According to the statistics of the city of Buenos Aires (Argentina does not have a national centralised statistic service), during 2017, 643 insolvency proceedings (163 reorganisation and 480 bankruptcy proceedings) were commenced, while in 2018, 654 insolvency proceedings (291 reorganisation and 363 bankruptcy proceedings) were filed. The number of filings of reorganisation proceedings represented a significant increase of 78% year on year. Up to October 2019, 285 insolvency proceedings (220 reorganisation and 65 bankruptcy proceedings) were filed.
With regards to involuntary bankruptcy proceedings, in 2017, 1,485 creditor petitions were filed, followed by 1,631 in 2018, which represents an increase of 9.8% year on year. Up to October 2019, 1,555 petitions were commenced.
The statistics show the upward trend in insolvency proceedings over the last two years, in large part attributed to the weakening of the Argentine economy.
Argentina has been undergoing a financial and economic crisis over the last 18 months, basically attributed to inflation, recession and high interest rates. The significant increase in the number of reorganisation proceedings from 2017 to 2018 (78%) reflects the impact of the general crisis suffered by companies in Argentina (specifically in Buenos Aires).
This circumstance has had a knock-on effect on several companies, especially those engaged in retail and industrial services, which have contracted considerably. High taxes and labour costs have contributed to this scenario. The depreciation of the Argentine peso has also had an effect on certain bigger companies with indebtedness in foreign currency and income solely in pesos. In the case of smaller companies, there has been an increase in bankruptcies declared upon the petition of one or more creditors.
Many companies have filed for reorganisation proceedings (concurso preventivo) aiming to solve their financial problems; and it appears that there is an even higher number of reorganisation proceedings pending to be filed. Companies are trying to postpone filing of reorganisation petitions as much as possible due to the uncertainty of adequately restoring the business and thus, being able to meet and fulfil the reorganisation plan in the future.
In relation to big companies, both debtors and creditors have been trying to delay decisions until the conclusion of the electoral process.
Financing and distressed M&A transactions have been scarce.
Therefore, the restructuring process in its ultimate form, with a judicial filing of a reorganisation proceeding, has been delayed. As a result, restructuring terms have been extended.
With the conclusion of the electoral process, however, some economic policies and a macroeconomic scenario may be envisaged, and an increase in activity in the restructuring and insolvency market by the end of 2019 and all through 2020 is expected.
Law Nr 24522 (as amended, the 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 (Acuerdo Preventivo Extrajudicial or APE).
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 to allow the continuation of activities as a viable entity. The proceeding has certain similarities to the US Chapter 11 proceeding. Certain entities are not eligible for the concurso preventivo (eg, financial entities and insurance companies, among others).
The other formal procedure is bankruptcy or quiebra, which is an Argentine statutory proceeding, performed under court control and supervision, which seeks 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 case of an unsuccessful concurso preventivo.
Specific sectors (like financial entities and insurance companies) have a special legal framework for insolvency cases, as described in 2.7 Specific Statutory Restructuring and Insolvency Regimes.
The concurso preventivo and an out-of-court restructuring are voluntary proceedings that can only be filed by the debtor. On the other hand, the bankruptcy procedure can be voluntary, upon the petition of the debtor, or involuntary, upon the petition of one or more creditors. The debtor has the right, within a specific timeframe, to convert bankruptcy into a concurso preventivo proceeding, except when bankruptcy has been declared in the case of an unsuccessful concurso preventivo.
Argentine Bankruptcy Law does not dictate mandatory commencement of any of the insolvency proceedings, unlike its predecessor, the Insolvency and Bankruptcy Law Nr 19551. However, directors, representatives and managers must fulfil the duty of care and loyalty (sections 59 and 274 of the Argentine Companies Law Nr 19550) and are jointly and severally liable for any harm that the breach of said duties may cause to third parties or to the business entity. See 12.1 Duties of Directors for further analysis.
The continuation of corporate activities is not in itself a breach of law, therefore, but liabilities apply to certain acts performed prior to any insolvency proceeding.
There is no longer any obligation for a debtor to initiate formal insolvency proceedings. A company undergoing a general suspension of payments may file for a voluntary procedure, such as the concurso preventivo or bankruptcy. In addition, an out-of-court restructuring shall also be commenced if the company is in serious economic or financial difficulties.
Creditors may file a petition for bankruptcy showing:
The suspension of payments, irrespective of the reason and the nature of the liabilities, is a required condition precedent to the availability of reorganisation and bankruptcy proceedings governed by the ABL. This suspension must be general, regular and permanent.
Insolvency may be evidenced by the debtor's default in paying existing debts as they become due, the use of ruinous means to obtain financial resources, and/or the sale of assets for an insufficient consideration, among others, but the most frequent evidence is default on payments.
An out-of-court restructuring, on the other hand, may be available if the debtor is just undergoing serious financial difficulties regardless of any payment suspension.
As described in 2.1 Overview of Laws and Statutory Regimes, there are special legal frameworks for certain insolvency cases, such as those of financial entities and insurance companies.
Law Nr 21526 (Financial Entities Law) provides the rules for insolvency of banks or financial entities and sets out a special procedure to be followed before the Central Bank of Argentina, which may exclude and transfer certain assets and liabilities to a trust, as allowed under section 35-bis of the Financial Entities Law. The list of secured creditors with priority over the trust's assets includes the credits of depositors, labour claims and the Central Bank of Argentina.
Assets not transferred to the trust shall be sold and the liquidator, appointed by the court, shall distribute the proceeds between the creditors whose proof of claim has been accepted, following priorities set out by the Financial Entities Law.
The insolvency of insurance companies is covered by Law Nr 20091. Liquidation proceedings require the intervention of the Insurance Commission (Superintendencia de Seguros de la Nacion). Beneficiaries of life insurances and insurance claims credits are afforded general priority over unsecured claims. Liquidation shall be carried out by the liquidator, acting as receiver, appointed by the Insurance Commission.
Finally, Law Nr 25284 provides a particular insolvency framework for the restructuring of certain sports organisations. Under this regime, when a non-profit sports organisation is declared bankrupt, an administration trust is created with all the assets of the debtor and managed by a fiduciary body, judicially monitored. The fiduciary body is entrusted with the liquidation of the assets and distribution of the proceeds with the admitted creditors, as per the priorities set out by the ABL.
The out-of-court restructuring (Acuerdo Preventivo Extrajudicial or APE) is basically an agreement entered into by a debtor and certain majority of its creditors that may be binding on all the creditors involved in the agreement if the court endorses the plan, whether the creditors have expressly accepted the plan or not.
An APE is governed by contract law and may contain whatever provisions the debtor and the participating creditors deem convenient. A judicially endorsed plan shall have the same effect as 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 the agreement for judicial endorsement. In order to request judicial endorsement, the debtor shall fulfil formal requisites (similar to the ones required for a concurso preventivo, related to assets and liabilities) and substantial requisites, such as consents granted by creditors representing more than one half of the creditors 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 a plan proposal with its main creditors with the aim of obtaining the required creditors’ consents to meet the legal majorities and request the judicial endorsement. The plan may contain precedent conditions that need to be complied with to become effective, like a specific deadline or certain minimum of consenting creditors.
When the company files for judicial endorsement of the plan, the court analyses the equal treatment of all the creditors, whether the restructuring plan can reasonably be achieved and if the terms could be deemed abusive (such as, by offering less than creditors will collect in a bankruptcy proceeding). If the restructured debts include publicly offered notes, negotiable obligations or other securities, the debtor would 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 at a certain type of creditor (such as a financial creditor), setting aside other kinds of liabilities (such as tax authorities or providers).
Selecting the Restructuring Process
Choosing the correct restructuring process, whether a reorganisation or out-of-court proceeding, depends on the specific case, as the characteristics of the company, the relevant market involved, the profile of the creditors, and the government policies, are some issues to be considered when deciding on the specific restructuring process.
The APE is not applicable to 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 the procedure does not require a receiver appointed by the court) and failure to obtain court approval of the plan does not imply adjudication of bankruptcy.
A consensual restructuring frequently starts with the appointment of legal and financial advisers, and in scheduling meetings with the main creditors to analyse the current financial status and possible restructuring schemes.
From a debtor perspective, standstill agreements or default waivers form part of initial conversations; while creditors, on the other hand, frequently form a steering committee as a supervisory body to monitor financial status and approve some relevant acts (like transfer of assets, material disbursements, new indebtedness and granting of securities, among others). A controller may be appointed by the creditors' steering committee for inside supervision of the company.
During the restructuring and workout process, information about cash flow and projections is provided by the controller or the debtor’s advisers to the creditors, either directly or through the steering committee.
Negotiations with certain creditors, as members of an ad hoc steering committee, may evolve in the launching of a proposal. If such proposal receives the support of a significant majority of creditors, the restructuring of the debtor's indebtedness could be managed through a voluntary exchange agreement and, should consenting creditors reach a certain legal threshold, the debtor may reserve the right to convert this voluntary exchange into an APE and request court approval in order to impose the restructuring on the non-consenting creditors.
New money, if provided, is usually disbursed after judicial endorsement of the out-of-court restructuring or a successful voluntary exchange.
Securities or liens can be granted, but Argentine Bankruptcy Law does not afford any super priority to new money, whether injected into the framework of a reorganisation proceeding or an out-of-court restructuring.
Creditors shall enter into negotiations with the debtor respecting the Argentine legal framework, acting in good faith and ensuring that other creditors are not harmed by any transaction. Otherwise, an out-of-court agreement may be subject to claw-back actions in the framework of a bankruptcy proceeding (see 13 Transfers/Transactions That May Be Set Aside).
Informal consensual processes are workable, but only if the dissident creditors are not significant and the debtor is permitted by the consenting creditors to pay the dissenting creditors who file involuntary bankruptcy petitions or summary judgments.
Formal out-of-court restructuring plans are more effective tools. If the debtor obtains consents representing the legal majorities (headcount and principal majority), the debtor is entitled to request court endorsement of such plan and, if approved by a judge, the plan will be imposed on all the 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 may be imposed on dissenting creditors.
Secured rights and priorities are only those authorised by statute (eg, civil and commercial codes, or by special laws). As a general rule, common liens include:
Most of the liens require the intervention of a Notary Public, who issues a public deed or certifies the authenticity of signatures, as well as registration in the appropriate registry (eg, Land Office Registry, Public Commercial Registry, and others).
In the concurso preventivo and bankruptcy proceedings, certain priorities and preferences are set forth by the ABL, as follows:
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 a 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 an out-of-court restructuring, as the ABL does not compel the debtor to submit an offer to secured creditors. In addition, when an offer is made, the ABL demands the support of all secured creditors with special preference to endorse a plan aimed at such creditors; nevertheless failure to obtain majorities of secured creditors does not entail rejection of the unsecured creditors’ plan, unless the debtor has expressly tied the unsecured creditors’ plan to obtaining support for the offer aimed at secured creditors. Therefore, secured creditors do not have blocking power.
As described in 4.2 Rights and Remedies, secured creditors may enforce their security separately from the insolvency proceedings (concurso preventivo or bankruptcy processes). The timeline for enforcing such secured credit depends on the asset, location and complexity of the claim.
According to the ABL, any creditor (except for secured creditors with a security interest, such as a mortgage or pledge) seeking recognition of its credit in a reorganisation or bankruptcy proceeding handled by an Argentine court shall fulfil a reciprocity condition when its credit is payable outside Argentina. Under such requirement for being admitted to an Argentine insolvency proceeding, the foreign creditor shall evidence that a creditor’s claim payable in Argentina shall be admitted in an insolvency proceeding of such foreign country. Usually, this requisite is fulfilled by a legal opinion issued by an attorney of the country where payment shall be made that shall be submitted by the creditor, together with the proof of claim.
Furthermore, in plurality of bankruptcy proceedings, the ABL sets forth that local creditors should be preferred over foreign creditors belonging to a foreign proceeding in the liquidation of a foreign debtor’s assets located in Argentina.
Argentine Bankruptcy Law does not impose any other special procedures or impediments on foreign creditors, either secured or unsecured.
There are no special procedural protections or rights for secured creditors other than those described in 4.2 Rights and Remedies.
Under Argentine law, there are two types of creditors. Unsecured creditors (quirografarios) who can seek recovery from the debtor's assets, and secured creditors (privilegiados) whose claim is secured by 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 their collateral, that is, for the outstanding credit they 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, while other secured creditors are entitled to start legal action immediately after endorsement of the restructuring plan aimed at unsecured creditors.
Unsecured trade creditors have the same rights and remedies as other unsecured creditors. See 5.3 Rights and Remedies for Unsecured Creditors.
In the concurso preventivo the rights of unsecured creditors are subject to the plan presented by the debtor and approved by the court. All pre-petition unsecured creditors of any cause or title must submit proof of their claims to the receiver, who renders an opinion to the court as to the correctness of each claim. The court then issues a resolution declaring each claim admitted, provisionally admitted or inadmissible, and thereafter, 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”) may a reorganisation plan 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 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, so it is quite exceptional in Argentina for unsecured creditors to recover their credit.
Unsecured creditors are not entitled to request an attachment during an insolvency proceeding. In addition, any and all pre-judgment attachments ordered prior to the filing of the concurso preventivo or a bankruptcy proceeding will be lifted, as unsecured creditors are bound by the reorganisation plan or the specific liquidation rules.
A concurso preventivo has a specific timeframe for certain stages of the procedure; therefore when a reorganisation plan is endorsed by the court, unsecured creditors are subject to the terms and timeline specified on such agreement.
The timeline in a bankruptcy proceeding depends on the complexity of each process; for instance, the location and type of assets to be sold and the number of secured/unsecured creditors, among others.
When the debtor is the landlord of a property, the ABL sets forth that the lease of the property shall continue after the declaration of bankruptcy. If the bankrupt debtor is the tenant of a commercial or industrial property, the lease may continue upon petition or agreement of the landlord and the receiver.
See 4.4 Foreign Secured Creditors.
As described in 4.2 Rights and Remedies, the ABL provides the following order of priorities in a liquidation proceeding:
In a concurso preventivo, certain labour claims are entitled to special treatment and immediate payment of their credits may be requested. Secured creditors with a security interest may enforce the collateral after filing the corresponding proof of claim. Court tax and receiver fees shall be paid by the debtor after endorsement of the restructuring plan.
The order of priority in the ABL is described in 5.8 Statutory Waterfall of Claims.
As described in 2.1 Overview of Laws and Statutory Regimes, the concurso preventivo is a voluntary judicial proceeding that a debtor may file to restructure its outstanding debt while continuing its business. Creditors cannot initiate or force this proceeding.
The concurso preventivo begins with a petition filed by the debtor complying with the requirements set out in the ABL (eg, an explanation of the current causes of payment suspension, a detailed statement of assets and liabilities, a copy of the previous three fiscal years' financial statements, and a list of creditors, among others).
Verification of Claims
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. In this initial resolution, the court prescribes 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 issues a report with its recommendation as to whether to accept or reject (total or partially) each and all claims submitted, and then the court issues a ruling about the claims filed (resolución verificatoria). Only creditors who are verified and recognised in such ruling will have voting rights with regard to the debtor’s restructuring plan.
If the court does not admit a claim in the resolución verificatoria, the creditor can request a 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 and does not file an appeal against an unfavourable decision, those decisions have the effect of res judicata. Creditors who do not present 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 to the plan.
The debtor shall present its restructuring plan aimed, at least, towards unsecured creditors; the debtor may include, at its discretion, secured creditors in the plan. The debtor enjoys an exclusivity period (of 90 to 120 business days) to offer a restructuring plan and obtain the consent of the 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 (appointed 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 consent to the plan reaching the legal majorities, the court can exercise its cram-down power and impose the plan over the non-consenting creditors where:
Provided that the debtor has obtained the legal majorities (headcount and principal majority), the court shall issue a resolution stating that the debtor has obtained the necessary majorities for approval of the restructuring plan. Within a specific timeframe of five days after such resolution, this agreement may be challenged by dissenting creditors involved in the restructuring. There may be challenges to the calculation of the required majorities, or allegations of concealment or exaggeration of the assets or liabilities, among others.
The court shall analyse any challenge submitted and adjudicate bankruptcy if the challenge is admitted, except in the case of certain companies (limited liability companies and corporations) that follow a different procedure called “salvataje”, described below.
If the debtor is a limited liability company, corporation, co-operative or company with state participation, before declaring the debtor bankrupt, the court shall initiate a bidding process opened with a five-day period for the registration of the creditors, workers' co-operative or other third parties interested in acquiring the debtor's equity and submitting alternative competing reorganisation plans. The debtor may also file a new competing restructuring plan or continue gathering consents for the previously submitted plan. If there is no alternative reorganisation plan or no plan is agreed to by the requisite majority of creditors, then the court will declare the debtor bankrupt.
If no challenges are filed, the court shall examine the terms offered in such plan. Even though the debtor has achieved the legal majorities, the court is entitled to reject endorsement of the plan if it does not comply with the rules of the ABL, or if the terms are deemed abusive (such as offering less than creditors will collect in a bankruptcy proceeding). However, in certain cases where this has occurred the courts have granted the debtor an opportunity to improve the terms of the plan, with or without the need for new consent from the creditors (what has been called the “third way”).
If the restructuring plan is endorsed and approved by the court, it becomes binding on all pre-petition unsecured creditors, whether or not they have consented to the plan.
A typical timeline for a reorganisation proceeding is one or two years, maybe more, depending on the complexity of the case, nature of the outstanding debt, and size of the debtor.
The resolution instituting the concurso preventivo triggers the automatic stay of monetary claims, whose cause or title pre-dates the filing of the concurso preventivo. This suspends enforcement of pre-petition claims not secured by pledge or mortgage, however, there are some exceptions, such as certain types of judicial procedures filed before that date, and labour claims, among others. The commencement of the concurso preventivo also causes the accrual of interests of claims not secured by pledge or mortgage to be suspended.
During a concurso preventivo the debtor conserves possession and administration of its assets in the ordinary course of business, subject to certain restrictions. The debtor will be under the supervision of 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 (such as real estate, planes, vehicles), disposal or lease of going concerns, granting of pledges and any other matters outside the ordinary course of business, the debtor shall request the court’s authorisation.
Any new loan granted to the debtor after commencement of the concurso preventivo shall fall outside the scope of the restructuring, so the debtor may deal directly with such payments.
Creditors are separated into classes and a distinction is made between secured, unsecured, unsecured labour claims and contractually subordinated claims. The debtor may propose, based on reasonable grounds, to divide the creditors further into subcategories, for instance: financial creditors, service providers, tax authorities, etc. However, the debtor must obtain the legal majorities (headcount and principal) for the restructuring plan, at least in each class of unsecured creditors. Therefore, depending on the composition of the unsecured creditors’ category, the debtor may easily negotiate and gather consents in a general category of unsecured claims, thus, not dividing creditors into subcategories.
With the commencement of the concurso preventivo, the court appoints a provisional creditors’ committee comprised of the three unsecured creditors with the largest claims declared by the debtor, and a representative of the debtors’ employees. Members of the committee are then replaced when categories of creditors are established, and the creditors with the largest claims in each category and two representatives of the debtors’ employees are appointed to the committee. The final creditors’ committee is proposed by the debtor in the restructuring plan and continues to function in the eventual bankruptcy proceeding. The creditors’ committee acts as an information and advisory body and the final committee (proposed in the plan) monitors the performance and execution of the approved restructuring plan.
In addition to the creditors’ committee, the receiver plays a key role in a concurso preventivo, protecting creditors’ interests and providing information and advice. The receiver supervises the management and administration of the company and advises the court about the claims submitted and the debtor’s restructuring plan, as well as preparing and rendering special reports about the claims and evolution of the company’s business.
As described in 6.1 Statutory Process for a Financial Restructuring/Reorganisation, the court may exercise its cram-down power and impose the plan over the dissenting creditors when certain conditions are met.
Claims against a company in an insolvency proceeding may be traded and assigned as per the rules and formalities set out by the Civil and Commercial Code, and such assignment shall be disclosed to the debtor to be enforceable.
The ABL does not restrict any transfer of the claims, but when transfers are performed in a concurso preventivo, and specifically during the exclusivity period, the assignment of the claim may be exhaustively analysed if the assignor appears to support the restructuring plan when the assignment price is much higher than the amount the creditor will recoup under the restructuring plan. An unreasonable act such as this (the assignor paying much more than the amount that will be recouped as per the terms of the plan) may be considered a suspicious manoeuvre to manipulate the majorities so that the consent granted by the assignee may be discarded by the court.
The ABL allows all members of a permanent economic group to file a joint petition for reorganisation. For the filing, at least one member of the group must be in payments' suspension but under the condition that other members are affected by the insolvency of such member.
Each member shall have a separate proceeding, but all proceedings shall be heard under the same court, and the venue is determined by the court of the jurisdiction of the group’s member with the largest assets, according to its latest financial statements.
A group reorganisation has the following features:
A joint restructuring plan shall be approved when legal majorities (headcount and principal majorities) have been met or when creditors’ consents represent at least:
Failure to obtain legal majorities or non-compliance with the joint plan will lead to a declaration of bankruptcy of the entire group.
As explained in 6.2 Position of the Company, restrictions are imposed on the debtor with regard to the sale of certain assets and other acts, which may only be performed with court authorisation. The court shall request the advice of the receiver and the creditors' committee and may afford authorisation when such sale/act is deemed to be convenient for the debtor, with a fair and marketable value, and does not imply any detriment to the creditors.
The ABL provides the restrictions described in 6.2 Position of the Company when assets are to be sold during the reorganisation proceeding. The sale shall be executed by the management of the company, who will render information and documents supporting the transaction to the court.
If the sale of assets or other disposition is part of the restructuring plan, the plan's approval signifies authorisation for the execution of such act.
Distributions to creditors within a concurso preventivo are made in accordance with the terms and conditions established for each category of creditor comprised in the restructuring plan.
Secured creditors are not frequently involved in a restructuring plan, as described in 4.2 Rights and Remedies, therefore, when the plan is approved, secured creditors are entitled to file or continue any legal action seeking enforcement of their credit.
See 3.3 New Money.
As described in 6.1 Statutory Process for a Financial Restructuring/Reorganisation, all pre-petition creditors (secured and unsecured) submit their proof of claim before the receiver, within a specific timeframe, or after that deadline with a late filing (verificación tardía) but without voting powers.
The receiver issues a report with its recommendation about the claims and the court then issues a ruling determining the value of the claims filed (resolución verificatoria). Only creditors verified and recognised in such ruling will have voting rights and the power to consent to the restructuring plan.
Under a concurso preventivo, a restructuring plan approved by the court shall be binding on all pre-petition creditors affected by such plan, including dissenting creditors.
See 6.1 Statutory Process for a Financial Restructuring/Reorganisation for further details.
The ABL expressly sets forth that the approved agreement entails novation of all pre-petition claims affected by such plan but guarantors who have secured the debtor's obligations are not released upon the approval of the restructuring plan.
Under the ABL rights of set-off, off-set or netting are not allowed after filing of a concurso preventivo or adjudication of bankruptcy, as a way to protect the par conditio creditorum.
Non-compliance with the terms of the approved agreement will lead to the adjudication of bankruptcy of the debtor if this is requested by the creditors, the receiver or the creditors' committee, as explained in 6.1 Statutory Process for a Financial Restructuring/Reorganisation. The court will adjudicate the debtor bankrupt without such petition if the debtor declares that it is impossible for it to comply with the plan in the future.
A reorganisation proceeding (concurso preventivo) does not affect the ownership of the equity of the debtor, except for the special proceeding (salvataje) which is followed if the debtor fails to obtain the required majorities to approve the restructuring plan, as described in 6.1 Statutory Process for a Financial Restructuring/Reorganisation.
A bankruptcy proceeding (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:
Insolvency is usually evidenced by the default of the debtor to pay existing debts as they become due, the use of ruinous means to obtain financial resources, and the sale of assets for an insufficient consideration, among others.
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 to convert 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 proof of claims, preferences and priorities and provide the receiver with information as to the total amount, reason and privileges of each claim, in the same manner as described in 6.1 Statutory Process for a Financial Restructuring/Reorganisation for a concurso preventivo.
The commencement of a bankruptcy proceeding has, inter alia, the following effects:
All claims can be traded or assigned; as the ABL does not restrict any transfer of claims.
Rights of set-off, off-set or netting are not allowed after declaration of bankruptcy.
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. 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.
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 appoints a public auctioneer, who leads and participates in the bids. Through the auction process, the court seeks to maximise 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.
In a bankruptcy proceeding there is no statutory plan, but a sale of assets and a distribution among creditors as per their preferences.
If continuation of the debtor's activities has been ordered by the court, new money may be invested. However, it is extremely unusual in a bankruptcy proceeding to obtain new money, as the only purpose of the proceeding is to liquidate the assets.
The ABL does not provide specific rules for liquidation of a corporate group on a collective basis, but the liquidation of the holding company will entail selling its interest in subsidiaries.
The receiver promotes the constitution of a creditors’ committee with at least three members, composed of creditors and workers of the debtor. The creditors’ committee monitors the liquidation of the assets, seeking to obtain the best value for creditors.
In the case of the continuing operation of the company, some of the assets might still be needed. The court, when ordering the continuance of operations, shall order the continuation of certain contracts deemed essential for such purpose, such as the lease on a commercial or industrial property, or license agreements.
The ABL recognises extraterritorial proceedings and that the opening of an insolvency proceeding in a foreign country may serve as cause for 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 within Argentine territory or to annul any agreements which they may have entered into with the debtor.
In the absence of any assets in Argentina, an Argentine court would probably facilitate foreign insolvency proceedings by dismissing actions by creditors where claims are payable outside Argentina, if the debtor could prove to the Argentine court that such claims had already been 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 recognised, and the rules of the treaty apply.
Pursuant to the ABL, Argentine law will govern the insolvency proceeding of any debtor domiciled in Argentina, as the venue imposed by the ABL is a public order issue.
The creditors in a foreign insolvency proceeding can enforce their claims solely on the balance of the assets of the debtor in Argentina, once the other creditors recognised in the insolvency proceeding opened in Argentina have been satisfied.
See 4.4 Foreign Secured Creditors.
The ABL only recognises one type of officer in insolvency processes: the receiver, who is appointed as a statutory officer in reorganisation and bankruptcy proceedings and plays a key role in both types of proceedings.
The ABL establishes two classes of receivers:
The court at the commencement of each proceeding shall appoint a receiver from category A or B, or even a plural receivership, if justified by the complexity of the case or the company’s size.
In a concurso preventivo, the receiver supervises the management and administration of the company and advises the court about the proof of claims submitted and the debtor’s restructuring plan, as well as preparing and rendering special reports about claims and the evolution of the company’s business. Furthermore, in a bankruptcy proceeding, the receiver takes possession of all the assets of the debtor (with certain exceptions), oversees the sale of the debtor’s assets and proposes the allocation of the liquidation proceeds to the creditors. The receiver shall act diligently in accordance with its position and in the creditors' interests and for their protection.
The receiver is party to the main insolvency proceeding (except for an out-of-court restructuring) and all ancillary proceedings and other related actions.
The receiver is randomly selected by the court handling the insolvency proceeding from a list of eligible receivers provided by the Commercial Chamber and updated every four years. The receiver cannot be related to the debtor, the stockholders, or the debtor's directors.
As described in 9.1 Types of Statutory Officers, the receiver is either an accountant or an accounting firm, in major proceedings, and may be assisted by an attorney.
The professional advisers that are frequently hired are specialised attorneys, who provide legal counsel and appear in court, as well as accountants and financial advisers, who advise on preparing the filing and designing the financial terms of the restructuring plan.
The parties (debtor and creditors) usually hire such professionals and the party that hires the professional is responsible for paying the adviser’s fee.
No authorisation or judicial approval is required for such services.
As described in 10.1 Typical Advisers Employed, specialised attorneys advise the debtor and creditors in insolvency proceedings. The debtor's attorney prepares the initial filing of the reorganisation proceeding or out-of-court restructuring and provides legal advice prior to such filing and throughout the entire proceeding, in particular, planning the terms of the restructuring agreement, together with accountants and financial advisers.
Since the parties (mainly, debtor and creditors) cannot compromise their rights in a reorganisation or in an insolvency proceeding without the prior acceptance of the receiver and the approval of the court, mediation and arbitration options are not utilised in this context in Argentina. Likewise, mediation and arbitration are not frequently used in informal restructuring processes.
Courts never order mandatory arbitration or mediation in a judicially supervised insolvency or restructuring proceeding (see 11.1 Utilisation of Mediation/Arbitration).
The ABL has a specific provision that deals with the enforceability of pre-insolvency agreements to arbitrate disputes. Article 134 sets forth: “Arbitration clause: the declaration of bankruptcy shall bar the application of any arbitration clause agreed upon the debtor, unless the arbitration panel has been appointed before said declaration is rendered. The Court may authorise the receiver in special circumstances to submit a dispute to arbitration.”
Therefore, the general rule is that arbitration clauses are not enforceable, unless the arbitration panel was appointed before the declaration of bankruptcy was rendered. This rule only applies in the case of bankruptcy; as a result, arbitration clauses are enforceable during reorganisation proceedings.
When the exception applies and the credit against the debtor results from a final arbitral award, the creditor must file an ancillary process of proof of claim to have its credit admitted in the insolvency proceeding no less than six months from the date of the final award (Article 56 ABL).
There are several statutes in Argentine jurisdiction that govern arbitrations and mediation: Law Nr 26,589 of Mediation and Conciliation establishes that mediation is compulsory for the claimant before the commencement of a judicial claim in most claims.
The Civil and Commercial Code in force from 1 August 2015 included a new chapter that refers to the arbitration contract (Articles 1649/1665), and together with the Civil and Commercial Procedural Code (Articles 736/777), they set the rules for domestic arbitration.
On 26 July 2018, Argentina enacted Law Nr 27,499 which is based on the UNCITRAL Model Law on International Commercial Arbitration (with minor changes).
Argentina has also ratified the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards – the “New York Convention" – among other conventions, which favour the recognition and enforcement of foreign arbitral awards.
In private mediation proceedings the claimant appoints a mediator, who provides a list of other alternative mediators to the defendant. The defendant may accept the mediator appointed by the claimant or choose another of the proposed mediators, who would then become the definitive mediator.
In public mediation proceedings the competent Court of Appeals administrative body chooses the mediator who will interact with the parties. Public mediators must be attorneys who are registered at the Court of Appeals administrative body, and who have complied with the courses required by the pertinent rules.
The Civil and Commercial Code allows any person to serve as an arbitrator, and only requires full legal capacity (Article 1660). Arbitrators are appointed according to the pertinent arbitration clauses and/or arbitration rules, which are binding to the parties.
Argentine Companies Law principles provide that directors should pursue the best interests of the company and its shareholders. Directors should act diligently in order to comply with the activities set forth in the corporate purpose, the law and the by-laws, and in accordance with the duties of loyalty and diligence of a good businessman, according to sections 59 and 274 of Argentine Companies Law. Directors are jointly and severally liable for any harm that the breach of said duties may cause to third parties or to the business entity. Their liability may be civil and/or criminal, depending on the infringement and the area of law (eg, labour, social security, tax, environmental, securities, banking, foreign exchange, etc).
Duties to Creditors
In the framework of an insolvency situation, the directors’ duties to the creditors are increased. The general fiduciary duties in favour of the company and its shareholders are complemented by additional duties, such as treating all pre-insolvency creditors in an equal fashion. This directive also restricts the debtor and its directors from entering into certain transactions during the “suspect period”, as described below in 13.2 Look-Back Period.
Restrictions on the Powers of Directors
Once the company has filed for a reorganisation procedure, certain powers of the directors are limited and restricted, specifically in relation to a number of transactions that require prior authorisation from the court, as described in 6.2 Position of the Company. Infringement of these restrictions by the directors may cause the court to replace the management and file liability actions against the directors. The directors also cannot make payments of pre-filing unsecured claims except under a plan approved by the creditors and endorsed by the court.
Sanctions Applied to Company Representatives
In full bankruptcy, the receiver takes possession of the assets and succeeds the debtor in the administration and disposition of the assets. In addition, the bankrupt’s business representatives, managers who have fraudulently caused, facilitated, allowed or aggravated the debtor’s financial situation or insolvency, must provide compensation for any damages caused (section 173 ABL). Finally, the Criminal Code punishes certain wilful, fraudulent or reckless acts of the directors, representatives and managers of the bankrupt.
Bankruptcy results in the disqualification of administrators (ie, directors and members of the executive committee) working for the bankrupt from the date the insolvency period started to the date of the bankruptcy judgment. For directors, disqualification will start from the date the insolvency period is declared to have commenced (without the two-year retroaction limitation for the purposes of computing the so-called “suspect period”). For members of the executive committee, disqualification begins from the date of the bankruptcy decree. Disqualification normally ends by operation of law one year after the bankruptcy judgment.
Disqualification prohibits company representatives from:
Bankruptcy procedures may also entail restrictions for directors to leave the country. Until the court-appointed receiver’s general report is submitted, administrators (ie, the board and executive committee members) cannot leave the country without court authorisation, which cannot be denied if a state of necessity or urgency is shown to exist, or if the presence of the administrator for the purposes of co-operating with the court is not necessary.
Company administrators (which for this purpose includes directors, executive committee members and, in certain cases, managers) can be subject to liability actions commenced by the receiver in bankruptcy. There are two types of actions:
Companies usually hire restructuring consultants (financial advisers, lawyers) as advisers to the board. If a chief restructuring officer is to be appointed, a circumstance which is not that common in Argentina, the board of directors may delegate, formally or informally by course of conduct, such function to the chief financial officer or a third party. However, the members of the board retain ultimate responsibility.
Argentina does not entertain the concept of shadow directorship. Creditors can be appointed as member of the creditors’ committee but do not usually perform management duties.
According to Argentine Companies Law, shareholders may be liable for damage caused to the debtor as a result of their wilful misconduct or negligence; and for any damage caused by acts of the debtor that concealed the shareholders' pursuit of their own interests or that constituted a cover for shareholders' breaching the law, violating principles of public policy or good faith, or frustrating third parties' rights (piercing of the corporate veil).
The ABL sets forth that the bankruptcy of a company may be extended to its controlling shareholders in certain specific cases, when:
In the absence of an insolvency proceeding, some transfers of the debtor’s property can be challenged under fraudulent conveyance provisions of the Civil and Commercial Code (sections 338 through 342).
The ABL contains provisions related to the challenge of acts which may have detrimentally affected the interests of the creditors within a specific timeframe, which shall not exceed two years.
The ABL contains provisions related to the challenge of acts which may have detrimentally affected the interests of the creditors within a look-back period (período de sospecha). The look-back period is defined as the period which elapses between the date fixed as the commencement of the suspension of payments (cesación de pagos) and the declaration of bankruptcy or filing of reorganisation proceedings (prior to the bankruptcy), which may not be backdated for the purpose of challenging actions more than two years before the date of the bankruptcy decree or the filing of a reorganisation proceeding (concurso preventivo). As per the ABL, certain transactions performed by the insolvent company within the look-back period might be declared void.
Certain acts performed in the look-back period shall be ineffective as a matter of law (section 118 ABL), such as:
Other acts which may detrimentally affect the interests of the creditors, performed within the look-back period, when whoever was party to the act with the bankrupt was aware of the latter’s suspension of payments, may also be declared ineffective. The third party in question must prove that the act did not cause any damage to get a favourable court decision. These actions are only available in the bankruptcy proceeding.
The receiver or interested creditors can file claw-back actions. For this purpose, a challenging action must be brought within a three-year period after the declaration of bankruptcy, by the receiver (with prior approval of the majority of admitted unsecured creditors) or, eventually, by one or more creditors personally.
The ABL provides for valuations of companies and their assets at different stages of the proceedings.
The main reason for a valuation is set forth in section 48 of the ABL for those cases where a debtor’s plan is not accepted by the majority of creditors to reach agreement approval. In such a case, the law provides a mechanism – known as salvataje – described in 6.1 Statutory Process for a Financial Restructuring/Reorganisation. Under this mechanism, creditors and third parties are allowed to make payment proposals to creditors, and once a majority of creditors has been met, the successful third party shall also acquire the company’s equity for a value to be determined by the court based on a valuation prepared by investment banks and financial entities authorised by the Central Bank of Argentina, or by auditing firms with more than 10 years in business.
Furthermore, under section 39 of the ABL, at an earlier stage of the concurso preventivo the receiver shall prepare a general report, where the value of the debtor’s assets and liabilities and other aspects relating to the consistency of its financial statements, management conduct and any allegedly disputable monetary deviations should be estimated.
This report, according to section 52 of the ABL, will be important for the court to determine whether the plan is confirmable on the grounds that it is not abusive. This assessment should contemplate that the amount offered does not entail an excessive reduction"haircut" based on the possibilities of the debtor’s income generation.
In a bankruptcy proceeding seeking liquidation of the debtor's assets, the possibility of liquidation of the entire company as a going-concern through an auction is contemplated. The convenience of this should be assessed by the receiver on reviewing a report containing grounds for this course of action. The auction whereby the sale will be consummated should stipulate a minimum acceptable price for the business, based on the valuation determined by the receiver or appraisers appointed by the court.
See 14.1 Role of Valuations.
Jurisprudence about valuations is quite scarce in Argentina, as decisions over valuations in insolvency proceedings are not subject to appeal and, thus, are not normally published.
The valuation shall be performed by the receiver or appraisers randomly appointed by the court from a list of eligible appraisers provided by the Commercial Chamber.
Reorganisation or Out-of-Court Proceedings
In reorganisation or out-of-court proceedings, valuations shall be made or submitted at different stages of the proceedings, as described in 14.1 Role of Valuations. A general report to be filed by the receiver as per section 39 of the ABL comprises a valuation of the debtor’s assets under a liquidation analysis. The debtor may prepare a discounted cash-flow valuation supporting its reorganisation plan submitted to the court (either in a reorganisation or an out-of-court proceeding) showing that the amount offered does not entail an excessive reduction "haircut" based on the possibilities of the debtor’s income generation. Moreover, pursuant to section 52 of the ABL (to exercise cram-down power to impose the plan on dissident creditors), the receiver may be required to prepare and submit an assessment about a liquidation dividend of creditors in a bankruptcy scenario.
In a bankruptcy proceeding the main goal is to obtain the major value out of the debtor’s assets in the creditors' interests. The valuator – receiver and appraiser – shall first exhaust any possibility to liquidate the company as a going-concern, otherwise, assets shall be individually or jointly sold when assets comprise one or more establishments.