As of 16 May 2002, Law Nbr. 25,589 (the "New ABL") with amendments to the Argentine Bankruptcy Law Nbr. 24,522, as modified by Law Nbr. 25,563 (the latter of February 2002), has been promulgated and became in force after publication in the local Official Gazette.

The amendments of the New ABL are in line with the negotiations held to date between Argentine and International Monetary Fund officials towards securing new credit lines to activate the country’s economy.

The most important changes introduced by the New ABL are the following:

(i) Exclusivity period. Debt Releases: The New ABL establishes a 90 business days term for the Exclusivity Period, during which the debtor may propose a reorganization plan to its creditors. This Exclusivity Period may be extended for an additional 30 day term. Under Law Nbr. 25,563 passed on February 2002, the Exclusivity Period was of 180 business days, extensible for the same period, and under Law Nbr. 24,522 (passed in 1995 until last February), the Exclusivity Period was of 60 business days, extensible for another 30 days.

With respect to debt releases, it is worth noting that under Law Nbr. 24,522, the debtors’ proposals could not include a principal debt release exceeding 60 per cent of each admitted claim. This cap on permitted debt releases was eliminated by Law Nbr. 25,563 and is held by the New ABL, thus allowing the debtor to offer any debt release with respect to the original debt in the reorganization plan with creditors.

Finally, creditors may not be able to make reorganization offers lower than that made by the debtor during the Exclusivity Period.

(ii) Suspension of Foreclosure Proceedings: Pursuant to the New ABL, the following acts are suspended for a period of 180 consecutive days (formerly, 180 business days under Law Nbr. 25,563), counted as of February 2002 (thus, ending on September 1st, 2002):

  1. foreclosure proceedings (e.g., of mortgages and pledges) over such assets destined to the business or home of the debtor (except for credits derived from (a) alimony, (b) criminal liability, (c) labor claims, (d) tort liability or arising from insurance claims, (f) credits originating after the New ABL, and (g) for the execution of bankruptcy judgments; and

  2. the enforcement of preliminary measures (e.g., attachments) which produce the dispossession of such assets which are needed for the debtor’s commercial activities (under Law Nbr. 25,563, all future and outstanding preliminary measures were suspended).

(iii) Original Debt Guaranty: Under the New ABL, any changes to the original debt agreed between debtor and creditor as a result of the reorganization, do not affect the claims against the guarantors of such debts; thus, regardless of the reorganization outcome, guarantors remain fully liable for the original debts. In this sense, Law Nbr. 25,563 provided for a change to this rule, by which any guarantees were subject to the outcome of the negotiation of the original debts; thus, the New ABL reestablishes the regime under Law Nbr. 24,522 (i.e., guarantors and joint debtors remain fully liable for the whole amount of the original debt).

(iv) Reestablishment of the ‘cram-down’ proceeding (forced capitalization): The New ABL reestablishes the ‘cram-down’ proceeding (special proceeding envisaged to avoid the debtor’s automatic bankruptcy; it is worth noting that the Argentine concept of ‘cram-down’ has not the same meaning as under U.S. Law). Therefore, creditors, the debtor and third parties may propose a debtor’s capital stock acquisition plan in the event the debtor fails to obtain approval of its reorganization plan proposed while the Exclusivity Period is in force. In addition, the bankrupt company valuation system shall be determined by an appraiser appointed by the judge, considering its market value (including intangibles and market positioning), and not only taking into consideration its book value.

It is also worth noting that the New ABL grants broader powers to the reorganization judge by allowing him to approve a reorganization agreement even if the debtor has not obtained the required majorities from its creditors, or reject reorganization agreements if they are abusive for any of the parties. This regime is closer to the U.S. "cram down" proceeding, by which the judge may impose a reorganization agreement against the will of certain creditors.

(v) Control Transfer Foreclosures: The New ABL eliminates the suspension until the end of the emergency period (December 10, 2003), of any foreclosure of guarantees which allowed the transfer of control over reorganized companies or their subsidiaries.

(vi) Bankruptcy Requests. Judicial and Extra judicial Foreclosures: The New ABL eliminates the suspension of (a) judicial and extra judicial foreclosures against reorganized debtors, and (b) bankruptcy request proceedings (which under Law Nbr. 25,563 were suspended for 180 business days).

(vii) Filing of Credit Claims. Voting rights: The New ABL establishes a regime for the filing of credit claims by trustees, and for the voting rights in the case of creditors holders of securities issued in series.

(viii) Debtor's Proposal: If the debtor obtains the consent of the credits that represent 75% of the total unsecured liabilities, the New ABL includes an alternative to obtain the approval of the debtor's proposal (i.e., even without having the majorities in all of the categories in which the creditors have been classified). However, the majority should be obtained at least in one category. To date, there are no precedents under Argentine law of this form of calculating majorities.

(ix) Out of Court Proposal. The New ABL also includes the possibility for the debtor to negotiate and ask the judge to approve what is called an Out of Court Proposal. This procedure avoids the need of following the ordinary court procedure, and requires the same majorities included in the ordinary proposal applicable to all procedures, except for what is noted in Section (viii) above. The filing of the proposal before the judge requesting his approval suspends the enforcement of actions that might be in course. Although the wording of this amendment is not clear, it appears that the Out of Court Proposal could be imposed, if approved by the judge, to all unsecured creditors, even those that did not consented to such proposal.

The above is simply a summary of the main aspects of the new amendments to the Argentine Bankruptcy regime. Please feel free to contact the undersigned should you need any further clarifications. Many thanks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.