(a) What is the underlying philosophy of the insolvency law of this economy? (For example is it distributive, rehabilitative or penal?)

For bankruptcy, the underlying philosophy is distributive. With respect to reorganization and composition, the underlying philosophy is rehabilitative.

(b) Are there elements of more than one philosophy present in the insolvency law of this economy?

The principle of equal treatment for equal class of creditors underlies insolvency laws.

(c) Briefly describe the relevant elements, and if applicable, any penal sanctions available.

Penal sanctions are in part: fraudulent reorganization (Art. 289 - 290, Reorganization Act), bribery (Art. 291 - 292, Reorganization Act), prohibition on participation in management (Art. 292-2, Reorganization Act), unpermitted acts (Art. 292-3, Reorganization Act), refusal of report and inspection (Art. 293, Reorganization Act), fraudulent bankruptcy (Art. 369 Bankruptcy Act), violation of supervision or flight from domicile (Art. 369, Bankruptcy Act), violation of duty to explain (Art. 374, Bankruptcy Act).

(a) In which judicial category is insolvency law classified in the legal system of this economy? (For example civil, commercial or administrative.)

Civil.

(b) Which Courts, tribunals or administrative bodies in this economy are competent to exercise jurisdiction in insolvency matters?

Courts are competent to exercise jurisdiction in insolvency matters.

(c) Are any limitations placed on the jurisdiction of any of these bodies?

No.

(a) What types of insolvency procedure are available in the legal system of this economy for the administration of corporate debtors in financial difficulty? (For example bankruptcy, liquidation (winding up), receivership, restructuring or other forms of administration.)

Types of insolvency procedures available under law are bankruptcy, reorganization and composition.

(b) Briefly describe the main features of each type of insolvency procedure for corporate debtors: including, for example the manner in which each procedure is initiated and administered, and the aims of each procedure.

Bankruptcy: bankruptcy proceeding may be initiated by the insolvent debtor, creditors or other interested parties. Once the application is filed and accepted, the court may issue an order to preserve the assets of the debtor. The bankruptcy administrator is appointed to oversee the bankruptcy process. The aim of the bankruptcy law is to liquidate and distribute the remaining assets to the creditors in an equitable manner.

Reorganization: reorganization proceeding may be initiated by the insolvent debtor, creditors or shareholders. Once the application is filed and accepted, the court may issue an order to preserve the assets of the debtor. The receiver is appointed to oversee the reorganization process. The aim of the reorganization law is to restructure the debt and fix a reorganization plan that would promote the rehabilitation of the debtor.

Compulsory: reorganization proceeding may be initiated by the insolvent debtor, creditors or other interested parties. Once the application is filed and accepted, the court may issue an order to preserve the assets of the debtor. The composition administrator is appointed to oversee the composition process. The aim of the bankruptcy law is to induce an agreement between the creditors and the debtor and fix the composition plan that would promote the rehabilitation of the debtor.

(c) Identify the relevant legislation governing each type of insolvency procedure available for corporate debtors.

The relevant laws are Bankruptcy Act, Company Reorganization Act and Composition Act.

(a) Is it usual or customary in respect of a corporate debtor which is insolvent to attempt to negotiate an informal administration before formal insolvency procedures are commenced?

Although it will depend on the case, a corporate debtor may seek an informal administration before formal insolvency procedures are commenced.

(b) In relation to each type of insolvency procedure available in the legal system of this economy, who may commence the procedure? (For example the corporate debtor, secured creditors, unsecured creditors, directors, shareholders, the State.)

Bankruptcy: debtor, creditor and other interested parties Reorganization: debtor, creditors and shareholders Composition: interested parties and the court

(c) On what basis may each type of insolvency procedure be commenced, or what requirements must be satisfied before the procedure may be commenced? (For example non-payment of debts; balance sheet/cash flow insolvency; trading losses; resolution by directors to enter insolvency procedure.)

Bankruptcy: bankruptcy petition may be filed if it is not possible to fully repay the debt.

Reorganization: reorganization petition may be filed if there is a material detriment to the continuation of business or there are reasons to believe that the debtor may go into bankruptcy. Although excess debt can be a cause for filing the petition, this factor is not a necessary requirement.

Composition: composition petition may be filed if causes for bankruptcy (including excess debt) exist or there are reasons to believe that the debtor may go into bankruptcy.

(d) How is each type of insolvency procedure commenced? (For example by application to the Court, by administrative act, by written notice to the business organization.)

All types of insolvency proceedings are commenced by filing an application to the competent court. In the case of bankruptcy, the court also has the power to decide the initiation of bankruptcy proceeding on its own.

(e) What is the usual time period between the commencement of formal insolvency proceedings and the declaration or imposition of a formal administration on the corporate debtor?

Reorganization: for small medium businesses, decision on the commencement of proceeding is required to be made with 3 months from application date (except in certain cases in which case the time is 5 months). The law does not state the time period for reorganization of businesses other than small and medium businesses.

Bankruptcy: there is no provision in law which states the time period.

Composition: 3 months, with 1 month extension in case of unavoidable reasons.

 

(f) How effective is the judicial or court system (or administrative system) in relation to the handling of formal insolvency proceedings?

There is no separate court that solely hears insolvency cases and the current court system may not be effective in relation to handling of formal insolvency proceedings.

(a) In relation to each type of insolvency procedure available in the legal system of this economy, what is the effect on the corporate debtor, its constituent parts and its business relationships of initiation of the relevant insolvency procedure?

• Bankruptcy

Powers of management: the management no longer has power of management. Shareholders' interest: the shareholders have the right to the remaining assets after distribution to creditors and interested parties with priority over the shareholders.

Contracts to which debtor is a party: creditors under contracts with the corporate debtor will be part of bankruptcy claimants.

Legal proceedings: all present and future legal proceedings will cease.

Remedies: contract can be terminated.

• Reorganization

Powers of management: the management no longer has power of management.

Shareholders' interest: the shareholders no longer have shareholders' rights.

Contracts to which debtor is a party: creditors under contracts with the corporate debtor will be part of reorganization claim. Executory bilateral contracts can be terminated by reorganization receiver.

Legal proceedings: new compulsory execution will cease after asset preservation order; all compulsory execution proceeding currently in progress will cease after cease order.

Remedies: contract can be terminated.

• Composition

Powers of management: the management no longer has power of management, except for ordinary course of business.

Shareholders' interest: the shareholders have rights, with the administrator's consent. Contracts to which debtor is a party: creditors under contracts with the corporate debtor will be part of composition claim. Contracts within the ordinary course of business will be effective. Legal proceedings: new compulsory execution will cease after asset preservation order; all compulsory execution proceeding currently in progress will cease after cease order. Remedies: contract can be terminated

(b) If another insolvency procedure has already been initiated in relation to the corporate debtor, how does the initiation of a second procedure affect the first?

A company in reorganization may be put in to bankruptcy proceeding. A company in composition cannot move on to bankruptcy.