Insolvency Law at Paraguay
1. Legal Framework
Paraguay regulates insolvency primarily through Law No. 154/69 — “Ley de Quiebras” (Bankruptcy Law). This law governs both personal and corporate insolvency. It establishes procedures for bankruptcy (quiebra), creditor composition (concordato), and liquidation.
For financial institutions (banks), there is a separate legal framework that provides special resolution procedures due to the systemic importance of banks, but ordinary businesses and individuals fall under Law 154/69.
2. Key Features
a. Who Can File
Debtors: Can voluntarily file for bankruptcy.
Creditors: Can file against debtors if they demonstrate insolvency.
Both natural persons and legal entities are subject to bankruptcy proceedings.
b. Definition of Insolvency
A debtor is insolvent if they are unable to meet obligations when due.
Insolvency may be evidenced by default on multiple obligations or patrimonial evidence demonstrating inability to pay.
c. Types of Proceedings
Concordato (Composition with Creditors):
A restructuring mechanism where the debtor negotiates repayment plans with creditors.
Requires full disclosure of assets, liabilities, and creditors.
If successful, the debtor avoids liquidation.
Quiebra (Bankruptcy / Liquidation):
Declared by the court if the concordato fails or creditors request it.
Assets are transferred to a trustee (síndico) for liquidation.
Proceeds are distributed to creditors according to priority rules.
d. Effects of Bankruptcy
Debtors lose control of their assets.
The trustee manages liquidation or restructuring.
Courts examine prior transfers to prevent fraud or preferential treatment of certain creditors.
e. Priority of Claims
Secured creditors (with real guarantees).
Preferential creditors (employees, certain taxes).
Unsecured creditors.
Shareholders or equity holders.
f. Limitations
Cannot legislate against existing creditor rights.
Criminal liability for fraudulent transfers is preserved.
Banking and electoral matters are outside ordinary bankruptcy law.
3. Challenges
Law 154/69 is outdated and often inefficient.
Bankruptcy proceedings are lengthy and costly, with low recovery rates.
The use of restructuring (concordato) is rare; most cases end in liquidation.
Limited number of qualified trustees (síndicos) creates procedural bottlenecks.
4. Six Illustrative Case Examples
Case 1: Voluntary Corporate Bankruptcy
Facts: A mid-size Paraguayan manufacturing company was insolvent due to debt exceeding assets.
Procedure: The company voluntarily filed for bankruptcy.
Outcome: Court appointed a trustee; assets were liquidated, and proceeds distributed to creditors according to statutory priority.
Case 2: Creditor-Initiated Bankruptcy
Facts: A supplier filed a bankruptcy petition against a retail company that defaulted on multiple payments.
Procedure: Court examined insolvency evidence, including balance sheets and payment history.
Outcome: Bankruptcy declared; supplier received payment proportionate to secured status; unsecured creditors received partial payments.
Case 3: Attempted Concordato (Reorganization)
Facts: A construction firm sought to restructure debt with creditors using a concordato.
Procedure: Full disclosure of assets and liabilities was presented.
Outcome: Majority of creditors rejected the plan; court moved to liquidation under bankruptcy provisions.
Case 4: Fraudulent Transfer Challenge
Facts: Before declaring bankruptcy, the debtor transferred key assets to relatives.
Procedure: Trustee filed claims to reverse the transfers under Law 154/69 provisions on fraudulent conveyances.
Outcome: Transfers were annulled; assets recovered for creditor distribution.
Case 5: Individual Bankruptcy
Facts: An individual entrepreneur with multiple business debts could not meet obligations.
Procedure: Filed for personal bankruptcy; trustee reviewed personal and business assets.
Outcome: Some debts discharged after liquidation; certain privileged claims (taxes, employee claims) were fully paid.
Case 6: Banking Sector Insolvency (Special Procedure)
Facts: A local bank became insolvent due to poor loans and liquidity issues.
Procedure: Bank resolution law applied (not Law 154/69); Central Bank intervened, appointed liquidators.
Outcome: Depositors partially reimbursed; bank assets sold; illustrates dual-track system (ordinary vs. banking insolvency).
5. Key Takeaways
Paraguay has a dual insolvency system: ordinary bankruptcy for companies and individuals, and special resolution for banks.
Law 154/69 is largely liquidation-focused, with limited use of restructuring tools.
Bankruptcy trustees (síndicos) play a central role in administration and liquidation.
Judicial practice emphasizes protecting creditors, recovering assets from fraudulent transfers, and prioritizing secured and preferential claims.
Modernization reforms are proposed to improve efficiency, allow more effective restructuring, and align with international best practices.
This summary provides a complete self-contained overview of Paraguayan insolvency law with six illustrative case situations without relying on any external references.
RELATED Blog
comments