Latin America is one of the fastest growing regions in the world economically. Great opportunities for investment exist in a number of emerging regional powers. Argentina is one such example, as the fourth largest economy with a GDP of US$470.53 billion.
But what happens if you’ve entered a new market and business isn’t booming as you thought? Recent changes to economic and monetary policies in Argentina could motivate some businesses to consider their exit strategies.
We outline processes and requirements for business liquidation in Argentina.
What are liquidation proceedings in Argentina?
Companies consider business liquidation when the market they have entered is no longer profitable for their business. Liquidation is also a key option for companies that have become insolvent – in other words, they are unable to keep up with their financial obligations and must close down commercial operations.
When future market outlook doesn’t project success for your business, you can choose to exit through voluntary liquidation. In this process, you’ll distribute or sell off your assets to meet all final financial obligations, and to recoup money from your investment.
Responsible authorities and relevant legislation
Argentina’s Public Registry of Commerce (Registro Público de Comercio in Spanish) oversees company liquidation proceedings.
You’ll connect with the Treasury to manage your company’s residual assets, and navigate the rights and liabilities of owners/partners, shareholders and claimants in the business liquidation process.
Insolvency, reorganization and out-of-court liquidation agreements for companies domiciled in Argentina are covered by the country’s Bankruptcy Law (Law No. 24,522).
Options for insolvent companies
Reaching an out-of-court agreement
Relevant parties to a company’s insolvency are free to decide on a course of action among themselves. Though seeking court endorsement of this agreement is recommended, it’s not essential for the agreement to be binding between the parties.
For court endorsement, the agreement must be carried out by ‘unsecured’ creditors. These are creditors that did not obtain collateral assets at the time of approving their loan to the company. For court endorsement of an out-of-court preventive agreement, the debtor must obtain the absolute majority of votes from the unsecured creditors representing two-thirds of the unsecured capital.
The company owner, as the ‘debtor’, must provide the following documents alongside their application (‘petition’):
- An updated statement of assets and liabilities as of the date of conclusion of the agreement
- A list of creditors, indicating the amount of their credits
- Accounting certification proving that there are no other registered creditors
- List of the court-claims or administrative processes in process or with a sentence not fulfilled, specifying their filing
- List precisely the trade and other books of society
- The fulfillment of the majorities necessary for the approval of the agreement.
Procedures for business liquidation in Argentina
Filing for voluntary bankruptcy is done via a petition to the relevant court. Before you do this, you must have first suspended all company payments.
For this procedure, you’ll need to provide the following documentation:
- a description of the suspended payments and the date the suspension was implemented, along with proof of these details
- an appraisal of the company’s assets and liabilities certified by a public accountant, as of the date payments were suspended
- your company’s financial statements covering the last 3 fiscal years
- a list of the company’s creditors
- a declaration of any other administrative or judicial proceedings that are pending or have not yet been finalized/decided upon
- a complete list and full submission of the company’s corporate and commercial books.
Note: the list is not taxative, and in the end, would be subject to the receiver’s request.
In this process, the court will appoint a person known as the ‘receiver’ to take charge of your company’s assets. Creditors may then submit claims (with proof) to the receiver who will manage them, and any foreign exchange requirements associated with them.
The status of any pending financial obligations changes, and they’ll become due and payable immediately.
The receiver will then proceed to liquidate your assets in one of 3 ways:
- selling the entire business as a whole
- joint sale of the assets that integrate the establishment, in the case of not having continued with company operations
- selling some or all of the assets individually.
With the proceeds from the assets sold, the receiver will address claims and administrative expenses in the following order of priority:
- claims with special preference or from secured creditors
- administrative expenses such as maintenance, and costs incurred during court and liquidation proceedings
- ‘general preference’ claims such as labor, social security and taxes owed
- unsecured claims
- claims on subordinated debt
You’ll need to cease all business activities unless you get prior approval from the court, and remain in Argentina throughout this process.
In a partnership, a company’s partners must give unanimous consent before liquidating.
A note on reorganization
Reorganization allows a company to stay in business. Its owner(s) can retain the company’s assets, but ‘reorganizes’ or renegotiates its debt payments to creditors.
In a “reorganization process” which would be a “creditors preventive contest” (concurso preventivo de acreedores), the court designates a receiver to administrate the company finances and act to prevent bankruptcy or secure, where possible, due payments to creditors
The process involves the company owner can propose a reorganization plan that will be considered by the court and these appointed parties.
Entering and exiting Latin American markets
Though political climates in Latin America are stabilizing, businesses must still seek to understand fully the market they’re interested in entering, and have an exit strategy in place if their expansion doesn’t work out.
There are several helpful ways to mitigate risk during your Latin American expansion. One popular technique is engaging a professional employer organization (PEO) to minimize your initial footprint in a new market. PEOs can support small market entry strategies by hiring executives locally to undertake commercial activities for your company. They’ll gauge your prospects for success in your chosen expansion destination, before you make a larger investment abroad.
When exiting a market, it’s important to engage with a knowledgeable local partner who can guide you through court process and following proceedings. Seek out a trusted firm with extensive understanding in local commercial liquidation requirements to ensure your company can exit safely and within the parameters of the law.
Contact the experts
Exiting a market can be stressful, and involve many bureaucratic steps. Business liquidation in Argentina involves a due process to follow and you’ll be seeking reassurance from your legal representative that you’re in good hands.
At Biz Latin Hub, we build confidence in our clients by connecting them with our team of both local and expatriate professionals. We provide market exit and liquidation services of the highest quality to make sure companies meet their corporate obligations and can exit a market without delay or undue penalty.
Reach out to our Argentina team today at [email protected] for personalized assistance and advice regarding your exit strategy.
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