The Cramdown Mechanism in Argentine Law – The Last Resort before Bankruptcy

Javier Canosa, María Agustina Lage & Heorhiy Korolyuk*

Traditionally, under Argentine commercial law, when a company in a state of insolvency fails to obtain the majorities required by law to approve a reorganisation plan proposal, it is declared bankrupt.

In the year 2002, the Argentine Congress enacted Law No. 25.589, amending Law No. 24.522  (“Argentine Bankruptcy Law” or “ABL”), which incorporated two institutions of transcendental importance in the Argentine bankruptcy regime, in order to preserve the continuity of the company’s operation. These mechanisms are aimed at preserving the continuity of the company and avoiding its disappearance from the economic traffic in accordance with the principle of conservation of the company: the so-called cramdown or “salvataje” in Argentina, inspired by the bankruptcy legislation of the United States, and the Extrajudicial Preventive Arrangement (EPA).

In this article, we will analyse the cramdown institute according to its current regulation in the Argentine legal system.

Who is covered by the rule?

The rescue mechanism provided in Article 48 of the Bankruptcy and Reorganisation Law applies exclusively to capital companies: Limited Liability Companies (L.L.C.), Joint Stock Companies (J.S.C.), and cooperatives, including those with state participation, whether national, provincial, or municipal.

When the debtor is unable to obtain the necessary conformity for the judicial approval of the reorganisation agreement, the judge may not immediately decree the bankruptcy. Instead, the judge must order the opening of a five-day registry for those interested in presenting an alternative proposal for the acquisition of the company. For this purpose, both the third parties outside the process and creditors, and even the debtor itself, may register.

With Law No. 26.684, the possibility for the workers of the insolvent company to access the registry, through worker cooperatives incorporated or in formation, was extended. This regulatory innovation allows their active participation in the procedure and, eventually, their conversion into owners of the productive unit, even within the framework of the preventive procedure.

The subjects included in special laws, such as Law 20.091 (Law of Insurance Entities and their Control), Law 20.321 (Organic Law for Mutual Associations), Law 24.241 (Integrated System of Retirement and Pensions), as well as the companies included in Article 288 of the ABL, considered as “small bankruptcies”, are expressly excluded from the cramdown regime.

Procedure

The procedures are regulated in such a way that preference will be given to the reorganisation proceeding before declaring the bankruptcy of the company. This is done in order to reach an agreement between the debtor and the creditors to restructure the company’s liabilities, which, once homologated, produces the novation of the obligations between the parties.

There are several causes for which the agreement may not be reached or may be rejected by the judge. One of these causes is the failure to achieve the majority required by Article 45 of ABL (majority of unsecured creditors representing two-thirds of the capital computable in each category for an agreement), once the exclusivity period has expired.

The exclusivity period is a period of 90 days, extendable for another 30 days, during which the debtor may make proposals to the creditors which, according to the law, may consist of the following, but not limited to the following:

• Reduction, waiting or both; delivery of assets to the creditors;

• Incorporation of a company with unsecured creditors, in which the latter are partners;

• Reorganisation of the debtor company, administration of all or part of the assets in the interest of the creditors;

• Issuance of negotiable obligations or debentures;

• Issuance of bonds convertible into shares;

• Creation of guarantees on assets of third parties;

• Assignment of shares of other companies;

• Capitalisation of credits, including those of labour creditors, in shares or an equity ownership program; or

• Any other agreement obtained with sufficient conformity within each category.

The categories consist of a reasonable classification that can be made by the debtor to its creditors to be able to present them with specific, individualised proposals in each category.

Commencement of the proceeding

Under Article 48 of the Argentine Bankruptcy Law, the judge may order the opening of a registry in the file for 5 days within 2 days after the end of the exclusivity period. This is where the creditors, the worker cooperative formed by workers of the same company, and other interested third parties who may acquire the shares or quotas representing the capital stock of the company may register.

When ordering the opening of the registry, the judge will determine an amount to cover the payment of the edicts, which will be paid at the time of registration.

If there are no interested parties who have registered within the established term, the bankruptcy is declared.

Valuation of the quotas or shares of the company

If there are registered interested parties, the company’s shares and quotas will be appraised during a period of thirty days once an appraiser has been appointed; such appraisal must be submitted in the file.

Evaluator

It is proper to appoint an evaluator (public accountant, investment banks, financial institutions authorised by the Central Bank of the Republic of Argentina, or auditing firms with more than 10 years of seniority, grouped in a list compiled by the Court of Appeals, from which the judge will select and appoint the evaluator by means of a shortlist).

This expert, serving as an auxiliary of the court, is of importance almost equivalent to that of the trustee in the preventive insolvency. If the rescue process continues, the next step will consist of their appointment. Their function will be to determine the real market value of the shares or equity interests, a task that will not be limited exclusively to the analysis of accounting records, since there exists the possibility that the accounting maintained by the debtor company does not faithfully reflect its economic‑patrimonial situation, which may lead to an inaccurate estimation.

To prepare their report, the evaluator must take into account: 1) the initial petition submitted by the debtor; 2) the credit verification procedure Article 36, ABL; 3) the general report prepared by the trustee Article 39, ABL; 4) the financial statements subsequent to the opening of the insolvency proceeding; 5) the mandatory commercial books: journal, balance sheets, inventories, minutes books of shareholders’ meetings and board meetings; 6) the incidents of late verification and accelerated payment, whether concluded or pending; 7) the assets and liabilities of the company, as well as the so‑called goodwill, understood as the company’s market position, its reputation, customer loyalty, prestige, commercial ties and, ultimately, its profit‑generating capacity.

Valuation ruling and informational hearing 

Based on the valuation of the debtor and any possible observations, as well as an additional liability estimated for insolvency expenses equivalent to 4% of the assets, the judge will set the value of the shares or equity interests representing the company’s capital. This ruling shall be unappealable.

When issuing the valuation, the judge will also call an informational hearing, which must take place five days before the expiration of the deadline granted for obtaining consents, as detailed in the following section.

The valuation must reflect market value, for which the following factors shall be weighed without prejudice to any other pertinent elements:

• The report provided for in Article 39, subsections 2 and 3 of the Bankruptcy and Insolvency Law, without binding effect on the evaluator.

• Significant increases, disposals, and substantial modifications of the assets.

• The impact of post‑insolvency liabilities.

The determined market value is a reasoned estimate, based on objective yet variable criteria, in accordance with the valuation method established by law.

The evaluator must determine, at this stage, the value of the debtor company’s assets and liabilities. The net value of the shares or equity interests will arise from their difference, without prejudice to other elements also deemed relevant.

With regard to assets, the trustee’s general report (Article 39, subsection 2) shall be taken into account, considering the probable realisation values of each category, including intangible assets, and any patrimonial variations occurring after that report.

With regard to liabilities, the trustee’s report (Article 39, subsection 3) shall be considered, which includes the detailed composition of the liabilities, both verified claims and those submitted by the debtor that have not yet been verified, as well as other liabilities arising from the accounting or other credible sources of judgment. Substantial modifications of liabilities and the impact of post‑insolvency debts (i.e., obligations arising after the opening of the preventive insolvency proceeding) must also be weighed.

The valuation may be reviewed by any interested party within five days, without giving rise to any further proceedings.

Powers of interested third parties and deadlines

Interested parties are empowered to formulate, submit and negotiate their proposals with creditors, and have the option to maintain or modify the classification of creditor categories formulated by the debtor during the exclusivity period.

The debtor regains the possibility to seek endorsements for their prior proposal or for any new proposals they may formulate, within the same deadlines and competing without any preference with other interested proposers.

The deadline for obtaining consent to the new agreement is within twenty days following the judicial fixation of the value of the company’s shares or equity interests. Creditors may give consent to more than one proposal. The required majorities and criteria are calculated in the same way as during the exclusivity period.

Five days before the expiration of the deadline, the informational hearing is held; the date, time and place of which were established by the judge when issuing the resolution fixing the value of the shares or equity interests representing the company’s capital.

The informational hearing constitutes the last opportunity to present the agreement proposal to creditors, which may not be modified thereafter.

The case of Worker Cooperatives

Article 48 bis of the Bankruptcy and Insolvency Law contemplates the case of worker cooperatives, including cooperatives in formation.

In this case, the judge will order the liquidation of the credits corresponding to registered workers for severance pay due to dismissal contained in the Labour Contracts Law, special statutes, collective agreements and agreements between the parties; the calculated credits may be enforced in the rescue procedure of Article 48.

The homologated agreement results in the dissolution of employment contracts, and the labour claims are transferred to the worker cooperative, becoming equity interests in the same.

Existence of an agreement

Depending on whether the required consents for approval of the agreement are obtained by the debtor or by a third party, different situations arise. If the agreement is obtained by the debtor, the proceeding continues in accordance with the rules of the preventive agreement during the exclusivity period. In that case, the judge will issue a resolution announcing the existence of the agreement and, if unopposed, will homologate it.

If, on the other hand, the agreement is achieved by a third party, two scenarios may arise:

Firstly, if no valuation of the shares or equity interests exists, the third party acquires the right to have ownership transferred directly and automatically, together with the homologation of the agreement, without need for any further procedure, payment or requirement.

Secondly, if a positive valuation exists, the judicially determined value will be reduced in proportion to the reduction of the unsecured liabilities, updated under the agreement reached. In this scenario, the third party may choose between two alternatives: deposit twenty-five per cent of that value as a guarantee and complete payment of the remainder within 10 days from judicial homologation, thereby obtaining definitive ownership of the company’s capital; or negotiate acquisition at a lower price than the judicially determined value. To do this, they must obtain consent from partners or shareholders representing two‑thirds of the company’s capital. Once this requirement is met, the entire holding will be transferred. Should the third party choose this negotiation, they must inform the court of having obtained the consents. Payments must be made in the same manner and within the same timeframe as previously established. Once fulfilled, the third party definitively acquires ownership of the company’s capital.

If at this stage no agreement is reached, or if the agreement is not judicially homologated, bankruptcy will be declared without further procedure.

Conclusion of the rescue procedure

If all conditions imposed by law for judicial homologation of the agreement are met, it will affect novation of the obligations between the original debtor or the third party who obtained the consents and the creditors, entering the compliance stage.

The judge’s power referred to by doctrine as the “Cramdown Power”

It should be clarified that the law regulates a power of the judge, called in doctrine “Cramdown Power,” which is the power that the judge possesses to homologate and impose an agreement that has not reached the required legal majorities.

This power is provided in Art. 52 (b) of the law, and, to proceed, the four requirements must be fulfilled:

1. Approval by at least one category of unsecured creditors;

2. Consent of at least three‑quarters of the unsecured capital;

3. No discrimination against the dissenting category or categories.

4. The payment resulting from the imposed agreement shall be equivalent to a dividend no less than the creditor would receive in bankruptcy.

   
   

Discrimination is understood as preventing creditors in the dissenting category/categories from choosing, after the judicial imposition of the agreement, any of the proposals, sole or alternative, agreed upon with the category/categories that expressly approved them. In the absence of explicit choice, dissenters shall never receive payment or a value less than the highest amount agreed with the category or any of the categories that gave express consent to the proposal; and the payment resulting from the imposed agreement shall be equivalent to a dividend no less than what dissenting creditors would receive in bankruptcy.

Jurisprudence

To exemplify the functioning of what is prescribed by the law, it is useful to refer to jurisprudence, where not only the aspects envisaged by the regulation may be observed, but also situations not expressly contemplated or even contrary to its logic.

One of the main difficulties noted in practice is excessive delay in deadlines. Although the rescue regime was designed as an agile procedure, with an estimated duration of approximately two months  (the sum of terms provided in Article 48 gives 60 days), the truth is that many processes extend for years, due to the multiplicity of stages, procedural incidents, and external factors affecting their development.

The case of Correo Argentino S.A.

A paradigmatic example of these difficulties is the case of Correo Argentino S.A. s/ Queibra, whose preventive insolvency was initiated in 2001 and, despite the time elapsed, still has not reached a definitive resolution, even after bankruptcy was decreed in 2021, a measure that was appealed and remains pending final resolution.

In 2003, the request to open the rescue procedure was rejected by the intervening judge, who classified the insolvency as a “small insolvency” and consequently excluded the company from the scope of application of cramdown. In addition, the company was deemed economically unviable, described as “unsalvageable” due to lacking “future potential.”

Despite this, in August 2020, the registry of interested parties was opened, as provided in Article 48, subsection 1, of the Bankruptcy and Insolvency Law, enabling the registration of third parties interested in acquiring the company’s capital and formulating a proposal for a preventive agreement.

In March 2021, based on the evaluators’ report, it was determined that the share package had no positive value. Despite this, the procedure continued with the presentation of an improved proposal aimed at certain categories of creditors. However, since the National Government, the principal creditor, did not consent, the agreement attempt failed, and bankruptcy was declared in July 2021, without further procedure.

This ruling was criticised by diverse doctrinal sectors, who maintain that the requirements for access to the rescue regime are inadequate for large‑scale companies. In particular, it was questioned whether those companies within the scope of Article 288 of the Law (relating to “small insolvencies”) are automatically excluded, even though their economic magnitude or social relevance would justify the application of cramdown. It is argued that the criterion for enabling rescue should be linked to actual economic viability, determined by market conditions and the concrete interest of potential acquirers, and not exclusively by a formal legal classification.

The case of Hidroallen S.R.L.

In contrast to this ruling, in the year 2022, the judgment in Hidroallen S.R.L. s/ Concurso Preventivo was issued, significant in terms of the company’s subjective aspect, as it involved a small undertaking of eight employees, which by virtue of having fewer than twenty employees (subsection three of Article 288 of the Law) had to be classified as a “small insolvency,” a situation in which cramdown would technically not apply. Nevertheless, the rescue proposal presented by the trustee was exceptionally approved by the judge, who took into account the “post‑pandemic context” as well as the “enterprise preservation principle” that inspires insolvency legislation.

Conclusion

The cramdown mechanism, as regulated under Argentine Bankruptcy Law, represents a pivotal instrument for preserving economically viable businesses in distress. Inspired by comparative models such as the U.S. Chapter 11 framework, its integration into the Argentine system through Law No. 25.589 aimed to strike a balance between creditor protection and the continuity of productive enterprises. This approach reinforced the overarching principle of company preservation.

While the legal structure of cramdown offers a clear and methodical path—including debtor and third-party participation, market-based valuation, judicial oversight, and exceptional worker cooperative provisions—its practical implementation has encountered substantial challenges. Chief among these are procedural delays, inconsistent judicial interpretations, and rigid exclusion criteria, such as the categorical disqualification of “small bankruptcies” under Article 288.

Notable jurisprudence, such as Correo Argentino S.A., has underscored both the potential and the limitations of the current framework, prompting doctrinal debate regarding the need for greater flexibility, especially when the social or economic significance of a company justifies its rescue. In contrast, more progressive rulings—such as in Hidroallen S.R.L.—reflect a growing judicial awareness of the need to adapt legal formalities to broader economic and social contexts.

Ultimately, for cramdown to fulfil its intended role as a viable alternative to liquidation, its application must be guided not only by formal statutory thresholds but also by a pragmatic evaluation of each debtor’s viability and the public interest in preserving productive assets. Continued legislative refinement, coupled with a more consistent and context-sensitive jurisprudence, will be key to ensuring that cramdown remains an effective mechanism within Argentina’s insolvency system.

*Javier Canosa is a Partner at Canosa Abogados. He can be reached at jc@canosa.com. María Agustina Lage is a Paralegal at Canosa Abogados. She can be reached at agustina@canosa.com. Heorhiy Korolyuk is a Legal Professional at Canosa Abogados. He can be reached at igor@canosa.com.