Insolvency Law at Peru
Peru's insolvency and restructuring framework is primarily governed by Law No. 27809 – Ley General del Sistema Concursal (Bankruptcy Law), with supplementary provisions from Law No. 26887 – Ley General de Sociedades (Corporate Law). These laws establish procedures for both corporate and personal insolvency, aiming to facilitate the restructuring of distressed entities and the fair distribution of assets among creditors. (Restructuring and Insolvency Guide Peru - Ally Law)
⚖️ Legal Framework
1. Bankruptcy Law (Law No. 27809)
This law provides the legal framework for financial restructuring and insolvency procedures:
Ordinary Bankruptcy Procedure: Allows creditors and debtors to engage in a process for the restructuring or liquidation of the debtor company. (Restructuring and Insolvency Guide Peru - Ally Law)
Preventive Bankruptcy Procedure: Allows debtors to prevent worsening their financial situation by negotiating with creditors before becoming insolvent. (Restructuring and Insolvency Guide Peru - Ally Law)
Accelerated Bankruptcy Refinancing Proceeding (PARC): A temporary proceeding introduced to provide financial relief to companies affected by the COVID-19 pandemic, allowing debt refinancing. (Restructuring and insolvency law in Peru | CMS)
These procedures are overseen by the Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual (INDECOPI), the national administrative agency responsible for handling insolvency proceedings and supervising the process. (Restructuring and Insolvency Guide Peru - Ally Law)
2. Corporate Law (Law No. 26887)
This law regulates internal mechanisms for company reorganization, dissolution, and liquidation: (Restructuring and Insolvency Guide Peru - Ally Law)
Company Reorganization: Includes transformations, mergers, and spin-offs as mechanisms to restructure a company without judicial intervention. (Restructuring and Insolvency Guide Peru - Ally Law)
Dissolution and Liquidation: Procedures for winding up a company’s activities and liquidating its assets and liabilities. (Restructuring and Insolvency Guide Peru - Ally Law)
These procedures are carried out solely by the company, without third-party supervision. (Restructuring and Insolvency Guide Peru - Ally Law)
🏛️ Insolvency Procedures
1. Ordinary Bankruptcy Procedure
Designed for companies facing financial distress:
Initiation: Can be initiated voluntarily by the debtor or involuntarily by creditors holding claims of more than 50 Tax Units (approximately US$65,000) that are due and unpaid for more than 30 days. (Restructuring and insolvency law in Peru | CMS)
Creditors’ Meeting: A meeting is convened to decide whether to restructure or liquidate the company. (Restructuring and Insolvency Guide Peru - Ally Law)
Restructuring Plan: If restructuring is chosen, a plan must be approved by creditors holding more than 66.6% of recognized claims. (Insolvency law and rules in Peru | CMS Expert Guides)
Liquidation: If liquidation is chosen, a plan is approved for the sale of assets and distribution of proceeds.
The process includes an automatic stay of obligations and protection of the debtor’s estate. (Why the Peruvian Bankruptcy Law requires urgent reform amid anticipated legislative changes - Latin Lawyer)
2. Preventive Bankruptcy Procedure
Allows companies to address financial distress early: (Restructuring and Insolvency Guide Peru - Ally Law)
Initiation: Exclusively initiated by the debtor.
Negotiation: The debtor negotiates with creditors to reach an agreement.
Approval: If an agreement is reached, it becomes binding on all creditors. (Restructuring and Insolvency Guide Peru - Ally Law)
This procedure aims to prevent worsening financial situations and avoid insolvency. (Restructuring and Insolvency Guide Peru - Ally Law)
3. Accelerated Bankruptcy Refinancing Proceeding (PARC)
Introduced to provide financial relief to companies affected by the COVID-19 pandemic: (Restructuring and insolvency law in Peru | CMS)
Initiation: Only initiated at the debtor’s request. (Restructuring and insolvency law in Peru | CMS)
Objective: Allows debt refinancing to alleviate financial burdens. (Restructuring and insolvency law in Peru | CMS)
This proceeding was initially in force until December 31, 2020, with the possibility of extension. (Restructuring and insolvency law in Peru | CMS)
📊 Creditor Hierarchy in Liquidation
In liquidation proceedings, creditors are paid in the following order:
Estate Creditors: Costs associated with the administration of the liquidation.
Secured Creditors: Creditors holding collateral against their claims.
Preferential Creditors: Includes employees and tax authorities.
Unsecured Creditors: Suppliers and other creditors without collateral.
Subordinated Creditors: Creditors who have agreed to be paid last.
🧑⚖️ Directors' Duties and Liabilities
Directors in Peru have specific obligations during financial distress:
Duty to Act in the Best Interest: Directors must act in the best interest of the company, considering creditors' interests when insolvency is imminent.
Duty to File for Insolvency: If a company is unable to pay its debts, directors are required to file for bankruptcy.
Liability for Wrongful Trading: Directors may be held personally liable if they continue trading when there is no reasonable prospect of avoiding insolvency.
🛡️ Protections for Debtors
The Peruvian legal framework provides several protections for debtors: (The procedure of insolvency according to the Peruvian Concursal Law – CANALLE ABOGADOS)
Automatic Stay: Upon commencement of insolvency proceedings, an automatic stay is imposed on the debtor's obligations, preventing creditors from taking collection actions. (Why the Peruvian Bankruptcy Law requires urgent reform amid anticipated legislative changes - Latin Lawyer)
Debtor-in-Possession: In certain procedures, the debtor retains control over its operations, promoting business continuity.
Legal Protections: Certain legal acts related to restructuring plans are protected against avoidance actions in subsequent bankruptcy proceedings.
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