Originally published in Argentine Business Law Watch1

A recent appellate court decision may signal an encouraging trend for creditors. In Compañía de Servicios de la Construcción S.A. vs. Müller, Jorge, the debtor petitioned an appellate court to declare shares subject to a stock pledge "essential" to its business and thus subject to a stay on foreclosures on such property.2 The court held that the debtor’s shares given to secure a defaulted loan were not directly involved in the debtor’s business activity and that the stay did not apply.

In support of its arguments, the debtor had looked to last year’s Bankruptcy Code amendments, which included a 180 day automatic stay on foreclosures on a debtor’s residence or on goods or property dedicated to the debtor’s business.3 While the stay has since been eliminated, in late November the Argentine government issued a decree effectively extending the stay for small and medium-sized businesses.4 The decree defines "small and medium-sized businesses" based on annual sales levels that vary, depending on the debtor’s industry.

The recent decree authorizes the courts to order mediation as a condition to foreclosure (judicial or non-judicial) on qualifying debtors’ residences and/or property essential to the debtor’s business. The mediation automatically stays the foreclosure for 30 days. Only if the debtor and creditor fail to settle the claim may the foreclosure proceed. Decree 2415/02 does not apply to claims held by banks and other financial institutions. The decree has a built-in sunset provision scheduled for December 10 th , 2003.

The Compañía de Servicios decision offers a well-reasoned analysis of why a debtor’s shares or other fungible assets are not "essential" to a debtor’s business within the meaning of Decree 2415. While too early to declare a "trend", it is encouraging that at the appellate court level the judiciary seems to be narrowly defining the conditions of a stay and becomingly increasingly hesitant to protect the debtor at the creditor’s expense.

1 "Argentine Business Law Watch" is a periodic news service provided free of charge to clients and friends of Negri, Teijeiro & Incera.

2 Compañía de Servicios de la Construcción S.A. v. Müller, Jorge y otro C. Nac. Com., sala D, 11/7/2002.

3 Law 25,563, Section 16 published in the Official Gazette on February 15, 2002, amended by Law 25,589, Section 12 published in the Official Gazette on May 16, 2002. The stay was scheduled to expire on August 15, 2002 but was extended by Law 25,640 until November 15, 2002.

4 Decree 2415/02 published in the Official Gazette on November 27, 2002.

This article is provided as a service to clients and friends of Negri, Teijeiro & Incera. It is not intended to impart legal advice on any matter