SYNOPSIS

A. PATRIMONY

1. Concept 8.101
2. Guarantee in Common of Creditors 8.103
3. Assets Excluded From the "Guarantee in Common" 8.104
4. Different Types of Creditors 8.105

B. GUARANTEES

1. Concept 8.106
2. Types of Guarantees: Personal Guarantees
    and Guarantees in rem 8.107

C. PERSONAL GUARANTEES

1.1. Definition and Characteristics 8.109

1.2. Types of Fianza: Simple Fianza
        and Joint and Several Fianza 8.114

1.3. "Principal Payor" Clause 8.115

1.4. Effects of the Fianza 8.116

2.1. Definition 8.119

2.2. Characteristics. Comparison with the Fianza 8.120

D. GUARANTEES IN REM. SECURITY INTEREST 8.124

1. Pledge 8.125

1.1. Simple Pledge

1.1.1. Definition and Characteristics 8.128

1.1.2. Civil Pledge and Commercial Pledge 8.131

1.1.3. Pledge of Movable Assets 8.132

1.1.4. Pledge of Rights 8.134

1.1.5. Pledge of Securities 8.135

1.2. Registered Pledge

1.2.1. Definition and Characteristics 8.139

1.2.2. Property Which May be Subject
          to a Registered Pledge 8.140

1.2.3. Fixed Pledge 8.141

1.2.4. Floating Pledge 8.142

2.1. Definition and Characteristics 8.143

2.2. Property Which May be Subject to a Mortgage 8.146

2.3. Mortgage of Real Estate 8.147

2.4. Ship Mortgage and Aircraft Mortgage 8.148

2.5. Enforcement Proceedings 8.152

3.1. Definition and Characteristics 8.156

E. OTHER GUARANTEES

1. Comfort Letter 8.158
2. Fiduciary Assignment 8.164

A. PATRIMONY

8.101 Patrimony is the total mass of existing or potential rights and liabilities attached to an individual or legal entity for the satisfaction of such individual or legal entity’s economic needs.

8.102 Under Argentine law, the concept of assets includes both (i) things (corporeal objects that may be valued, including energy and natural resources subject to appropriation) and also (ii) incorporeal objects that may be valued (such as personal, real and intellectual rights). All of the assets of an individual or a legal entity (both of such concepts under Argentine law, considered as "Persons") constitute such Person’s patrimony.

8.103 Since the patrimony of a Person is affected to the compliance of such Person’s obligations, the patrimony is considered to be the guarantee that such Person’s creditors have in common. Therefore, creditors are entitled to pursue enforcement of such assets to obtain satisfaction of their respective credits.

8.104 Certain assets are excluded from this "guarantee in common", such as (i) credits due to alimony, (ii) assets in the publbc domain, (iii) assets directly affected to the provision of an essential public service, (iv) non-tradable things, (v) home use assets, (vi) retirement pensions, etc.

8.105 Creditors may be classified into:

(i) preferred creditors (those to whom the law grants a privilege to obtain satisfaction of their credit with a preference over other creditors);

(ii) secured creditors (those who have a security interest on a certain asset or certain assets of the debtor, such as a pledge or mortgage, and who are entitled to cause such asset or assets to be enforced in case of default to obtain satisfaction of their credit) or

(iii) general creditors (those who do not have any of the above preferences).

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B. GUARANTEES

8.106 Guarantees are obligations assumed by the principal obligor or, as the case may be, by a person other than the principal obligor, related to and coordinated with the principal obligation or obligations assumed by the principal obligor for the purpose of securing and strengthening compliance of such obligations and reducing the risks implied by such obligations.

8.107 Personal Guarantees are those Guarantees granted to the creditor by a Person other than the principal obligor by virtue of which such Person commits an undetermined portion of its patrimony to secure payment of one or more obligations assumed by the principal obligor. Personal Guarantees are created by agreement among parties and do not constitute any kind of preferential right or privilege in favor of the creditor. Under a personal guarantee, an undetermined portion of the assets of the guarantor, without distinction, represent the security.

8.108 Guarantees in rem are those Guarantees granted by the principal obligor or by a person other than the Principal Obligor creating an in rem right in favor of the creditor by virtue of which such beneficiary is entitled to persecute the asset in respect of which the guarantee was created and to enforce such object and be satisfied with priority over the other creditors. As opposed to personal guarantees, under a Guarantee in rem, a particular asset or assets are set aside as the security.

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C. PERSONAL GUARANTEES

1.1. Definition and Characteristics

8.109 The Fianza is a personal guarantee through which a third party -the guarantor ("fiador")- undertakes to perform an obligation assumed by the principal obligor, securing compliance of such obligation with an undetermined portion of the patrimony of the guarantor. The creditor must accept the obligation assumed by the guarantor but it is not required that the principal obligor accept the Fianza.

8.110 The Fianza may be used to guarantee any type of obligation, as opposed to the Aval, which may only secure payment of a negotiable instrument.

8.111 Since the Fianza constitutes an accessory obligation, its scope is limited to the scope of the principal obligation and its validity and existence is subject to the validity and existence of the principal obligation. If the principal obligation is null and void, the Fianza will be null and void, except where the nullity results only from the lack of capacity of the principal obligor.

8.112 The amount for which the Fianza is granted may be limited, provided that the guarantor declares what proportion of the debt is being guaranteed. Therefore, the Fianza may be created for an amount lower than the amount of the principal obligation. Also, the obligation assumed by the guarantor may not be more onerous than the obligation assumed by the principal obligor.

8.113 The guarantor may receive a compensation for granting the Fianza.

1.2. Types of Fianza: Simple Fianza and Joint and Several Fianza

8.114 The Fianza may be (i) simple or (ii) joint and several.

(i) The simple Fianza grants the guarantor the right of excussio and the benefit of division.

The right of excussio is the right of the guarantor to demand that the creditor exhaust actions against the principal obligor before seeking payment from the guarantor.

The benefit of division arises in cases where more than one guarantor exists and consists in the right of a guarantor to request division of the amount payable under the Fianza among all the existing guarantors.

It is possible for the guarantor to waive the right of excussio or the benefit of division.

(ii) The joint and several Fianza does not grant the guarantor the right of excussio or the benefit of division. That does not mean that the guarantor who grants a joint and several Fianza becomes a joint obligor. To become a joint obligor, the guarantor must state that it assumes the obligation as its principal payor.

1.3. "Principal Payor" Clause

8.115 When a principal payor clause is included in the Fianza, the creditor may seek payment directly against the guarantor, with no need to make any prior demand against the principal obligor.

1.4. Effects of the Fianza

8.116 A Fianza created to secure compliance of a commercial act or commercial contract (commercial Fianza) shall always be joint and several. However, before the guarantor is called upon to make payment under the Fianza, the guarantor is entitled to request the attachment of assets of the principal obligor, provided that such assets are free of liens or encumbrances.

8.117 The guarantor is entitled to (i) oppose against the creditor all defenses and exceptions to which the principal obligor is entitled; (ii) intervene in the judicial proceeding in which the creditor and the principal obligor argue about the validity or existence of the principal obligation; (iii) request the attachment of the assets of the principal obligor under certain circumstances (such as when the principal obligor dissipates its assets, or starts up businesses subject to a high degree of risk, or decides to become absent from the country without leaving enough assets for the payment of the principal obligation); and (iv) once it has paid the obligation, subrogate into the rights of the creditor against the principal obligor.

8.118 The term of the Fianza, provided that no termination event shall occur, shall be (i) in case of no specific provision, the term of the principal obligation; or (ii) the term agreed to by the parties of the Fianza; provided, however, that, in the case of the commercial Fianza, if the parties did not specifically stipulate a term, the guarantor shall be entitled to be released of its obligations under the Fianza 5 years after the Fianza was granted, except when the guarantor receives compensation under the Fianza.

2.1. Definition

8.119 The Aval is a unilateral Personal Guarantee through which a third party -the guarantor ("avalista")- secures payment of a negotiable instrument (e.g. a letter of credit, promisory note or check) with an undetermined portion of the patrimony of the avalista.

2.2. Characteristics. Comparison with the Fianza.

8.120 While the Fianza is accessory to the principal obligation, the Aval constitutes a principal and independent obligation. Also, a Fianza implies a single obligation with a principal debtor and a guarantor, in the case of the Aval, an obligation independent to the principal obligation arises and there are two independent obligors. As a consequence, the avalista may not invoke any of the defenses available to the principal obligor.

8.121 The avalista becomes obliged under the same terms as the principal obligor. The obligations assumed by the avalista are valid, even in cases where the guaranteed obligation is null due to facts other than formal defects. The avalista becomes jointly and severally liable against the creditor, as if he were the principal obligor.

8.122 The avalista who pays the negotiable instrument acquires all rights arising from such negotiable instrument against the person to whom the avalista granted the aval and also against those who are obliged toward such person.

8.123 The Aval is created by inserting the words "por aval" or any equivalent expression in the document itself or in a prolongation of the same, followed by the signature of the avalista. The Aval should indicate the Person on behalf of whom it is given; if not, it is deemed to have been given on behalf of the issuer of the negotiable instrument.

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D. GUARANTEES IN REM. SECURITY INTEREST

8.124 Guarantees in rem are those Guarantees granted by the principal obligor or by a person other than the Principal Obligor creating an in rem right in favor of the creditor by virtue of which such beneficiary is entitled to persecute the asset in respect of which the guarantee was created and to enforce such object and be satisfied to the extent of the produce with priority over the other creditors. As opposed to personal guarantees, under a Guarantee in rem, a particular asset or assets are set aside as the security.

8.125 Pledges may be classified in (i) common pledges and (ii) registered pledges.

8.126 In the case of the common pledge, the pledged asset is delivered, as collateral, to the creditor or to a third party by the debtor or by a third party on behalf of the debtor.

8.127 The registered pledge is registered with a governmental agency over property which remains in the pledgor’s possession, in order to permit the pledgor to continue his commercial or industrial activity.

1.1. Simple Pledge

1.1.1. Definition and Characteristics

8.128 A pledge consists of a guarantee in rem by virtue of which the debtor or a third party commits a movable asset in order to guarantee compliance of a civil or a commercial obligation, whether present or future, simple or subject to condition.

8.129 The pledge constitutes a guarantee in rem, so long as a certain asset is affected as collateral to guarantee compliance of an obligation. Pledges are created over movable assets. The right of the creditor to seek payment of its credit has a priority over the rights of other creditors, up to the amount obtained by means of enforcement of the asset so pledged.

8.130 The pledge is accessory to the principal obligation. The pledge is indivisible: a partial discharge of the liability does not release any part of the guarantee. In order to create the pledge, the pledgor must be the owner of the asset so pledged and must also hold possession of the pledged asset in order to deliver same to the creditor.

1.1.2. Civil Pledge and Commercial Pledge

8.131 A pledge may be created to guarantee either a civil obligation or a commercial obligation, and the pledge shall in each of such cases be considered a civil pledge or a commercial pledge.

1.1.3. Pledge of Movable Assets

8.132 All movable assets, including merchandise, public and private bonds, shares, and credits may be pledged.

8.133 The creditor has a privilege over the price of the pledged asset and, in such capacity, may request that the pledged asset be sold, under the following rules: (i) in case of a movable asset, the creditor has the right to request its sale through a public auction; (ii) in the case of securities, shares and other negotiable instruments, the creditor must request its sale through a broker of securities.

1.1.4. Pledge of Rights

8.134 Rights emerging from a contract may also be subject to a pledge, This legal principle enables the creditor to constitute a guarantee in rem over rights arising from a contract.

1.1.5. Pledge of Securities

8.135 Under commercial law, it is possible to constitute a pledge over securities -caution-. This pledge should be made in writing. To cause it to be effective against third parties, the pledge contract may be incorporated into the registry of a notary public.

8.136 The shares of a corporation may be subject to a pledge. The delivery of the share certificate to the creditor, gives such creditor the possibility to collect dividends.

8.137 Argentine Corporations Law establishes that the owner of the pledged shares retains the rights emerging from such shares. Notwithstanding that, the creditor is obliged to facilitate the exercise of the owner’s rights, either through a deposit of the shares or by any other means, with a view to guaranteeing such creditor’s rights.

8.138 Therefore, the creditor has no capacity to attend shareholders´ meetings on behalf of the pledgor, as a natural consequence of the above described principle.

1.2. Registered Pledge

1.2.1. Definition and Characteristics

8.139 The Registered Pledge is a type of pledge that is registered with a governmental agency and it is created over property which remains in the pledgor’s possession, in order to permit the pledgor to continue his commercial or industrial activity. The rights of the creditor are protected, so long as the pledge contract is registered in a special registry created for that purpose.

1.2.2. Property which may be subject to a registered pledge

8.140 There are two different types of registered pledges, depending on the type of property that is subject to such pledge:

1.2.3. Fixed Pledge

8.141 The Fixed Pledge may be created over property such as movable assets, machinery, tools, automobiles, ships up to ten tons, installations, business establishments, self-moving objects, fruit and products.

1.2.4. Floating Pledge

8.142 The Floating Pledge is a registered pledge created to guarantee transactions with a term for payment no longer than a hundred and eighty days. This type of pledge may be created over merchandise or raw materials and products pertaining to a business establishment.

2.1. Definition and Characteristics

8.143 A Mortgage consists of a guarantee in rem by virtue of which the debtor or a third party commits certain real estate in order to guarantee compliance of an obligation, whether present or future, simple or subject to condition. Thus, if the debt is not paid, the creditor may cause to sell the mortgaged property and reimburse himself out of the sale proceeds for the whole owed amount. As a guarantee, it is an accessory to the principal obligation and cannot exist without the principal debt which it secures.

8.144 Mortgages are governed by civil law, even though the underlying obligation may be of a commercial nature and the parties to the transaction may be commercial organizations.

8.145 Mortgages have the following characteristics: They are: a) Conventional because they emerge from a contract; there are no legal or judicial mortgages; b) Accessory to a principal obligation; c) Indivisible, in the sense that every mortgaged property or part of it, is subject to the payment of the whole debt or part of it unless otherwise agreed to by the parties; d) Public, due to its incorporation into the registry of a notary public and its recording in the Real Estate Registry, and e) Special, because of its connection to a certain and determined real property and to the special credit that it guarantees.

2.2. Property which may be subject to a Mortgage

8.146 The following property may be mortgaged:

2.3. Mortgage of Real Estate.

8.147 Mortgages may be created on real or immovable property;

Mines, independently of the soil where they are located;

Ships of more than ten tons and aircraft.

2.4. Ship Mortgage and Aircraft Mortgage

8.148 Ships over ten tons and aircraft may be subject to a mortgage. These types of mortgages are also constituted by notarized document and recorded in the respective Registry.

8.149 Ship Mortgage is established by Navigation Law 20.094, which contemplates that this type of mortgage may be instrumented either through notarized document or notarized private document and it will be effective against third parties only after the date of its recording in the National Ships Registry, noting it also on the title and matriculation certificate. The order of the records determines the order in priority and privilege.

8.150 Aircraft Mortgage is regulated by Aeronautic Code, which establishes that the aircraft and/or their engines may be mortgaged.

8.151 In this case the mortgage may also be instrumented either through notarized document or notarized private document and it will be effective against third parties only after the date of its recording in the National Aircraft Registry. The order of the records determines the order in priority and privilege. The effects of registration lapse after seven years of recorded in the absence of renewal.

2.5. Enforcement Proceedings

8.152 If the principal obligation is not paid when due, the mortgagee may foreclose the mortgage. The foreclosure proceeding is governed by the Civil and Commercial Code of Procedures.

8.153 When the principal obligation matures, the mortgagee may cause the sale of the property, as determined by a judicial order, and be reimbursed out of the sale proceeds. By virtue of the mortgagee’s security interest on the asset, the mortgagee enjoys priority over the claims of any other creditor, except for certain few exceptions, such as court expenses and employee salaries.

8.154 Apart from the above provisions of the Procedure Code, there is a special and more expeditive enforcement proceeding established under Argentine law. Such alternative proceeding must be expressly agreed to between debtor and creditor. In such an event, in case of default in payment of the principal or interest for a 60-days term, the creditor shall formally request payment of the obligation within the following 15 days, also warning the debtor that in case of lack of payment of the corresponding obligations in full, the mortgaged asset shall be sold at a private auction.

8.155 Bankruptcy Law governs the order of priority for payment of debts in a bankruptcy. In this case, the creditor will have a first rank priority on the proceeds of the assets subject to the mortgage, after constituting a reserve on the produce of the asset’s sale to cover (i) the cost of conservation, administration, custody and sale of such asset until enforcement of the same, including any applicable taxes due on the security itself and (ii) the fees and expenses of the officers of the bankruptcy proceedings regarding such asset.

3. Antichresis

3.1. Definition and Characteristics

8.156 Antichresis is a species of mortgage or pledge of real property giving the creditor possession of the asset and allowing him or her to retain interest, rents or other proceeds and to apply them to the cancellation of interest on the loan and also to the principal amounts due, to the extent that such proceeds exceed interest payments.

The use of this type of security is most uncommon.

8.157 Characteristics. The antichresis:

a) is contractual, so long as it is created through an agreement among parties;

b) allows the creditor to retain the fruits, products or rents of the real property;

c) is always accessory to a principal contract;

d) is indivisible, since the whole of the asset provided under antichresis and every part of it is affected to the whole and every part of the obligation so guaranteed;

e) is special, not only with regard to the asset provided as guarantee but also with respect to the credit so guaranteed.

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E. OTHER GUARANTEES

1. Comfort Letter

8.158 Comfort letter is a letter issued by a controlling company to a bank or credit institution by virtue of which such controlling company acknowledges the existence of a certain credit provided by such bank or credit institution to a subsidiary or a company controlled by such controlling company. Under the terms of such comfort letter, the controlling company also informs the share interest of such controlling company in the controlled company and assumes certain covenants in connection with the obligation assumed by the controlled company with the financial entity.

8.159 The main purpose of comfort letters is to inform the creditor of the existence of a controlling relationship that would support compliance of the borrower’s obligation, thus providing certainty and confidence to the lending entity that the obligation shall be complied.

8.160 Depending on the degree of the commitment assumed by the controlling company, comfort letters may be classified in weak comfort letters or strong comfort letters.

8.161 Weak comfort letters are those under which the controlling company only acknowledges that credit has been provided to its controlled company and also informing the financial institution of its controlling interest in such controlled company.

8.162 Strong comfort letters are those under which the controlling company also commits itself to take certain actions to ensure compliance of a specific obligation assumed by the controlled company. These comfort letters constitute an express guarantee.

8.163 The lending institution may request the controlling company to indemnify such lending entity for damages incurred by non-compliance of the obligations assumed under the terms of the comfort letter.

8.164 Under a fiduciary assignment agreement, the debtor of an obligation or another Person on its behalf, acting as trustor, delivers a movable or immovable asset in fiduciary domain to another person (acting as trustee) as security for the payment of an obligation against a third party (the beneficiary of the trust).

8.165 The role of the person acting as trustee is to follow-up compliance of the payment and other obligations assumed by the debtor and, in case of non-compliance of such obligations, to carry on certain acts required to enforce the assets set aside as security.

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