In Peru, corporate restructuring is carried out through insolvency proceedings. These proceedings are handled by a national administrative agency (INDECOPI) through its Insolvency Commission. According to Peruvian Insolvency Law, a debtor can be subject to one of the following restructuring proceedings: (i) a voluntary preventive refinancing proceeding; or (ii) a voluntary or involuntary ordinary restructuring proceeding. In May, 2020 a new temporary insolvency proceeding has been established in order to provide financial relief to companies affected by Covid-19 as explained below.
The Ordinary proceeding
It can be initiated voluntarily at the request of the debtor or involuntarily by one or more creditors. This proceeding is applicable to debtors who are immersed in a financial and economic crisis situation, and in order to do so, they must meet certain requirements provided in the General Law of the Bankruptcy System. Under an ordinary proceeding, creditors gathered in meeting may choose to reorganize the company or liquidate the debtors' assets.
This proceeding begins with a publication that generates a framework, which protects the debtor’s estate and suspends the enforceability of its obligations. In this proceeding, recognised creditors adopt decisions in a Creditors Meeting and may choose to restructure the debtor's assets or, otherwise, may approve its liquidation. If creditors decide on the reorganisation, the company must submit a proposed restructuring plan that must be approved by a qualified majority of recognised creditors. In ordinary proceedings, the Shareholders Meeting is replaced by the Creditors Meeting. Also, in certain cases, the debtor's administration is replaced by an administrative entity registered with INDECOPI. This process concludes with the payment of the credits contained in the restructuring plan.
Preventive Refinancing Proceeding
It is initiated exclusively at the request of the debtor and is applicable to those debtors who are facing a financial crisis, but who still have financial and economic solvency, which requires them to re-programme their obligations to have better management of their liquidity.
Therefore, in this scenario, the debtor faces a temporary impossibility of complying with the payment of obligations to their creditors. In this proceeding, the debtor can request a suspension of the enforceability of its obligations and must propose a Global Refinancing Proposal to his creditors. The Creditors Meeting must decide on the viability of the Global Refinancing Proposal made by the debtor. With the approval of the referred proposal, the proceeding ends and the company exits the insolvency proceeding.
Accelerated Insolvency Refinancing Proceeding (PARC)
Taking into consideration the consequences generated by the pandemic, a new insolvency legislation was passed in May, 2020 approving a proceeding called “accelerated insolvency refinancing proceeding”. The PARC is a transitory, exceptional and an electronic proceeding.
Once the commencement of the PARC is published, an automatic stay is imposed. The automatic stay suspends enforcement of its obligations and protects the debtor’s estate. The purpose of this new legislation is to provide a platform that allows companies to negotiate with their creditors the approval of a Business Refinancing Plan. With the approval of the Business Refinancing Plan, the proceeding ends. In this case, the appointment of a supervisor to verify the compliance of the Business Refinancing Plan is allowed. This is a very short proceeding that shall last between 45 and 90 business days.