Consumer’s Reorganization and Bankruptcy Proceedings: Reform Bills

The necessity to have in our legislation insolvency proceedings adapted specially for consumers, that is individuals with consumer relations debts, has been discussed for a long time. This discussion has particular relevance today as a consequence of the pandemic and mandatory isolation. In this regard, there are currently four reform bills under debate in the Argentine Congress.

Why is the creation of these consumer proceedings so important for this emergency? What are these proposals about?

The Reorganization and Bankruptcy Law was not designed to be used as an instrument for consumers and particularly not for those with low or no income or assets. These proceedings are  too expensive and rigorous, they are slow and complex for the situation of these people.

This debtor’s group ends up being excluded from the proceedings we currently have in our insolvency law. A clear example is the consequence established in the law for those debtors whose insufficient liquidity or assets to pay the proceeding costs: fraud presumption and remission of the docket to the criminal courts.

Due to this exclusion, the consumers will not yet have access to an instrument to allow them to negotiate and reschedule the payments they owe their creditors or in other more extreme cases, to liquidate their assets to obtain debt relief. The result for the inexistence of an insolvency proceeding specific for these types of cases is the accumulation of interest, creditors unable to collect their credits and consumers with difficulties to be reinserted in the formal market.

Below we will analyze the reform bills which are being studied in the Argentine Congress to solve this problem with the creation of new reorganization and/or bankruptcy proceedings specific for consumers.

Reform Bill from Deputies José Luis Ramón (province: Mendoza – party: Unión y Equidad Federal) and Flavia Morales (province: Misiones – party: Frente de la Concordia Misionero)

• Creates new proceedings for consumers, outside the current insolvency law, being processed before the administration or judicial court.
• Broad factual requirement, simple formal requirements and the possibility of proceeding without assets and/or income.
• Effects of the Initiation of the reorganization proceeding: Only related to the consumption credits, suspending the bankruptcy proceedings, the enforcement proceedings and the interests accrue. Can have effects on all the estate if there is a determined majority of consumer credits. The effects of the initiation stated in the current insolvency law have a supplementary application.
• Credits verification: if a creditor did not request their credit verification it would be considered as an acknowledgement of the insistence of credit, relieving the debtor. A later verification is valid, but it prescribes after one year from the initiation.
• Conciliatory stage: in order to obtain a payment agreement (requiring a simple majority). The Administrative Authority can approve it, but if the agreement is not obtained, the file must be remitted to the Court. In that following stage, another conciliatory stage is initiated with the assistance of a conciliator. If neither in the Court the agreement is obtained, a liquidation plan will be drafted, with the possibility of being observed by the creditors, being subject to approval by the judge. If a payment agreement is not fulfilled, a new conciliatory stage would be initiated.
• Possibility to initiate a “liquidation proposal” (with the absolute majority of unsecured creditors and 2/3 of the unsecured credit) to be approved by the judge, with the liquidation of goods with the effect of relieving the debtor of all their obligations. Independent if the product of the liquidation is not enough to pay all the credits (with the exception of certain credits which are excluded). Impossibility to request the initiation of a new proceeding within the term of a year since the finalization of the liquidation proceeding or the approval of a payment agreement.
• This reform bill also establishes a set of rules for the information requirement to creditors related to credits for consumption, with the possibility of debt relief in case of silence and a set of rules for the elimination of the collection of credits through direct discount from debtor’s income.

Reform Bill from Senator Juan Carlos Marino (Province: La Pampa – party: Alianza Cambiemos):

• Almost the same text as the “Familiar Insolvency Model Law for Latin-America and The Caribbean”, drafted in 2011 by the organization “Consumer International” and proposed by the consumer protection associations “ADECUA”, “ADELCO” and “Cruzada Cívica”.
• Administrative proceeding and, in the event of  not obtaining an agreement, remission to the Court.
• Proceedings without any cost for the consumers and with simple formal requirements. Before the administration there is no need for the consumer to have the intervention of a lawyer and before the Court that intervention is offered by the State.
• Factual requirement: insolvency of an individual due to consumption debts product of: employment loss or precarious employment, incapacity, disease, divorce, death of their spouse or assumption or extraordinary costs.
• Effects of the initiation: suspension of patrimonial proceedings, prohibition to hire loans or other obligations without authorization. The initiation of the judicial proceeding also produces de interest’s suspension.
• The authority will determine the credits and draft a “economic remediation plan” with the assistance of a “technical team” and a conciliator. If the agreement of all the creditors is obtained, it will be approved, if not the case must be remitted to the Court (with the judicial and accountant assistance of the State).
• The first stage in Court will be a conciliatory one, but If the agreement is not obtained, the judge will impose a “reorganization plan” (maximum fulfillment period of 5 years), which can be appealed.
• Prohibition to initiate a new proceeding during the first two years after being conclude a previous one.
• Fine application for debtors due to their non-attendance to the Court or fraud (being the process extinguish) and for creditors due to procedural bad faith.
• Suppletory application of the Consumer Protection Law.

Reform Bill from Deputies Luis Di Giacomo (Province: Río Negro – party: Juntos Somos Río Negro), Pablo Ansaloni, Jose Luis Ramon, Antonio Carambia (Provinces: Buenos Aires, Mendoza and Santa Cruz – party: Unidad y Equidad Federal), Flavia Morales, Ricardo Wellbach and Diego Sartori (Province: Misiones – party: Frente de la Concordia Misionero)

• Creates within the Insolvency Law a special reorganization proceeding for consumers under an employment relationship (and for Small and Medium-sized enterprises and self-employed workers), with a judicial proceeding.
• Factual requirement broader than those established in Insolvency Law, simpler formal requirements and without any cost for consumers.
• Intervention of a conciliator (official receiver under “B” category) with the same rights and obligations as any receiver.
• Creates a new conciliation stage: In order to obtain a payment agreement, with the assistance of the conciliator and the celebration of several hearings. It admits the possibility to make different proposals for creditors in the same category. During this stage all the patrimonial proceedings and the enforcements proceedings will be suspended, and the precautionary measures will be lifted (with the possibility of the creditor to make their deposition). In addition, apart from the public services, it is forbidden to suspend or interrupt the healthcare and educational services of the debtor and their family group due to debts caused before the date of the initiation of the proceeding.
• Agreement approval: the judge is in charge and can adjust them under supported arguments. In this case, a “rescue plan” will be denominated and it will be mandatory for all the creditors. The law will establish a minimum limit depending on each creditor category (e.g. for unsecured creditors a minimum floor of what they would have received in case of a bankruptcy and for fiscal creditors the payment plans they have will be obey). This resolution can be appealed by a nullity action only, due to debtor fraud, in which case the bankruptcy will be declared.
• In the event of unfulfillment of the agreement/rescue plan, the bankruptcy will not be declared, but a new negotiation stage will be opened with the assistance of the conciliator. In case payment agreements are not obtained or if a new fulfillment of the debtor is observed, the liquidation without bankruptcy will be declared.
• This liquidation without bankruptcy can also be requested directly by the debtor or as a conversion of a previous bankruptcy. It will have the intervention of the conciliator (in charge of the assets realization) and will have similar effects as the bankruptcy under the Insolvency Law but excluding the family home and donated goods.

Reform Bill from Deputies Gustavo Bevilacqua and Alejandro Grandinetti (Province: Buenos Aires and Santa Fé – party: Federal Unidos por una Nueva Argentina)

• Reforms the reorganization proceedings under the Insolvency Law for individuals in order to make them simpler and faster.
• The receiver role will be carried out by an accountant official expert.
• Imposes to the judge’s certain obligations to avoid the freezing and/or delay of the proceeding, to attempt a conciliation and order the production of the evidence to discover the consumer’s financial situation.
• The judge can reduce interests considered disproportional or against law.
• Creates the figure of the “not diligent creditor” (the one who gives the consumer credits above their payment capacity as per available information in the Argentine Central Bank) and the “fraudulent financial usury” (financial creditors who apply interests to the interests, causing an interest capitalization), being able the judge to impose to those creditor fines and also mandatory payment plans to avoid the impossibility of obtaining the required majorities to obtain a payment agreement.
• A “simplified evidence hearing” is created once the credits are determined, in order to let the debtor to obtain an agreement with their creditors. If an agreement is not obtained, the reorganization proceeding will continue its normal course, as per the Insolvency Law (but with shorter periods).
• The content of the accountant expert “General Report” is simplified and an opinion about the real payment capacity is also required.
• The agreement controller will be the same accountant expert, eliminating the figure of the “control committee”
• The current regime for “small reorganization and bankruptcy proceedings” is abolished.

Conclusion

These Reform Bills imply some progress, not only by placing the subject in the legislative agenda, but also for trying to include some legal instrument needed by the consumers to obtain the free-of-charge proceedings, their simplification and the creation of a special stage to negotiate with the creditors with an assistance from the judge in person or judicial assistants.

However, we understand that these proposals are still not enough. It is necessary to take into account the special situation of those consumers with no or insufficient assets or income or , not only to make a payment proposal but also just for paying their lawyer’s fees.

In our opinion it is vital that this group of consumers has access to shorter proceedings to obtain the obligations relief within a reasonable period.

It would be useful, in these Reform Bill’s debate, to bear in mind the legal instruments that comparative law provides, such as for example the specific proceeding for debtors without liquefiable assets which was included by New Zealand in their Insolvency Law from the year 2006 or the debt relief proceeding for debtors with no possibility of pay, established by the reform of the year 2009 to the England and Wales Insolvency Law.