Vol 3 (2006) - Issue 5

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Insolvency Proceedings under Peruvian Law

In order to provide a general scope on Peruvian Insolvency Proceedings it has to be understood that the General Insolvency System Law (Ley General del Sistema Concursal), which came into effect by Law No. 27,809 of 8 August 2002 (hereinafter ‘the Law’), regulates these proceedings among all kinds of debtor. The only companies which are not subject to this regulation are State entities and companies that belong to the financial and insurance system.
Peruvian companies facing economic difficulties that would like to apply for an insolvency proceeding might do so by fulfilling all the requirements of the Law. They could start the process by applying through an ordinary proceeding or a preventive proceeding, depending on the requirements of the Law that they fit.
According to Peruvian legislation, any creditor or group of creditors having credit of over 50 UITs1 (approximately USD 51,500), that are past due for over 30 days, can request the initiation of insolvency proceedings against the debtor by using an Ordinary Proceeding.
According to the legislation, it does not matter if the company has the ability to recuperate from its economic problems or not. The insolvency proceeding will be set forth anyway, with the unique purpose of reorganising the company or declaring its liquidation.
The Peruvian Insolvency Authority (INDECOPI) will evaluate the opening of a new Ordinary Proceeding. They will verify the existence of the credit invoked, and request financial statements over the last two years from the debtor, and a detailed report of all its obligations,
establishing the identity, domicile and amounts owed to each creditor.
The debtor has the right to take one of the following actions:
(1) Pay the debt that origin it summons (reply by paying the whole amount owed, up to the date of its response).
(2) Offer to pay creditors the whole amount owed, up to the date of its response, in which case the creditor has to accept within ten days, as silence indicates acceptance of this payment offer.
(3) Deny the existence, amount or possibility of execution of the credit claimed by creditors.
(4) Accept INDECOPI’s finding.
If the debtor decides on the first option, or offers to pay its creditors and the payment is executed and accepted, INDECOPI will declare the creditor’s request for inititation
of an Ordinary Proceeding not grounded, and the administrative proceeding will conclude. The opening of an Ordinary Proceeding will also be declared void of reason if the opposition of the debtor is declared grounded as per (3) above.
On the other hand, the Ordinary Proceeding will be declared duly commenced if:
(1) The creditors reject the payment offer of the debtor.
(2) The debtor’s opposition turns out to be contrary to law, or groundless.
(3) The debtor recognises the amount of the credit owed to the creditor(s) and accepts INDECOPI’s finding.
Once INDECOPI declares the admissibility of the Ordinary
Proceeding, it is published on the Official Gazette (El Peruano) and turns public to every creditor. From that moment, all the debtor’s obligations become unenforceable.
Guaranties are also unenforceable, unless they were granted by a third party (i.e., other than the debtor).
Creditors (besides the one starting the Ordinary Proceeding) are granted a term to submit their writs of recognition of credits in order not to lose their right to participate in the Creditors Meeting, by which the destiny of the company is decided.
Two possibilities arise once the General Creditors’ Meeting is duly installed: the debtor could be either liquidated or reorganised.