Mandatory capital reduction and dissolution for loss of capital in Argentina: emergency suspension
Recession, high inflation, currency devaluation and application of the accounting adjustment for inflation, among other causes, may provoke that many companies in Argentina must expose on their balance sheets relations that make them be incurred in the causes of mandatory capital reduction (Section 206 of the General Companies Law N 19,550, the Ley General de Sociedades or LGS, as amended) or dissolution for loss of capital (Section 94, subsection 5, of the LGS).
In line with similar measures taken on other occasions of macroeconomic crisis in Argentina, the Law of Solidarity and Productive Reactivation Law No. 27,541, published in the Official Gazette on 23 December 2019, established the suspension of the aforementioned rules of the LGS until December 31, 2020.
Therefore, companies will be allowed to file their balance sheets with the controlling authorities even if the losses have consumed its reserves and 50% of its share capital or caused a negative net worth.
They may also continue to operate without generating liability for the board of directors and statutory auditors.
Mario E. Castro Sammartino
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