Joint rules of Bankruptcy and Liquidation Proceedings

The issue ofbankruptcy and liquidation proceedings relating to businesses is governed by Act XLIX of 1991on Bankruptcy Proceedings and Liquidation Proceedings (hereinfter: Bankruptcy Proceedings Act), as amended from time to time. The proceedings fall into the competence and exclusive jurisdiction of the general court as per the registered seat of the debtor as at the date of submission of the petition for the institution of Bankruptcy and Liquidation Proceedings.

Bankruptcy Proceedings

In bankruptcy proceedings, the debtor will be granted a grace period for payment, with a view to attempting to have a composition agreement concluded. In its order prescribing the institution of bankruptcy proceedings against the debtor, the court will appoint a bankruptcy trustee to the debtor. The parties may lodge a demurrer in the court conducting the bankruptcy proceeding challenging the negligence or actions by the bankruptcy trustee.

Debtors in bankruptcy proceedings are entitled to a moratorium for payment, ending at 00.00 hours on the second day after the 120th day following the issuance of the order instituting the bankruptcy proceedings, which may be extended subject to the agreement of the debtors, with the total period – with the extension – not exceeding 365 days as from the commencement of the bankruptcy proceedings.

Creditors must lodge their claims as against the debtor to the debtor and the bankruptcy trustee within 30 days of the issue of the order instituting the bankruptcy proceedings, and the fee for the registration of their claims in the records must be concurrently paid into the bank account of the bankruptcy trustee.

During the moratorium for payment, the debtor must attempt to enter into a composition agreement with the creditors, and to this end, the debtor must hold a composition agreement meeting, where the creditors will vote whether to accept the composition agreement proposal and reorganisation plan submitted by the debtor.

Under the agreement, the debtor agree with the creditors on the terms of debt settlement, in particular the discounts off the debt and repayment assistance, on waiving or assigning certain claims, on accepting the reorganisation and loss reduction program submitted by the debtor, and on any issue deemed by the parties necessary to ensure continuance or restoration of solvency of the debtor. The agreement is then to be approved or rejected by the court.

Where the parties can not reach an agreement or where the agreement is not in accordance with laws, the court will terminate the bankruptcy proceedings, then finds the debtor insolvent ex officio, and will order liquidation of the debtor company.

Liquidation Proceedings

The purpose of the liquidation procedure is to ensure that creditors receive adequate return on their claims as laid down in laws, in liquidation of the insolvent debtor without a legal successor.

The liquidation of the debtor company is ordered by the court ex officio or at the request of creditors. The debtor company is liquidated by the court ex officio where no composition agreement has been made in the bankruptcy proceedings relating the debtor company, or where such agreement is not in accordance with the provisions of laws, or on notification from the Court of Companies or the court acting in a criminal proceeding. Liquidation proceedings may also be instituted at the request of the debtor, its creditor or the liquidator of the debtor.

In liquidation proceedings, the court may grant a grace period of 45 days at the request of the debtor to settle the debt. Where the debtor settles the debt, and the creditor withdraws from its request, the court will terminate the liquidation proceedings.

After the effective date of the order establishing the fact of insolvency, the court will forthwith appoint a liquidator for the debtor, and will publish an order in the Company Gazette on the institution of liquidation proceedings against the debtor. Creditors must file their claims as against the debtor to the liquidator within 40 days of publication of the order instituting liquidation proceedings, and the liquidator will record and rank such claims.

The parties may lodge a demurrel to the court against the negligence or actions of the liquidator. The liquidator will assess the asset position of the debtor and the claims lodged against the debtor, and then enforces the claims and demands of the debtors, and then sells the assests of the debtor.

After the lapse of 40 days following the issue of the order instituting liquidation proceedings, the debtor and the creditors may enter into an agreement at any time until such time when the final liquidation balance-sheet is submitted, which is to be submitted to the court for approval.

When in the proceedings, the debtor settles any and all its recorded, acknowledged or undisputed debts, and it provides a security for disputed debts and for the payment of the liquidator’s fee, the court will terminate the liquidation proceedings under Article 45/A of the Bankruptcy Act.

Where no composition agreement is entered into by the debtor and the creditors in the liquidation proceedings, and the claims on the part of the creditors are not settled as per Article 45/A of the Bankruptcy Act, at the request of the liquidator, the court will pass an order in reliance on the liquidation balance sheet and asset distribution proposal submitted by the liquidator, to terminate the liquidation proceedings, to terminate the debtor company, to determine the extent and distribution of the costs to be borne, to determine the sum of the fee due to the liquidator, to determine the settlement of creditors’ claims (in part).