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Argentine Law 24597 (the Registration Law), published in the Official Gazette on November 22 1995, established that all securities issued by Argentine private sector issuers should be converted to non-endorsable registered form and that no bearer securities should be issued by Argentine private issuers thereafter.

The original deadline for completing conversion was May 22 1996. However, the federal government passed Decree 547/96 extending the deadline for conversion to May 22 1997, and has subsequently passed Decree 446/97 further extending it to May 22 1998. Further regulations established that debt securities registered with and authorized by the local securities authority (the Comisión Nacional de Valores or CNV) will be deemed in line with the Registration Law if the y are represented by global certificates deposited with Argentine or international clearing systems.

The consequences of non-compliance with conversion on or before the final deadline are as follows:

  • The non-converted bearer securities cannot be transferred or pledged and no associated rights may be exercised (the holders of the bearer securities, among other things, would not be entitled to collect payments under the bearer securities, nor vote in meetings of security holders, nor enforce their rights in court).
  • Whatever withholding tax exemptions the non-converted bearer securities could carry in connection with the payments of interest or on capital gains will be suspended for as long as the conversion is not completed.
  • A special additional withholding tax will be levied on all interest and other amounts payable under non-converted bearer securities. This special additional withholding tax will be collected on the 90th consecutive day after the date when such sums are made available to security holders at the following rates:
    - 10% of sums made available for collection during the first year following the conversion period;
    - 20% of sums made available for collection during the second year following the conversion period; and
    - 33% of sums made available for collection during the third year following the conversion period.
  • If an issuer were to make payments in breach of the ban then a further 33% withholding will be made on the amount so paid and the issuer will pay an extra 33% on the balance of the sums distributed to the security-holders.

There is a consensus in the local markets that the penalties listed above are substantial enough to justify the exercise by Argentine issuers of voluntary redemption rights under the securities issued by them in cases where the conversion of the existing bearer securities is impracticable.

José Nelson

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