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Insolvency and Entrepreneurship Law - Law 20.720


The existing bankruptcy regime (the “Bankruptcy Law”) was replaced when Law 20,720 was enacted. The role of the pertinent Commission was also perfected.

The new law distinguishes between corporate borrowers and individual borrowers:

Corporate borrower: Any private legal entity, whether or not for profit, and individual first-category taxpayers or free-lance workers (who issue invoices or bills).

Individual debtor: Any natural person not included in the definition of corporate debtor, such as employees and individuals who are not employees, but are borrowers, such as housewives, retirees and students.

It also sets down several proceedings for reorganization or liquidation in a bankruptcy, which are applicable according to the condition of the relevant borrower, which we will analyze below.

Bankruptcy Reorganization Proceedings

  1. Administrative Procedure for Individual DebtorsThis procedure takes place before the Insolvency and Entrepreneurship Commission, which endeavors to reach an agreement with the majority of creditors that will be binding upon everyone. The debtor must meet several requirements to qualify for this procedure. Once the request has been admitted for processing, among other effects, the involuntary liquidation of the debtor may not be petitioned nor can any lawsuits be filed against him. The terms of payment for existing debt will remain unchanged.
  2. Processing
    – A liability determination hearing: The debtor and creditors attend this hearing where the list of liabilities prepared by the Commission will be discussed. If there is no agreement on the list or determination of liabilities, a foreclosure hearing is immediately convened.- Renegotiation hearing: This hearing is convened once the list of liabilities has been determined. It is attended by creditors and the debtor so that the debtor’s proposal can be approved, be it for a rescheduling, novation or forgiveness of the debt. If there is agreement, a record of proceedings will be prepared and the renegotiation process will end. If there is no agreement, the Commission will convene a foreclosure hearing.

    – Foreclosure hearing: The creditors who are present and the debtor participate. The Commission will present a proposal on the liquidation of assets. There is agreement, a record of proceedings will be prepared that will contain the foreclosure agreement and the procedure ends. If there is no agreement, the Commission will send the information to the competent court for a judicial liquidation to be declared.

  3. Effects of the Agreement: In the reorganization agreement, the debt covered by the agreement will be deemed extinguished, novated or rescheduled and the debtor will be discharged.In a foreclosure agreement, the unpaid balances of debt owed by the debtor covered by the agreement will be deemed extinguished by mere operation of the law.

Corporate Debtor Reorganization Proceeding

  1. Judicial ProceedingsOnce the judicial petition has been admitted for processing and legal requirements are being met, the court will issue a reorganization decision that will grant the corporate debtor bankruptcy financial protection for 30 days. Under that protection, the involuntary liquidation of the corporate debtor cannot be petitioned and the company is subject to oversight by a Chief Restructuring Officer, among other effects. The reorganization decision will also set the date of the creditors’ meeting, where creditors must affirm their credits if they are not in the statement of debt presented by the corporate debtor.The proposal on a Reorganization Agreement must be presented by the debtor to the Creditors Meeting, which may accept or reject it. If the proposal is rejected, the court will issue a liquidation decision forthwith.

    Effects of the Agreement: An approved agreement is binding upon the debtor and all creditors, whether or not they have attended the Creditors Meeting. Credits covered by the agreement will be deemed forgiven, novated or rescheduled, as applicable. Actions of annulment and default may be filed against the agreement. If such actions are sustained, the court will issue a decision ordering the liquidation of the corporate borrower.

  2. Release of Judicial ReorganizationThe debtor may present a petition for release during a liquidation proceeding once the list of recognized credits has been notified. The court will then convene a Creditors Meeting. At that meeting, it will be determined whether the proposal has been approved by the quorums required in the law. In this case, creditors can also contest the agreement in the same way indicated above.
  3. Extrajudicial or Simplified Reorganization of a Corporate DebtorAll corporate debtors may enter into an Extrajudicial or Simplified Reorganization Agreement with their creditors and submit that agreement to court approval. The agreement must be executed before an authenticating officer and must be accompanied by a report by the Chief Restructuring Officer, in addition to being signed by two or more creditors representing at least three-fourths of all liabilities.The court will render a decision on reorganization once the petition has been presented. The effects include forbidding any petition for the involuntary liquidation of the debtor. And a hearing will be convened for the creditors to grant their approval.

    Effects of the Agreement: Once the proposal is approved, it has the same effects as a Judicial Reorganization Agreement.

Liquidation Bankruptcy Proceedings

  1. Voluntary LiquidationThe debtor can petition the court for a voluntary liquidation. Upon admitting that petition, the court will appoint a lead trustee and an alternate trustee. This means that once such a decision is notified, the same steps are taken as for an involuntary liquidation, to the extent applicable, which is explained further below. The liquidation decision will set the date of the pertinent Creditors Meeting where the relevant resolutions will be adopted, such as ratification of the lead and alternate trustees, the date of future meetings, proposals on the liquidation of assets, among other matters.
  2. Straight LiquidationThis occurs in the cases dictated by law and the court must render a liquidation decision in each. Examples are the following: (a) The debtor does not attend the Creditors Meeting in a judicial reorganization proceeding; (b) no proposal on a reorganization agreement is presented in the period set in the law; (c) the judicial reorganization agreement has been declared void or breached. For individual debtors, this may be when there is no agreement at the foreclosure hearing on the way that assets must be realized.In these cases, the liquidation decision will have the effects of an involuntary liquidation.
  3. Involuntary LiquidationThis occurs at the request of a creditor when the debtor has ceased payment of a debt that is set out in an executory instrument, if there are two or more expired executory instruments of the debtor for different debts, and at least two foreclosures have begun but assets are insufficient or the debtor has fled.If a corporate debtor accepts the liquidation decision, if the pleas are not admitted or the debtor does not appear at the hearing set by the court, a liquidation decision will be issued with the consequent effects and then the credits will be determined, individual foreclosures will be suspended, debt will come due, assets will go into trusteeship and then be liquidated.

    Once the assets have been liquidated, the trustee must proceed with payment to creditors, which will be done following the rules on credit priorities in the Civil Code. After payments have been made and there are no further assets to liquidate, the Trustee will present a final trustee report and the court will issue a resolution terminating the bankruptcy liquidation proceedings. The effect of such a termination decision is that the debtor recovers free administration of his assets, any unpaid balances of debt are extinguished by operation of the law and the debtor is discharged for all legal purposes.

Individual Debtor Liquidation Proceedings

These proceedings may be voluntary or involuntary.

They are implemented following procedures similar to the voluntary and involuntary liquidation of a corporate debtor, with some exceptions. For example, assets are liquidated under a summary foreclosure; there must be two or more expired executory instruments to petition for involuntary liquidation that represent different debts, at least two foreclosures must have begun and assets do not suffice, after the injunction has been ordered, to pay the debt owed and court costs.


All decisions rendered in these proceedings will be notified through the Bankruptcy Bulletin, which is an electronic platform operated by the Insolvency and Entrepreneurship Commission.