Protection of credits in the event of alleged insolvency of debtors

Given the alleged insolvency of livestock investment companies, the queries we have received, and the communications made yesterday, we inform about some of the precautions or possible measures to be adopted to protect investments.

1. Verify the legal nature of the investment and payment guarantees

It is essential to elucidate the legal nature of the investment made and the scope of the different obligations assumed by the parties, analyzing in detail the documents signed with the livestock company. 

In general, investments are usually organized, mainly, with a credit right in favor of the investor (fixed income instruments), or with an obligation to invest certain sums of money and, if there are profits, distribute them according to established percentages. (variable income instruments) 

There are nuances in the different contracts that are essential to determine the real expectation of recovery of investors in a situation of company insolvency. Those who own the livestock, in principle, have a greater possibility of recovering the investment than those who were simply “assigned” heads of livestock or acquired the so-called “livestock bonds” without support.

2. Verify the economic-financial situation of the debtor 

The second aspect to take into account to define the legal instruments that fit the case is the economic-financial situation of the debtor. That is, if the company is able to comply with its payment obligations in a timely manner. 

The “run effect”, in the case of multiple investor-creditors, is relevant in these cases, because it can precipitate the situation of insolvency. It is also advisable to elucidate the company’s debt profile. That is, who are your creditors (financial, commercial, labor, tax) and what payment guarantees each one has.

3. Individual or collective “prejudicial” alternatives

Before initiating legal action, it is advisable to request payment extrajudicially. 

From then on, it may be advisable to go through an instance – individual or collective – of private negotiations with the debtor, aimed at reaching an out-of-court agreement. For example, exploring debt repayment alternatives, proposing delays or write-offs, or offering guarantees (real, such as a pledge or mortgage, or personal, such as a bond) to back it up. In the event of reaching repayment agreements, it is important that their conditions take into account the financial situation of the debtor, so that the agreement is “fulfillable.”

4. Legal actions 

a. Individual actions

The legal system establishes different processes and/or judicial structures depending on: (i) the type of obligations assumed by the debtor and (ii) the documents that support or formalize the investment. Three paths must be considered.

The first, the request for precautionary measures at the civil and/or criminal level. Thus, when there are facts that appear criminal and/or certain legal requirements are met, it is possible to request through civil or criminal channels the adoption of certain precautionary measures that allow the company’s assets to be protected and ultimately not to frustrate collection actions. later.

The second path is that of executive trial: it proceeds in those cases in which the obligation arises to pay a liquid amount of money, easily liquidated and payable from any of the following documents: check, invoices for the sale of goods, vouchers, signed private instruments. by the obligated, among others. 

The third path is that of ordinary trial. It proceeds outside the mentioned hypotheses. It involves the course of a knowledge trial to consolidate the judicial recognition of the credit and subsequently carry out an executive action.

b. “Collective” actions

In processes in which there are a significant number of creditors with the same profile, it is common to contemplate the private reorganization agreement (P.R.A.). 

Under this alternative, the debtor can reach an agreement with the majority of the creditors (specifically, 75% of its unsecured creditors, that is, without guarantees or privileges), making it effective for all of them, regardless of whether they subscribed. the same or not.  

At the option of the debtor, the A.P.R may be processed exclusively privately or with the approval of the competent judicial authority. The Law does not establish restrictions on the content of the A.P.R, so it can be composed of any proposal in accordance with the law. In general, it usually contains reductions, waits, a plan to continue the company or simply an orderly liquidation of the company. 

The alternative to the APR is the promotion of a judicial bankruptcy of creditors. It can be requested by the debtor himself (voluntary bankruptcy) or by one or more of his creditors (necessary bankruptcy). It does not imply the termination of the debtor’s activity, but rather its submission to a judicial process in order to: (i) Determine its assets and liabilities. (ii) Evaluate the continuity of the company and define its destiny. (iii) Qualify the conduct of the members of the Company and their eventual responsibility for the situation that arises.

The Law establishes a special incentive for creditors to request bankruptcy, providing that 50% of their credit will have a general privilege in the debtor’s liquidation, with a limit of 10% of the passive mass. That is to say, when distributing the results of the liquidation, they collect before other creditors of the same class.

5. Final considerations

There are many legal tools that exist to face a complex situation like the one you are going through, but it is key to legally analyze each specific case and the interests of the creditor in order to execute the specific legal actions that are most appropriate according to your situation.