Regime for Discharge of Financial Debts with Government Bonds

Among other rules, Executive Order 1387/01 of November 1, 2001, provides that (i) corporations that have chosen to avail themselves of a special tax debts capitalization regime contained in the mentioned Executive Order, and (ii) debtors with no tax debts as of September 30, 2001, may discharge their debts to the financial system by delivering government securities in lieu of payment.

Discharge is to take place at the “technical” value of the securities delivered in lieu of payment (facial theoretical value of the security at the time of calculation, taking into account any applicable depreciation and interest), and the financial institutions receiving such securities may allocate them to the debt swap established by the captioned Executive Order (phase 1 of the debt swap known as “megacanje”).

Additionally, and pursuant to Executive Order 1524/01 of November 25, 2001, it is provided that debtors eligible for this regime are debtors which the creditor institutions have included within certain categories established by the Argentine Central Bank (“BCRA”) for the purpose of measuring the solvency of financial system debtors. It is also provided that the amount that may be discharged in this manner is the amount owed to financial institutions as of November 2, 2001, plus any interest until effective discharge.

It is further provided that payment with securities may be made even prior to having obtained from the Public Revenue Office (“AFIP”) a certificate evidencing that no tax debts exist as of September 30, 2001. Thus, payment may be made as from the time of evidencing that the applicable formal procedure has begun, although in this latter case if the debtor fails to obtain the certificate within one hundred and eighty calendar days as from the date of delivery of the securities to the creditor, this shall operate as a condition subsequent, except if such term has lapsed while regularly complying with AFIP requirements, as long as the delay is not attributable to the debtor. Accordingly, if the condition subsequent should materialize after the debt has been discharged, the discharge shall be deemed not to have taken place, and the financial institution will be bound to return the securities received. The procedure for obtaining the no-debt certificate is governed by AFIP General Resolution 1178/01of December 10, 2001.

On the other hand, BCRA Communication A 3398 of December 14, 2001, provides that the debtor categories that may unilaterally choose to take advantage of the discharge regime under review are category 4 (debtors with high insolvency risk whose cash flows evidence that it is highly unlikely for them to be able to honour all of their financial commitments), category 5 (debtors whose debts are considered uncollectable at the time of analysis, despite there being a certain degree of recovery under future circumstances) and, only in certain circumstances, category 6 (delinquent debtors of institutions that have been liquidated by the BCRA, certain foreign resident debtors, debtors matching certain coefficients and technical ratios, etc.). These debtors may take advantage of the discharge regime until February 28, 2002.

Communication A 3398 also provides that financial institutions may book the securities received at the book value of the discharged loan as of November 2. 2001, as long as such value is higher than the market value of the securities received and as long as such securities are allocated to the swap in exchange for secured loans pursuant to Executive Order 1387/01. Otherwise they shall be booked at the market value of the securities delivered.

In order to allocate the securities to the swap in exchange for secured loans and thus benefit from the more favourable accounting treatment described above, financial institutions must deposit the securities at an office which the BCRA intends to establish for such purpose shortly, within seven days as from the time of receiving them.

Based on the above, the conclusions are the following: (i) although designed in an environment that was different from the current one (while the Convertibility Law was in force), the regime for discharge of debts with government securities is legally in force at present, and (ii) consequently, any debtor meeting the applicable legal requirements could validly avail itself of the regime until February 28, 2002.

Finally, it should be noted that in the absence of any provision to the contrary, it must be concluded that the regime under discussion is additional and supplemental to the regime for full conversion of debts into pesos set forth in Executive Order 214/2002, of February 3, 2002, and that the same could apply (depending on the specific rules that are to be issued) in respect of a conversion into pesos of secured loans contemplated within the framework of the debt swap provided for in Executive Order 1387/01, as recently announced by the Argentine Government.