On April 2, 2020, the federal government of Mexico published in the Federal Official Gazette, a decree ordering the early termination of public trust agreements (the “Decree”)1, to gather resources to fund the government’s measures to reactivate the economy and tackle the COVID-19 crisis. The Decree is a brief, but consequential, instruction made by the President in seven short articles, which orders the termination of certain public trusts, with some notable exceptions including the Mexican Petroleum Fund for Stabilization and Development. As a result, funds in such public trusts are now under the control of the federal government.
Pursuant to Mexican Law, trusts are agreements where a party (trustor) transfers certain assets to a trustee for purposes of performing specific acts in favor of the appointed beneficiary, creating an independent state from that of the trustor. Trusts are considered public if they are incorporated by the federal or local governments (executive, judicial or legislative branches) or if they are funded with public funds.
The executive branch of the federal government may incorporate parastatal trusts to assist in the promotion of strategic areas for development (“Parastatal Trusts”). Parastatal Trusts have an organic structure similar to other governmental entities, with technical committees and are incorporated by the Ministry of Finance and Public Credit as the sole trustor.2 There are also two other types of public trusts (i) those without an organic structure, incorporated only to pursue specific economic or financial purposes (“Non-Parastatal Trusts”) and (ii) private trusts managing public funds (only if the public funds represent more than 50% of the trust estate)3 (“Mixed Trusts”, together with Non-Parastatal Trusts, the “Relevant Trusts”).
The Decree only addresses the Relevant Trusts (excluding Parastatal Trusts) incorporated by the executive branch of the federal government, the president’s office or the agrarian courts. The Decree excludes: (i) trusts incorporated by law or Congressional decree, and which termination would require a legal or constitutional amendment; (ii) trusts incorporated as vehicles to hold public debt4, attend health emergencies, serve as pension funds or to comply with labor obligations; and (iii) trusts expressly exempted by the Ministry of Finance in consultation with the Ministry of Public Service.5 This Decree is a fast implementation of the Federal Law of Republican Austerity6, which already provided in its 8th provisional article that by August 6, 2020 the Ministry of Finance should have evaluated the feasibility and relevance of the then existing trusts, for purposes of considering such results in the preparation of the next federal budget.
The Decree further provides that the rights and obligations assumed by the Relevant Trusts shall be assumed by the government agencies originally in charge of funding the early-terminated trusts. The assignment of rights and obligations will be subject to the budgetary restrictions of the government agencies originally in charge of funding.
Before the publication of the Decree, there were more than three-hundred Relevant Trusts. It was expected that by April 15, 2020 the government (through the public treasury) should have received approximately MXN$250 million. However, as of the date of this publication, the exact amount collected by the Ministry of Finance is still not confirmed.
The Public Administration Trusts have usually fallen short in terms of compliance and transparency. However, by terminating such trusts, the problem has not been fully addressed as the applicable rules to the use of the amounts collected from the termination of the Relevant Trusts were not included in the Decree. It is important to mention that the Mexican Petroleum Fund for Stabilization and Development, which collects all payments under the oil and gas exploration and production contracts executed as a result of Mexico’s Energy Reform, remains valid and in force.
1 Decree which instructs the extinction or termination of the public trusts, public mandates and similar (Decreto por el que se ordena la extinción o terminación de los fideicomisos públicos, mandatos públicos y análogos).
4 The Decree seems to exclude those trusts incorporated in connection with a public private partnership; however, the Ministry of Finance may address this shortfall of the Decree through specific exemptions.