Earlier this month, the cabinet approved a draft bankruptcy law which has been a pressing demand by businesses for years.
Companies wishing to exit the market in Egypt whether by choice through liquidation or forced through bankruptcy have previously had to go to court on a case-by-case basis facing difficulties such as long judicial procedures.
Once the new bankruptcy law is ratified by parliament, any business that is close to bankruptcy will have the option of conciliation with its creditors or restructuring its financial position.
The cabinet approved the draft law earlier this month and is waiting for parliament and the legislation division at the State Council to ratify it.
Mohsen Adel, a member of Egypt’s Economic Consultative Council, said the new law introduced mediation procedures to cut down the number of lawsuits. He said that the new law aimed to simplify procedures after declaring bankruptcy.
The bill introduces the principle of restructuring that requires business owners and creditors to reach an agreement in cases of the declaration of bankruptcy. It adopts a system of conciliation to prevent bankruptcy, first introduced in Law 17 of 1999, for owners whose businesses may be faltering but have not yet ceased payments.
Another advantage of the draft law is that it would cut down on lawsuits and protect foreign investors, Adel said. The draft bill removes the danger of imprisonment and only requires the possible payment of fines in bankruptcy cases.
Prior to the cabinet’s approval of the draft bill, Minister of Justice Hossam Abdel-Rehim said the new law stipulated the creation of bankruptcy departments in the country’s courts and the formation of expert committees to quickly restructure distressed businesses.
Investment Minister Dalia Khorshid told the press after the cabinet’s approval of the new law that it complemented the new investment law and improved the legislative environment regulating economic activities to attract more domestic and foreign investment.
She said that ratifying the new law would improve Egypt’s rating in the Global Competitiveness Index (GCI) because criteria for ease of exiting the market are currently major obstacles for the business environment.
A report by the Egyptian Centre for Economic Studies (ECES), an NGO, described the cabinet’s approval of the draft legislation as another step “on the path to reforming the investment climate,” stating that it was a key stimulant to attracting foreign investments.
“The law conveys a message of reassurance to foreign and domestic investors that they can liquidate or declare bankruptcy without being subjected to imprisonment,” according to the ECES.
It added that ratifying the bankruptcy law would contribute to correcting legislative flaws regarding investment, adding that the law was an important step towards encouraging small investors who would no longer fear that they could face imprisonment should they go bankrupt.
The draft bill introduces a restructuring system for businesses while regulating reintegration procedures and eliminating the penalty of imprisonment in cases of bankruptcy, previously a major concern for business owners.
Key terms and institutions introduced by the new law include bankruptcy departments within the courts to process applications for restructuring and conciliation to prevent bankruptcies.
Bankruptcy judges will review applications submitted to these departments, and specialised courts will deal with bankruptcy litigation.
Mediation procedures will be used to settle disputes through the intervention of bankruptcy judges who will try to reconcile the viewpoints of conflicting parties in contractual or non-contractual relationships and suggest appropriate solutions.
Conciliation to prevent bankruptcy procedures will be introduced to assist debtors in avoiding bankruptcy wherever possible, and conciliation trustees will follow up agreements between creditors and the debtors.
Conciliation judges will oversee such procedures, and case trustees will be appointed by the courts to manage cases.
The writer is a freelance journalist.