UPDATE ON ARGENTINE EXCHANGE CONTROL REGULATIONS

Hereunder follows a summary of the exchange control regulations and the restrictions for transferring funds to foreign countries existing at present in Argentina.

1. With the enactment of Decree Nbr. 260/2002 (published in the Official Gazette on February 8th, 2002) Argentina abandons its double exchange regime in existence from January 9th, 2002 and replace it by a single and free exchange system.

Section 1 of Decree Nbr. 260/2002 states that a free and single exchange market is established, through which all exchange transactions in foreign currency shall be made as from February 8th, 2002. The exchange transactions shall be made at the exchange rate freely agreed by the parties, complying with the requirements and resolutions of the Argentine Central Bank (Banco Central de la República Argentina, "BCRA").

On the same date (February 8th, 2002) BCRA issued Communication "A" 3471 that states the provisions and rules under which the single and free exchange markets shall be conducted.

According to item 2 of said Communication, exchange transactions can only be performed with entities authorized by BCRA to operate in foreign exchange. These entities are empowered to perform all operations that are regulated by the application rule, either when referring to operations requiring a previous authorization of BCRA or not, and have to comply in all cases with the requirements stated for each operation or particular concept.

Item 3 of such Communication declares that all operations that do not comply with the provisions of the exchange regulations are reached by the Exchange Criminal Act (Act No. 19,539, as amended).
Further, item 4 of the Communication states that the exchange sale transactions in the single and free exchange market shall be realized using pesos bills.

In addition, the sale of exchange (foreign currency) will be permitted using checks owned by the interested party or with debits in its banking account, if the payment abroad corresponds to one of the following concepts:

(i) payment of expenses connected with participations in fairs or exhibitions related to the promotion of exports;

(ii) payment of import of assets and services related to the import and export operations of assets;

(iii) payment of principal and interest of financial obligations (subject to BCRA consent when required);

(iv) other payments abroad in concept of services. If the nature of the service to be paid does not have a direct relation with the activity developed by the company, a copy of the original agreement under which the obligation must be paid shall be presented, together with a written statement over its existence signed by an external auditor or a public accountant whose signature must be certified by the Professional Council of Economic Sciences; and

(v) payment of earnings and dividends. A written statement signed by an external auditor certified by the Professional Council and the consent of BCRA shall be presented (when required).
In this sense, Resolution Nº 46/02 of the Ministry of Economy (issued on February 6th, 2002) prohibits debits in banking accounts for the sale, by the financial entity, of foreign currency -in cash, travelers checks, checks, banking transferences, etc.- in the foreign exchange market, except within the cash disposal limits set forth by the Executive Power or for those transactions authorized by BCRA.

2. In addition to these general rules, BCRA stated a temporary restriction for certain transfer of funds to foreign countries performed within a 90 days period starting on February 11th, 2002.
Item 5 of Communication "A" 3471, as amended by Communication "A" 3495 (February 28th, 2002), establishes that for 90 days, international transfers related to the payment by the private sector and by state owned companies of principal of financial loans, earnings and dividends, will require previous consent of the BCRA regardless of the means of payments.

This BCRA consent requirement will not be requested when the obligation of the private sector is related to:
a) obligations with International Entities ("Organismos Internacionales");
b) obligations with banks participating in the finance of investments projects co-financed by International Entities;
c) obligations with officials exchanged agencies or guaranteed by those agencies; and
d) obligations with Multilaterals Financing Entities ("Organismos Multilaterales de Crédito") with participation of the National Government.

Further, Communication "A" 3471 sets forth several information obligations on the financial entities to pursue with the transactions of funds abroad.
Finally, item 12 of said Communication repealed all exchange rules issued, that oppose to the provisions of this Communication.

3. Additionally, Communication "A" 3501, dated March 4, 2002, sets forth certain exceptions to the previous consent requirement of BCRA (stated in item 5 of Communication "A" 3471) mainly related to:

(i) payments of principal of notes, commercial papers and bonds issued by financial entities, provided that at least 80% of the principal then due is refinanced for at least a 180 day term;

(ii) payment of financing lines of foreign banks granted to local banks that are set off with new financing lines for at least a one-year term;

(iii) payment of stand-by guarantees granted by local banks under financial transactions;

(iv) payments of principal of notes, commercial papers and bonds issued by non-financial companies of the private sector that are refinanced for at least a 180 days period in an amount involving at least 80% of the principal then due;

(v) payments of principal of financial loans with foreign banks, head offices or branches, that were renewed at its original maturity date for at least a 180 days term; or

(vi) payments of principal at its original maturity date of the financial loans granted by foreign banks, head offices orbranches, that are renewed for at least a 180 days period in an amount involving at least 80% of the principal then due

4. According to the provisions of Communication "A" 3471, transfers of funds to foreign countries are allowed when they involve pesos bills (cash).
On the other hand, when the funds to be transferred are held in the banks as deposits subjects to restrictions, transfers to foreign countries are allowed only when they correspond to one of the concepts mentioned in item 4 of Communication "A" 3471.

5. Notwithstanding the foregoing it shall be mentioned that it exists a great uncertainty in the financial entities and in the financial market in general as to this issue, due to the ongoing amendments of the legal framework applicable to this subject;

To clarify this issue BCRA issued on March 11th, 2002, Communication "C" 34351, which ratifies that, according to the provisions of Communications "A" 3471 and "A" 3473, payments to foreign countries for payment of services and rents can be done without BCRA previous consent, with the exception of the transfer of earnings and dividends made within the 90 days period starting on February 11th, 2002.

6. Finally, section 1 of Decree 410/02 (published by the Official Gazette on March 8th, 2002) expressly states that are not reached by the conversion to pesos established by Decree No. 214/02 those financing operations connected to foreign trade granted by the financial entities in those cases, conditions and requirements to be determined by BCRA (Section 1 a) of Decree 410/02).

7. In conclusion:
7.1 Transfer of funds to foreign countries for any concept are allowed if the foreign currency is paid with pesos bills (cash);

7.2 If the transfer involves money deposited in banks subject to restrictions, the transfer is allowed only when it corresponds to one of the concepts mentioned in item 4 of Communication "A" 3471 as amended (see above # 1).

Should you require any further clarification on this matter please do not hesitate to contact Néstor J. Belgrano (njb@bomchil.com.ar), Patricio A. Martin (pam@bomchil.com.ar) or Tomás M. Araya (tma@bomchil.com.ar).

FINANCIAL SYSTEM RESTRUCTURING

Decree Nbr. 469/02 (the "Decree") published on March 12, 2002 in the Official Gazette, foresees the procedure for the cancellation of debts with the financial system as stated in sections 30 subsection (a) and 39 of decree nbr. 1387/01, as amended. Through those sections the Argentine Government has granted a possibility to debtors qualifying under positions 3, 4, 5 and 6 according to the Central Bank of the Argentine Republic (the "Central Bank"), without any due or determined tax obligations as of September 30, 2001, to cancel their debts with the financial system, with public national bonds at their technical value.

In order to be entitled to profit from this benefit, debtors of State banks qualifying under Central Bank debtors position 3 in August 2001, must qualify under position 4 or worse in December 2001.

Debtors qualifying under positions 1 and 2, and those qualifying under position 3 but not included in the preceding paragraph, shall be entitled to cancel their debts with public bonds and in accordance to this procedure, with the prior consent from the creditor.

The Decree states that debts with the financial system, according to the stated framework, can be repaid with public bonds denominated in US dollars or in other foreign currencies at the exchange rate of one peso per dollar or its equivalent in the corresponding foreign currency.

Finally, the Decree provides that debtors of financial entities or financial trusts included in the preceding provisions (sections 30 subsection (a) and 39 of decree nbr. 1387/01) are entitled to repay, totally or partially, their debts within a term of ninety (90) days as from the issuance of law Nbr. 25.563, i.e. February 14, 2002.

FINANCIAL SYSTEM RESTRUCTURING III

Decree Nbr. 620/02

Decree Nbr. 620/202 (the "Decree"), published on April 17th, 2002 in the Official Gazette foresees that deposit holders of "rescheduled" funds in Argentine banks, originally constituted in foreign currencies which were converted into pesos by Decree Nbr. 214/02, are entitled to exercise the option of receiving bonds payable by the National Government in exchange of their "rescheduled" deposits according to the provisions of Decree Nbr.494/02, regardless of the amount involved in the funds.

This option may be exercised by deposit holders until April 30th, 2002 by the mechanism set forth by the Central Bank of the Argentine Republic. In case of deposits owned by Manager Companies of Mutual Investment Funds, this option may be exercised until June 12th, 2002.

The main consequences of the provisions of this Decree are:

(i) the repeal of the limit (US$ 30.000) established by Decree Nbr. 240/02, therefore making it legally possible to opt for a bond for the whole deposit regardless its amount (as previously stated); and

(ii) the extension of the deadline for the exercise of the option.

Should you require any further clarification on this matter please do not hesitate to contact Néstor J. Belgrano (njb@bomchil.com.ar), Patricio A. Martin (pam@bomchil.com.ar) or Tomás M. Araya (tma@bomchil.com.ar). We remind you that all our legal updates could be found at our website www.bomchil.com.ar

BANKRUPTCY LAW AMENDMENTS ACT N° 25,589

1. Introduction
On May 15th 2002, the Senate approved a new amendment act (the "Amendment Act") to the Argentine Bankruptcy Act N° 24,522, as amended (the "Bankruptcy Act"). The Amendment Act was published in the Official Gazette on May 16th, 2002 being applicable even to the bankruptcy proceedings already initiated.
The main objective of the Amendment Act was the abrogation of Act N°. 25,563, passed on February 14th, 2002 (the "Bankruptcy Emergency Act"). In addition, the Amendment Act included other important modifications that must be highlighted.

2. Amendments derived from the abrogation of the Bankruptcy Emergency Act

2.1. The reinstatement of the Argentine cramdown that authorizes third parties, in addition to the debtor, to offer proposals to creditors (Section 48 of the Bankruptcy Act).
In case of corporations, limited liability companies, cooperatives, and companies in which the National, Provincial or Municipal State is a stockholder, if the majorities required by the Bankruptcy Act for a plan to be approved are not achieved at the end of the debtor's exclusivity period to propose a plan, liquidation shall not be ordered, and the following procedure shall be applied:

(i) A valuation of the shares in the debtor shall be made by an independent third party designated by the court. Post-petition debts must be taken into consideration by the person in charge of the appraisal.

(ii) Any third interested party registered (a "Registered Third Party"), shall be entitled to offer proposals to the creditors, either by keeping the classification of credits made by the debtor during the exclusivity period or by modifying it. The debtor is allowed to compete without any preference with the Registered Third Party in seeking consent from the creditors to the offered proposals.

(iii) The required majorities (absolute majority of creditors representing 2/3 of principal in each class of creditors) must be obtained within a maximum period of 20 business days after the court issued the order fixing the value of the shares of the debtor.

(iv) If the first party obtaining the required majorities is a Registered Third Party, that party acquires the right of receiving the ownership of the debtor's shares, once the plan is confirmed by the court, without any additional requirements or payments.

(v) In case the value of the shares of the company were positive, after some adjustments to be made by the court taking into consideration the reduction of the debt stated in the approved plan, the consent of the partners or shareholders representing at least 2/3 of principal shall be requested only when the entire value of the shares is not paid.

(vi) If none of the proposals obtains the required majorities or if the approved proposal is not confirmed by the court, the court shall issue an order declaring liquidation without any further step.
2.2. The modification of the stay of judicial and non-judicial foreclosures set forth by the Bankruptcy Emergency Act (Section 16).

For a 180-calendar-day term, any public auctions over the debtor's dwelling or over the debtor's assets affected to production, trade of rendering of services are stayed. Certain exemptions (mostly related to alimony and child support actions, labor claims or those arising from any criminal liability, among others) are stated.
The execution of provisional injunctions that imply the transfer of possession of assets affected to the operation of commercial or industrial activities, are also stayed during the same term.

2.3. The clarification that the extension granted by the Bankruptcy Emergency Act to comply with a plan confirmed by a court shall end on June 30th, 2002.
2.4. The repealing of :
2.4.1. Section 2 of the Bankruptcy Emergency Act, thus reinstating the original term for the debtor´s exclusivity period (90 business days), with a possibility of extension for a period not longer than 30 business days from the ordinary term.
2.4.2. Section 7 of the Bankruptcy Emergency Act that extended the effects of the plan confirmed by the court to guarantors and co-debtors. As a consequence of this amendment, the original system is reinstated, making applicable the effects of the confirmation only to the debtor, thus keeping the obligations assumed by co-debtors and guarantors in their original terms.
2.4.3. Section 8 of the Bankruptcy Emergency Act that postponed the maturity date of the exclusivity period of current bankruptcy proceedings and suspended until December 10th, 2003 any kind of guaranty of financial obligations that would allow a transfer of control in any reorganized companies.
2.4.4. Section 9 of the Bankruptcy Emergency Act that suspended in any bankruptcy proceeding for a 180 days term any judicial or out of court foreclosures.
2.4.5. Section 11 of the Bankruptcy Emergency Act that suspended for a 180 days term any bankruptcy petition.
2.4.6. Section 15 of the Bankruptcy Emergency Act that ordered financial entities to restructure their claims with debtors.

3. Amendments introduced by the Amendment Act
3.1. The authorization to trustees and other legitimated persons to file claims on behalf of the holders of bonds issued in series.
Section 32 bis of the Bankruptcy Act sets forth that a proof of claim can be filed by the trustee appointed in the issuance of bonds, convertible bonds or other notes issued in series; and by the person appointed to act on behalf of the creditors. The scope of the authority of the trustee, the legitimated person or the attorney in fact shall be judged according to the agreements or documents which granted such capacity. Neither a ratification nor a filing of other powers of attorney shall be necessary.
3.2. The voting procedure applicable for the debt securities issued in series. Section 45 bis of the Bankruptcy Act sets forth that holders of debentures, bonds, convertible bonds, or other bonds issued in series which represent claims against the debtor, shall issue their consent in the following way:
(i) They shall meet in a bondholders meeting called by the trustee or the court, if applicable. Participants in such meeting shall express their consent or rejection to the proposal; declaring which alternative they would join in case the proposal be accepted.
(ii) The consent shall be calculated by the percentage of capital that represents all persons that have approved the proposal, and shall be computed as to the majority of persons as if it was granted by a sole person; rejections shall also be calculated as a sole person.
(iii) The consent shall be expressed by the trustee or the representative appointed in the bondholders meeting, being the bondholders meeting minutes sufficient prove for all effects.
(iv) The bondholders meeting shall not be necessary when the trust agreement or the applicable rules foresee other methods for the obtainment of the debt holder's consents and the judge considers them to be sufficient.
(v) In the event the trustee be allowed as a beneficial bondholder, according to Section 32 bis, he may divide his vote. The approval shall be calculated from the principal represented by the beneficiaries who have expressed their consent to the proposal according to the method foreseen in the trust agreement or in the applicable law; and the rejection for the rest. As to the majority of persons, one acceptance and one rejection shall be computed.
3.3. An amendment authorizing the court to confirm a plan that has not obtained all the required majorities, provided certain elements are fulfilled. Regardless of not having obtained the required majorities in each class, a plan can be confirmed by the court provided:

(i) the plan has received the approval of at least one class of the unsecured creditors and the consent of at least 3/4 of the unsecured claims;

(ii) no discrimination as to the dissident class of creditors occurs; and

(iii) the offer of payment included in the proposal equals to at least the dividend that dissenting creditors would obtain in a liquidation.

The plan cannot be imposed to those creditors holding a special priority ("privilegio especial") that have not accepted it (new Section 52 of the Bankruptcy Act).

3.4. The modification of the effects granted to extra-judicial reorganization plans ("workouts") confirmed by the court. In the old system, those creditors that had not provided their consent to a workout maintained their rights and were entitled to file a suit or a bankruptcy petition against the debtor, thus making extremely unlikely that workouts were actually achieved.
The Amendment Act introduces three important amendments on this subject.
First, it states that once the workout plan is filed seeking confirmation from the court, all patrimonial actions against the debtor based on pre-petition claims are stayed.
Secondly, it sets forth that the confirmation of a workout plan produces the same effect as a confirmation of a judicial plan filed in a bankruptcy reorganization procedure. Among these effects, the main one is its application to all unsecured creditors and to all secured creditors that have resigned to its priority, whether they accepted or not the plan (new Section 76 of the Bankruptcy Act).
Finally, the amended Section 73 of the Bankruptcy Act sets forth the new required majorities to obtain the court confirmation of a workout plan: absolute majority of the unsecured creditors representing at least two thirds of the unsecured claims, excluding those claims owned by entities affiliated to the debtor.
3.5. The ratification that no minimum offer is required in the debtor's proposal to creditors, as it was already stated by the Bankruptcy Emergency Act when repealing the 40% mandatory minimum payment (new Section 43 of the Bankruptcy Act).
3.6. The possibility for a debtor to continue operations after a liquidation order is granted by the court, provided certain circumstances are present. Among these, particular emphasis shall be given to a formal petition made by employees representing at least 2/3 of all employees of the allowed labor claims. If granted, it is required that employees shall act, during the continuation period, as a labor cooperative (new Section 190 of the Bankruptcy Act).
Furthermore, it is stated that the court may extend the ordinary liquidation terms in order to keep the company in business, as long as that continuation is reasonable to guaranty the liquidation as a business entity with ongoing operations.

Should you require any further information on this matter please do not hesitate to contact Néstor J. Belgrano (njb@bomchil.com.ar), Claudio A. Galli (cag@bomchil.com.ar) or Tomás M. Araya (tma@bomchil.com.ar).

PUBLIC EMERGENCY REGULATIONS ON PUBLIC WORKS AND UTILITIES CONTRACTS AND LICENSES

BANKRUPTCY LAW AMENDMENTS ACT Nº 25,563

ARGENTINE REORGANIZATION AND BANKRUPTCY SCHEMES IN THE LIGHT OF RECENT LEGISLATION