Request of judicial cancellation: The cost of not complying with the payment of attorney’s fees

A lawyer who assisted a corporation incorporated under the laws of Uruguay and other parties in court proceedings and who was therefore entitled to collect her court fees from her clients reported to the Public Registry of Commerce of the City of Buenos Aires (the “PRC”) that she could not collect them as a consequence of transactions carried out by these companies with the sole purpose of fraudulently avoiding to pay her fees.

The companies involved are one Argentine corporation and three companies incorporated in Uruguay and governed by Law No 11,073 of Financial Investment Corporations (SAFI) (the “Uruguayan Companies”).The Uruguayan Companies have been not registered with the PRC.

The fraudulent transaction consisted in the repeatedly purchase of the share capital of the local company between the Uruguayan corporations. Those shares were the only assets of the Uruguayan Companies. Additionally, the only asset of the local company was an important piece of real estate in the Province of Buenos Aires.

The PRC produced the following evidence: verification of the local company’s files at the PRC, (including the presentation of its annual financial statement), domicile verifications, testimonies of the local company’s President, its managers, accountant and foreign companies’ representatives, etc. The PRC also analyzed the evidence provided by the attorney, such as the foreign companies’ by-laws, share purchase agreement, notarial acts executed in Uruguay, copy of companies’ books, etc.

From the evidence the PRC concluded that:

i The Uruguayan Companies did not have a substantial legal personality, and had been used by an Argentine individual in order to hide his assets. As a consequence, the PRC declared the foreign companies’ legal personality invalid and attributed its acts and equity to the individual.

ii The local company’s acts deviated from the corporate purpose, and therefore the corporate veil of the company should be disregarded and its assets attributed to the individual.

Therefore, on January 9, 2006 the PRC enacted Resolution No 51 requesting that the courts cancel the local company and attribute its assets to the individual. It declared that the local company shareholders’ meetings were irregular and ineffective and imposed a fine of AR$ 5,000 to each of its managers for the irregularities