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General overview

There is no statutory concept of insolvency in Venezuela; however, the most common definition of insolvency that Venezuelan tribunals have used and maintained since 1964, establishes that it is a state of the patrimony of the company that renders it insufficient to satisfy the enforceable credit.

According to the Commercial Code, when a company is under an insolvency regime, two main statutory procedures regulate the liquidation, restructuring or reorganisation of the company: moratorium and bankruptcy.

Depending on the entity that is subject to an insolvency procedure, the legislation grants standing to specific persons or entities to initiate the process of liquidation; the standing will also depend on the liquidation procedure.

Applicable law

The Commercial Code is the general statutory instrument in charge of regulating the liquidation, restructuring and reorganisation of business entities in Venezuela. Although, there are also special statutory regimes applicable to specific business activities, such as financial markets, as regulated in the Banking Institutions Law for banking entities; insurance activities, as governed in the Insurance Activity Law; and stock exchange companies, set out in the Stock Market Law.

The Banking Institutions Law is of exclusive application regarding liquidation and restructuring of banking institutions. Liquidation and rehabilitation of banking institutions are not voluntary proceedings and an administrative authority, the Superintendence of the Banking Sector, carries them out.

Insurance institutions, similarly to the banking sector, may be subject to administrative intervention and further liquidation by the Superintendence of Insurance Activity. Insurance companies may apply for restructuring, liquidation or reorganisation in the terms set forth in the Commercial Code, something that the banking sector cannot carry out, since no exclusion is established in the Insurance Activity Law.

The entities that the Stock Market Law regulates are also subject to administrative intervention by the National Stock Superintendence. Like insurance companies, stock market entities may be liquidated after the administrative intervention, following the proceedings established in the Stock Market Law, and be subject to the restructuring, reorganisation and insolvency proceedings regulated in the Commercial Code.



The procedure of moratorium can be initiated before a competent court by an entity whose assets are greater than its liabilities but because of lack of cash flow, cannot pay its debts when due. Moratorium is a benefit granted by law for entities in this situation; therefore, in a moratorium procedure, creditors and debtors, jointly with a competent judge, undergo negotiations to resolve the state of the company.

In a moratorium procedure, directors and shareholders of the insolvent company hold no liability for the status of the entity. This means, that a moratorium procedure can only take place when the company's insolvency is the result of events that cannot be attributed to the management of the company.

Only the company lacking liquidity to pay its creditors can initiate the moratorium proceeding, and the court, after a hearing with the main creditors in which they will vote for the acceptance or rejection of the moratorium, will determine if there are merits to grant the moratorium or not. In sum, the judge after considering the opinion of the main creditors, will decide if it is possible for the company to meet its obligations in the future under a payment schedule agreed between the insolvent company and its creditors; and decide whether the insolvency was the result of events attributable to the management of the company.

Consequences of the procedure

Throughout the course of the moratorium, the court will appoint a temporary trustee who will be responsible for supervising the conservation of the company's assets, and the further payment and liquidation of the debts. At the first creditors' meeting, another trustee is appointed on a permanent basis.

The value of claims are reviewed by the trustee, the court and the creditors' meeting, which have the authority to make observations on all documents. After the observations, the court must issue a reasoned ruling stating the value of all the claims.

Companies cannot obtain any kind of credit or loan during the procedure. The purpose of the moratorium is to pay all creditors using the assets of the company that have been sold at public auction; thus receiving credit or a loan could be detrimental to the current creditors of the company and an excess of powers of the management.

In a moratorium procedure, the administration of the company keeps the management of the entity; however, it is reduced to simple administration, therefore the company cannot borrow money or enter into any major agreements with third parties.

In the public auction process, creditors cannot bid for assets in the liquidation procedure, since the purpose of the auction is to obtain liquidity for the payment of debts.

Duration and termination

The moratorium procedure may result in the company being liquidated (with the agreement of both the insolvent entity and its creditors) or in the court revoking the benefit of moratorium, in which case the procedure will continue as a bankruptcy.

According to the Commercial Code, the moratorium proceeding must not exceed 12 months; however, because of judicial delays in Venezuela, it may take longer.



The cessation of payments of a company requires the entity to commence bankruptcy. Within three days of becoming aware of the cessation of payments, the board of directors is required by law to initiate the bankruptcy procedure. Failure to meet this requirement will result in the court deeming it a guilty bankruptcy (see 'Consequences of the procedure' below).

Creditors also have the right to initiate the bankruptcy procedure. If the company started the procedure, once creditors are notified, they must prove their credit title and its priority to the court that is administering the procedure. Even if their credit is not yet enforceable, creditors of the insolvent entity may request the initiation of the proceeding.

When the entity involved is a corporation or a limited liability company, the bankruptcy procedure can be initiated by the company, or its administrators, shareholders or creditors.

The procedure to liquidate an insolvent company starts with the request for initiating the procedure in court by those vested by law with the power to do so; then the court must notify the creditors of the company about the initiation of the procedure. The judge will later issue the declaration of bankruptcy, having previously considered all the evidence brought by the insolvent company and its creditors. Subsequently the meeting of creditors is held and a liquidator is appointed. Further, the liquidation of the company's assets is carried out to pay all credit.

Consequences of the procedure

There are three types of bankruptcy established in the Commercial Code: fortuitous bankruptcy, where the bankruptcy occurs because of a fortuitous or force majeure event; guilty bankruptcy, which occurs because of unwise or imprudent events caused by the company; and fraudulent bankruptcy, where the company deliberately acts to harm its creditors. In all cases, when the company becomes aware that it is insolvent, it is obliged to start the bankruptcy procedure.

According to the Commercial Code, when a company is undergoing bankruptcy, whether guilty or fraudulent, the directors, shareholders and third parties that actively led the company to bankruptcy, can be held liable, both civilly and criminally.

During the bankruptcy procedure, the company cannot conduct any business, except preserving the assets of the company, which will be carried out by the liquidator under supervision of the court.

Assets of the company cannot be sold during the proceeding, unless the sale of such assets provides the money for the conservation of the remaining assets.

During the process, no new money can be invested into or loaned to the company as the administration of the company loses its administrative powers, so the assets of the company are kept for liquidation and further auction. The trustee is responsible for administering the company. In any case, if the management of the company is not subject to imprisonment, the trustees may request their help for understanding and conducting the administration.

Creditors are represented by a trustee who will be selected by the court in the hearing that takes place after the court receives the request for bankruptcy. The creditors' meeting will have the power to administer and liquidate the insolvent entity's assets jointly with the trustee and the liquidator.

The creditors' meeting must decide whether to make the temporary trustee's role permanent or appoint a new trustee. After the appointment of the trustee, he or she will have 24 hours to accept or reject his or her nomination; after it is accepted, the trustee must take an oath to faithfully carry out his or her commission. Trustees can only be lawyers or merchants as provided in the Commercial Code.

Once a trustee has been appointed, he or she then represents all the creditors, both in and out of court, and administers the assets of the company (ie, the trustee must secure all assets and sell all belongings of the company that are at risk of perishing). The appointed trustee must request a report on the actions of the temporary trustee and they must inform the court about all claimed credit by providing creditors' meeting minutes. The trustee may be removed by the court at any stage of the proceedings.

Duration and termination

When negotiating the terms of the bankruptcy, the parties could reach an agreement called the statutory plan. However, if the parties fail to reach an agreement, the court will auction the assets of the insolvent entity to pay the creditors.

If the insolvent entity fails to fulfil the obligations assumed in the statutory plan, creditors may ask the court to terminate the agreement. The termination will only affect the creditors that requested it.

After the public auction and upon receipt of payment, all security arrangements and any other claim that creditors may have had against the insolvent entity will be released and the bankruptcy process terminated (but only if complete payment has been made). If payment is not completed from the public auction and the entity subsists, the debt will survive and debtor will remain liable for payment.

After the assets of the insolvent company are sold, the new owner acquires the assets free and clear of all claims, unless the goods are subject to certain obligations such as a mortgage (in case of real estate).

As mentioned, because of judicial delays in Venezuela, bankruptcy procedures can take a long time.

Creditors' rights and remedies


According to Venezuelan law, the debtor is obliged to fulfil his or her obligations with all of his or her present and future assets. In any case, the parties of a legal relationship are free to secure their obligations depending on the asset to be secured. Securities can take different forms.

Regarding real estate, the most common security in Venezuela is a mortgage. This type of security, to be valid according to the law, needs to be in a registered contract specifying the real estate that is being mortgaged. If such requirements are not met, the mortgage is deemed non-existent.

Movable property can be secured by a pledge. This is a security on any type of chattel, including security interest on shares, bonds and credit against third parties. For a pledge to be valid, it must be established on a duly notarised security interest document or contract and the secured creditor must take possession of the pledged property. Regarding shares, in addition to having a duly notarised pledge instrument and having received physical possession of the shares (only if the share have a title) the pledge must be properly registered in the shareholders' book kept by the corporation whose stock is being pledged.

It is possible to create a mortgage over the goodwill of the company, as established in the Chattel Mortgage and Non-Displacement Pledge Law. The goodwill of a company is the group of assets organised by the merchant for the exercise of its professional activity, which are considered collectively as one movable asset.

Pledges on industrial machinery, equipment, planes, motor vehicles, etc, are not used, as the debtor cannot use them. In those cases, it is possible to secure the assets with a non-displacement pledge that allows the debtor to retain the assets in order to use them and make a profit.

Similar to the mortgage of real estate, with the creation of the chattel mortgage the creditor becomes a privileged creditor, and, therefore, must be paid before all other creditors.

Chattel mortgages and non-displacement pledges, as mentioned before, have their own regulation. However, there is a special provision on chattel mortgages and non-displacement pledges as a privilege in the Civil Code.


All proceedings and claims against the insolvent entity are stayed, which means the creditors will have to attend to the moratorium or bankruptcy proceeding to collect their credit.

Unpaid creditors can collect their credit by presenting a claim, either in court or an arbitral tribunal, depending on what the parties have chosen.

If the credit is to be collected in a court proceeding, depending on the credit and its title (ie, bill of exchange, contract, promissory note, mortgage) the procedure will vary. In all cases, when a secured creditor enforces his or her rights, the court or arbitral tribunal is obliged to enforce the secured credit, giving preference to the collection of the secured creditor's debt.

Unsecured trade creditors will be considered as unsecured creditors, which gives them the right to collect their credit after secured creditors have received payment. The same proportion of credit will be received from the amount that is left.

Unsecured creditors cannot disrupt a formal voluntary or involuntary insolvency proceeding. After the court proceeding is initiated, the court will call upon all creditors to present their credit titles, and after creditors' meeting, the court will issue, with the help of a trustee, a decision on the creditors' positions and rights to collect their claims.

Generally, enforcing an unsecured claim may take one to two years. However, depending on the circumstances, and because of serious judicial delays, it may take several years to enforce an unsecured claim.

Creditors can compensate or set off reciprocal credits during the course of the moratorium procedure. For the netting to occur, one of the following conditions for compensation of debt set forth in the Civil Code must be met: the debt is liquid and enforceable; or the assets are of the same class and can be substituted for one another.

The set-off of rights can only occur if the creditor is entitled to the credit, which it must prove by providing the court with all documents that demonstrate the validity of the credit.

Equity owners of the insolvent entity may retain or receive all interest resulting from the proceeds used to pay the creditors. In any other case, the insolvent entity must use any interest it receives on its deposits or any other assets to pay the creditors.

Creditors of the insolvent entity cannot bid in the auction, and there cannot be a negotiated agreement or transaction for the auction.

If a duty or obligation is owed to creditors, they must initiate a claim against the party in question (eg, directors, shareholders) for all damages resulting from the misconduct.

If owners or shareholders cause direct damage to creditors because of certain misconduct, they shall be liable.


The rules governing priority of competing security interests are enshrined in the Civil Code. Regarding an insolvency proceeding such as bankruptcy or moratorium, the Commercial Code establishes that all ranked creditors have a right to claim and must be paid in accordance with their rank.

Credit is divided into two groups: privileges and mortgages. A privilege is a legal right and has priority over a mortgage. It is understood from the Civil Code that privileges cannot arise from agreement of the parties – they have their own priority depending on the credit.

If a banking institution is undergoing insolvency proceedings, the ranking of credit that the institution must pay will vary, as stated in the Law of Banking Institutions (the same condition is enshrined in the Law on Insurance Activity).

The rules governing ranked credit, as provided by the Civil Code, are rules of public interest and therefore cannot be amended by the parties.

Secured credit ranking in Venezuelan law is as follows:

  • credit arising from employment, which will have priority over any other kind of credit;
  • tax payments;
  • privileges, which are rights that the law confers to a determined group of creditors (there are different types of privileges, depending on the asset);
  • privileges arising from a chattel mortgage and non-displacement pledge; and
  • mortgages, which are given priority after privileges.

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