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

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS Upon declaring the merchant debtor in bankruptcy, the court names a síndico, or trustee in bankruptcy, 118 who forthwith takes possession of all assets and records of the bankrupt. 119 Among the trustee’s first duties is to render to the court a “detailed report concerning the causes that gave rise to the bankruptcy [including] the debtor’s responsibility for it” and the effective date upon which the debtor ceased to pay its debts. 120 A limited-liability business entity whose corporate standing lacks validity exposes all of its individual shareholders or partners to unlimited liability. 121 The creditors, at scheduled creditors’ meetings, name from one to five interventores (intervenors) to represent the creditors’ interests throughout the bankruptcy proceeding. 122 In the meantime, the merchant bankrupt not only loses all access to and possession of the bankrupt business 123 but also is treated very much like a criminal: deprived of civil rights and positions that require full civil capacity; 124 held under subpoena power of trustee, intervenors, and creditors; 125 and prohibited from leaving the venue of the proceeding without the court’s permission. 126 After the quiebra administration is properly set up as detailed above, the trustee proceeds under court order to inventory, 127 administer, 128 and liquidate the assets of the bankruptcy estate 129 and pay creditors 130 their recognized claims 131 according to the priorities established within the bankruptcy proceeding. 132 A major portion of the proceedings following a declaration of bankruptcy focuses on determining whether the bankrupt has any degree of criminal responsibility for the cessation of payments to creditors. 133 The best that a bankrupt can hope for is a finding that the bankruptcy 118 CdCom, Art. 1332(I). The síndico should be a bank, a chamber of commerce or industry, or a merchant local to the court. CdCom, Arts. 1343, 1347. At the close of the initial hearing, the court also orders that the declaration of bankruptcy be inscribed in all commercial registries, against the bankrupt merchant company itself and against all inscribed rights and obligations of the bankrupt. CdCom, Art. 1332(VII). 119 CdCom, Arts. 1332(II), 1356, 1470. 120 CdCom, Art. 1332(VI). The effective date of the bankruptcy takes on significance, since transactions after that date—usually well before the actual judicial declaration of bankruptcy—may be overturned. See CdCom, Arts. 1463-1468. In a voluntary bankruptcy, the merchant must offer at the outset his own “exposition of the reasons for his request.” CdCom, Art. 1323. 121 CdCom, Art. 1321. 122 CdCom, Arts. 1367-1381. The court also notices meetings of all creditors as the law requires or the court deems appropriate. CdCom, Arts. 1382-1390. 123 CdCom, Art. 1391. 124 CdCom, Art. 1392. 125 CdCom, Art. 1394, 3. 126 CdCom, Art. 1394, 1. 127 CdCom, Art. 1356. 128 CdCom, Arts. 1356-1366, 1479-1480. 129 CdCom, Arts. 1481-1491. 130 CdCom, Arts. 1533-1547. 131 CdCom, Arts. 1492-1519. 132 CdCom, Arts. 1520-1532. 133 CdCom, Arts. 1398-1421. VIII-11
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS was “fortuitous.” 134 The least fortunate bankrupt is one found guilty of “fraud”; such a finding makes the debtor subject to criminal penalties, including incarceration and a fine. 135 Given the serious penalties that a finding of “fraudulent” bankruptcy can entail, it does not take much to create sufficient facts to support such a finding. Robbery and embezzlement obviously constitute fraud, 136 but failure to keep “all of the account books” or keeping books that are “altered, falsified or destroyed” is also fraud in the eyes of the Honduran bankruptcy law—an exacting standard, given the potential rigors of post hoc auditing and the reality that debtors in extremis tend to become sloppy bookkeepers. 137 However, perhaps the least forgiving criterion for fraud in the law is that which sanctions the bankrupt for, after the effective date of bankruptcy, 138 making preferential payments to a given creditor or extending “guaranties or preferences” to a creditor who had no right to them. 139 This standard is particularly harsh given that, in the normal course of managing business accounts, unless all creditors are paid in full at exactly the same time, some creditors always receive preferential payments simply by billing at different times or for other ordinary accounting reasons. To drive home the criminal thrust of the bankruptcy law, fraudulent bankruptcy is presumed whenever the true situation of the debtor cannot be deduced from his or her books. 140 Further, where the bankrupt is a business entity, the individuals responsible for its administration shall be “responsible for the acts that classify the bankruptcy” 141 (i.e., the corporate veil shall be pierced to impose criminal penalties on directors and administrators of the fraudulent bankrupt). Apart from its preoccupation with assigning blame, its unforgiving standards for doing so, and its failure to provide a total discharge of all debts even for the fortuitous bankrupt, the provisions of the Honduras Commercial Code on quiebra are quite modern and serviceable in many of their specifics, with concepts and principles that echo those in more recent insolvency legislation around the world. To name one of many examples, it includes dispositions by which the trustee may accept or reject executory contracts, depending on their benefit to the estate, and subject to a hearing and court approval. 142 134 That is, the merchant was “overcome by misfortunes that, taken as proper cause even presuming a regular and prudent process of good commercial administration, reduced his capital to the extreme that he had to cease payment of his debts.” CdCom, Art. 1399. Even the fortuitous merchant bankrupt cannot regain his or her civil rights and return to doing business after the bankruptcy, unless and until he or she binds himself or herself legally to repay the unpaid creditors “as soon as his [post-bankruptcy] situation permits.” CdCom, Art. 1628. “Guilty” bankrupts must either pay off all debts or wait 3 years for rehabilitation. CdCom, Art. 1629. “Fraudulent” bankrupts must both pay off all debts and wait 3 years after completion of their criminal penalty or forever suffer exclusion from exercise of their civil rights and from doing business. CdCom, Art. 1630. Of course, such sanctions have little effect on a business entity that simply goes out of business. But findings of “guilty” and “fraudulent” quiebra virtually always implicate individuals who had administrative charge of the company. See CdCom, Arts. 1401, 1403, 1408 and note 59 infra and accompanying text. 135 CdCom, Art. 1406. 136 CdCom, Art. 1403(I). 137 CdCom, Art. 1403(II). 138 See note 120 supra. 139 CdCom, Art. 1403(III). 140 CdCom, Art. 1405. 141 CdCom, Art. 1408. 142 CdCom, Arts. 1439-1454. VIII-12
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