Trusts under the New Argentine Civil and Commercial Code

On October 1, 2014, the Federal Congress enacted Law No. 26,994 approving the Argentine Civil and Commercial Code (the “New AC&CC”). The New AC&CC that will come into effect on January 1, 2016 introduced amendments relative to trust law.
 
Trust agreements are regulated in Chapter 30 of the New AC&CC, based on Law No. 24,441 (the “Trust Law”), which currently governs the matter. In relation to the Trust Law, the provisions of the New AC&CC incorporate the suggestions of legal scholars and case law with respect to certain issues of interpretation and application of trust law.
 
The main changes are the following:
 
a. The trustee may be a beneficiary
 
The Trust Law that is currently in force is silent on the possibility of the trustee being a beneficiary of the trust. While some legal scholars interpret Section 7 of the Trust Law –which establishes that “[t]he agreement may not exempt the trustee… from the prohibition to acquire the trust assets”– is sufficient basis to argue that the trustee cannot be a beneficiary of the trust, other scholars take a more restrictive stance, or even distinguish according to the kind of trust in question.
 
The last paragraph of Section 1673 of the New AC&CC expressly establishes that the trustee can be the beneficiary of the trust, but that “[in] such case, [the trustee] must avoid any conflict of interest and privilege the interests of the remaining parties to the agreement”. This amendment allows the inclusion of the warranty trust, as described in point c. below. 
 
As regards the residual beneficiary (fideicomisario), Section 1672 of the New AC&CC states that the trustee may not be the residual beneficiary. 
 
b. Assets subject to the trust
 
Section 1670 of the New AC&CC introduces the possibility that a group of assets (universalidad de bienes) - for example, goodwill) may be subject to the trust. In addition, as regards inheritance trusts, Section 2493 of the New AC&CC provides that the testator may create a trust over all, or an undivided share of, the inheritance, with the exception of the rights of the heirs over the statutory proportion of the inheritance corresponding to them under law (legítima). Nonetheless, Section 1670 cited above expressly prohibits trusts over future inheritances.
 
Moreover, the AC&C has clarified that in rem guarantee rights cannot be transferred without their secured credit secured, and thus, cannot be subject to a trust. In this sense, Section 2186 of the AC&CC provides that “…in rem guarantee rights are accessory to the secured obligation, are not transferrable without the secured obligation and are terminated with the secured obligation, except when determined by law…” Thus, the discussion of whether or not it is possible to transfer an in rem security right to the trustee for purposes of creating a collateral agent structure pursuant to which the trustee is the holder of a pledge or mortgage for the benefit of the creditors under a credit facility has been resolved. It is now clear that, under the provisions of the New AC&CC, this is not possible.
 
c. Warranty trusts
 
The New AC&CC introduces warranty trusts (fideicomisos de garantía), by establishing in Section 1680 that if the trust is created for such purposes, the trustee may apply the sums of money constituting the trust property, including from judicial or extrajudicial recovery of claims or rights in trusts, to the payment of the secured obligation. Thus, the New AC&CC ends any discussion on the legality of warranty trusts, that unlike financial and inheritance trusts, are not covered by the Trust Law.
 
d. Obligation to purchase insurance
 
Section 1685 of the New AC&CC states that "without prejudice to [the trustee’s] responsibility, the trustee is required to purchase insurance against civil liability to cover damage caused by the things subject to the trust". It also provides that when the trustee does not purchase insurance or when the insurance coverage proves unreasonable with respect to risk or amounts, the trustee is responsible under the terms of Section 1757. Therefore, in this case, the trustee has strict liability and is liable for the damage caused by the risk or defect of things.
 
Generally speaking, the amendments introduced by the New AC&CC have been well received by legal scholars. The Drafting Committee chose to maintain the structure of the Trust Law, noting that “the current regime does not require profound changes, as it has not shown major problems of interpretation and application, and proved efficient in its application” and, therefore, the systematization and text of the current legislation was maintained, “notwithstanding certain improvements in aspects of language that we understand must be made, and amendments in aspects that the legal scholarship considers necessary…” Thus, it has been noted that the proposed regime does not imply a discontinuity from the existing one, and so the reform should not create uncertainty among trust operators until the new legislation takes effect.