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 (vía 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 Restrict Capital Flight
On June 30, 2003, the Argentine Central Bank released Decree 285/2003 to regulate the inflow and outflow of currencies in local markets. The decree’s most significant terms are:
- The inflow and outflow of currencies, as well as their investment in the local market, must be registered with the Central Bank.
- Currencies brought into the local market must remain there for no less than 180 calendar days, except for currencies tied to foreign commercial operations and direct investment.
- The government reserves the right to modify the 180-day period to deter undesired changes in macroeconomic conditions.
- The Central Bank is the regulatory body responsible for the enforcement of the new rules, and for sanctioning non-compliant parties.
The decree aims to support the foreign exchange markets and reinforce the Argentine economy, reacting mostly to the large short-term gains obtained by investors with liquid funds placed offshore.1. Argentine Business Law Watch" is a periodic news service provided free of charge to clients and friends of Negri, Teijeiro & Incera. To read past editions of "Argentine Business Law Watch", visit our website www.negri.com.ar.
2. See Rolyfar S.A. v. Confecciones Poza S.A.C.I.F.I.
3. See Law No. 19,550, Section 118.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.