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    Bankruptcy frees companies of all debt

    by | Apr 21, 2012

    Vladimer Papava, economics professor at Georgian Foundation for International and Strategic Studies, says the law seems tailormade to help some particular companies ahead of the election in October 2012.

    TBILISI, DFWatch – A new law lets companies escape all debt if they go bankrupt, freeing the owners of all responsibilities.

    Following a decision by the government, companies in Georgia will be able to liquidate without paying debts. Creditors won’t be able to ask for their money back, because the company having obligations towards them will no longer exist.

    This is the consequence of a bill prepared and presented in parliament by the National Movement party. According to the bill, ‘if a court makes decision that a debtor doesn’t have enough property to cover procedural costs related to insolvency proceedings by the time of appeal, then the court will refuse a person appealing on insolvency of receiving application on insolvency proceedings and will make a decision about debtor liquidation. Liquidation of a debtor will be grounds to abolish registration of the enterprise.’

    The bill’s explanatory note says that the current regulation creates a situation when on the one hand, partners can’t make a decision to liquidate an enterprise; on the other hand, the director fulfills its responsibility to appeal to court about bankruptcy immediately when there is insolvency situation; the court refuses to start reviewing on bankruptcy because the enterprise doesn’t have enough property to cover at least the bankruptcy costs.

    There is another resistance for making a decision about liquidation – a norm about entrepreneurs, which remarks that ‘after ending of creditors’ satisfactory process, the responsible person makes a decision to end enterprise liquidation, which should note about all known creditors of the enterprise being satisfied.’

    If the enterprise doesn’t have the necessary funds for bankruptcy, it won’t be able to satisfy the creditors, the explanatory note says. A situation is created when there is an enterprise which doesn’t have legal or economic grounds to exist and on the other hand, there is no legal way to stop the functioning of this enterprise.

    “Legal amendments we present, suggests legal opportunity to solve these problems, which will eliminate the existing legal avenue in which we see the entrepreneur subject.”

    The goal of the initiative is to free the market of factually dead enterprise subjects.

    Economics professor Vladimer Papava at Georgian Foundation for Strategic and International Studies, explains that this way it will really clean companies from their ‘old sins’, but this will create problems for those these companies have unfulfilled obligations to.

    “Such an amendment doesn’t stand up to scrutiny, because a logical question arises: if there are creditors, what did they do wrong? According to the current law, the responsibility the company has, should be paid through all kinds of property. Otherwise, it turns out that a special law is being prepared to save particular companies, because this way these companies won’t even have debts.”

    He says that this is a very suspicious decision and is done for particular companies in mind which most likely are connected to the government.

    “In fact, a number of companies get rid of their problems and of course, the National Movement several months before the elections support them in this to rid them of their problems,” Papava says.

    He considers the reason given in the explanatory note absurd; that these companies still don’t have money to satisfy creditors and there is no point in their existence.

    “It’s not so easy. The current law defines what should be done and how. Even if the company doesn’t have money, it doesn’t free them from responsibility. In fact, this is cleaning companies of old sins,” he adds.



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