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Law of Georgia on Rehabilitation and Collective Satisfaction of Creditors

On 25 September 2020, the Law of Georgia on Rehabilitation and Collective Satisfaction of Creditors was published. 

Under the law, insolvency is when the debtor is unable to cover overdue obligations. Unless proved contrary, the debtor is assumed to be insolvent when: 

  • Its activities are terminated; 
  • It has been in the debtors' registry for the last 12 months prior to filing the application; 
  • The measure of securing the payment of the tax debt is valid for at least 30 days before the filing of the application against the debtor; 
  • In other cases provided by law. 

An application for the insolvency commencement can be filed by the: 

  • Debtor;
  • Lender;
  • Supervisor of the regulated agreement; 
  • Rehabilitation manager / bankruptcy manager at the request of conversion (i.e. when requesting change to rehabilitation mode into bankruptcy mode or vice versa). 

Law introduces the concept of a regulated agreement. A regulated agreement is an agreement reached between the debtor and creditors when each creditor receives at least as much as it would have received in case of debtor's bankruptcy, except some cases. 

Secured creditors will no longer hold unnecessary privileges similar to approval of a rehabilitation plan. Their interests are mostly safeguarded through giving them the ability to foreclose over the collateral prior to completion of the insolvency process subject to the rehabilitation manager's right to suspend such foreclosure if the asset in question is necessary for archiving the rehabilitation. Should the rehabilitation manager exercise this right, then the debtor becomes liable to continue contractual payments to the secured creditors, as originally agreed under the relevant agreements.

The bill entirely changes the principles for the ranking of creditors. First and foremost, the waterfall included in the law applies in the case of bankruptcy only, while creditors have the freedom to determine the relevant ranking in the rehabilitation plan. In addition, the new law creates the notion of 'preferential claims' for employee claims and abolishes unconditional preferences of all tax claims reinforcing that only indirect taxes accrued over the period of 2 years immediately preceding the opening of insolvency regime shall be entitled to take precedence over the claims of unsecured creditors.

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