Technical Adjustment of Fixed Assets

The Public Registry of Commerce (“PRC”) unified the formalities and requirements of the technical adjustment of fixed assets by Resolutions No. 4 and 5 (the “Resolutions”). The importance of these resolutions is that, in spite of the inflationary context, before these Resolutions fixed assets could not be adjusted.

The Resolutions established that corporations and limited liability companies whose capital reaches the amount specified in Section 299, Subsection 2 of Law No. 19,550, (which equals Pesos 10 million (equivalent to approximately USD 1.2 million)) will be able to register technical adjustments of fixed assets or similar assets.  

Fixed assets or assets of a similar nature will be adjusted if there is no doubt about the recoverability of the greater value that will be incorporated into such goods or about their contribution to future cash flow. In addition, fixed assets that belong to the same class of asset as that intended by the adjustment, within each category, will be adjusted as a whole in order to avoid selective adjustments of assets.

The requirements are:

1. Previous communication to the PRC at least thirty days before the date of the closing of the financial year;
2. Filings with the PRC of the paid legal forms signed by the registered legal representative or the attorney in law;
3. Filing with the PRC of evidence of public or original private instrument (with the formalities established in Section 36, Subsection 1 and 2 of the General Resolution No. 7/2005) including  transcription of: (i) the minutes of the board of directors with the basis of the adjustments of fixed assets, the effective date and the designation of an expert; and (ii) the minutes of board of directors that approves the adjustment;      
4. Filing of the report of the statutory auditor or the auditor, with grounded opinion of the reasonableness, certainty and presentation of the technical adjustment;  
5. Filing of an ad hoc opinion of a graduate in Economics; and
6. Filing with the PRC of the financial statements for the fiscal year immediately preceding the one in which the technical adjustment was made.

The balance obtained after the adjustment will be shown in a technical accounting reserve that will be identified in the “Shareholders’ Equity” of the balance sheet. The reserve may not be distributed under any event, but it may be considered for the purposes of Section 94, Subsection 5 and Article 203 of Law No. 19,550.

The shareholders’ meeting that considers the financial statements including technical adjustments must leave on record an express approval of the adjustment. If the balance obtained after the technical adjustment for the technical accounting reserve exceeds the amount of the corporate capital and legal reserves, that resolution will be adopted by majority of votes of the company (as per Section 244 of the Law No. 19,550). Limited liability companies will need the majority required to modify the by-laws.

In the event of non-compliance with the requirements provided by the Resolutions, sanctions shall apply, including those established in the Section 302. Subsection 3 of Law No. 19,550. Sections 12, 13 and 14 of Law No. 22,315, as appropriate, will be applied to directors, legal representatives or any foreign legal entity.

Finally, technical adjustments may be applied to the financial statements for the fiscal years initiated January 1, 2012 if the fixed assets subject to the adjustment are still within the company at the time when the required notices are made. As regards financial statements for the period between January 1, 2013 and March 31, 2015, filings will be considered in term if they are made prior to April 30, 2015.