Financial Trusts - The Argentine Securities Commission added new requirements (General Resolution No 555)

On May 28, 2009, the Argentine Securities Commission (Comisión Nacional de Valores or “CNV”) issued General Resolution No 555 (the “Resolution”), through which the CNV added some new requirements for public offering authorizations regarding financial trusts, and established more duties and obligations for trustees.

Among the new requirements set out by the Resolution, it was established that the trustee (or whoever the trustee delegates the controlling and reviewing duties to) must file a report, together with the initial filing requesting the public offering authorization, informing the actions taken up to that moment to structure the trust and those to be taken during the life of the trust.

In relation to this issue it is important to highlight that, according to the Resolution, is not clear whether the trustee has or does not have the obligation to appoint a controlling agent (agente de control y revision). The report requested by the Resolution could be produced by a participant within the trust structure, not necessarily the controlling agent (for instance, the external auditor).

Furthermore, pursuant to the modifications introduced by the Resolution, the CNV has stated that the trustee may also be responsible as organizer or expert, notwithstanding its direct responsibility in relation to the information contained in the trust agreement, and any other action taken or document executed by same, being at its own responsibility.

Additionally, if the trust assets’ administration were delegated, the Resolution states some new requirements to be complied with and points out that the one ultimately responsible for the administration, collection and custody of the trust assets is in all cases the trustee.

Based on the previously mentioned arguments, the CNV sets forth new requirements in order to delegate the administration and collection of the trust assets, many of which could turn out to be very difficult or almost impossible to instrument.

The Resolution states that in order for the trustee to delegate the administration of the trust assets, the person to which such duty is delegated (the “Administrator”) must produce and deliver to the trustee -on a daily basis- a management and collection report (informe de gestión y cobranza) regarding the trust’s assets, and must deposit the collection of the trust’s assets within three business days as from the date in which such amounts are received. The collection must be deposited in a trust account, exclusively operated by the trustee. We believe that the deposit of the collected amounts in the timeframe previously mentioned might be very difficult or almost impossible to implement (for instance, when the collection is made by payments pursuant to credit card operations, or when the collection is received by the collector in different branches, located in different places throughout the country).

Moreover, according to the Resolution the trustee must have a computer system that allows such trustee to check the collection simultaneously with its payment, in order to have a continuous control over the cash flow. The trust’s external auditor must issue a favorable opinion regarding the system. Such requirement will be enforceable as from October 1, 2009.

It is important to highlight that, notwithstanding the fact that a computer system with such features might be very difficult or almost impossible to implement, in any case it will increase the costs of structuring financial trusts.

Regarding the custody of the trust asset’s documents, the Resolution states that the custody of the documents cannot be delegated in the settlor, except when the settlor is a financial institution governed by Law No 21,526, as amended.

Even though the Buenos Aires Stock Exchange Council’s Resolution No 2/2006, as amended, had previously established such a prohibition, the Resolution is even more restrictive, as the Council’s Resolution No 2/2006 not only excludes financial institutions or affiliates which corporate purpose is complementary to financial services, but it also excludes credit card issuers.

In connection with the delegation of the trustee’s duties, the trustee will have to audit on a permanent basis the exercise of such delegated duties, and will have to produce a monthly report regarding the trust assets management and collection. In such cases in which the administration and collection of the trust assets is delegated, the trustee must hire a substitute servicer and state in the trust agreement the causes for dismissal for the corresponding agents.

To summarize, not only does the Resolution tighten the possibility of delegating some of the trustee’s duties, but it also sets forth that in such case the trustee will be liable for the agent in which such duties are delegated. Furthermore, it sets out new actions to be taken at the moment of creating a financial trust, many of which will considerably increase the costs of its creation.

The Resolution will become in effect to any public offering request filed before the CNV after June 1, 2009 (notwithstanding the requirement that will become effective as of October 1, 2009).

Lastly, some entities related to the local capital market have requested the CNV to reconsider some of the modifications stated in the Resolution. As of the date hereof, the CNV has not modified the Resolution.

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