Court of Appeals ruling on APEs

The process for judicial endorsement of Multicanal’s APE has pioneered the definition of several important matters related to the APE.

The lower court resolved several of these matters.

Multicanal filed for endorsement without having obtained the consents required by the Argentine Bankruptcy Law (”ABL”) and requested that the judge call a meeting of the holders of the negotiable obligations issued thereby, allowing them to express their approval or rejection to its restructuring proposal. This preliminary process has been accepted as a “Pre-APE”.It is not contemplated in the ABL and constitutes a jurisprudential creation of a preliminary procedure to be undergone prior to the APE endorsement proceeding itself.

For the purposes of determining the majority of bondholders, the court resolved that the principal amount held by bondholders who are absent or abstain from voting at the meeting should not be counted.The court’s opinion here follows the rulings rendered in the concurso of Sociedad Comercial del Plata and in other reorganization proceedings.By applying this computational system, Multicanal obtained the majorities required by law and the intervening judge ordered the commencement of the APE endorsement process.

The oppositions filed by various creditors also raised interesting legal issues, including, among others: (a) the opposition to the above-mentioned system for determining majorities set forth for the bondholders’ meeting; (b) the interpretation of the formal requirements to express consent required by law; and (c) the constitutionality of the APE and of the ABL rule regulating the granting of consents by bondholders in a voluntary reorganization proceeding (concurso preventivo).

The lower court rejected these oppositions and endorsed the APE subscribed by Multicanal and its creditors. Many of the creditors that had filed oppositions to the endorsement appealed this judgment.

Tribunal A of the National Court of Appeals on Commercial Matters of the City of Buenos Aires rejected these appeals and confirmed the endorsement of Multicanal’s APE. Although the judgment’s arguments are not very extensive, they contain important definitions of matters related to the APE.

The first of those matters is that the APE is a kind of reorganization proceeding different from the concurso preventivo, and that given the legal gaps of the current APE regulations the judge may resort to the rules governing the concurso preventivo to supplement the legislation, but this should not be done automatically, rather in a limited and reasonable way. In our opinion, this definition limits the aim of some judges to transform the APE into a process similar to the concurso preventivo.

The second matter resolved is the application of the ABL regulations to the restructuring of negotiable obligations. The Court of Appeals determined that as the APE is defined by majorities, the unanimity required by the agreement or by law to confirm the restructuring of these debts must be set aside. In another part of its judgment, the Court of Appeals sustained that public order rules, such as the ABL, prevail over agreements, such as the indenture.

As a result of accepting the application of the concurso preventivo rules to the APE, the Court of Appeals also accepted that the provisions on existing negotiable instruments regarding consent (Article 45 bis LCQ) should apply to the APE, thus approving the system for computing bondholders’ majorities set forth by the lower court, as well as the procedure used to call and hold the bondholders’ meeting.Additionally to quoting various Argentine legal precedents to support its ruling, it also referred to the American bankruptcy regime.

Regarding the bondholders’ consent, the Court of Appeals also ruled that to consider that the acceptance of these creditors has been given in the way required by law, it is sufficient to cast an affirmative vote at the meeting. It is not necessary for them to subscribe a written agreement or contract.

Finally, the Court of Appeals dismissed the claim that the rules regulating the APE and the bondholders’ vote contravene the Argentine Constitution. While this judgment does not solve all the matters not specifically provided by the ABL, it makes an important contribution to the judicial definition of several of them.