Restructuring and insolvency in Argentina: overview

A Q&A guide to restructuring and insolvency law in Argentina.

The Q&A gives a high level overview of the most common forms of security granted over immovable and movable property; creditors' and shareholders' ranking on a company's insolvency; mechanisms to secure unpaid debts; mandatory set-off of mutual debts on insolvency; state support for distressed businesses; rescue and insolvency procedures; stakeholders' roles; liability for an insolvent company's debts; setting aside an insolvent company's pre-insolvency transactions; carrying on business during insolvency; additional finance; multinational cases; and proposals for reform.

To compare answers across multiple jurisdictions, visit the Restructuring and insolvency Country Q&A tool.

This Q&A is part of the multi-jurisdictional guide to restructuring and insolvency law. For a full list of jurisdictional Q&As visit www.practicallaw.com/restructure-mjg.

Julio Rivera Jr, Rivera & Asociados
Contents

Forms of security

1. What are the most common forms of security granted over immovable and movable property? What formalities must the security documents, the secured creditor or the debtor comply with? What is the effect of non-compliance with these formalities?

Immovable property

Common forms of security and formalities. The most common types of security granted over immovable property are the following:

  • Mortgage. A mortgage is a kind of guarantee secured by an interest in immovable property, which does not require handing over possession of the property to the creditor. The guarantee can be offered by the debtor or by any third party, and can be used to secure any kind of obligation.

    A mortgage must be issued by a mortgage deed before a notary public. The mortgage deed must then be registered in the Real Estate Registry.

    If the debtor fails to comply with his secured obligation, the creditor gains the right to foreclose the secured property through summary proceedings. If a mortgage deed is not issued, the security is not created. If a mortgage deed is issued but not registered, the security is created but it is not enforceable against third parties, unless fraud between the debtor and the third party is proved.

  • Security trust. In a security trust, certain property or rights of the debtor are transferred to the trustee, to ensure compliance with the debt. If the debt is not duly discharged by the debtor, the creditor can request the trustee to foreclose the secured property. The trustee must then notify the debtor of this request. The debtor then has a limited time to prove that the obligation has been met. If he fails to do so, the trustee can sell the property to pay the creditor. Any surplus is returned to the debtor. There are no specific formalities for a security trust. General rules apply, therefore if immovable property is secured by a security trust, a deed must be issued and the security must be registered in the Real Estate Registry.

Movable property

Common forms of security and formalities. The most common types of security for movable property are:

  • Security trust. See above, Immovable property.

  • Possessory pledge. The pledged asset is placed in the creditor's possession. If the debtor fails to repay the debt, the creditor can start enforcement proceedings to sell the asset and recover the debt. The creditor will have a privilege against other creditors, to be paid with the sale proceeds. Any surplus will be returned to the debtor. This typeof pledge must be created by a written contract with a fixed date. In case of failure to comply, the contract will not be enforceable against third parties.

  • Non-possessory pledge. The pledged asset remains in the debtor's possession and the creditor's interest is protected through registration of the right at the Registry of Non-possessory Pledges. The registry will issue a pledge certificate in favour of the creditor. If the debtor fails to repay the debt, the creditor can file the certificate at court to foreclose the pledged asset by special summary proceedings. This type of pledge can be created by a contract or public deed. If no instrument is executed, the pledge is not created. If an instrument is issued but not registered, the security is created but it is not enforceable against third parties, unless fraud is proved.

Effects of non-compliance. See above, Immovable property and Movable property.

 

Creditor and contributory ranking

2. Where do creditors and contributories rank on a debtor's insolvency?

Creditors and shareholders are generally paid in the following order of priority on a company's insolvency.

Reserve funds for expenses

Funds must be reserved from the proceeds of sale of the relevant assets to pay:

  • Expenses related to their preservation, custody, management and realisation.

  • Expenses and fees of the court's officers, arising from activities related to those assets.

Creditors with special priority

These claims are paid from the proceeds of sale of the relevant assets:

  • Expenses incurred related to the construction, improvement or conservation of a certain asset of the debtor.

  • Certain labour claims (over existing stock, raw materials and machinery owned by the debtor and located in the workplace).

  • Taxes specifically imposed on certain assets.

  • Claims secured by a mortgage, pledges, warrants, and claims relating to debentures or negotiable papers with floating or special guarantee.

  • Sums owed to a withholding party, due to the item being withheld as of the date of the bankruptcy decree (for instance, until all advance payments and expenses are duly paid, the attorney-in-fact will have the right to retain any of the principal's assets that he may have at his disposal).

  • Claims set out in Chapter IV Law 20,094 (Navigation Act), Chapter VII Law 17,285 (Aviation Act), Article 53 Law 21,526 (Financial Entities Act), and in Articles 118 and 160 Law 17,418 (Insurance Act).

Preferences apply exclusively to the principal amount of the claim, except for certain interests over labour claims and claims secured by mortgage and pledges.

Administrative expenses and fees

Expenses arising from the preservation, administration and liquidation of assets of the debtor, including the receiver's fees.

Creditors with general priority (labour claims)

The following labour claims without special priority are paid next:

  • Salaries and family allowances owed to a worker for a maximum six-month period.

  • Compensation for labour accidents.

  • Severance payments.

  • Any other claim from the labour relationship, including interest and legal costs.

Other creditors with general priority

The following claims have general priority to be paid next (up to 50% of their claims):

  • Social security claims, family allowances and unemployment funds.

  • If the debtor is an individual:

    • customary funeral expenses;

    • illness-related expenses during the last six months of his life; and

    • expenses related to lodging, food and clothes for the insolvent and his family, during the six months before the bankruptcy filing.

  • Principal amount of taxes and rates owed to the national, provincial and municipal treasury.

Unsecured creditors and unpaid non-labour claims with general priority

These are paid next.

Contractually subordinated claims

These are paid next.

 

Unpaid debts and recovery

3. Can trade creditors use any mechanisms to secure unpaid debts? Are there any legal or practical limits on the operation of these mechanisms?

Apart from secured rights (see Question 1), a trade creditor can secure the payment of unpaid debts with a fianza (a third-party guarantor) or with credit risk insurance (seguro de caución).

 
4. Can creditors invoke any procedures (other than the formal rescue or insolvency procedures described in Questions 6 and 7) to recover their debt? Is there a mandatory set-off of mutual debts on insolvency?

Before the filing of formal rescue or insolvency proceedings, creditors can exercise all pre-bankruptcy remedies. For example:

  • Precautionary measures (for example, an attachment order over the debtor's assets). A party seeking a precautionary measure must show a likelihood of irreparable harm unless the measure is granted (periculum in mora), and a substantial likelihood of success on the merits (fumus boni juris).

  • Executory proceedings. In certain cases, creditors can resort to executory proceedings, which the debtor can only oppose with certain limited defences. For instance, a creditor with a security interest over a debtor's real or personal property, or creditors who hold an enforceable document which grants the right to execute an obligation to pay liquid (or easily converted into liquid) funds (such as cheques and promissory notes).

  • Ordinary court proceedings.

The Bankruptcy Law authorises the set-off of mutual pre-petition claims (Article 130, Bankruptcy Law).

 

State support

5. Is state support for distressed businesses available?

There is no specific provision in the Bankruptcy Law for state support for distressed businesses. The state may offer financial help on a case-by-case basis, based on mostly political considerations.

 

Rescue and insolvency procedures

6. What are the main rescue/reorganisation procedures in your jurisdiction?

Judicial restructuring (concurso preventivo)

Objective. The main aim is to allow the debtor to restructure its outstanding debts while maintaining the administration of its estate.

Initiation. A judicial restructuring can only be filed by the debtor. In particular, the following parties can file a judicial restructuring petition (Article 2, Bankruptcy Law):

  • Individuals.

  • Private legal entities.

  • Legal entities partly or totally owned by the national, provincial or municipal government.

  • A deceased's estate (as long as it remains separate from the heirs' estate).

  • Debtors domiciled abroad with respect to assets located in Argentina.

Insurance companies and financial entities cannot file a judicial restructuring.

An application for judicial restructuring must include the following:

  • The date and an explanation of the causes of the cessation of payments.

  • Certain corporate documents.

  • A statement of assets and liabilities.

  • A list of all creditors (with the amount of their claims, their origin and due dates, and any co-debtors or guarantors).

  • The previous three year's financial statements.

Substantive tests. A debtor must be in cessation of payment, which is understood as not being able to regularly meet its obligations when they become due.

Consent and approvals. The debtor has an exclusivity period during which it can negotiate a restructuring plan with its creditors. Only creditors with claims that have been admitted by the bankruptcy court can vote on the plan.

A restructuring plan is approved if the debtor obtains the consent of both:

  • An absolute majority (that is, more than 50%) of unsecured creditors in each category of creditors.

  • Unsecured creditors holding at least two-thirds of the total outstanding amount of the unsecured claims in each category.

A debtor can also propose a restructuring plan to creditors with general and special priority:

  • A plan for creditors with general priority must be approved by the same majorities for approval of a plan for unsecured creditors (see above).

  • A plan for creditors with special priority must be approved by every creditor.

Once a plan is duly approved by the creditors, it must also be confirmed by the bankruptcy court, which has power to reject the plan if it is abusive, discriminatory or fraudulent. The court also has the power to confirm a plan that has not been approved by the required majorities in every category, but has been approved by at least both:

  • One category of creditors.

  • Creditors representing at least 75% of the outstanding amount of unsecured claims.

Supervision and control. The debtor maintains the administration of its estate under the supervision of a receiver (síndico) appointed by the court. The debtor cannot pay any pre-application claims, and must request the court's authorisation to perform any act exceeding the ordinary course of its business (such as disposing of certain assets).

Protection from creditors. A filing of a judicial restructuring involves a:

  • Suspension of interest accruing on pre-application claims, except for claims secured by a pledge or a mortgage and certain labour claims (salaries and compensation). Interest accruing after the filing can only be collected from an amount obtained from the foreclosure of collateral.

  • Stay on pending collection actions (procesos de ejecución) and prohibition of new legal actions based on pre-application claims. This does not apply to creditors holding security interests (pledges or mortgages), who are allowed to initiate or continue with their actions to foreclose their collateral. However, the debtor can request the suspension of the auction for 90 days, in case of evident need and urgency.

  • Prohibition on suspending public services (electricity, gas, telephone, and so on) on the ground that the debtor failed to pay pre-application debts.

  • Possibility to request the lifting of any precautionary measures over the debtor's assets, if necessary for it to continue with its ordinary commercial activity.

Length of procedure. This depends on the complexity of the case and the jurisdiction in which the petition has been filed. In certain provinces, the courts are very debtor-friendly and the judicial restructuring may last for many years.

Conclusion. If the bankruptcy court confirms the restructuring plan approved by the creditors, it becomes binding on all non-consenting creditors. When the plan has been totally fulfilled by the debtor, the court must issue a declaration of fulfilment of the plan. The debtor cannot submit a new application until one year has elapsed from the date of the judicial declaration of fulfilment.

If the debtor fails to obtain the required approval of its plan or if the court refuses to confirm it, the debtor will be declared bankrupt and a liquidation proceeding (quiebra) will automatically begin. However, in the case of certain debtors (corporations, limited liability companies, co-operatives, and legal entities in which the national, provincial or municipal estate is a shareholder), section 48 of the Bankruptcy Law sets out a special procedure designed to avoid automatic liquidation of the debtors' assets. During this procedure, any third party and the debtor can try to obtain the creditors' consent to a new plan. If a third party manages to obtain the required approvals for the plan, the shareholders must transfer their shares to the third party.

Out-of-court restructuring (Acuerdo Preventivo Extrajudicial) (APE)

Objective. The purpose of an APE is to negotiate a restructuring plan outside the formal framework of a judicial restructuring. If the debtor obtains the approval of the required majorities, it can submit the plan for judicial confirmation. The plan will bind all unsecured creditors when judicial confirmation is obtained.

Initiation. The judicial phase of the APE beings when the debtor files for confirmation of the plan. Its application must include:

  • A statement of assets and liabilities.

  • A list of creditors.

  • A list of pending lawsuits.

  • The amount of capital represented by the creditors who have signed the APE, and the percentage they represent compared to all debtor's registered creditors.

Consent and approvals. A plan is approved if the debtor obtains the consent of both:

  • An absolute majority (that is, more than 50%) of unsecured creditors in each category of creditors.

  • Unsecured creditors holding at least two-thirds of the total outstanding amount of the unsecured claims in each category.

The plan must then been confirmed by the court, which can reject it if the plan is abusive, discriminatory or fraudulent.

Supervision and control. No receiver is required to be appointed by the court. On exceptional occasions, the courts have appointed one.

Protection from creditors. During negotiation of the plan, there is no stay on debt collection. Once the debtor submits the APE for confirmation and the legal announcement required by law is published, all pending collection actions are suspended.

Length of procedure. The procedure is significantly shorter than a judicial restructuring. In most cases, the judicial phase of the APE will not last more than a year.

Conclusion. If the court confirms the restructuring plan approved by the creditors, it becomes binding on all non-consenting unsecured creditors. When the plan has been totally fulfilled by the debtor, the court must issue a declaration of fulfilment of the plan. If the court does not confirm the plan, the debtor will not be declared bankrupt (quiebra).

 
7. What are the main insolvency procedures in your jurisdiction?

Liquidation proceedings (quiebra)

Objective. The purpose is to sell all the assets of the debtor and distribute the cash among the creditors.

Initiation. A debtor can be declared bankrupt if its judicial restructuring plan fails (see Question 6), or at the direct request of a creditor or the debtor.

Substantive tests. To be declared insolvent, a debtor must be in cessation of payments. This is understood as being unable to regularly meet its obligations when they become due.

Supervision and control. The main consequence of liquidation proceedings is that the debtor is dispossessed of all its assets. A receiver is appointed by the court to convert all the assets into cash and distribute this among the creditors.

Protection from creditors. A declaration of insolvency means:

  • All creditors can only exercise their rights over the debtor's assets in the manner set out in the Bankruptcy Law. Pending collection actions (procesos de ejecución) are stayed. Creditors with a security interest (pledge or mortgage) can initiate foreclosure at any time and separately (concurso especial).

  • The suspension of the accrual of interest. However, regular interest accrued after this on claims guaranteed by security interests can be collected, up to the limits of the proceeds of the encumbered assets. Labour claims are also excepted from the general suspension rule.

Length of procedure. Liquidation proceedings are very inefficient and can last for several years.

Conclusion. Liquidation proceedings can be terminated:

  • Due to lack of assets, which involves a presumption of fraud.

  • On final distribution. The receiver must file a final report detailing all the acts performed to liquidate the debtor's assets, and propose a distribution plan.

  • If the debtor obtains the consent of all its creditors (avenimiento).

 

Stakeholders' roles

8. Which stakeholders have the most significant role in the outcome of a restructuring or insolvency procedure? Can stakeholders or commercial/policy issues influence the outcome of the procedure?

Stakeholders' roles depend on the type of procedure.

In an out-of-court restructuring (APE), the debtor and the judge have the most important role.

In a judicial restructuring, the receiver will also play a very significant role, because he has to give his opinion on the proof of claims and the courts generally follow it. Although the law contemplates the creation of a creditors' committee, it is difficult for creditors to influence the outcome of the proceedings. In practice, most creditors are not generally interested in involving a creditors' committee. Secured creditors may have more negotiating power.

In a liquidation, the receiver is the most important player. Labour creditors also play a significant role, because the former workers may form a co-operative and request continuation of the debtor's activity, and even acquire the debtor's assets as a unit. In this regard, auction proceeds may be set off against the amount of the labour claims.

 

Liability

9. Can a director, partner, parent entity (domestic or foreign) or other party be held liable for an insolvent debtor's debts?

Directors and third parties under the Bankruptcy Law

Representatives and administrators who have fraudulently caused, facilitated, allowed or aggravated the debtor's financial situation or its insolvency must compensate any damage caused (section 173, Bankruptcy Law).

Any third party who in any manner participated fraudulently in actions tending to reduce the debtor's assets or exaggerate its liabilities, before or after the bankruptcy declaration, must return assets that are still in his possession and compensate any damage caused (section 173, Bankruptcy Law).

These acts must have been performed up to one year before the date of the cessation of payments declared by the court. Related legal actions must be initiated by the receiver with the consent of a majority of the unsecured creditors. If the receiver does not file an action, each creditor will have legal standing to do this.

Directors and shareholders under the Commercial Companies Law

The Bankruptcy Law does not prevent filing a claim against directors and shareholders under the Commercial Companies Law. These claims must be filed by the receiver, and it is debatable whether he must be previously authorised by the creditors.

Bankruptcy extension

The debtor's bankruptcy can be extended to another party in the following circumstances (section 161, Bankruptcy Law):

  • A person, under the appearance of acts of the bankrupt, acts in his personal interest and disposes of the assets as if they were his own, in fraud to its creditors.

  • A person controlling the insolvent company has unduly deviated from the corporate interest of the insolvent company, subjecting it to unified management in the interest of the controlling company or the business group to which it belongs. A controlling party is defined as either:

    • a person who directly or through another controlled company holds an interest, under any title, which grants it the votes required to adopt corporate decisions;

    • each person who, acting jointly, holds an interest in the same percentage as that mentioned in the previous sub-bullet point.

  • A commingling of assets and debts between the bankrupt and a third party, which prevents the clear delineation of the assets and debt.

 

Setting aside transactions

10. Can an insolvent debtor's pre-insolvency transactions be set aside? If so, who can challenge these transactions, when and in what circumstances? Are third parties' rights affected?

During the suspicious period, the following acts are invalid by law with respect to the creditors (section 118, Bankruptcy Law):

  • Gratuitous acts.

  • Advance payments of debts due on the day of the bankruptcy or subsequently.

  • Granting mortgages, pledges or other preferences, with respect to obligations which have not matured and originally lacked such security.

Any other act detrimental to creditors during the suspicious period can also be declared invalid with respect to the creditors, if the party to the act was aware of the state of suspension of the debtor's payments (section 119, Bankruptcy Act).

The suspicious period runs from the date of the cessation of payments until the date that insolvency is declared by the court. The date of the cessation of payments cannot be set as more than two years before the date of the declaration of insolvency.

A related legal action must be filed by the receiver with the consent of a majority of unsecured creditors. If the receiver does not file any action, each creditor has legal standing to do it.

 

Carrying on business during insolvency

11. In what circumstances can a debtor continue to carry on business during rescue or insolvency proceedings? In particular, who has the authority to supervise or carry on the debtor's business during the process and what restrictions apply?

In a judicial restructuring, the debtor maintains the administration of its estate under the supervision of the receiver. The law also orders the formation of a creditors' committee when proceedings begin, but in practice it has little influence.

During liquidation, the court can authorise the continuation of the business under the administration of the receiver. The court's authorisation should be granted:

  • If an interruption will lead to a substantial reduction in the realisation value of the debtor's assets.

  • To conclude a production cycle.

  • If the company is economically viable.

  • To preserve the workers' employment.

 

Additional finance

12. Can a debtor that is subject to insolvency proceedings obtain additional finance both as a legal and as a practical matter (for example, debtor-in-possession financing or equivalent)? Is special priority given to the repayment of this finance?

A debtor in a judicial restructuring can obtain additional finance. In practice, it would be difficult without offering some guarantee. This would be a post-application claim not subject to the restructuring plan. In case of non-payment, the creditor can initiate all ordinary actions available. In case of liquidation, no special priority of repayment of the additional finance is given.

 

Multinational cases

13. What are the rules that govern a local court's recognition of concurrent foreign restructuring or insolvency procedures for a local debtor? Are there any international treaties or EU legislation governing this situation? What are the procedures for foreign creditors to submit claims in a local restructuring or insolvency process?

Recognition

An insolvency declaration issued by a foreign court constitutes grounds to open insolvency proceedings in Argentina, at the request of the debtor or a local creditor. A creditor is considered to be local if his claim is to be satisfied in Argentina, regardless of his nationality or domicile.

The only purpose of the insolvency proceedings in this case is to sell the assets located in Argentina and distribute the proceeds among local creditors.

The bankruptcy declared abroad cannot be invoked against local creditors to dispute their rights over the assets located in Argentina, nor to set aside any agreement that they may have entered into with the debtor.

Concurrent proceedings

If the debtor is also declared bankrupt in Argentina, the creditor in the foreign bankruptcy proceedings can enforce their claims on the balance, once the other claims recognised in Argentina have been satisfied.

Procedures for foreign creditors

To obtain recognition of his claim, a foreign creditor (whose claims are to be satisfied in a foreign country) must prove that a creditor whose claim is satisfied in Argentina could file a proof of claim in that foreign country on equal conditions with other creditors (reciprocity standard).

 

Reform

14. Are there any proposals for reform?

There is currently no significant proposal for reform.

 

Online resources

InfoLEG, Argentina

W www.infoleg.gov.ar

Description. All Argentine statutes (in Spanish) can be found on this website. It is an official site managed by the Ministry of Economy.



Contributor profiles

Julio Rivera Jr, Partner

Rivera & Asociados

T +54 11 4373 0309
F +54 11 4372 2918
E julioriverah@rivera.com.ar
W www.rivera.com.ar

Professional qualifications. Lawyer (Universidad Católica Argentina, 1997), LL.M (Harvard Law School, 2000); Ph.D in Law (Universidad de Buenos Aires, 2008)

Areas of practice. Bankruptcy law; international commercial arbitration; complex commercial litigation.

Recent transactions

  • Currently represents two oil companies in two different ICC arbitration proceedings, concerning the gas export restrictions set by the Argentine government.
  • Represented Chevron Argentina in the enforcement of a preliminary measure issued by an Ecuadorian court, ordering the embargo of its assets for an amount up to US$19,021,552,000.

Languages. Spanish, English, French

Professional associations/memberships. Member of the Colegio Público de Abogados (Buenos Aires); the American Bar Association (Section of International Law); the Argentine Association of Comparative Law.

Publications. Recent publications include:

  • Argentina, in Garcia Bolivar, Omar and Otero, Hernado ( eds), Recognition and Enforcement of International Commercial Arbitral Awards in Latin America, 2014.
  • La revisión judicial del laudo en Argentina: aspectos constitucionales, en Revista Arbitraje Pontifica Universidad Católica del Perú (Septiembre 2014).
  • La aplicación de la Convención de Nueva York sobre reconocimiento y ejecución de sentencias arbitrales extranjeras por parte de los tribunales de América Latina, en Revista del Colegio de Abogados de la Ciudad de Buenos Aires ( Diciembre 2013).
  • El principio de independencia e imparcialidad de los árbitros y el pedido de exclusión del proceso de los abogados de la contraparte, Sociedad Libre, nº 26, octubre 2011.

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