10 good features of the Insolvency regulation

The Ministry of Overall economy has offered a series of charges to the Congress of the Republic of Guatemala with the goal of reactivating the countrywide financial state. [1] Among the these was Bill number 5446, which proposed a particular regulation on insolvency issues to give assist to normal and authorized people that can’t make payment of their money owed because of to precise situations. It is essential to observe that insolvency have to not be interpreted as the debtor’s hold off in the compliance with her obligations.

Eventually, on February 8, 2022, the Congress of the Republic of Guatemala authorized the invoice by Decree 8-2022, Insolvency Law (the “Insolvency Law” or the “Law”), which was posted on March 3, 2022, in the Formal Gazette and will enter into force on September 3, 2022. The Insolvency Law will abolish articles or blog posts 347 to 400 of the Civil and Industrial Techniques Code (the “CCPC”), content articles 21 and 358 of the Professional Code, and will modify content 219 of the Commercial Code and report 4 of the Movable Securities Legislation.

In advance of, a debtor’s insolvency was governed underneath the provisions of the CCPC, which confined her option and electricity of continuing carrying out her small business to comply with her obligations, as a result, above 50 several years that these legislation was in force, only 14 personal bankruptcy proceedings ended up initiated (in accordance to our investigation). The Insolvency Legislation proposes a various class of motion than the previous legislation and grants the debtor with the opportunity of entering a financial and patrimonial reorganization of her small business with the function of retaining it operative to make payment of her money owed. The Insolvency Legislation follows the United States of America’s Chapter 11 of the Bankruptcy Law, which favors the economical restoration of the debtor and will allow her economic exercise to be the key resource of revenue to pay her obligations. [2]

The key properties and pros that the Law on Insolvency grants are:

  1. Normal applicability

The Legislation applies on a basic fashion to normal and authorized persons. An exception applies to providers pertaining to the banking, money or insurance policies industries that are supervised by the Guatemalan Banking Authority (i.e. Superintendencia de Bancos, in Spanish), as these have precise rules that control their insolvency proceedings.

  1. It removes the reputational stigma from a enterprise in economic wrestle

The Legislation enables businesspersons in economic battle to pursue an selection to strengthen their liquidity via reorganization and refinancing, without the need of automatically obtaining to promote their belongings.

  1. It permits to carry out a patrimonial reorganization

The Insolvency Regulation does not to begin with find to liquidate the debtor’s assets somewhat, it privileges the continuation of the debtor’s small business for the business’ returns to serve as a payment technique of her money owed in favor of her lenders. This element is identical as the provisions of the United States’ Bankruptcy Law which has been critical in that country’s overall economy for the money restoration of huge organizations this sort of as Typical Motors, Marvel Entertainment, and Avianca. In distinction with the previous Guatemalan laws, the Regulation will benefit all the events included, as if the debtor’s economic situation enhances, her creditors will have a increased likelihood of recovering their credits.

  1. Risk of carrying out out-of-courtroom specials

An insolvency judicial declaration is not necessary for the creditors and the debtor to attain out-of-court agreements with respect to the debtor’s patrimonial reorganization, for the payment of her debts. This is valuable specified that the debtor and her lenders are completely knowledgeable of their economic requires.

  1. Likelihood for the debtor to keep on to carry out her enterprise

The Insolvency Regulation privileges the continuation of the debtor’s small business, and therefore it will allow her to proceed in possession of her belongings, as opposed to a situation beneath which the liquidation of assets is vital for the payment of debts. Only in constrained cases, these types of as the compulsory insolvency proceedings, the debtor’s proper of possession around her assets is constrained.

  1. Revocation of contracts

With the purpose of protecting the collectors from the unjustified depletion of the debtor’s assets, the Insolvency Regulation introduces the possibility of revoking contracts (i.e. creating void) that result in a patrimonial hurt and that are not component of the debtor’s ordinary financial activities. For instance, if the bancrupt debtor transfers her belongings for free (as a substitute of earning some income to pay her money owed), this sort of act could be declared void by a judge. [3] This determine strengthens the Insolvency Law’s function, which is the economic recovery of the debtor and the payment of her debts in favor of the creditors’ legal rights.

  1. Kinds of credits and their preferential payment-purchase

To offer collectors and debtors with lawful certainty, the Insolvency Regulation introduces certain provisions that create various styles of credits and a preferential payment-buy, as follows:[4]

The new authorized framework supplies better authorized certainty to local and international investors on their place in scenario of an insolvency scenario this, in comparison with the former legislation that was not apparent with respect to the sorts of credits and the priority of payments.

  1. More simple insolvency proceedings

Guatemala’s legal background has revealed that the collective executions less than the CCPC ended up not functional or granted any rewards to debtors and collectors, as only 14 proceedings were being carried out, of which 8 had been desisted by the parties or turned down by the presiding choose. With that in intellect, the Insolvency Regulation is revolutionary as it establishes that (i) the actions of the insolvency proceedings are of an oral character and may possibly even be carried out on-line (ii) it is feasible to undertake a brief insolvency continuing (i.e. with shorter conditions) [5] and, (iii) new specialised courts on insolvency matters will be developed inside a 5 year phrase starting from the entry into force of the Insolvency Legislation.[6]

Also, the determine of the insolvency administrator[7] is designed. The part of the insolvency administrator will be to oversee the bancrupt debtor’s reorganization or liquidation proceedings. The person to be designated as insolvency administrator will have to show their knowledge on economic, accounting, or legal issues. This person ought to act only in advantage of the insolvency proceedings, for which she will be liable for any damages brought about simply because of negligence, deficiency of ability, or ignorance.

It is worthy of to be mentioned that the proceedings less than the CCPC that are currently ongoing or that will initiate prior to the Insolvency Law’s entry into power, will proceed to be governed by the provisions of the CCPC.

  1. Insolvency Administrator

The Regulation establishes the figure of the insolvency administrator, who will oversee the utilizes that the debtor offers to her belongings, but not in an intrusive way. In other text, the insolvency administrator will provide as a ensure for the debtor’s enterprise to continue on operative.

  1. It does not get rid of the enforcement proceedings but adds a new alternate

The enforcement proceedings less than the CCPC are not eliminated and it does not have an impact on collectors with a initially priority appropriate in excess of the debtor’s belongings (i.e. pledges, home loans, and protection have faith in agreements). The insolvency proceedings are an additional alternative.

In conclusion, the Insolvency Law will be important for the advancement of the Guatemalan lawful and monetary frameworks, this in gain of any foreign investments, as it will grant greater lawful certainty.