Assessment of the Insolvency system in Georgia

The Deputy Minister of Justice sought support from the USAID Governing for Growth (G4G) in Georgia project to evaluate both the Law and the overall insolvency system. The assessment aimed to assist the ministry in its drafting efforts and ensure that the resulting legislation would be more consistent with emerging international best practices for insolvency regimes. The assessment revealed that the Law is utilized relatively infrequently as a tool to resolve financial distress in Georgia. One reason for this may be the stigma that still attaches to insolvency, while another reason may be that the Law has not met the needs of either debtors or creditors in the current economy. The Law adversely affects the rights of senior secured creditors, largely ignores the rights of unsecured creditors, and does not provide a flexible enough framework for "rehabilitation" to be a useful strategy for either debtors or creditors. The report's most significant findings are summarized as follows: The stated purpose of the Law is not expressed in terms that maximize the protection of creditors' rights or of the net value of the debtor's assets. The Law gives unusual emphasis to the debtor, whereas insolvency laws are more commonly thought of as providing a collective mechanism for creditors to maximize the recovery of amounts due to them when the debtor is unable to meet its contractual obligations. The lack of clarity in the responsibilities of the Insolvency Office Holder (IOH) and the debtor significantly hinders the maximization of the value of the insolvent debtor's assets. It is not clear in the Law that the protection of the net asset value of all of the debtor's assets for the benefit of the pre-insolvency creditors is the most basic of the trustee's responsibilities. The National Bureau of Enforcement (NBE) in its role as trustee, does not have clear guidelines on how to prioritize the interests of different groups of creditors. The Law also has inconsistencies in rehabilitation plan governing articles, which can lead to cumbersome and unwieldy aspects of the Law. Observations of inconsistencies in the Law and gaps in the Law have been noted, which can hinder the effective functioning of the insolvency system. The assessment concludes that there is a need for a substantially new Law that provides a more flexible framework for rehabilitation and better protects the rights of creditors. The assessment also highlights the need for specialized legislation governing Insolvency Office Holders (IOHs) and the Insolvency Department of the NBE as a regulatory body. The report provides a list of correspondents in Georgia, an EBRD insolvency law and IOH assessment project 2009 summary, statistical information on all open proceedings provided by the NBE, an extract from the insolvency law of Serbia regarding rehabilitation plans 2005, and an extract of Doing Business 2015.