Law Nr 24522 (as amended, “Argentine Bankruptcy Law” or “ABL”) provides the general regime for reorganisations and bankruptcy proceedings. The main formal procedures available for companies in financial distress are the reorganisation proceeding (“concurso preventivo”), the bankruptcy proceeding (quiebra) and an out-of-court restructuring (“APE” or “Acuerdo Preventivo Extrajudicial”).
The concurso preventivo is a voluntary insolvency proceeding by which the debtor attempts to continue its activities by restructuring its obligations. The goals of this proceeding are to permit the reorganisation of a debtor’s business in order to avoid liquidation, to develop a plan for the payment of creditors’ claims and allow the continuation of activities as a viable entity. The proceeding has certain similarities to the U.S. chapter 11 proceeding. Certain entities are not eligible to be subject to the concurso preventivo (e.g., financial entities, insurance companies, among others).
The other formal procedure is bankruptcy or quiebra, which is an Argentine statutory proceeding, performed under court control and supervision, seeking to liquidate the bankrupt company’s assets and distribute the proceeds among its creditors in proportion to their respective claims and/or credit. Bankruptcy shall be adjudged upon petition by the debtor or upon request of a creditor or in the cases of an unsuccessful concurso preventivo.
There are special legal frameworks for certain insolvency cases, like financial entities and insurance companies.
The out-of-court restructuring (“APE” or “Acuerdo Preventivo Extrajudicial”) is, basically, an agreement entered into by a debtor and certain majority of its creditors that may be binding against all creditors involved in the agreement in case the court endorses the plan, whether they have expressly accepted or not.
An acuerdo preventivo extrajudicial is governed by contract law and may contain whatever provisions the debtor and the participating creditors may deem convenient. A judicially endorsed plan shall have the same effects of a restructuring plan obtained in a formal judicial reorganisation proceeding (a concurso preventivo).
A debtor that suspends its payments or is undergoing economic or financial difficulties of a general nature may reach an agreement with its creditors and submit it for judicial endorsement. In order to request court endorsement, the debtor shall fulfil formal (similar to the ones required for a concurso preventivo, related to assets and liabilities) and substantial requisites, like consents granted by creditors representing more than one half in number (the “headcount majority”) and at least two thirds of the principal amount of the claims (the “principal majority”) subject to such plan.
The debtor starts negotiating with its main creditors a plan proposal aiming to obtain the required creditors’ consents to meet the legal majorities and request the judicial endorsement. When the company files for judicial endorsement of the plan, the court shall analyse the equal treatment to all creditors and the reasonableness of the restructuring plan. If the restructured
debts include publicly offered notes, negotiable obligations or other securities, the debtor generally carry out an exchange of its outstanding notes for new notes reflecting the terms of the restructuring. In addition, the APE allows the debtor to direct the restructuring only to a certain type of creditors’ (like financial creditors), setting aside other kinds of liabilities (as tax authorities or providers).
The acuerdo preventivo extrajudicial is not allowed for debtors that do not qualify for bankruptcy proceedings or have special insolvency proceedings (like financial entities or insurance companies).
An APE is a simplified procedure (much faster than a concurso preventivo), entails minor costs (the court tax is lower and does not have a receiver appointed by the court) and failure to obtain court approval of the plan does not imply adjudication of bankruptcy.
A consensual restructuring starts frequently with the appointing of legal and financial advisors and scheduling meetings with the main creditors for analysing current financial status and possible restructuring schemes.
From debtor perspective, standstill agreements or default waivers forms part of initial conversations; while creditors, on the other hand, frequently form a steering committee as a supervisory body for monitoring financial status and approving some relevant acts (like transfer of assets, material disbursements, new indebtedness, granting of securities, among others). A controller may be appointed by the creditors steering committee for an inside supervision of the company.
During the restructuring and workout process, information of the cash flow and projections are provided by the controller or debtor’s advisors to creditors directly or through the steering committee.
Negotiations with certain creditors, as members of an ad hoc steering committee, may evolve in the launch of a proposal. If such proposal receives the support of a significant majority of creditors, the restructuring of debtors´ indebtedness could be structured by a voluntary exchange agreement and, in case consenting creditors reach a certain legal threshold, debtor may reserve the right to convert such voluntary exchange into an acuerdo preventivo extrajudicial and request court approval in order to impose the restructuring on the non-consenting creditors.
Informal consensual processes are workable but solely if the significance of dissident creditors is small and debtor is permitted by consenting creditors to pay dissenting creditors that file involuntary bankruptcy petitions or summary judgements.
Formal out of court restructurings are more effective tools. When the debtor obtains consents representing the legal majorities (headcount and principal majority) is entitled to request the court endorsement of such plan and if approved by the judge is imposed to all creditors. The cram down power is a feature of judicial restructurings, like a reorganisation proceeding or an out-of-court restructuring, processes where the endorsed agreement shall be imposed to dissenting creditors.
In the concurso preventivo and bankruptcy proceedings there are certain priorities and preferences set forth by ABL, as follows:
Under Argentine law, there are two types of creditors. Unsecured creditors (quirografarios) who can seek recovery from the debtor assets and secured creditors (privilegiados) whose claim are secured by general or specific property, and who have first claim to the proceeds of the sale of such property. A creditor is secured only to the extent of the value of its collateral, that is, for the outstanding credit he will stand as an unsecured creditor.
Unsecured creditors cannot collect their credit outside the reorganisation process; certain secured creditors (with a security interest) may enforce their security after filing their proof of claim whilst others secured creditors are entitled to start legal actions immediately after endorsement of the restructuring plan aimed to unsecured creditors.
In an insolvency scenario, secured creditors are entitled to enforce their security during a concurso preventivo. However, proceedings for enforcement are suspended or may not be brought until such time as a request for proof of the secured claim has been submitted. In the bankruptcy proceeding creditors holding claims guaranteed by security interests may demand the sale of the collateral. After serving notice to the receiver, the petition is examined, and an order is issued for the auction of the goods subject to the guarantee.
As a general rule, secured creditors are not frequently involved in a restructuring offer, whether in a concurso preventivo or in an out-of-court restructuring, as ABL does not compel the debtor to submit an offer for secured creditors. In addition, when an offer is made, ABL demands the support of all secured creditors with special preference for endorsing a plan aimed to such creditors; nevertheless, failure to obtain majorities of secured creditors does not entail rejection of unsecured creditors’ plan, unless the debtor had expressly tied the unsecured creditors’ plan
to obtaining the support of the offer aimed to secured creditors. Therefore, secured creditors do not have blocking power.
In the concurso preventivo the rights of unsecured creditors are subject to the plan presented by the debtor and approved by the Court. All unsecured creditors of any cause or title prior to the filing of the concurso preventivo must submit a request for the proof of their claims to the receiver; the receiver renders its opinion to the Court on each claim as to the correctness; and the Court issues a resolution declaring each claim admitted, provisionally admitted or inadmissible; provisionally admitted and inadmissible claims may be reviewed at the request of the interested party.
Unsecured creditors have an important role in a concurso preventivo, as they have the right to approve the reorganisation agreement submitted by the debtor. Only with the consents granted by unsecured creditors representing more than one half in number (the “headcount majority”) and at least two thirds of the principal amount of the claims (the “principal majority”) a reorganisation plan may be analysed by the court and eventually endorsed.
In the bankruptcy procedure unsecured creditors must file proof of their claims as in the concurso preventivo and shall recover their credits from the proceeds of the liquidation of the debtor’s assets according to the distribution plan presented by the receiver and approved by the Court. Unsecured creditors are the last payment priority during a bankruptcy proceeding; thus, recovery in Argentina of unsecured creditors is quite exceptional.
The concurso preventivo is a judicial voluntary proceeding that a debtor may file to restructure its outstanding debt while continuing debtor’s business. Creditors cannot initiate or force this proceeding.
The concurso preventivo begins with a petition filed by the debtor complying with the requirements set forth by ABL (e.g. an explanation of the current causes of the payment suspension, a detailed statement of assets and liabilities, copy of the previous 3 (three) fiscal years financial statements, a list of creditors, among others).
Once the legal requirements have been duly complied with, the court issues a resolution opening the proceeding, appointing a receiver and ordering publication of notices.
The resolution instituting the concurso preventivo triggers the automatic stay of monetary claims whose cause or title are prior to the filing of the concurso preventivo, which suspends enforcement of pre-petition claims not secured by pledge or mortgage, nevertheless, there are some exceptions such as certain type of judicial procedures filed before that date, and labour claims, among others. The commencement of the concurso preventivo also cause the suspension of accrual of interests of claims not secured by pledge or mortgage.
During a concurso preventivo the debtor conserves, with the supervision of the receiver, the possession and administration of its assets in the ordinary course of business, subject to certain restrictions, monitored by the receiver, who will have full access to the company’s business records and will report any breach or violation to the court. For performing certain acts, regarding registrable assets (like real estate, planes, vehicles), disposal or lease of going concerns, granting of pledges and any other exceeding ordinary course of business, debtor shall request court’s authorization.
In this initial resolution of the proceeding, the court shall prescribe a timeframe for the pre-petition creditors (secured and unsecured) to submit their proof of claim before the receiver. At the end of such period, the receiver shall issue a report with its recommendation as to accept or reject (total or partially) each and all claims submitted and then the court issue a ruling about
the claims filed (resolución verificatoria). Only creditors verified and recognised in such ruling will be able to consent debtor’s restructuring plan, thus, with voting rights.
If the court does not admit the claim in the resolución verificatoria, the creditor can request the review of said decision before the same court but in a special ancillary proceeding where the creditor shall offer more evidence to support its claim. When an interested party does not file a review motion against the first decision nor does not file an appeal against an unfavourable decision those decisions have the effect of res judicata. Creditors who have not submitted the proof of claim in due time shall be able to present a late filing (verificación tardía) but they shall not be entitled to vote or consent the plan.
The debtor shall present its restructuring plan aimed, at least, towards unsecured creditors; debtor may include, as its discretion, secured creditors in the plan. The debtor enjoys an exclusivity period (of 90 to 120 business days) for offering a restructuring plan and obtaining the consent of a majority of creditors representing more than one half in number (the “headcount majority”) and at least two thirds of the principal amount of the claims (the “principal majority”) subject to such plan.
Controlling shareholders’, managers, directors or their assignees (within one year prior to the filing date) do not have voting rights.
If at the end of the exclusivity period the debtor does not obtain consents to the plan reaching the legal majorities, the court can exercise its cram-down power and impose the plan over the non-consenting creditors when (i) the debtor has obtained the majorities in, at least, one category of creditors, (ii) creditors’ consents represents at least three quarters of the aggregate principal amount of unsecured claims, (iii) the plan does not discriminate the dissident categories of creditors (like banning the creditors from electing an available alternative restructuring options, if any), and (iv) payment received under the plan is not less than the dividend the dissident creditors would receive in a bankruptcy proceeding, liquidating debtor’s assets.
Provided that the debtor has obtained the legal majority (headcount and principal majority), the court shall issue a resolution informing the debtor has obtained the majority for the approval of the restructuring plan. Within a specific timeframe of five (5) days after such resolution, such agreement may be challenged by dissenting creditors involved in the restructuring. Challenges may be supported in error in calculating the required majorities, concealment or exaggeration of the asset or liabilities, among others.
The court shall analyze any challenge submitted and adjudicate bankruptcy if the challenge is admitted, except for certain companies (limited liability companies and corporations) that shall follow a different procedure called “salvataje”, that admits third parties restructuring plan.
If no challenges are filed, the court shall examine the terms offered in such plan. Even though the debtor has achieved the legal majority, the court is entitled to reject endorsement of the plan when understands that the plan does not comply with the rules of the ABL or the terms are deemed abusive (like offering a less amount than creditors will collect in a bankruptcy proceeding).
If the restructuring plan is endorsed and approved by the court, it becomes binding to all pre-petition unsecured creditors, notwithstanding whether they have consented or not the plan.
A typical timeline for a reorganisation proceeding is of one or two years, maybe more, depending on the complexity of the case, nature of the outstanding debt, size of the debtor.
A bankruptcy proceeding or quiebra, is a statutory proceeding, performed under court control and supervision, seeking to liquidate the bankrupt company’s assets and distribute the proceeds among its creditors in proportion to their respective claims and/or credit.
Bankruptcy may be commenced either voluntarily, upon the petition of the debtor, or involuntarily, upon the petition of a creditor. It is a condition of filing the petition that the debtor be insolvent.
Creditors may file a petition of bankruptcy showing (i) acts of the debtor evidencing suspension of payment status (ii) summary evidence of creditor’s claim and (iii) that the debtor qualifies for bankruptcy proceedings. Insolvency is usually evidenced by the default of the debtor to pay existing liquidated debts as they become due. After an involuntary petition is filed, the court summons the debtor to file evidence of solvency (generally achieved through the deposit of the amounts owed to the petitioner). If the debtor does not file evidence of solvency the court will adjudicate the debtor bankrupt. After bankruptcy adjudication the debtor may file a petition for converting the bankruptcy adjudication into a reorganisation proceeding (concurso preventivo).
Upon bankruptcy adjudication the court will appoint a receiver who will take possession of all the assets of the debtor, with some exceptions.
Creditors must file a proof of claim, with the preference and priority requested and provide the receiver with information as to the total amount, reason and privileges of each claim, in the same manner as described in chapter 4 (Statutory Process for a Financial Restructuring/Reorganisation for a concurso preventive).
The commencement of a bankruptcy proceeding has, inter alia, the following main effects:
If there is no decision on the continuation of the debtor’s activities the receiver will conduct the liquidation of the assets of the estate.
In a bankruptcy proceeding, the receiver oversees the sale of assets; it is possible to sell specific assets or the entire business as a going concern, if such sale represents the best value for creditors.
The court shall appoint a public auctioneer who leads and participates in the bids. The court through the auction process seeks to maximize the value of the debtor’s assets. A purchaser that acquires goods in a sale of assets in such a procedure will have a title that is “free and clear” of claims and liabilities asserted against the company.
The receiver must file a proposal for the allotment to the creditors of the proceeds obtained from the liquidation of the debtor’s assets. The judge will then submit the proposal for the consideration of the creditors and any creditor may challenge the final report filed by the receiver, and the court in turn may approve, modify or disallow any portion of the report before discharging the petition.
Argentine Bankruptcy Law recognizes extraterritorial effects to the declaration of opening of an insolvency proceeding in a foreign country in order to enable such foreign proceeding to serve as cause to the opening of a local insolvency proceeding, if there are assets in Argentina.
Generally, the existence of insolvency proceedings outside Argentina may not be invoked against those creditors whose claims are to be paid in Argentina, in order to challenge rights claimed by such creditors over assets existing within the Argentine territory or to annul any agreements which they may have entered into with the debtor.
In absence of assets in Argentina, an argentine court would probably facilitate foreign insolvency proceedings by dismissing actions by creditors which claims were payable outside Argentina if the debtor could prove the argentine court that such claim had been already admitted in a foreign proceeding.
Argentina has not adopted the “UNCITRAL Model Law on Cross-Border Insolvency”. Despite this fact, Argentina has signed the following treaties regarding international insolvencies: the Montevideo Treaties of 1889 (Argentina, Uruguay, Paraguay, Peru, Bolivia and Colombia) and 1940 (Uruguay, Paraguay, Argentina), a foreign insolvency proceeding from a country that is party to those treaties tends to be recognized, those rules will apply.
Richards, Cardinal, Tützer, Zabala, Zaefferer
Avenida Leandro Niceforo Alem 1050, C1001 Cdad. Autónoma de Buenos Aires, Argentina
Call: +5411 5031 1500
Jorge E. Tützer
Partner
Email: tutzer@rctzz.com.ar
Call: 11 5031 2706
Sebastián R. Borthwick
Partner
Email: borthwick@rctzz.com.ar
Call: 11 5031 2756
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