Judicial Foreclosures

Once again the ArgentineGovernment is seeking to remedy the complex conflictual situation existing between creditors and debtors derived from the delay in the performance of obligations and the application of the emergency rules adopted by the Government which affects agreements among individuals by temporarily suspending the judicial foreclosure of certain credits.

On November 28, 2002 Decree No 2415/2002 was published in the Official Gazette. The Decree seeks to turn the judge in judicial foreclosures into a mediator between the creditor and the debtor, in charge of finding a solution for the payment of credits originated prior to the enactment of Law No 25,561.

The rule is only applicable to creditors who are not financial institutions and to debtors who are individuals, as well as micro, small and medium sized companies, as defined in Resolution No 675/2002 issued by the Secretary of the Small and Medium Sized Company and Regional Development of the Production Ministry.

However, even in the cases where the creditor and the debtor are within such categories, certain credits are excluded from this provision:

(a) those credits detailed in section 523, paragraph 5 of the Code of Civil and Commercial Procedure (bills of exchange, credit invoices, bank collection of credit invoices, vouchers or notes, checks and evidences of debit balances in current accounts);

(b) those credits which do not imply by foreclosure the dispossession of the debtor’s only family and permanently occupied home;

(c) those of an alimony nature;

(d) those derived from the debtor’s liability for the commission of criminal offenses;

(e) those derived from labor relations;

(f) liability insurance; and

(g) the liquidation of the assets of the bankrupt.

The rule empowers the judge to summon the parties to a conciliation hearing, prior to establishing the date for the auction of the attached property and, if upon publication of the Decree there is already a date fixed, the judge may also summon the parties and attempt a conciliation. He may do it ex officio or upon request of the parties.

This provision already exists in the Code of Civil and Commercial Procedure, with the same scope. Section 558 bis sets forth that: “During the course of the foreclosure procedure, the judge may –ex officio or upon request of the parties, and if it is advisable under the circumstances– call a hearing for the creditor and the debtor to appear with the purpose of establishing a more rapid and efficient way for cancelling the credit, avoiding unnecessary damages”. Similar powers are granted to the judge by section 36 of the Code of Civil and Commercial Procedure.

The true innovation and real purpose of the Decree is to paralyze the judicial sale of real estate constituting the only family and permanently occupied home of debtors for a term of thirty business days. In practice, this paralysis of the process will result in the suspension of the auction for approximately three months.

The proposed solution is no solution. It seems unlikely that a debtor that did not want or could not pay for almost a year, as from the issue of the first emergency rules in January of this year, would be able, in such a short time, to restore its financial situation and cancel the credit, or to enter into a settlement agreement with its creditor which it has not been able to reach before, during the period of suspension of foreclosures set forth by Laws No 25,563 and No 25,589.