On April 24, 2018, the Law of the Republic of Azerbaijan (hereinafter: The Law "on Amendments to the Law of the Republic of Azerbaijan about Insolvency and Bankruptcy "was adopted. These changes can be classified in three groups:

1. About the compilation of sanation plan and the legal consequences of it;
2. About the sales process of the debtor's assets;
3. About the contracts that artificially changes the queue of payments.

About the compilation of sanation plan and the legal consequences of it

With the amendments, the concept of "sanation plan" has been included to the law. The sanation plan is a complex of measures by debtors and creditors, which reflects payment schedules, results, resources and probable risks. The content of sanation plan is determined by the Cabinet of Ministers. The sanation plan must be drawn up within 3 months after making a decision about that. The mentioned plan and its amendments shall be adopted by meeting of creditors. Also, the composition of the meeting of creditors was determined with amendments to the Law. Thus, if the creditors differ in terms of their claims and security of their claims, the creditors' groups shall be created.

These groups are organized based on the following criteria:

a) the creditors whose claims are secured by mortgages and foreclosures;

b) claims for damages to life or health, as well as creditors whose claims are on alimony;

c) creditors with claims on payment of disbursement of allowances and salaries to persons who are employed under an employment contract and on payment of fees for copywrite contract;

d) creditors on payments to the state budget, extra-budgetary state fund for mandatory state social insurance premiums and budgets of municipalities, unsecured loans of credit institutions and their interest rates;

e) other unsecured creditors (including unsecured creditors on goods, work and service contracts) on claims arising from the law or contract;

f) founders (shareholders) of the debtor legal entity.

More than 2/3 of creditors on each group should participate in the adoption of a sanation plan. During the adoption of the plan, in respect to secured group of creditors, creditors with more than 2/3 of the total amount of claims, and for a group of unsecured creditors, creditors with more than half of the claims should approve sanation plan. It should be noted that, if the debtor has related parties in unsecured creditors, their votes are not considered during the adoption of the sanation plan. One member from each group of creditors should participate in the meeting of creditors. The sanation plan is adopted by a simple majority of votes of the members, and if the votes are equal, the vote of the chair elected by the meeting shall be deemed decisive. The sanation plan must be submitted to the court for approval within 3 days of its adoption.

When the process of sanation begins, it creates certain legal consequences as follows:

a) debtor's founders (participants), other management and supervisory authorities shall be forbidden from the use and dispose of property belonging to the debtor, taking into account the rights of the Administrator of the property specified in Article 20 § 4 of the Law;

b) the execution of decisions by the courts on all claims of the debtor's creditors, debtor's founders (shareholders) and members of other management and supervisory authorities against the debtor is suspended;

c) it is not permitted to file a bankruptcy case against the debtor with the application of all creditors, debtor's founders (shareholders) and other members of the management and supervisory authorities of the debtor;

d) withdrawal of money from debtor's bank accounts, as well as directing the claims to the debtor's property is not permitted on claims of all creditors of the debtor, including claims that are to be discharged unconditionally.

However, if there are cases that may result with the abolition of the assurance item on the secured claims, a judgment can be taken to eliminate the above-mentioned legal consequences.

2. About the sales process of the debtor's assets

According to another amendment, the consent of the meeting of creditors is required when selling assets that cost 5% or more of the debtor's assets. The consent of the meeting of creditors is not required while the sale of assets that cost less than 5% of the debtor's assets.

3. About the contracts that artificially changes the priority of payments

Also, according to the amendments, if the debtor has made a deal, 6 months prior to the debtor's bankruptcy process that makes one of the creditors superior to others in terms of queue of payments, the property administrator may apply to the court for the dispute of such an agreement.

Please contact us for more information about the changes mentioned above, as well as for taking these changes into account in your business.
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