Insolvency Law at Cambodia
Insolvency law in Cambodia is governed by the Law on Insolvency (also known as the Insolvency Law), which came into effect on March 1, 2019. This law governs the bankruptcy and insolvency procedures for both individuals and corporate entities in Cambodia.
Key Features of Cambodia’s Insolvency Law:
Scope of Application:
Corporations (both private and public) are subject to the law.
Individuals can also file for bankruptcy, which is a significant development as Cambodia's previous legal framework primarily focused on corporate entities.
Types of Insolvency Proceedings:
Rehabilitation (Restructuring): A process that allows a debtor to continue business operations while restructuring debts, with the goal of repaying creditors over time.
Liquidation: The process of selling off the debtor’s assets to pay creditors. If rehabilitation is not possible, liquidation is initiated.
Filing for Insolvency:
Either the debtor or a creditor can file for insolvency in the Commercial Court of Cambodia. The court will assess the situation and determine if insolvency procedures should be started.
Insolvency can be initiated if the debtor is unable to pay its debts as they fall due.
Insolvency Administrator:
A licensed insolvency administrator is appointed to oversee the insolvency process. The administrator is responsible for managing the debtor's assets, representing creditors, and overseeing the repayment process.
The administrator also plays a key role in investigating the causes of insolvency and ensuring fair treatment of all creditors.
Creditors' Rights:
Creditors have the right to participate in the insolvency process by filing claims and attending meetings to vote on significant decisions, such as reorganization plans or liquidation processes.
The law ensures fair treatment of creditors, although secured creditors generally have priority.
Rehabilitation Procedure:
The debtor may propose a rehabilitation plan to restructure its debts and continue operations. This plan needs approval from both creditors and the court.
The rehabilitation plan must include specific provisions on how debts will be paid, the timeline for repayment, and how business operations will be restructured.
Liquidation Procedure:
If rehabilitation is not possible, the debtor may be liquidated. The assets of the company are sold, and the proceeds are distributed to creditors based on their ranking (secured creditors are paid first).
A court-appointed liquidator oversees this process, and the company is officially dissolved once the liquidation is complete.
Cross-border Insolvency:
Cambodia's insolvency law does not have an established framework for cross-border insolvency, though there may be potential for cooperation with other jurisdictions under international treaties or agreements.
Key Challenges and Considerations:
Enforcement and Judicial Efficiency: The court system in Cambodia can sometimes be slow, and there may be difficulties in enforcing decisions in insolvency cases.
Creditor Confidence: Creditors may be cautious about recovery due to the perceived inefficiency in the insolvency process.
Corporate Culture: Some businesses in Cambodia may still view bankruptcy as a negative or punitive outcome, which can influence how willing they are to enter the formal insolvency process.
Recent Developments:
The Insolvency Law of 2019 was a significant step toward modernizing Cambodia’s legal framework for business recovery and liquidation. It is still evolving, and practical experience with its application is gradually being built.
Ongoing reforms aim to improve the transparency, speed, and efficiency of the insolvency process in the country.
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