What happens when a company lacks the funds to continue operating? What does Dominican law provide in this regard? Omar Victoria is a lawyer with extensive knowledge of market law and monetary and financial regulation. Next Thursday, October 24th, the founding partner of LMV ADVISORS and PLEXO will give a lecture on "Insolvency Law for Companies and Commercial Individuals" in Baní as part of the Business Meeting.
Prior to his presentation for AMCHAMDR members, he answered four questions to help understand the process that companies in financial difficulty must follow to qualify for this legislation.
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What are the main features of the country's Corporate Restructuring Law?
The main objective of Law 141-15 on the restructuring of commercial companies and individuals (Restructuring Law) is to establish procedures to enable commercial companies and individuals facing actual or potential insolvency to opt for a business continuity plan rather than direct liquidation.
In this sense, this legislation is based on the global trend, developed over the last 30 years, which seeks to foster greater balance between debtors and creditors, so that at-risk businesses can have, as a first option, a chance of continuity through a business restructuring.
It's worth noting that this mechanism is a novelty in the Dominican Republic, as the previous regulations, which have been in force for nearly a century, focused primarily on a model aimed at liquidating company assets.
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Under this law, will companies be able to declare bankruptcy as is the case in other countries?
The Restructuring Law allows commercial companies and individuals facing actual or potential insolvency to avail themselves of this special procedure, as is currently the case in the vast majority of countries. The thresholds for this procedure are set out in Article 29 of the Law.
It is important to highlight that, on the one hand, debtors (business companies or individuals) may benefit from this Law in two ways: i) by activating a negotiation mechanism with creditors prior to initiating proceedings before the Special Court (this is known as the Preliminary Restructuring Plan); or ii) by directly requesting restructuring before the Special Court, once one or more of the legal grounds established exist. The process, depending on the amount of the debts involved, may be abbreviated (time limits are reduced by half) or regular (normal time limits provided), and is conducted before a Special Court (first and second instance chambers specially designated for this purpose).
It is essential to note that, under this Law, creditors also have the power to request the restructuring of their debtors (businesses or individuals), provided that the access and insolvency criteria established by the Law are met.
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What impact does the implementation of this legislation have on companies?
For companies, this legislation becomes a tool that allows them to access a negotiation route in cases of crisis that could actually or potentially jeopardize their continuity. Thus, the legislation establishes a series of rights and obligations to promote conciliation between debtors and creditors, with closure and liquidation of the business not being the first option. However, in cases of manifest non-viability, the liquidation of assets and dissolution of the company are provided for by law.
It is important to emphasize that the Law is strict in cases where this special process, in any of its forms, is used in bad faith, that is, with the aim of evading, failing to comply with, or limiting the fulfillment of debtors' obligations to their creditors.
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And in the case of individuals, what implications does the law have for them? Could they file for bankruptcy?
The Restructuring Law applies equally and under the same general criteria and processes to individuals who are merchants, in accordance with the rules of the Dominican Commercial Code. It is important to highlight that non-merchant individuals (ordinary natural persons) are not covered by this Law, and they do not yet have a similar regime.
