What does insolvency proceeding imply?
Insolvency proceedings imply that an entrepreneur can't fulfill monetary liabilities to a creditor in due terms. Insolvency might become a reason for the initiation of bankruptcy proceedings.
Insolvency procedures are regulated by the Law of Georgia on Insolvency Proceedings.
The main goal of the Law of Georgia on Insolvency Proceedings is: to equally protect the rights of a debtor and of a creditor (creditors), to resolve future financial problems if possible and to satisfy creditors' claims, and if the latter is not possible - to satisfy creditors' claims via distribution of the amount generated from sale of debtor's property.
Against whom can insolvency proceedings start? It can be applied towards entrepreneurs operating in compliance with the Law of Georgia on Entrepreneurs, non-commercial legal persons stipulated by the Civil Code, non-registered unions and fellowships.
Who can't be subjects to insolvency proceedings?
a) natural persons (except individual entrepreneurs);
c) banks, non-bank depository institutions and insurance companies the insolvency proceedings of which are regulated by special legislation.
What is the result of opening insolvency proceedings?
As soon as the insolvency proceedings are applied:
a) All the compulsory enforcement-related activities are suspended and new similar activities are prohibited;
b) Debt execution isn't allowed until the court makes a verdict on registration of opening the insolvency proceedings, debt payment is suspended as well as charging/covering percentages, fines, penalties;
c) Trustee is assined;
d) Debtor can't make any arrangement without the agreement of the trustee.
In compliance with the Law, LEPL - NBE of Georgia - is the trustee during insolvency proceedings.
Trustee Duties and Liabilities:
a) Take control of enterprise management and representation during the term of office;
b) Identify all creditors and immediately inform them about the opening of insolvency proceedings.
c) Prepare and organize creditor gathering and committee sitting during the term of office;
d) Review and assess debtor's credit and debit liabilities;
e) Prepare report on debtor's insolvency proceedings and introduce it to the court and facilitator council;
f)Solicit debtor's property prior to creditors' initial meeting;
g) Keep trsutee property and protect it from injury and damage;
h) Review the arrangement to be made by the debtor enterprise and accordingly agree or disagree with signing this arrangement.
Trustee makes a presentation for creditors and the court on the initial creditor gathering. The presentation refers to debtor property, financial state and liabilities.
The Court makes Register of Creditors' Claims on the initial creditor gathering and the sequence of their fulfillment is identified.
At the end of the initial creditor gathering, creditors and the debtor may co-establish the Facilitator Council.
Facilitator Council studies the property and the financial state of the debtor enterprise. Afterwards, the decision is made about suspension of insolvency proceedings, rehabilitation of the debtor enterprise or the bankruptcy of the debtor.
What does the Facilitator Council's decision on suspending insolvency proceedings result in?
Decision on suspension of insolvency proceedings is made in case it is identified that the enterprise doesn't face any financial problems and there is no insolvency threats either. On the basis of the decision of Facilitator Council, the Court suspends insolvency proceedings and the trustee is no longer authorized. As a result, the debtor enterprise returns to its initial legal state.
What does the Facilitator Council's decision on rehabilitating debtor enterprise result in?
The Rehabilitation Manager is appointed and the rehabilitation plan is made. The RM conducts the processes and ensures that the plan is fulfilled. The rehabilitation process is aimed at meeting creditors' claims step by step in compliance with the terms and conditions stipulated by the Law basically via improving debtor's financial and logistic state, developing management system, increasing profitability and efficiency of debtor's commercial activities, also optimizing the trustee property.
What does the Facilitator Council's decision on the bankruptcy of enterprise result in?
On the basis of the decision made by the Facilitator Council regarding the enterprise bankruptcy, the court declares a verdict on opening bankruptcy proceedings of the enterprise. The rehabilitation process is aimed at thorough fulfillment of creditor claims according to regulations and conditions stipulated by Law basically via realization of the property of a debtor enterprise.
In case bankruptcy proceedings open, creditors select the bankruptcy manager. If they can't agree on the final candidate, the court will appoint LEPL NBE to the position.
Bankruptcy manager conducts the realization of a debtor's property at auction.
In case Bankruptcy Manager is a natural person (and not NBE), he/she is obliged to apply to NBE in order to make the Bureau conduct the auction-related procedures on the property on debtor enterprise.
The property is put up for an initial auction as an item. The starting price constitutes 50% of the market value of the property.
If the property isn't realized on the initial auction, the second auction is arranged. Creditors set up the price and the lot quantity, otherwise the property will be put up for auction as an item again and the starting price will be 25% of the market value of the property.
If the property isn't realized on the second auction either, NBE hold the third auction and decides the advisability of the division of property into lots. The starting price is 0 GEL this time.
After the property is fully realized, NBE divides the amount amongst creditors according to the sequence stipulated by the court.
In the end, the court makes a decision on terminating insolvency proceedings and abolishing the registration of a debtor enterprise from Debtor Register.
According to the Law of Georgia on Enforcement Proceedings, debtor-initiated insolvency proceedings end with debtor's bankruptcy in 207 days, while the insolvency proceedings opened against the debtor on the basis of creditor's application end with debtor's bankruptcy in 225 days.