Distressed Companies with Assets in Mexico Should Partner with those who Can Provide Local Knowledge and Service Breadth

Steve Katz  

Hi, everybody, and thanks for taking time out of your busy schedule to listen in on our Hilco global smarter perspective podcasts. As return listeners know by now I’m your host, Steve Katz. And if this is your first time with us, well, then welcome. We’re glad that you can tune in. Today we’re joined by Samuel Suchowiecky CEO Hilco global Mexico in the first of our two part series, which is focused on complexities and challenges of managing the affairs of distressed businesses that have locations within the borders of Mexico. So Samuel, thanks for joining us, again, as we dive into this first topic, which is focused on the intricacies of a liquidation conducted in Mexico. And I know it’s going to be very helpful for those who are listening in who are either with businesses in house, or in an advisory capacity, or in a lending capacity actively involved in the Mexican market. So Thanks for Thanks for joining us today.

Samuel Suchowiecky  

And thanks for having me on, Steve. I appreciate the your time and your audience’s time.

Steve Katz  

Yeah, great. It’s always it’s always great to have you on talk about the market. You know, it’s a little bit different for a lot of a lot of our listeners who are either just entering the Mexican market companies that are kind of thinking about that, or those who are actively there and have sort of arrived at a point where they have some issues they have to deal with. So let’s kind of dive into it. Tell us and we’ve talked about this to some degree before. But let’s just recap a little bit what’s so complex about conducting business in specific liquidation in Mexico and and how does it affect how you know how companies need to act and differ from ways that companies lenders and advisors may be used to proceeding in the US or elsewhere?

Samuel Suchowiecky  

Sure, well, first of all, I guess every jurisdiction, as we all know, is a little bit different. And even though the bankruptcy and liquidation law and rules in Mexico have been established for a long time, and they are similar in many respects, to what you may find in the books in other jurisdictions, such as the US, in the end, how you bring these, how you operate within the legal system requires really a lot of know how that requires knowing the details as to how things work in Mexico, and how to get things done in Mexico, the right way. And simply speaking, there’s a lot of nuances and a lot of details in terms of how do you how do you accomplish these things effectively in Mexico?

Steve Katz  

And so when you think about that, I know, you know, we talked a little bit before the podcast that there was a specific case of specific work with a client that you thought maybe could help illustrate.

Samuel Suchowiecky  

Yes, I believe, I mean, the best way to kind of dive into this is with a with a case study, and understanding, you know, some of what we’ve done in the past. And in this case, the client was service automotive, which is a company that was based in Toronto, Canada, and they entered the Mexican market around 2015 2016 and inaugurated a fairly impressive new facility in the state of Colorado, Mexico, in 2017, Certus invested well over $20 million in that facility. They, like many companies started with, you know, a robust hiring strategy that brought about 350 employees to the high tech automotive plant, they made a significant impact in the in the community as well. But by 2022, the plant was really shuttered and the assets were starting to be auctioned off.

Steve Katz  

So obviously, things started off with quite a bit of promise and, or the otherwise they wouldn’t have entered the market. And something obviously occurred, what happened to derail service and how was he able to help?

Samuel Suchowiecky  

Well, you know, in the sense, it is a little bit counterintuitive, because as you all know, now, we have been in Mexico enjoying the effects of what I call, you know, what is known as nearshoring, which is a, you know, a real existing trend for companies to establish Mexico as part of their supply chain as an alternative, particular to China or other jurisdictions. And that is happening for for many, many reasons, including the legal framework that exists in Mexico, that is a lot more transparent and favorable than what you may find in other jurisdictions. never the case in the case of service. They were simply the victim of of bad timing. Unfortunately for them, they went over budget and their investment, first of all, second, they were hit within a short time after commencing operations with the complexities of COVID. And that, in and of itself was sufficient to really derail their project they had incurred in some significant debt. And that led them then to declare bankruptcy in Canada. And by June 2021, Deloitte restructuring was named as the receiver in the bankruptcy and commenced what would end up being a lengthy and complicated wind down process that included potentially the sale of assets. We were involved in the transaction from the beginning. At first, Deloitte, I plan to auction off the assets. And we participated in the first auction, I think our price came in, you know, basically in second place. But fortunately for us, our competitor who had the winning bid, after two months of trying to work with Certus, Deloitte, and locally in deciding corretto, basically withdrew their their their bid and left both Certus and Deloitte with a bigger problem, because now time had elapsed, they had wasted valuable time. And they then needed to make, you know, a new decision in terms of how to get that done. Right, I think. Go ahead.

Steve Katz  

Yeah. So So then, obviously, it sounds like Deloitte ultimately chose Hilco to replace that first firm, and then your team was able to step in. And so how were you able to succeed where they weren’t? What’s the special magic sauce there?

Samuel Suchowiecky  

Well, in the end, the magic sauce is that we play as locals in Mexico, we do not have a foreign offices, we did not send expats, we have a team of over 100 people, qualified team members who have been in different aspects of the Mexico business community for many, many more years. And that allows us then to act as a as a local adviser with local manpower, and also understanding the issues that they were facing. So what what started out as a sale of assets really quickly turned into a different type of situation, where we very quickly understood that the bank had run out of time, they needed to take actions quicker to, as they say, wrap up their their position in this matter, we were able, because of our financial strength, to offer the bank to buy the debt of the company. And we’ve worked with the principles of service and other stakeholders to then start working out the rest of the transaction to eventually conclude a successful sale of assets.

Steve Katz  

So I’m sure there was quite a bit more on the complexity side of that I know, you know, part of what you guys were able to bring was this ability to organize a dual location asset sale, maybe you can talk a little bit about that.

Samuel Suchowiecky  

Sure. Now, now, I want to just go back and mention something, as I said, the company went into bankruptcy in Canada, not in Mexico. So that in itself is a jurisdictional issue. That creates a lot of interesting questions, because the company in Mexico was not under bankruptcy protection, and was not in the liquidating the formula liquidation procedure. So, you know, we were working with the receiver, you know, with the limitations that up that that receiver in another jurisdiction had in Mexico, in dealing with Mexican assets and assets. So by the time we we purchased the debt, the first thing was, how do we then take title to the assets, we were able to do that really in an amazing you know, one day event, so we literally bought the debt on one day. And by the end of the second day, we had taken title to the assets. You can only do that, even in the most advanced jurisdictions, even you know, really, with a lot of knowledge and a lot of know how in terms of how to get things done. We then worked, as I said, with the different stakeholders, including in this case, the landlord, the landlord had a particular interest in interest as both a creditor but also an interested party because their main concern was getting the building back as best as they could, so that they can and really could release it. And given the amount of demand that was in the market, that was a priority for them. And we were able to work with the lenders with the principles with the other stakeholders, such as the landlord, to really put everyone on the same page in terms of how to work out an adequate exit plan, we then worked with our resources, as Hilco global to organize a dual jurisdiction auction, this has now become part of our practice, really. And we now frequently do auctions where we are have a US or for international audience, at the same time that you have a Mexican audience competing for the same assets. This is actually very important, because the requirements of each buyer may be different. Mexican tax law is quite complicated. And in particular, it’s very detailed in invoice requirements. So a Mexican buyer will require specific things in their invoicing in their in their methodology, that foreign buyers may not be important. Broadening the market in this way allowed us to sell the assets, really all over the world, we delivered assets, you know, to buyers, that were in Asia, in the Middle East, in the US, in South America, and also in Mexico.

Steve Katz  

Yeah. Incredible, incredible. So that really, and that knowledge is something that you as a company have been able to develop the expertise for over time because of your focus in in the Mexican market and then working as part of a broader organization that operates around the world, I would assume?

Samuel Suchowiecky  

Absolutely, absolutely. The strength of having the, you know, Hilco global, you know, as as, as part of you know, or being part of the Hilco global organization, rather, is tremendous, you know, not only I mentioned, the financial strength that was key in this circumstance, but the operating partners that we could reach, you know, the marketing that we did, you know, in the end, the brand of the Hilco brand made a big difference in terms of creating value for the different stakeholders.

Steve Katz  

Yeah, so it sounds like really the, the, you know, if you had to sort of boil it down, the ability to find a firm that has, you know, those knowledge and, and that type type of resources available, is the is the difference, because that’s what it sounds like, that’s where Deloitte got in. I don’t want to say over its head, but you know, in trouble early, and how you ended up coming in, and I’m sure it’s it was your reputation that allowed you to be able to step in, and then the knowledge and the knowledge and experience that allowed you to succeed there. So anything else about the engagement that stands out in terms of what made it so successful?

Samuel Suchowiecky  

Well, what I would say, I think you’re right in your your assessment, I think our our position was made, it made a big difference in this particular engagement. In this case, from the moment we bought the debt to the last to the our exit from the building with with a successful sale of all the assets, it took exactly six months, which is an incredible short period of time, considering we’re dealing with dual jurisdictions and different stakeholders, as I’ve described, in essence, what what the Mexican what our know how and our personnel and the presence in Mexico allows us to do is to act confidently where others may not have the knowledge to actually perform or to act decisively and confidently in a complicated engagement such as this.

Steve Katz  

Yeah, and, and speed. Speed to the ultimate goal is key in all of these types of engagements. i Now, listen, I’ll tell you, Sammy, I love talking in specifics and using these real world examples to illustrate what the right partner can bring to the mix. And why it’s so important to choose correctly from the start. So as not to lose time as as the client did hear him initially. Alright, well, we are unfortunately, we’re running short on time. And we’re going to we’re going to do a second podcast on a complementary topic to this one. So audience make sure you tune in for that. And Sammy was great speaking with you again today. Really appreciate you joining us. How can how can people reach if they have questions about situations their companies or their clients might be facing right now in the Mexican market?

Samuel Suchowiecky  

Well, thank you, Steve. It’s always a pleasure to be with you and they can reach me directly with my email, Sam’s sams@hilcoglobal.mx Or they can reach me in my office phone number + 5255 59 80 82 20. And there’s always somebody to answer in that phone.

Steve Katz  

All right, perfect. Thanks again and listeners. As always, we hope that this smarter perspective podcast provided you with at least one key takeaway that you can put to good use in your business or share with a colleague or client to help make them that much more successful moving forward. And one final thing as I mentioned, there will be a second podcast focused on another aspect of doing business in the Mexican market coming soon. So tune in to that one. I can promise it will feature more great insights from Sammy, as you heard today from his experience playbook, so please keep an eye out for that in the coming weeks at Hilcoglobal.com forward slash smarter dash perspectives, or on your favorite podcast platform until then, for Hilco Global, I’m Steve Katz.