Companies take action: Legal creativity for efficient business reorganization

It’s been weeks since the Argentine government imposed the mandatory lockdown to prevent the spread of the Covid-19 and the tradeoffs that as a society we have to face are mounting in an increasingly harsh way.

Companies are struggling to organize among the restrictions of a paralyzed economy and labor regulations containing absolute and unprecedented limitations.

It is not a scenario that can be tolerated for longer: contractual breaches in scale and forced full employment with practically no production are unbearable. To focus strictly on the sanitary side of the problem, avoiding a comprehensive stance, is not an option. Time goes by and systemic solutions are of the essence.

We face an unprecedented crisis (social and economic) that is not caused by the private sector but rather by public sanitary measures. It is fair to expect from governments (at the three levels: national, provincial and municipal) regulations that suspend debt foreclosure, bankruptcies and certain tax obligations; providing laxity on debts rates from banks as well. Nevertheless, there is a growing menace of institutional fragmentation with increasing taxation and irresponsible loosened monetary emission at the three levels of Government.

Regarding companies, this is the moment to think one step ahead the legal framework for their restructuring. It is clear that a status quo is a Panglossian utopia.

Thinking creatively: reinforcing the Acuerdo Preventivo Extrajudicial as the general framework

Argentine Bankruptcy Law (the Law) provides the core legal instruments for both pre-bankruptcy and bankruptcy proceedings.

The Law gathers the Argentine experience from the most recent 2002 crisis. Unfortunately, those arrangements won’t be enough to deal with the current depression which is becoming so deep and ample that debtors will have to use the available legal mechanisms in a creative manner in order to insure the most efficient scheme to negotiate with creditors.

There are two basic instruments. The “Acuerdo Preventivo Extrajudicial” or APE (as a pre-bankruptcy, negotiated agreement) and a judicial pre-bankruptcy process (similar to Chapter 11). The latter would entail a long and expensive process with the high probability that the judiciary will be soon surpassed by the foreseeable massive restructuring requests.

We therefore deem the APE as the best alternative, based on the equity principle of “shared efforts” (with a long-standing case law tradition in Argentina) but duly reinforced in practice in an innovative fashion so as to avoid certain limitations that could affect its efficacy as a global solution.

The need to avoid the bankruptcy of great part of the private sector justifies rethinking and adapting the APE to protect companies whilst negotiating with its creditors, especially from holdouts that could jeopardize otherwise successful negotiations for the majority of collectors.

The proposal requires creativity: an ingenious combination of traditional procedural measures adapted to bankruptcy instruments, even embracing foreign legal figures to shield companies until a negotiated way out is reachedLUNES 6 DE ABRIL DE 2020

LUNES 6 DE ABRIL DE 2020

The challenge is even bigger for multinational companies, the opportunities too. The sad advantage this time is that the crisis affects not only our country. Therefore the combination and interaction with foreign bankruptcy procedures and legal arrangements are relevant and auspicious.

It is time to set aside fragmented stances. It is time to think on the day after, to get ready and act. The legal instruments are available.

Please feel free to contact us you may have any queries.