Browse Profiles > Peru > Effective Insolvency and Creditor Rights Systems
  Score Rank
Standards Compliance Index 35.83 out of 100 50
Business Indicator Index 8.82 out of 12 40
Peru

Effective Insolvency and Creditor Rights Systems

Summary
Bankruptcy proceedings in Peru are regulated by the General Insolvency System Law No. 27809 of 2001. This law, which became effective on August 8, 2002, introduced liquidation and reorganization procedures as an alternative to bankruptcy of enterprises. The bankruptcy procedures are filed before a government agency called the National Institute for the Defense of Free Competition and the Protection of Intellectual Property (INDECOPI). According to the U.S. Department of Commerce's 2007 Country Commercial Guide on Peru, the enforcement of bankruptcy laws through the courts is rather slow. This finding is also confirmed by the World Bank's 2006 Closing a Business Indicator. As of 2006, the process of closing a business in Peru takes 3.1 years, compared to the average of 2.6 years in the region and 1.4 years for Organization for Economic Co-operation and Development countries. On the other hand, Peru ranked rather high in terms of recovery rate (expressed in terms of how many cents on the dollar claimants recover from the insolvent firm) and the cost of closing a business, ranking 73rd out of 175 countries surveyed. However, there is insufficient publicly available information as to Peru's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems promulgated by the World Bank.

    General Overview

    General Insolvency System Law No. 27809 of 2001 regulates bankruptcy proceedings in Peru. According to the Estudio Olaechea law firm's undated Guide to Doing Business in Peru, this law, which became effective on August 8, 2002, introduced reorganization procedures as an alternative to bankruptcy of enterprises. The Law provides for two alternative procedures: liquidation and reorganization. Creditors are not allowed to immediately require the bankruptcy of the enterprise - bankruptcy can be declared only after the assets disposed of as a result of liquidation procedure are not sufficient to cover the debt of the company.
    The Estudio Olaechea guide further notes that, prior to initiating reorganization or liquidation of a company, creditors or the debtor must file a request for Ordinary Proceedings from the National Institute for the Defense of Free Competition and the Protection of Intellectual Property (Instituto Nacional de Defensa de la Competencia y de la Propiedad Intelectual, or INDECOPI). After the INDECOPI's approval is received, an announcement is published in the Official Gazette "El Peruano" notifying all other creditors. After holding a Creditors' Meeting, which replaces the Shareholders' Meeting, a decision to either liquidate or reorganize the company is taken.
    The U.S. Department of Commerce 2007 Country Commercial Guide on Peru reports that "Peru's commercial and bankruptcy laws have proven difficult to enforce through the courts. There is an administrative bankruptcy procedure under INDECOPI... but it has proven to be slow and subject to judicial intervention" (p. 50). The World Bank's 2006 Doing Business Indicator offers information on the time and cost required to resolve bankruptcies in 175 countries. The Indicator confirms the inefficiency of bankruptcy proceedings in Peru in terms of time required to close a business. The process in Peru takes 3.1 years, compared to 2.6 years in the region and an average 1.4 years for Organization for Economic Co-operation and Development (OECD) countries. However, the cost of closing a business is lower in Peru - it constitutes 7% of the estate value (with regional average being 13.6%, and the OECD's average - 7.1%). The recovery rate, expressed in terms of how many cents on the dollar claimants recover from the insolvent firm, is 31.8 in Peru, 25.7 in the region, and 74 for the OECD countries. Overall, in 2006 Peru ranked 73 out of 175 countries surveyed in terms of ease of closing a business


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    Sources of Assessment

    Estudio Olaechea, "Guide to Doing Business in Peru," n.d. Available from Lex Mundi website. Accessed on September 6, 2007. (Estudio Olaechea n.d.)

    U.S. Department of Commerce, "Doing Business in Peru: A Country Commercial Guide," February 2007. Available from U.S. & Foreign Commercial Service and U.S. Department of State website. Accessed on August 9, 2007. (U.S. DoC 2007)

    Relevant Organizations

    National Institute for the Defense of Free Competition and the Protection of Intellectual Property - Instituto Nacional de Defensa de la Competencia y de la Propiedad Intelectual (INDECOPI) (website in Spanish only)

    Ministry of Economy and Finance - Ministerio de Economia y Finanzas (MEF) (website in Spanish only) (website in Spanish only)

    Congress of the Republic of Peru - Congreso de la Republica del Peru (website in Spanish only)



    Relevant Legislation/Regulation

    General Insolvency System Law No. 27809, 2002 - Ley General del Sistema Concursal, No. 27809, 2002 (in Spanish only)

    Conciliation Law No. 26872, 1997 - Ley de Conciliacion No. 26872, 1997 (in Spanish only)

    Bankruptcy Law No. 7566, 1932 - Ley de Quiebras No. 7566, 1932 (in Spanish only)

    Enterprise Reorganization Decree-Law No. 26116, 1992 - Decreto-Ley de Reestruturacion Empresarial No. 26116, 1992 (in Spanish only)

    Commercial Code No. 15, 1902 - Codigo de Comercio No. 15, 1902 (subsequently amended) (in Spanish only)

    Law Establishing a New Timeframe for the Issuing of the Commercial Code, No. 26936, 1998 - Ley que Concede Nuevo Plazo para Elaborar el Codigo de Comercio No. 26936, 1998 (in Spanish only)

    Law Delegating Powers to the Executive to Issue and Enact the Commercial Code No. 26595, 1996 - Ley que Delega facultades al Poder Ejecutivo para que elabore y promulgue el Código de Comercio No. 26595, 1996 (in Spanish only)

    Law of Arbitration No. 26572, 1995 - Ley General de Arbitraje No. 26572, 1995 (in Spanish only)

    Modifications to the Code of Civil Procedure No. 25.940, 1993 - Modificaciones al Codigo Procesal Civil No. 25.940, 1993 (in Spanish only)



    Supplementary Sources

    World Bank, "Doing Business: Snapshot of Business Environment - Peru," 2007. Available from World Bank website. Accessed on August 16, 2007. (WB 2007)
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