The Purpose of Bankruptcy Law – A Reading of Bankruptcy Law

The Bankruptcy Law No. 21 of 2018 was issued on 7/5/2018 and took effect after one hundred and eighty days from its publication in the Official Gazette, making it effective on 12/11/2018. Based on this law, the Bankruptcy System No. 8 of 2019 was issued on 16/1/2019, and it became effective from the date of its publication in the Official Gazette on 17/2/2019.

This law was enacted to regulate the provisions of debtor insolvency and the legal methods for rectifying their financial situation and reorganizing their business through restructuring their economic activity within the legal framework and conditions specified by the law without compromising the debtor’s rights, avoiding restrictive measures on their freedom, and preserving their dignity and that of their families. At the same time, it protects the rights of related parties.

This law is based on legal and economic principles aimed at protecting the investment environment and assisting debtors in overcoming their financial distress instead of the usual procedures of closing down and liquidating companies. It provides an opportunity for insolvent debtors to reorganize their business and economic activity in case of suspension or inability to repay their debts when due, or when it is expected that they will be unable to repay their debts in the future within six months despite their current ability to do so. Economic activity refers to commercial, industrial, agricultural, professional, service, or artisanal activities and any other purposes carried out in an economic establishment.

The legislator distinguishes between actual bankruptcy and impending bankruptcy as follows:

Actual bankruptcy is when the debtor stops or is unable to regularly repay their due debts or when their total liabilities exceed the total value of their assets, meaning when their total obligations exceed their assets or the assets of their individual enterprise.

Impending bankruptcy is the situation where it is expected that the debtor will lose their future ability to repay their debts when due within six months, despite their current ability to do so. This means that the debtor has the financial capacity to meet immediate obligations, but according to their accounting records, they will be unable to meet future financial requirements when due within six months.

The question arises as to who is considered an insolvent debtor, as defined by the Bankruptcy Law in its second article, which states that an insolvent debtor is a natural or legal person subject to bankruptcy or impending bankruptcy. The provisions of the Bankruptcy Law apply to any person engaged in economic activity, including:

• Legal entities, including civil companies and government-owned companies.
• Merchants who own individual enterprises – these are registered in the commercial registry at the Central Registry Directorate in the Ministry of Industry, Trade, and Supply. Despite not having legal personality, this legislation is advanced to assist merchants and owners of individual enterprises as they primarily engage in economic activities.
• This law does not apply to banks, insurance companies, associations, clubs, and natural persons subject to civil law – except for registered and licensed professionals working according to applicable regulations – as well as ministries, government departments, public official institutions, public institutions, and municipalities.