General introduction to the restructuring and insolvency legal frameworki Insolvency proceedings
Insolvency proceedings are governed by the Argentine Insolvency Law No. 24,522, as amended, which provides for three different types of insolvency proceedings: (1) two reorganisation proceedings: acuerdo preventivo extrajudicial (out-of-court restructuring agreement, similar to pre-packaged restructurings in the United States); and concurso preventivo de acreedores (the reorganisation proceedings, similar to a Chapter 11 proceeding under the United States Bankruptcy Code); and (2) a quiebra (liquidation proceeding or bankruptcy, similar to a Chapter 7 under the United States Bankruptcy Code).The out-of-court restructuring agreement
The out-of-court restructuring agreement is a private restructuring agreement entered into by the debtor and its unsecured creditors classified in one or more categories. The agreement is binding, unless provided otherwise. If the debtor obtains the consent to the out-of-court restructuring agreement by unsecured creditors within each category representing, more than 50 per cent in number and more than 66.66 per cent in principal amount (the Requisite Majority), then the debtor may file the out-of-court restructuring agreement before a competent court for endorsement.
For purposes of computing the Requisite Majority, the holders of debt securities issued in series must grant their consent at a noteholders' meeting or in such other manner as provided in the documents governing the securities, subject to the court's satisfaction. The headcount and principal majorities at a noteholders' meeting are computed as follows:
- all votes of the noteholders supporting the plan are computed as given by one person and all votes opposing the plan are computed as given by one person;
- the aggregate principal amount of debt securities held by the noteholders that consent to or oppose the plan are added to that of the other creditors also supporting or opposing the plan; and
- in addition, following broadly accepted case law, the principal amount of the debt securities held by the noteholders not attending the noteholders' meeting or abstaining from voting, are not computed in the calculation of the principal majority.
Upon endorsement by the court, the out-of-court restructuring agreement is binding on all unsecured creditors of the same categories.
Filing of a petition for confirmation of an out-of-court reorganisation agreement does not have any effect on secured creditors' enforcement rights on the collateral.Reorganisation proceedings
Reorganisation proceedings is a court-sanctioned reorganisation that is controlled by the court and supervised by a receiver. The filing for a petition for the commencement of a reorganisation proceeding is only voluntary, either through a direct filing for reorganisation by the debtor, or a debtor's motion for the conversion of a bankruptcy adjudication into a reorganisation.
Commencement of a reorganisation proceeding has, among others, the following effects:
- the court appoints a receiver, who supervises the process and the debtor's assets and business during the proceedings; and control committee, which is integrated by the three largest unsecured creditors and a representative of the employees;
- the debtor's financial obligations are accelerated;
- suspension of accrual on interest on unsecured pre-petition claims;
- the automatic stay of pre-petition unsecured monetary claims;
- pre-petition creditors (unsecured and secured) must file proof of claims; and
- the debtor keeps possession and administration of its assets in the ordinary course of business; provided that, the debtor may not incur in any gratuity, or any other act that may result in the alteration of the pre-petition creditors' situation, and, without the prior consent of the court, may not undertake any act on registrable assets (i.e., real state and vehicles), lease or sale of goodwill, issue secured debt or perform any other act beyond the debtor's ordinary course of business.
The debtor has an exclusivity period of 90 business days (that may be extended once for another 30 business days) within which it must formulate a reorganisation plan for each category of unsecured creditors and obtain the consent to it by the requisite majority.
Secured creditors' enforcement rights on collateral will be subject to the filing of proof of the claim and security. Secured creditors constitute one of the mandatory categories of creditors, but any proposal to them, other than the payment in their original terms, requires the consent of all secured creditors.
Commencement of a reorganisation proceeding does not itself affect the rights and remedies of secured creditors on the collateral; provided that in the event of manifest need or urgency the court may order a temporary stay of the realisation of the collateral and a temporary suspension of any injunction enjoining the use of the collateral by the debtor, in both cases for a term not exceeding 90 business days. Any interest accrued during the term of the stay or suspension not satisfied out of the proceeds of the realisation of the collateral will enjoy the preference of administrative expenses in liquidation.Liquidation
The liquidation may be voluntary or involuntary. A voluntary liquidation may be commenced by a petition filed by the debtor. An involuntary liquidation may be commenced by a petition of a creditor or by failure of a reorganisation proceeding. Upon commencement of a liquidation, the court appoints a receiver, who takes possession of the estate and seeks to liquidate the estate's assets and distribute the proceeds among the estate's creditors in proportion to their respective claims, according to their respective preferences.
Among other things, upon bankruptcy adjudication:
- all the debtor's assets (except, among others, for non-monetary rights and non-attachable assets) pass to the estate and are managed by the receiver;
- all creditors (including unsecured and secured) must submit proof of claims before the receiver;
- all claims become due and payable;
- accrual of interest on unsecured claims is suspended;
- all monetary claims against the debtor, including secured claims (except for seizure proceedings, family law claims, ordinary proceedings, labour claims and claims in which the debtor is a joinder defendant) are consolidated at the bankruptcy court; and
- all claims denominated in foreign currency are mandatorily converted into local currency.
Bankruptcy adjudication does not suspend the accrual of interest on the secured claims; provided that interest may only be payable out of the proceeds of the collateral after deduction of the court costs, any preferred interest accrued before the bankruptcy adjudication date (as described above) and principal.
Upon bankruptcy adjudication, all foreclosure proceedings on credits secured with real property are consolidated before the bankruptcy court, and upon bankruptcy adjudication becoming final all individual foreclosure proceedings will be stayed.
Provided that proof of the claim and privilege has been duly filed, secured creditors may request the realisation of the collateral at any time at court. The court will decide whether to admit or deny the request; if admitted, this will proceed at an ancillary special liquidation proceeding.
Despite the foregoing, the receiver may request court authorisation to satisfy the secured credit in full with liquid funds available if maintenance of the collateral is beneficial for the creditors. To this effect, the court may authorise the receiver to grant other securities to the secured creditor or sell other assets.
Immediately upon bankruptcy adjudication, the receiver may decide to continue the business activities of the debtor; this decision must be confirmed by the court. If the continuation is decided, during the term of continuation enforcement of collateral needed for the business exploitation is stayed when (1) the secured credit is not due as of the bankruptcy adjudication date and the receiver performs the obligations due after such resolution in due time; (2) the secured credits are due as of the bankruptcy adjudication date but the security is not admitted by a final and non-appealable resolution; or (3) the secured creditor consented the stay of the enforcement.
In addition, in the case of continuation the court may also order the stay of collateral enforcement proceedings at the request of an employees' cooperative (formed for the purposes of bidding for the purchase of debtor's equity in the competitive bidding process or otherwise requesting the acquisition of debtor's equity prior to liquidation of the estate) for a maximum term of two years.ii Director's duties
Under the Argentine General Companies Law No. 19,550, the directors of the debtor are subject to the duties of loyalty and diligence and may be subject to liability for their violation. The duty of loyalty embraces the obligation to act with the correctness of an 'honest person' and in defence of the interests of the debtor. The duty of diligence requires, among other things, that the director possesses certain minimum qualifications (i.e., technical knowledge and expertise).
When a debtor becomes insolvent, the directors' duties in relation to the creditors are strengthened. The members of the board of directors and representatives that wilfully provoked, facilitated, allowed or aggravated the debtor's economic and financial situation or its insolvency may also be subject to liability. Scholars have concluded that any express decision or omission of the directors that permits the continuation of the insolvent debtor's operations without adopting any measures directed to address this situation may result in corporate liability under the Argentine General Companies Law. Scholars and recent case law agree that liability requires wilful misconduct. Some case law has shown the imposition of a temporary restraining order on the directors of a bankrupt debtor based on the future and eventual liability actions that might be initiated against them.iii Clawback
Pursuant to the Argentine Insolvency Law, certain transactions performed by the debtor within the clawback period are void or voidable. The clawback period is the period from, and beginning on, the date on which the debtor becomes insolvent, that is, generally unable to meet its payment obligations – and ending on the date on which the debtor files the petition for reorganisation or the date on which the debtor is adjudicated bankrupt directly. The clawback period cannot extend back for more than two years from the date immediately preceding the date of the filing of the petition for reorganisation or the date of bankruptcy adjudication, in the event of direct bankruptcy.
The following transactions made by the debtor within the clawback period are void: (1) gratuities; (2) advance payments on account of debts that are due on or after the bankruptcy adjudication date; and (3) granting of security (mortgage, pledge or any other preference) in respect of debts not due and not secured under their original terms.
Any other transactions detrimental to the debtor's creditors made by third parties with knowledge of the debtor's insolvency during the clawback period are voidable. The third party has the burden of proving that the transaction did not cause any detriment to the debtor's creditors.
Any transactions in the ordinary course of business made by the debtor or any transactions not within the ordinary course of business and transfers made by the debtor with the authorisation of the court during a reorganisation process or during the implementation of the reorganisation plan are not subject to the avoidance action.