted as a security in the underlying claim, and that the underlying claim is not an action against property located in Mexico. In addition:
(i) the requesting authority must follow the relevant international convention(s), or in the alternative, Mexican law; and
(ii) the order must not contravene Mexican public policy principles.
Contacts
Hector Calatayud Of Counsel Basham, Ringe y Correa, S.C. Mexico City, Mexico calatayud@basham.com.mx www.basham.com.mx Alejandro Catala Guerrero Partner Basham, Ringe y Correa, S.C. Mexico City, Mexico acatala@basham.com.mx www.basham.com.mx Carlos Martinez-Betanzos Partner Basham, Ringe y Correa, S.C. Mexico City, Mexico cmartinez@basham.com.mx www.basham.com.mx
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