With the new administration of President Andrés Manuel Lopez Obrador, Mexico is currently facing numerous political and economic changes. These changes will have a direct impact on business activities in Mexico including the manufacturing industry. From a legal perspective, we have identified some "hot topics" that should be taken into consideration by foreign companies doing business in Mexico, particularly in the manufacturing sector.
Piercing of Corporate Veil
Mexican law and Courts have always respected the corporate veil, which separates the legal personality of an entity or company from its shareholders. This means that foreign investors doing business in Mexico through Mexican subsidiaries have traditionally been protected from liability for the Mexican subsidiary's debts or obligations. Although the piercing of the corporate veil in certain cases is something that is commonly seen in other jurisdictions, until recently Mexican Courts had been reluctant to rule in favor of plaintiffs seeking to hold shareholders of Mexican companies personally liable. On August 2013, an Appeals Court ruled in favor of a plaintiff and determined that the shareholders were liable with respect to the obligations of a Mexican company. This case resulted in the issuance of 11 legal precedents that can at any time become mandatory case law. Foreign investors should review their corporate structures to make sure that they are properly protected from potential liabilities arising from their Mexican subsidiaries. At least two issues should be reviewed by counsel to help prevent the piercing of the corporate veil. First, the financial independence of the Mexican subsidiary, which can be achieved by proper funding and capitalization; and second, any overlaps in membership on the Board of Directors of the Mexican subsidiary and its parent company.
Personal Injury Cases (Punitive Damages)
Recent guidance from courts in Mexico has included new criteria that departs from their traditional (more than 100 years) approach of denying consequential and punitive damages and the practice of limiting or minimizing indemnification in personal injury cases. The current Chairman of the Mexican Supreme Court of Justice was the Justice who has issued these new criteria (prior to his current position). Investors should review their current structures to make sure they are properly protected against these new Court precedents. Insurance policies and employment agreements...