(the debtor's) managers (factores), employees or laborers cannot be waived.

The wife or husband of the insolvent as well as the relatives within the fourth degree of consanguinity and second of affinity, nor the assignees of their claims who acquired the rights within 1 year before the date of the meeting except by endorsement of documents drawn to order, cannot participate in the meeting. (Arts. 31-34.)

APPROVAL AND NATURE OF COMPOSITIONS

The composition offered by the insolvent must be accepted by twothirds of creditors present representing 75 percent of the proved and admitted claims or by 75 percent of creditors present with voting powers representing two-thirds of calculable capital (capital computable). If the proposed dividend is less than 30 percent or the time is greater than 2 years, the composition must be accepted by threefourths of the creditors present representing four-fifths of calculable capital. On the other hand, if the composition is in the nature of a moratorium only for a term not to exceed 1 year with or without interest and real guarantees are offered for the payment, the approval of the majority of creditors present representing the majority of calculable capital will be sufficient.

The clauses of the composition must be the same for all unsecured creditors on the basis of absolute equality between them. It may not provide for the total remission of the debt nor defer payment to an indefinite date or in a proportion depending on the debtor's discretion. When the meeting is ended minutes thereof must be prepared setting forth the names of creditors present, a brief statement of questions raised in the examination, proof, and ranking of credits and the respective rulings; the basis of the proposed composition and its modifications at the meeting, the result of the voting with the names of the creditors and the manner in which they voted. After being read, the minutes are signed by the judge, the receiver and the creditors, and countersigned by the clerk. The statements in the minutes will constitute full proof (harán plena fe) even though some creditors failed to sign them. (Arts. 35–37.)

MANNER OF ATTACKING THE COMPOSITION

Within 8 days the creditors who did not attend the meeting, those who voted against the offer and those whose credits have been assailed and are pending consideration or judicial decision, may attack the composition accepted by the majority on the following grounds:

(1) Failure to observe the essential forms prescribed for the making of the composition.

(2) Lack of personality or false representation of creditors who compose the majority.

(3) Fraudulent exaggeration of credits in order to obtain the majority in amount.

(4) Concealment or fraudulent simulation of assets.

(5) Fraudulent understanding between the debtor and one or more of his creditors.

Notice of the opposition based on any of these grounds must be given to the debtor and public attorney. If an answer is filed or the time

for doing so has expired, the judge must set the matter for a hearing to be held within 8 days in order for the parties to offer their evidence. Within 5 days thereafter the judge must rule and in the same ruling he must approve or reject the composition. The court may reject the composition, even when it is not subject to attack, if any of the circumstances just indicated are found to exist. The fact that the debtor has made a previous composition will be taken into consideration in judging the conduct of the debtor when the court confirms (homologación) the composition. The rulings on these issues are only subject to appeal for reinstatement. (Arts. 38–40.)

EFFECT OF COMPOSITIONS

The approval of the composition by the court makes it binding on all unsecured creditors known or unknown, and regardless of the sum allowed them by final judgment. The creditors who appear later cannot claim from their cocreditors the dividends already received by them; they will participate only in the dividends yet to be distributed without prejudice to their right of claiming from the debtor the dividend not paid to them, after the payment of the composition with respect to the other creditors. The creditors of a partnership do not preserve their rights against the private property of the joint and several partners unless they expressly reserve this right in the composition.

All actions against the debtor for the proportion of credits remitted by the composition are extinguished unless the contrary is expressly stipulated. The remission allowed by the composition, however, does not benefit codebtors or guarantors of sureties (fiadores) of the insolvent except those who guarantee the performance of the composition by the insolvent.

As a condition of the composition the appointment of a supervising committee may be stipulated. The debtor cannot convey in block his commercial establishment nor give special collateral of personal or real estate property without authority of this committee or the court if such committee is not appointed.

All acts of private agreement between the debtor and one or more creditors modifying in any manner the terms of the composition or granting privileges or special concessions to some creditors are null and void. Should the debtor fail to perform the obligations imposed upon him by the composition any creditor may demand his declaration in bankruptcy. (Arts. 42-46, 51.)

NULLITY OF COMPOSITION

The nullity of a composition properly approved may be sought only by reason of fraud or deceit discovered after the court's approval and resulting from the concealment of assets or exaggeration of credits. The nullity in this case releases the guarantors of the composition by mere operation of law. The right to file such action is barred by the lapse of a year after the composition is approved. The annulment of the composition only affects the debtor and the creditors favored by the fraud or deceit. The acts of the debtor after the approval of the composition and prior to its annulment will be annulled only if the creditor's rights have been defrauded.

Should the composition be annulled in the manner just indicated the creditors who accepted the composition and thereby waived their privileges or mortgages in whole or in part will be fully restored to them. The creditors prior to the composition will recover their full rights as regards the insolvent only but may not participate in the mass except in the following proportions:

If they have not received any portion of the dividend, to the extent of their whole original credits.

If they received some portion of the dividend, to the extent of the part of their original credits corresponding to the unpaid fraction of the stipulated dividend. The provision of this paragraph applies to cases of bankruptcy proper where the debtor previously had made a composition, even if no steps were taken to amend such composition. (Arts. 47-50.)

ADJUDICATION IN BANKRUPTCY

Only a judge of commerce may force a debtor into bankruptcy. Such declaration in bankruptcy may be made in the following cases:

(1) When a composition is rejected or if accepted, is not confirmed by the court and when a composition is annulled.

(2) When the debtor fails to appear at the meeting of creditors or does not offer a composition, therein.

(3) When the debtor or his creditors request it.

A merchant may be forced into bankruptcy even though he may have but one creditor. A declaration of bankruptcy may not be sought by a son against his father, by a father against his son, by a wife against the husband, and vice versa. In case the debtor merchant has absconded or concealed himself without leaving some one to represent him and perform his obligations, the judge, upon the advice of the public attorney, will take all necessary precautionary measures to preserve the interests of the creditors until they make use of their rights. If the insolvent is of good faith the court may order the liquidation of his property without declaration in bankruptcy; this decision is not appealable. (Arts. 32, 41, 47, 52, 57, 58.)

Procedure in cases 1 and 2.-In cases 1 and 2 of the judge before whom bankruptcy is sought must appoint the liquidator and fix the date of suspension of payments (which will be the date of the insolvent's application if it did not previously take place but will not be more than 1 year before the date of the application) when the bankruptcy is declared by him, and in addition he must provide that:

(1) The insolvent's letters and telegrams be retained and opened by the liquidator in the insolvent's presence or by the judge, in his absence; purely personal correspondence will be delivered to the bankrupt.

(2) All persons having property or documents of the bankrupt be summoned to place them at the receiver's disposal.

(3) No payments or delivery of property be made to the bankrupt under pain of the person so doing not being discharged by virtue of such payments or deliveries of the obligations they have pending in favor of the bankrupt estate. (4) All the property and belongings of the bankrupt be seized by the liquidator.

(5) The bankrupt is generally inhibited in the exercise of his rights and that the inscription be made in the proper registry. The adjudication in bankruptcy must be published within 8 days in the manner prescribed for compositions. (Arts. 53, 54.)

Unregistered merchants and partnerships irregularly formed who fail to apply for a composition as prescribed by law must make

declaration of their suspension of payments and request their bankruptcy within 3 days after such suspension. Registered merchants, regular partnerships and all other debtors entitled to apply for composition and who fail to do so must act likewise within 4 days. The declaration must be made in the office of the clerk of the proper court of commerce and must set forth the general balance of the business, the cause of the bankruptcy with all the evidence relating thereto and the signature of the bankrupt or of the person by him specially authorized to do so. The clerk must certify at the foot of the declaration the date and hour of presentation, delivering to the bearer a certified copy of this record if he requests it.

Procedure in case no. 3.-When the bankruptcy is sought by a lawful creditor he must present to the court proof of the facts and circumstances alleged by him and from which it appears that the debtor has effectively suspended payments and that he is inscribed in the Public Registry of Commerce if the debtor is a nonmerchant. The judge will render his decision as soon as possible after hearing the debtor who is summoned for this purpose. Should the debtor not appear after being summoned, the proper measures will be taken forthwith.

The adjudication in bankruptcy in these two cases must set forth the appointment of the receiver, the date of suspension of payments, the period of time for presenting proof of claims (not less than 15 nor more than 50 days), the date for the meeting of creditors (15 days after the expiration of term for proof of claims), which will be held with those present. The adjudication must also cover the matters indicated on page 119, numbers 1 to 5. The creditors will then be summoned by publication to appear at the meeting for the purpose of examining and ranking credits.

The receiver then takes charge of the papers, books, and assets of the bankrupt and will proceed to examine the titles, accounts, or invoices which are submitted to him. Thereafter, he prepares his report with his opinion concerning the examination and ranking of credits, the condition of the assets, the quality of the bankrupt (whether proper, culpable, or fraudulent), the date of suspension of payments. This report must be presented to the courts 5 days before the date of the meeting. Within that time the bankrupt must present his offer of composition which will be made available to the creditors; bankrupts who have not performed a prior composition may not do this. (Arts. 55, 56, 59, 60.)

SUBSEQUENT PROCEDURE IN BANKRUPTCY

The provisions of the composition proceedings relative to presentation and checking (control) of credits (títulos) will apply in bankruptcy proceedings. After this is accomplished any composition offered by the bankrupt will be discussed; the procedure governing making, judicial approval, effects, and nullity of compositions in the composition proceedings governs this case. Should the meeting come to an end without a composition the court will order that the liquidator be placed in possession of the property, books, and papers of the bankrupt and will order that the record of the case remain at the clerk's office for 5 days in order that the bankrupt, any creditor or third persons interested may attack or discuss the receiver's report

concerning the date of suspension of payments. The judge, upon consideration of any briefs presented, will rule on this issue only an appeal for reinstatement lying from such ruling. The same right may be exercised in case of bankruptcy due to rejection of the composition, within 5 days after the declaration of bankruptcy.

If the insolvent has applied for a composition with his creditors or for a declaration in bankruptcy in due course, or if the bankruptcy is declared at the request of his creditors, he may be allowed a monthly amount for sustenance during a term not to exceed 3 months, provided he assisted the meeting and that the bankruptcy does not appear prima facie to be culpable and fraudulent. If the debtor and his creditors enter into an agreement at any stage of the bankruptcy proceedings after the examination of claims, the proceedings will be abandoned and an order will be made for the settlement to be fulfilled after payment of the costs incurred. (Arts. 60-67.)

REVOCATION AND NULLITY OF BANKRUPTCY

When the bankrupt withdraws his petition for bankruptcy before publication of the declaration to that effect, the adjudication will be revoked upon payment of the costs incurred. The bankrupt may apply for the annulment of the declaration of bankruptcy made at the request of creditors within 3 days after the date when he becomes aware of the order or within 5 days after the first publication of the declaration. Such request must be grounded exclusively on falseness of the facts on which the declaration was based. In the consideration of a request for withdrawal of an application for bankruptcy, the receiver must be heard; in a request for annulment of the proceedings, the creditor who applied for the bankruptcy, the public attorney, and the receiver must be heard-an appeal for reinstatement will lie from the rulings in these cases.

The debtor's action against the adjudication in bankruptcy will not hinder nor stay the execution of the measures following after the declaration. Should the adjudication be annulled, matters will be returned to their original status. The merchant against whom the proceedings were taken may sue the person who started them for the damages incurred if he proves that that person is guilty of fraud or manifest injustice (bad faith). (Arts. 68-72.)

MEASURES FOLLOWING BANKRUPTCY AND LIQUIDATION

The property and papers of the bankrupt will be seized with the assistance of the clerk of the court (actuario) in the following

manner:

(1) An inventory and description of the property will be made.

(2) The number, kind, and condition of books of accounts will be indicated and on the last entry of each a notation will be made of the number of written pages, signed by the receiver, the clerk of the court, and the bankrupt if present. If the books were not kept in the manner prescribed by law, all the pages thereof must be rubricated by the receiver and the clerk.

(3) An inventory will be made at the same time of cash, bills of exchange, promissory notes, and other credit documents.

(4) The real estate will remain under the management of the receiver or the liquidator as the case may be, who will collect the produce and proceeds thereof and will take all necessary steps to prevent the transfer or malver

139898-35- -9