Table of concordance between recommendations in the text on a simplified insolvency regime and recommendations in the UNCITRAL Legislative Guide on Insolvency Law

Key objectives of a simplified insolvency regime (recommendation 1): in addition to listing key objectives of a simplified insolvency regime, recommendation 1 cross-refers to the objectives of an effective insolvency law

Key objectives of a simplified insolvency regime

1. States should provide for a simplified insolvency regime and for that purpose consider the following key objectives:

(a) Putting in place expeditious, simple, flexible and low-cost insolvency proceedings (henceforth referred to as “simplified insolvency proceedings”);

(b) Making simplified insolvency proceedings available and easily accessible to micro- and small enterprises (MSEs);

(c) Promoting the MSE debtor’s fresh start by enabling expedient liquidation of non-viable MSEs and reorganization of viable MSEs through simplified insolvency proceedings;

(d) Ensuring protection of persons affected by simplified insolvency proceedings, including creditors, employees and other stakeholders (henceforth referred to as “parties in interest”) throughout simplified insolvency proceedings;

(e) Providing effective measures to facilitate participation by creditors and other parties in interest in simplified insolvency proceedings, and to address creditor disengagement;

(f) Implementing an effective sanctions regime to prevent abuse or improper use of the simplified insolvency regime and to impose appropriate penalties for misconduct;

(g) Addressing concerns over stigmatization because of insolvency; and

(h) Where reorganization is feasible, preserving employment and investment.

Those objectives are in addition to the objectives of an effective insolvency law as set out in recommendations 1–5 of the UNCITRAL Legislative Guide on Insolvency Law (the “Guide”), such as the provision of certainty in the market to promote economic stability and growth, maximization of value of assets, preservation of the insolvency estate to allow equitable distribution to creditors, equitable treatment of similarly situated creditors, ensuring transparency and predictability, recognition of existing creditor rights and establishment of clear rules for ranking of priority.

Recommendations 1 to 5

 1. In order to establish and develop an effective insolvency law, the

following key objectives should be considered:

a) Provide certainty in the market to promote economic stability and growth;

b) Maximize value of assets;

c) Strike a balance between liquidation and reorganization;

d) Ensure equitable treatment of similarly situated creditors;

e) Provide for timely, efficient and impartial resolution of insolvency;

f) Preserve the insolvency estate to allow equitable distribution to

g) creditors;

h) Ensure a transparent and predictable insolvency law that contains incentives for gathering and dispensing information; and

i) Recognize existing creditors rights and establish clear rules for ranking of priority claims.

2. The insolvency law should include provisions addressing both reorganization and liquidation of a debtor.

3. The insolvency law should recognize rights and claims arising under law other than the insolvency law, whether domestic or foreign, except to the extent of any express limitation set forth in the insolvency law.

4. The insolvency law should specify that where a security interest is effective and enforceable under law other than the insolvency law, it will be recognized in insolvency proceedings as effective and enforceable.

5. The insolvency law should include a modern, harmonized and fair framework to address effectively instances of cross-border insolvency. Enactment of the UNCITRAL Model Law on Cross-Border Insolvency is recommended.

Application to all micro- and small enterprises 

2. States should ensure that a simplified insolvency regime applies to all MSEs. Aspects of the regime may differ depending on the type of MSE. (See recommendations 8 and 9 of the Guide.)

Recommendations 8 and 9

Eligibility 

8. The insolvency law should govern insolvency proceedings against all debtors that engage in economic activities, whether natural or legal persons, including state-owned enterprises,[1] and whether or not those economic activities are conducted for profit.

9. Exclusions from the application of the insolvency law should be limited and clearly identified in the insolvency law.[2]

Comprehensive treatment of all debts of individual entrepreneurs 

3. States should ensure that all debts of an individual entrepreneur are addressed in a single simplified insolvency proceeding unless the State decides to subject some debts of individual entrepreneurs to other insolvency regimes, in which case procedural consolidation or coordination of linked insolvency proceedings should be ensured.

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Types of simplified insolvency proceedings 

4. States should ensure that a simplified insolvency regime provides for simplified liquidation and simplified reorganization. (See recommendation 2 of the Guide.)

Recommendation 2

2. The insolvency law should include provisions addressing both reorganization and liquidation of a debtor.

Competent authority and an independent professional 

5. The insolvency law providing for a simplified insolvency regime should:

(a) Clearly indicate the competent authority; (See recommendation 13 of the Guide.)

(b) Specify the functions of the competent authority and any independent professional used in the administration of simplified insolvency; and

(c) Specify mechanisms for review and appeal of the decisions of the competent authority and any independent professional used in the administration of simplified insolvency proceedings.

Possible functions of the competent authority

6. The insolvency law providing for a simplified insolvency regime may specify, for example, the following functions of the competent authority:

(a) Verification of eligibility requirements for commencement of a simplified insolvency proceeding;

(b) Verification of accuracy of information provided to the competent authority by the debtor, creditors and other parties in interest, including as regards the debtor’s assets, liabilities and recent transactions;

(c) Resolution of disputes concerning the type of proceeding to commence;

(d) Conversion of one proceeding to another;

(e) Exercise of control over the insolvency estate;

(f) Verification and review of the reorganization plan and the liquidation schedule for compliance with law;

(g) Supervision of the implementation of a debt repayment or reorganization plan and verification of the implementation of the plan;

(h) Decisions related to the stay of proceedings, relief from the stay, creditors’ objections or opposition, disputes, approval of a liquidation schedule and confirmation of a reorganization plan; and

(i) Oversight of compliance by the parties with their obligations under the simplified insolvency regime, including any obligations owed to employees under the insolvency law and other laws applicable within insolvency proceedings.

Appointment of persons to assist the competent authority in the performance of its functions

7. The insolvency law providing for a simplified insolvency regime should allow the competent authority to appoint one or more persons, including independent professionals, to assist it in the performance of its functions.

Recommendation 13

Competent courts 

13. The insolvency law should clearly indicate (or include a reference to the relevant law that establishes) the court that has jurisdiction over the commencement and conduct of insolvency proceedings, including matters arising in the course of those proceedings.

Independent professional (recommendations 5 and 7–9)

Competent authority and an independent professional

5. The insolvency law providing for a simplified insolvency regime should:

(a) Clearly indicate the competent authority; (See recommendation 13 of the Guide.)

(b) Specify the functions of the competent authority and any independent professional used in the administration of simplified insolvency; and

(c) Specify mechanisms for review and appeal of the decisions of the competent authority and any independent professional used in the administration of simplified insolvency proceedings.

Appointment of persons to assist the competent authority in the performance of its functions

7. The insolvency law providing for a simplified insolvency regime should allow the competent authority to appoint one or more persons, including independent professionals, to assist it in the performance of its functions.

Possible functions of an independent professional

8. If the insolvency law providing for a simplified insolvency regime envisages the use of an independent professional in the administration of simplified insolvency proceedings, it should allocate the functions of the competent authority, such as those illustrated in recommendation 6, between the competent authority and an independent professional. That law may provide for such allocation to be determined by the competent authority itself.

Support with the use of a simplified insolvency regime

9. The insolvency law providing for a simplified insolvency regime should specify measures to make assistance and support with the use of a simplified insolvency regime readily available and easily accessible. Such measures may include services of an independent professional; templates, schedules and standard forms; and an enabling framework for the use of electronic means where information and communications technology in the State so permits and in accordance with other applicable law of that State.

No equivalent but recommendations 115–125 of the Guide are relevant where an independent professional performs functions of the insolvency representative

Contents of legislative provisions

Qualifications 

115. The insolvency law should specify the qualifications and qualities required for appointment as an insolvency representative, including integrity, independence, impartiality, requisite knowledge of relevant commercial law and experience in commercial and business matters. The insolvency law should also specify the grounds upon which a proposed insolvency representative may be disqualified from appointment.

Conflict of interest 

116. The insolvency law should require the disclosure of a conflict of interest, a lack of independence or circumstances that may lead to a conflict of interest or lack of independence by:

a) A person proposed for appointment as an insolvency representative or a person appointed as an insolvency representative where the conflict of interest or the circumstances that may lead to a conflict of interest or lack of independence arise in the course of insolvency proceedings; and

b) Persons proposed for employment by the insolvency representative or the estate, including professionals or a person employed by the insolvency representative or the estate, where the conflict of interest or the circumstances that may lead to a conflict of interest or lack of independence arise in the course of insolvency proceedings.

117. The insolvency law should specify that the obligation to disclose set forth in recommendation 116 should continue throughout the insolvency proceedings. The insolvency law should specify the consequences of a conflict of interest or lack of independence.

Appointment 

118. The insolvency law should establish a mechanism for selection and appointment of an insolvency representative. Different approaches may be taken, including appointment by the court; by an independent appointing authority; on the basis of a recommendation by creditors or the creditor committee; by the debtor; or by operation of insolvency law, where the insolvency representative is a government or administrative agency or official.

Remuneration 

119. The insolvency law should establish a mechanism for fixing the remuneration of the insolvency representative and establish priority for payment of that remuneration.

Duties and functions of the insolvency representative 

120. The insolvency law should specify that the insolvency representative has an obligation to protect and preserve the assets of the estate. The insolvency law should specify the insolvency representative’s duties and functions with respect to the administration of the proceedings and preservation and protection of the estate, including continued operation of the debtor’s business.

Right to be heard

See recommendation 137.

Confidentiality 

See recommendation 111.

Liability 

121. The insolvency law should specify the consequences of the insolvency representative’s failure to perform, or to properly perform, its duties and functions under the law and any related standard of liability imposed.

Removal and replacement 

122. The insolvency law should establish the grounds and procedure for removal of the insolvency representative. The grounds may include:

a) Incompetence, failure to perform or failure to exercise the proper degree of care in the performance of its powers and functions;

b) Inability to perform;

c) Lack of a particular or specialized qualification required by a specific case;

d) Engaging in illegal acts or conduct;

e) Conflict of interest or a lack of independence that would justify

f) removal; or

g) Where the function of the insolvency representative changes.[3]

123. The insolvency law should establish a mechanism for removal of the insolvency representative that reflects the manner in which the insolvency representative was appointed and provides a right for the insolvency representative to be heard.

124. In the event of the death, resignation or removal of the insolvency representative, the insolvency law should establish a mechanism for appointment of a replacement and specify whether or not court approval of the replacement is necessary.

Estates with insufficient assets to meet the costs of administration 

125. Where the insolvency law provides for an insolvency representative to be appointed to administer an estate with insufficient assets to meet the costs of administration, the insolvency law should also establish a mechanism for appointment and remuneration of that representative.

Support with the use of a simplified insolvency regime 

9. The insolvency law providing for a simplified insolvency regime should specify measures to make assistance and support with the use of a simplified insolvency regime readily available and easily accessible. Such measures may include services of an independent professional; templates, schedules and standard forms; and an enabling framework for the use of electronic means where information and communications technology in the State so permits and in accordance with other applicable law of that State.

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Mechanisms for covering costs of administering simplified insolvency proceedings 

10. The insolvency law providing for a simplified insolvency regime should specify mechanisms for covering the costs of administering simplified insolvency proceedings where assets and sources of revenue of the debtor are insufficient to meet those costs. (See recommendations 26 and 125 of the Guide.)

Recommendations 26 and 125

Debtors with insufficient assets 

26. The insolvency law should specify the treatment of debtors whose assets and sources of revenue are insufficient to meet the costs of administering the insolvency proceedings. Different approaches may be taken, including:

a) Denial of the application, except where the debtor is an individual who would be entitled to a discharge; or

b) Commencement of the proceedings, where different mechanisms for appointment and remuneration of the insolvency representative may be available.[4]

125. Where the insolvency law provides for an insolvency representative to be appointed to administer an estate with insufficient assets to meet the costs of administration, the insolvency law should also establish a mechanism for appointment and remuneration of that representative.

Default procedures and treatment 

11. The insolvency law providing for a simplified insolvency regime should specify the default procedures and treatment that apply unless any party in interest objects or intervenes with a request for a different procedure or treatment or other circumstances exist that justify a different procedure or treatment.

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Short time periods 

12. The insolvency law providing for a simplified insolvency regime should specify short time periods for all procedural steps in simplified insolvency proceedings, narrow grounds for their extension and the maximum number, if any, of permitted extensions.

No equivalent but see a footnote to recommendation 43, reading: "Any time limit included in the insolvency law should be short in order to prevent the loss of value of the debtor’s business."

Reduced formalities 

13. Consistent with the objective of establishing a cost-effective simplified insolvency regime, the insolvency law providing for a simplified insolvency regime should reduce formalities for all procedural steps in simplified insolvency proceedings, including for submission of claims, for obtaining approvals and for giving notices and notifications.

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Debtor-in-possession in simplified reorganization proceedings
 

Debtor-in-possession as the default approach

14. The insolvency law providing for a simplified insolvency regime should specify that, in simplified reorganization proceedings, the debtor remains in control of its assets and the day-to-day operation of its business with appropriate supervision and assistance of the competent authority.

Rights and obligations of the debtor-in-possession

15. The insolvency law providing for a simplified insolvency regime should specify the rights and obligations of the debtor-in-possession, in particular as regards the use and disposal of assets,^[5] post-commencement finance^[6] and treatment of contracts,^[7] and allow the competent authority to specify them on a case-by-case basis.

Limited or total displacement of the debtor-in-possession

16. The insolvency law providing for a simplified insolvency regime should specify:

(a) Circumstances justifying limited or total displacement of the debtor-in-possession in simplified reorganization proceedings;

(b) Persons who may displace the debtor-in-possession in simplified reorganization proceedings; and

(c) That the competent authority should be authorized to decide on displacement and terms of displacement on a case-by-case basis. (See recommendations 112 and 113 of the Guide.)

Recommendations 112 and 113

The debtor’s role in continuation of the business 

112. The insolvency law should specify the role of the debtor in the continuing operation of the business during insolvency proceedings. Different approaches may be taken, including:

a) Retention of full control of the business (debtor in possession), with appropriate protections including varying levels of control of the debtor and provision for displacement of the debtor in specified circumstances;[8]

b) Limited displacement, where the debtor may continue to operate the business on a day-to-day basis, subject to the supervision of an insolvency representative, in which event the division of responsibilities between the debtor and the insolvency representative should be specified in the law; or

c) Total displacement of the debtor from any role in the business and the appointment of an insolvency representative.

113. The insolvency law should specify, where the debtor is a debtor in possession, those functions of the insolvency representative that may be performed by the debtor in possession.

Possible involvement of the debtor in the liquidation of the insolvency estate 

17. The insolvency law providing for a simplified insolvency regime may specify circumstances under which the competent authority may allow the debtor’s involvement in the liquidation of the insolvency estate and the extent of such involvement.

Id.

Deemed approval 

18. The insolvency law providing for a simplified insolvency regime should specify the matters which require approval of creditors and establish the relevant approval requirements. (See recommendation 127 of the Guide.) It should also specify that approvals on those matters are deemed to be obtained where:

(a) Those matters have been notified by the competent authority to relevant creditors in accordance with procedures and time periods established for such purpose in the insolvency law providing for a simplified insolvency regime or by the competent authority; and

(b) Neither objection nor sufficient opposition as regards those matters is communicated to the competent authority in accordance with procedures and time periods established for such purpose in the insolvency law providing for a simplified insolvency regime or by the competent authority.

No equivalent but recommendation 127 is relevant

Voting by creditors 

127. The insolvency law should specify the matters on which a vote of creditors is required and establish the relevant eligibility and voting requirements. In particular, the insolvency law should require creditors to vote on approval or rejection of a reorganization plan.

Rights and obligations of parties in interest:

19. The insolvency law providing for a simplified insolvency regime should specify rights and obligations of the MSE debtor, of the creditors and of other parties in interest, including employees where applicable under national law, such as:

(a) The right to be heard and request review on any issue in the simplified insolvency proceedings that affects their rights, obligations or interests; (See recommendations 137 and 138 of the Guide.)

(b) The right to participate in the simplified insolvency proceedings and to obtain information relating to the proceeding from the competent authority subject to appropriate protection of information that is commercially sensitive, confidential or private; (See recommendations 108, 111 and 126 of the Guide.)

(c) Where the debtor is an individual entrepreneur, the right of the
debtor to retain the assets excluded from the insolvency estate by law. (See recommendation 109 of the Guide.)

Recommendations 137 and 138

Right to be heard and to request review 

137. The insolvency law should specify that a party in interest has a right to be heard on any issue in the insolvency proceedings that affects its rights, obligations or interests. For example, a party in interest should be entitled:

a) To object to any act that requires court approval;

b) To request review by the court of any act for which court approval was not required or not requested; and

c) To request any relief available to it in insolvency proceedings.

Right of appeal[9]

138. The insolvency law should specify that a party in interest may appeal from any order of the court in the insolvency proceedings that affects its rights, obligations or interests.

Recommendations 108, 111 and 126

Right to participate and request information 

108. The insolvency law should specify that the debtor is entitled to participate in the insolvency proceedings, and to obtain information relating to those proceedings from the insolvency representative and the court.

Confidentiality 

111. The insolvency law should specify protections for information provided by the debtor or concerning the debtor[10] that is commercially sensitive or confidential.

Participation by creditors 

126. The insolvency law should specify that creditors, both secured and unsecured, are entitled to participate in insolvency proceedings and identify what that participation may involve in terms of the functions that may be performed.

Recommendation 109

Right to retain property to preserve the personal rights of the debtor 

109. Where the debtor is a natural person, the insolvency law should specify that the debtor is entitled to retain those assets excluded from the estate by the law.[11]

Obligations of the debtor 

20. The insolvency law providing for a simplified insolvency regime should specify the obligations of the MSE debtor that should arise on the commencement of, and continue throughout, the proceedings. The obligations should include the following:

(a) To cooperate with and assist the competent authority to perform its functions, including where applicable to take effective control of the estate, wherever located, and of business records, and to facilitate or cooperate in the recovery of the assets;

(b) To provide accurate, reliable and complete information relating to its financial position and business affairs, subject to allowing the debtor the time necessary to collect the relevant information, with the assistance of the competent authority where required including an independent professional where appointed, and subject to appropriate protection of commercially sensitive, confidential and private information;

(c) To provide notice of the change of a habitual place of residence or place of business;

(d) To adhere to the terms of the liquidation schedule or reorganization plan; and

(e) In the day-to-day operation of the business, to have otherwise due regard to the interests of creditors and other parties in interest.

(See recommendations 110 and 111 of the Guide.)

Recommendations 110 and 111

Obligations of the debtor 

110. The insolvency law should clearly specify the debtor’s obligations in respect of insolvency proceedings. Those obligations should arise on the commencement of, and continue throughout, those proceedings. The obligations should include obligations:

a) To cooperate with and assist the insolvency representative to perform its duties;

b) To provide accurate, reliable and complete information relating to its financial position and business affairs that might be requested by the court, the insolvency representative, creditors and/or the creditor committee, including lists of:[12]

i. Transactions occurring prior to commencement that involved the debtor or the assets of the debtor;

ii. Ongoing court, arbitration or administrative proceedings, including enforcement proceedings;

iii. Assets, liabilities, income and disbursements;

iv. Debtors and their obligations; and

v. Creditors and their claims prepared in cooperation with the insolvency representative and revised and amended by the debtor as claims are verified and admitted or denied;

c) To cooperate with the insolvency representative to enable the insolvency representative to take effective control of the estate and to facilitate or cooperate in the recovery by the insolvency representative of the assets, or control of the assets of the estate, wherever located[13] and business records; and

d) Where the debtor is a natural person, to provide notice to the court if it proposes or is forced to leave its habitual place of residence and, where the debtor is a legal person, to obtain the consent of the court or the insolvency representative to the movement of its the headquarters.

Confidentiality 

111. The insolvency law should specify protections for information provided by the debtor or concerning the debtor[14] that is commercially sensitive or confidential.

Protection of employees’ rights and interests in simplified insolvency proceedings 

21. The insolvency law providing for a simplified insolvency regime should require the competent authority to ensure that all requirements of insolvency law and other laws applicable within insolvency proceedings relating to the protection of employees’ rights and interests in insolvency are complied with in simplified insolvency proceedings. Those requirements may include, in particular, the requirement to keep the MSE debtor’s employees properly informed, either directly or through their representatives, about the commencement of a simplified insolvency proceeding and all matters arising from that proceeding affecting their employment status and entitlements.

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Eligibility 

22. The insolvency law providing for a simplified insolvency regime should establish the criteria that debtors must meet in order to be eligible for simplified insolvency proceedings, minimizing the number of such criteria, and specify under what conditions creditors of the eligible debtors may also apply for commencement of simplified insolvency proceedings with respect to those debtors.

(See recommendations 8, 9 and 14-16 of the Guide.)

Recommendations 8, 9 and 14–16

Eligibility 

8. The insolvency law should govern insolvency proceedings against all debtors that engage in economic activities, whether natural or legal persons, including state-owned enterprises,[15] and whether or not those economic activities are conducted for profit.

9. Exclusions from the application of the insolvency law should be limited and clearly identified in the insolvency law.[16]

Persons permitted to apply 

14. The insolvency law should specify the persons permitted to make an application for commencement of insolvency proceedings, which should include the debtor and any of its creditors.[17]

Debtor application 

15. The insolvency law should specify that insolvency proceedings can be commenced on the application of a debtor if the debtor can show either that:

a) It is or will be generally unable to pay its debts as they mature; or

b) Its liabilities exceed the value of its assets.[18]

Creditor application 

16. The insolvency law should specify that insolvency proceedings can be commenced on the application of a creditor if it can be shown that either:

a) The debtor is generally unable to pay its debts as they mature; or

b) The debtor’s liabilities exceed the value of its assets.

Commencement criteria and procedures 

23. The insolvency law providing for a simplified insolvency regime should:

(a) Establish transparent, certain and simple criteria and procedures for commencement of simplified insolvency proceedings;

(b) Enable applications for simplified insolvency proceedings to be made and dealt with in a speedy, efficient and cost-effective manner; and

(c) Establish safeguards to protect debtors, creditors and other parties in interest, including employees, from abuse of the application procedure.

(Seethe text preceding recommendation 14 of the Guide.)

The text preceding recommendation 14 describing purpose of legislative provisions

Purpose of legislative provisions

The purpose of provisions on commencement of insolvency proceedings is:

a) To facilitate access for debtors and creditors to the remedies provided by the law;

b) To establish commencement criteria that are transparent and certain;

c) To enable applications for insolvency proceedings to be made and

b) dealt with in a speedy, efficient and cost-effective manner;

a) To establish safeguards to protect both debtors and creditors from improper use of the application procedure; and

b) To establish requirements for effective notification of commencement of proceedings.

Application 

24. The insolvency law providing for a simplified insolvency regime should allow eligible debtors to apply for commencement of a simplified insolvency proceeding at an early stage of financial distress without the need to prove insolvency. (See recommendation 15 of the Guide.)

Recommendation 15

Debtor application 

15. The insolvency law should specify that insolvency proceedings can be commenced on the application of a debtor if the debtor can show either that:

a) It is or will be generally unable to pay its debts as they mature; or

b) Its liabilities exceed the value of its assets.[19]

Information to be included in the application 

25. The insolvency law providing for a simplified insolvency regime should specify information that the debtor must include in its application for commencement of a simplified insolvency proceeding, keeping the disclosure obligation at the stage of application to the minimum. It should require that information to be accurate, reliable and complete.

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Effective date of commencement 

Effective date of commencement

26. The insolvency law providing for a simplified insolvency regime should specify that where the application for commencement is made by the debtor:

(a) The application for commencement will automatically commence a simplified insolvency proceeding; or

(b) The competent authority will promptly determine its jurisdiction and whether the debtor is eligible and, if so, commence a simplified insolvency proceeding.

(See recommendation 18 of the Guide.)

Recommendation 18

Commencement on debtor application 

18. The insolvency law should specify that where the application for commencement is made by the debtor:

a) The application for commencement will automatically commence the insolvency proceedings; or

b) The court will promptly determine its jurisdiction and whether the debtor is eligible and the commencement standard has been met and, if so, commence insolvency proceedings.

Commencement on creditor application 

27. The insolvency law providing for a simplified insolvency regime should specify that a simplified insolvency proceeding may be commenced on the application of a creditor of a debtor which is eligible for simplified insolvency proceedings, provided that:

(a) Notice of application is promptly given to the debtor;

(b) The debtor is given the opportunity to respond to the application, by contesting the application, consenting to the application or requesting the commencement of a proceeding different from the one applied for by the creditor; and

(c) A simplified insolvency proceeding of the type to be determined by the competent authority commences without agreement of the debtor only after it is established that the debtor is insolvent.

(See recommendation 19 of the Guide.)

Recommendation 19

Commencement on creditor application 

19. The law generally should specify that, where a creditor makes the application for commencement:

a) Notice of the application promptly is given to the debtor;[20]

b) The debtor be given the opportunity to respond to the application, by contesting the application, consenting to the application or, where the application seeks liquidation, requesting the commencement of reorganization proceedings; and

c) The court will promptly determine its jurisdiction and whether the debtor is eligible and the commencement standard has been met and, if so, commence insolvency proceedings.[21]

Denial of application 

Possible grounds for denial of application

28. The insolvency law providing for a simplified insolvency regime should specify that, where the decision to commence a simplified insolvency proceeding is to be made by the competent authority, the competent authority should deny the application if it finds that:

(a) It does not have jurisdiction;

(b) The applicant is ineligible; or

(c) The application is an improper use of the simplified insolvency regime.

(See recommendation 20 of the Guide.)

Prompt notice of denial of application

29. The insolvency law providing for a simplified insolvency regime should require the competent authority to promptly give notice of its decision to deny the application to the applicant, and where the application was made by a creditor, also to the debtor. (See recommendation 21 of the Guide.)

Possible consequences of denial of application

30. The insolvency law providing for a simplified insolvency regime should set out possible consequences of denial of application, including that a different type of insolvency proceeding may commence if criteria set out in the insolvency law for the commencement of that other type of insolvency proceeding are met.

Possible imposition of costs and sanctions against the applicant

31. The insolvency law providing for a simplified insolvency regime should allow the competent authority, where it has denied an application to commence a simplified insolvency proceeding under recommendation 28, to impose costs or sanctions, where appropriate, against the applicant for submitting the application. (See recommendation 20 of the Guide.)

Recommendations 20 and 21

Denial of an application to commence proceedings 

20. The insolvency law should specify that, where the decision to commence proceedings is to be made by the court, the court may deny the application to commence and, where appropriate, impose costs or sanctions against the applicant, if it determines that:

a) It does not have jurisdiction or the debtor is ineligible or does not meet the commencement standard; or

b) The application is an improper use of the law.

 
21. Where the application was made by a creditor, the insolvency law

should specify that the debtor promptly be given notice of the decision to deny.

Notice of commencement of proceedings 

32. The insolvency law providing for a simplified insolvency regime should require that:

(a) The competent authority should give the notice of the commencement of the simplified insolvency proceeding using the means appropriate to ensure that the information is likely to come to the attention of parties in interest; and

(b) The debtor and all known creditors should be individually notified by the competent authority of the commencement of the simplified insolvency proceeding unless the competent authority considers that, under the circumstances, some other form of notice would be more appropriate.

(See recommendations 23 and 24 of the Guide.)

Recommendations 23 and 24

General notice 

23. The insolvency law should specify that the means of giving notice of the commencement of insolvency proceedings must be appropriate[22] to ensure that the information is likely to come to the attention of parties in interest.[23] The insolvency law should specify the party responsible for giving that notice.

Notice to creditors 

24. The insolvency law should specify that notice of the commencement of proceedings is to be given to creditors individually, unless the court considers that, under the circumstances, some other form of notice would be more appropriate.[24]

Content of the notice of commencement of a simplified insolvency proceeding 

33. The insolvency law providing for a simplified insolvency regime should specify that the notice of commencement of a simplified insolvency proceeding is to include:

(a) The effective date of the commencement of the simplified insolvency proceeding;

(b) Information concerning the application of the stay and its effects;

(c) Information concerning submission of claims or that the list of claims prepared by the debtor will be used for verification;

(d) Where submission of claims by creditors is required, the procedures and time period for submission and proof of claims and the consequences of failure to do so (see recommendation 51 below); and

(e) Time period for expressing objection to the commencement of a simplified insolvency proceeding (see recommendation 34 below).

(See recommendation 25 of the Guide.)

Recommendation 25

Content of the notice 

25. The insolvency law should specify that the notice of commencement of insolvency proceedings is to include:

a) Information concerning submission of claims, including the time and place for submission;

b) The procedure and form requirements for the submission of claims;

c) The consequences of failure to submit a claim in accordance with paragraphs (a) and (b) above; and

d) Information concerning verification of claims, application of the stay and its effects and meetings of creditors.

Creditor objection to the commencement of a simplified insolvency proceeding 

34. The insolvency law providing for a simplified insolvency regime should specify that creditors may object to the commencement of a simplified insolvency proceeding or a particular type thereof or to the commencement of any insolvency proceeding with respect to the debtor, provided they do so within the time period established in the insolvency law as notified to them by the competent authority in the notice of the commencement of the simplified insolvency proceeding (see recommendations 32 and 33 above).

-

Possible consequences on claims of creditors not notified of the commencement of the simplified insolvency proceeding 

35. The insolvency law providing for a simplified insolvency regime should specify consequences on claims of creditors not notified of the commencement of the simplified insolvency proceeding.

-

Dismissal of a simplified insolvency proceeding after its commencement

Possible grounds for dismissal of the proceeding

36. The insolvency law providing for a simplified insolvency regime should permit the competent authority to dismiss the proceeding if, after its commencement, the competent authority determines, for example, that:

(a) The proceeding constitutes an improper use of the simplified insolvency regime; or

(b) The applicant is ineligible.

(See recommendation 27 of the Guide.)

Prompt notice of the dismissal of the proceeding

37. The insolvency law providing for a simplified insolvency regime should require the competent authority to promptly give notice of its decision to dismiss the proceeding using the procedure that was used for giving notice of the commencement of the simplified insolvency proceeding. (See recommendation 29 of the Guide.)

Possible consequences of dismissal of the proceeding

38. The insolvency law providing for a simplified insolvency regime should set out possible consequences of the dismissal of the proceeding, including that a different type of insolvency proceeding may commence if criteria set out in the insolvency law for the commencement of that other type of insolvency proceeding are met.

Possible imposition of costs and sanctions against the applicant

39. Where the proceeding is dismissed, the insolvency law providing for a simplified insolvency regime should allow the competent authority to impose costs or sanctions, where appropriate, against the applicant for commencement of the proceeding. (See recommendation 28 of the Guide.)

Recommendations 27–29

Dismissal of insolvency proceedings after commencement 

27. The insolvency law should permit the court to dismiss proceedings if, after commencement, the court determines, for example, that:

a) The proceedings constitute an improper use of the insolvency law; or

b) The debtor was ineligible or did not meet the commencement

standard at the time of commencement.

28. The insolvency law should specify that, where proceedings are dismissed, the court may impose costs or sanctions, where appropriate, against the applicant for commencement of the proceedings.

29. The insolvency law should require notice of a decision to dismiss proceedings to be given.

Procedures for giving notices 

40. The insolvency law providing for a simplified insolvency regime should require the competent authority to give notices related to simplified insolvency proceedings and use simplified and cost-effective procedures for such purpose. (See recommendations 22 and 23 of the Guide.)

Recommendations 22 and 23

Notice of commencement of proceedings 

22. The insolvency law should establish procedures for giving notice of the commencement of insolvency proceedings.

General notice 

23. The insolvency law should specify that the means of giving notice of the commencement of insolvency proceedings must be appropriate[25] to ensure that the information is likely to come to the attention of parties in interest.[26] The insolvency law should specify the party responsible for giving that notice.

Individual notification 

Individual notification

41. The insolvency law providing for a simplified insolvency regime should require that the debtor and any known creditor should be individually notified by the competent authority of all matters on which their approval is required, unless the competent authority considers that, under the circumstances, some other form of notification would be more appropriate. (See recommendation 24 of the Guide.)

Recommendation 24

Notice to creditors 

24. The insolvency law should specify that notice of the commencement of proceedings is to be given to creditors individually, unless the court considers that, under the circumstances, some other form of notice would be more appropriate.[27]

Appropriate means of giving notice 

Appropriate means of giving notice

42. The insolvency law providing for a simplified insolvency regime should
specify that the means of giving notice must be appropriate to ensure that the information is likely to come to the attention of the intended party in interest. (See recommendation 23 of the Guide.)

Recommendation 23

General notice 

23. The insolvency law should specify that the means of giving notice of the commencement of insolvency proceedings must be appropriate^[28] to ensure that the information is likely to come to the attention of parties in interest.^[29] The insolvency law should specify the party responsible for giving that notice.

Constitution of the insolvency estate

43. The insolvency law providing for a simplified insolvency regime should identify:

(a) Assets that will constitute the insolvency estate, including assets of the debtor, assets acquired after commencement of the simplified insolvency proceeding and assets recovered through avoidance or other actions; (See recommendation 35 of the Guide.)

(b) Where the MSE debtor is an individual entrepreneur, assets excluded from the estate that the MSE debtor is entitled to retain (see recommendation 19 (c) above). (See recommendations 38 and 109 of the Guide.)

Recommendation 35

Assets constituting the insolvency estate 

35. The insolvency law should specify that the estate should include:

a) Assets of the debtor,[30] including the debtor’s interest in encumbered assets and in third-party-owned assets;

b) Assets acquired after commencement of the insolvency proceedings; and

c) Assets recovered through avoidance and other actions.

Recommendations 38 and 109

Assets excluded from the insolvency estate where the debtor is a natural person[31]

38. The insolvency law should specify the assets, if any, that are excluded from the estate where the debtor is a natural person.

Right to retain property to preserve the personal rights of the debtor (para. 20)

109. Where the debtor is a natural person, the insolvency law should specify that the debtor is entitled to retain those assets excluded from the estate by the law.[32]

Undisclosed or concealed assets 

44. The insolvency law providing for a simplified insolvency regime should specify that any undisclosed or concealed assets form part of the insolvency estate.

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Date from which the insolvency estate is to be constituted 

45. The insolvency law providing for a simplified insolvency regime should specify the effective date of commencement of a simplified insolvency proceeding as the date from which the estate is to be constituted. (See recommendation 37 of the Guide.)

Recommendation 37

Time of constitution of the insolvency estate 

37. The insolvency law should specify the date from which the estate is to be constituted, being either the date of application for commencement or the effective date of commencement of insolvency proceedings.

Avoidance in simplified insolvency proceedings 

46. The insolvency law providing for a simplified insolvency regime should ensure that avoidance mechanisms available under the insolvency law^[33]can be used in a timely and effective manner to maximize returns in simplified insolvency proceedings. The competent authority should be allowed to convert a simplified insolvency proceeding to a different type of insolvency proceeding where the conduct of avoidance proceedings necessitates doing so.

No equivalent but recommendations 87–99 of the Guide are relevant

Avoidable transactions[34] 

87. The insolvency law should include provisions that apply retroactively and are designed to overturn transactions, involving the debtor or assets of the estate, and that have the effect of either reducing the value of the estate or upsetting the principle of equitable treatment of creditors. The insolvency law should specify the following types of transaction as avoidable:

a) Transactions intended to defeat, delay or hinder the ability of creditors to collect claims where the effect of the transaction was to put assets beyond the reach of creditors or potential creditors or to otherwise prejudice the interests of creditors;

b) Transactions where a transfer of an interest in property or the undertaking of an obligation by the debtor was a gift or was made in exchange for a nominal or less than equivalent value or for inadequate value that occurred at a time when the debtor was insolvent or as a result of which the debtor became insolvent (undervalued transactions); and

c) Transactions involving creditors where a creditor obtained, or received the benefit of, more than its pro rata share of the debtor’s assets that occurred at a time when the debtor was insolvent (preferential transactions).

Security interests 

88. The insolvency law should specify that, notwithstanding that a security interest is effective and enforceable under law other than the insolvency law, it may be subject to the avoidance provisions of insolvency law on the same grounds as other transactions.

Establishing the suspect period 

89. The insolvency law should specify that the transactions described in recommendation 87, subparagraphs (a)-(c), may be avoided if they occurred within a specified period (the suspect period) calculated retroactively from a specified date, being either the date of application for, or commencement of, the insolvency proceedings. The insolvency law may specify different suspect periods for different types of transaction.

Transactions with related persons 

90. The insolvency law may specify that the suspect period for avoidable transactions involving related persons is longer than for transactions with unrelated persons.

91. The insolvency law should specify the categories of persons with sufficient connection to the debtor to be treated as related persons.[35]

Transactions exempt from avoidance actions 

92. The insolvency law should specify the transactions that are exempt from avoidance, including financial contracts.

Conduct of avoidance proceedings 

93. The insolvency law should specify that the insolvency representative has the principal responsibility to commence avoidance proceedings.[36]The insolvency law may also permit any creditor to commence avoidance proceedings with the agreement of the insolvency representative and, where the insolvency representative does not agree, the creditor may seek leave of the court to commence such proceedings.

Funding of avoidance proceedings 

94. The insolvency law should specify that the costs of avoidance proceedings be paid as administrative expenses.

95. The insolvency law may provide alternative approaches to address the pursuit and funding of avoidance proceedings.

Time limits for commencement of avoidance proceedings 

96. The insolvency law or applicable procedural law should specify the time period within which an avoidance proceeding may be commenced. That time period should begin to run on the commencement of insolvency proceedings. In respect of transactions referred to in recommendation 87 that have been concealed and that the insolvency representative could not be expected to discover, the insolvency law may provide that the time period commences at the time of discovery.

Elements of avoidance and defences 

97. The insolvency law should specify the elements to be proved in order to avoid a particular transaction, the party responsible for proving those elements and specific defences to avoidance. Those defences may include that the transaction was entered into in the ordinary course of business prior to commencement of insolvency proceedings. The law may also establish presumptions and permit shifts in the burden of proof to facilitate the conduct of avoidance proceedings.

Liability of counterparties to avoided transactions 

98. The insolvency law should specify that a counterparty to a transaction that has been avoided must return to the estate the assets obtained or, if the court so orders, make a cash payment to the estate for the value of the transaction. The insolvency law should determine whether the counterparty to an avoided transaction would have an ordinary unsecured claim.

99. The insolvency law may specify that, where the counterparty does not comply with the court order avoiding the transaction, in addition to avoidance and any other remedy, a claim by the counterparty may be disallowed.

Scope and duration of the stay 

47. The insolvency law providing for a simplified insolvency regime should specify that the stay of proceedings applies on commencement and throughout simplified insolvency proceedings unless: (a) it is lifted or suspended by the competent authority on its own motion or upon request of any party in interest; or (b) the relief from the stay is granted by the competent authority upon request of any party in interest. Any exceptions to the application of the stay should be clearly stated in the law. (See recommendations 46, 47, 49 and 51 of the Guide.)

Recommendations 46, 47, 49 and 51

Measures applicable on commencement 

46. The insolvency law should specify that, on commencement of insolvency proceedings:[37]

a) Commencement or continuation of individual actions or proceedings[38] concerning the assets of the debtor and the rights, obligations or liabilities of the debtor are stayed;

b) Actions to make security interests effective against third parties and to enforce security interests are stayed;[39]

c) Execution or other enforcement against the assets of the estate is stayed;

d) The right of a counterparty to terminate any contract with the debtor is suspended;[40] and

e) The right to transfer, encumber or otherwise dispose of any assets of the estate is suspended.[41]

Exceptions to application of the stay 

47. The insolvency law may permit exceptions to the application of the stay or suspension under recommendation 46 and, where it does so, those exceptions should be clearly stated. Paragraph (a) of recommendation 46 should not affect the right to commence individual actions or proceedings to the extent necessary to preserve a claim against the debtor.[42]

Duration of measures automatically applicable on commencement 

49. The insolvency law should specify that the measures applicable on commencement of insolvency proceedings remain effective throughout those proceedings until:

a) The court grants relief from the measures;[43]

b) In reorganization proceedings, a reorganization plan becomes effective;[44] or

c) In the case of secured creditors in liquidation proceedings, a fixed time period specified in the law expires,[45] unless it is extended by the court for a further period on a showing that:

i. An extension is necessary to maximize the value of assets for the benefit of creditors; and

ii. The secured creditor will be protected against diminution of the value of the encumbered asset in which it has a security interest.

Relief from measures applicable on commencement 

51. The insolvency law should specify that a secured creditor may request the court to grant relief from the measures applicable on commencement of insolvency proceedings on grounds that may include that:

a) The encumbered asset is not necessary to a prospective reorganization or sale of the debtor’s business;

b) The value of the encumbered asset is diminishing as a result of the commencement of insolvency proceedings and the secured creditor is not protected against that diminution of value; and

c) In reorganization, a plan is not approved within any applicable time limits.

Rights not affected by the stay 

48. The insolvency law providing for a simplified insolvency regime should specify that the stay does not affect:

(a) The right to commence individual actions or proceedings to the extent necessary to preserve a claim against the debtor;

(b) The right of a secured creditor, upon application to the competent authority, to protection of the value of the asset(s) in which it has a security interest;

(c) The right of a third party, upon application to the competent authority, to protection of the value of its asset(s) in the possession of the debtor; and

(d) The right of any party in interest to request the competent authority to grant relief from the stay. (See recommendations 47, 50, 51 and 54 of the Guide.)

Recommendations 47, 50, 51 and 54

Exceptions to application of the stay 

47. The insolvency law may permit exceptions to the application of the stay or suspension under recommendation 46 and, where it does so, those exceptions should be clearly stated. Paragraph (a) of recommendation 46 should not affect the right to commence individual actions or proceedings to the extent necessary to preserve a claim against the debtor.[46]

Protection from diminution of the value of encumbered assets 

50. The insolvency law should specify that, upon application to the court, a secured creditor should be entitled to protection of the value of the asset in which it has a security interest. The court may grant appropriate measures of protection that may include:

a) Cash payments by the estate;

b) Provision of additional security interests; or

c) Such other means as the court determines.

Relief from measures applicable on commencement 

51. The insolvency law should specify that a secured creditor may request the court to grant relief from the measures applicable on commencement of insolvency proceedings on grounds that may include that:

a) The encumbered asset is not necessary to a prospective reorganization or sale of the debtor’s business;

b) The value of the encumbered asset is diminishing as a result of the commencement of insolvency proceedings and the secured creditor is not protected against that diminution of value; and

c) In reorganization, a plan is not approved within any applicable time limits.

Use of third-party-owned assets 

54. The insolvency law should specify that the insolvency representative may use an asset owned by a third party and in the possession of the debtor provided specified conditions are satisfied, including:

a) The interests of the third party will be protected against diminution in the value of the asset; and

b) The costs under the contract of continued performance of the contract and use of the asset will be paid as an administrative expense.

Claims affected by simplified insolvency proceedings 

49. The insolvency law providing for a simplified insolvency regime should specify claims that will be affected by simplified insolvency proceedings, which should include claims of secured creditors, and claims that will not be affected by simplified insolvency proceedings. (See recommendations 171 and 172 of the Guide.)

Recommendations 171 and 172

Claims that may be submitted 

171. The insolvency law should specify that claims that may be submitted include all rights to payment that arise from acts or omissions of the debtor[47] prior to commencement of the insolvency proceedings, whether mature or not, whether liquidated or unliquidated, whether fixed or contingent. The law should identify claims that will not be affected by the insolvency proceedings.[48]

Secured claims 

172. The insolvency law should specify whether secured creditors are required to submit claims.

Admission of claims on the basis of the list of creditors and claims prepared by the debtor 

50. The insolvency law providing for a simplified insolvency regime may require the debtor to prepare the list of creditors and claims, with the assistance of the competent authority or an independent professional where necessary, unless the circumstances justify that the competent authority prepares the list itself with the assistance of the debtor or entrusts an independent professional with that task. It should specify that:

(a) The list so prepared should be circulated by the competent authority to all listed creditors for verification, indicating the time period for communicating any objection or concern as regards the list to the competent authority;

(b) In the absence of any objection or concern communicated to the competent authority or the independent professional as applicable within the established time period, the claims are deemed to be undisputed and admitted as listed;

(c) In case of objection or concern, the competent authority takes action with respect to disputed claim(s) (see recommendation 54 below).

(See recommendations 110 (b)(v) and 170 of the Guide.)

Recommendations 110 (b) (v) and 170

Obligations of the debtor 

110. The insolvency law should clearly specify the debtor’s obligations in respect of insolvency proceedings. Those obligations should arise on the commencement of, and continue throughout, those proceedings. The obligations should include obligations:

b) To provide accurate, reliable and complete information relating to its financial position and business affairs that might be requested by the court, the insolvency representative, creditors and/or the creditor committee, including lists of:[49]

v) Creditors and their claims prepared in cooperation with the insolvency representative and revised and amended by the debtor as claims are verified and admitted or denied;

Undisputed claims 

170. The insolvency law may permit claims that are undisputed to be admitted by reference to the list of creditors and claims prepared by the debtor in cooperation with the insolvency representative^[50] or the court or the insolvency representative may require a creditor to provide evidence of its claim. The insolvency law should not require that in all cases a creditor must appear in person to prove its claim.

Submission of claims by creditors 

51. The insolvency law providing for a simplified insolvency regime should allow the competent authority, when circumstances of the case so justify, to require creditors to submit their claims to the competent authority, specifying the basis and amount of the claim. It should require in such case that:

(a) The procedures and the time period for submission of the claims and consequences of failure to submit a claim in accordance with those procedures and time period should be specified by the competent authority in the notice of commencement of the simplified insolvency proceeding (see recommendations 32 and 33 above) or in a separate notice;

(b) A reasonable period of time should be given to creditors to submit their claims expeditiously;

(c) Formalities associated with submission of claims should be minimized and the use of electronic means for such purpose should be enabled where information and communication technology in the State so permits and in accordance with other applicable law of that State.

(See recommendations 169, 170, 174 and 175 of the Guide.)

Recommendations 169, 170, 174 and 175

Requirement to submit 

169. The insolvency law should require creditors who wish to participate in the proceedings to submit a claim, which should specify the basis and amount of the claim. The law should minimize the formalities associated with submission of claims. The insolvency law should permit claims to be submitted using different means, including mail and electronic means.

Undisputed claims 

170. The insolvency law may permit claims that are undisputed to be admitted by reference to the list of creditors and claims prepared by the debtor in cooperation with the insolvency representative[51] or the court or the insolvency representative may require a creditor to provide evidence of its claim. The insolvency law should not require that in all cases a creditor must appear in person to prove its claim.

Timing of submission of claims 

174. The insolvency law should specify the period of time after the effective date of commencement of proceedings within which claims may be submitted. That time period should be adequate to allow creditors to submit their claims.[52]

Consequences of failure to submit a claim 

175. Where the insolvency law requires a creditor to submit a claim, the insolvency law should specify the consequences of failure to submit a claim within any period of time specified for submission.

Admission or denial of claims 

52. The insolvency law providing for a simplified insolvency regime should allow the competent authority to:

(a) Admit or deny any claim, in full or in part;

(b) Subject claims by related persons to a special scrutiny and treatment, in full or in part; and

(c) Determine the portion of a secured creditor’s claim that is secured and the portion that is unsecured by valuing the encumbered asset.

(See recommendations 177, 179 and 184 of the Guide.)

Recommendations 177, 179 and 184

Admission or denial of claims 

177. The insolvency law should permit the insolvency representative to admit or deny any claim, in full or in part.[53] Where the claim is to be denied or subjected to treatment under recommendation 184 as a claim by a related person, whether in full or in part, notice of the reasons for the decision should be given to the creditor.

Valuation of secured claims 

179. The insolvency law should provide that the insolvency representative may determine the portion of a secured creditor’s claim that is secured and the portion that is unsecured by valuing the encumbered asset.

Claims by related persons 

184. The insolvency law should specify that claims by related persons should be subject to scrutiny and, where justified:[54]

a) The voting rights of the related person may be restricted;

b) The amount of the claim of the related person may be reduced; or

c) The claim may be subordinated.[55]

Prompt notice of denial of claims or subjecting them to a special scrutiny or treatment 

53. Where the claim is to be denied or subjected to a special scrutiny or treatment, the insolvency law providing for a simplified insolvency regime should require the competent authority to give prompt notice of the decision and the reasons for the decision to the creditor concerned, indicating the time period within which the creditor can request review of that decision. (See recommendations 177 and 181 of the Guide.)

Recommendations 177 and 181

Admission or denial of claims 

177. The insolvency law should permit the insolvency representative to admit or deny any claim, in full or in part.[56] Where the claim is to be denied or subjected to treatment under recommendation 184 as a claim by a related person, whether in full or in part, notice of the reasons for the decision should be given to the creditor.

Review of claims denied or subjected to special treatment 

181. The insolvency law should permit creditors whose claims have been denied or subjected to treatment under recommendation 184 as a claim by a related person, whether in full or in part, to request the court to review their claim. The insolvency law may specify a period of time after notification of the decision within which that request may be made.

Treatment of disputed claims 

54. The insolvency law providing for a simplified insolvency regime should permit a party in interest to dispute any claim, either before or after admission, and request review of that claim. It should authorize the competent authority or another competent State body to review a disputed claim and decide on its treatment, including by allowing the proceeding to continue with respect to undisputed claims. (See recommendation 180 of the Guide.)

Recommendation 180

Disputing a claim 

180. The insolvency law should permit a party in interest to dispute any submitted claim, either before or after admission, and to request review of that claim by the court.

Effects of admission 

55. The insolvency law providing for a simplified insolvency regime should specify the effects of admission of a claim, including entitling the creditor whose claim has been admitted to participate in the simplified insolvency proceeding, to be heard, to participate in a distribution and to be counted according to the amount and class of the claim for determining sufficient opposition and establishing the priority to which the creditor’s claim is entitled. (See recommendation 183 of the Guide.)

Recommendation 183

Effects of admission 

183. The insolvency law should specify the effects of admission, including provisional admission, of a claim. These effects may include:

a) Entitling the creditor to participate in the proceedings and to be heard;

b) Permitting the creditor to vote at a meeting of creditors, including on approval of a plan;

c) Determining the priority to which the creditor’s claim is entitled;

d) Determining the amount for which the creditor is entitled to vote;

e) Except in the case of provisional admission of a claim, permitting the creditor to participate in a distribution.[57]

Decision on a procedure to be used 

56. The insolvency law providing for a simplified insolvency regime should require that the competent authority, after commencement of a simplified liquidation proceeding, should promptly determine whether the sale and disposal of the assets of the insolvency estate and distribution of proceeds to creditors will take place in the proceeding:

(a) Where it is determined that the sale and disposal of the assets of the insolvency estate and distribution of proceeds to creditors will take place, the insolvency law providing for a simplified insolvency regime should require the preparation, notification and approval of the liquidation schedule (see recommendations 57-64 below);

(b) Where it is determined that the sale and disposal of the assets of the insolvency estate and distribution of proceeds to creditors will not take place, the insolvency law providing for a simplified insolvency regime should require the competent authority to close the simplified liquidation proceeding (see recommendations 65–67 below).

-

Preparation of the liquidation schedule 

57. The insolvency law providing for a simplified insolvency regime may require the competent authority to prepare the liquidation schedule unless circumstances of the case justify entrusting the preparation of the liquidation schedule to the debtor, an independent professional or another person.

-

Time period for preparing a liquidation schedule 

58. The insolvency law providing for a simplified insolvency regime should specify the maximum time period for preparing a liquidation schedule after commencement of a simplified liquidation proceeding, keeping it short, and authorize the competent authority to establish a shorter time period where the circumstances of the case so justify. It should also specify that any time period established by the competent authority must be notified to the person responsible for preparing the liquidation schedule and to (other) known parties in interest.

-

Minimum contents of the liquidation schedule 

59. The insolvency law providing for a simplified insolvency regime should specify the contents of a liquidation schedule, keeping it to the minimum, including that the liquidation schedule should:

(a) Identify the party responsible for the realization of the assets of the insolvency estate;

(b) List assets of the debtor, specifying those that are subject to security interests;

(c) Specify the means of realization of the assets (public auction or private sale or other means);

(d) List amounts and priorities of the admitted claims; and

(e) Indicate the timing and method of distribution of proceeds from the realization of the assets.

-

Notification of the liquidation schedule to all known parties in interest 

60. The insolvency law providing for a simplified insolvency regime should require the competent authority to give notice of the liquidation schedule to all known parties in interest, specifying a short period for expressing any objection to the liquidation schedule.

-

Prior review of the liquidation schedule by the competent authority 

61. Where the liquidation schedule is prepared by a person other than the competent authority, the insolvency law providing for a simplified insolvency regime should require the competent authority, before giving notice of the liquidation schedule, to review the liquidation schedule to ascertain its compliance with the law and when it is not so compliant, to make any required modifications to the liquidation schedule to ensure that it is compliant.

-

Approval of the liquidation schedule 

Approval of the liquidation schedule

62. The insolvency law providing for a simplified insolvency regime should require the competent authority to approve the liquidation schedule if it receives no objection within the established time period and there are no other grounds for the competent authority to reject the liquidation schedule.

-

Treatment of objections 

63. Where there is objection, the insolvency law providing for a simplified insolvency regime should allow the competent authority either to modify the liquidation schedule, approve it unmodified or convert the proceeding to a different type of insolvency proceeding.

-

Prompt distribution of proceeds in accordance with the insolvency law 

64. The insolvency law providing for a simplified insolvency regime should require distributions to be made promptly and in accordance with the insolvency law. (See recommendation 193 of the Guide.)

Recommendations 193

193. The insolvency law should specify that, in liquidation proceedings, distributions are to be made promptly and that interim distributions may be made.

Notice of a decision to proceed with the closure of the proceeding 

65. The insolvency law providing for a simplified insolvency regime should require the competent authority to promptly notify the debtor, all known creditors and other known parties in interest about its determination that no sale and disposal of the assets of the insolvency estate and no distribution of proceeds to creditors will take place in the proceeding and its decision therefore to proceed with the closure of the proceeding. It should require the notice: (a) to include reasons for that determination and the list of creditors, assets and liabilities of the debtor; and (b) to specify a short time period for expressing any objection to that decision.

-

Decision to close the proceeding in the absence of objection 

66. The insolvency law providing for a simplified insolvency regime should require the competent authority, in the absence of any objection to its decision to proceed with the closure of the proceeding, to close the proceeding.^[58]

-

Treatment of objections 

67. Where the competent authority receives an objection to its decision to proceed with the closure of the proceeding, the insolvency law providing for a simplified insolvency regime should permit the competent authority to commence verification of reasons for the objection, following which the competent authority may decide:

(a) To revoke its decision and commence a simplified liquidation proceeding involving the sale and disposal of assets and distribution of proceeds;

(b) To convert a simplified liquidation proceeding to a different type of insolvency proceeding; or

(c) To close the proceeding.^[59]

-

Preparation of a reorganization plan 

68. The insolvency law providing for a simplified insolvency regime should allow the competent authority to appoint, where necessary, an independent professional to assist the debtor with the preparation of the reorganization plan or decide that circumstances of the case justify entrusting the preparation of the plan to an independent professional.

-

Time period for the proposal of a reorganization plan 

69. The insolvency law providing for a simplified insolvency regime should fix the maximum time period for the proposal of a reorganization plan after commencement of a simplified reorganization proceeding and authorize the competent authority, where the circumstances of the case so justify, to establish a shorter time period subject to its possible extension up to the maximum period specified in the law. (See recommendation 139 of the Guide.)

Recommendation 139

Proposal of a reorganization plan 

139. The insolvency law should specify that a plan may be proposed on or after the making of an application to commence insolvency proceedings or within a specified period of time after commencement of the insolvency proceedings:

a) The time period should be fixed by the insolvency law;

b) The court should be authorized to extend the time period in appropriate circumstances.

Notice of the time period established for the proposal of a reorganization plan 

70. The insolvency law providing for a simplified insolvency regime should require the competent authority to give notice of the time period that it established for the proposal of a reorganization plan to the person responsible for preparing the reorganization plan and to (other) parties in interest.

-

Consequences of not submitting the reorganization plan within the established time period 

71. The insolvency law providing for a simplified insolvency regime should specify that, if the reorganization plan is not submitted within the established time period, an insolvent debtor is deemed to enter the liquidation proceeding while, for a solvent debtor, the reorganization proceeding will terminate. (See recommendation 158 (a) of the Guide.)

Recommendation 158 (a)

Conversion to liquidation 

158. The insolvency law should provide that the court may convert reorganization proceedings to liquidation where:

a) A plan is not proposed within any time limit specified by the law and the court does not grant an extension of time;

Alternative plan 

72. The insolvency law providing for a simplified insolvency regime may envisage the possibility for creditors to file an alternative plan. Where it does so, it should specify the conditions and the time period for exercising such an option.

-

Content of the reorganization plan 

73. The insolvency law providing for a simplified insolvency regime should specify the minimum contents of a plan, including:

(a) The list of assets of the debtor, specifying those that are subject to security interests;

(b) The terms and conditions of the plan;

(c) The list of creditors and the treatment provided for each creditor by the plan (e.g., how much they will receive and the timing of payment, if any);

(d) A comparison of the treatment afforded to creditors by the plan and what they would otherwise receive in liquidation; and

(e) Proposed ways of implementing the plan.

(See recommendations 143 (d) and 144 of the Guide.)

Recommendations 143 (d) and 144

Contents of a disclosure statement 

143. The insolvency law should specify that the disclosure statement include:[60]

d) A comparison of the treatment afforded to creditors by the plan and what they would otherwise receive in liquidation;

Content of a plan 

144. The insolvency law should specify the minimum contents of a plan. The plan should:

a) Identify each class of creditors and the treatment provided for each class by the plan (e.g. how much they will receive and the timing of payment, if any);

b) Detail the treatment of equity holders;

c) Detail the terms and conditions of the plan;

d) Identify the debtor’s role in implementation of the plan;

e) Identify those responsible for future management of the debtor and supervision of the implementation of the plan and indicate their affiliation with the debtor and their remuneration; and

f) Indicate how the plan will be implemented.

Notification of the reorganization plan to all known parties in interest 

74. The insolvency law providing for a simplified insolvency regime could require the competent authority or an independent professional to ascertain compliance of the reorganization plan with the procedural requirements as provided in the law, and upon making any required modification to ensure that it is so compliant, to notify the plan to all known parties in interest to enable them to object or express opposition to the proposed plan. The notice should explain the consequences of any abstention and specify the time period for expressing any objection or opposition to the plan.

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Effect of the plan on unnotified creditors 

75. The insolvency law providing for a simplified insolvency regime should specify that a creditor whose rights are modified or affected by the plan should not be bound by the terms of the plan unless that creditor has been given the opportunity to express opposition on the approval of the plan. (See recommendation 146 of the Guide.)

Recommendation 146

146. The insolvency law should specify that a creditor or equity holder whose rights are modified or affected by the plan should not be bound to the terms of the plan unless that creditor or equity holder has been the given the opportunity to vote on approval of the plan.

Undisputed reorganization plan 

76. The insolvency law providing for a simplified insolvency regime should specify that the plan is deemed to be approved by creditors if the requirements under recommendation 18 are fulfilled.

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Disputed plan 

77. The insolvency law providing for a simplified insolvency regime should:

(a) Allow the modification of the plan to address objection or sufficient opposition to the plan;

(b) Establish a short time period for introducing modifications and transmitting a modified plan to all known parties in interest;

(c) Require the competent authority to transmit any modified plan to all known parties in interest indicating a short time period for expressing any objection or opposition to the modified plan;

(d) Require the competent authority to terminate the simplified reorganization proceedings for a solvent debtor or convert the simplified reorganization proceeding to a simplified liquidation proceeding for an insolvent debtor (i) if modification of the original plan to address objection or sufficient opposition is not possible or (ii) if objection or sufficient opposition to the modified plan is communicated to the competent authority within the established time period; and

(e) Specify that the modified plan is approved by creditors if the competent authority receives no objection and no sufficient opposition to the modified plan within the established time period.

(See recommendations 155, 156 and 158 of the Guide.)

Recommendations 155, 156 and 158

Amendment of a plan

155. The insolvency law should permit amendment of a plan and specify the parties that may propose amendments and the time at which the plan may be amended, including between submission and approval, approval and confirmation, after confirmation and during implementation, where the proceedings remain open.

Approval of amendments 

156. The insolvency law should establish the mechanism for approval of amendments to a plan that has been approved by creditors. That mechanism should require notice to be given to the creditors and other parties affected by the proposed modification; specify the party required to give notice; require the approval of creditors and other parties affected by the modification; and require the rules for confirmation (where confirmation is required) to be satisfied. The insolvency law should also specify the consequences of failure to secure approval of proposed amendments.

Conversion to liquidation 

158. The insolvency law should provide that the court may convert reorganization proceedings to liquidation where:

a) A plan is not proposed within any time limit specified by the law and the court does not grant an extension of time;

b) A proposed plan is not approved;

c) An approved plan is not confirmed (where the insolvency law requires confirmation);

d) An approved or a confirmed plan is successfully challenged; or

e) There is substantial breach by the debtor of the terms of the plan or an inability to implement the plan.[61]

Confirmation of the plan by the competent authority 

78. The insolvency law providing for a simplified insolvency regime should require the competent authority to confirm the plan approved by creditors. It should require the competent authority, before confirming the plan, to ascertain that the creditor approval process was properly conducted, creditors will receive at least as much under the plan as they would have received in liquidation, unless they have specifically agreed to receive lesser treatment, and the plan does not contain provisions contrary to law. (See recommendation 152 of the Guide.)

Recommendation 152

Confirmation of an approved plan 

152. Where the insolvency law requires court confirmation of an approved plan, the insolvency law should require the court to confirm the plan if the following conditions are satisfied:

a) The requisite approvals have been obtained and the approval process was properly conducted;

b) Creditors will receive at least as much under the plan as they would have received in liquidation, unless they have specifically agreed to receive lesser treatment;

c) The plan does not contain provisions contrary to law;

d) Administrative claims and expenses will be paid in full, except to the extent that the holder of the claim or expense agrees to different treatment; and

e) Except to the extent that affected classes of creditors have agreed otherwise, if a class of creditors has voted against the plan, that class shall receive under the plan full recognition of its ranking under the insolvency law and the distribution to that class under the plan should conform to that ranking.

Challenges to the confirmed plan 

79. The insolvency law providing for a simplified insolvency regime should permit the confirmed plan to be challenged on the basis of fraud. It should specify:

(a) A time period for bringing such a challenge calculated by reference to the time the fraud is discovered;

(b) The party that may bring such a challenge;

(c) That the challenge should be heard by the relevant review body; and

(d) That a simplified reorganization proceeding may be converted to a simplified liquidation proceeding or a different type of insolvency proceeding where the confirmed plan is successfully challenged.

(See recommendations 154 and 158 (d) of the Guide.)

Recommendations 154 and 158 (d)

Challenges to a confirmed plan 

154. The insolvency law should permit a confirmed plan to be challenged on the basis of fraud. The insolvency law should specify:

a) A time limit for bringing such a challenge calculated by reference to the time the fraud is discovered;

b) The party that may bring such a challenge; and

c) That the challenge should be heard by the court.

Conversion to liquidation 

158. The insolvency law should provide that the court may convert reorganization proceedings to liquidation where:

(d) An approved or a confirmed plan is successfully challenged; or

Amendment of a plan 

80. The insolvency law providing for a simplified insolvency regime should permit the amendment of a plan and specify:

(a) The parties that may propose amendments;

(b) The time at which the plan may be amended, including between submission and approval and during implementation, and a mechanism for communicating amendments to the competent authority; and

(c) The mechanism for approval of amendments of the confirmed plan, which should include a notice by the competent authority of proposed amendments to all parties in interest affected by the amendments, the approval of the amendments by those parties, the confirmation of the amended plan by the competent authority, and the consequences of failure to secure approval of proposed amendments. (See recommendations 155 and 156 of the Guide.)

Recommendations 155 and 156

Amendment of a plan 

155. The insolvency law should permit amendment of a plan and specify the parties that may propose amendments and the time at which the plan may be amended, including between submission and approval, approval and confirmation, after confirmation and during implementation, where the proceedings remain open.

Approval of amendments 

156. The insolvency law should establish the mechanism for approval of amendments to a plan that has been approved by creditors. That mechanism should require notice to be given to the creditors and other parties affected by the proposed modification; specify the party required to give notice; require the approval of creditors and other parties affected by the modification; and require the rules for confirmation (where confirmation is required) to be satisfied. The insolvency law should also specify the consequences of failure to secure approval of proposed amendments.

Supervision of the implementation of the plan 

81. The insolvency law providing for a simplified insolvency regime may entrust supervision of the implementation of the plan to the competent authority or an independent professional as applicable. (See recommendation 157 of the Guide.)

Recommendation 157

Supervision of implementation 

157. The law may establish a mechanism for supervising implementation of the plan, which may include supervision by the court, by a court-appointed supervisor, by the insolvency representative or by a creditor-appointed supervisor.[62]

Consequences of the failure to implement the plan 

82. The insolvency law providing for a simplified insolvency regime should specify that, where there is substantial breach by the debtor of the terms of the plan or inability to implement the plan, the competent authority may on its own motion or at the request of any party in interest:

(a) Convert the simplified reorganization proceeding to a simplified liquidation proceeding or a different type of insolvency proceeding;

(b) Close the simplified reorganization proceeding and parties in interest may exercise their rights at law;

(c) If closed, reopen the simplified reorganization proceeding;

(d) If closed, open a simplified liquidation proceeding; or

(e) Grant any other appropriate type of relief.

(See recommendations 158 (e) and 159 of the Guide)

Recommendations 158 (e) and 159

Conversion to liquidation 

158. The insolvency law should provide that the court may convert reorganization proceedings to liquidation where:

e) There is substantial breach by the debtor of the terms of the plan or an inability to implement the plan.[63]

Failure of implementation of a plan 

159. The insolvency law may specify that where there is a substantial breach by the debtor of the terms of the plan or an inability to implement the plan, the court may close the judicial proceedings and parties in interest may exercise their rights at law.

Conversion of a simplified reorganization to a liquidation 

83. The insolvency law providing for a simplified insolvency regime should provide that at any point during a simplified reorganization proceeding, the competent authority may, on its own motion or at the request of a party in interest or an independent professional, where appointed, decide that the proceeding be discontinued and converted to a liquidation, if the competent authority determines that the debtor is insolvent and there is no prospect for viable reorganization. Where the competent authority considers conversion to liquidation before submission of a reorganization plan, the competent authority should be mindful of the time needed to prepare and submit a reorganization plan (see recommendations 69 and 70 above) and may consult the independent professional in making the decision, if one has been appointed.

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Discharge in simplified liquidation proceedings

Decision on discharge 

84. The insolvency law providing for a simplified insolvency regime should specify that, in a simplified liquidation proceeding, discharge should be granted expeditiously.

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Discharge conditional upon expiration of a monitoring period
 

85. Where the insolvency law provides that discharge may not apply until after the expiration of a specified period of time following commencement of insolvency proceedings during which period the debtor is expected to cooperate with the competent authority (“monitoring period”), the insolvency law providing for a simplified insolvency regime should:

(a) Fix the maximum duration of the monitoring period, which should be short;

(b) Allow the competent authority to establish a shorter duration of the monitoring period on a case-by-case basis;

(c) Specify that, after expiration of the monitoring period, the debtor should be discharged upon decision of the competent authority where the debtor has not acted fraudulently and has cooperated with the competent authority in performing its obligations under the insolvency law. (See recommendation 194 of the Guide.)

Recommendation 194

Discharge of a natural person debtor in liquidation 

194. Where natural persons are eligible as debtors under the insolvency law, the issue of discharge of those debtors from liability for pre-commencement debts should be addressed. The insolvency law may specify that the discharge may not apply until after the expiration of a specified period of time following commencement, during which period the debtor is expected to cooperate with the insolvency representative. Upon the expiration of such time period, the debtor may be discharged where the debtor has not acted fraudulently and has cooperated with the insolvency representative in performing its obligations under the insolvency law. The insolvency law may specify that the discharge is to be revoked where it was obtained fraudulently.

Discharge conditional upon the implementation of a debt repayment plan 

86. The insolvency law providing for a simplified insolvency regime may specify that full discharge may be conditional upon the implementation of a debt repayment plan. In such case, it should allow the competent authority to specify the duration of the debt repayment plan (“discharge period”) and require the discharge procedures to include verification by the competent authority:

(a) Before the debt repayment plan becomes effective, that the debt repayment obligations reflect the situation of the individual entrepreneur and are proportionate to his or her disposable income and assets during the discharge period, taking into account the equitable interest of creditors; and

(b) On expiry of the discharge period, that the individual entrepreneur has fulfilled his or her repayment obligations under the debt repayment plan, in which case the individual entrepreneur is discharged upon confirmation by the competent authority of the fulfilment of the debt repayment plan by the debtor.

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Discharge in simplified reorganization proceedings 

87. The insolvency law providing for a simplified insolvency regime may specify that full discharge in simplified reorganization is conditional upon successful implementation of the reorganization plan and it shall take immediate effect upon confirmation by the competent authority of such implementation.

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Conditions for discharge 

88. Where the insolvency law providing for a simplified insolvency regime specifies that conditions may be attached to the MSE debtor’s discharge, those conditions should be kept to a minimum and clearly set forth in the insolvency law. (See recommendation 196 of the Guide.)

Recommendation 196

196. Where the insolvency law provides that conditions may be attached to a debtor’s discharge, those conditions should be kept to a minimum in order to facilitate the debtor’s fresh start and should be clearly set forth in the insolvency law.

Exclusions from discharge 

89. Where the insolvency law providing for a simplified insolvency regime specifies that certain debts are excluded from a discharge, those debts should be kept to a minimum and clearly set forth in the insolvency law. (See recommendation 195 of the Guide.)

Recommendation 195

195. Where the insolvency law provides that certain debts are excluded from a discharge, those debts should be kept to a minimum in order to facilitate the debtor’s fresh start and be clearly set forth in the insolvency law.

Criteria for denying discharge 

90. The insolvency law providing for a simplified insolvency regime should specify criteria for denying a discharge, keeping them to a minimum.

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Criteria for revoking a discharge granted 

91. The insolvency law providing for a simplified insolvency regime should specify criteria for revoking a discharge granted. In particular, it may specify that the discharge is to be revoked where it was obtained fraudulently. (See recommendation 194 of the Guide.)

Recommendation 194

Discharge of a natural person debtor in liquidation

194. Where natural persons are eligible as debtors under the insolvency law, the issue of discharge of those debtors from liability for pre-commencement debts should be addressed. The insolvency law may specify that the discharge may not apply until after the expiration of a specified period of time following commencement, during which period the debtor is expected to cooperate with the insolvency representative. Upon the expiration of such time period, the debtor may be discharged where the debtor has not acted fraudulently and has cooperated with the insolvency representative in performing its obligations under the insolvency law. The insolvency law may specify that the discharge is to be revoked where it was obtained fraudulently.

Closure of proceedings 

92. The insolvency law providing for a simplified insolvency regime should specify minimal and simple procedures by which simplified insolvency proceedings should be closed. (See recommendations 197 and 198 of the Guide.)

Recommendations 197 and 198

Reorganization 

197. The law should specify the procedures by which reorganization proceedings should be closed.

Liquidation 

198. The law should specify the procedures by which liquidation proceedings should be closed following final distribution or a determination that no distribution can be made.

Treatment of personal guarantees 

93. A simplified insolvency regime should address, including through procedural consolidation or coordination of linked proceedings, the treatment of personal guarantees provided for business needs of the MSE debtor by individual entrepreneurs, owners of limited liability MSEs or their family members.

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Orders of procedural consolidation and coordination 

94. The insolvency law may require procedural consolidation or coordination of linked business, consumer and personal insolvency proceedings in order to address comprehensively intertwined business, consumer and personal debts of individual entrepreneurs, owners of limited liability MSEs and their family members. The law may specify that, in such cases, the competent authority or another competent State body, as the case may be, may order procedural consolidation or coordination of linked proceedings on its own motion or upon request of any party in interest, which may be made at the time of application for commencement of insolvency proceedings or at any subsequent time.

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Modification or termination of an order for procedural consolidation or coordination 

95. The insolvency law should specify that an order for procedural consolidation or coordination may be modified or terminated, provided that any actions or decisions already taken pursuant to the order are not affected by the modification or termination. Where more than one State body is involved in ordering procedural consolidation or coordination, those State bodies may take appropriate steps to coordinate modification or termination of procedural consolidation or coordination.

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Notice of procedural consolidation and coordination 

96. The insolvency law should establish requirements for giving notice with respect to applications and orders for procedural consolidation or coordination and modification or termination of procedural consolidation or coordination, including the scope and extent of the order, the parties to whom notice should be given, the party responsible for giving notice and the content of the notice.

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Conditions for conversion 

97. The insolvency law should provide for conversion between different types of proceedings in appropriate circumstances and subject to applicable eligibility and other requirements.

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Procedures for conversion 

98. The insolvency law should address procedures for conversion, including notification to all known parties in interest about the conversion, and mechanisms for addressing objections to that course of action.

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Effect of conversion on post-commencement finance 

99. The insolvency law should specify that where a simplified reorganization proceeding is converted to a liquidation proceeding, any priority accorded to post-commencement finance in the simplified reorganization proceeding should continue to be recognized in the liquidation proceeding. (See recommendation 68 of the Guide.)

Recommendation 68

Effect of conversion on post-commencement finance 

68. The insolvency law should specify that where reorganization proceedings are converted to liquidation, any priority accorded to post-commencement finance in the reorganization should continue to be recognized in the liquidation.[64]

Other effects of conversion 

100. The insolvency law should address other effects of conversion, including on deadlines for actions, the stay of proceedings and other steps taken in the proceeding being converted. (See recommendation 140 of the Guide.)

Recommendation 140

140. The insolvency law should specify that a plan may be proposed on or after the making of an application to commence insolvency proceedings or within a specified period of time after commencement of the insolvency proceedings: where liquidation proceedings are converted to reorganization proceedings, the insolvency law should also address the impact of conversion on time limits for proposal of a plan.

Appropriate safeguards and sanctions 

101. The insolvency law providing for a simplified insolvency regime should build in appropriate safeguards to prevent abuses and improper use of a simplified insolvency regime and permit the imposition of sanctions for abuse or improper use of the simplified insolvency regime, for failure to comply with the obligations under the insolvency law and for non-compliance with other provisions of the insolvency law. (See recommendations 20, 28 and 114 of the Guide.)

Recommendations 20, 28 and 114

Denial of an application to commence proceedings 

20. The insolvency law should specify that, where the decision to commence proceedings is to be made by the court, the court may deny the application to commence and, where appropriate, impose costs or sanctions against the applicant, if it determines that:

a) It does not have jurisdiction or the debtor is ineligible or does not meet the commencement standard; or

b) The application is an improper use of the law.

28. The insolvency law should specify that, where proceedings are dismissed, the court may impose costs or sanctions, where appropriate, against the applicant for commencement of the proceedings.

Sanctions for the debtor’s failure to comply with its obligations 

114. The insolvency law should permit the imposition of sanctions for the debtor’s failure to comply with its obligations under the insolvency law.

Obligations of persons exercising control over MSEs in the period approaching insolvency 

102. The law relating to insolvency should specify that, at the point in time when the persons exercising control over the business knew or should have known that insolvency was imminent or unavoidable, they should have due regard for the interests of creditors and other stakeholders and take reasonable steps at an early stage of financial distress to avoid insolvency and, where it is unavoidable, to minimize the extent of insolvency. Reasonable steps might include:

a) Evaluating the current financial situation of the business;

b) Seeking professional advice where appropriate;

c) Not committing the business to the types of transaction that might be subject to avoidance unless there is an appropriate business justification;

d) Protecting the assets so as to maximize value and avoid loss of key assets;

e) Ensuring that management practices take into account the interests of creditors and other stakeholders;

f) Considering holding informal debt restructuring negotiations with creditors; and

g) Applying for commencement of insolvency proceedings if it is required or appropriate to do so.

(See recommendations 255, 256 and 257 of the Guide.)

Recommendations 255, 256 and 257

The obligations

255. The law relating to insolvency should specify that from the point in time referred to in recommendation 257, the persons specified in accordance with recommendation 258 will have the obligations to have due regard to the interests of creditors and other stakeholders and to take reasonable steps:

(a) To avoid insolvency; and

(b) Where it is unavoidable, to minimize the extent of insolvency.

Reasonable steps for the purposes of recommendation 255

256. For the purposes of recommendation 255, reasonable steps might include:

a) Evaluating the current financial situation of the company and ensuring proper accounts are being maintained and that they are up-to-date; being independently informed as to the current and ongoing financial situation of the company; holding regular board meetings to monitor the situation; seeking professional advice, including insolvency or legal advice; holding discussions with auditors; calling a shareholder meeting; modifying management practices to take account of the interests of creditors and other stakeholders; protecting the assets of the company so as to maximize value and avoid loss of key assets; considering the structure and functions of the business to examine viability and reduce expenditure; not committing the company to the types of transaction that might be subject to avoidance unless there is an appropriate business justification; continuing to trade in circumstances where it is appropriate to do so to maximize going concern value; holding negotiations with creditors or commencing other informal procedures, such as voluntary restructuring negotiations;[65]

b) Commencing or requesting the commencement of formal reorganization or liquidation proceedings.

The time at which the obligation arises

257. The law relating to insolvency should specify that the obligations in recommendation 255 arise at the point in time when the person specified in accordance with recommendation 258 knew, or ought reasonably to have known, that insolvency was imminent or unavoidable.

Early rescue mechanisms 

103. As a means of encouraging the early rescue of MSEs, a State should consider establishing mechanisms for providing early signals of financial distress to MSEs, increasing financial and business management literacy among MSE managers and owners and promoting their access to professional advice. These mechanisms should be available and easily accessible to MSEs.

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Removing disincentives for the use of informal debt restructuring negotiations 

104. For the purpose of avoiding MSE insolvency, the State may consider identifying and removing disincentives for the use of informal debt restructuring negotiations.

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Providing incentives for participation in informal debt restructuring negotiations 

105. The State may consider providing appropriate incentives for the participation of creditors, including public bodies, and other relevant stakeholders, in particular employees, in informal debt restructuring negotiations.

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Institutional support with the use of informal debt restructuring negotiations 

106. The State may consider providing for:

a) Involvement of a competent public or private body, where necessary, to facilitate informal debt restructuring negotiations between creditors and debtors and between creditors;

b) A neutral forum to facilitate negotiation and resolution of debtor-creditor and inter-creditor issues; and

c) Mechanisms for covering or reducing the costs of the services mentioned in subparagraphs (a) and (b) above.

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Pre-commencement business rescue finance 

107. The law should:

a) Facilitate and provide incentives for finance to be obtained by MSEs in financial distress before commencement of insolvency proceedings for the purpose of rescuing business and avoiding insolvency;

b) Subject to proper verification of appropriateness of that finance and protection of parties whose rights may be affected by the provision of such finance, provide appropriate protection for the providers of such finance, including the payment of such finance provider at least ahead of ordinary unsecured creditors;

c) Provide appropriate protection for those parties whose rights may be affected by the provision of such finance.

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