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

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS ♦ First and most important, Honduras’s insolvency laws do not provide debtors with a full and final discharge of their debts. This leaves the debtor with little incentive to initiate insolvency proceedings, since they help creditors but add costs that reduce the payoff and leave debtors responsible for any deficiency. ♦ Second, Honduras’s insolvency laws retain a vestige of ancient bankruptcy law that is absent from modern statutes: extensive provisions for assigning blame and even criminal penalties based on a presumption of blameworthy conduct on the part of any debtor who cannot pay his or her debts. ♦ Third, modern insolvency regimes depend on creditors’ effective remedies in collecting debts, most notably the ability to foreclose on collateral guaranties, to drive honest debtors to seek relief in insolvency proceedings. Honduras’s debtors lack such an incentive—first, because insolvency offers no discharge from their debts and, second, because creditors use forms of guaranty that elude insolvency proceedings (e.g., fideicomisos de garantía) or cannot collect debts in a manner efficient enough to pressure debtors into such proceedings. ♦ Finally, modern bankruptcy laws in other countries operate in tandem with collateral guaranty laws to provide two major elements lacking in Honduras: (a) the clear demarcation of priorities among creditors and (b) the vindication of those priority claims. Honduran insolvency and collateral laws lack such internal pressure points and therefore cannot exert the proper leverage on modern creditor-debtor relations. Honduras’s lack of a bankruptcy practice and updated legislation hampers business and investment by leaving creditors without an effective ultimate remedy against defaulting debtors and by leaving debtors without the means of making a fresh start after financial failure. A desirable credit dialectic should run from (a) default by debtor, to (b) foreclosure against collateral by creditor, forcing (c) bankruptcy by debtor that temporarily stops foreclosures but leads to the recognition of secured creditors’ collateral claims and means that all debts will be resolved in the relatively short term, and (d) leaves the debtor finally discharged from all responsibility for the debts. Without effective bankruptcy creditors cannot foreclose, even on debts secured by movable collateral, let alone assert unsecured claims, with any hope of payment in a realistic time frame. The attendant increased risk to any lender reduces the supply of credit offered to potential borrowers and weeds out a number of such borrowers even when their collateral should be sufficient to guaranty a needed loan. In addition, debtors who might return to economic viability by shedding their obligations through insolvency enjoy no such alternative. B. LEGAL FRAMEWORK Honduras has on its books a quite sophisticated set of insolvency laws. The Honduran Code of Commerce of 1950 devotes almost half of its substantive provisions to insolvency, providing a rich and extensive legislative treatment of the subject. Consistent with the date on which they entered into force, however, the Honduran insolvency laws lack important aspects of modern bankruptcy laws. VIII-7
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS Insolvency proceedings in Honduras include three distinct proceedings: the concurso, or concurrencia, a consumer (or non-merchant) bankruptcy under the Civil Code; 86 quiebra, or merchant bankruptcies under the Commercial Code; 87 and suspensión de pagos, or merchant reorganizations under the Commercial Code. 88 As confirmed by the relatively small number of its articles on suspensión de pagos, the Commercial Code does not contain an extensively developed law for merchant reorganization through restructuring of debts. However, its provisions are open and flexible enough that they would permit an active and commercially savvy judge to oversee an effective reorganization. Both the Honduran Civil Code and the Honduran Commercial Code treatments of insolvency retain a vestige of classic bankruptcy law, the skeptical presumption—largely absent from modern insolvency statutes beginning in the mid 20 th century—that the debtor who cannot pay his or her debts is probably guilty of improper conduct. 89 The codes both provide for proceedings to determine the debtor’s degree of responsibility for the financial failure. The Commercial Code in particular includes rather extensive provisions for assigning blame and even criminal penalties in cases of merchant bankruptcy and imposes an obligation on the court to determine the degree of responsibility of those with administrative control of the debtor, ranging from “fortuitous” bankruptcies to “culpable” bankruptcies and, at the extreme, bankruptcies in which criminal fraud is present. 90 1. Code of Procedures Promulgated in 1906, the Code of Procedures includes both civil and criminal procedures. Its civil section includes careful provisions for both consumer and commercial bankruptcies before the trial courts of general jurisdiction. 91 Specifically it provides for a debtor to turn over nonexempt assets to the estate administered by the court. 92 The court then gives notice and holds a meeting of all creditors to sort out claims against the debtor and to permit the debtor to propose to the creditors a plan for restructuring his or her debts, if he or she wishes to do so. 93 The court also supervises the appointment of a trustee in bankruptcy (síndico) to liquidate the debtor’s assets in favor of creditors’ proven claims 94 and presides over the determination of whether the 86 CC [Civil Code], Libro IV (De las Obligaciones y Contratos), Título XV (De la Concurrencia y Prelación de Créditos), Arts. 2244-2262. 87 CdCom [Commercial Code], Libro V (Quiebra y Suspensión de Pagos), Títulos I-V, Arts. 1318-1640. Nonetheless, the síndico, or bankruptcy trustee, may propose the continuation of the business instead of its liquidation, a form of reorganization under bankruptcy proper. CdCom, Art. 1357(III). 88 CdCom, Libro V (Quiebra y Suspensión de Pagos), Título VI, Arts. 1641-1674. 89 The term “bankruptcy,” derived from the Latin for “broken bench,” came from the medieval practice of breaking the insolvent merchant’s bench so that he could no longer carry on commerce in the marketplace. The same presumptive anathema attaches to the consumer who cannot pay his or her debts, although perhaps not to the same level. See CC, Art. 1442. 90 See CdCom, Arts. 1392, 1398-1421, 1628-1640 (stripping bankrupt merchants of their civil rights and prohibiting them from engaging in commercial acts until and unless they are “rehabilitated,” either by a finding that the bankruptcy was “fortuitous” or by repayment of all debts in the case of “culpable” or “fraudulent” bankruptcies). 91 Código de Procedimientos (CdProc), Libro III (De los Juicios Especiales), Título II (Del Concurso de Acreedores), Arts. 524-644, and Título III (De los Procedimientos de la Quiebra), Arts. 645-654. 92 CdProc, Arts. 536-537, 588-592. 93 CdProc, Arts. 538(2), 543-556, 567. 94 CdProc, Art. 569. VIII-8
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