All matters of insolvency in Venezuela are regulated in the Civil Code of 1982 and Commercial Code of 1955. The Commercial Code specifies two procedures available to distressed companies - moratorium (atraso) and bankruptcy. Several publications on the insolvency issues in Venezuela have pointed out that the Commercial Code has not been updated to reflect the changes in business practices, and hence does not include many provisions necessary to deal with today's bankruptcies. The bankruptcy and moratorium procedures were found to be inflexible and insufficient to addressing the needs of modern insolvency cases. Moreover, traditional security interests are ill-suited for modern restructuring. However, there is no publicly available information as to Venezuela's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank.

General Overview

In their June 2007 online newsletter, the law firm of Rodner Martinez &Asociados (RM&A) reported that the insolvency system in Venezuela is regulated by the Civil Code (Codigo Civil) of 1982 and Commercial Code (Codigo de Comercio) of 1995, supplemented by the Law on Mortgages over Moveable Assets and Pledges without Transfer of Possession (Ley de Hipoteca Mobiliaria y Prenda sin Desplazamiento de Posesion) of 1973, as well as the Law on Trusts (Ley de Fideicomisos) of 1956. Under the Commercial Code, there are two proceedings to resolve insolvency matters available in Venezuela: moratorium (atraso) and bankruptcy. Bankruptcy is declared when the debtor is insolvent and is unable to repay his debt, while a moratorium is initiated in cases when the debtor is not bankrupt but is unable to meet his obligations in a timely manner. Insolvency issues of banks and other financial institutions are dealt with by the Superintendency of Banks and Other Financial Institutions (Superintendencia de Bancos y Otras Instituciones Financieras, or SUDEBAN). Public enterprises and natural persons are regulated by a separate set of rules (Acedo Sucre & Acedo De Lepervanche 2005).

According to Carlos Acedo Sucre and Luisa Acedo De Lepervanche, the authors of an article "Venezuela: Insolvency Under Venezuelan Law Securing Project Financings and Debt Restructurings," both procedures are very inflexible and "are not appropriate for dealing with the problems that arise in modern cases of insolvency or near-insolvency. In addition, traditional security interests, as set forth in the Commercial Code and the Civil Code, as well as the Special Mortgage Law, are, to a great extent, incompatible with modern restructurings."

The RM&A newsletter of June 2007points out that bankruptcy procedures in Venezuela are very slow and the recovery rate by unsecured creditors is not sufficient. The World Bank's "Doing Business: Snapshot of Business Environment" website confirms these findings. This website provides a regularly updated snapshot of the business climate in a number of countries by identifying specific regulations and policies that encourage or discourage investment, productivity, and growth. Its "Closing a Business Indicator" describes the time and cost required to resolve bankruptcies. For the year 2006, the time to resolve a bankruptcy case in Venezuela significantly exceeded those of OECD and the region - 4 years versus 2.6 for the region and 1.4 years for the OECD countries. The recovery rate in Venezuela, expressed in terms of how many cents on the dollar claimants recover from the insolvent firm, is very low compared to the OECD and regional averages. In 2006, claimants got 6.7 cents on the dollar in Venezuela, while in OECD countries the rate was 74 cents and the regional average was 25.7 cents per dollar. The cost as a percentage of the estate was 38% in Venezuela, 13.6% in the region, and 7.1% in the OECD countries.