Restructuring and Insolvency Alert – May 2020

Bankruptcy Refinancing Expedited Procedure

On May 11, 2020, the Peruvian Government enacted Legislative Decree No. 1511 (“Legislative Decree”) which creates a Bankruptcy Refinancing Expedited Procedure (Procedimiento Acelerado de Refinanciación Concursal, “PARC”). This procedure establishes an exceptional and transitory insolvency regime to enable corporations and civil associations (such as schools, universities, and clubs) (interchangeably, the “Corporations”) negatively affected by the economic crisis generated by the outbreak of the COVID-19 to negotiate with their creditors and agree rescheduled payment of the debt based on a Business Refinancing Plan (Plan de Refinanciación Empresarial, “PRE”).

Effective Date

The Legislative Decree will enter into force one day after the publishment of its regulation, which shall be at the latest twenty (20) business days from May 12, 2020.

Term to qualify for the PARC

Corporations may join the PARC once and only until December 31, 2020.

Benefits and other considerations

• Corporation control: The control of the Corporation will be maintained by the administration and the shareholders (or partners).
• Suspension of enforceability of obligations and assets protection framework: the enforceability of all the debtor’s obligations accrued as of that date will be postponed, and, therefore, all judicial and extrajudicial collection processes will be suspended, safeguarding the Corporation’s assets.
• Deadlines and requirements: The deadlines and requirements will be set in the regulations. However, the PARC, as its name implies, has been conceived as an agile mechanism with fewer formalities than the preventive and ordinary bankruptcy procedure. As a fast track procedure, we estimate it shall not take more than thirty (30) days.
• Virtual procedure: The PARC will be handled entirely in a virtual way.
• Credit rating: The Legislative Decree establishes that banking entities are not obliged to lower the credit rating of Corporations that participate in the PARC during the term of this procedure, and if the PRE is approved, during its compliance. Given that financial entities will not be required to make the corresponding provisions, this will allow said Corporations to have easier access to financing.
• Ordinary insolvency proceedings: If after requesting the initiation of the PARC, another creditor requests the initiation of an ordinary insolvency proceeding, this will be declared inadmissible; if said request was presented before the PARC, the ordinary process will be suspended.
• Credits not eligible to be recognized: Labor credits, contingent credits, and those derived from a consumer relationship will not be recognized by the PARC, but instead will have a preferential payment regime. This will expedite the credit recognition stage.
• Related credits: Creditors related to the debtor will not have voting rights,
• PRE’s disapproval: The disapproval of the PRE does not enable creditors to request the initiation of an ordinary bankruptcy procedure or the liquidation of the debtor.
• PRE’s supervisor: Altogether, thirty percent (30%) of creditors have the right to appoint, at their expense, a supervisor of the PRE.

How can a Corporation qualify for the PARC?

Although the requirements and deadlines will be set by the regulations, the PARC has been conceived as an agile mechanism, hence with fewer formalities than the ordinary and preventive bankruptcy procedure. In this sense, it is expected to have minimal requirements. It is important that Corporations that desire to qualify to the PRAC, begin to prepare the documentation and information that can be used to persuade its creditors to approve the PRE. To be valid, the PRE must comply with certain requirements, such as the special treatment of labor credits, the provisioning regime for contingent credits, the applicable interest rate, among others.

Participation of creditors

Once the notice of the beginning of the PARC is published, creditors may request the recognition of their credits in the terms determined by the regulation. Labor credits, contingent credits, and credits derived from a consumer relationship are not legible to be recognized. 

Approval of the PRE

All creditors approved by the insolvency authority (excluding credit holders who maintain a relationship with the debtor under the terms of the General Law of the Bankruptcy System) will reunite in a virtual meeting to decide the approval of the PRE, which will be recorded electronically. A notary public shall participate to certify the agreement. Once approved, the PRE obligates the debtor and all its creditors, even if they have voted against it or have not timely requested the recognition of their credits.

For more information, please contact Guillermo Puelles (gpuelles@estudiorodrigo.com) and/or to Jorge Trelles (jtrelles@estudiorodrigo.com).