Unregistered and Unfortunate

This edition of Argentine Business Law Watch1 reports on a recent appellate court decision†that denied a summary foreclosure remedy based on a foreign business's failure to register†in Argentina. We also discuss a new Central Bank release aimed at restricting capital†flight.

Unregistered Foreign Corporation Taints Summary Foreclosure Remedy

An Argentine court of appeal has ruled that a mortgage loan assignee was not entitled to†foreclose under a summary proceeding (vÌa ejecutiva2) as a result of the assigning bank's†failure to register as a foreign entity. The court held that the foreign corporation that†originated the loan, Heritage Bank Limited, had failed to comply with the Argentine†Companies Law3 requiring registration by any foreign entity engaged in "systematic and†continuous" activity in Argentina. Because it could not have received rights any greater†than the assignor's, the mortgage assignee could not use the summary proceeding, which†essentially eliminates all affirmative defenses of the debtor. The court's ruling leaves the†assignee with a simple claim for monies owed secured by a mortgage but which must be†pursued in litigation that could easily last five years.

Argentine law requires foreign corporations doing business in Argentina to register with the†Public Registry of Commerce. Foreign entities engaged only in "isolated acts" are not†required to register. Whether activity is "systematic and continuous" or "isolated" is a†factual question the answer to which the civil law judge has little criteria to determine.†Moreover, the consequences of a foreign company's failure to register have been difficult†to assess. Most commentators agree that the defective entity removes the limited liability†shield otherwise available to its owners. A few have been willing to argue that the†defective entity's acts are voidable. None have ever considered a bona fide third party†vulnerable to a debtor's affirmative defense on this basis.

The appellate court decision prompts concern among the myriad foreign service providers,†banks, trustees, custodial agents and administrators transacting on a limited basis. These†entities, and anyone purchasing an asset from them, are well advised to exercise extreme†caution.

Central Bank Releases New Rules to...

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