Avoiding Collateral Damage: Argentine Appellate Court Rules Favorably for Creditors

Author:Ms Maria Expósito
Profession:Negri & Teijeiro Abogados

Originally published in Argentine Business Law Watch1

A recent appellate court decision may signal an encouraging trend for creditors. In Compañía de Servicios de la Construcción S.A. vs. Müller, Jorge, the debtor petitioned an appellate court to declare shares subject to a stock pledge "essential" to its business and thus subject to a stay on foreclosures on such property.2 The court held that the debtor's shares given to secure a defaulted loan were not directly involved in the debtor's business activity and that the stay did not apply.

In support of its arguments, the debtor had looked to last year's Bankruptcy Code amendments, which included a 180 day automatic stay on foreclosures on a debtor's residence or on goods or property dedicated to the debtor's business.3 While the stay has since been eliminated, in late November the Argentine government issued a decree effectively extending the stay for small and medium-sized businesses.4 The decree defines "small and medium-sized businesses" based on annual sales levels that vary, depending on the debtor's industry.

The recent decree authorizes the courts to order mediation as a condition to foreclosure (judicial or non-judicial) on qualifying debtors' residences and/or property essential to the debtor's business. The mediation automatically stays the foreclosure for 30 days. Only if the debtor and creditor fail to settle the claim may the foreclosure proceed. Decree 2415/02 does not apply to claims held by banks and other financial institutions. The decree has a built-in sunset provision scheduled for December 10 th , 2003.

The Compañía de Servicios decision offers a well-reasoned analysis of why a debtor's shares or other...

To continue reading