Argentina: Argentine Congress Amends Bankruptcy Code

Originally published on February 1, 2002

On January 30, 2002, the Argentine Congress enacted the Emergency Business and Production Act (Ley de Emergencia Productiva y Crediticia, Law No. 25,563, the "Act"). The Act is an omnibus measure that contains various provisions intended to protect debtors and others perceived as the most adversely affected by Argentina’s prolonged economic slump and recent freeing of the currency. This article focuses on the Act’s amendments to Law No. 24,522 (Ley de Concursos y Quiebras, the "Bankruptcy Code"). As a result, certain significant provisions not directly bearing on bankruptcy law are omitted and discussed in other memoranda. The full text of the Act can be found at http://infoleg.mecon.gov.ar/quiebras.htm.

The controversy of various provisions of the Act has led to speculation that it may be vetoed by the president. The president has the right to veto the entire Act or may exercise a line-item veto right to eliminate certain provisions. This veto right must be exercised within 10 business days. Accordingly, while the measures discussed below represent current law, they are subject to change. We will keep you apprised of events.

Here are the most significant amendments to the Bankruptcy Code:

• "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 allowing 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 to the above-described amendments to the Bankruptcy Code, the Act contains certain temporary measures which, if not otherwise specified, terminate on December 10, 2003. These measures include:

• 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.
• 180-Day Stay of Foreclosures and Other Proceedings. The Act stays all "ejecuciones" (security interest foreclosures, collection, or other summary proceedings against the debtor or its assets) for a 180-day period. Nonetheless, it is unclear if, with respect to foreclosures, the stay is absolute or applies only to the judicial auction of an asset. Exempted from this stay are 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.
• 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.
• Rescheduling of Bank Debt. The Act requires financial institutions to reschedule within a 90-day period all loans outstanding as of November 30, 2001 "in light of the exchange and cash flow context". If the loan is not rescheduled, the Act requires the financial institutions to reserve 100% of the loan.

* * *