Administrative and private actions under Argentine Antitrust Law

1.   Introduction

On December 27, 2002, Room C of the Commercial Court of Appeals (hereinafter the “Court of Appeals”) resolved an interesting case. It rejected the decision of a lower court that had prevented a creditor, that was a competitor of the debtor, from voting and approving a debt restructuring preventive agreement based on the fact that the creditor had a contrary interest due to its condition as competitor of the debtor.

According to the debtor, the creditor in competence was willing to obtain the declaration of bankruptcy of the company under reorganization proceedings, thus eliminating it from the market. The debtor argued that this act was an unfair practice to exclude a competitor from the market, pursuant to Antitrust Law No 25,156 (hereinafter the “Antitrust Law”).

Although the Court of Appeals did not accept the arguments of either the debtor or of the lower court, the judgment has raised a discussion about the different actions that may be initiated as a consequence of conducts that distort competition, performed to the detriment of a company undergoing reorganization proceedings, and the defenses the debtor may assert.

2.   The facts

The debtor, a company involved in the distribution of gas valves and regulators, filed its own petition for reorganization proceedings under the Bankruptcy Law No 24,522 (the “Bankrupcty Law”). Among its creditors, there was a company that within its various lines of business was also involved in the sale of gas valves and regulators.

Once the verification of claims stage had terminated and the receiver had produced his general report, the debtor prepared its proposal of agreement (the “Repayment Schedule”) and started to obtain from its creditors the correspondent approvals. In that instance, the debtor decided to challenge the negative vote of a creditor on the grounds that such creditor had a conflict of interests and that its negative vote meant an unfair competence practice intended to exclude a competitor from the market.

The debtor requested to the Court the exclusion of the creditor in accordance with Section 45 of the Bankruptcy Law and Section 1 of the Antitrust Law. The first section referenced excludes the spouse, the relatives of the debtor within the fourth grade of consanguinity, second of affinity or adopted children, and their assignees within one year prior to the filing of the proceedings from voting the preventive agreement. Section 1 of the Antitrust Law prohibits any act or conduct that limits, restricts, forfeits or distorts competition or of the access to any given market or that may constitute an abuse of a dominant position in a market, to the extent such act or conduct harms the general economic interest.

The lower court accepted the debtor’s request and excluded the creditor in competence from participating in the approval of the debtor´s Repayment Schedule.

3.   The decision of the Court of Appeals

The Court of Appeals, in its decision dated December 27, 2002, resolved to revoke the lower court judgment. Although it was understood that the challenge filed by the debtor was to be analyzed exclusively in accordance with the Bankruptcy Law, the Court of Appeals specifically stated that the matter should be analized according to Section 45 thereof that establishes certain exclusions for the approval of the debt restructuring preventive agreement of debtors undergoing reorganization proceedings and it further pointed out that the lower court had incorrectly applied the Antirust Law.

Firstly, because the Antitrust Law created the National Tribunal for the Defense of Competition as the body in charge of its application. According to the Court of Appeals, the Antitrust Law “creates a system under which the conducts that may constitute practices restrictive of competence are subject to the provisions hereof and within the scope of the National Tribunal for the Defense of Competition, autarchic administrative agency in charge of applying and controlling the compliance of such law”.

Secondly, the Court of Appeals pointed out that the lower court declared that the act was an “unfair competence act” based only on the evidence contained in the file and without taking into account the proceedings established by the Antitrust Law to determine that a conduct may be contrary to competition and constitute a damage to the general economic interest.

In that sense, the Court of Appeals pointed out three aspects that had not been taken into account by the lower court:

(i) The time when the debtor filed the challenge. The first concrete statement referred to “actions” in violation to the fair competence that existed was introduced by the debtor after the voting results of the Repayment Schedule had shown that it was not going to get approved without the competing company’s vote. As stated by the Court of Appeals, the debtor attempted to exclude such vote when it realized that it would not obtain approval by the creditor, and that this was decisive to the result of the Repayment Schedule.

(ii) The debtor did not produce sufficient elements for the “negative vote” conduct to be considered as prohibited in light of the Antitrust Law (i.e., as a limitation, restriction, distortion or forfeiting of the competence resulting in a damage to general economic interest). The debtor did not produce any information about the composition of the market of gas valves and regulator, the competitors and their marrket shares.

(iii) Lastly, the Court of Appeals stated that it was not proved in the proceedings the influence of the sale of products marketed by the debtor in the aggregate of the commercial activity of the creditor with a negative vote.

According to the Court of Appeals, all these aspects “are relevant to be able to settle the dispute, as it cannot be avoided that antitrust laws are aimed precisely at avoiding the formation of economic structures that may affect the correct development of the market and, thus, the evidence produced is quite important, as in this stage the conducts are not considered illegal by themselves, but only if they give rise to an interest contrary to the general economic interest”.

From a bankruptcy point of view, the Court of Appeals confirmed the opinion of most court precedents and legal authors, that the exclusions listed in Section 45 of the Bankruptcy Law must be literally interpreted and, therefore, only creditors included in the cases mentioned therein may be prevented from voting the debt restructuring preventive agreement.

Although the Court of Appeals revoked the lower court judgment and indicated that the petition of the debtor should have been analyzed according to the Bankruptcy Law, the fact that it indicated that the terms of the Antitrust Law were also violated may in the future give rise to a new interpretation of cases in which creditors are prevented from voting a preventive agreement in reorganization proceedings. This interpretation would not be consistent with the actions that any person or entity may initiate under the Antitrust Law.

4.   Actions derived from the Antitrust Law

According to the terms of the Antitrust Law, those persons damaged by conducts consisting in a limitation, restriction, distortion or forfeiting of competence resulting in a damage to the general economic interest are entitled to two actions to safeguard their rights.

The first action is to file a complaint before the National Tribunal for the Defense of Competition, administrative agency in charge of applying and controlling the compliance with the Antitrust Law. For such purpose, it is important to point out that currently the administrative agency in charge of controlling the compliance with the Antitrust Law until the National Tribunal for the Defense of competition is created is the National Commission for the Defense of Competition and the Technical Coordination Secretary of the Ministry of Economy. The Commission or the Tribunal, once created, shall receive the complaints and after certain investigation, may impose to the entity performing the anti-competitive act any of the sanctions set forth in the Antitrust Law, which include orders to refrain from performing the prohibited conduct until fines ranging from Argentine Pesos 10,000 to 150,000,000.

The second action results from Section 51 of the Antitrust Law which establishes that any person or entity damaged by acts prohibited under the Antitrust Law may file a private action for damages pursuant to civil law provisions before any lower court of competent jurisdiction. An indemnification for damages caused by an anticompetitive conduct may be sought, even if the possibility is not mentioned in the Antitrust Law. Section 1109 of the Civil Code states that every person that suffers a damage may seek indemnification. The complaint for damages before a court of competent jurisdiction may be initiated even without a previous decision of the National Antitrust Court. The lower court will have to request evidence indicating that the anticompetitive conduct also caused a harm to the general economic interest, which may be a difficult task without a previous decision from the Antitrust Tribunal indicating so. There is no doubt that the Antitrust Tribunal’s experience in this matter would be very helpful for any lower court.

Any of such actions may be used by any entity or person that, under reorganization proceedings, is certain that any creditor may not grant its approval to a debt restructuring preventive agreement. The debtor would have to thoroughly analyze whether such practice may be considered an unfair competence practice protected by the Antitrust Law. Should an investigation be conducted by the Antitrust Law, this agency may, at any stage of the investigation, instruct by means of a “preventive measures” a cease or refrain order from performing the act or conduct.

The bankruptcy court is not entitled to exclude a creditor from voting the debt restructuring preventive agreement in accordance with the terms of the Antitrust Law, and upon request in relation thereto by a person or entity undergoing reorganization proceedings it must: (i) forward the complaint to the National Tribunal for the Defense of Competition for a resolution on the prospective conduct penalized by the Antitrust Law; or (ii) indicate the debtor that it may also file a private action before a lower court of competent jurisdiction seeking indemnification for the damages produced by the anticompetitive creditor´s conduct.

5.   Conclusion

The judgment clearly shows that the Antitrust Law is not very often applied by courts and the lack of precedents providing somo guidance on how it must be interpreted, though, in the future, it is expected that the number of complaints before the National Tribunal for the Defense of Competition or of claims for damages filed with the courts will increase. There are two different actions for claims based on conducts penalized by the Antitrust Law: (i) an investigation by the National Tribunal for the Defense of Competition; or (ii) a private action filed before the courts.

Section 1 penalizes all acts or conducts that may restrict, limit, distort or forfeit competition on any relevant market. Moreover, Section 2 of the Antitrust Law contains a non-exhaustive list of anti-competitive conducts that are also prohibited. This list includes, among other practices, price fixing, horizontal and vertical market restrictions, coordinations in public bids, excluding competitors from accessing a market, tying arrangements, predatory pricing practices and many other practices. It is very important to point out that any claim (either through a government investigation or a private action) filed under the Antitrust Law must also imply a harm to the general economic interest in order to be prohibited and penalized.

Finally and according to the interpretation of the case commented, any person or entity that is undergoing bankruptcy proceedings and wishes to exclude a competitor on the basis of antitrust restrictions must request the exclusion of the competitor at the National Tribunal of Defense of Competition level or file a private action with a court of competent jurisdiction to seek damages.