Insolvency Law at Argentina
In Argentina, insolvency law is primarily governed by the Insider Bankruptcy Law (Ley 24.522), which was enacted in 1995. This law provides a legal framework for dealing with insolvency, bankruptcy, and reorganization proceedings for both individuals and companies. It aims to provide a structured process to resolve the financial difficulties of debtors and ensure that creditors are paid as fairly as possible. Additionally, the law outlines provisions for the rehabilitation of companies and individuals, as well as for the liquidation of assets when restructuring is not feasible.
Key Aspects of Insolvency Law in Argentina:
1. General Framework - Law 24.522 (Insider Bankruptcy Law)
Argentina's insolvency law is governed by Law 24.522, which outlines procedures for both bankruptcy and reorganization. This law has undergone various amendments, with the most recent significant changes taking place in 2019 under Law 27.589, which introduced reforms to improve the insolvency process and enhance the ability of businesses to restructure and avoid liquidation.
Key features of the law include:
Reorganization (Concurso Preventivo): This procedure allows companies or individuals facing financial distress to negotiate with creditors and restructure their debts over a period of time, without immediately going into liquidation.
Bankruptcy (Quiebra): This procedure applies when a debtor is unable to pay their debts and has no viable restructuring options. The company's assets are liquidated, and the proceeds are distributed to creditors.
2. Types of Insolvency Proceedings in Argentina
Insolvency proceedings in Argentina primarily focus on two main options: reorganization and liquidation.
a) Reorganization (Concurso Preventivo)
This process is designed to help financially troubled companies or individuals reach an agreement with creditors to avoid liquidation. The Concurso Preventivo allows the debtor to propose a payment plan or debt restructuring, which must be approved by creditors.
Key elements of Concurso Preventivo include:
Filing for Reorganization: The debtor must file a request for reorganization before a court. The court then evaluates whether the debtor is in a state of insolvency and whether reorganization is feasible.
Interim Protection: Once the request is filed, an automatic stay is imposed, which prevents creditors from initiating or continuing legal actions against the debtor (such as seizures or asset sales).
Reorganization Plan: The debtor submits a proposal to restructure their debts, which may involve extending payment deadlines, reducing the amount owed, or other measures. The proposal must be approved by a majority of creditors.
Supervision of the Process: A bankruptcy administrator or trustee (designated by the court) is appointed to oversee the reorganization process and ensure that the terms of the restructuring are followed.
b) Bankruptcy (Quiebra)
If reorganization fails or is not viable, the debtor may be declared bankrupt. In bankruptcy, the company or individual’s assets are liquidated to pay creditors, and the business is typically shut down.
Key features of Quiebra include:
Liquidation of Assets: A trustee is appointed to liquidate the debtor’s assets, which may include the sale of property, intellectual property, or other assets. The goal is to raise as much capital as possible to pay creditors.
Distribution of Proceeds: Once assets are sold, the proceeds are distributed to creditors based on a set order of priority.
Priority of Creditors: Secured creditors (those with collateral) are paid first, followed by preferential creditors (such as employees), and then unsecured creditors. Shareholders or owners typically receive any remaining funds after all creditors are paid.
3. Eligibility for Insolvency Procedures
In Argentina, both individuals and businesses can apply for insolvency, although the processes differ slightly:
Business Insolvency: Companies facing insolvency must file a reorganization or bankruptcy petition before the court. A key consideration is whether the company has sufficient assets to satisfy the claims of creditors or whether liquidation is the only viable option.
Individual Insolvency: Individual debtors can also enter into reorganization proceedings (similar to businesses). However, personal bankruptcy may also lead to the liquidation of personal assets if a debt restructuring agreement cannot be reached.
4. Insolvency Procedure Process
The typical process of insolvency in Argentina involves the following stages:
Filing for Insolvency: The debtor or creditors may file a petition to initiate insolvency proceedings. A debtor may voluntarily file for reorganization (Concurso Preventivo), while creditors may file for bankruptcy (Quiebra) if the debtor fails to settle debts.
Court Assessment: The court evaluates whether the debtor is indeed insolvent. The debtor may be granted a period of protection during which creditors cannot initiate further legal actions against the debtor.
Appointment of a Trustee or Administrator: The court appoints a trustee (or administrator) to oversee the insolvency process. This person ensures that all parties comply with the legal procedures and manages the liquidation or reorganization efforts.
Reorganization Plan: In reorganization, the debtor submits a plan to restructure its debts. Creditors must approve the plan, and if agreed upon, it will be implemented over a specified period.
Liquidation: If reorganization fails, the court will proceed with liquidation, selling the debtor’s assets and distributing the proceeds to creditors in order of priority.
Discharge of Debts: Once all assets have been liquidated and proceeds distributed, the debtor may be discharged from the remaining debts, if applicable.
5. Role of the Bankruptcy Trustee
A key figure in the insolvency process is the bankruptcy trustee (síndico). The trustee is appointed by the court to manage the affairs of the debtor, especially during bankruptcy (liquidation). Their duties include:
Managing the debtor’s assets.
Investigating the debtor’s financial situation and any irregularities.
Distributing the proceeds of asset sales to creditors according to legal priorities.
Ensuring that the insolvency process is fair and transparent.
6. Reforms to the Insolvency Law
In 2019, Argentina introduced significant reforms to its insolvency law under Law 27.589. The reform aimed to improve the country’s insolvency framework by making it more efficient, encouraging business rehabilitation, and enhancing creditor recovery. Some of the reforms include:
Accelerating Reorganization: The process for reorganization is intended to be faster and more flexible, providing companies with a better chance of surviving financial distress.
Increasing Protection for Creditors: Reforms include clearer provisions for the rights of creditors and the priority of claims.
Facilitating Cross-Border Insolvencies: Argentina has taken steps to address cross-border insolvencies, which are crucial in today’s global economy.
7. Cross-Border Insolvency
Argentina is not a signatory to the UNCITRAL Model Law on Cross-Border Insolvency, but there are provisions in its domestic insolvency law that allow for cooperation with foreign courts in certain cross-border insolvency cases. This is particularly relevant for multinational companies or individuals with assets in multiple jurisdictions.
8. Priority of Claims
In the event of bankruptcy or liquidation, the following creditors are generally prioritized:
Secured Creditors: Those holding a security interest in the debtor’s assets (e.g., mortgages or liens).
Preferential Creditors: These include employees owed wages and other statutory creditors such as tax authorities.
Unsecured Creditors: General creditors, who have no collateral backing their claims.
Shareholders: If there are any remaining funds after all creditors are paid, shareholders may receive a distribution.
9. Debt Restructuring and Alternatives
Aside from formal reorganization or bankruptcy proceedings, Argentina also allows for informal debt restructuring agreements between debtors and creditors. These may include debt forgiveness, extended repayment periods, or partial debt reductions.
Conclusion
Argentina's insolvency law is designed to balance the interests of both debtors and creditors. It provides a legal process for businesses and individuals facing insolvency to either restructure their debts or liquidate their assets. The Insider Bankruptcy Law (Ley 24.522) and its reforms in 2019 emphasize the need for efficiency, creditor protection, and the possibility for restructuring to avoid liquidation where feasible. The insolvency process is managed by a trustee, and the law provides clear guidelines for the priority of claims during liquidation. Cross-border insolvency procedures are also recognized, albeit with limited provisions for international cooperation.
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