Vol 5 (2008) - Issue 2

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Argentine Corporate Rescue: Judicial and 'Out of Court' (Pre-Packaged) Reorganisation Proceedings

I. Overview

During the 1990s, Argentina opened up its economy to world trade and international capital. The implementation of privatisation programs, deregulation and private sector investments were common features of the Argentine economic agenda during the first part of the 1990s in a context of very low inflation and foreign exchange stability provided by the peg of the local currency (the 'peso') to the US dollar.

However, during the second part of the decade, such scenario was overshadowed by the federal government fiscal deficit, a growing recession, higher unemployment and a huge increase in the external debt, within an international context of inancial unrest based on the Asian, Russian and Brazilian financial crises. By the
end of 2001, the politica crisis triggered off an unprecedented economic and social situation.

In the first three months of 2002, Argentina's economy contracted at its fastest pace in a century. The economy declined in such year by more that 12 per cent. In addition, a banking freeze plunged the country into a deeper crisis. After the government ended the peso's one-to-one peg to the US dollar in January 2002,
the peso plummeted to 3.85 to the US dollar by the end of June.

Local companies that borrowed heavily in foreign markets saw their source of revenues devalued and converted into local currency, and requested for protection pressing the government to implement some amendments to the reorganisation and bankruptcy legislation in place. On 30 January 2002, the Senate and the House of Representatives approved Law No. 25.5631 (hereinafter referred to as the 'Emergency Business and Production Law' or 'EBPL') amending
Bankruptcy Law No. 24.522 ('BL'), which put creditors in a straight jacket and end with any and all expectations of foreign finance which would have survived the huge and messy devaluation of the local currency

On 15 May 2002, the Senate and the House of Representatives enacted Law No. 25,5892 ('Reinstatement Law') which repeals and amends certain aspects of the
EBPL and introduced several changes to the BL in an attempt to mitigate some of the changes passed by the Emergency Business and Production Law.

Among other issues, the Reinstatement Law (a) repeals the suspension of filings of involuntary bankruptcy petitions; (b) amends the mandatory stay of foreclosure proceedings and suspension of injunctions, (c) amends the extension of the 'Exclusivity Period', (d) amends the suspension term of the repayment obligations under court-approved plans of reorganisations or payment proposals, (e) abrogates the limitation of guarantor's liability as regards debtors under reorganisation proceedings, (f) restores and amends the cram-down proceeding (i.e., creditors' or third parties' optional buy-out rights, which was repealed by Law No. 25,563), (g) increases court powers in connection with the approval of plans of reorganisation, (h) amends the provisions for out of court estructuring agreements to assimilate them to 'prepackaged' reorganisations, (i)
regulates the rights and obligations of trustees to file proofs of claim on behalf of note and bondholders, and (j) establishes a procedure in connection with reorganisation proposals voting as per note and bondholders.

Moreover, Law No. 25,640, approved by Congress on 15 August 2002, suspended auction proceedings either carried at foreclosure proceedings or in any other manner for 90 days (in addition to the 180-day term provided by EBPD) as from its enactment (i.e., 10 September 2002).

All in all, the amendments passed by the Emergency Business and Production Law to the BL allowed local companies to renegotiate their debts not only with locals but also with foreign creditors as well as to get enough time to recover from the financial crises.