The Presidency of the Republic published this April 1, 2020, through a decree published in the Federal Official Gazette, ordering to  extinguish all public trusts that lack of organic structure and mandates as well as other acting as responsible units or representatives.

 The instruction is addressed to Offices and Entities of the Federal Public Administration, the Office of the Presidency of the Republic, as well as the Agrarian Courts.

 According to public information, as of December 30, 2019, there were  304 trusts, 27 mandates and seven analogues  that concentrated an approximated amount of $37 Billion Dlls. and various federal agencies are responsible for said instruments.

 For example, the Ministry of Health is in charge of the Trust System for Social Protection in Health, which as of December 2019 had  $50 Billion, or the Ministry of Finance  , responsible for the Entity Stabilization Fund for Entities Federal, which in the last month of the previous year had $79 Billion.

 The Presidency also requested that the executors of spending not later than April 15 of this fiscal year deliver to the Treasury of the Federation all the federal public resources that such trusts have, and they will not be able to exercise or commit their resources as of the entry into force of said decree.

The following are excluded from the decree:

•  Instruments whose extinction or termination requires constitutional or legal amendments;
•  Legal instruments that serve as public debt mechanisms or that have the purpose of attending to health emergencies or complying with labor or pension obligations.

These instruments that were created for all types of government activity had the characteristic that the resources were not part of a sub-exercise if they were not used in a fiscal year; that is, they were assigned to the trust for the fulfillment of specific purposes related to the governmental function and that as a general rule their exercise was subject to operating rules.  On this regard, the Head Officer of the Ministry of the Public Service pointed out that these instruments over the years concentrated  resources without verification from the Congress  of the Union or the Superior Audit of the Federation, even without reporting interests to the federal government.

 One of the main questions is related to the discretionary execution of the resources of these instruments, that will be concentrated in the Treasury of the Federation derived from the extinction of these trusts, since they do not need to be considered in the Expenditure Budget authorized for this Fiscal Year, they may be used at the discretion of the Ministry of Finance and Public Credit (SHCP).

It is important to bear in mind that in terms of  article 74, section IV of the Political Constitution of the United Mexican States  , the Chamber of Deputies is empowered to authorize the Federation's Expenditure Budget; as well as also that as a general rule, pursuant to article 18 of the Federal Budget and Fiscal Responsibility Law, any proposal to increase or create expenses in the Expenditure Budget project must be added to the corresponding income initiative other than financing or offset by reductions in other expenditure forecasts, without any payment that is not included in the Expenditure Budget or determined by later law.

 However, article 19 of the same precept establishes the exception for those cases of surplus income authorized by the Income Law or surpluses of own income of entities.

 The Ministry of Tax and Public Credit will decide the exceptions of extinction, together with the Ministry of the Public Service, upon duly justified and justified request presented by the head of the executing agency to the head of the Ministry of Tax and Public Credit, the decree indicates.

In the event that the Treasury does not authorize them within a period not exceeding 10 business days, they will be considered as refused.

Some final thoughts:

1. Through the trusts, the Settlor (in this case the federal government) transmits the ownership or title of goods or rights to the trustee, from which time the ownership of said goods or rights becomes the property of the trustee to be used exclusively by the purposes for which the trust was established, which must be related to priority and strategic areas of development.

2. The Federal Budget and Fiscal Responsibility Law establishes the obligation of the agency or entity in charge of which the budget has been granted, to present reports of income, expenses and financial returns, so it could be that the problem is not the trust as an auxiliary instrument of the public administration, but the mechanisms used by the government itself for its control. 

3. Article 392 of the General Law on Securities and Credit Operations indicates the grounds under which the termination of a trust may operate, all cases in which the determination of the Settlor is not enough, but, as the Trustee is the holder of the assets or rights of the Trust, must agree to its termination, that is, we are not facing the possibility of a unilateral act by the federal trustor authorities.

4. To proceed to the extinction of the trusts previously it will be necessary to guarantee the resolution of the obligations assumed by the trust vis-à-vis third parties, since otherwise said obligations must be assumed by the trustee.

5. Another aspect to consider for each trust, as part of the grounds for extinction contemplated by the Law in question, is to verify whether the trustor reserved the right to revoke it.

For more information, please contact our team specialized in Public Governmental Affairs.

 Alma Hinojosa. Socia.

alma@vila.com.mx

Víctor Vila. Socio.

victor@vila.com.mx