Bankruptcy (insolvency) process in Armenia
What is the basis for initiating bankruptcy proceedings?
Bankruptcy (insolvency) proceedings can be:
Involuntary, when it is filed by a creditor
Voluntary, when a debtor files for bankruptcy
What are the criteria for bankruptcy?
Both legal and physical persons (including sole proprietors) can be declared bankrupt if the default on their indisputable monetary obligations exceeds AMD 1 million and lasts 60 calendar days or more.
Bankruptcy can be filed by any creditor, including the state and communities if the debt owed to them meets the above-mentioned criteria. Such obligations may stem from an enforceable court decision, transactions, the debtor’s obligation to pay taxes, state duties and other compulsory payments.
In case of voluntary bankruptcy, the debtor has to prove that his assets are less than his liabilities by more than AMD 1 million.
How does the bankruptcy process start and end?
Bankruptcy proceedings commence when a bankruptcy application is submitted, and end with a judgment on their completion.
Bankruptcy proceedings may also end without declaring a person bankrupt when:
An applicant withdraws the application prior to the judgment
A settlement agreement is reached
The court does not accept the application for examination or rejects it after examination on the merits
What is the court fee for filing for bankruptcy?
The court fees are as follows:
AMD 100 000 for an application by a creator against an individual
AMD 500 000 for an application by a creator against a legal person
No court fees are payable when a debtor files for voluntary bankruptcy
When is the person considered bankrupt?
A person is considered bankrupt from the moment the judgments is rendered since a bankruptcy judgment enters into force right after the announcement.
Although the judgments can be appealed within 15 days following the announcement, it does not affect the actions and procedures within the bankruptcy proceedings.
When and how is the bankruptcy manager (Insolvency representative) appointed?
The bankruptcy manager is appointed by the court at the request of the applicant or if no candidacy is presented, by lottery.
From the moment of accepting a bankruptcy application for examination until a bankruptcy judgment is rendered, the powers of the bankruptcy manager are exercised by a temporary bankruptcy manager who is appointed the same way.
The list of bankruptcy managers can be found on THIS WEBSITE.
Right after the announcement of the decision on bankruptcy the court:
terminates the powers of the temporary bankruptcy manager and appoints a bankruptcy manager,
sets the time and place of creditors’ first meeting which must be held not sooner than 50 days and not later than 80 days following the publication on www.azdarar.am.
What does the bankruptcy manager do?
The bankruptcy manager takes measures aimed at finding, evaluating, stock-taking and sale of the debtor’s assets for the purpose of satisfying the registered claims of creditors.
Debtor’s assets are comprised of funds, other movable and immovable property belonging to the debtor, third-party collateral as well as other assets that are part of the insolvency estate and are subject to an auction or private sale. In some cases, creditors can take ownership of the debtor’s assets to satisfy their claims.
Assets of individual debtors
In cases where no financial recovery plan is confirmed, the assets of an individual debtor do not include the assets acquired after the bankruptcy judgment except the property inherited within the following 180 days as well as property acquired as a result of transactions that had been concluded prior to bankruptcy.
Who are the creditors?
A creditor is a person or organization that has a property claim (expressed in monetary value) against the debtor resulting from the debtor’s unfulfilled obligations.
Creditors must submit their claims and the grounds thereof to the court within 1 month following the announcement on www.azdarar.am by the bankruptcy manager.
Overdue claims are registered but considered subordinate to the timely submitted ones. Interests and penalties are calculated up until the date of the bankruptcy judgment since no interest and/or penalty can be accrued after a person is declared bankrupt.
What is the ranking of claims?
Claims are ranked according to their priority:
1. Secured claims. These are the claims that are secured by collateral, guarantee or other types of security interests. Secured claims have priority over any other claim.
2. Non-secured claims. Such claims, in their turn, are ranked as follows:
Costs in the bankruptcy proceeding and salaries and payroll of administrative employees
Compensation for damage to life and health, as well as alimony
Salaries, royalties, payroll
Tax obligations arising from the sale of the debtor’s property in the bankruptcy proceedings
Obligations that originated in the course of bankruptcy proceedings as a result of actions provided for by the law "On bankruptcy"
Other non-secured claims (including taxes, payroll other mandatory state payments, administrative penalties)
3. Subordinate non-secured claims. These are non-secured claims which have been submitted after the passage of the one-month period provided for the submission of claims.
What happens after the registration of the claims?
After the approval of the final list of creditors, the bankruptcy manager takes measures aimed at finding and stock-taking of the debtor’s assets. After an evaluation of such assets, they are sold through a private sale or, as usually the case is, presented for an auction. The date and terms of the auction is announced on www.azdarar.am. The bankruptcy manager holds the auction, signs both the minutes and the contract with the winner.
The price of the item sold (the lot) is transferred to the bankruptcy manager’s special bank account which is also used for the funds received by the bankruptcy manager from the sale of the debtor’s assets and other transactions.
Distribution plan: The bankruptcy manager then prepares an interim distribution plan or a distribution plan which indicates the amount that each creditor gets from the received funds. If there are no objections to the plan, the funds are sent to the creditors accordingly.
What consequences does the completion of bankruptcy proceedings have?
If all creditors’ claims are satisfied and the bankruptcy manager’s compensation and other costs are paid in full, the debtor is declared financially recovered and the court renders a judgment recognizing the debtor’s recovery.
If the debtor’s assets were not sufficient to satisfy all creditors’ claims and the possibility of finding new assets is exhausted, the court renders a judgment on the completion of the bankruptcy proceedings and the debtor’s liquidation (if the debtor is a legal entity).
After the completion of the bankruptcy proceedings regarding an individual, the person is freed from all obligations except:
Tax obligations that were hidden from tax authorities within a one-year period leading up to the bankruptcy
Compensation for damage to life and health
Compensation for damage caused by a criminal offense
Obligations exceeding AMD 100 000 which originated within 90 days prior to filing for bankruptcy
The value of the assets concealed by the debtor in bankruptcy proceedings
Financial recovery plan
The financial recovery plan is a document that specifies measures aimed at satisfying the creditors’ claims, sale of the existing assets, collection of new assets, the amount and timeframe for stratifying the creditors’ claims.
The financial recovery plan can be submitted after the bankruptcy judgment but before the first meeting of creditors. It can be submitted by:
1/3 of creditors
Persons owning 1/3 of the debtor’s shares
The financial recovery plan can initially be prepared for 32 months and extended by periods of 12 months. The maximum duration cannot exceed 72 months.
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