Creation of the Registry of Isolated Acts of Foreign Companies - General Resolution PRC No 8/2003

The Public Registry of Commerce (hereinafter, the “PRC”), in order to correctly frame the performance of foreign companies in relation to acts qualified by them as performed in the quality of “isolated”, has issued General Resolution PRC No 8/2003 (hereinafter, the “Resolution”), published in the Official Gazette on October 22, 2003. The Resolution will come into force on the 30th day after the day it is published in the Official Gazette.

The Resolution provides for the creation of the Registry of Isolated Acts for the City of Buenos Aires. This information will be provided by the Registry of Real Estate Property of the City of Buenos Aires. Furthermore, the Resolution grants the PRC the power of demanding information, whether from the foreign company’s legal representative who took part in the act qualified as “isolated” or from third parties and the registries and authorities of the City of Buenos Aires that were, somehow, involved in the act.

Even though the Resolution is only applicable to acts over real estate property registered in the Registry of Real Estate Property of the City of Buenos Aires, the Resolution foresees extending, in due time, its application to acts qualified as “isolated” in relation to assets registered or to be registered with other federal or local registries.

1.     Functioning of the Registry of Isolated Acts

The Resolution provides that the Registry of Isolated Acts will start functioning 180 days after its entry into force. The Registry will contain the data informed to the PRC by the Registry of Real Estate Property of the City of Buenos Aires on those acts qualified as "isolated", "accidental", “circumstancial”, "sporadic" or similar, in operations whose object is the constitution, acquisition, conveyance or cancellation of rights on real estate property.

In accordance with the information received, the PRC may require additional information to third parties (such as the foreign company's legal representative who took part in the act in question, the notary public, the seller of the goods, the debtors of credits guaranteed by a mortgage on real estate, the transferor of a mortgage security, the organization of co-proprietors of a condominium who own the real estate).

Furthermore, if from a first analysis of the foreign company and the act under consideration the PRC presumes that the acting of the company falls under the provisions of articles 118, paragraph 3, or 124 of the Argentine Companies Law (hereinafter “CL”), it may require the legal representative or the legal representatives who took part in the act to comply with article 1, subsections 1) and 2) of the General Resolution PRC No 7/03 which imposes the following obligations:

(a) to inform and give evidence if the foreign company is under any prohibition or legal restriction to develop, in its place of origin, all its activities or the main one or ones;

(b) to show effectively that the foreign company actually functions in a foreign country through: (i) the establishment of one or more agencies, branches or permanent representations; (ii) the ownership of shares or quotas in other companies that are non-current assets; or (iii) the ownership of fixed assets in its place of origin.

When the person who acted as legal representative of the company in a number of acts does not answer the requirement his/her silence may be interpreted as a manifestation of consent.

The PRC will also be able to register the real estate in question so as to determine its destination, the conditions of the economic use and the actual location of the headquarters of the foreign company's administration.

2.     Sanctions in case the foreign company falls under the provisions of articles 118, paragraph 3 or 124 of the CL

Once the information has been gathered, the PRC may determine if the foreign company falls under the provisions of articles 118, paragraph 3 or 124 of the CL. For doing so, the following facts will be considered:

(a) the repetition of acts;

(b) its economic significance;

(c) the domicile of the company located in countries of non-existing or very low tax system;

(d) the destination, usage or economic exploitation of the asset;

(e) the manner in which the representation of the company was handled.

If, based on these elements, the PRC finds that that foreign company falls under article 118, paragraph 3 of the CL, the PRC will be able to require the foreign company to register according to the provisions of the General Resolution PRC No 7/03(1) , under warning of judicially demanding the liquidation of the company's assets and operations.

On the other hand, if the PRC concludes that the foreign company falls under the provisions of article 124 of the CL, it may demand the company adapt its by-laws or articles of incorporation to said law, under warning, of judicially demanding the dissolution and liquidation of the company.

For that purpose, the Resolution foresees the following means for giving legal notice to the foreign company:

i) if the PRC has noted the plurality of acts by the same foreign company, it will give written notice to the legal representative who intervened in more than one operation or in the last one;

ii) if there is only one operation, the written notice will be directed to the legal representative who took part in the operation;

iii) if the legal representative cannot be found, or he/she refuses to accept the legal warning, the legal notice will be published on the Official Gazette (or via radio broadcasting through the stations and channels owned by the State in working hours) for three consecutive days and will be considered effective five days counted as of the day following the last day of publication.