Court ruling confirms the rejection of APEs of financial entities

On April 28, 2006, Tribunal D of the Commercial Court of Appeals decided to confirm the judgement of the lower court in re: “Banco Hipotecario S.A. s/ Acuerdo Preventivo Extrajudicial”, which decided to reject the filing with the court for its approval of the APE that Banco Hipotecario executed with more than 90% of his financial creditors. For more information on the lower court ruling, please refer to the article “Court rejects APE on financial entities” published in Marval News # 34 on November 30, 2004.

The most important arguments developed by the Court of Appeals are the following:

(i) although there are many differences between both procedures, the characterization of the APE as a subspecies of the concurso preventivo procedure is acceptable and in accordance with law; both proceedings are made up of a contractual act and a subsequent jurisdictional act and their principal objective is to make a contract entered into by a debtor and certain majorities of its creditors binding on all third parties to that contract;

(ii) as an APE is a subspecies of the concurso preventivo procedure and financial entities are not allowed to enter into concurso preventivo proceedings(Sections 2 and 5 of the Bankruptcy Law and Section 50 of the Financial Entities Law), financial entities are not allowed to require the approval of an APE either;

(iii) systems designed by both the Argentine Bankruptcy Law and the Financial Entities Law to reorganize entities are incompatible; in addition, not giving intervention to the Argentine Central Bank in an insolvency proceeding does not seem consistent with a specific legal framework that gives the banking control authority broad powers of intervention; 

(iv) Argentine law does not allow for the dissociation of the financial and banking activities of an entity; consequently there may not be one procedure to banking creditors and another for financial creditors.   

This ruling will constitute a significant precedent for financial entities in restructuring their financial debts in the future.