A new legal scenario that ensures the business activities

COMMERCIAL BANKRUPTCY LAW

A new legal scenario that ensures the business activities

In order to achieve the operational continuity of businesses, the new Mercantile Restructuring Law is a code that provides the best-suggested practices in this area.
This regulation is a contribution to the continuity of the business that finds itself in a risk scenario
The Executive Branch of the Dominican Republic issued In August 2015, Law 141-15 on Bankruptcy and Liquidation of Companies and Individuals Traders. This document was published in the Official Gazette on August 12 of that year.
 
This legislation establishes the protection of creditors as its object; “given the financial difficulty of debtors, which can prevent the fulfillment of the obligations assumed, and achieve operational continuity of businesses and individuals traders.” Two essential purposes emerge: first, to protect the creditor against the insolvency of the debtor; and secondly, to support the debtor to achieve viable business continuity, avoiding the closure of his operations.
 
Among the principles governing the structure of the law, are: the speed in the development process, friendly negotiability between the parties with a view to reaching an effective solution for everyone involved in the process, transparency and timely access to information, equitable and, under the principle of universality, which implies that all the debtor’s assets are affected by the process, and their creditors alike, regardless of which party has been driving the process.
 
The assets composing the mass of the debtor are as follows: assets and rights owned by the debtor on the date of the application for bankruptcy; assets and rights acquired after the bankruptcy application, including sales revenue, income, interest, among others; in addition to goods and rights claimed or recovered through existing legal procedures.
 
A new feature that this legislation has is the creation of a specialized jurisdiction of bankruptcy and liquidation, which would be competent to understand the processes established by the law, and the judicial actions that are linked to these processes.
 
 

Restructuration

The procedure in the law under study involves several steps, according to the situation of the debtor (natural or legal) and the level of ability to meet its economic and financial obligations. Bankruptcy Both the debtor and any of his creditors (who hold a debt minimum to 50 minimum wages), can request the bankruptcy of the person (natural or legal) who owes in the specialized court that was created by this law. This bankruptcy application must be based on one of the predefined conditions:
 
Breach of payment obligation, expired 90 days of its enforceability. For this condition to be applicable there must be recorded evidence of prior intimation to payment by the Creditor.
 
When the current liabilities exceed current assets of the company for more than 6 months.
 
Failure to pay any tax liability by more than six tax installments.
 
Nonpayment of two or more consecutive salaries to employees in corresponding dates.
 
Concealment of the administration of the company or if it remains vacant for a reasonable period without designating a representative to administer.
 
By order of the closure of the premises of the company, in case of concealment or absence of managers, or the partial or total transfer of assets and rights to a third party for distribution among creditors.
 
Making intentional, fraudulent, criminal conspiracy, breach of trust, forgery, and simulation or cheating on their obligations.
 
Notice to creditors of the suspension of payment, or intention to stop payment of debts.
 
The existence of restructuring, bankruptcy, insolvency or suspension of payments in a foreign country where the parent business of the company or individual debtor is located.
 
Existence of executive or real estate embargoes affecting the total assets in more than 50%. The existence of rulings or judgment enforcement processes, which could affect the total assets in more than 50%.
 
After receiving the application for bankruptcy by the debtor or creditor, the court appoints a Verifier, whose aim is to verify and report to the court on the debtor’s financial situation.
 
Perhaps, the most important aspect is the procedural stage in which the company or individual debtor is observed and limited in his decisions and operations. In fact, Article 38 of the law states that from the time the debtor is notified of the bankruptcy application, or he deposits it in court, both the Verifier and the court should be informed of any act performed by the debtor:
 
Modification of bylaws or constituent acts;
 
Mergers, takeovers or divisions in detriment of assets;
 
Constitution or execution of guarantees on assets and rights;
 
Reconciliations or transactions on obligations;
 
Agreements with creditors outside cases provided by law;
 
Compensation, payment arrangements, waivers, embargoes, unilateral or mutual agreement processes ongoing obligations or terminations;
 
Transfer of assets or rights outside ordinary operations.
 
Within 15 days of the appointment of the Verifier by the court, he must issue a report, which describes the debtor’s situation and verifies that they have met all the conditions required by the law for filing the deposited bankruptcy request. It is important to highlight that this report presented before the competent court is the first formal recognition of the credit balances have been checked and certified in this first stage of the process.
 
Through the report, the Verifier should recommend to the court whether or not the opening of a bankruptcy of the company or individual debtor should proceed or if it is appropriate to directly proceed to liquidating it. It should be noted that the court should consider the defense the debtor can present, if the bankruptcy has not been requested by him.
 
Another aspect of great importance is the time in which the process is made public. This aspect is of particular interest for creditors who have not become aware of the opening of a bankruptcy by the debtor, or who have not been determined and accordingly recorded in the report issued by the Verifier.
 
The process is made public through the issuance of an irrevocable ruling that welcomes or rejects the request for bankruptcy in court, which must be published and extended an invitation to all the creditors of the debtor for them to participate in the process of recognition of their claims.

Conciliation and Negotiation

Once the competent court receives the bankruptcy application, it proceed to appoint the conciliator, this is “the natural person designated by the court to ensure that the debtor and its creditors to reach a bankruptcy agreement”. When the bankruptcy plan is approved, this is the person designated to oversee the correct implementation of the plan.
 
At this stage, the law establishes that suspensive effects of various scenarios can occur, while a bankruptcy plan is pending on approval, whether it is to finalize the conciliation proceedings or the judicial liquidation of the debtor is instructed. The acts suspended are:
 
Judicial, administrative or arbitral actions exercised against the debtor.
 
Enforcement procedures, eviction or seizure of movable and immovable property of the debtor. Act of disposition of debtor´s assets (except those permitted by law).
 
Calculation of conventional interests, judicial interests, and the effects of penalty clauses.
 
Payment of all debts contracted prior to the date of the application for bankruptcy, including payment obligations generated by issuances of securities publicly offered.
 
Procedures for tax credit Implementation The suspensions established in Article 54, described above, do not include certain mandatory obligations, such as payment of child support and family, labor claims and aspects of social security of employees of the debtor and payments, which are essential for the regular operation of the company. The Conciliator will verify the latter.
 
The main purpose of conciliation and negotiation stage lies in the development of a Bankruptcy Plan of the company or individual debtor, in order to achieve their operational continuity.
 
As for the rights over debts, the law commands in several provisions that creditors declare these in court. During the different stages of the bankruptcy process, reconciliation and settlement, there are several opportunities to make any declaration, even though late, of credits that have not been recorded in the report issued by the Verifier in the initial phase.
 
Notwithstanding the above, the law is clear in stating that these statements should be made before the report the Conciliator deposits before the court, since the definitive list of credits, accompanied by a list of tax and labor credits of the debtor will be the document used to define the voting rights of creditors regarding the Bankruptcy Plan.
 
Once the court approves the Bankruptcy Plan, the process of reconciliation and negotiation concludes. The approval of the plan gives rise to dictate the obligations of the debtor and creditors. The proper monitoring of the implemented Plan corresponds to the Conciliator.

Judicial settlement

It should be noted that both the Conciliator and the debtor or any of the recognized creditors could request to the court the stopping of the implementation of the Bankruptcy Plan and the beginning of the process of liquidation of the debtor. The court must decide, by ruling and after respecting the parties´ rights of defense, on the opening or not opening of the liquidation process.
 
Should a process of liquidation be opened, the court will appoint the Liquidator, defined by law as the “natural person designated to draw up an inventory of the debtor’s assets, determine the verification of claims and set the order of creditors and other liquidation operations, including the realization of assets and distribution of proceeds from the sale to creditors “.
 
It is important to note that the ruling pronounced by the judicial liquidation of the debtor eliminates the suspensive effect of the actions described in the preceding paragraphs. Additionally, the debtor will be dispossessed of the administration and disposition of all the assets that make up the mass. Until the liquidation process is completed, the Liquidator is empowered with all the administration powers of the debtor.
 
In this process of liquidation there is also a new opportunity for the declaration of debts not recorded in the previous stages. Through the Liquidator, any unrecognized creditor can declare his credits, in order to be taken into account during the repartition and dividends.
 
Taking into account the debtor’s assets and debts declared, the Liquidator presents a Liquidation Plan to the court. Similarly, this figure set by law must assume the proper execution of the plan until its completion.