1. What type of restructuring schemes exist in Peru?

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.

2. What type of liquidation schemes exist in Peru?

The Peruvian legal framework allows companies to be subject to a corporate liquidation proceeding under rules of our General Corporation Law or to commence a liquidation insolvency proceeding subject to the rules of Peruvian Insolvency Law.

Corporate liquidation

The corporate liquidation begins with an agreement of the General Shareholders Meeting and is carried out in accordance with what is established in the company’s Bylaws and in the General Corporation Law. It is a strictly private proceeding (not supervised by any state authority or by any public body), in which the company ceases to carry out the economic activities of its corporate purpose in order to focus solely and exclusively on its liquidation.

The General Shareholders Meeting continues to be the main body of the company and the assigned liquidator assumes the administration of the company with the sole purpose of liquidating its assets in order to comply with its obligations. This is carried out to achieve the extinction of the company.

Corporate liquidation is usually used when assets are enough to pay liabilities. However, there are legal situations in which corporate liquidation is allowed even when a company does not have sufficient assets to pay its liabilities.

A Corporate liquidation usually applies when assets are sufficient to pay liabilities. However, there are legal situations in which corporate liquidation is allowed even when a company does not have sufficient assets to pay its liabilities. 

In such cases, to achieve the extinction of the company via a corporate liquidation, the liquidator must request the judicial declaration of bankruptcy when the patrimony of the company is extinguished, so that the unpaid creditors can obtain the corresponding non-collectability certificates.

Liquidation insolvency proceeding

Liquidation insolvency proceedings is commonly used when there is a financial and/or economic crisis Its main characteristic is that it provides an automatic stay which stops collection of claims and protects the debtor´s assets while the liquidation proceeding takes place. This is not applicable in a corporate liquidation. Moreover, in an insolvency liquidation once a liquidation entity is appointed it will immediately replace the company´s directors and managers. In addition, the Creditors Meeting will replace the Shareholders Meeting.

Furthermore, the Creditors Meeting must approve the Liquidation Plan that will establish the procedure to follow for the sale of assets, either individually or through an ongoing liquidation

3. What are the effects of the commencement of an insolvency proceeding?

The main effects of the commencement of Peruvian insolvency proceedings include the following: (i) the publication of the insolvency sets a bar date determining which claims are subject to the proceeding and which are post-publication claims that will need to be paid when due; (ii) as from the bar date, the enforceability of obligations that the debtor had pending for payment are suspended.

Moreover, these obligations cease to generate default interest;; (iii) as from the bar date, the assets of the debtor´s estate are protected and cannot be affected by any legal action; and (iv) preference and avoidance periods are established to protect creditors against the sale of the debtor´s assets and other transactions not in the ordinary course of business that could harm the insolvency estate.

In the case of ordinary insolvency proceedings (restructuring or liquidation), the general shareholder meeting is replaced by the creditor meeting. In a preventive refinancing proceeding, the shareholder meeting is not replaced by the creditor meeting and the debtor stays in management.

4. Managing the assets in an insolvency proceeding 

Once the debtor files an insolvency petition, or is given notice of an involuntary insolvency filing, all actions by management – (a) during the prior year (“Preference Period”) and (b) from that date on and until the date the creditors ratify or replace management (“Avoidance Period”) – are put under scrutiny through two different tests. These tests may result in such actions being declared void.

The first test covers all actions or transactions, whether for consideration or not, performed during the Preference Period. These will be declared void if they have a negative impact on the net worth of the company and are not related to the ordinary course of business.

The second test covers the following actions by management if they happen during the Avoidance Period: (i) payment of non-due obligations; (ii) payment of mature obligations not made according to their terms; (iii) contracts for consideration that are not in the ordinary course of business; (iv) compensations among mutual obligations with creditors; (v) liens over, or transfers of, property; (vi) liens created in security of obligations incurred prior to insolvency; (vii) foreclosure on liens and attachments; and (viii) mergers, spin-offs if they have a negative impact on the net worth of the insolvent. Finally, after declaring an act or contract void, the court will order the return of the property to the insolvent party or the termination of the lien, as the case may be.

5. Plans of reorganisation and liquidation: vote and structure

The plans of reorganisation, liquidation or refinancing (depending on each proceeding) are approved, in a first call, by creditors holding claims representing an amount greater than 66.6% of the total allowed insolvency claims. In a second call, any plan will need to be approved by creditors attending the meeting holding claims representing an amount greater than 66.6% of the total amount of claims held by attending creditors. If related creditors hold claims in excess of 50% of the total allowed claims, the creditors meeting will be divided and the vote by class of creditors (related and non-related) will take place.

In an ordinary restructuring proceeding, the plan of reorganisation must contain the actions that the administration shall execute, the list of claims together with a payment schedule for each class of claims including an interest regime (when applicable), the proposed schemes for financing the debtor's activities, the labour policy to be adopted, a provision for contingent obligations, among others.

In an ordinary liquidation proceeding, the debtor will not be able to continue with its regular course of business. The creditors meeting shall appoint a liquidating entity and a liquidation plan. The liquidation plan shall contain, among others, a projection of estimated expenses for the process, the approval of the liquidating entity´s fees, and the scheme and conditions for the piece-meal sale of the debtor's assets, unless creditors have agreed to an on-going concern-liquidation proceeding.

A preventive refinancing proceeding has been conceived as a fast track for companies that have a general liquidity problem and need some relief to extend their distribution schedules for each creditor. The creditors meeting is installed only for the purpose of approving a global refinancing plan. If this refinancing plan is approved by the majorities stated above, the proceeding ends.

Finally, in the case of the accelerated insolvency refinancing proceeding (PARC), the business refinancing plan must contain all the recognized and unrecognized credits and those that appear in the company's financial statements, the treatment and payment schedule by class of creditors , the provision of contingent credits, the applicable interest rate (if applicable) and, if creditors requests it, the appointment of a supervisor to verify compliance with such plan. It should be noted that the aforementioned procedure concludes with the approval or disapproval of the business refinancing plan. Employees and creditors with consumer relationships with the debtor do not need to file a proof of claim. Moreover, these creditors need to be paid with a mandatory amount of funds provided for in the plan. Creditors that are related to the debtor and the labour creditors who are workers or the creditors who maintain obligations derived from a consumer relationship are not allowed to vote on the plan.

6. International insolvency: effects of an international insolvency for assets located in Peru

Peruvian Insolvency Law does not provide for an ancillary proceeding, which recognises a foreign proceeding. However, there are few rules that govern the handling of this procedure, and our authorities are working on a bill, which shall contain an international insolvency section.

Notwithstanding, our insolvency authorities are able to handle insolvency proceedings initiated abroad, as long as Peruvian judicial authorities have first recognized the foreign judgment declaring the insolvency, through a judicial process in accordance with the international treaties signed by our country. The Commission's venue extends exclusively to assets located in the Peruvian territory. Currently, few rules regulate this proceeding.

Moreover, the Commission is competent to allow the recognition of recognised debts through judgments or final arbitration awards issued abroad, in the insolvency proceedings of a debtor domiciled in Peru, provided that such pronouncements have the respective judicial resolution of recognition in Peru and unless a different treatment is established in any of the international treaties to which Peru is a party.

Picture of Michelle Barclay
Michelle Barclay
Ivanna Escala
Ivanna Escala
Picture of Victor Farro
Victor Farro
Picture of Carolina Pinzas
Carolina Pinzas