Trade and Commercial Law Assessment - Honduras - Economic ...

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS The Law Schools For many years, Honduras’s only law school operated within the National University. Now, according to local attorneys, Honduras has six law schools, four in Tegucigalpa. Legal education in Honduras does not seem to prepare lawyers to handle a commercial practice. Quite a number of the better law graduates come to the United States for graduate legal education. Lawyers in Honduras will need continuing education to cope with increased transnational transactions expected in the future. Arbitration Centers Under the new arbitration law (Ley de Conciliación y Artibraje), which took effect in 2000, the Honduran Chamber of Commerce has established arbitration centers in Tegucigalpa and San Pedro Sula. These are the only arbitration centers in Honduras. The establishment of these centers is the result of the chamber’s efforts from 1997 to 2001, with funding from the InterAmerican Development Bank to promote alternative dispute resolution (ADR). The chamber promoted passage of the law and later trained and certified arbitration and mediators. The centers run by the chamber have been in operation since October 2001. Currently, the chamber of commerce has certified 28 arbitrators, most of whom are lawyers. It has conducted eight arbitration cases. The time required has ranged from 2 to 18 months. The cost of arbitration, which is 4.5 percent of the amount in dispute according to the Chamber of Commerce, may inhibit the use of arbitration. Another problem with arbitration may be the lack of “technical” arbitrators. When parties provide for arbitration, using the center’s process, they can choose to have a “technical” or a “legal” process. A technical process involves arbitrators who are experienced in the field (e.g., construction) but who are not lawyers. Those arbitrations would proceed according to “equity,” rather than law. This option reflects the recognition that certain cases are more appropriate for a technical expert than for a lawyer. A notary, however, can avoid this difficulty with a properly crafted arbitration clause. Notaries can conduct arbitrations without having to operate through the centers. As a result, apparently, more arbitration has occurred than the eight completed by the chamber’s centers. The chamber’s centers also conduct conciliations, or mediations. In fact, more of the chamber’s activity in the centers has been in this area, with 25 conciliation cases. Conciliation costs are lower. Conciliation also occurs in the courts. E. RECOMMENDATIONS ♦ Prosecute corruption and reconsider the structural arrangement of the judiciary, including the method of appointing judges, to provide more effective separation of powers. ♦ Educate attorneys and law students in commercial law and arbitration and the business community in the benefits of alternative dispute resolution. ♦ Update the Commercial Code to modern standards, including the addition of oral proceedings. VII-5
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS ♦ Reform the administration and operation of contracts and commercial transactions to ensure that the need for notaries does not place too large a burden on the contract itself. The notarial practice itself should be reviewed to ensure that the licensing of notaries is in accordance with ethical standards ♦ Consider joining with other Central American nations to create a Central American Court of Commercial Arbitration, which would have jurisdiction over commercial disputes between parties who are citizens of different countries. VIII. BANKRUPTCY A. INTRODUCTION Honduras has virtually no bankruptcy practice. Lawyers interviewed for this assessment remembered only a single insolvency proceeding in the country within the past few years. 83 Typically, businesses in Honduras carry out de facto insolvency proceedings by simply shutting their doors and ceasing to exist. According to lawyers interviewed for this assessment, several banks have failed within recent memory, and banks have since come under much more careful scrutiny and control by the Commission for Banking and Insurance. Currently, insolvency laws do not cover bank insolvencies. 84 The Commission for Banking and Insurance is prepared to step in if a bank or insurance company goes bankrupt by acquiring the stricken institution and transferring it to a healthy bank or insurance company. The commission is rigorous in its auditing and oversight of Honduran banks and insurance companies and its requirements for reserve funds to cover obligations. It could be argued that the restrictions imposed by the commission contribute to the extreme risk aversion and the conservative lending policies of Honduran banks. No lawyers interviewed had ever handled an insolvency proceeding, let alone considered such practice part of their own expertise or normal workload. Further, no lawyers knew of any other attorneys who did. One of the major reasons for the lack of bankruptcy practice is that insolvency proceedings fall under the jurisdiction of Honduras’s all-purpose trial courts, 85 which have a reputation for inefficiency. Such courts have no experience with insolvency proceedings, which are relatively complicated and lengthy. Honduras has a well-drafted and detailed insolvency law, promulgated as part of its Commercial Code in 1950, but its statutes lack many aspects present in modern bankruptcy laws around the world. 83 The debtor in that insolvency proceeding was Industrias Metálicas, S.A., or IMSA, in San Pedro Sula. In addition, some 10 years before, a clothing store known as Moda de París had declared bankruptcy in Tegucigalpa. 84 The Commercial Code includes a special section for “banking establishments and insurance businesses,” at Articles 1675–1678, which defers to special regulations set out in the Law for Banking Establishments for the insolvency of banks. Id., at Arts. 1675 and 1678. 85 There are no specialized mercantile courts in Honduras, where ordinary trial courts accept all matters from criminal to civil to family to commercial matters. VIII-6
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