LawyersEC (Fifth Edition)

Due to the international spread of
COVID-19, an increasing number
of businesses are in the vicinity of
insolvency.
may explain why the Ecuadorian Superintendence of Companies has only admitted 27 insolvency
proceedings since 1997, most of them without the approval of the proposed arrangement.
Traditionally, formal insolvency proceedings have been the
only alternative recognized by the Ecuadorian insolvency
framework. According to Aurelio Gurrea-Martínez, these
legal proceedings, in emerging markets, are usually valuedestroying
for both debtors and creditors.
Introduction
Due to the international spread of COVID-19, an increasing number of businesses
are in the vicinity of insolvency. Others, because of this pandemic, have already gone
insolvent. Unfortunately, the formal insolvency proceedings in Ecuador, due to their
inefficiencies and complexity, will not contribute towards ensuring the survival of
economically viable companies which are dealing with financial difficulties as a result
of this crisis.
Traditionally, formal insolvency proceedings have been the only alternative recognized
by the Ecuadorian insolvency framework. According to Aurelio Gurrea-Martínez, these
legal proceedings, in emerging markets, are usually value-destroying for both debtors
and creditors. 1 For instance, the Ecuadorian formal insolvency regulation, which is
costly and burdensome, imposes a qualified majority for the installation of the meeting
of creditors (75% of all the admitted creditors). 2 Besides, Ecuador requires the same
high percentage for the approval of a restructuring agreement (called concordato,
according to the Ecuadorian Insolvency Act). 3 Among other aspects, these requirements
Out-of-court reorganization agreements (also known as workouts) could be an efficient alternative to
the formal insolvency proceedings. 4 As the World Bank Group has argued, informal reorganization
agreements, in times of COVID-19, will contribute towards rescuing viable companies as a going
concern in a less time-consuming way, due to their flexibility and ease of negotiation. 5 These
extrajudicial mechanisms, considered as one of the four pillars of insolvency law, 6 will allow debtors
and creditors to restructure the original conditions of their contractual relationships more rapidly,
without the complexity of the traditional insolvency proceedings. Extrajudicial arrangements are
beneficial because they will facilitate a rapid restructuring of the debtor’s contractual obligations,
without a formal and complicated insolvency procedure
The Humanitarian Act:
The role of mediators
As a response to the current economic crisis, Ecuador enacted the ‘Humanitarian Act’. 7 The
objective of the Humanitarian Act is to mitigate the adverse economic effects of the pandemic.
Among its provisions, S. 27 of the Humanitarian Act allows debtors to negotiate exceptional outof-court
agreements with their creditors, to restructure the conditions of any due credit. Besides,
S. 27 requires a mediator to conduct the negotiations. According to Álvaro Pereira, mediators do
1 Aurelio Gurrea-Martínez, ‘Insolvency Law in Emerging Markets’ (2020). Ibero-American Institute for Law and Finance, Working
Paper 3/2020, 14 accessed 2 November 2020
2 ibid, 13
3 Ley de Concurso Preventivo 1997 (EC)
4 Jose María Garrido, ‘Out-of-Court Debt Restructuring’ (World Bank Studies 2012) 6 accessed 2 November 2020
5 The World Bank Group, ‘COVID-19 Outbreak: Implications on Corporate and Individual Insolvency’ (2020) Equitable Growth, Finance
and Institutions COVID-19 Notes Finance Series, 4 accessed 2 November 2020
6 Adolfo Rouillón, ‘El primer pilar legal para enfrentar una pandemia de insolvencia empresaria’ (2020) 84 (106) La Ley accessed 2 November 2020
7 Ley Orgánica de Apoyo Humanitario para Combatir la Crisis Sanitaria Derivada del COVID-19, 2020 (EC)
8 Álvaro Pereira, ‘Flattening the Filing Curve for SMEs: Lessons from Colombia’s Insolvency Reform (Oxford Business Law Blog,
30 April 2020)
accessed 2 November 2020
38
39