By the beginning of 2018, the Egyptian Government has promulgated a new Law no. 11 of year 2018 regulating Restructuring, Preventive Composition and Bankruptcy (the ‘Law’) which abrogated and replaced Chapter 5 of the Egyptian Commercial Law No. 17 of 1999.
The Law is a new tool aimed at boosting the Egyptian economic status. The law enhances a new culture of creditor cooperation in debt restructuring to avoid the closure of business in addition to promoting the distribution and use of assets of failing businesses more efficiently and equitably.
Purpose of the Restructuring
The purpose of the restructuring is to set a plan for reorganizing the company’s financial and administrative system with the aim of paying off its debts. So, instead of declaring bankruptcy or opting for liquidation, companies could apply for restructuring to save their business.
The Law aims to provide a safe environment for investors, looking for options of continuation of the business rather than declaring bankruptcy, and facilitates smooth entrance to and exit from the Egyptian Market.
Which company could apply for restructuring?
A company with capital of not less than 1,000,000 EGP (one million Egyptian Pounds only) that has carried out trade for at least 2 years may submit an application for restructuring. A company under liquidation or that has a judgment against them declaring bankruptcy may not apply for restructuring.
The Restructuring Committee
The Restructuring Committee is a committee that has been established to receive restructuring applications. It consists of a group of experts from offices and companies specialized in the field of restructuring and asset management, as well as experts from the Ministries of Finance, Investment, Trade, and Industry, Manpower, the Central Bank of Egypt, the General Authority for Investment, the Financial Supervisory Authority, the Egyptian Stock Exchange, and the Federation General of the Egyptian Chambers of Commerce, the Federation of Egyptian Industries, bankruptcy trustees, appraisers, and others when necessary. The experts are listed in the Economic Courts Expert Lists and the Competent Minister issues the regulations for their appointment, salaries, and qualifications.
Submission of the restructuring application
The submission process passes with the following:
- A company is to submit the restricting application along with attached documents indicating the reasons for the financial turmoil, the date of its origin, the measures taken to avoid its occurrence or to deal with its effects, and what they deem necessary to get out of it.
- The Restructuring Committee must submit a report to the Bankruptcy Judge within 6 months from the date of submission, including its opinion on the cause of the company’s business disruption, the feasibility of restructuring, and the proposed plan for that. The Judge could extend the plan for the same period, whereas the execution of the restructuring plan shall not exceed 5 years.
- The Bankruptcy Judge shall approve the restructuring plan submitted by the Restructuring Committee based on the approval of the signatory parties. In this case, the restructuring plan will be binding on them.
- The Bankruptcy Judge shall appoint an assistant from among the trustees or experts registered in the bankruptcy management experts’ list, or from others chosen by the parties, to assist the company. The assistant will be appointed on the basis that they shall be able to determine their fees according to what was agreed upon by the parties, and in the event that this is not possible, the Judge shall determine the fees.
Role of the Assistant appointed by the Bankruptcy Judge
- Evaluate the company’s financial and management status.
- Consultancy and technical support
- Assist the company in an amicable settlement with its debtors.
- Developing a mechanism for implementing the procedures of the restructuring plan.
- Preparation of a report on a quarterly basis concerning the progress of the procedures of the restructuring plan and the company’s compliance with it.
Termination of the Restructuring Plan
The Judge shall terminate the restructuring plan upon completion of its implementation, or breach of it for any reason, at the request of any of its parties.
The new Law regulates new systems to avoid the situation of bankruptcy for the benefit of the companies and investors. The restructuring would be preferable than the bankruptcy process.
It should be noted that the Economic Court rarely rules on the decision to declare bankruptcy for companies. Alternatively, the new Law encourages companies to adopt alternative solutions such as restructuring.
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