This paper aims to address the study of bankruptcy institutes of a preventive nature, or rather of a conservative - reorganizational nature, in the legal system established by means of the Bankruptcy Law in the United States of America. This study is aimed at knowing the more general aspects of this very particular system, where the legal system serves as a framework between the interests of the creditors versus those of the debtor-employer, and the mechanisms to reconcile those interests. It is extremely important to have a general knowledge of this figure, not only because of the help it can give us in understanding the Costa Rican system itself;but because the effects that crises produce in North American companies could be better cushioned by a professional who understands bankruptcy mechanics in the United States of America.
The connection between the markets of the countries of the American continent is undeniable, either to a greater or lesser degree depending on the level of existing commercial connection. The problems of economic depression in a nation like the United States, Mexico, Canada and Chile, and other important markets could have disastrous consequences in our country; especially in times when globalization and economic integration processes bring our economic systems closer together. All of this highlights the undeniable importance of analyzing these legal institutes applicable to times of business crisis.
The present work sets out at first three general objectives, which will help me to delimit the subject and focus on those aspects that I consider most relevant. The first of them is to know the bankruptcy processes provided for in the Bankruptcy Law of the United States of America; secondly, to be able to identify the main elements of the bankruptcy process contained in "Chapter 11" of the United States Bankruptcy Law, and finally to study the most relevant aspects of the relationship between creditors and the debtor.
In order to develop these objectives specifically, I will try to identify certain historical antecedents that allow understanding the nature of the American reorganization institute, and subsequently the main differences between the insolvency proceedings provided for in chapters 7, 11, and 13 of the State Bankruptcy Law States of America. Later, I will determine what are the subjective and objective requirements to be able to file a business reorganization application in accordance with Chapter 11 of the North American law. Equally important will be to describe the different phases of the business reorganization process according to US law, all taking into account the relationship between the debtor and the creditors, the important aspects that affect it. Throughout the job,I will allow myself to make comparative comments between the procedural institute being analyzed, and our legislation, in such a way that a light study of comparative law helps to more effectively identify the aspects of proximity and distance between both systems.
The reorganization process in our country is recently introduced, especially if it is taken into account that the regulations applicable to preventive bankruptcy proceedings were incorporated together with the enactment of the current Civil Procedure Code in 1989. Rules that would be subsequently amended in 1996. With this, what I try to leave raised from this moment on is that comparatively, the history and development of both systems marks a first and very important difference.
Finally, I consider it necessary to clarify that in this monograph the terms Chapter 11 and Chapter 11 are used as synonyms; In this same sense, when I refer to North American legislation, I call it the Bankruptcy Law, or Bankruptcy Code, and with it, I am referring to Title 11 of the United States Code, which is the regulatory body that regulates bankruptcy proceedings.
SECTION I. BANKRUPTCY PROCESSES IN THE BANKRUPTCY LAW OF THE UNITED STATES OF AMERICA.
This first section seeks to establish the general framework of the work, for which first I will try to highlight some historical elements that allow us to know the most important antecedents of current bankruptcy law, to later outline the most important differences between the different chapters of the Bankruptcy Law of the United States. It is important to indicate that in the second part of this section, I will not limit myself solely to reviewing the preventive bankruptcy processes, but rather a general description of the bankruptcy processes in general that are more relevant in US law will be made.
BACKGROUND OF BANKRUPTCY LAW.
Bankruptcy law could be thought to be of very recent development, however its antecedents could be located from very ancient times. Its origins could be identified even in Roman law; However, more easily identifiable features are shown from the Late Middle Ages. For the jurist José Leyva Saavedra, it is possible to identify three phases in the evolution of bankruptcy law. The first phase begins in the late Middle Ages and ends with the First World War, at that time the insolvency proceedings present in the various legislative systems consisted mainly of instruments for the enforcement of the debtor's assets, who were generally a merchant In other words, the bankruptcy proceedings had a clear liquidation purpose. At this time the situation of the merchant debtor,Unlike the civilian, it is even more serious, since his own Corporation subjected him, or made him submit, to severe measures of a personal nature who normally fled to avoid such procedures. Over time, the different legislations sought to protect the interests of the merchant class and of the citizens damaged by the insolvent debtor. This time tried to regulate conflicts between individuals and ensure a peaceful solution to the problem with the only possible way: the liquidation of the debtor's assets on which the collective execution is exercised. In this first phase, the need for judicial bodies is considered to ensure the proper development of collective actions, maintaining a balance between the interests of creditors and the insolvent. As the end of the 19th century approaches,At the end of this first stage, the first judicial preventive agreements emerged, located at a time prior to bankruptcy, which had to be approved first by the creditors under the majority regime to be later approved by the judge.
However, it is important to note that in this period, it will not be the economic viability of the company that defines the opening of the agreement against bankruptcy, but rather the application of subjective criteria, in the sense of assessing the behavior of the entrepreneur or merchant In such a way that the figure of the agreement was limited to the "good but unfortunate merchant", that is to say, it refers to the way in which the merchant has developed his economic activity, otherwise the bankruptcy would proceed directly.
The second phase is located temporarily after the First World War when the industrial crisis occurred, at this time a special interest in the conservation of companies instead of their liquidation began to be felt. The legal and political system in this phase makes an assessment of the confrontation or coincidence of the private interests of the entrepreneur, who could try to avoid bankruptcy or at least retain the possibility of continuing in the exercise of their own activity; and the interests of creditors, who may eventually prefer to accept the debtor's proposals rather than make use of bankruptcy, especially in cases where the liquidation option would provide a very reduced payment of the credits and a different option offers a better possibility of Economic recovery.Within these systems, bankruptcy appears as an option to the economic crisis that extinguishes the debtor and the debts against the agreements that, as alternative institutes to bankruptcy, seek the solution to the crisis through conservative means, extinguishing the debts through settlements; but keeping the debtor alive. During this time, legal systems were limited to predisposing certain legal instruments that were intended to serve as a regulator of conflicts between creditors and the insolvent, however it is important to indicate that at this time the interests of minority creditors were not yet protected. in the sense that they could prevent settlements of the majority of the creditors with the insolvent debtor.Even in several procedural systems, a moratorium on payments was allowed to facilitate this type of arrangement when the debtor could not fully recover financial capacity.
The third phase would begin in the second post war. This time will be characterized by a greater interest of the State in the economic crises of the companies, a consequence of which the companies no longer only put at risk the capital of the partners and the company itself, but also endanger and affect a large mass of investors or savers by resorting to credit and the placement of securities in the market. The emergence of large companies that resort to raising funds from the public and financing from state entities aggravates the damaging effects of business insolvency. It is possible to consider that in this phase, bankruptcy and other liquidation procedures, as means of solving company crises, enter into a crisis process since:
“When the disintegration of the means of production of the insolvent company is considered contrary to the interest of the community, it is easy to argue that the crisis is faced with other, even legal, more efficient means. Bankruptcy, then, at this point becomes a residual hypothesis: it is destined to economic initiatives that have not reached such dimensions and importance as to involve the public interest.
The different legal systems must then raise the problem of the search for a solution that responds more efficiently to the interests of the community, understanding for this the inclusion of collective economic interests: the stability of the market.
Some sources of Comparative Law point to the North American system as the first to propose the need to set up preventive bankruptcy institutes of a reorganization nature since the end of the 19th century. In this way, the first antecedent in this matter is located in the Railway Companies Law of 1867, in which a procedure for the reorganization of railway companies was established and which was later expanded to other forms of business organization, as a bankruptcy procedure processed through through the "Courts of Equity".
These forms of solving economic crises are accelerated in their institutional development after the great economic depression and the fall of Wall Street in 1929. Thus, the North American legislation on this matter on the basis of the Bankruptcy act of 1898, is subjected to major reforms in the 30's. In 1934, the procedure for the reorganization of railway companies was modified to be applied in a general way to all companies. A few years later, in 1938 a new reform known as the "Chandler Act" was introduced, promulgated in accordance with article 1, section 8 of the United States Constitution. This is a law that would be aimed at keeping joint-stock companies alive and, in effect, restructuring or reorganizing them, rather than liquidating them.Said legislation established a special reorganization procedure for capitalist companies, and which constitutes the immediate antecedent of the current "Business Reorganization", introduced on November 6, 1978. At that time by means of the "Bankruptcy Law Reform Law ", The new" Bankruptcy Code "was born, which would enter into force on October 11, 1979, later modified in 1984 and 1994.
In light of these changes in North American legislation, which does not result in an isolated phenomenon and which would later be extended to the rest of the legislation, we can speak of a new bankruptcy philosophy. This new thought overcomes those ideas that in the face of the insolvency of the debtor as a victim of market forces, of his bad luck, or even of his ineptitude or bad faith, the subject should be left to a liquidation and dispossession to be honored until as far as possible their financial obligations. With the insertion of the public interest in the economic problems of the merchants, the State finds reasons to seek the maintenance of the company as one of the country's means of production, that is,The State is interested in maintaining as much as possible the economic stability of those mechanisms that generate wealth, and that form an essential part of the financial balance of the country, of society.
The system developed from this thought will try to leave the dismemberment of the debtor as the last option, in order to find solutions in which the interests of all those who would be affected by a cessation of operations, including workers, can be better satisfied., third parties, the owner himself, and even the creditors themselves. A modern principle of bankruptcy law begins to be born here: the principle of "preservation of the company", which may eventually satisfy the aforementioned interests more efficiently. In this sense, we could affirm together with Leyva Saavedra that the conservation of the viable company appears as a general principle,rector and core of the new bankruptcy philosophy, thus existing greater chances of satisfaction of creditors if the company is reorganized. The enormous costs involved in the total reallocation of resources, the public interest that would be affected by the elimination of the company in difficulty, and the hope of lowering administrative costs through adequate conservation procedures, easily lead to the conclusion that settlement is no longer the general rule and has become the residual rule of the bankruptcy system.they easily lead to the conclusion that settlement is no longer the general rule and has become the residual rule of the bankruptcy system.they easily lead to the conclusion that settlement is no longer the general rule and has become the residual rule of the bankruptcy system.
In North American law, the “equity receivership” as a reorganization procedure through the courts of equity, consisted in the appointment by the judge of an administrator, at the request of a creditor and in the event that the debtor was found to be in default. payment of overdue obligations. This judicial act immediately suspended all executive actions against the debtor. The creditors would be organized into committees according to the type of credit that they would act against the insolvent debtor, to defend the interests of the title as a group. These committees should approve a company reorganization plan and appoint the members of a plan execution committee that would be in charge of carrying out the provisions of the plan.
Normally, the reorganization plan provided for the constitution of a new company to which the assets of the debtor company were transferred, with the previous creditors, shareholders and other third parties who had any obligation against the debtor subscribing for the shares of the new company. For those creditors, who within their committee had not accepted the plan, the reorganization committee would pay them what the old debtor company owed them through the judicial sale of certain assets based on a minimum price set by the judge, combining in this way liquidation channels for reorganization purposes.
This «equity receivership», which could be translated into Spanish as a «just prized disempowerment», will have an important effect on the evolution of preventive competitions, especially in what corresponds to reorganization processes, as it «raises the need to coordinate the reorganization of the debtor company with the pre-existing rights of creditors, shareholders and third parties affected by the crisis of the company, thus regulating its participation in the future reorganized company, which will constitute a constant in American Law. For this purpose, committees of creditors, shareholders and bondholders are constituted in the "equity receivership" that separately assume the protection of the interests that are not always coincident, of these categories of subjects within the reorganized company. "
In the aforementioned “Bankruptcy Code” all bankruptcy procedures that the North American system makes available to interested parties for the solution of economic-financial crises for both individuals and legal entities are regulated, thus we have the following options: a) liquidation procedures or "liquidation proceedings" that is regulated in chapter 7; b) adjustment of debts of a municipality or "adjustments of debts of a municipality" that is defined in chapter 9; c) reorganization or "reorganization" also known as chapter 11; d) adjustment of debts of a family farmer with regular annual income or "adjustments of debts of a family farmer with regular annual income" located in Chapter 12;and finally e) adjustment of debts of an individual with regular income or "adjustments of debts of an individual with regular income" Chapter 13. The first is a basic procedure from which the railway management companies, national security companies and the credit institutions. The others, for their part, are presented as alternatives to the first, although the second and third with a special character.
Along with these typical bankruptcy procedures, we find the so-called "friendly adjustments and assignments for the benefit of creditor", which are extrajudicial liquidation procedures for the debtor's assets. These procedures are processed before the National Association of Credit Men, an institution that operates through a special department made up of bankruptcy experts. The debtor's assets are transferred to the "Department of Experts" of the Ministry of Justice, which will proceed, by extrajudicial means, to their execution for the benefit of the creditors.
Since this work is intended to enter the North American legislative system, and having defined the historical framework in which the bankruptcy proceedings of the United States Bankruptcy Law evolved, it is necessary to analyze 3 of the different options offered by said system.
BANKRUPTCY PROCESSES IN THE UNITED STATES
The system to deal with business crises in the United States, through Bankruptcy Legislation, tries to maintain a balance that benefits both the debtor and the creditors, seeking to solve the existence of debts that cannot be assumed by the debtor, while creditors can be paid through those assets that are not essential for the creditor to continue with its activity. Bankruptcy proceedings are regulated by a group of federal regulations that together are known as Title 11 of the "United States Code." Title 11 is subdivided into chapters, some regulate aspects in a generic way regarding procedural issues applicable to all types of bankruptcy proceedings,while other chapters correspond to specific forms of bankruptcy proceedings. For example, chapters 1 and 3 regulate aspects applicable to all processes, such as terminology, deadlines, legal standing, among others; and chapters 7, 11 and 13 establish specific bankruptcy processes.
Title 11 or "Bankruptcy Code", as federal law, will hierarchically have a higher level in any conflict that may arise between it and state legislation, as it is a special law based directly on the Constitution. As was already evident in the previous section, there are basically four bankruptcy procedures that will be analyzed below, however I will try to make a general mention of some relevant chapters in the structure of the Bankruptcy Code.
GENERAL RULES.
In relation to the general rules on bankruptcy, these are found in chapters one, three, and five of Title 11 of the United States Code. In these chapters we will find a general framework applicable to all bankruptcy proceedings contained in North American law.
FIRST CHAPTER.
The first chapter of the code contains regulations of a general nature. Thus, for example, section 101 defines the terms used in the rest of the regulations: What is a legal representative? What is a petition? What is a consumer debt? What is a creditor? In the consideration of North American jurists, this type of terminology might seem obvious, but this legal system chooses to establish definitions, since the simple or broad terms could be confusing. In this way, we find the definition of "individual with regular income", and that corresponds to "anyone whose income is sufficiently stable and regular that allows this subject to make payments within a defined plan according to chapter thirteen of this title, excluding the stockbroker.»This term used in Chapter Thirteen is defined by Chapter One together with a series of regulations whose purpose is to give clarity and uniformity to Title 11 in general. But the first chapter is not limited only to terminological definitions, in it we find delimitations in relation to the application of standards to some of the types of processes contemplated in this code. In section 105 we find the definition of the functions of the court, another example of the provisions of Chapter One is the indication of section 107 in relation to the publication of documents submitted to bankruptcy by the parties and that with few exceptions allows any of the parties in the process to have access to the debtor's information, including the accounting one.Section 109 defines who can manage the initiation of a process of this nature and section 110 provides for the actions of para-judicial officials and not lawyers.
CHAPTER THREE.
The Third Chapter of the code defines the role of the parties involved in the process, both the functions of the judge and the curators, depositaries, and even the creditors. This chapter defines the process in general terms and the general effects of starting a bankruptcy process. Sections 301 to 307 provide for matters related to the filing of voluntary and non-voluntary legal actions, group bankruptcies, and in general the procedure to initiate bankruptcy, or any of the other bankruptcy proceedings. Throughout sections 321 to 331 the depositaries, trustees, curators are established, their obligations are defined, and who is responsible for the financial burden of their payment. Likewise, these sections establish the role and functions of lawyers,as well as other professionals who participate in the process, it also includes what is related to professional fees.
In sections 341 to 350, the chapter contains provisions regarding meetings of creditors, issuance of edicts and notifications, the limitations of the Fifth Amendment regarding the self-incrimination of criminal acts, the possibilities of conversion of a type of process in another, the normal and abnormal termination of the process. Section 361 to 366 corresponds to the use and destination of the assets during the process, in such a way that the parameters for selling, leasing, or maintaining assets are defined; in the same way, matters relating to the generation of debts or loans during the bankruptcy process are regulated. Specifically section 362,It will be the one that, from the moment the legal action has been filed, stops all other legal action against the assets of the subject who has undergone the process.
TYPES OF BANKRUPTCY PROCESSES
In relation to the different types of bankruptcy proceedings, in this section we will make a brief explanation of three of them, I am referring to the contents in chapters seven, eleven and thirteen. This in order to give the reader an overview of the general characteristics of each of them.
CHAPTER 7- LIQUIDATION
Chapter 7 of the Bankruptcy Code or Law corresponds to the liquidation chapter, which is sometimes identified as "direct bankruptcy." This is the most common type of bankruptcy process used in the North American system, and it is commonly referred to when the term bankruptcy is mentioned. The purpose of the Chapter 7 bankruptcy process is to protect the debtor against his creditors.
When a person files for Chapter 7 proceedings, their goal is to eliminate most or all of their debts. The process contained in this chapter is allowed when the debts are mostly unsecured or when there are no possibilities of execution. This type of process operates especially when the nature of the debts correspond to loans or cards and credit judgments, This chapter is sub-divided into four Sub-Chapters. The first Subchapter deals with the duties of the administrator. The second Subchapter deals with what corresponds to inventories, liquidation and the distribution of the bankrupt's assets. The third Subchapter regulates the liquidation of the stockbroker and the Fourth Subchapter corresponds to the liquidation of the "commodity brokers" or brokers or commission agents of future merchandise.
For debtors subjected to this type of process, Subchapter II (section 721 to 728) contains a series of regulations of particular importance to their interests, since here their right to continue operating their business is established while the bankruptcy process is developed. establishes the possibility of amortizing debts on real estate, the treatment of certain liens, disposition of assets, discharge of debts and certain provisions related to the payment of taxes.
From the point of view of the debtor, the goal is to obtain the release of their debts through an act of a judicial nature that establishes the elimination of those debts that meet the necessary requirements for this. The debts released in this process will be totally extinguished as if they had never existed. There is a periodical time limit on the possibility of using this resource. In this sense, people who qualify to undergo this regime cannot start this type of process more than once every six years. The legal philosophy underlying this process is to allow the individual to be released from their debts as the foundation of the American democratic system.This must achieve a reasonable balance between the interests of the large financial entrepreneurs (lenders) and the individuals who, at the discretion of the legislator, have collectively built such a society.
The process begins with the presentation of the corresponding formulas and documents. Subsequently, the judicial authority appoints an administrator who will be responsible for managing the bankrupt's assets and ensuring the correct and adequate use of the law. Approximately four weeks after the beginning of the process, the debtor meets with his creditors. If the debtor's assets are made up of assets exempt from being liquidated in this bankruptcy process, the discharge of the debts will be judicially pronounced about four months after the beginning of the process. In the event that there are assets capable of being liquidated, the law authorizes the administrator to proceed immediately with their sale, to pay as corresponds to the creditors.
In principle, any natural or legal person can request the beginning of a bankruptcy process under Chapter 7, however, not everyone who undergoes this process will obtain an extinction of their debts. To do this, the debtor must initially be in a state of insolvency. The condition of insolvency is established in relation to the inability to possess adequate disposable income to pay creditors. This insolvency condition must be duly demonstrated, and with this, the system guarantees that the benefit is received only by those subjects who are effectively in such conditions and there is no abuse by subjects who are not in that state.
The Bankruptcy Code establishes that from the moment a bankruptcy process is filed under Chapter 7, all actions and processes initiated by creditors against the debtor are suspended. As well as the initiation of any other new legal action in this sense is prevented. This is known as an "automatic cessation" and is considered one of the strongest provisions in federal law. This automatic cessation covers practically all types of processes, from evictions, to foreclosures, the debtor cannot be sued, nor be the object of any type of property execution. Even the government itself cannot perform any kind of debt collection, including failure to pay taxes.
When the declaration of bankruptcy is requested, a figure known as the "bankrupt's estate" is established, which will contain all of the debtor's assets at the beginning of the process. The United States Department of Justice will appoint a curator to manage the bankrupt's estate, for which he is given complete control over said assets. Approximately 4 weeks after the process begins, the debtor must meet with his creditors, which is called a "341 Hearing" (since it is regulated in said section of Title 11). Said hearing will be presided over by the curator, and in the event that the debtor does not appear, the process is terminated and filed immediately.
During this single hearing with the creditors, the debtor has the opportunity to present documents and correct or complete any information deemed necessary; as well as adding creditors or assets that were omitted in the initial presentation of the process.
A particularity that deserves to be indicated is the case that there are credits with real guarantees on movable or immovable property, this does not prevent the possibility of excluding said obligation while it is up to date and the bankrupt continues to pay the obligations regularly. despite initiating a bankruptcy proceeding in accordance with this chapter. In this way, the bankrupt is not obliged to deliver those assets given as collateral and on which there is still a pending debt, as long as there are no overdue balances. There are several ways to proceed in a case like this, a first option will be to commit to continue making payments in the same terms originally agreed, another second option would be to pay the commercial value of the asset as a payment to the debt,and leaving the difference to the normal bankruptcy regime, of course this option is logical only when the value of the asset is not greater than the total debt.
After the inventory of assets, the curator will issue a report and a recommendation based on which the court will authorize the sale of assets when they exist, the form of distribution and payment between creditors, and will terminate the unpaid debts and the unspent balances.
The duration of the process is approximately six months, after the administrator has completed his work of administration, sale of assets, and payment of creditors, the process is terminated. Once the matter is finished, the administrator is released from his responsibilities regarding the debtors' assets and the automatic cessation is concluded and any new obligation could be legally required to comply with it without any problem.
Finally, it is important to make some notes about the participation of the curator and the judge in the process. In the first place we must indicate that the Judge is almost invisible to the bankrupt, since there will be no direct contact between them unless there is a conflict between the creditors and the debtor, or between the conservator and the debtor, or between the creditors and the debtor. curator, in such a way that the judge must resolve some point debated between them; but if not, due to its administrative nature, bankruptcy takes place outside the jurisdiction of the judge. As for the curator, it is possible to indicate that the role played by the curator will obviously depend on the type of bankruptcy process in which we find ourselves. If we are in the process contemplated in Chapter 7,the conservator's intervention is much more limited than in the Chapter 11 business reorganization process in which greater involvement in the day-to-day activities of the business might be required. In this way, the functions of the Curator are limited to the custody of the "bankrupt's assets", with the exception of what refers to the daily operation of the business of the natural or legal person subject to this bankruptcy process, which remains in the hands of the debtor. during the course of the process. In this period, the debtor is limited by the impossibility of carrying out acts of alienation on the assets of the company beyond the regular acts related to the normal business of the company. But in general, it can be indicated that the inventory, administration,sale and settlement of debts to creditors. Normally, direct contact between the conservator and the debtor is similarly reduced and is sometimes limited to the meeting at the hearing with the creditors defined in section 341, as already mentioned.
CHAPTER 11 - REORGANIZATION
Chapter 11 of Title 11 of the United States Code, or Bankruptcy Law, is often identified as the "Reorganization Chapter." Despite the fact that this chapter is normally used by large companies, nothing prevents its use by private individuals or small companies. Among the benefits provided by this Chapter 11, it can be pointed out that the extraordinary or grace period for the payment of the ordinary debts of the subject is applied including the payment of taxes and any other state credit. The mechanics of reorganization normally allow the debtor to continue with the normal operation of the company even during the period in which the company is subject to the process contained in Chapter 11.
The philosophy behind the reorganization process consists in the fact that in most cases the value of the company as a productive unit is greater than the sum of its assets valued individually. The North American experience has been more beneficial to social interests in terms of reorganization than in the case of liquidation, especially if the benefit of providing mechanisms to keep the country's means of production operating is taken into account. In relation to Chapter 11, I prefer to leave its analysis for the second part of this monograph as it is the central object of this research work, so I will immediately go on to describe Chapter 13 in a generic way.
CHAPTER 13 - DEBT ADJUSTMENT
The bankruptcy process contained in Chapter 13 is known as "Adjustment of Debts of Natural Person with Regular Income". This is the second most common type of bankruptcy process used in the United States. The objective sought in this type of process is to pay the debts in an orderly manner without actually considering them extinct compared to what happens in chapter 7.
It is logical to ask, why pay the debts, when there is the possibility of declaring them extinct under the systems provided for in Chapter 7. However, there are conditions in which Chapter 7 does not offer the best solution to individuals, making it more convenient to choose by Chapter 13. These cases correspond to those situations in which the debtor chooses to pay the debts in full, but for this he needs an extension greater than what his creditors would be willing to provide. Most of the people who resort to this mechanism, it is because they have been late with the payment of their mortgages and they fear facing a possible foreclosure of said collateral. In such situations,This insolvency process offers debtors the possibility of having a grace period of up to three years to pay the unpaid amounts, as long as they are able to continue making regular payments for the unexpired balances.
Given that the process regulated in Chapter 13 is practically a debt adjustment plan, this chapter focuses especially on regulations related to the payment plan. Sections 1301 to 1307 relate to topics such as the right of the co-debtors, the conservator or administrator, the debtor's right to engage in new business, the conversion and the denial of applications. Sections 1321 through 1330 deal with the repayment plan, its content, modifications, the confirmation hearing, payment plan, and the discharge of unpaid debts.
When faced with the question of when it is convenient to file an application for bankruptcy under Chapter 13, the answer will depend on the nature of the debts and the objectives pursued by the debtor. If the debts correspond mainly to credit cards and unsecured debts, the process established in Chapter 7 will be more convenient; But if the debtor intends to fix a lack of payment of credits guaranteed by mortgage and needs several months to be able to catch up, it could be more convenient to use Chapter 13. As economic estimates, the subject who wishes to submit to the process must have lower unsecured debts to $ 250,000.00 and secured debts for a maximum of $ 750,000.00. It is important to remember what was indicated in the analysis made of the Chapter 7 liquidation process,in the sense that despite the fact that in Bankruptcy the debtor could protect those assets guaranteed by real collateral, they must get and keep up with the payments, or buy the asset at its commercial value; Both situations are inconvenient if what is involved is the accumulation of an overdue balance precisely because of not having been able to face a credit guaranteed by real guarantee.
Unlike the Chapter 7 liquidation process, there is no time limit on how often a person can file for a "Regular Income Natural Person Debt Adjustment." This situation is based on the fact that it is not intended to stop paying debts, but to readjust them within a payment plan that allows it. The bankruptcy process established in Chapter 13 is very similar to that established in Chapter 7 except for the existence of the debt adjustment plan, a plan that must be approved by the court at a confirmation hearing.
The process begins with the presentation of the corresponding formulas and documents. Subsequently, the judicial authority appoints an administrator or curator who will be responsible for managing the bankrupt's assets and ensuring the correct and adequate use of the law. Approximately four weeks after the beginning of the process, the debtor meets with his creditors, for the presentation and discussion of the debt readjustment plan. This plan, as already indicated, must be approved by the judicial authority in charge of the bankruptcy process. Once the plan is approved, the debtor will begin to pay the installments through the administrator or curator who will make the disbursements first to the privileged creditors and later to the non-privileged creditors, if they exist and have been covered by the plan.The process will be terminated once the readjustment plan has been fully executed, for which the standard period is three years. In highly qualified conditions and in which there is good faith, the judge could consider the approval of a plan for five years, a maximum extension in any case.
The process described here is exclusive to be used by natural persons. In the case of legal entities that try to pay their debts because they are in a state of crisis and that intend to continue operating, they must initiate a process under Chapter 11. The process of "Adjustment of Natural Person with Regular Income Debts" They have set limits on the amount of secured debt and unsecured debt, as well as the value of total past due liabilities. Subjects who, exceeding these limits, find themselves in crisis, must opt for a bankruptcy proceeding under the regulations of Chapter 7 or Chapter 11 in which there is no economic limitation.
The Bankruptcy Code, as in the other processes that have already been commented, establishes an "automatic cessation" from the moment the subject starts the process of "Debt Adjustment", which prevents all creditors from initiating or continue any legal or other effort to collect your credits; This obliges them to join the process to have their credit added to the "State of Bankruptcy." This provision, like the Chapter 7 liquidation process, affects both private and public credits, including the payment of all types of taxes or charges.
When the declaration of bankruptcy is requested, a figure known as the "bankrupt's estate" is established, which will contain all of the debtor's assets at the beginning of the process. The United States Department of Justice will appoint a curator to administer the bankrupt's estate, for which he is given temporary control over said assets. Approximately 4 weeks after the process begins, the debtor must meet with his creditors, which is called a 341 hearing (since it is regulated in said section of Title 11). Said hearing will be presided over by the curator, and in the event that the debtor does not appear, the process is terminated and filed immediately. Subsequently, a plan confirmation hearing will be held before the judge in charge of this process.
Finally, it is important to make some annotations about the participation of the curator and the judge in the process, which are extremely similar to that described above on Chapter 7. First of all, we must indicate that the bankrupt's contact with the Judge is very limited except in the case that there is a conflict between creditors and debtor, or between the curator and the debtor, or between the creditors and the curator, in such a way that the judge must resolve any point debated between them; but if not, due to its administrative nature, bankruptcy takes place outside the jurisdiction of the judge. Second, the judge's participation will practically consist of confirming the readjustment plan at the hearing arranged for that purpose.As for the curator, it is possible to indicate that the role played by the curator will obviously depend on the type of bankruptcy process in which we find ourselves, while in the process of business reorganization of Chapter 11 it requires a large participation in the daily activities of the company, in the process contemplated in Chapter 13, their intervention is much more limited. In this way, the functions of the Curator are limited to the custody of the "bankrupt's assets", with the exception of the daily operation of the business of the individual subject to this bankruptcy process, which remains in the hands of the debtor during the course of the process. In this period,the debtor is limited by the impossibility of carrying out acts of alienation on the assets of the company beyond the regular acts related to the normal business of the company. But in general, it can be indicated that the curator will be responsible for the inventory, administration of the plan and consequently the payment to creditors according to the order established by law and the plan. Normally, direct contact between the conservator and the debtor is similarly reduced and is sometimes limited to the meeting at the hearing with the creditors defined in section 341, as already mentioned.Normally, direct contact between the conservator and the debtor is similarly reduced and is sometimes limited to the meeting at the hearing with the creditors defined in section 341, as already mentioned.Normally, direct contact between the conservator and the debtor is similarly reduced and is sometimes limited to the meeting at the hearing with the creditors defined in section 341, as already mentioned.
SECTION II. THE REORGANIZATION PROCESS IN THE UNITED STATES
As has already been indicated in the previous section, the Reorganization Process, as a way of facing an economic crisis, actually dates back to the last century, when around 1867 legal provisions were established to meet the needs of the railroad sector. At that time, the Country, taking into account the importance of maintaining the railway companies, and driven by certain European thinkers in the field of bankruptcy law, ventured to consider mechanisms that would allow to a certain extent the satisfaction of the obligations of creditors, and therefore On the other hand, avoid the death of the company as a productive and development unit. It is not surprising that in the northern Nation, efforts were made to keep alive a company that would shape the future development of the nation itself.The legislators who would approve the "Railway Companies Act" with great vision managed to assess under the magnifying glass of convenience the public interests against the maintenance or liquidation of companies of this nature.
Years later, this very particular way of reorganizing a company in crisis was extended to other legal entities. The process of legal evolution did not have to wait many years for the "Bankruptcy Act" to be issued in 1898, which would be amended several times. In the thirties as a consequence of the economic depression, ways were sought to give stability to the business and commercial sector of the country, at this time the "Chandler Act" of 1938 appeared. Later in 1978, the "Edwards Act" or "Bankruptcy" was introduced. Reform Act ", which would come to define the" Bankruptcy Code "as it is known today, and which would finally receive some minor modifications in 1986. In current regulations the preventive bankruptcy process of" Reorganization "is known as" Chapter 11 " or "Chapter 11",since it is regulated in said chapter of Title 11 of the United States Code. Currently there is a proposed reform to this legislation that is discussed in both the Senate and Congress.
In this section, this monograph tries to analyze the structural elements of the "Reorganization" process as it is conceived in the North American system, that is to say, the subjective and objective assumptions, and to define in a generic way the phases of the process.
SUBJECTIVE BUDGETS
By identifying subjective assumptions, we must answer the question: Who can submit to the regime known as Chapter 11? In other words, what are the personal characteristics required by law in order to authorize the start of a process of this nature. Regarding the type of debtor that the law allows, there is no greater limitation, that is to say, in principle, individuals are eligible to undergo the reorganization process in a personal or commercial way, as well as legal persons, in the different forms that may exist. according to North American legislation.
This form of preventive bankruptcy process does not distinguish between large or small businessmen, that is, it does not establish a limit regarding assets, liabilities, percentages owed, types of debts charged by the debtor, etc. Likewise, this type of process can be requested by those who suffer from a financial crisis not by virtue of their ordinary commercial activity, but also by those who are bearing large state or federal tax burdens. Said subjects must have their residence, domicile, operations center or assets in the United States, in accordance with Section 109 of Chapter 1, of the Bankruptcy Code. In practice, these types of processes are more used by large and important companies and capital companies,while the individual subject opts for the "Debt Adjustment" provided for in Chapter 13, as it is simpler and less costly than reorganization.
Insurance companies, credit institutions, brokers and agents involved in the stock market, and "commodity brokers" or brokers or commission agents of future merchandise are excluded from the possibility of resorting to this procedure. For these last two cases there are specific provisions in Subchapters 3 and 4 of Chapter 7 as indicated above. This situation is comparable with the exclusions in Costa Rica made by Article 712 of the Civil Procedure Code for banks, and other public or private entities subject to direct supervision by the General Superintendency of Financial Entities, which are governed by both the Organic Law of the National Banking System and the Central Bank of Costa Rica.
In the case of our legislation, the objective requirements are different from those contained in North American legislation in the sense that the use of this type of preventive process is not allowed for the personal assets of individuals in a crisis situation. In accordance with the provisions of article 709 of the Civil Procedure Code, it is possible that the process of Administration and reorganization with judicial intervention is initiated by both natural or legal persons, but based on an estate in crisis, not personal but business. That is to say, the nature of the person does not interest, but the capital or assets that are in crisis, so that this institute only protects companies in crisis. Now in relation to the type of companies,This will be further discussed when analyzing the subjective requirements. The important thing is to establish that while in our country the use of this type of solution for a crisis in personal wealth is not allowed, in the United States it is possible. One aspect that deserves to be highlighted is that in our country, article 710 of the Civil Procedure Code excludes companies whose officials, owners or partners have incurred gross negligence or fraud from undergoing the administration and reorganization process with judicial intervention, in order to submit to to said process.One aspect that deserves to be highlighted is that in our country, article 710 of the Civil Procedure Code excludes companies whose officials, owners or partners have incurred gross negligence or fraud from undergoing the administration and reorganization process with judicial intervention, in order to submit to to said process.One aspect that deserves to be highlighted is that in our country, article 710 of the Civil Procedure Code excludes companies whose officials, owners or partners have incurred gross negligence or fraud from undergoing the administration and reorganization process with judicial intervention, in order to submit to to said process.
It is important to clarify that in North American legislation, it is not necessary to take into account economic and social considerations, as it happens in our legislation. In the case of Costa Rica, Article 709 requires as a requirement of a subjective nature and mandatory assessment by the judge, that the disappearance of the company may cause harmful social effects, with no possibilities of easy replacement. To carry out this assessment, the judge must take into account, among others, the number of laid-off employees, suppliers and affected creditors, and the clients of which the affected company is a supplier. The judge must make this decision with the help of an expert opinion that analyzes precisely those aspects.
A second subjective element that is similar in both systems is that there are no requirements in relation to the size of the company or the capital to be reorganized or intervened. Indistinctly, of the additional requirements that may be established regarding the relevance of the activity or role performed by the company, there is no element in either of the two systems regarding the size of the debts, equity, assets, or any other element. that is aimed at classifying the company as large, small or medium. In the case of Chapter 11, there is clarity regarding the irrelevance of this fact, however in Costa Rica, indirectly the judge could exclude one company and accept another based on the size of the company, arguing reasons of relevance of the business.
In relation to the issue of who can request the opening of a process under Chapter 11, there has been some discussion in relation to the possibility that the figures called "partnerships" that are in the process of dissolution may be subject to protection by the Chapter 11. In relation to this issue, it is necessary to highlight the reasons that justify the reorganization process contained in the North American Bankruptcy Code, and which consists precisely of the benefit for all parties (debtor, creditors, employees, and other affected third parties) to proceed to a reorganization rather than proceeding to a liquidation, as long as the cost is reasonable. Several decisions of Federal Courts have ruled on the subject. For example, in the case of C-TC 9th Avenue Partnership v. Norton Co.The judge analyzed that although Chapter 11 talks about “partnerships” as possible subjects to undergo the reorganization process, it never refers to the issue of their dissolution, so it must be decided to return to the substantive legislation, and Meanwhile, this Court considered that once the partnership enters a dissolution process, it ceases to be so. Additionally, it valued that as long as said entity is in a process of dissolution, it does not make any sense to allow the application of Chapter 11 as it is not feasible to think of the reorganization of an entity that is rather in the process of dissolution. However, despite being indisputable that an entity of this nature and in such conditions cannot be reorganized,The Superior Federal Bankruptcy Court established that despite the inability to reorganize, nothing prevents this type of entities in the process of dissolution from carrying out the process of debt settlement and dissolution of the company under the framework of Chapter 11, especially when there is the possibility that through this process the chances of recovery for creditors are increased. As a conclusion in this matter, it is possible to point out that the benefits of the reorganization are extensible even to those forms of business organization that for different reasons are in a process of dissolution. In this way, they could receive the benefits of the reorganization insolvency process, in order not to continue the exercise of commercial activity,but in order to obtain the benefit of the term and to be able to operate a plan that more efficiently satisfies the obligations that must be settled. In this case we would be facing a reorganization for liquidation purposes, the opposite case of the “equity receivership” in which there was a liquidation for reorganization purposes.
OBJECTIVE BUDGETS
In relation to objective assumptions, it is appropriate to ask ourselves the question: When can a subject be subjected to the reorganization process? What is the condition in which the debtor must be in order to start a reorganization process? In this regard, it is important to indicate that the target budget is delimited by sections 301 and 303.H of the Bankruptcy Code, and that these budgets are common to both liquidation and conservative processes. In the event that the reorganization is requested by the same debtor, that is, we are in the case of a "voluntary request", the single request constitutes an automatic cause for opening the procedure, regardless of the economic situation of the company..For this reason the doctrine has considered that reorganization is an almost indisputable right of the debtor.
In the event that we are facing a request made by an agent other than the debtor, it will be necessary that one of the conditions contemplated in Section 303, Title 11 of the United States Code be met. Said section establishes two assumptions under which a bankruptcy process can be initiated, when requested by creditors, the first case is the general non-payment of the debts when due, and the second is the appointment within 120 days prior to the date of submission of the request to open a "Custodian".
In relation to the first objective budget to open the reorganization, that is, based on a general lack of payment, at the time of passing the current legislation in the United States Senate, different proposals were discussed. In the process of creating the rule, it was discussed whether or not the state of insolvency in which the debtor could be found would be relevant or not, that is, if in addition to the lack of payment it would be required that there be an economic crisis, whether it was of an imbalance or lack of liquidity, and thus cover even those cases in which the debtor had stopped paying not due to material impossibility, but due to a simply voluntary matter. Finally, the North American legislator chose to limit the beginning of the bankruptcy process to the general lack of payment,Regardless of the underlying underlying economic situation, it was argued at that time that it was necessary to advance the opening of the procedure in order to facilitate the reorganization.
A second important aspect to define would be related to the level or degree of defaulted payments necessary to consider whether there is a "general non-payment" or not. A sector of the doctrine has interpreted that the "general" concept has a numerical sense, and that therefore it would not be sufficient for the opening of the process if the debtor had defaulted on the payment of only a small part of his debts. Another sector of the doctrine considers that what is relevant is not the number of dissatisfied creditors, but the importance of the debts and the proportional relationship with their liabilities. In this regard, and as Pulgar well quotes: "The Bankruptcy Law Commission pointed out that such a matter, since it was in fact, should be left to the appreciation of the courts, who" would have to take into account both the number and the amount of debts ».
The other objective budget for opening the procedure consists of the appointment of a "custodian" within 120 days prior to the date on which the creditors present the request for opening. The concept "custodian" is defined by Section 101 of the Bankruptcy Law, as the appointment of a subject to take charge of the debtor's assets, and this was interpreted by the North American legislator as evidence or presumption of a financial situation serious, so it was important to protect creditors. Summarizing, it can be pointed out that the North American system requires one of two external conditions, 1 ° the default of payments, or 2 ° the appointment of the custodian. As indicated, these are external events or situations that have nothing to do with the debtor's financial situation,so this was irrelevant for the legislator. The American system has preferred to opt for two external conditions that can be considered as indications of a financial situation that implies the existence of a possible crisis. The problem is that it has been limited only to these two, without leaving an open formula that allows it to be applied to analogous situations of the same meaning in the assessment of a possible or eventual bankruptcy situation. To correct this problem, the North American doctrine has been interpreting that the concept "non-payment" should be understood in a broad sense, encompassing any external fact that is indicative of an inability to pay debts when due. This assumption would include such situations. such as concealment of the debtor, preferential payments, fraudulent transfers of assets,ruinous loans, closings of premises, among others.
It is important to note that in Costa Rica there is nothing related to the figure of the "Custodian" and that this is a typical figure of Anglo-Saxon law. In our country, only the non-payment budget is considered. However, our Procedural Code has given it a different treatment, since in accordance with its article 709, it refers to cases in which the company is in a “difficult economic and financial situation, with or without cessation of payments, which is surmountable, and that the bankruptcy, civil bankruptcy, or is in a preventive agreement procedure has not been declared. Note that in the system contained in the Civil Procedure Code, it is expressly indicated that non-payment is not necessary, although it is understood as a possibility. From the letter of Article 709 it is clear,that the Costa Rican legislator was interested in the underlying economic situation of the company. In this article there is a combination of two elements of important importance, firstly the economic situation in crisis and secondly that said economic situation is surmountable. Which is not a requirement in the Bankruptcy Law, in order to be able to submit to Chapter 11, in fact, it was already indicated that in the case of dissolving partnerships, according to the jurisprudence of that country, nothing prevented the reorganization process, was used even when the partnership was dissolving. This leaves in doubt whether the possibilities of recovery are of interest; Rather, it seems that it is of interest to determine if there is a possibility of executing the plan and the possible benefits that this may imply in favor of the creditors.
PHASES OF THE PROCESS
In the case of the North American reorganization, for the purposes of this paper, two phases will be identified, which are what I consider to be the main ones in this preventive bankruptcy process. Said phases correspond in the first place to the phase or stage of opening or beginning of the process; and a second that I identify as the execution of the plan or reorganization phase. In the first phase, I will try to analyze those aspects related to the management of the application, and the procedure that is given exclusively, since what corresponds to objective and subjective requirements has just been analyzed. In relation to the second phase, I will direct the comments to the details of the application of the plan and the eventual termination of the process once it has been executed or not.
INITIAL PHASE: OPENING OF THE PROCESS.
As already indicated, the request for the reorganization process must be submitted to the District Court with territorial jurisdiction, along with a series of forms and documentation that must be carefully prepared. If the request is presented directly by the debtor, the opening of the process is automatic, as I indicated above. Normally the reorganization processes are managed by the debtor, who must present an inventory of assets and liabilities, and identify the twenty largest creditors who do not have credit guarantees. The procedural system requires complete information from the debtor, the concealment of information by the debtor could imply the filing of the file and possible sanctions for the debtor.
In the event that the opening is requested by a subject other than the debtor, the court must perform a double assessment, on the one hand it must verify that the legal requirements exist for the opening of the procedure and secondly a judgment of opportunity in which will assess whether the financial interests of the creditors would be more protected with the opening of the reorganization procedure than with the use of a liquidation process such as that of Chapter 7. According to Juana Pulgar, this is the first decision of economic content made by the judge in the reorganization process, and that is configured as a procedure of marked judicial character. It should also be noted that at the time of opening the procedure the court will only take into consideration private interests,which is a characteristic that differentiates it from our system, in which, as we already indicated, there is an assessment of public interests in the sense of taking into account the impact that the disappearance of the company may have. Second, in our system, even when the petition is filed by the debtor, there is always an economic assessment of the debtor's financial situation. It will not be until it is verified that the requirements of the law are met, that our judge dictates the order to open the administration and reorganization process with judicial intervention. Thus we find two very important differences between both systems.Second, in our system, even when the petition is filed by the debtor, there is always an economic assessment of the debtor's financial situation. It will not be until it is verified that the requirements of the law are met, that our judge dictates the order to open the administration and reorganization process with judicial intervention. Thus we find two very important differences between both systems.Second, in our system, even when the petition is filed by the debtor, there is always an economic assessment of the debtor's financial situation. It will not be until it is verified that the requirements of the law are met, that our judge dictates the order to open the administration and reorganization process with judicial intervention. Thus we find two very important differences between both systems.
The debtor will continue to maintain the possession, management and administration of their assets, being able to continue a normal development of their business. This way of operating is what is known as "debtor-in-possession" or debtor-in-possession. In highly qualified situations, the Ministry of Justice, at the request of the judge, will designate a "trustee" similar to the Costa Rican curator who will perform certain administrative acts. This will only be possible in the specific causes listed in section 1104 of Chapter 11, in which the debtor will be substituted for certain acts by the trustee or curator. Among the debtor's obligations, the 1st opposition against the claim of improper credits stands out, and 2nd the updating of the accounting and financial information of the company through monthly reports.For the purposes of the process, the debtor may hire lawyers, accountants, experts, auctioneers and other professionals, always with the authorization of the court. In the same sense, the debtor will require judicial authorization to perform acts of extraordinary administration. All this implies, as has already been said that after the opening of the procedure, the company will continue to function normally in the hands of the debtor and only exceptionally will it be directed by the curator.As has already been said that after the opening of the procedure, the company will continue to function normally in the hands of the debtor and only exceptionally will it be directed by the curator.As has already been said that after the opening of the procedure, the company will continue to function normally in the hands of the debtor and only exceptionally will it be directed by the curator.
In relation to the effects produced by the opening of the process, we can indicate that when the reorganization process is started, what we have identified as an "automatic cessation" of all collections occurs. This implies that all legal and administrative actions against the debtor are paralyzed, including all types of seizure against the debtor's assets. The ex officio judicial body shall constitute a committee of creditors and one of shareholders, so that the interests of the different groups involved can be duly represented.
The purpose of establishing this automatic cessation is that once the reorganization plan is approved by the court, both the debtor and the creditors are obligated, releasing the debtor from any previous action. This will grant a respite to the debtor to be able to implement all the commitments contained in the reorganization plan.
REORGANIZATION PHASE: THE PLAN
Once the opening of the process is declared, the reorganization process begins immediately. In this way, the very purpose of the process begins to be specified, be it the conservation of the company through the execution of the plan. This plan is thus the center of gravity of the process itself.
In the event that the appointment of a curator has not been required, the debtor will have an exclusive right to propose and approve the plan, compared to the other subjects I have just indicated. This implies that during the first 120 days, after the opening of the process, only the debtor will be able to propose the plan and obtain its acceptance during the 180 days following this opening. That is, no other subject may propose or obtain the acceptance of any plan. In the event that a curator has been appointed to replace the debtor at this stage of the procedure, the aforementioned exclusivity will be shared with the rest of the legitimate subjects, meaning any interested party, the trustee or curator, the shareholders' committee, the committee of creditors and the debtor himself.
Regarding the content of the plan, it can be indicated that it is regulated with great precision in section 1123 of the Bankruptcy Law, which indicates what the mandatory content should be, and that it can be considered as voluntary content. The mandatory content of the plan must be approved by the court in an act called "Confirmation". This plan must contain provisions in two directions: 1 ° solve the fulfillment of payment of liabilities, and 2 ° achieve the conservation of the company through the "Reorganization".
The first mandatory content mentioned refers to all the necessary measures to give an adequate treatment to liabilities, that is, you remove and / or expect that, in the assumption of the debtor is a company, they must be specified on the basis of the treatment that will be given to all types of creditors that exist. North American legislation pays special attention to the way to face the crisis, and the way in which the interests and rights of all creditors and shareholders will be affected, and the means of participation of each category in the future reorganized company must be indicated. Therefore, the plan must be very clear in the way in which the creditors are grouped, for which the substantial similarity between the rights of the creditors, bondholders and shareholders to be included in each group will be necessary,as established in Section 122.a of the Bankruptcy Code. In the same way, it must be specified who will be affected, in accordance with section 1123.a.2 of Chapter 11, it is understood that a group is affected by the plan, if it modifies the rights of the group that their rights to credit totally (you take away) or when it expires (you wait) or they cannot exercise all the rights derived from the ownership of the shares or obligations. This affectation may not be discriminatory between the members of each particular group. In the event that the debtor is a public limited company, the plan must provide for the inclusion of the debtor in the articles of incorporation, a prohibition on the issuance of shares without voting rights, and guaranteeing the adequate distribution of the right to vote among shareholders.. This prohibition,Its purpose is to guarantee that those who subscribe them are excluded from a future participation in the reorganized company.
In relation to the 2nd mandatory content on reorganization measures, we find the provisions of section 1123.a.5 of Chapter 11, in said regulations, it is indicated that the plan must establish the appropriate means for its execution, suggesting measures such as the retention of all or part of the assets of the estate; transfer of all or part of the assets to one or more companies created before or after the approval of the plan, resulting in the transfer of assets from the debtor company to the new one and the subscription of the shares of the new company by the subjects legitimized to participate in the plan. Among these people are the creditors who will see their credits transformed into shares, based on the contribution of those by way of disbursement. In other words,there is a merger of the debtor with his creditors, either by absorption or by constitution of a new company. The measures to be included in the plan should include when necessary the total or partial sale of the assets, whether or not they are encumbered, or the distribution of assets among creditors with guarantees or privileges over them.
Regarding the voluntary content of the plan, it is regulated in section 1123.b of Chapter 11. This section indicates that the voluntary content could be focused on reorganization aspects, as well as some modes of arrangement of liabilities. Once the plan is proposed, it must be approved in two mandatory phases, the first consists of approval by all groups of creditors and shareholders, the second corresponds to the approval of the judge.
Regarding the approval carried out by creditors, this is not carried out individually, but on the contrary in a group manner, in accordance with the categories that have been previously established. North American legislation makes a distinction between the groups that must expressly accept the plan and those groups that do not need to expressly accept, being possible to presume the acceptance or rejection of the plan. In the case of creditors, a group is considered to have accepted the plan, when at least two-thirds of the amount of the credits and more than half of the total number of recognized credits of the group that actually vote favorably vote. This double requirement of both the number of credits and the volume represented by creditors,seeks to guarantee a level of balance between the numerical factor and the economic element. In the case of groups of shareholders and bondholders, it will be understood that the plan has been accepted if it is approved for two thirds of the amount of the recognized rights of the group. Once this first stage of approval of the plan has been passed, it must be submitted to judicial approval, to which the term "Confirmation" is attributed.
What is related to approval is established in section 1129.a of Chapter 11, and it details the content, the aspects related to the creditor groups, the proponent of the plan, the viability and the execution of the plan itself. During said approval, the judge must verify the treatment that has been given to each of the parties in the process, protecting their interests. You must verify that the plan complies with the mandatory content required by law, and you must analyze whether the plan proponent shows good faith in his proposal. Likewise, it will analyze the previous acts, including the process of approval by creditors and shareholders, payments for services and expenses made in relation to the procedure, and the treatment that has been given to each group of creditors, among others.
For the approval of the judge, the approval by all the affected groups is not essential, so the judge will verify that the approval of the plan was made by those who are called to do it, as well as which groups did not accept it. Homologation may be feasible, even when only one group has approved it, since under certain circumstances, very clearly defined in the law, it is possible to forcefully impose the plan on groups that have not approved the plan. These circumstances are defined in section 1129.b of Chapter 11, and they basically consist of the plan not unfairly discriminating against any of the groups that did not support the plan, in such a way that the dissident group receives equal or equivalent treatment to the given to acceptors,and finally the plan must be considered by the judge as fair and equitable.
Similarly, the judge must prove that the plan protects the rights of those who did not vote in favor of the plan, even though their group approved it. To do this, the judge will analyze that the members of the group receive at least the same as they would receive in the event that instead of a reorganization a liquidation had been carried out as provided in chapter 7. In turn, the judge must verify if the plan foresees specific treatments for some preferred or priority credits; specifically, for credits derived from administration expenses, for which payment must be foreseen on the date the plan is approved, such as tax credits, salaries, credits for contributions to pension funds for the benefit of workers, and credits of consumer deposits.
The judicial body must also verify its viability and issues related to its execution. Viability is understood in the sense that the judge determines that there is capacity to carry out the plan, and that the prospects for the company to regain solvency after the reorganization process are real. This is considered to be the greatest power of discretion granted to the judge in this type of bankruptcy process. Regarding the execution of the plan, the court is limited to examining possible conflicts of interest or kinship between the directors, the curator, the partners in the reorganized company, against the interests of the creditors and public interests.
This process of approval of the plan presents great differences with our system, in the sense that while in the North American process, an approval must be given by the other interested parties and then an approval by the judge, in the Civil Procedure Code, only the approval of the plan by the judge is contemplated. In Costa Rica, prior to the approval of the plan by the Judge, creditors are granted the opportunity to present observations on the plan proposed by the debtor, likewise the auditor and the members of the committee will present a report on the plan in which they will issue their opinion. In this phase, the judge may eventually order the evidence that he considers necessary to rule on it.
In relation to the effects of judicial approval, at least three can be identified: a) the mandatory nature of the plan for all interested parties, b) the debtor recovers his management, if exceptionally he lost it; and c) release of the debtor from all debts recognized in the process. After the plan has been approved by both the creditors, as well as by the judge, it must be executed, from this moment the debtor will no longer be a debtor-in-possession but will be a reorganized debtor. Automatic cessation will no longer be applicable, although the prohibition of legal actions for debts prior to the entry into force of the plan will remain unchanged. The debtor will be obliged to pay all sums required by the plan as part of the reorganization process.The plan will define the relations from that moment on as a new pact between the debtor, his creditors, and his shareholders.
The reorganization process may be completed in two ways: one of them is the successful execution of the plan and the other corresponds to the impossibility of its execution. In the latter case, the reorganization process must be converted into a liquidation process in accordance with the provisions of Chapter 7. Said conversion may be produced by the debtor himself in the event that he was the one who initiated the process.; by the curator in case he has been appointed, and finally by the court in those cases in which the record shows that it is impossible to continue with the execution of the plan. In cases where there is fraud on the part of the debtor in the reorganization process, the judicial body will revoke the plan and take the necessary measures so that these acts are duly sanctioned.
In the Administration and Reorganization with Judicial Intervention, of the Civil Procedure Code, three possible ways of ending the process are also contemplated. In the first place, we must speak of a normal conclusion of the process, as indicated in article 738, and that once the term of execution of the term has elapsed, it has been executed, and the situation of the company normalized. The situation of the company will be understood as normalized when, despite the existence of unpaid balances, these can continue to be served under the same terms and conditions in which they were originally agreed, even when it is a question of credits after the establishment of the process itself.
A second possibility would consist of the normal anticipated conclusion of the process at the request of the debtor, or the debtor and the rest of the parties. This option is provided for by article 739 of our Civil Procedure Code, and corresponds to the case in which, before the deadline has elapsed, the company manages to overcome the crisis situation that justified the start of the process.
The last of the three possibilities is identified as the abnormal termination of the process, and this will happen when it is proven that the economic and financial crisis of the company has become irrecoverable, when the debtor fails to comply with the obligations imposed by both the Code and the plan; or when it is possible to verify that there has been a concealment of assets by the debtor, increasing liabilities, or falsifying documents or information. In these cases, you must proceed as indicated in article 740 of the Civil Procedure Code and decree bankruptcy or civil bankruptcy.
As we can see, there is some similarity between the way to conclude the process according to Chapter 11 of Title 11 of the United States Code, and the Code of Civil Procedure of Costa Rica. In the sense that, outside of the anticipated normal termination, there are two possibilities: that the process succeeds or that it does not. If the process is successful, the process would be archived, and if it is not, the conservative process will be transformed into a liquidation process, in the North American case this is done in accordance with Chapter 7, in our case through the bankruptcy process or civil bankruptcy, as the case may be.
THE DEBTOR-IN-POSSESSION BEFORE THE CREDITORS COMMITTEE
In general, under section 1107, the Debtor has the rights and powers of a conservator, and is authorized by law to continue to control the business almost normally. The fundamental idea in this reorganization strategy is to allow continuity in business management, and avoid the damage that a third party enters to replace the business administration. It is based on the premise that existing administrators will have greater experience and knowledge to run the company in an efficient manner, which is why considerable discretion is given in the operation of business. However, this does not imply that the debtor's decisions cannot be questioned. The rights and obligations granted to the debtor can be classified into three categories: 1) administrative functions, which includes hiring of personnel,reporting related to business operation during reorganization; 2) operational functions, which includes the discretionary ability to decide the use, sale, or rental of assets, obtain financing and continue with the operation of the company; and 3) protective functions, which include opposition to credits, termination or maintenance of contracts in execution, presentation and preparation of the plan. The nature of these functions allows the debtor to make decisions in the operation process that will affect the different categories of credits and people involved. Therefore, it is not surprising that in a good number of occasions there will be conflict between the debtor and the creditors' committee.which includes the discretionary ability to decide the use, sale, or rental of assets, obtain financing and continue with the operation of the company; and 3) protective functions, which include opposition to credits, termination or maintenance of contracts in execution, presentation and preparation of the plan. The nature of these functions allows the debtor to make decisions in the operation process that will affect the different categories of credits and people involved. Therefore, it is not surprising that in a good number of occasions there will be conflict between the debtor and the creditors' committee.which includes the discretionary ability to decide the use, sale, or rental of assets, obtain financing and continue with the operation of the company; and 3) protective functions, which include opposition to credits, termination or maintenance of contracts in execution, presentation and preparation of the plan. The nature of these functions allows the debtor to make decisions in the operation process that will affect the different categories of credits and people involved. Therefore, it is not surprising that in a good number of occasions there will be conflict between the debtor and the creditors' committee.term or maintenance of contracts in execution, presentation and preparation of the plan. The nature of these functions allows the debtor to make decisions in the operation process that will affect the different categories of credits and people involved. Therefore, it is not surprising that in a good number of occasions there will be conflict between the debtor and the creditors' committee.term or maintenance of contracts in execution, presentation and preparation of the plan. The nature of these functions allows the debtor to make decisions in the operation process that will affect the different categories of credits and people involved. Therefore, it is not surprising that in a good number of occasions there will be conflict between the debtor and the creditors' committee.
For its part, the Creditors Committee is called upon to carry out a series of functions, among them its participation in the approval of the plan and its subsequent execution; request the appointment of a curator or auditor in cases that warrant it, and in general participate in the reorganization process seeking to protect the interests of those who make up the Committee. The committee is called upon to protect especially the interests of unsecured creditors, both in the negotiation of the reorganization plan and throughout the bankruptcy process. The Committee must perform these functions within a framework of complete fidelity and impartiality towards the creditors it represents. In this way it is sought that the reorganization process is sufficiently dynamic between the parties and thus achieve effective and negotiated results.
In those cases in which the debtor's decisions are not acceptable to the Committee, the result becomes a struggle between both parties, even when the expected result of the parties is the same: to achieve a successful reorganization. This fight takes place before the court, and the judge must determine who is the contender who wins the fight. Normally, for the debtor's decisions to be considered inappropriate, that is, for the judge to grant the Committee the reason, the latter must clearly demonstrate that there is abuse by the debtor, otherwise it will not be possible to substitute his will and decision.
In general terms, the actions of the debtor can be challenged by the Committee, but unless it is possible to demonstrate that there is an abuse in the actions under discussion, the court will not overrule the decision of the debtor. The court thus gives great power to the debtor in the exercise of its administration. In the Costa Rican system, the administration is subject to strict control of the system, which we could analyze before and during the execution of the plan. Article 725 of the CPC indicates that while the plan is being discussed and approved, the administration of the company will be exercised by the bodies provided for in the statutes of the corresponding legal entities, the owner of the company,and in exceptional cases when it has been necessary to separate the administrators for fraudulent actions or outside their powers, the auditor. This administration must be limited to the regular acts of management of the company, essential to ensure its normal operation. Whoever exercises the representation and administration of the company will require authorization from the judge to carry out acts of alienation that are not part of the normal business of the company; 2 ° assign, exchange or lease real estate of the company; and 3 ° carry out acts that may compromise the economic and financial status of the company. It is evident that in our country the debtor does not have as much freedom of action as if it exists in the United States, the main difference is marked by the fact that in that system, judicial intervention is solely for the management of the party,while in Costa Rica judicial intervention is clearly required for the indicated cases. In other words, the discussion before the court is only carried out after the questioning of the Creditors Committee, and is not defined exhaustively in a list. As already indicated, the debtor's actions could only be questioned if there is bad faith or abuse in his management, otherwise he is completely free to carry out any type of action.the debtor's actions could only be questioned if there is bad faith or abuse in his management, otherwise he is completely free to carry out any type of action.the debtor's actions could only be questioned if there is bad faith or abuse in his management, otherwise he is completely free to carry out any type of action.
Once the plan is approved, it must be executed in accordance with the provisions of articles 733 of the CPC, and which limits it to what is contained therein. The execution will be subject to the mandatory supervision of the auditor and the other members of the advisory committee, under the direction and supervision of the court. The reports on the execution of the plan must be presented by the auditor and the other members of the committee on a quarterly basis, while according to Chapter 11 the reports will be presented by the debtor on a monthly basis.
CONCLUSION
This monograph allows the reader to approach a very interesting preventive bankruptcy system, whose differences respond to the particular characteristics of a society with an economic policy and a sense of the market in which special importance is given to the maintenance and continuity of the company. There are a number of very special aspects that I will allow myself to comment on as a mechanism to enrich this conclusion.
In the first place, the development of the “equity receivership” from the reorganization processes of the railway companies of the previous century draws powerfully attention, which came to evolve by being incorporated into the current system. In such a way that it is extremely curious to us, to think that the creditor ends up being a partner of his debtor, while he maintains control of the company. The transformation of credits into shares results in a strange but interesting idea, in the sense that as long as the reorganization process is successful, it will be able to satisfy the interests of these creditors. In order to understand this measure, we must place ourselves within the cultural, economic, and financial framework of a society in which the stock market game causes a direct effect even at times when the company enters into crisis.It would be difficult to imagine that this becomes a proposal in our society, where possibly in the first place a violation of the right of free association would be alleged before the Constitutional Chamber in the sense that it would be forcing the creditor to be part of a new company and that it is also in crisis.
A second interesting aspect is the way in which our system has been concerned with giving the opportunity for reorganization only to those companies whose disappearance causes pernicious effects on the economy. Our system attaches great importance to the effects that the disappearance of the company may cause, while in the system covered by Chapter 11, there is no such analysis, and on the contrary, the sole request of the debtor considers the process initiated. In the event that the request is initiated by the creditors, then an economic assessment is made of the situation of the company and the process would be considered involuntary for the debtor, in the event that it is in a situation of default. of payments, without getting to value our concept of "harmful effects."
An equally important aspect to highlight is the fact that the system contained in Chapter 11 applies to both companies and individuals; However, for reasons of procedural cost, it is more common for individuals to submit their patrimonial problems to the system contained in Chapter 13. In any case the difference is notable, in the sense that in the Civil Procedure Code, if there is a prohibition so that the individual can go to a reorganization process to solve a personal economic crisis.
As a last aspect to highlight, it is the situation in which the debtor is located, in front of his creditors. I personally believe that it is placed in a rather privileged situation, in the sense that its powers are extremely broad, and allow it to be able to freely manage business, assets, and, in general, the commercial operation that is a source of income. The counterweight of this freedom lies in an obligation to constantly report on all financial, accounting, and general administration movements; in such a way that the Creditors Committee can verify its actions and compliance with the plan. The decisions of the debtor-in-possession and the reorganized debtor on the management of the business are almost unquestionable, unless the Committee shows that there is abuse by the debtor or bad faith. In such case,the debtor's acts may be revoked and he may be substituted by a curator for the rectification of any decision of the debtor inconsistent with his obligations.
Finally, it seems interesting to note that unlike the preventive process contained in our Civil Procedure Code, the judge's participation is much more limited in the US reorganization. There are three important judicial acts in the hands of the North American judge: 1) The procedure to initiate the process, whether voluntary or involuntary; 2) The approval of the plan; and 3) The conclusion of the process. While in our system, the participation of the judge is much more proactive, and is in charge of including the evacuation of evidence to ex officio management. In other words, if the participation of the judge in both processes is compared, the Costa Rican judge performs a much more constant and participatory work in the development of the process as such.
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