Restructuring and Bankruptcy Law Reform Bills due to Pandemic

The entire world is facing an unprecedented economic crisis due to the pandemic and the measures which had to be taken in most countries to control it, principally the one related to the social isolation.

This crisis has a direct negative impact on business operations; in particular, on most of the population’s economic situation.

With the submission of several law projects to partially reform the current Restructuring and Bankruptcy Law, the Legislative Branch intends to introduce legal instruments to find a solution for this crisis. The conservation of business and employment are their main objective.

Similar to the situation occurred after the 20001 crisis with the approval of the Laws No. 25.563 and 25.589, which modified the restructuring law, as its essential and most important changes the articles related to the Out-of-court settlement Restructuring Agreement, an effective legal instrument for most important private debt restructuring in the economic history of Argentina.

Here are the main points of each bill:

• Deputy Luis Di Giacomo (Province of Rio Negro party: “Juntos Somos Rio Negro”) and others: Creation of a special restructuring system for individuals, micro and small- enterprises and entities under the current system for small restructuring and bankruptcy proceedings. Creation of a “crisis agreement” for the debtor’s employees. In addition, with effect until December 31, 2020, they propose an extension of the “exclusivity period” -the period the debtors have to obtain the creditors acceptance for their proposal- for the debtors under restructuring proceeding, the extension of the period when the approved agreement has to be fulfilled, unenforceability of temporal prohibitions to initiate a new restructuring proceeding for persons which were already involved in that proceeding, creation of a special credit system for the debtors by the Argentine Central Bank, free agreements with the National, Provincial or Municipal State, and suspension of auctions and precautionary measures.

 

• Deputy Ximena García (Province of Santa Fe– party: UCR): With effect until December 30, 2020, propose reforms to the Out-of-court settlement Reorganization Agreement’s system to reduce periods and suspend the enforcement proceedings. In addition, the suspension of bankruptcy proceedings initiated by creditors, the possibility of re-negotiate unfulfilled agreements with judicial approval, the extension of the exclusivity period, the possibility to postpone the approved agreements or to filled new proposals. Finally, it includes the creation of a special credit for debtors under reorganization proceedings.

 

• Senator Silvina García Larraburu (Province of Río Negro – party: Frente de Todos): Suspension for 180 days of bankruptcy proceeding request, judicial and out-of-court enforcements within reorganization proceedings and precautionary measure on certain debtor’s goods.

 

• Deputy Carlos Selva (Province of Buenos Aires – party: Frente de Todos): Suspension of the exclusivity period, judicial and out-of-court enforcements, the periods to fulfill the approved agreements and the bankruptcy proceedings, with effect until December 31, 2020.

 

• Senator Alfredo Luenzo (Province of Chubut – party: Chubut Somos Todos): Reforms to the small reorganization and bankruptcy proceedings, including the Small and Medium-sized Enterprises, with relaxation of requirements, reduction of period, cancellation of precautionary measures and auctions, credit verification in the terms informed by the debtor in case no verification proceeding is initiated.

 

• Senator Esteban Bullrich (Province of Buenos Aires – party: Cambiemos Buenos Aires), Deputy Cristian Ritondo (Province of Buenos Aires – party: PRO) and others: Special system for debtors under a reorganization proceeding to obtain working capital loans, abolition of temporal restriction to initiate a new reorganization proceeding, possibility to renegotiate the approved agreements due to extraordinary circumstances which make their fulfillment impossible. In addition, the same legislators submitted another project which proposes the creation of a new reorganization proceeding much more simplified, with less judicial intervention but more extrajudicial intervention through the assistance and direction of a negotiator.

 

• Deputy Lorena Matzen (Province of Río Negro – party: UCR): With effect during the sanitary and economic emergency, expands the debtors to be included under the small reorganization and bankruptcy proceedings system.

 

• Deputy Brenda Lis Austin (Province of Córdoba – party: UCR): modifies the current small restructuring and bankruptcy proceedings regime: eliminates the requirement of submitting an accountant certification about the labor and social security debts for the initiation of a restructuring proceeding, eliminates the control committee and the exclusion from the rescue regime (“salvataje”).

 

• Deputy Ezequiel Fernández Langan (Province of Buenos Aires – party: PRO) with effect until December 31, 2020 or until the mandatory isolation finishes and during all the procedure of the proceedings initiated during that period, proposes the suspension of the bankruptcy requests, judicial and out-of-court enforcement (excluding credits with real guarantee), extension for 180 days the period to fulfill the authorized agreements and the possibility of implementing “APE’s” in mediation hearing statements, reduction of judicial costs, possibility to request the initiation of an reorganization proceeding and to request the verification of credits digitally (including the documents). On the other hand, establishes the exclusion of the unsecured credit from the Argentine Tax Authority for the majority calculation. Finally, establishes the prohibition for cancelling licenses and concessions due to the initiation of a reorganization proceeding.

 

• Deputy Francisco Sánchez (Province of Buenos Aires – party: PRO): proposes with effect until 31 December 2020, a 180-day extension of the exclusivity period, a 360-day extension of the period of fulfillment of approved agreements (with an interest suspension) and, for the same period, the suspension of the bankruptcy proceedings initiated by creditors and the lifting of the prohibition for requesting a new reorganization proceeding.

 

On the other hand, includes the possibility for the debtor in a reorganization proceeding of contracting loans for labor capital during any stage of the proceeding.

In addition, he proposes the creation – within the current insolvency law – a new reorganization proceeding named “Out-of-court Simplified Reorganization Agreement”, applicable for insolvency cases due to an emergency situation stated by law. It is a judicial proceeding but with the assistance of the official receiver acting as a mediator, who is in charge of drafting a payment proposal for the creditors. The obtention of the acceptance of the creditors representing 60% of the liabilities (excluding fiscal credits and credits with real guarantee) is required. If those majorities are not reached but have a 40% of the creditor’s approval, the judge can impose the proposal on all the creditors (except excluded credits).

 

• Deputy Liliana Yambrun and Jimena López (Province of Buenos Aires – party: Frente de Todos): Includes the possibility of extending for one year the exclusivity period and the period to fulfill with an approved agreement. Suggest the suspension of enforcements against the debtor under a reorganization proceeding (including credits with real guarantees) and the removal of security measures. In addition, suggest the suspension for 180 days of the bankruptcy requests. On the other hand, establishes the access to credit for debtors under reorganization proceedings in order to formulate payment proposals.

 

• Senator María Clara del Valle Vega (Province of La Rioja – party: Mediar Argentina): In cases of sanitary emergency, any care institution which were within the bankrupt assets would be available to be used by the sanitary authority.

 

It should be clarified, that the legislators from the Frente de Todos party (the ruling party) have confirmed during the legislation session that the Argentine Executive is preparing another bill which will be submitted to the Congress.

In our opinion, the summary of the measures proposed by the legislators does not ensure the success of the rehabilitation of enterprises in a state of insolvency.

The difference with the previous crisis is that now there is cash flow and financing problem in most of the economic actors, and the proposals described here do not confront the cause, only the effects.

It is necessary to find a legal instrument to bring together the parties –different creditors and debtors- to make them come to a solution for the fulfillment of their responsibilities and introduce cashflow to help the business economy.

In that way, some of the legal instruments proposed, such as the legal regulation of the loans for debtors under reorganization proceedings – a matter which has been under discussion for a long time- or the proceedings with the intervention of a negotiator or mediator, constitutes a useful legal instrument that, in our opinion, would be useful in the solution of the insolvency.

Once the result desired by the creditors and debtors is obtained, if it is necessary for legal or contractual matters, they would need to use the practical and effective solution of the Out-of-court Reorganization Agreement.