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Restructuring and Insolvency Procedures in the Dominican Republic During COVID-19

The exponential spread of CODIV-19 is seriously affecting the financial standing of businesses and individuals at a global scale, many of which have already expressed the likelihood of a potential insolvency in view of the significant reduction of their operations. In view of this situation, both corporations and individual businesspersons alike are evaluating their options and next steps to be taken both in the face of their possible insolvency as well as that of their debtors.

Restructuring Law No 141-15 regulates restructuring and judicial liquidations of both national or foreign corporations, as well as individual business persons, domiciled or with a permanent presence in the Dominican Republic. The law offers a feasible process for the restructuring of insolvent companies to ensure their operational continuity while protecting the rights of its creditors, within a framework of transparency and equality.

An application for restructuring or liquidation may be made by either the insolvent debtor itself, or by any creditor whose claims represent at least 50 minimum wages when the requirements set out in article 29 of the law are met, under the following grounds:

Failure to comply for more than ninety (90) days with at least one liquid and enforceable payment obligation in favor of any creditor or failure to pay Tax Debts to the Tax Administration for no less than six (6) tax periods;
When current liabilities exceed its current assets during a period of more than six (6) months;
When it has failed to pay at least two (2) consecutive salaries to its employees.
Should there be an open restructuring, bankruptcy, insolvency or cessation of payments procedure in a foreign jurisdiction where the parent company or its main establishment or center of interest is located;
Should there be active embargoes, judgments or execution proceedings that affect or could affect more than fifty percent (50%) of its total assets.
In the event of a restructuring and for the duration of the conciliation and negotiation stage of the restructuring plan, all judicial, administrative or arbitral actions against the debtor’s assets are suspended, thus safeguarding the assets and the continuity of the business along the course of the process.
The law also provides for the possibility of authorizing the debtor to seek new financing, allowing the banking institution to register a special lien for its security.

Previous Plan Agreement

Another possibility for both corporations and individual businesspersons facing actual or imminently financial difficulties in the face of this health crisis and ensure the continuity of their operations is to submit a prior plan agreement to the restructuring court before the start of any restructuring process. This plan can be made with respect to all creditors or only with respect to a selected group of them, such as financial institutions, labor creditors and suppliers. In each case, the agreement requires the acceptance of creditors representing at least 60% of the total creditors or any creditors’ class in order to be approved.

This plan may address any lawful restructuring plan for the debtor’s liabilities and assets or reorganization of its business, as well as the negotiation of partial write-offs and deadline changes for the payment of the debtor’s obligations.

Once the plan has been approved by the creditors and the court, it will have the same effects as those derived from a restructuring plan. In addition, the court may order, among other things, the suspension of any enforcement proceedings against the debtor’s assets and rights. Similarly, from the time of its submission and until the application is granted or rejected, creditors cannot apply for the restructuring of the debtor.

New Measures for Employers and Employees

During the months of April and May, the Ministry of Labor authorized the Security Treasury not to apply additional charges or interests to employers that are not able to make the corresponding contributions to their employees on time.
During the emergency period and up to 30 days later, a waiver will be granted for employers to register their workers without the escalation provided in Resolution 471-02 of the National Council for Social Security Fund.

This measure will also apply to those who will benefit from the FASE program established by the government to support workers who have had difficulties to maintain their operations.

Additional Measures Taken by the Judicial Branch Council

The Judicial Branch Council recently announced their latest measures in response to the COVID-19 pandemic:

Approval of a Court Coordination Regulation applicable to all Courts nationwide, which establishes mechanisms to improve case distribution and streamline processes.
Designation of eleven coordinating judges at all Judicial Departments, who during the state of emergency will be responsible of ensuring that fundamental rights and due process are respected and making sure that the normal flow of work is maintained at the Criminal Jurisdiction’s Offices of Permanent Attention Services offices. After the state of emergency is lifted these judges will oversee the proper functioning of all Courts under their territorial judicial
Department.
Approval of the videoconferencing guide for the celebration of remote hearings for cases submitted, during the state of emergency, before the Criminal Jurisdiction’s Offices of Permanent Attention Services offices, while guaranteeing the parties’ fundamental rights.

Flash Labor Alert: Employee Solidarity Assistance Fund (FASE) Begins Roll-out

With the recent declaration of a State of Emergency in the Dominican Republic decreed to curb the spread of COVID-19, labor relations have been and will be considerably affected, since part of the measures taken by the Dominican State include the temporary closure of public and private companies and entities, as well as the closure of all borders.

In order to reduce the impact of the current crisis on the country’s main productive sectors and their collaborators, the Dominican government recently created the Employee Solidarity Assistance Fund (FASE), which will basically provide for a subsidy for the payment of employees’ salaries in order to help companies with their April and May 2020 payroll obligations. The aid will cover monthly salaries of up to RD$8,500 per employee, on the condition that the employee is kept on the company’s payroll.

The FASE program will be rolled out next Thursday, April 2nd. On this date the Dominican Government will enable online access for all companies to submit their applications; therefore, we invite you to consider this opportunity promptly, so you are able to apply in time and benefit from the program.

For more information about the FASE program and other news related to the Dominican Government measures to counter the effects of the COVID-19 pandemic, please visit our COVID-19 Resource Center.

Should your company decide to apply for the FASE program, Guzmán Ariza is fully prepared to assist you with the required application process.

Options for Employers in the Dominican Republic During the COVID-19 Pandemic

With the recent declaration of a State of Emergency in the Dominican Republic decreed by the Executive Branch to curb the spread of COVID-19, labor relations have been and will be considerably affected, since part of the measures taken by the Dominican State include the temporary closure of public and private companies and entities, as well as the closure of all borders.

In light of this critical situation, the Ministry of Labor of the Dominican Republic issued resolution number 007/2020 on 18 March 2020, which provided for the following recommendations:

Employers whose establishments qualify to remain open to the public are instructed to make their working hours more flexible and, as much as possible, to implement distance working in order to avoid crowded workplaces.
Employers whose establishments must remain closed are urged to grant paid holidays to all workers who qualify for them. Workers who have not acquired the right for paid holidays will be advanced the equivalent of one week’s paid holiday, as well as the payment of one week’s salary by the company.
Isolation measures are encouraged for vulnerable workers, such as those over 60 years of age, those with high blood pressure or cardiovascular diseases, pregnant women, workers suffering from cancer, diabetes, chronic respiratory diseases, autoimmune diseases, as well as those with kidney failure undergoing dialysis,
Workers are urged to assume a collaborative attitude to facilitate reasonable agreements with their employers in order to comply with this resolution.
Any measures taken should not interfere with company production or workers’ wages.

These provisions are not mandatory but suggested by the Ministry of Labor. There are other options for companies whose businesses will most likely remain closed until the end of the quarantine period. For example, employers have the option to suspend their employees’ employment contracts, as permitted by the Labor Code of the Dominican Republic, which would basically entail that during the suspension period neither the workers will provide their services to the company nor will the company pay their the agreed-upon salary.

For an employment contract to be suspended, at least one of the causes set out in the Code must be present, including force majeure or fortuitous event.

The presence of COVID-19, together with the declaration of the state of emergency, as well as the measures adopted by the state to prevent the spread of the pandemic, constitute a force majeure that has temporarily prevented many companies from continuing to operate.

Once the cause for suspension arises, the employer has the obligation to inform the labor authorities, which will verify the validity of the cause.

Employment Contract Suspensions based on force majeure or fortuitous events have a maximum duration of 90 days, with the possibility of extending it in case this period is not sufficient. Suspensions do not affect employment seniority benefits for the suspended periods.

The employer must notify the labor authorities as soon as the suspension-causing event has ceased to occur; otherwise, the Department of Labor may reinstate the worker or the latter may resign with cause.

Likewise, during the suspension of employment contracts, the employer must continue to report and pay its contributions to the Dominican Social Security System, with the exception of labor risks fund contributions which are excluded during the suspended term.

President Danilo Medina, in order to reduce the impact of the current crisis on the country’s main productive sectors and their collaborators, announced in his address to the nation on March 26, 2020, an economic aid package, which includes The FASE program. As part of this program, the Government has agreed to cover up to RD$8,500 per employee in companies who have had difficulties to maintain their operations, on the condition that the employee is kept on the company’s payroll. Businesses interested in applying for the FASE financial aid to cover part of their payroll obligations must follow the following steps starting April 2nd:

1) Fill the company’s contact information on the Ministry of Treasury’s website with the following information:

Company’s tax ID and name.
Name, ID, telephone number and position of the company’s contact person.

2) Complete the application form that could be downloaded from the Treasury’s website with the following information:

Company’s tax ID, name and number of employees.
ID, name and payroll account number of the employees who will benefit from FASE (must be under their names) and routing number of the banks, if the accounts are not in Banco de Reservas. Also, specify the bank where the payroll is located and the bank account’s type.
Send the completed application form to the Ministry of Treasury’s FASE email address.

Should your company decide to opt for suspension or apply to the FASE program, Guzmán Ariza is fully prepared to assist you with the necessary procedures.

COVID-19 in the Dominican Republic: Guzmán Ariza’s Contingency Plan Amidst the Global Pandemic

As news of the first confirmed case of the novel coronavirus outbreak in the Dominican Republic began to surface publicly on March 1^st , 2020, our firm began a thorough revision of all the aspects of business and everyday life that might be affected by such a quick-spreading virus and to evaluate how we can mitigate its effect among our staff and clients, our close families and the communities in which we are involved, in a way that we can maintain our people safe and still provide our renowned high-standards of service to our clients.

We have been monitoring local and international health authorities, such as the World Health Organization (WHO) and the Dominican Ministry of Health, as well as implementing the best practices put forth by the international medical community, in order to make informed decisions that will positively impact our business.

As a complement to our offices’ strict hygiene policies, we have added continuous sanitation with antibacterial agents; the use of antibacterial soaps and gels is highly encouraged, placing dispensers in key areas of the office.
Our meeting rooms are sanitized before and after every meeting, and so are the elevators, door handles and frequently handled surfaces, among others.
We are continuously updating our staff on new developments, findings, and relevant information, as well as promoting internal health programs among our employees, especially those aimed at the groups that are most at risk.
Large gatherings are being discouraged to reduce the risk of transmission and we are following the recommendations of local authorities on the procedures for handling suspected cases of infection with the virus.
As borders are closed and travel is limited or prohibited, we encourage our staff and clients to use teleconferencing to keep in touch.
If needs, we are prepared to continue our operations remotely, preserving business continuity and assuring availability for our stakeholders throughout this situation.
Our commitment to our clients will not change. We are here to take care of your business with the same level of compromise that we have always shown. Contact us freely and we will gladly assist you in the best way that we can.

Take care of yourself and your loved ones, and keep safe and healthy.

Fabio J. Guzmán Saladín

Managing Partner

Guzmán Ariza, Attorneys at Law

Impact of COVID-19 Pandemic on Contractual Obligations: Force Majeure

It is an undisputed fact that the usual course of commercial operations have been significantly altered in the Dominican Republic after the Executive Branch declared a State of Emergency to curtail the massive spread of the coronavirus COVID-19 and put into effect restrictions on freedom of transit, assembly, and commerce, all in accordance to Presidential Decree 134-20 of March 19th, 2020.

The Executive Branch has taken a series of measures under the declared State of Emergency to prevent the spread of the virus, including the shutdown of most private businesses as well government institutions that do not offer basic services, strict curfews, closing of the Haitian border, the prohibition of international flights, among others.

These extraordinary measures taken by the Dominican government can be considered as unforeseen acts by parties who have entered in good faith into contractual obligations of any nature prior to the pandemic, which can hinder their ability to fulfill said obligations and force them to be in breach of contract. Due to this unfortunate situation, some of our clients have already asked us if the occurrence of force majeure or acts of the State can be used to excuse a party’s breach of its contractual obligations under the current national State of Emergency.

Under Dominican law, the occurrence of force majeure is considered a valid cause under which a party to a contract may be exempted from fulfilling their contractual obligations and, therefore, from being liable for breach of contract. For the non-performing party to be excused because of force majeure, the event or act producing the force majeure must be both unforeseen, inevitable and irresistible.

Acts of the State or sovereign acts, if unforeseen, inevitable and irresistible, have the same effect as force majeure.

In both cases, the breach must be evaluated in an abstract manner, that is, the party in breach must prove that their inability to comply with its obligations would have been the same for anyone else in similar conditions or circumstances.

It is likely that any party that has not been able to perform or has had to delay their contractual performances under the current state of emergency may avoid being considered in breach of contract and be subject to liabilities derived from such breach based on either of the causes mentioned above.

In the event of these causes, the default status can be considered as temporary or permanent; that is, the party could seek to delay its performance under the contract or delay it until the cause has ceased to exist.

Guzman Ariza is available to assess any case of contractual breach, actual or potential, in these difficult times. Feel free to contact us to discuss any specific inquiries.

How Can a Company Qualify for the Employee Solidarity Assistance Fund (FASE)?

The FASE (Employee Solidarity Assistance Fund) program is part of the Government’s recently announced financial aid package. As part of this program, the Government has agreed to cover up to RD$8,500 per employee in companies who have had difficulties to maintain their operations. Businesses interested in applying for the FASE financial aid to cover part of their payroll obligations must follow the following steps starting April 2nd :

1) Fill the company’s contact information on the Ministry of Treasury’s website with the following information:

Company’s tax ID and name.
Name, ID, telephone number and position of the company’s contact person.

2) Complete the application form that could be downloaded from the Treasury’s website with the following information:

Company’s tax ID, name and number of employees.
ID, name and payroll account number of the employees who will benefit from FASE (must be under their names) and routing number of the banks, if the accounts are not in Banco de Reservas. Also, specify the bank where the payroll is located and the bank account’s type.
Send the completed application form to the Ministry of Treasury’s FASE email address.

Economic Measures Announced by the Executive Branch on March 25, 2020

President Danilo Medina announced in his address to the nation on 3/25/2020 the following financial aid package for the next three months, aimed at lessening the impact of the COVID-19 pandemic on the Dominican Republic’s main productive sectors and its employees:

Banks will eliminate monthly minimum payments for credit cards and late payment fees.
Banco del Reservas (government-owned) decided to lower interest rates for credit cards to 1%.
Employees in companies who have shut their operations and have been sent home on unpaid leaves will receive RD$8,500.
Companies who are having difficulties to maintain their operations will be able to temporarily receive RD$8,500 per employee to help them meet their payroll obligations, on condition that employees are not terminated.
Families with Solidaridad welfare cards will receive RD$5,000 per month on the “Eating is First” component. An additional RD$2,000 will be added to households with 70+ year-old residents.

Measures Issued by the High-level Commission of the Executive Branch to Prevent the Spread of COVID-19 in the Dominican Republic

Measures Regarding Transportation and Transit

Public transportation remains up and running.
Full border closure for 15 days. Exceptions: Inbound and outbound Ferry flights to return foreigners to their countries of origin, as well as cargo ships with essential goods and fuel tankers.
The general population is discouraged from any non-essential transit.

Which Companies Can Remain Open During the Quarantine Period?

Only grocery shops, supermarkets, pharmacies, gas stations, hospitals and medical labs
are allowed to remain open.
Telecommunications companies: radio, television and press may remain open during the state of emergency.
Industrial sector, free-trade zones and agricultural companies can continue their operations by applying distance rules in production areas and encouraging remote work and flexible hours.
Financial institutions will operate within the new schedule approved by the Monetary Board (8:30 am to 3:00 pm during the week; Saturdays from 9:00 am to 1:00 pm).
Funeral homes remain open as long as they comply with Public Health rules. Concentrations must be avoided, limiting the number of people who can attend services.
Security services will operate without schedule limitations.
All other businesses shall remain closed.

Updated on March 19

President Danilo Medina Declared a State of Emergency

Dominican Republic President Danilo Medina, Decreed on March 19th , 2020 a national state of emergency for a period of 25 days until April 13th , 2020. The state of emergency (Dominican Constitution Arts. 262, 265 and 266) grants the President extraordinary powers to implement the necessary measures to contain the spread of the COVID-19, including the option to subsequently limit the right to transit and gather.

Updated on March 23

Suspended operations:

Non-governmental entities that offer non-essential public services, such as the Santo Domingo Chamber of Commerce and other Chambers of Commerce in general.
Call center operations are suspended, except for those that can work remotely.

Priority categories were established for public institutions to close their operations, according to their activities:

Category 1: doors must be closed to the public.

Category 2: companies will work with minimum staff and must implement working remotely.

Category 3: health service companies, public security, civil protection, social services and programs, energy services and national defense should maintain only essential personnel to keep their operations running.

The Ministry of Culture and the Ministry of Sports were closed, along with approximately 60 other institutions.