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10 November 2000
Several insolvency issues have recently been the subject of opinions issued by the Superintendency of Corporations. The superintendency is the government entity responsible for settling disputes between, and deciding on the recourse available to, parties to negotiations for the restructuring of insolvent companies.
With respect to the enforcement of third-party securities, Law 550 of 1999 states that they may only be made effective if after the eight-month term envisaged for the negotiation of a restructuring agreement, such an agreement is not approved. Law 550 introduced a regime that differentiated between securities granted before and after the date of the law's enactment (ie, December 30 1999). However, the law does not specify whether a creditor secured by a guarantee granted before December 30 1999 must become a party to the restructuring negotiations.
This point was clarified in a recent opinion from the superintendency. It seems to interpret the provision to mean that the creditor must become a party to the restructuring negotiations. Only if no agreement is reached will that creditor be able to initiate judicial enforcement proceedings against the third-party guarantor.
Moreover, the superintendency has indicated that even if enforcement proceedings are underway, they must be suspended in order for the creditor to become a party to the restructuring negotiations. The creditor will be able to resume enforcement if no agreement is reached within the four months following the determination of credits and voting rights, made in a public hearing by the promoter of the restructuring agreement. (This hearing must take place within four months after the negotiations are formally initiated, which explains the reference to an eight-month term.)
With respect to securities granted after December 30 1999, the superintendency has reaffirmed that the creditor has two mutually exclusive options. First, a creditor may become a party to the restructuring negotiations and seek payment directly from the principal debtor if the eight-month term elapses without an agreement being reached, in which case the creditor will only be able to enforce payment against the guarantor.
Second, a creditor may pursue payment from the guarantor, in which case the debtor under restructuring will be freed from its obligation.
In another recent opinion, the Superintendency of Corporations held that internal creditors may not request the initiation of restructuring negotiations. Internal creditors are generally shareholders, partners and other parties that have contributed assets to the company.
The superintendency provides that although the law states that creditors may request promotion, internal creditors are only deemed as such for (i) the purposes of allowing them to participate in the negotiation proceedings, and (ii) allocating voting rights to them. Despite the fact the law may refer to them as creditors, they are not 'creditors' in the juridical sense. This is because the obligation of the company towards them is a contingent and subsidiary obligation, which only arises after all external liabilities have been paid. Thus, they may not request the promotion.
However, they can decide, in the context of the competent corporate body and by the majority vote established in the bylaws, to order the manager of the company to request promotion. This decision is significant because it indicates that shareholders or partners who are in a minority will not be able to directly request the promotion of a restructuring agreement of the company in which they participate.
Various measures are recommended to ensure that creditors' debts are recognized. Under the law, the promoter of the agreement must prepare an inventory and a detailed list of credits, in which all creditors should be included. Deliberate exclusion of any creditor is a criminal offence. Therefore, in principle, creditors are no longer obliged to present their credits, and have them recognized and graded (in terms of their priority), as was necessary under the former insolvency regime.
However, the Superintendency of Corporations has indicated that if a creditor is omitted from this list, it may present its credit at any time before the hearing in which credits and voting rights are determined by the promoter. This is four months after the formal initiation of negotiations. This is critical because if the creditor does not do so, it will not be able to become a party to the negotiations and will have to (i) seek payment against the assets that remain after the company is restructured, or (ii) wait until the eight-month term referred to above expires with no agreement reached.
A diligent creditor should therefore always obtain evidence, in the form of certification issued by the legal representative of the debtor company, that its credit has been duly recorded in the accounts of the company (as these accounts constitute the basis for the promoters list). Moreover, additional precautions should be taken by creditors. As soon as the creditor learns that a debtor has initiated restructuring negotiations, it should present its credit in writing to the promoter and request its inclusion in the list that the promoter must prepare. If possible, the creditor should attend the hearing for the determination of credits and voting rights, to confirm that its credit has been recognized in the correct amount and that the appropriate number of votes (a function of the principal amount of the credit) have also been allocated.
For further information on this topic please contact Daniel Posse or Alvaro José Rodriguez at Posse, Herrera & Ruiz Abogados by telephone (+57 1 312 3157) or by fax (+57 1 313 0259) or by e-mail (firstname.lastname@example.org or email@example.com).
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