The Federation of Egyptian Banks (FEB) prepared a note of its remarks on the new “restructuring, pre-insolvency conciliation, and bankruptcy” bill. This will be sent to the Central Bank of Egypt (CBE), which, in turn, will send it to the legislative committee of the Ministry of Justice, a senior official told Daily News Egypt.
The source explained that the Ministry of Justice had already sent a copy of the bill to the CBE in February, before it was sent to the FEB for review.
The FEB called for banks’ officials to hold extensive meetings to study the bill. Several meetings have been held already by banks’ legal affairs officials under the umbrella of Egypt’s legal technical committee, most recently on Monday.
According to the source, this law is very important for the economic life in Egypt, as well as for both Egyptian and foreign investors.
The bill, of which Daily News Egypt obtained a copy, has 264 articles regulating restructuring, pre-insolvency conciliation, and bankruptcy procedures.
The provisions of this bill shall be imposed on all traders—whether on an individual or a corporate level—except for joint ventures, public sector companies, and public business sector companies. This is in accordance with the definition provided in law No. 17 of 1999 on commerce.
Regarding the bankruptcy procedures, the bill stipulates that each economic court shall establish a bankruptcy department to manage mediation procedures in the restructuring, pre-insolvency conciliation, and bankruptcy requests.
The bill stipulates that if a settlement of the dispute was reached, the parties in question shall sign a settlement agreement that shows details of the agreement and the mediation procedures. The bankruptcy judge shall approve the agreement and end the request. This agreement shall have executive power. If the disputed parties could not reach an agreement, the judge shall refer the request to the specialised court. If the applicant did not attend before the bankruptcy judge for two consecutive sessions, the judge shall save the request.
According to the bill, the bankruptcy verdicts are final and could not be challenged, unless the law mentions something else.
The economic courts are obliged by the bill to use bankruptcy management experts—among others—who assist the judges. Those experts should include members of restructuring and asset management companies. Additionally, there will be representatives from the ministries of finance, manpower, investment, trade, and industry, as well as representatives from the CBE, the General Authority for Investment and Free Zones (GAFI), the Egyptian Financial Supervisory Authority (EFSA), the Egyptian Exchange, the Federation of Egyptian Industries (FEI), and the Federation of Egyptian Chambers of Commerce (FEDCOC).
The bill regulates the restructuring operations, where each trader with a minimum capital of EGP 1m who did not commit fraud is entitled to request the restructuring of the company. It also prohibits the restructuring of companies in liquidation. It is also not permissible for companies to request restructuring if the court announced the company’s bankruptcy or during the beginning of the pre-insolvency conciliation.
According to the bill, the restructuring aims to develop a plan to reorganise the financial and administrative affairs of the trader. It also includes the procedures of ending the company’s financial turmoil and paying its debts, as well as suggesting funding sources, including re-evaluating assets, restructuring debts, increasing capital, increasing internal cash flows, reducing external flows, and restructuring administration.
The company owner shall provide the restructuring request in which they state the reasons for and the date of financial turmoil, as well as the previous measures taken to avoid it or treat its effects. They must also provide suggestion to solve the crisis at hand.
The restructuring commission shall provide its report to the judge specialised in bankruptcy cases within three months, stating its opinion about the reason for the business disruption and the feasibility of restructuring as well as the proposed plan. The preparation of the plan can be extended for more than three months with the permission of the judge, on the condition of implementing it in a period of no more than five years.
The bill allows traders or company owners to continue their management of the assets throughout the restructuring period. They would also be responsible for the company’s obligation and previous or future contracts since the date of adoption of the restructuring plan. However, owners should not engage in any conduct that affects the interests of their creditors.
According to this bill, traders or companies that did not commit fraud are entitled to request a pre-insolvency conciliation, in case the business experienced any trouble that prevents it from paying its debts. However, the pre-insolvency conciliation request is not allowed in case the company was in liquidation.
The bill obliges creditors to provide documents of the debts of the court on certain dates; otherwise, they will not be allowed to engage in the conciliation proceedings. The same case applies to creditors whose debts have been rejected.
According to the bill, the conciliation requires the approval of the majority of creditors whose debts were accepted, on the condition that they seize two-thirds of the value of these debts.
If the company requesting conciliation has issued bonds or financing instruments worth more than one-third of its total debt, the conciliation would not be allowed unless the general assembly of the owners of these bonds approved this step.
The bill allows for the pre-insolvency conciliation to give debtors deadlines to pay their debt or interest, and also allows debtors to be exempted from a part of the debt or interest.
According to the bill, the pre-insolvency conciliation will be invalid should the debtor be convicted of fraud after the ratification of the conciliation. It includes hiding money or debt or deliberately exaggerating the value of the debt. The creditors must request the cancellation of the pre-insolvency conciliation within six months since the day they discover the fraud, or else their demand will be unacceptable.
According to the bill, the bankruptcy may be declared upon the request of the same trader or the request of a creditor or the prosecution. It also may be declared after the trader’s death or retirement from trade or when they stopped paying their debts. The bankruptcy request must be submitted within a year after the death of the trader or the date of removing their name from the commercial record.
According to the bill, traders must request their bankruptcy within 15 days from the date they stopped payment, through presenting an application to the bankruptcy department in economic courts. They must also state the reasons for stopping the payment. The bankruptcy request shall be rejected in case the trader stopped paying criminal fines, taxes, fees, or social insurance.
In the case of bankruptcy, the specialised court has the right to take the necessary steps to preserve the debtor’s funds or manage them for a renewable period of three months, until the lawsuit is closed. It also has the right to take any necessary measures to identify the financial situation of the debtor and the reasons for stopping payment.
Any interested party, except those who have been convicted, can object the declaration of bankruptcy from the court that issued it within 30 days from the date of its publication in newspapers—unless they have it challenged in the appeal court, where they can present their objection to the court trying the appeal.
The bill allows the specialised court to ban the trader who is bankrupt from leaving the country for a renewable period of up to six months, if they harm the rights of creditors. The trader can then challenge the travel ban; however, this challenge will not stop it from being implemented. The court can decide to cancel the travel ban at any time.
According to this law, whoever is convicted of criminal bankruptcy shall be banned from exercising political rights or running for parliament or local council for a period of six years since the date of the sentence. This ban shall be nullified if the trader was rehabilitated or the court suspended the execution of the sentence.
Traders that have gone bankrupt and have not been rehabilitated shall be banned from joining commercial or industrial chambers, unions, or professional associations. They are also not allowed to become managers or board of director members of any company nor engage in banking, business agencies, export or import, securities brokering, or auctions (whether buying or selling).
Those who are bankrupt shall be banned from the management of their own assets, including funds gained on the same day of bankruptcy or after that.
The bill obliges creditors to hand over the original documents of their debts, accompanied by a statement of these debts and their value in the local currency at the exchange rate declared by the CBE—according to the sale, closure, remittance, or banknote prices—if there was no price on remittances on the day of declaring bankruptcy.
With respect to the bankruptcy of a company, the bill stipulates that any company established based on the Companies Law that has stopped paying its debt due to financial disruption shall be considered bankrupt. The court must then declare the company’s bankruptcy, even if it was during liquidation.
The legal representative of the company is not allowed to request bankruptcy only after obtaining permission from a majority of the partners or of the general assembly.
The bill permits the court to order on its own, or at the company’s request, the delay of declaring bankruptcy for a maximum period of three months, if the company is likely to support its financial position or if the delay serves the interest of the national economy. The court may accordingly take the necessary measures to preserve the assets of the company.
If the court declares the bankruptcy of a company, it shall also declare the bankruptcy of all its partners. The court may also declare the bankruptcy of every person who used the company for their own interest and made use of the company’s money as if it were their own. The declaration of the company and its partners’ bankruptcy shall be issued in one judgment, even if the court was not competent in trying the bankruptcy of these partners.
If the company’s assets were not sufficient to pay at least 20% of the debt, the court would oblige the members of the board of directors or managers of the company to pay its debts or part of them, unless they prove that they were keen in the management of the affairs of the company.
According to this bill, the legal representative of the company can submit proposals to reconcile with creditors. If the company requesting conciliation has issued bonds or financing instruments worth more than one-third of its total debt, the conciliation would not be allowed unless the general assembly of the owners of these bonds approved this step.
With regard to rehabilitation of those sentenced to bankruptcy, they shall restore all their rights after three years of the end of bankruptcy, except in the case of fraud.
The court is obliged to rehabilitate those sentenced to bankruptcy, even before the end of the three-year period, if they paid all their debts including the expenses and revenues for a period of up to two years. If the person in question has gone bankrupt and was a partner in the governance of another company that has also been bankrupt, that person would not be rehabilitated unless they paid all the company’s debts, including the expenses and revenues for a maximum period of two years.
The court is obliged to rehabilitate those sentenced to bankruptcy, even before the end of the three-year period, if the person has reconciled with their creditors and implemented its conditions; if they proved that the creditors have discharged them from all debts; or if they unanimously agreed to approve the rehabilitation.
According to the bill, those in bankruptcy who have not been convicted in one of the bankruptcy crimes of negligence shall not be rehabilitated, unless they implemented the punishment or have been exempted. According to the bill, those who are bankrupt, who were convicted in one of the bankruptcy crimes of fraud, shall be rehabilitated only after five years from the date of implementing the punishment or since the date of exemption.
According to the provisions of this bill, any trader who stops paying their debts is considered in bankruptcy fraud if they concealed or destroyed their company’s documents or hid part of their money to harm creditors.
The trader is charged of bankruptcy negligence if they contributed to the loss of their creditors because of negligence in their personal or home expenses, if they spent large sums of money in gambling or any fake work, if they bought goods and deliberately sold them for less to delay their bankruptcy and improve their financial situation, or if they borrowed funds or issued securities or used other ways which led to severe losses only to delay his bankruptcy.
Those convicted of bankruptcy fraud and those who have participated in the issue shall be sentenced to 3-5 years in prison and shall be fined between EGP 50,000 and EGP 500,000, while those convicted of bankruptcy negligence, shall be fined EGP 50,000 to EGP 200,000.
According to this bill, the members of the board of directors and managers of a company that has gone bankrupt shall face the penalties prescribed for bankruptcy fraud, in case it was proven that they contributed to the company’s bankruptcy by fraud, or caused the halt of the company through hiding the truth about the subscribed or paid capital, or through distributing fake profits or fraudulently taking sums of money for themselves more than authorised by the company’s contract.