Amendment of Bankruptcy Law

Under this amendment the company’s workers have increased their rights in a concurso or bankruptcy proceeding, including the following: (i) the workers are entitled to appoint a representative in the provisional and final creditors´ committee, (ii) the workers incorporated as a Labor Cooperative (“Cooperativa de Trabajo”) are entitled to bid for the acquisition of the debtor in the event of a cramdown proceeding and in the bankrupcty; (iii) the Labor Cooperative may request the judge presiding the bankruptcy to suspend the enforcement of claims filed by secured creditors for a 2-year period; and (iv) the Labor Cooperative may be appointed as successor to all managerial powers of the debtor.

The main amendments that Law No. 26,684 introduces to Argentine Bankruptcy Law No. 24,522 are the following:

1. When filing a concurso a report with information on the situation of the workers of the company must be included.
2. Any informative hearing should be notified to the workers by means of a publication in the facilities where those workers carry out their duties (section 14).
3. A "Supervisory Committee" is reinstated for the different stages of bankruptcy, and the workers will have representation on that committee (Sections 14, 42, 45 and 201).
4. The scope of prompt payment to workers is extended. Also, a reserve of 3% of the gross monthly income must be constituted by the company under concurso in order for the receiver to distribute those funds in advance to labor creditors (Section 16).
5. Suspension of the accrual of interest on labor credit upon the resolution of the concurso and bankruptcy of the company is abrogated (Sections 19 and 129).
6. Suspension of the effects of collective bargaining agreements and special status is abrogated (Section 20).
7. A Labor Cooperative is included as a new subject of the concurso and bankruptcy, entitled to:
   
   1. bid in the purchase of shares or quotas representing the capital in the cramdown proceeding (Sections 48 and 48 bis).
   2. enter into contracts on the assets of the bankrupt debtor (Section 186).
   3. secure/guarantee the performance of those contracts with labor credits.
   4. appeal the court decision in which the judge presiding over the bankruptcy declines the continuation of business of the debtor (it is a preferential right that no third parties are entitled to under similar circumstances) (Section 190).
   5. request the Government to provide technical assistance from the company that continues its business through a Labor Cooperative (Section 191 bis).
   6. manage the assets of the bankrupt company in a position as the receiver or the judicial administrator (Section 192).
   7. request the suspension of the foreclosure of the assets of the bankrupt entity in the case the judge decides the continuation of business through the Labor Cooperative (Section 203).
   8. purchase the assets of the bankrupt entity during the bankruptcy proceeding and set-off the labor credits of the members of the Labor Cooperative with the purchase price of the assets (Section 203 bis).
   9. exercise preferred buyer rights at the appraised value determined for the sale of assets of the bankrupt company. It also entitles the judge presiding the bankruptcy to assess the allocation of assets to a person who ensures the continuation of the business by presenting a “business plan” and a commitment to maintain the personnel, even if they have not offered the best price at auction (section 205).
8. The judge presiding the bankruptcy may order the continuation of the company’s business if required by the receiver or to the judge by two-thirds of the current working staff or labor creditors, organized as a Labor Cooperative (incorporated or in formation) (Section 189).
9. The continuation of business of the bankrupt company ceases to be an “exception”. Those managing the business of the company are allowed to incur in new liabilities for the company's business, to the extent those liabilities are considered as “minimum and necessary” by the receiver in its report and are authorized by the judge presiding the bankruptcy (Section 190).
10. Mortgage or lien creditors may request the payment of their claims to the extent that there is a final decision on their title to those securities. However, upon the Labor Cooperative’s request, the court may suspend foreclosure for a two-year period (Section 195).
11. The amendment law sets forth the payment of debts secured with mortgage or pledge not due at the date of bankruptcy by the receiver to the extent that there is a final decision on their title to those securities (section 195).
12. The amendment to Section 199 provides that the buyer of the bankrupt entity shall be responsible for the obligations arising from employment contracts where the buyer had been responsible for the continuation of the business activity resolved by the bankruptcy judge. To the contrary, in the case of Labor Cooperatives this situation is governed by the law governing cooperatives.
13. The new wording of Section 213 seems to hold that a Labor Cooperative is the only person or entity entitled to the direct purchase of assets of the bankrupted entity.

This amendment affects the rights of third parties and creditors, in particular in the event of a cramdown process or a bankruptcy. Therefore, judges of all the jurisdictions in Argentina will have to ensure that the amendment does not lead to abuses that may be committed in prejudice of legitimate creditors or third parties, without affecting the rights of workers granted under this amendment to Law No. 24,522.