Castellán

Bankruptcy is the main and most used mechanism of corporate reorganization provided for in Law No. 18,387. But as they usually request it late, unfortunately this mechanism in most cases has not fulfilled the purpose for which it was created. However, Law No. 18,387 provides for another mechanism that represents for companies with financial difficulties a more effective preventive alternative and with advantages over bankruptcy: the Private Reorganization Agreement (APR)

What is an APR?

It is a mechanism of corporate reorganization expressly regulated in articles 214 and following of Law No. 18,387, consisting of an agreement between the debtor company experiencing financial difficulties and a qualified majority of creditors, whose objective is precisely to solve the insolvency situation without resorting to bankruptcy. It is what was previously known as a private concordat, with some elements of the preventive concordat of the old bankruptcy regime.

Due to its preventive nature, the APR can only be concluded before the judicial declaration of bankruptcy. Therefore, upon detecting the first signs of insolvency and without reaching the point of impossibility of payment, this legal tool can be used.

Who participates in the APR?

The company experiencing financial difficulties and a special majority of creditors representing 75% of the unsecured debt (or common) with voting rights. Therefore, in order to identify the feasibility of achieving the required majorities, it will be necessary to exclude, for the purposes of the calculation, those non-unsecured debts such as, among others: debts secured by mortgage or pledge; labor credits and personal contributions to the BPS accrued in the last 2 years; tax credits (DGI, BPS) due in the last 4 years; subordinated credits for fines and penalties and from persons specially linked to the debtor company; and unsecured or common credits whose credits are duly secured (for example, through guarantees).

However, it is also advisable to require acceptance from subordinated creditors in order to prevent them from subsequently opposing the APR. Likewise, it is essential to reach an agreement in parallel with creditors who have their credits secured with pledges and mortgages, in order to make the agreement to be signed viable.

What can be the content of an APR?

With some exceptions expressly regulated by the Law, the content of an APR may consist of discounts and/or waivers, assignment of assets to creditors, establishment of a company with unsecured creditors, capitalization of liabilities, creation of a trust, reorganization of the company, administration of all or part of the assets in the interest of the creditors, or any other lawful content, or even any combination of the above.
Regardless of the content of the APR, the same qualified majority mentioned above will always be required.

What documentation must accompany the APR?

The agreement signed between the debtor company and the qualified majority of creditors must be accompanied by the same documents necessary for the judicial request for bankruptcy, detailed in article 7 of Law No. 18,387. Among them are: an explanatory memorandum of the company; an inventory of assets and rights; the list of creditors indicating name or business name, ID or tax ID, address, amount and guarantees; and the financial statements of the last 3 years, accompanied by audit reports if any.
Additionally, the APR must be accompanied by a continuation plan with a financing table.

Is there more than one type of APR?

Yes. Once the necessary majorities indicated have been obtained, Law No. 18,387 provides for two ways to process an APR: a purely private one and a judicial one.

If the purely private procedure is chosen, once the mentioned majorities are obtained, the APR will be mandatory for all unsecured (or common) and subordinated creditors, provided that non-signing creditors are notified of the adherence to the agreement by the necessary majorities through a notary public, and that they do not oppose within a period of 20 days. If after this period the non-signing creditors do not oppose, the APR will be considered approved and the notary public must formalize it, proceeding to publish an excerpt of the APR in the Official Gazette, in order to make it known.

As can be seen, as long as there is no opposition, this procedure has the great advantage that the company will not be assigned a trustee or administrator at any time, nor will it entail any suspension or limitation in the functions of the Board of Directors.

In addition, notified creditors can only object based on causes that are expressly established in Law No. 18,387, such as: the illegality of the agreement, a possible challenge to the majorities reached, the possible unviability of the proposed agreement, and the existence of concealment or exaggeration of assets or liabilities. In such cases of opposition, the company will have a period of 10 days to appear before the competent Court, in order for it to process and resolve the opposition presented, approving (or not) the APR. If the company does not make such presentation, any creditor may request its bankruptcy, and the Judge will decree it without further proceedings.

The other alternative authorized by Law No. 18,387 is to request judicial approval of the APR. In both cases, whether it is a purely private APR with objections or a judicial APR, the Court will issue an admission resolution that, once registered and published, will mainly produce the following effects: it will prevent the declaration of bankruptcy of the debtor company (unless it requests it itself); it will limit the capacity of the Board of Directors of the company by requiring the authorization of the Judge for certain acts and contracts (not for ordinary operations); it will prohibit the initiation of new executions, or the continuation of those in progress; and it will suspend the seizures imposed on assets for a period of one year. Additionally, no chattel and mortgage executions can be initiated for a period of 120 days, during which time any ongoing executions are also suspended.

In turn, in case of opposition or ratification of the opposition by creditors, whether it is a judicial or purely private APR, the Judge will appoint an administrator during the process of the objections, who will have the same control powers over the debtor's activity as the Judge had from the admission resolution onwards.

In both processes, if an objection is raised, the possible results will be two: either the objection is rejected and the APR is approved, or the APR is rejected and the bankruptcy of the debtor is declared as if it had requested it itself. All these aspects must be taken into account by the debtor, with the appropriate advice, when deciding which of the two procedures to choose.

What effects does the approval or homologation of an APR produce?

Once the APR is approved, it becomes mandatory for all unsecured and subordinated creditors, even for those who did not sign it. If the debtor fully complies with the obligations arising from the APR, it may timely request the Judge to declare it so. But if it fails to comply, any creditor may request the Judge to declare the APR non-compliance (the only way to render it ineffective), and consequently, declare the debtor's bankruptcy.

In this latter hypothesis, unlike the \"common\" procedure of a bankruptcy, the debtor will be prevented from making new proposals for conciliation agreements as a sanction for its non-compliance, so its liquidation, either in bulk or in parts, will be imperative.

Final comment.

The APR is a mechanism provided for in Law No. 18,387 to alleviate and resolve in a timely manner the economic difficulties faced by a company, enabling its recovery. At the same time, it considers the interest of various commercial, civil, and financial creditors to collect their credits. Therefore, the APR implies a \"friendly\" and preventive agreement between debtor and creditors, whose main purpose is for the debtor to meet its obligations to keep the business unit alive and thus avoid its liquidation, prior to any judicial declaration of bankruptcy. To achieve this, the key is to detect the first signs of insolvency in time and to have the necessary advice for its implementation.

Dr. Valeria Motta

 

Montevideo, August 29, 2018.