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