Bolivia has issued a new law that affects any private company operating in the country. Significant consequences are possible for non-compliance, so it's important for businesses to take note.
Understanding the ramifications of the new legislation is essential, and TMF Group has the local expertise and knowledge to help you understand the implications for your business.
The 'Creation of Social Enterprises' Law came into effect on May 1st, 2018, sanctioned by the Plurinational Assembly.
This law will allow workers to take control of private companies they work for, when the companies enter bankruptcy, abandonment, or liquidation. The Head of State in enacting the new law said that it is not a measure to harm employers, but to protect workers' rights and to create and maintain the job market.
The move by Bolivian President Evo Morales is in keeping with Bolivia being an interventional state that increasingly approaches socialism. These laws seek to sanction private activity and are similar to existing laws in Venezuela.
The 'Creation of Social Enterprises' Law will particularly affect small and medium enterprises, which face cash flow problems and do not have sufficient liquidity to make required payments. The new law also increases the risks of starting a new business and poses a threat to entrepreneurism in the country.
Scope of the new law in Bolivia
According to the norm, a social enterprise is constituted by the active workers of a private company that is in bankruptcy or liquidation, whose purpose is to reactivate the company in defence of its sources of work and in defence of the social interest.
Workers who take advantage of the scope of the law must assume responsibility and the risk of controlling the administration of assets collectively, through an internal and equitable agreement.
In its edition of May 16, the Bolivian newspaper 'Page Seven' revealed part of the text forwarded by the Executive to the Legislative on May 11th. This included Article 7 of the official proposal which states that that it covers "unjustified abandonment of a company when there is a default in the payment of obligations to workers for a period exceeding three continuous months or when the suspension or reduction occurs gradual of the activities ".
The formation of Social Enterprises was foreseen in the 54th article of the Political Constitution of the State that established three modalities to create them: bankruptcy, liquidation, and abandonment. The aim of Decree 1754 was "facilitating" the constitution of private social enterprises when there are bankruptcy, bankruptcy or liquidation proceedings, and when there are companies that are closed or abandoned in an unjustified manner.
Early examples
According to the new Law, a civil or labour judge, depending on the case, will be responsible for deciding whether a business should be signed over to its employees. New though the law is, there have already been some examples of companies affected. In La Paz, there are five companies that have passed to workers: Polar, Cerámica Victoria, Punto Blanco and two textile companies. One has since closed because its employees were unable to keep it going.
The Ministry of Labour, in support of the Law, noted that the purpose of the regulation is to create facilities and ensure that workers have extraordinary financial resources to operate the firm. This law also makes it easier for them, despite having debts with basic service providers, to continue receiving finance.
Backlash
There has been a backlash from business leaders, who have called for an emergency meeting to coordinate an action plan against the new law, which they claim affects their constitutional private property rights. They have announced their intention to file a constitutional challenge.
The President of the Confederation of Private Entrepreneurs of Bolivia (CEPB), Ronald Nostas, regretted that the Legislative Assembly persisted in the treatment of the Law of Social Enterprises, despite the seriousness of the comments made to the content, and announced that the CEPB has been instructed to act against the perceived unconstitutionality.
He said that the Law of Social Enterprises "is the most serious attack against private property in the country, which also encourages confrontation between workers and employers and leaves companies in defence against taking production units."
Get expert help
TMF Bolivia's expertise in helping companies maintain regulatory compliance will support businesses staying operational, complying with the deadlines established by law for the payment of taxes and social contributions. To find out more, talk to us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
