Legislative Decree No. 1511, which was recently enacted in Peru, provides for a special bankruptcy procedure called the Expedited Procedure for Bankruptcy Refinancing (“PARC” for its initials in Spanish), which is intended to help businesses affected by the coronavirus disease 2019 (COVID-19) pandemic negotiate with their creditors and agree on an orderly restructuring of debt payments to avoid insolvency.

Several aspects of PARC merit special attention, including the following:

  • It will enter into force by June 9, 2020, at the latest (the day after the deadline for the publication of the regulations).
  • It applies to micro, small, medium, and large corporations, as well as civil associations.
  • The deadline to utilize PARC is December 31, 2020, and it can be used only one time.
  • The process may only be initated by debtors, not creditors.
  • PARC requests, credit recognition, as well as Creditor Board (“Board”) and other resources will be processed electronically.
  • The insolvency notice, based on which debtors’ obligations are suspended, and the designation of protected assets likely will be published within two (2) eeks of the date of the PARC request (subject to clarification in the regulations).
  • Labor and consumer debts will not be recognized by Peru’s National Institute for the Defense of Competition and Protection of Intellectual Property (“Indecopi”), but will be included in the Corporate Refinancing Plan.
  • Labor and related creditors will not vote on the Board.
  • It may take up to 90 days to install the Board (subject to clarification in the regulations).
  • The Board may only discuss whether to approve or reject the Refinancing Plan, which is approved by a majority of recognized creditors.
  • The Refinancing Plan includes all debts, payment schedules, and interest rates.
  • Failure to comply with the Refinancing Plan results in its automatic termination.
  • Creditors with more than 30 percent of recognized debts may designate a supervisor, at their expense, to verify compliance with the Refinancing Plan.

Actions for creditors

Debtors are advised to take the following actions:

1. Team building

  • Create an ad hoc working group to provide financial, accounting and legal support and which is prepared to negotiate with debtors.

2. Debtor diagnosis

  • Identify the main debtors, including those with overdue obligations, and those that may have liquidity problems.
  • Prepare and update a list of debtors, the amount of the debts, and due dates, and confirm whether the debts have guarantees and, if applicable, identify the guarantees.
  • Analyze scenarios for negotiating debts – including refinancing, payments with assets, capitalizations, and flexible payment formulas – that avoid non-compliance with the Refinancing Plan, which could result in liquidation.

3. Create an archive of debts

  • Collect and consolidate in digital format the supporting documentation for the debts, including public deeds, contracts, purchase or service orders, emails, invoices, bills, securities, payment schedules, bank transfer reports, among others.

4. Contact with creditors and followup

  • Maintain regular communication with debtors, ask about their situation and whether they plan to resort to PARC or other insolvency proceedings.
  • Regularly review the Insolvency Newsletter published by Indecopi to remain apprised of debtors that have resorted to PARC.

Actions for debtors

Debtors are advised to take the following actions:

1. Team building

  • Create an ad hoc working group to provide financial, accounting and legal support and which is prepared to negotiate with creditors.

2. Self-diagnosis

  • Assess the company’s position and viability to determine whether it is necessary to resort to PARC.
  • Identify strategic creditors and consider:
  • The amount of their debts and due date and
  • The type of creditor: eg, labor, debts with real and personal guarantees, tax, unsecured, and consumer creditors.
  • Discard being in the cause of dissolution provided in the numeral 4) of the article 407 of the General Corporations Law, according to which the company must not have losses that reduce its net worth to less than one-third of the paid-up capital or one-third of its obligations

3. Create a document archive

  • Maintain an archive of financial documents, including balance sheets, income statements, statements of shareholders’ equity, and cash flow statements.
  • Keep detailed records concerning the assets of the company, their value, liens and other encumbrances, as well as the holders of such encumbrances and their amounts.
  • Identify those assets that are not part of the main business and could be sold.

4. Actions

  • Evaluate preventive measures that may be taken to ensure that the company’s assets are adequately protected (mainly its cash flows) in case you plan to resort to PARC (consider creating trusts or escrow accounts).
  • Determine whether to contact the company’s strategic creditors to initiate conversations about possible eligibility for PARC, and then negotiate and secure their vote at the Board for approval of the Refinancing Plan. Because this process is intended to be very fast, it is advisable to make contact as soon as possible.
  • Develop the Refinancing Plan to be proposed to the creditors, including the financial and business elements. The Refinancing Plan should contain a flexible payment schedule that avoids default and, therefore, the company’s liquidation.
  • Analyze the debtor’s transactions for the last year (the “suspicion period”), which may be nullified if (i) not carried out in the normal course of business and (ii) harmed the company’s assets.

If you have any questions regarding these new requirements and their implications, please contact the authors or your DLA Piper relationship attorney.

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This information does not, and is not intended to, constitute legal advice. All information, content, and materials are for general informational purposes only. No reader should act, or refrain from acting, with respect to any particular legal matter on the basis of this information without first seeking legal advice from counsel in the relevant jurisdiction.