Insolvency Law at Georgia
Georgia's insolvency law underwent a significant reform with the enactment of the "Law on Rehabilitation and Collective Satisfaction of Creditors' Claims," effective from April 1, 2021. This modernized framework aims to prioritize business rehabilitation over liquidation, streamline proceedings, and enhance creditor coordination. (Insolvency reform assessment report, What are the outcomes of the new insolvency law?)
Key Features of Georgia’s Insolvency Law
1. Rehabilitation vs. Bankruptcy
The law emphasizes rehabilitating viable businesses rather than defaulting to liquidation. It introduces a "rehabilitation plan," allowing companies to restructure debts and continue operations, provided they can meet a portion of their obligations. This flexibility contrasts with the previous law, which required full repayment during rehabilitation . (What are the outcomes of the new insolvency law?)
2. Role of Insolvency Practitioners (IPs)
Insolvency practitioners are now central to the process. They must be trained, tested, and certified by the National Enforcement Bureau. As of late 2021, Georgia had 23 authorized IPs, with 18 being members of the Business Rehabilitation Insolvency Practitioners Association (BRIPA), which played a pivotal role in the reform . (Helping businesses rehabilitate — meet Georgia’s new insolvency practitioners – Investor.ge)
3. Court-Driven Proceedings
Unlike the previous system, courts now initiate insolvency proceedings upon receiving a notice or request. This triggers a moratorium, halting debt collection and enforcement actions, and provides time for restructuring or liquidation decisions . (Parliament of Georgia adopted the new law on Rehabilitation and Collective Satisfaction of Creditors)
4. Electronic Transparency
An electronic system facilitates the submission of applications, publication of decisions, and communication among stakeholders. This system enhances transparency and accessibility throughout the insolvency process . (Parliament of Georgia adopted the new law on Rehabilitation and Collective Satisfaction of Creditors)
5. Creditor Rights and Prioritization
The law introduces a "preferential claim" for employee wages and limits the priority of tax claims to indirect taxes accrued within three years before insolvency. Creditors can negotiate their ranking in rehabilitation plans, promoting fairness and flexibility . (Parliament Of Georgia Adopted The New Law On Rehabilitation And Collective Satisfaction Of Creditors - Insolvency/Bankruptcy - Insolvency/Bankruptcy/Re-Structuring - Georgia)
Outcomes and Observations
Increased Rehabilitation Cases: Approximately 35% of insolvency cases initiated under the new law involve rehabilitation, a significant rise from 10% under the previous framework . (What are the outcomes of the new insolvency law?)
Accelerated Proceedings: The average duration for completed rehabilitation cases is about 8.6 months, compared to 4.3–4.8 years under the old law . (What are the outcomes of the new insolvency law?)
Notable Cases: Companies like Georgian Airways and People's Pharmacy have successfully implemented rehabilitation plans, restructuring substantial debts and continuing operations . (How Does The Law On Insolvency Work?)
Support for Insolvent Individuals
For individuals facing insolvency, the Legal Aid Service of Georgia provides free legal assistance. Eligibility includes being registered in the unified database of socially vulnerable families or belonging to specific categories such as war veterans, persons with disabilities, or orphans . (SERVICE FOR INSOLVENT PERSONS)
Georgia's insolvency reform marks a shift towards a more dynamic and rehabilitative approach, aiming to preserve businesses and jobs while ensuring fair creditor treatment. The ongoing monitoring and adjustments to the system reflect a commitment to improving the insolvency landscape in the country. (Georgia enacts modern insolvency law – German Economic Team)
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