Insolvency proceedings in Peru are aimed at fostering an appropriate environment in order for creditors and the debtor to engage in a collective negotiation process for the purpose of restructuring or winding up the company, incurring low transaction costs.
That’s why in the Explanatory Statements of the draft LGSC it was stated that “(…) Regardless of the option elected by the creditors (restructuring or winding up of the company), the creditors must focus their effort on maximizing the equity in crisis by making efficient business decisions in order to properly protect their credit”.
For this reason, the fate of an insolvent debtor should be decided by the creditor’s meeting because it is the highest-ranking decision making and deliberative body with respect to the debtor’s equity, as is entitled to agree on the restructuring of the debtor’s equity or on the dissolution and winding up of the debtor, when the creditors believe that either dissolution or liquidation is the best path to follow to recover their unpaid debts.
The above can be summarized as follows: private autonomy is supported by the fact that the insolvent debtor’s creditors, via the creditors’ meeting, are the ones authorized to express their expectations regarding the success or failure of the insolvency proceeding, which gives them enough incentive to decide the fate of the insolvent debtor’s equity and make all other decisions required to improve and materialize their expectations regarding the collection of their unpaid debts because they are the ones that have the strongest incentives to do it as they are precisely the ones that either benefit from or are damaged by said decision. Therefore, the debtor, the competent authority (Indecopi) or the creditors (which represent a minority) cannot take the place of the creditors’ meeting in deciding the fate of the equity.
However, both doctrine and jurisprudence (in the United States and Argentina), make reference to cramdown power (agreement by a third party), which consists of having the bankruptcy authority (third party) decide the fate of the insolvent debtor if the creditors fail to make said decision or otherwise revert the original decision made by the creditors’ meeting by majority on grounds (based on evidence and decisive criteria) that the debtor should have a different fate.
Accordingly, if the creditors fail to make a decision within the deadlines set forth in the law or otherwise make a decision on the fate of the debtor which is not consistent with the financial and/or economic reality of the company (like deciding to wind up the company when it is still viable, as it often happens), said third party can revert said decision; however, in Peru, that is not possible for the reasons explained in this article and also because there is a rule that resolutions dealing with the fate of the debtor are to be passed by the creditors’ meeting, by qualified majority voting; in addition, the involvement of the competent authority is supplemental .
Accordingly, we believe that the LGSC should contemplate some assumptions where the bankruptcy authority should be authorized to analyze its involvement in a specific case, like in cases where the fate of the company is decided because of disagreements between its creditors (lack of action) despite the fact that the insolvent company is still viable to continue operating in the market.