Argentina: Partial Veto of Argentine Bankruptcy Code Amendments

Originally published on 15 February, 2002

At the beginning of this month (see Argentine Business Law Watch, "Argentine Congress Amends Bankruptcy Code", published February 1, 2002), we reported on the enactment of the Emergency Business and Production Act (Ley de Emergencia Productiva y Crediticia, Law No. 25,563, the "Act"). The Act included several significant amendments to Law No. 24,522 (Ley de Concursos y Quiebras, the "Bankruptcy Code"). At the time of publication, we anticipated the possibility of a line-item presidential veto of the Act and, indeed, today the executive branch issued Decree 318/2002 to accomplish just that. This update reports on the veto and restates the relevant provisions of the Act, as amended. Decree 318 can be found at http://infoleg.mecon.gov.ar/normas/72340.htm

Here are the most significant changes effected by Decree 318:

• 180-Day Stay of Foreclosures and Other Proceedings. The Act had stayed all "ejecuciones" (security interest foreclosures, collection, or other summary proceedings against the debtor or its assets) for a 180-day period. The Act had exempted from this stay certain proceedings, including those related to the litigant’s personal sustenance (e.g. labor claims), claims for obligations incurred after the effective date of the Act, and those proceedings that do not affect the debtor’s homestead or assets used in business. Decree 318 adds to the exclusion from the stay tax collection proceedings brought by the federal government against the debtor or its property.
• Rescheduling of Bank Debt. The Act had required financial institutions to reschedule within 90 days all loans outstanding as of November 30, 2001 "in light of the exchange and cash flow context". The Act had penalized banks failing to reschedule a loan by forcing the bank to reserve against 100% of the obligation. Decree 318 leaves the rescheduling requirement in tact but eliminates the penalty.

The Act’s other significant amendments to the Bankruptcy Code summarized in our prior memorandum and reproduced below were not modified by Decree 318:

• "Exclusivity Period" Extended. Under former rules, the period during which the debtor had the exclusive opportunity to propose a reorganization plan to creditors ranged from 30 to 60 days. The Act extends the exclusivity period to 180 day. Moreover, for reorganization proceedings (concurso preventivo) already commenced, the Act extends the close of the relevant exclusivity period an additional 180 days.
• "Haircut" Limit Eliminated. Previously, the Bankruptcy Code limited the reduction of creditor’s claims to no more than 60% of the verified amount. The Act eliminates this threshold.
• Cram-down Proceeding Eliminated. The Bankruptcy Code provided for a cram-down proceeding in which a creditor or other interested party could propose and obtain acceptance of a repayment plan if the debtor’s plan failed, permitting the proposing party to capitalize the payment to creditors and assume ownership of the debtor’s business. The Act eliminates the cram-down proceeding. If the debtor’s plan is not accepted, the reorganization is converted to a bankruptcy proceeding.
• Guarantor Liability Reduced. The Act limits the liability of guarantors of the debtor’s obligations to the amount of the debt reduced pursuant to the confirmed reorganization plan. This changes prior interpretation that allowed creditors to pursue their claims against guarantors for the full value of the guaranteed obligation.
• Judicial Taxes and Administrative Expenses Reduced. The Act lowers the judicial tax applicable to reorganizations from 1.5% of all verified liabilities to 0.75% of total verified claims included in the confirmed plan. Likewise, the Act lowers administrative expenses (e.g. judicially regulated fees payable to the trustee and debtor’s counsel) payable by the debtor upon plan confirmation from a range of 1% to 4% of total estate assets to a maximum of 1.5% of such total assets for estates with assets greater than $100 million.
• In addition, the following temporary measures which, if not otherwise specified, terminate on December 10, 2003, survived the veto:
• 180-Day Stay of All Involuntary Bankruptcy Petitions. The Act stays the "trámite" (i.e., prosecution) of involuntary bankruptcy petitions against the debtor for 180 days. Subject to further clarification, we understand this stay to not halt the filing of a petition by the creditor, only its ability to "prosecute" or advance it through the courts.
• Relief from Creditor Attachments. The Act restricts or eliminates attachments and other injunctive measures affecting debtor assets involved in the ordinary course of business.
• One-Year Extension of All Current Repayment Obligations The Act declares that all rescheduled payment obligations stipulated pursuant to a confirmed reorganization plan are automatically extended an additional year.

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