This edition of Argentine Business Law Watch1 discusses the enactment of Law No. 25,780. For those involved in Argentine banking activity, this statute provides an encouraging sign that Argentine banking regulatory authorities are implementing lessons learned from the bank failures suffered during the collapse of the Argentine financial system in 2002.
On September 8th, the Official Gazette published the enactment of Law 25,780. This statute, which modifies the Financial Institutions Law (Law No. 21,526) and the Argentine Central Bank Charter, changes the 1995 rules governing the liquidation of assets and liabilities when a bank fails.2 Two changes are particularly significant. First, the new law states that total assets transferred out of a failed bank may not exceed total liabilities transferred from that bank. This tightens up the looser standard of "equivalent" that formerly applied to "excluded" (i.e., those removed from the failed bank) assets and liabilities. Second, the new law expressly authorizes asset and liability transfers to a financial trust, confirming a generally accepted practice that grappled with the uncertainty of the prior law’s limited authorization of financial institutions as receiving entities.
The amendments reflect an important step in making the liquidation of a failed institution more transparent. They also improve certain foreign bank claims against the insolvent bank, as the new law makes eligible for transfer commercial credit lines that "directly affect" international commerce. This change satisfies a long-standing demand by foreign banks with confirmed commercial letters of credit, outstanding pre-export finance loans or credit lines to local banks predicated on repayment of an underlying business transaction, who were often left with claims against the residual (read: bankrupt) entity.
Both former and current rules aim at protecting bank deposits by granting a statutory preference over the failed entity’s assets. Under the new regime, however, this preference has been increased tenfold from P$5,000 to P$50,000 (or its dollar equivalent) for each deposit. In addition, the preference of deposits that formerly existed over encajes (minimum cash reserves) of the liquidated bank has been extended by the amendments to a general preference over all of the entity’s assets.
The amendments also broaden the statutory immunity for negligent acts committed by those involved in the transfer of assets and liabilities from the failed entity. Third parties, creditors, shareholders or administrators involved in the process enjoy greater protection, though they remain liable for any intentional misconduct. As part of the effort to encourage finality, the decisions of the Central Bank or the Banking Examiner (Superintendencia de Bancos) related to the liquidation are specifically exempted from judicial review, except on grounds of being arbitrary or in manifest error.
Finally, the amendments remove all doubt as to whether a regulated financial institution may petition for insolvency relief (i.e., reorganization) to restructure liabilities. In 2002, two entities owned by Credit Agricole of France, Banco Suquía and Banco Bisel, managed to stay creditors by filing for reorganization under the Argentine bankruptcy code. This unprecedented move by a bank, traditionally bound to follow the liquidation process specified for financial institutions, sparked both controversy and uncertainty. The amendments unambiguously foreclose this possibility and make clear that banks and other regulated financial institutions may not file for reorganization under the bankruptcy code.
Despite the promise of lessons learned, the amendments call for implementing resolutions from the Central Bank. Until these resolutions are released, we won’t know whether there is a will to actually apply those lessons.
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 at www.negri.com.ar.
2 For convenience we refer only to "banks," although the statute applies to other entities within the definition of "financial institutions."
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