Argentine debtors are now subject to employee take-over under the nation’s recently amended bankruptcy code, signed into law by the nation’s President, Cristina Fernandez de Kirchner. Argentine Bankruptcy Law 24,522 as amended by Law No. 26,684,1 allows employees of a bankrupt company who have established a union or cooperative to (i) suspend the enforcement of claims that are filed by creditors for up to 2 years and (ii) ask the judge to appoint the cooperative as the successor to the debtor’s management. Germany and France may have relatively pro-labor bankruptcy codes but, ¡ay caramba!, Argentina’s modified code borders on the revolutionary.
While the ability to act as a receiver or administrator in managing the debtor’s business and preventing foreclosure by secured creditors are two of the most significant evolutionary developments under the newly amended code, other changes that elevate employee rights above those of creditors in a bankruptcy proceeding (concurso) include:
- bidding to acquire shares or “quotas” representing capital in a cramdown proceeding;
- entering into contracts to bind the debtor’s assets;
- guaranteeing the performance of such contracts with labor credits (labor credits can include salaries and related compensation claims of workers);
- appealing any court decision to discontinue (liquidate) the debtor’s business;
- seeking technical assistance from the Argentine government in managing the debtor’s business;
- purchasing the debtor’s assets at a price reduced by the amount of labor credits owed to the members of the cooperative; and
- exercising certain preferred purchaser rights at the appraised value of the bankrupt company.
By a two-thirds vote, the worker cooperative may petition the Argentine bankruptcy judge to order the continuation of the debtor’s business and the suspension of foreclosure actions for the above-mentioned 2-year period. In this context the worker cooperative may incur additional liabilities for the debtor, provided such liabilities are considered “minimum and necessary” by the receiver and authorized by the bankruptcy judge.
Intentions aside, this “Cure” will likely have unintended consequences, including increased costs of credit and other complications. Commentators believe the Argentine amendments reflect the President’s pro-labor policies to the detriment of Argentine businesses. Of principal concern is the near certainty that the amendments will increase the cost of capital for Argentine businesses, as creditors increase pricing to offset higher risk—if they’re even willing to lend. For example, Argentine attorney Carlos Valiente Noailles of the firm Bazan, Cambre & Orts expresses the concern that these changes to the bankruptcy law may inject additional uncertainty for foreign investors concerned about the current amendments as well as the potential for further pro-labor evolution.
The coming months and years will determine whether the Argentine bankruptcy amendments will be evolutionary or revolutionary. Either way, creditors need to stay informed of the application of these changes to their relative rights and standing in bankruptcy proceedings in this part of our planet. And, of course, we will provide additional updates as appropriate.