i Statutory framework and substantive law

Insolvency regulation has been an active part of commercial and corporate life in the Peruvian market for the past 30 years, and it appears that its role will grow larger in the near future. Peru’s regulation does not use the words ‘bankruptcy’ or ‘bankrupted’ to describe the debtor part of an insolvency procedure. Instead, the regulation speaks of a concordato, which for general terms we will call an ‘insolvent’.2

Peru’s insolvency regulation took a 180-degree turn in 1991 when regulation was passed in order to transfer the competence of the insolvency procedures from the judiciary to the state-owned Antitrust, Unfair Competition, Intellectual Property Protection, Consumer Protection, Dumping, Standards and Elimination of Bureaucratic Barriers Agency (INDECOPI). Despite the fact that it is difficult to find a bulletproof decision from the government towards regulation and supervision matters, most specialised lawyers and the industry in general agreed that this decision was the correct one. Since 1991 Peru has evolved commercially and internationally, so vigorous insolvency regulation was required. Therefore, and after much consideration, in 2002 Congress passed the current Law No. 27809 (the Bankruptcy Law).

The most important innovations of such regulation include:

    • a the exclusion of the procedimiento simplificado (a proceeding that was part of the former insolvency regulation, which added very little to the system);
    • b recognition that a successful insolvency law is not measured by the number of restructured or liquidated companies (a common mistake of the former regulations) but by the manner in which the creditors’ rights are protected, mostly by giving them the tools to decide the best way to recover the debt;
    • c new and detailed requirements for the authority (INDECOPI) to analyse related-creditor claims that may affect the procedure regarding non-related creditor claims;
    • d limitations for individuals to be debtors under the insolvency law (individuals must demonstrate that at least 50 per cent of the outstanding debt emerged from an economic activity and not from other sources);
    • e new conditions for corporations to be part of an insolvency procedure as debtors;
    • f a new ranking of claims;
    • g expeditious measures within the reorganisation procedure to be achieved by the creditors’ meeting (if such measures are not met, INDECOPI will declare the debtor’s liquidation);
    • h new conditions for the creditors to obtain recognition of the unpaid debt by the authority; and
    • i rules to prevent fraudulent conveyances.

However, the ultimate goal of the Bankruptcy Law in Peru has not changed: voluntary or involuntary petitions for bankruptcy relief can be presented before INDECOPI in order to treat financial crises of corporations. Once the authority agrees to the application, all creditors of such debtor have to present their proof of claims to INDECOPI in order to demonstrate the veracity of the debt, its amount and ranking for procedural aspects. All creditors with a claim validated by INDECOPI are allowed to participate in the creditors’ meeting, which will essentially evaluate the future of the debtor and the best manner to recover the debt (creditors will elect to restructure the company if they select the future value of the estate, and will consider liquidation if the present value is a better option).

Depending of the course of action taken from the options mentioned before, the creditors’ meeting should approve a reorganisation plan or a liquidation plan, appoint the new debtor’s representatives and approve the way in which the debt is to be paid.

In addition, the administrative jurisdiction of insolvency procedures has not changed. The branch of INDECOPI located in the debtor’s domicile is the competent agency for the procedure. The most important decisions are approved by the bankruptcy commission of INDECOPI in the first administrative instance. These include admission of an insolvency procedure, recognition of a creditor’s claim and validation of agreements entered into at a creditors’ meeting. Almost every decision taken by the bankruptcy commission can be challenged by the debtor, a creditor or a third party with a valid interest before the court of appeals of INDECOPI (second and final administrative instance). Decisions from the court of appeals of INDECOPI can only be challenged before the judiciary.

ii Policy

The Bankruptcy Law states that the main objective of said regulation is the restoration of credit throughout the regulation of several procedures in order to promote an efficient assignation of resources and maximise the situation of a stressed company. Peruvian regulation does not promote the reorganisation or liquidation of any company, but recognises that only the creditors should envision the best option for recovering the debt. Therefore, insolvency regulation will be considered as virtuous if it allows a negotiation between the creditors and the debtor for approval of reorganisation or, if not possible, liquidation with little transactional cost.

Despite the fact that negotiation is key in an insolvency procedure so that creditors can identify where a stressed company has more (present or future) value, there is no provision that obligates the creditors to decide on either way, meaning that after such negotiation a creditor can vote to liquidate a company even, for instance, if future value (restructuring) is the right choice. This is true regardless of the kind of insolvency procedure, since regulation assumes that creditors know what is in their best interest, so they do not have to explain their choice to the debtor or the regulator.

The Bankruptcy Law is neutral regarding the final destination of the debtor under the procedure; this decision is left to the creditors.3 However, today there are far more provisions in the Law than in previous regulations, which allows INDECOPI to declare the liquidation of the debtor, for reasons including:

  • a if the creditors’ meeting does not approve the debtor’s destination (reorganisation or liquidation) in a 45-day window from the installation of such committee;
  • b if the creditors’ meeting does not approve the reorganisation plan in a 60-day window from the moment the debtor is placed under a reorganisation procedure;
  • c if the debtor defaults the terms and conditions (mainly payment terms) of a reorganisation plan duly approved by the creditors’ meeting; and
  • d if the creditors’ meeting does not approve the liquidation plan in a 60-day window from the moment the debtor is placed under a liquidation procedure.

The rationale of these amendments is straightforward: before the current regulation it was common to identify debtors with no reorganisation or liquidation plan in place, and given the lack of interest from its creditors the company was placed in a legal ‘limbo’. The provisions above are aimed at accelerating the insolvency procedures, assuming that the lack of interest from the creditors in restructuring a company is synonymous with desiring its liquidation.

Therefore, despite the neutral situation of the Bankruptcy Law towards reorganisation with regard to liquidation, the regulation involves procedural elements that the debtor needs to be careful to avoid, otherwise the Bankruptcy Commission will declare the liquidation of the debtor and prevent any chance to bid for the future value of the insolvent.

iii Insolvency procedures

The Bankruptcy Law only regulates two types of insolvency proceedings. On one side, the ‘ordinary bankruptcy proceeding’ (commonly known as the insolvency procedure, similar to the Chapter 11 and Chapter 7 proceedings under the US Bankruptcy Code) is commenced with the intention of reverting the debtor’s poor financial condition or allowing its liquidation under reduced transactional costs. With this procedure, creditors will gather in a creditors’ meeting to:

  • a restructure the debtor’s business by refinancing outstanding debts, subordinating payment of certain unsecured debts and replacing the administration; or
  • b liquidate the debtor’s assets and use the proceeds to pay off outstanding claims, on the basis of a legal priority.

This procedure can be initiated by the debtor (a voluntarily procedure) or by a debtor’s creditors (an involuntary procedure).

The second type of insolvency procedure available in Peru is the ‘preventive bankruptcy procedure’, which aims only to restructure the company. This procedure can only be initiated by the debtor.

The ordinary proceeding is governed by a restructuring plan or a liquidation plan to be approved by the creditors’ meeting. The preventive proceeding is governed only by a refinancing agreement, since there is no chance to liquidate the assets under this scheme.

As can be inferred, a company may not be subject to both insolvency procedures, since the objectives of such paths consistently differ from one to another. To that end, the Bankruptcy Law created ‘equity bands’ to which the debtor must comply depending on its financial situation. These bands reserve the preventive bankruptcy procedure only to debtors with some sort of financial stress, and the ordinary bankruptcy procedure only to companies in the most difficult financial situation.

Finally, recent regulation in Peru created a special insolvency procedure applicable only to soccer teams domiciled in Peru. This law was subject to severe criticism since the current Bankruptcy Law applies to all companies domiciled in Peru, including sports companies. However, this new regulation stated that for a limited period of time – already concluded – any soccer team may apply for a special bankruptcy procedure with only the intention of reorganising its financial situation and approving a plan that reschedules all outstanding debt. This regulation forbids the liquidation of soccer teams. Needless to say, almost every soccer team in Peru was in very bad shape and they applied for this special procedure. To date, all soccer teams but one4 have successfully approved a reorganisation plan and rescheduled their debt. The Tax Administration and Labour were the creditors with the biggest representation at their creditors’ meeting.

Regardless of the method, publication of the bankruptcy procedure against a debtor has two effects:

  • a the automatic stay of the debtor’s estate, which involves a suspension of all the debtor’s outstanding obligations incurred to date (the suspension will be effective until the creditors’ meeting approves the reorganisation plan with the new payment schedule for the claims, or the liquidation plan); and
  • b the cessation of any creditor action aimed to foreclose the debtor’s property.

Peru’s regulation does not contain fixed-term deadlines for restructuring a debtor. On the contrary, the regulation provides that the reorganisation procedure shall last as long as the reorganisation plan is in force. Therefore, restructuring shall last until all creditors with any debt generated before the beginning of the bankruptcy have fully recovered their credit, pursuant to the terms indicated in the plan. Similarly, a liquidation procedure does not have a fixed-term deadline since it will last as long as it takes for the trustee appointed by the creditors’ meeting to complete the liquidation. Based on prior experience, a successful reorganisation may last between 15 and 20 years, and a liquidation procedure may take between two and four years.

Ancillary procedures

The Peruvian insolvency regulator (INDECOPI) does not automatically recognise the validity of resolutions or judgments from other jurisdictions. On the contrary, Peruvian law requires that a separate filing be made in Peruvian courts (exequatur) in order to be valid in Peru. Since by law all debtors with their principal domicile located in Peru can only commence insolvency proceedings before INDECOPI (i.e., in Peru), the exequatur is commonly reserved for non-domiciled companies with assets located in Peru.

iv Starting proceedings
Ordinary bankruptcy procedure

Any debtor can file a voluntarily petition under the ordinary bankruptcy procedure as long as it meets at least one of the following standards: more than one-third of the debtor’s total liabilities are due and unpaid for more than 30 calendar days; or the debtor has accumulated losses in an amount exceeding one-third of its paid-in-capital. In addition, any creditor can file an involuntarily petition against its debtor as long as it holds outstanding credits for more than 30 calendar days and in excess of 50 tax units.5

Commencement of a bankruptcy proceeding is subject to compliance with the filing of documentation and information, as well as payment of an administrative fee. Creditors have no obligation to file an involuntarily petition with respect to a particular debtor; however, failure to commence such procedure could increase the creditor’s risk of collection.

Preventive bankruptcy procedure

As mentioned before, the Bankruptcy Law created ‘equity bands’ for debtors to be part of insolvency procedures in order to prevent them being part of more than one process. Therefore, and considering the ‘preventive’ object of this proceeding, any debtor can file a voluntarily petition under the preventive bankruptcy procedure as long as such debtor is not under any condition that may allow it to enter voluntarily into the ordinary bankruptcy procedure. This means that the debtor needs to meet both of the following standards: less than one-third of the debtor’s total liabilities are due and unpaid for more than 30 calendar days; and the debtor has accumulated losses in an amount under one-third of its paid-in-capital. No involuntarily petition is possible under this proceeding.

The Bankruptcy Law eliminated the procedimiento simplificado (simplified procedure), which was an additional bankruptcy proceeding very similar to the preventive one (no involuntarily petition was possible). The only goal of this procedure was for the creditors’ meeting to approve a reorganisation plan. Our experience demonstrated very little use of this procedure, as well as its lack of helpfulness; on the contrary, debtors used it to ‘jump’ among the available procedures, preventing proper actions from their creditors. This moral-hazard issue was solved by the equity bands currently in place.

When presenting their proof of claim before INDECOPI with the unpaid credit, creditors must request that the authority ranks their credit within the legal category. Labour credits rank first. According to this priority, employees and former employees of the debtor recover their credits before any other creditor. Alimony debts rank second in priority. Secured claims rank third as long as the security interest over the debtor’s assets was constituted before commencement of the insolvency proceeding. Tax claims rank fourth. Unsecured claims are disbursed only if all the preceding claims have been fully recovered, constituting the fifth priority. Creditors who did not file their claims before the Bankruptcy Commission are entitled to payment with the remains of the estate, if any.

Such ranking is not applicable when reorganisation is agreed by the creditors’ meeting, where payment is made according to the terms agreed in the plan, except for the labour claims (from the annual proceeds obtained by the debtor under a reorganisation plan, at least 30 per cent must be served to pay the labour credits). However, the priority mentioned above fully applies in a liquidation procedure.

In addition to the priority order to be requested by the creditors when requesting certification of the debt before INDECOPI, creditors must inform whether there is any unusual relation in place with their debtor, other than the pure commercial one. This is particularly important in order to prevent fraudulent credits being integrated into the procedure, damaging other creditors’ rights in the meeting and their possibility to recover the debt. The most important causes to declare this relation between a creditor and debtor are:

  • a family ties between both parties, or between one of the parties and the shareholder, partner or associate of the other;
  • b marriage between the parties;
  • c a labour relation, current or past, which implies the execution of a directorial or managerial position;
  • d property of the debtor or creditor in any business of the counterparty; and
  • e integration of an economic group.

When any of the above situations are declared by the parties, or inferred by the authority, INDECOPI puts in place a special protocol requesting several additional documents from the parties (tax, financial, banking, accounting and notarial) in order to validate the existence of the debt. If there is no justification after the analysis, the claim is rejected.

On the other hand, every bankruptcy procedure has rules to prevent fraudulent conveyance of the debtor’s assets. In general terms, fraudulent conveyances can be categorised in one of the following:

  • a the court may declare as fraudulent, and, therefore, unopposable to the creditors’ meeting, any transference, security interest, lien, act or contract entered by the debtor that:

• is not referred to in its normal course of business;

• harms its financial condition; and

• has been agreed or entered in the term of one year before commencement of the insolvency procedure; and

  • b the court may declare as fraudulent, and therefore unopposable to the creditors’ meeting, any of the following entered into from commencement of the bankruptcy procedure and the moment the new administrator (under a reorganisation) or trustee (under a liquidation) is appointed by the creditors’ meeting:

• anticipated payment of undue obligations;

• payment of obligations not accomplished according to the terms and conditions agreed by the parties;

• contracts not related to the ordinary course of business;

• offset of obligations between the debtor and creditor;

• liens or security interests agreed by the debtor towards its assets; and

• mergers, spin-offs, or similar.

These are the only provisions from the Bankruptcy Law that require action from the judiciary, as in Peru administrative agencies do not have the jurisdiction to declare contracts invalid.

v Control of insolvency proceedings

In Peru the only authority for bankruptcy matters is the Bankruptcy Commission of INDECOPI, an administrative agency entrusted to supervise the legality of the proceedings. INDECOPI has discretional powers to revise the legality of the agreements entered by the creditors’ meetings, including the reorganisation plan, the liquidation plan, and the designation of an administrator or trustee. However, INDECOPI does not need to confirm or validate every single aspect of the procedure; on the contrary, the regulator will only issue an opinion in the event that a legal standard is threatened, or by responding to a petition filed by a party.

vi Special regimes

In general, the Bankruptcy Law is mandatory to all companies domiciled in Peru. However, such regulation does not apply to state-owned companies, financial institutions, pension funds and insurance companies. On the contrary, these companies – except from state-owned ones – are part of the financial system and subject to the Financial System Law, with a special regulator (the Superintendency of Banks, Insurance Companies and Pension Funds (SBS)). This regulation has special rules to deal with the liquidation of a bank (payment of depositors), pension funds (transference of pension funds to another company) and insurance companies (related to the insurance holders with the company).

There are no special insolvency rules related to corporate groups in Peru.

vii Cross-border issues

Peru’s bankruptcy regulation does not contain any provision related to the recognition of judgments issued overseas in connection with a local insolvency procedure. Pursuant to Peru’s Civil Code, recognition by Peruvian courts of foreign judgments can only be upheld because of the reciprocity principle, on account of which Peruvian courts will only recognise resolutions issued in a certain country if the judicial authorities from such country recognise and support Peruvian decisions. To obtain such recognition the interested party must initiate a summary judicial procedure called exequatur in order to provide validity to the resolution issued abroad. Insolvency judgments issued overseas are commonly related to incorporating an asset located abroad to the debtor’s estate.


After more than 10 years of economic growth, the Peruvian economy started to decelerate in 2013, mainly because of the international problems of China and the depression in the market value of several commodities, including mining products. Yet Peru’s economy is not in recession; Peru’s GDP has increased by approximately 2.5 per cent on a yearly basis for the past three consecutive years. This may be seen as good news considering the growth of Peru’s neighbours, but is not as compelling when compared with the 7.5 per cent increase of 2008.

The government has consistently tried to speed up the economy with several legal measures intended to eliminate economic barriers for business, and inviting foreign investors to Peru. Fortunately, capital markets are safe, along with the solid financial system administered by Peru’s Central Bank, and unemployment rates are low. We believe that the economy will remain stable and steady, especially after the 2016 general elections where Pedro Pablo Kuczynski was declared President of Peru.

Below is a chart with the number of insolvency procedures commenced in Peru since 1993.6 The Peruvian economy collapsed between 1998 and 2001, which generated a significant increase in companies subject to bankruptcy relief. Such numbers decreased from 2004, as the economy stabilised:


Number of bankruptcy procedures commenced in Peru


Number of bankruptcy procedures commenced in Peru

















































According to INDECOPI, 97 per cent of the creditors’ meetings held in the past three years approved the debtor’s liquidation as the most efficient manner to recover their investments. It is not common that a debtor-in-possession fully reorganises and emerges from a reorganisation procedure, especially if it has considerable liabilities. Therefore, in Peru liquidation is the most common culmination of the insolvency procedures. There are several factors that explain this, such as a lack of confidence in reorganisation plans; extended overview of insolvency procedures as means to evade obligations; and the generalised creditor’s desire to recover a small portion of the debt (present value) in a relatively small period of time through liquidation rather than the possibility of obtaining a greater portion of their credit (future value) by reorganisation.


In 1999, Andina de Radiodifusión SAC – one of the most important television networks in Peru – presented a voluntarily petition for bankruptcy relief in order to reorganise its financial situation. The procedure was very complex given the vast number of creditors (more than 1,200), the extent of the debt (US$500 million) and the poor condition of its revenues. Andina de Radiodifusión managed to end its bankruptcy procedure in 2012 after several negotiations with its creditors, securing a mid-term loan for working capital needs. The reorganisation plan included a most novel method to end the process – several creditors agreed to novate7 their credits and transform them into new undue obligations, which entitled the company to exclude those liabilities from the procedure.

Another important bankruptcy procedure was Pesquera San Antonio SA. In 2001, Pesquera San Antonio was forced by a group of banks to enter into insolvency after the debtor had defaulted on several loan facilities. The company was one of the biggest fishing companies in Peru and it suffered within the then-severe situation of the fishing industry. Every bank in Peru was part of the creditors’ committee that approved a reorganisation plan, granting a mid-term loan of US$250 million as working capital. However, the company never fully recovered from its severe losses, and two years later the creditors approved its liquidation.

Finally, Doe Run Peru SRL – the most important mining refinery in Peru – entered into an insolvency procedure in 2012 after a syndicate of banks suspended a US$75 million working-capital facility because of several defaults from the company. The procedure is still under progress under INDECOPI and is rather unusual: Doe Run Peru is the only company in the city of La Oroya (Junin), so its liquidation created a social conflict with all personnel who depend on it. In addition, the company has many fines imposed by the government regarding alleged infractions to environmental legislation. Both issues (social and environmental) have prevented any interested company from tendering for the company within the liquidation procedure as an ongoing organisation.


We anticipate that insolvency activities will significantly increase in Peru as a result of the current situation of the Peruvian economy.

In addition, recent regulation passed in Peru amended the current Bankruptcy Law in order to speed up the liquidation procedures and, more importantly, closely supervise administrators and trustees recorded by INDECOPI to manage and administer the debtor’s company (in reorganisation or liquidation modes, respectively). This is because the judiciary has discovered significant fraudulent activities involving transference of bankrupted real estate and monies not directed to the creditors.

1 Alfonso Pérez-Bonany López is a partner at Philippi, Prietocarrizosa, Ferrero DU & Uría.

2 ‘The word ‘bankruptcy’ is a compound of the words ‘bank’ – meaning ‘bench’ – and ‘rupta’ (Latin) – meaning ‘to break or be broken’. The image of a broken bench was intentional and literal: creditors, faced with merchants unable to pay debts, literally would break the bench on which the merchants did business. Subsequent to this symbolic gesture, the debtors’ property would be seized and sold.’ Bankruptcy: Problems, Cases and Materials (2003). Walter W Miller Jr.

3 Such choice of law is patent in the very name of the Bankruptcy Commission of INDECOPI in charge of the insolvency procedures. At first, the commission was named the Corporation Restructuring Commission – at that time the law promoted the debtor’s restructuring. The commission’s name was then changed to the Exit-From-The-Market Commission, supported by regulation that promoted the debtor’s liquidation. The current titles of the commission and regulation (the Bankruptcy Commission and the Bankruptcy Law, respectively) try to support the neutral idea of the authority and the law.

4 Currently, the only soccer team with no plan approved is Universtario de Deportes, mainly because the two most important creditors at its creditors’ meeting have not yet agreed with the payment terms.

5 Approximately US$60,000.

6 Source: www.indecopi.gob.pe.

7 According to Peru’s Civil Code, a novation occurs when one obligation is replaced by another.