Peruvians are very proud of one important fact: the country is growing and World Bank figures prove it. 2011 will be remembered as the year the Peruvian economy grew nine percent, an incredible rate representing the highest individual economic growth in Latin America and indeed the world.
Peru’s economic success is based in no small part on a clear legal framework allowing any individual or legal entity an easy entry into the market, as well as an orderly and relatively quick exit from it should financial problems arise.
Insolvency – governing law
Insolvency matters in Peru are governed generally by the Bankruptcy Law (Ley General del Sistema Concursal). Other bodies of law, such as the General Companies Law (Ley General de Sociedades), complement the Bankruptcy Law and have subsidiary application.
Under the Bankruptcy Law, all insolvency matters fall initially within the administrative jurisdiction of the Bankruptcy Commission (Comisión de Procedimientos Concursales), which is one of seven specialised commissions of Peru’s National Institute for the Defence of Competition and the Protection of Intellectual Property (INDECOPI).
Decisions issued by the Bankruptcy Commission can be appealed to INDECOPI’s Administrative Tribunal (Tribunal de Defensa de la Competencia y de la Propiedad Intelectual). The Tribunal’s decisions exhaust INDECOPI’s administrative jurisdiction. Decisions issued by the Tribunal may then be appealed to the Peruvian Courts for judicial review.
In special circumstances, decisions issued by the Bankruptcy Commission and the Administrative Tribunal may also be challenged directly – not only on appeal – before Peru’s constitutional and commercial courts.
INDECOPI is an agency of the executive branch. Thus, the Bankruptcy Commission and the Administrative Tribunal are not part of the Judiciary and should not be confused with bankruptcy courts existing in other countries such as the United States.
Insolvency proceedings – commencement
Insolvency proceedings may be voluntary or involuntary. Generally, an involuntary insolvency proceeding commences when one or more creditors file a petition with the Bankruptcy Commission, asking it to declare the insolvency of a debtor.
Requirements for admission
In order for an involuntary insolvency petition to be admitted, the creditor or creditors must show (i) that the debtor has obligations with them that are at least 30 calendar days past due, and (ii) that such obligations amount in the aggregate to more than 50 Tax Units or UITs. The current value of a UIT is around $1,000.
Notification and obligation to show ability to pay
Once the petition is filed and the Bankruptcy Commission verifies the existence prima facie of the obligation claimed by the creditor, the debtor is notified of the petition and given 10 business days to prove its ability to pay the debt subject of the petition. The debtor can show its ability to pay by (i) paying the debt claimed by the creditor, or (ii) offering to pay the debt at a later time and giving additional guarantees of payment to the satisfaction of the creditor.
If the creditor is not satisfied with the guarantees offered by the debtor, the Bankruptcy Commission will give the debtor an additional period of 10 business days to show that it is solvent. The debtor can do this by producing a list of duly appraised real or personal property, indicating all encumbrances that may exist over such property. The Commission will find the debtor to be solvent if the appraised value of the debtor’s property, taking into account any disclosed encumbrances, is sufficient to cover the debts subject of the petition.
If the debtor shows its ability to pay or proves that it is solvent, as described above, the Commission will dismiss the involuntary insolvency petition filed by the creditor.
If the debtor is unable to show its ability to pay the debt subject of the petition, or fails to show solvency, as described above, the Commission will issue a resolution declaring the insolvency of the debtor.
Declaration of insolvency – consequences
Once the Bankruptcy Commission issues a resolution declaring the insolvency of the debtor, the resolution is published in Peru’s Official Gazette “El Peruano” and in other major newspapers of general circulation.
Upon publication of the insolvency resolution, all obligations of the debtor are suspended, and all courts, judges, and executors must stop any pending collection proceedings against the debtor. This suspension will be effective until such time as the debtor and its creditors enter into a Restructuring Agreement or a Liquidation Covenant. For this purpose, the Bankruptcy Commission will call for the formation of a Creditors Junta (“Junta de Acreedores”), charged with deciding the debtor’s faith. This can be (i) a restructuring process under the Bankruptcy Law, or (ii) the debtor’s dissolution and liquidation.
Recognition of credits
In order to participate in the Creditors Junta, creditors must file for recognition of their credits within 20 business days of publication of the resolution declaring the debtor’s insolvency. Creditors may file for late recognition of their credits after this period, but they cannot challenge decisions made by the Creditors Junta in their absence.
The Bankruptcy Law establishes the following order of priority for the payment of debts claimed by creditors of the debtor-in-bankruptcy: (1) salaries and social benefits, including monies owed to pension funds; (2) alimony payments; (3) debts guaranteed by security interests such as mortgages and pledges; (4) taxes owed to Peru’s National Tax Authority (SUNAT); and (5) unsecured debts.
Profile: Victor Marroquin
Victor Marroquín was born in Lima, where he attended the Colegio de los Sagrados Corazones “Recoleta,” the Naval Academy of Peru, and the Pontificia Universidad Católica. He received his Juris Doctor degree with honours from the University of Miami School of Law, where he was Editor-in-Chief of the International and Comparative Law Review, and his Master of Laws degree magna cum laude from Harvard Law School.
Marroquín was invited to join the Legal Department of the IMF in Washington DC, where he worked on various international projects involving legal and financial issues in Europe and Latin America. Following his work at the IMF, Marroquín joined Baker & McKenzie as a member of its Latin America Practice Group. He was resident in Chicago, where, in addition to his involvement in other major projects and transactions, he acted as the project leader of the Baker & McKenzie team that represented the Peruvian government in the privatisation of the country’s airports, ports, railroads, and energy facilities. This included the granting of a master concession for Lima’s International Airport, the BOOT contract for Peru’s main electricity transmission line, and the master concessions for the Camisea Gas Field, one of the world’s largest deposits of natural gas.
Marroquín is now a senior partner at Marroquín & Merino, one of Peru’s most prestigious corporate law firms. His most recent transactions include advising AIG in the acquisition of a major stake in Peru’s Pacífico Seguros, the successful defence of PepsiCo Inc in insolvency litigation with a former bottler in Peru and New York, counselling Google Inc in the establishment of its Peruvian subsidiary and operations, the acquisition of 48 mining concessions in Northern Peru by Sezar Russia Investments, and the successful defence of Cisco Systems, Inc. in litigation with Peru’s National Tax Authority (SUNAT).
Marroquín’s practice involves M&A, finance, insolvency, taxation, and complex civil litigation. A former Ford Foundation Fellow in Public International Law at the University of Miami, Marroquín is the recipient of the International Lawyer of the Year Award from the University of Miami, the Distinguished Service Award from the Chicago Volunteer Legal Services Foundation, and the Merit Award from the Legal Clinic for the Disabled in Chicago.
Among other activities, Marroquín teaches Corporate Law at the Graduate School of the Universidad del Pacífico and serves as President of Peru’s Harvard Law School Association and member of the board of directors of the Harvard Club of Peru. He is also the President of Peru’s International Dispute Resolution Institute, and a member of the board of directors of several Peruvian companies and non-profit institutions.