The Tango Effect: More Flexibility for Restructuring Debts

Introduction

As part of the Argentine economic crisis that ended with the default of its public debt, the Argentine government enacted several laws. Among them, two laws were passed in order to amend the Argentine Receivership Proceedings and Bankruptcy Law nro. 24.552 (hereinafter "RPBL").

Firstly law 25.563 was passed1 and, shortly after, a counter reform was performed2 through law No. 25.589. One of the most relevant issues modified by this second amendment is the reform of the out-of-court reorganization agreements (Acuerdo Preventivo Extrajudicial -APE-).

Although this kind of agreements already existed within the framework of law 24.522 the terms of those agreements could not be imposed on all the unsecured creditors and were only binding for those creditors that executed the agreement. Instead with the new regulation provided by law 25.589, if an APE is approved by the necessary majorities, its effects are extended to all the unsecured creditors whether they have approved it or not.

This relevant amendment has made possible to begin using the out-of-court agreements providing more flexibility in order for companies to restructure their debts with legally binding effects for all its unsecured creditors, with lower costs, avoiding the filing of.

General Procedure

According to section 69 of the RPBL a company that is unable to timely perform its payments -estado de cesación de pagos- or is under general financial or economic difficulties may reach an APE with its creditors and submit it to a commercial court for its judicial approval.

Regarding the agreement it is specifically provided that the parties can freely agree on its content3. The agreement can consist in the proposals that are specifically admitted in receivership proceedings (for example deference in time of payment, reduction of the amount to be paid, payment in installments, payment with goods, issuance of bonds, etc.) or any other kind of licit offers. The deal so reached is binding among the parties that executed the agreement whether it obtains judicial approval or not.

In addition, during this procedure, the company has no external control. No receiver is designated within the APE framework. Therefore another important difference with the receivership proceeding is that the management can exercise its rights and perform its obligations without the restrictions set forth in receivership procedures4.

At the same time the fact of not filing the traditional...