Bankruptcy Law in Argentina: practice and procedure. (International Section).

The continuing economic crisis in Argentina has resulted in increasing incidences of default by public and private debtors that have adversely affected both domestic and foreign creditors. This article examines existing Argentine legislation governing insolvency and bankruptcy cases to provide the foreign lender an overview of the procedural aspects of bankruptcy and the manner in which the law may benefit or prejudice his ability to negotiate with a borrower in default or to recover the underlying debt.

The current Insolvency and Bankruptcy Law (Law No. 24522) was promulgated in 1995 as the result of then Minister of the Economy Domingo Cavallo's urging for legal and procedural reforms (hereinafter "Bankruptcy Law"). The Bankruptcy Law clearly distinguishes between insolvency and bankruptcy and provides substantive and procedural regulations for each.

In January 2002, the legislature responded to the economic crisis by passing Law No. 25563. This law temporarily amends the Bankruptcy Law and affords debtors substantial protection during the course of insolvency/bankruptcy proceedings. The skewed nature of Law No. 25563 generated criticism from both domestic and foreign creditors and legal groups. The International Monetary Fund required Argentina to modify Law No. 25563 prior to renegotiating its IMF loans. Consequently, the Argentine Congress was forced to issue Law No. 25589, a subsequent law that repeals certain provisions of Law 15563 and that also amends the Bankruptcy Law. Currently, the provisions of Laws No. 25563 and 25589 are only in effect until December 10, 2003. However, the Congress may choose to extend such date.

I. GENERAL PROVISIONS

The Bankruptcy Law generally provides that a debtor's assets will be used to satisfy his obligations (Article 1). Creditors with mortgage or security interests, however, are recognized as privileged and may foreclose against the specific asset guaranteeing the underlying debt in the event of default.

II. INSOLVENCY PROCEEDINGS

Insolvency proceedings allow the debtor to avoid bankruptcy by negotiating a settlement with his creditors during a "preventive reorganization." During insolvency, the debtor continues to manage his assets, subject to certain conditions imposed by the Bankruptcy Law and the oversight of a court-appointed trustee. Only public accountants and public accounting firms with five years experience may act as a trustee.