Insolvency Law at Afghanistan
Afghanistan's insolvency and bankruptcy framework is primarily governed by the Afghan Commercial Code, enacted in 2007. This code outlines procedures for both voluntary and involuntary liquidation, detailing creditor priorities, liquidation processes, and the roles of company partners and directors. (Procedures for Liquidation and Insolvency in Afghanistan: A Comprehensive Guide)
⚖️ Legal Framework
Afghan Commercial Code (2007): This code provides comprehensive guidelines on insolvency and liquidation procedures, including the roles and responsibilities of liquidators, the settlement of debts, and the distribution of remaining assets among stakeholders. (Procedures for Liquidation and Insolvency in Afghanistan: A Comprehensive Guide)
Law on the Procedure for Securing Rights (2020): Promulgated in late 2020, this law aims to expedite the process of securing civil and commercial rights, encouraging mediation and amicable dispute resolution, and improving coordination between the Ministry of Justice and other relevant agencies in implementing final court decisions. (Brief Overview of Afghanistan’s New Law on the Procedure for Securing Rights)
🏛️ Court System
Commercial Courts: Established in the center of each province, these courts handle commercial cases, including insolvency and bankruptcy matters. In provinces without a commercial court, such cases are dealt with by the civil division of the provincial central primary court. (Islamic Republic of Afghanistan Legal System and Research - Globalex)
🧾 Insolvency Procedures
Insolvency Definition: A business is considered insolvent when its liabilities exceed its assets or when it is unable to pay debts as they fall due.
Voluntary vs. Involuntary Insolvency:
Voluntary: Initiated by the debtor company.
Involuntary: Initiated by creditors through legal proceedings. (Procedures for Liquidation and Insolvency in Afghanistan: A Comprehensive Guide)
Role of Receiver: Upon acceptance of an insolvency case, a receiver is appointed to oversee the debtor company's affairs. The receiver, with consent from creditors and the court, may opt to keep the company operating under a settlement plan or proceed with liquidation.
Creditor Priority: Secured creditors are paid before unsecured creditors, consistent with international best practices.
🏢 Liquidation Procedures
Voluntary Liquidation: Occurs when the company's shareholders or partners decide to dissolve the company, often due to strategic decisions or operational challenges. (Procedures for Liquidation and Insolvency in Afghanistan: A Comprehensive Guide)
Involuntary Liquidation: Initiated by creditors when a company fails to meet its financial obligations, often following a court order. (Procedures for Liquidation and Insolvency in Afghanistan: A Comprehensive Guide)
Liquidation Process:
Appointment of Liquidators: Liquidators are appointed either by the company's agreement or by the court.
Asset Distribution: Assets are sold to generate cash, which is then distributed among creditors based on priority.
Final Settlement: After settling debts, any remaining assets are distributed among shareholders or partners. (Commercial Code of Afghanistan | Study notes Business and Labour Law | Docsity, Procedures for Liquidation and Insolvency in Afghanistan: A Comprehensive Guide)
🛡️ Challenges and Reforms
Despite the established legal framework, challenges persist, including gaps in legislation, inconsistent enforcement, and a volatile political environment. Proposed reforms aim to simplify procedures, enhance creditor protection, and create a more predictable business environment. (Procedures for Liquidation and Insolvency in Afghanistan: A Comprehensive Guide)
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