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Another favorable decision for the bondholders suing Argentina
La Nacion
June 21, 2009

They've blocked tax payments of some German companies in the country

Oliver Galak
LA NACION

After having tried for years to embargo accounts and State resources from Argentina abroad, the bondholders that fell outside the swap have taken a new path to try to recover their investment: oblige multinational companies that have operations here to pay them the amounts that should be destined toward paying taxes in Argentina.

This was the formula that a court in the German city of Leonburg accepted, and that demanded the companies of that country with operations in Argentina "not make any more payments to the debtor party," in reference to the national State, for its cessation of payments declared in 2001. The measure doesn't affect companies of German origin that constituted independent companies in Argentina with foreign capital. A similar measure was issued by a justice official in the city of Bremen.

Due to the fact that the majority of the multinationals have come as incorporated private entities in place of the appeal of local headquarters, it's estimated that the decision by the Municipal Court of the First Instance in Leonburg will only commit four or five companies. However, as they recognized in a sectoral chamber, the fear is that the strategy will be copied by the holdouts in other countries.

That decision, which LA NACION obtained, says that "the debtor of the debtor (by the companies with subdivisions in Argentina) must no longer make payment to the debtor parties (the national State)." And, then, it orders that they "abstain from doing so over the embargoed credit, and especially must abstain from putting it toward the collection of such."

The origin

The case originates from a suit against "the Republic of Argentina, represented by President Cristina Kirchner." It corresponds to a suit from creditor Hendrik Beyer, for whom the courts of Frankfort have recognized a debt of 1,204,582.57 from the Argentine state.

"The way they chose is very creative, but I don't believe that it will be fruitful," said Martin Jebsen, attorney for the businesses affected by the German decision. He said "until now there has been one firm decision and one preliminarily appealed, issued by two judges in different cities."

Jebsen is also one of the director of the Argentine-German Chamber of Commerce and Industry. There are some 900 German businesses in Argentina. However, the vast majority have opted to not establish branches in order to avoid ultimate responsibility falling on headquarters.

In Germany, 5% of the debt in default is held. In 2005, the Argentine Bond Restructuring Agency (ABRA), the largest bondholder association in that country (holding a portfolio of US$1.2 billion) accepted the Argentine offer. Falling outside it was the second German bondholder association, the IGA, with titles of US$260 million.

The judicial measure that came out now obliges the "productive non-independent establishment branches in Argentina" of German companies to not pay taxes on income, at the minimal presumed income, to eventual beneficiaries, above personal assets, to capital of the companies, to the net hlldings and IVA "as much for past, present and future fiscal periods."

"The contributions coming due in the future will be embargoed until such balances are covered for the creditor," said the Leonburg decision, which is in charge of the costs of the suit over the Argentine state.

Among the directly-affected firms for this measure there are at least two auto part manufacturers, one in the chemical industry and a construction industry supplier, while their names were not mentioned. Sources in the auto industry said that there is a worry among those companies: "If they pay taxes, they are out of compliance with Germany; if not, they are out of compliance with Argentina."

Jebsen said that his two defendants ordered their attorneys in Germany to appeal the case.

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