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Date: Baku, 13 June 1997
Law ¹ 326-IG. and
Date: Baku, 23 June 1997
Law No 604
On insolvency and bankruptcy
Article 1. Basic definitions
• applicant person who applied to the law court with petition in his bankruptcy;
• enterprise-debtor legal entity-debtor, which carries out or carried out earlier activity on the territory of the Azerbaijan Republic;
• individual debtor physical person-businessman, who is debtor and carries out activity without establishment of legal entity;
• amicable settlement agreement between the debtor and creditor about postponement of payment of payments to creditor, partial payment, assignment of some part of debt, reorganisation of the enterprise-debtor;
• assets of the enterprise property of the enterprise consisting of its fixed capital, other long-term investments, circulating assets and financial resources (including intangibles);
• liabilities of the enterprise liabilities including debts and borrowed funds of the enterprise, including creditor indebtedness (except subsidies, grants, etc.);
• sanation way of reorganisation of the enterprise-debtor by means of financial assistance rendered by its owner, creditors, other legal entities and physical persons in order to prevent its liquidation;
• property of debtor total property belonging to debtor or given to him in possession at the moment of institution of proceedings on bankruptcy and total property purchased by the administrator of the property and (or) provisional administrator of the property, and also total property purchased by the debtor from the moment when proceedings on bankruptcy were initiated to its end (except, where in case of individual debtor, there is such property which cannot be enforced against in accordance with existing legislation);
• moment of institution of proceedings on bankruptcy moment specified in Article 2 of this Law;
• moment of bankruptcy moment specified in Article 18 of this Law;
• administrator of the property official appointed in case of insolvency of the debtor as specified in Chapter V of this Law;
• provisional administrator of the property official appointed in case of insolvency of the debtor as specified in Chapter VI of this Law;
• manager person authorised, in accordance with constituent documents of debtor, to make decisions (said decisions being obligatory) concerning economic activity of debtor, including, among others, president, director, their deputies, chief accountant, and also other persons who actually control activity of debtor issuing regular instructions, or in some other way;
• secured creditor creditor who is holder of pledges;
• unsecured creditor creditor who is not secured and whose claims are settled in the fifth place in accordance with this Law;
• credit organisation legal entity which carries out, or carried out in the past banking activity in the Azerbaijan Republic in compliance with legislation;
• residents physical persons having permanent place of residence in the Azerbaijan Republic, including those temporarily living outside the Azerbaijan Republic; legal entities of the Azerbaijan Republic and their subsidiaries and representations abroad; diplomatic and other official representations of the Azerbaijan Republic abroad;
• non-residents physical persons having permanent place of residence outside the Azerbaijan Republic, including those temporarily living in the Azerbaijan Republic; legal entities, enterprises and organisations which are not legal entities and are located abroad, their subsidiaries and representations in the Azerbaijan Republic; foreign diplomatic and other official representations located in the Azerbaijan Republic, and also international organisations including their subsidiaries and representations.
Article 2. General procedure of institution of proceedings on bankruptcy
2. This Law is applicable to enterprises operating on the territory of the Azerbaijan Republic which fail to fulfil their obligations to the creditors and budget, except organisations being financed from the budget, public organisations (except those involved in commercial activity) and organisations (enterprises) whose activity is not aimed to gaining profits, state enterprises of special character, specified by relevant executive power body.
This Law is also applicable to credit organisations, including banks which carry out (or carried out earlier) activity in the Azerbaijan Republic in an order specified by legislation.
Term ´debtorª used in this Law applies both to enterprises-debtors and also to individual debtors.
3. In cases when total amount of the claims of creditors is less than 10 (ten) percent of partnership fund of the enterprise, proprietary claims of creditors against debtor on ownership are settled in accordance with general procedure of examination of proprietary claims in the law court.
4. This Law does not apply to state enterprises which are identified for privatisation under the ´State program of privatisation of public property in the Azerbaijan Republic in 1995-1998ª.
5. Application of the creditor (creditors) or debtor submitted to the law court will constitute basis for institution of the bankruptcy case. Moment of institution of proceedings on bankruptcy through the law court will be a date of application to the law court. Petition in bankruptcy may be submitted to the law court based on decision taken by management of the enterprise-debtor (decision taken by respective executive power body, if debtor - is state enterprise).
Petition in bankruptcy might be submitted to the law court also by legal entities and physical persons authorised by the state. If a debtor is individual debtor, application might be submitted by himself or by his representative.
6. In the only case of enterprises-debtors, proceedings on bankruptcy may be also initiated without participation of the law court, as specified in this Law.
7. Bankruptcy cases are examined by relevant law courts depending on their jurisdiction, specified by legislation, namely:
b) law court at a place of location of main administration of the enterprise-debtor, and with individual debtor - at a place of his residence.
b) the debtor cannot make payments which constitute his liability in accordance with existing legislation in specified term; or
c) the debtor cannot pay his debts on due date.
Article 4. Institution of proceedings by the debtor
2. Petition in bankruptcy submitted to law court, should contain:
b) name (surname, first name, middle name of individual debtor or his representative) and address of debtor;
c) names (surnames, first names, middle names), postal addresses of all known creditors and total amount of the claims on the debtor;
d) information about liabilities of debtor which are due to be paid within one year after petition in bankruptcy has been submitted to law court;
e) confirmation of insolvency of debtor, or recognition of insolvency of debtor in accordance with this Law;
f) list of documents enclosed with the application of debtor;
g) any other information which, to the debtors opinion, is required for law court for examination of the case, including, in a case of individual debtor - detailed information in support of the debtors demand that certain assets should be excluded from his property, and also other data as envisaged by legislation.
b) list of creditors and debtors of debtor, with clear indication of sums to be paid and sums to be received;
c) document specifying amount of claims in accordance with provisions of this Law.
b) if the debtor is state enterprise - copy of decision taken by respective executive power body about institution of proceedings on bankruptcy;
c) balance on the last report date.
2. Petition in bankruptcy submitted to law court, should contain:
b) name (surname, first name, middle name) of debtor and his address;
c) name (surname, first name, middle name) and address of the applicant (creditor);
d) names (surnames, first names, middle names) of other creditors known to applicant and their addresses;
e) justification and sum of the applicant claim against debtor, including term of fulfilment of any liability which constitutes the debt of debtor;
f) confirmation of insolvency of debtor in accordance with requirements of this Law;
g) information about assets of debtor which is in possession of the applicant;
h) list of documents enclosed with the petition in bankruptcy;
i) any other information which, to the creditors opinion, is required for law court for examination of the case, and any other data specified by legislation.
b) submission of copies of application on bankruptcy and all enclosed documents to debtor;
c) In case of state enterprise - document confirming that copy of application on bankruptcy was sent to relevant executive power body.
b) name (surname, first name, middle name) and address of the applicant (in case when applicant is not debtor);
c) name of the law court where disposal of legal proceeding will be carried out;
d) date appointed for consideration of the case in the law court;
3. Law court may envisage other ways of informing of creditors, including annulment of requirement of publication.
4. Copy of application/petition on bankruptcy and accompanying documents must be delivered to debtor before the first announcement about bankruptcy appears in the newspaper, as specified in clause 1 of this article. The documents may be delivered by courier or by registered post.
2. According to legislation, law court may, with consent or by initiative of the plaintiff (or defendant) , and also by his own initiative, to allow replacement of the parties participating in legal proceedings on a case of bankruptcy by real plaintiff or defendant, their successors, to involve another plaintiff or defendant.
3. Recall of petition in bankruptcy by the applicant may entail respective results of proceedings as envisaged by legislation.
b) about appointment or extension of appointment of provisional administrator of the property;
c) about refusal to announce bankruptcy of a debtor.
b) about stay of proceedings;
c) about abandonment of the case;
d) about leaving an application without consideration.
3. Besides situations envisaged by legislation, the law court may refuse to announce about the bankruptcy of the debtor in the following cases:
b) if the applicant was not one of the parties described in article 2 of this Law.
2. Acceptance of appeal in accordance with an established procedure may result in suspension of sale of the debtor property and withholding of payment to creditors.
2. Notification will contain time, date and place of the initial meeting. It should be:
b) published twice in official newspaper, not later than 7 days before the date of the adjourned meeting.
Article 14. Institution of proceedings on bankruptcy without involvement of law court
All above said does not exclude legal proceedings on bankruptcy initiated by the enterprise-debtor.
2. Notification should be:
b) published twice in official newspaper, which is being issued in the Azerbaijan Republic, whereas the second announcement must appear in the newspaper not later than 7 days before the date adjourned for the meeting.
b) statement saying that proposed administrator of property will be supplying creditors with free information concerning economic activity of debtor, which they may require.
b) information about the property and liabilities of debtor;
c) additional information which creditors may require for better understanding of financial position of debtor.
b) approve appointment of proposed administrator of the property or elect new administrator of the property;
c) at creditors wish, to elect committee of creditors in accordance with this Law.
4. Requirements to the administrator of the property elected at the first meeting of creditors where the process on bankruptcy has been initiated without involvement of law court, and authority of the administrator should comply with provisions of this Law.
5. Subsequent meetings of creditors will be summoned and held in accordance with this Law.
6. Administrator of the property and persons interested in the process of bankruptcy may apply at relevant law court for settlement of any question arising from provisions of this chapter.
Article 17. Consequences of initiation of the case of bankruptcy
2. In cases when provisional administrator of the property has not been appointed, the debtor may, without permission indicated in clause 1 of this article:
b) continue payment of his current expenses required for uninterrupted supplies of commodities and services, except payment for earlier supplies of commodities and services;
c) dispose of perishable assets and take other measures required for conservation of value of debtor property.
b) moment when decision about announcement about the bankruptcy of the enterprise-debtor has been taken at the first meeting of creditors in compliance with provisions of this Law.
b) claims against debtor may be presented only within the limits of the process of bankruptcy envisaged by this Law;
c) in cases non-contradicting to legislation implementation of decisions concerning the debtors property which have been taken earlier by any law court is suspended;
d) authority of manager (director) of the enterprise-debtor, except authority assigned by the administrator of the property, terminates;
e) authority of the enterprise-debtor with regards to any instructions and actions towards its property ceases.
Article 19. Terms of appointment of the administrator of property
2. If the debtor is state enterprise, then, when appointing administrator of the property by the law court, opinion of relevant executive power body shall be taken into account.
3. To be appointed as administrator of the property, physical persons must be educated in law, management, economic or accounting, or equivalent practical experience.
Neither persons convicted earlier for committed crime, who are forbidden to occupy certain positions and carry out certain activities (if the term of said penalty has not expired in an established order), nor those who are defendants under the bankruptcy case may not be appointed administrators of the property.
4. Before being appointed administrator of the property, appointed person shall have to make statement about absence of private interest. The following persons may not be appointed administrator of property:
b) persons connected with debtor in accordance with article 54 of this Law.
2. Authority of the administrator of property does not change, no matter whether the administrator of property has been appointed by law court or by creditors, in accordance with provisions of this Law.
3. Disputes concerning authority of the administrator of property and their meaning, are settled on application of the administrator of property or other party involved in dispute, in the law court, in compliance with legislation. After examination of the case, law court may give permit or forbid administrator of property to take any specific measures regarding the debtor or property of debtor.
4. Administrator of property has the right:
b) to annul, as specified by legislation, any deals of debtor, including non-implemented agreements which are not economically viable, may result in formation or increase of liabilities;
c) to come into possession of any assets making the property of debtor, on behalf of debtor, and in this respect to take any measures which could require in an order specified by legislation;
d) to sell the property of debtor, all or part, in accordance with legislation, and this Law, and also to implement all actions which are envisaged for sale of such assets;
e) to make interim payments under the claims against debtor, in an order of priority specified in Chapter XII of this Law;
f) to take relevant measures for insurance of debtor property in an order specified by legislation;
g) to take necessary measures for uninterrupted supplies of water, electric power, fuel and other services required for economic activity;
h) to hire (to appoint), dismiss and release employees of debtor in an order specified by legislation;
i) whenever necessary, to use services of other specialists on contractual basis, to implement some specific functions;
j) whenever required, to assign part of his authorities to the administrator of debtor, having authorised him in writing;
k) to request and to be provided with any books of accounts, and any other reports and documents concerning the debtor activity;
l) to receive information from persons who have information about economic activity of debtor;
m) to summon meetings of creditors or committee of creditors;
n) to apply to law courts for settlement of disputes with creditors, and in other cases envisaged by this Law;
o) to take part in any legal proceedings regarding debtor and his property in an order specified by legislation;
p) to stop his assignment and to submit respective application to those who appointed him;
r) to carry on any other actions in support of the above authorities which do not contradict legislation.
b) within the shortest possible term take measures necessary for protection of debtor property and carrying out control over the debtor activity;
c) carry out analysis of financial position of debtor, submit his conclusions to respective law court about signs of fraudulent or deliberate bankruptcy revealed in the course of said analysis;
d) estimate assets of debtor with engagement of any experts who seem appropriate to him;
e) accounting for provisions of this Law act in such a way as to protect commercial interests of creditors and achieve best price which is realistic in said circumstances when selling the property (part of property) of debtor, including sale of security belonging to secured creditor in accordance with requirements of this Law;
f) provide that the debtor includes into all documents issued by him (letters, invoices and financial documents) information which clearly demonstrates that the debtor is in the process of bankruptcy, including the words ´in the process of bankruptcyª in brackets with any mentioning of the debtors name;
g) to consider feasibility and to inform creditors and law court whether agreement with creditors to be concluded based on provisions of Chapter VII of this Law would correspond to the interests of creditors in a best way;
h) take measures for sale of the debtor property and distribution of sales proceeds in accordance with provisions of Chapter XII of this Law, should administrator of the property at any moment during the process of bankruptcy reasonably decide that these measures in the best way correspond to creditors interests, and if at said moment no agreement with creditors exists in accordance with provisions of Chapter VII of this Law and no justified assumptions that such agreement will be achieved;
i) prepare list of creditors of this debtor with indication of total amount of their claims and register of creditors claims in accordance with Chapter IX of this Law;
j) protest against legal force or amount of claims which are not fully justified;
k) take measures on recovery of debts due to debtor;
l) submit any agreement concluded with creditors for approval by relevant law court;
m) check deals concluded by debtor in accordance with provisions of Chapters XIII-XV of this Law, activities (actions) of directors and managers of debtor, apply regarding results of these checks to law court and other competent state bodies;
n) whenever necessary, dismiss employees in an order and according to requirements of legislation;
o) submit to creditors and to law court reports about his activity in accordance with requirements of this Law;
p) for the sake of benefit of creditors, keep confidential all information on the state of the debtor activities which becomes known to the administrator of the property during the course of his appointment;
r) implement any other actions which do not contradict legislation and are specified in this Law.
2. If the property is in possession of other person under the leasing agreement, administrator of the property may:
b) sell to any third person right for return of the property at the end of leasing term, together with the right for receipt of rent payments during the term of leasing;
c) to apply to law court requesting for termination of leasing agreement ahead of time in an order specified by legislation.
2. Administrator of the property may organise the auction himself or conclude agreement with the third party possessing relevant qualification.
3. Initial cost of property included into the property of debtor is estimated by administrator of the property in accordance with estimate of such property carried out in accordance with this Law. The property must be sold to the buyer whose proposed price best satisfied commercial interests of creditors.
4. Except cases when administrator of the property and the buyer agree otherwise, any buyer of the debtors property - whole or any its part, should pay selling price of property within a term not exceeding 14 days from the date of the auction. Should the buyer fail to make payments within such term, administrator of the property will have the right to dell such part of property to any third party and withdraw sum of compensation of loss from the buyer who failed to fulfil his obligations, namely:
b) difference between the price offered at the auction and price got with subsequent sale.
6. Relevant executive power body of the Azerbaijan Republic might envisage other procedure for sale of assets of state enterprises.
b) according to personal opinion of the administrator of property, market cost of assets might significantly reduce of they are not sold immediately;
c) costs of sale through the auction will be incomparable with the creditors claims;
d) terms of agreement with creditors approved by the law court in compliance with provisions of Chapter VII of this Law allow such sale;
e) according to reasonable opinion of the administrator of property, this decision will be most favourable for creditors;
f) there exists decision of the law court establishing method of sale.
· profit-and-loss account;
· information about cash flow available for compensation of creditors claims;
· breakdown of the amounts due and information about intangible assets of debtor;
Article 28. Report of the administrator of property at the law court
b) accounting (balance) report, including assets inventory at their balance cost;
c) preliminary schedule of creditors claims and monetary cost assigned to such claims by the administrator of property, and also sums of claims which were paid;
d) information about payment and expenditures reimbursed to the administrator of property;
e) report about use of resources remaining after all creditors claims have been satisfied;
f) detailed information about any illegal action or incompetent deals of director of the enterprise-debtor;
g) for individual debtor - recommendations with respect to terms which should be established for debtor, and also time period which should expire before the process of bankruptcy terminates;
h) other information which, by opinion of the administrator of property, could be required by the law court.
b) that the debtor must transfer payment under certain obligations (alimony, etc.) in full amount.
4. By application of the administrator of the property 14-day term specified in articles 27 and 28 of this Law may be extended by the law court to one month maximum.
2. Costs of keeping of the administrator of property shall be agreed between the creditors and administrator of property, and where such agreement is absent - by the law court.
2. Administrator of the property may be also dismissed from his position and replaced by the creditors at the meeting of creditors summoned in accordance with Chapter XII of this Law.
3. Administrator of the property may also apply to the law court with petition about resignation. When satisfying this petition, law court will have to appoint another candidate as a replacement for administrator of the property.
4. On appointment of the administrator of property - substitute, the latter will have to notify all creditors about his appointment.
2. Should law court satisfy application submitted by the administrator of property with respect to persons creating obstacles to the administrator activities, said persons or state bodies may be duly authorised.
3. In line with existing legislation, the administrator of property is responsible for losses suffered by the owner or debtor, or by any creditor as a result of activity of the administrator of property
Article 32. Appointment of provisional administrator of property
2. Provisional administrator of property may be appointed only in those cases when the process of bankruptcy is initiated with involvement of the law court.
3. Appointment of provisional administrator of property is an temporary measure and has the following objectives:
b) carry out preliminary financial analysis of debtors status.
5. If law court has any doubts regarding safety of assets which constitute the property of debtor, this law court shall have to appoint provisional administrator of property.
6. Petition about appointment of provisional administrator of property is considered by the law court in an order and in term established by legislation, however not later than within 3 days.
7. If, after provisional administrator of property has been appointed the debtor is not announced bankrupt, then the party which applied to the law court asking about appointment of provisional administrator of property will have to pay fee to provisional administrator of the property and to cover all his expenses, and also to compensate all losses suffered by debtor as a result of appointment of provisional administrator of the property. If, however, the debtor has been announced bankrupt, fee and expenses of provisional administrator of property shall be covered in the same way as expenses of the administrator of property and will be paid in the first place, as specified in Chapter XII of this Law.
8. If there is information that assets constituting the debtors property are at serious risk, law court may appoint temporary administrator of property by default, without hearing explanations of the debtor. In such cases the debtor may apply to law court with an objection, within 7 days after receipt of notification about such appointment. Whereas, application of debtor is considered in an order envisaged by clause 6 of this article.
2. Director of debtor must co-operate with provisional administrator of property and provide him free access to the premises, assets, bank accounts and documents of debtor. All persons (including auditors and credit organisations) having any obligations to debtor shall bear same obligations regarding provisional administrator of property.
3. Provisional administrator of property may give order to carry out complete or partial audit of debtor.
4. Provisional administrator of property must keep confidential commercial information which became known to him, and use such information solely for implementation of his functions.
5. Provisional administrator of property may forbid director of debtor access to the debtors premises, if he regards this measure proper.
6. Persons creating obstacles to actions of provisional administrator of property when the latter implements his obligations, may be called to account in line with provisions of this Law.
7. During the term of authority of provisional administrator of property, suits against debtor or his property may be considered by the law court in an order specified by legislation.
8. On appointment of provisional administrator of property, he undertakes initial analysis of financial status of debtor. With this purpose, and in order to protect the property of debtor, provisional administrator of property may engage any person who is director/manager (former director) of debtor, or who may possess information and documents concerning economic activity of debtor.
9. Provisional administrator of property may apply to law court whenever necessary, to get instructions as per procedure of implementation of his authorities.
2. Term of authority of provisional administrator of property terminates with any of the following events:
b) satisfaction of respective application of any person of those mentioned in article 2 of this Law by the law court;
c) on resignation, dismissal from position or replacement of provisional administrator of property in line with article 30 of this Law.
Article 35. General procedure of amicable settlement with creditors
2. Agreements with creditors might be concluded within the limits of the process on bankruptcy, irrespective of the manner of its initiation.
3. In case if proceedings on bankruptcy have been initiated with involvement of the law court, administrator of the property is obliged, in compliance with article 21 of this Law, to consider possibility of amicable settlement with creditors and to report to creditors and to the law court whether agreement with creditors will be beneficial for the interests of creditors.
4. If proceedings on bankruptcy have been initiated without involvement of the law court, director acting together with proposed administrator of property may propose amicable settlement with creditors at the first or at any subsequent meeting of creditors. Whereas, settlement might be concluded only with consent of all creditors. If even one creditor is against conclusion of said agreement, proceedings on bankruptcy of debtor continue in general way.
5. When concluding amicable agreement, deferment of payment of underpaid tax sums to the budget and extra-tax payments, payment in portions, summing, payment under obligatory state insurance programme and return of overpaid sums are allowed only in cases and in an order specified in legislation.
b) provisions concerning sale or transfer of the whole or part of the debtors property, including shares;
c) provisions on establishment of a new enterprise with any organisation-legal form;
d) provisions envisaging payment of all or part of claims of unsecured creditors, made as a lump sum or as instalments.
b) the following documents shall be sent to all creditors:
· preliminary financial report with balance and list of all creditors with indication of all sums due to them;
· notification about the time, date and place of the meeting of creditors.
4. At the meeting of creditors the debtor must fully disclose financial information for creditors.
5. At the meeting of creditors summoned in connection with agreement with creditors, the latter may, by way of voting:
b) propose acceptance of another agreement, or amended agreement; or
c) reject proposed agreement.
7. Decisions of the meeting of creditors summoned in connection with agreement should be taken in line with provisions of Chapter XII of this Law.
2. Administrator of the property must apply to the law court for approval of any such settlement (agreement) with creditors within the term not exceeding 7 days from the date of the meeting of creditors where said agreement was approved. The law court considers such application within a term specified by legislation.
3. The party whose interests are affected by such agreement may, during or before consideration of application for approval of such agreement by the law court, apply to the law court for amendment or rejection of such agreement using an argument that terms of such agreement are unfair for this party. Law court, at its session must listen to every creditor objecting against approval of agreement.
4. Law court cannot approve agreement with creditors if there is no evidence that all requirements of this chapter have been fulfilled.
5. If the law court does not approve this agreement, it may, in its decision, instruct that said (amended) agreement should be submitted for consideration by additional meeting of creditors.
6. After it has been accepted by the meeting of creditors and approved by the law court, agreement with creditors shall be binding for all creditors who received notification about the meeting, irrespective of the fact if they approved this agreement, and also if they were or were not present at the meeting of creditors.
7. Administrator of property controls implementation of agreement. Nevertheless, accounting for terms of agreement, administrator of property may assign power of control to other persons, including director (manager) of debtor.
8. In accordance with agreement with creditors, fee to the administrator of property in an amount specified in agreement, will be paid by debtor.
2. Agreement with creditors should not interfere with ranking of creditors of one and the same rank, if there is no mutual agreement about that.
3. Rights of creditors who voted against proposed agreement, or those who did not participate in voting are guaranteed within the limits of ranking, equally with rights of creditors who voted for proposed agreement.
2. If administrator of the property or other person presented evidence to law court showing that agreement with creditors is not implemented in accordance with its terms, the law court may, in an order specified by legislation, annul agreement with creditors and instruct the administrator of property to take measures indicated by the law court. Such measures may consist in the following:
b) attempt to achieve another agreement with creditors.
4. In case of termination of amicable settlement, announcement about re-opening of proceedings on bankruptcy of the enterprise will be published in official newspaper.
Article 40. The process of sanation
2. Any planned sanation should be approved by the law court.
3. The debtor may apply to the law court with petition about stay of the process on bankruptcy in order to examine an option of sanation. Law court will consider this petition within two weeks term and takes decision about its complete satisfaction or rejection.
b) solvency of debtor may be restored based on sanation.
3. To identify possibility or feasibility of the project of sanation, the law court may involve independent experts. Costs related to activity of such experts shall be reimbursed by the debtor.
4. Having considered measures on sanation of the enterprise-debtor, law court may announce open tender for participation of interested legal entities and physical persons in the process of sanation. If, within a month, there will be no legal entities and physical persons willing to participate in tender, or if the debtor disagrees with their terms of sanation, case of bankruptcy of said debtor will be considered as usual.
5. For a period of consideration of possibility of sanation by the law court, provisional administrator of property is appointed for management of business of insolvent debtor. Expenses of provisional administrator of property will be paid by persons who applied for participation in the process of sanation.
6. Resolution of the law court about beginning of sanation process should include the following:
b) not less than one third of total amount of claims of all creditors should be paid within 12 months from the date of acceptance of said resolution;
c) clause specifying that administrator of the property shall be carrying out control over implementation of sanation as specified in resolution.
8. With successful completion of sanation process, the law court terminates proceedings on bankruptcy with respect to this debtor in an order specified by legislation.
During sanation claims of creditors should be fulfilled in an order envisaged for liquidation of enterprises.
9. During the term of sanation, provisions of sub-clauses ´aª - ´cª, clause 2, article 18 of this Law will apply. Calculation of interest and imposition of penalties may continue during the period of sanation, however demand of their payment may be submitted only at the end of this period.
10. Beginning of the process of sanation shall not prevent secured creditor to recourse to the backing (securing) account in accordance with provisions of this Law.
11. Legal entities and physical persons who participated in the process of sanation of the enterprise acquire the ownership right for part of property contributed to the enterprise.
12. Relevant executive power body of the Azerbaijan Republic may establish different procedure of sanation of state enterprises of special kind.
Article 42. General principles of presentation of claims
2. Creditors may present claims to the debtor in writing, within a term not later than 60 days from the date of publication of notification about the bankruptcy of debtor, in accordance with provisions of this Law. Such claims will be considered by the administrator of property only if they include the following information:
b) total amount of claims at the moment of institution of proceedings on bankruptcy;
c) whether sum of claim includes outstanding interest;
d) whether sum of claim includes any penalties or taxes;
e) information about how and when the debtor became indebted;
f) information about any existing guarantee, date of presentation of such guarantee and sum which the creditor expects to receive;
g) surname, address and authority of the person who signed the claim (if said person is not the creditor himself);
h) documents (if there are any) confirming that said claim is legal.
2. Claim of creditor at any time, on agreement between the creditor and the administrator of property, may be recalled or changed in terms of required sum.
3. In cases not contradicting legislation sums which are payable to creditor on presentation of claim by the latter, or liabilities under some agreement, including compensation under non-monetary liabilities will be estimated by the administrator of property rather than by law court.
4. If administrator of property annuls obligations of debtor in cases not contradicting legislation, then person suffered as a result of such annulment will have the right to demand compensation of losses from the debtor, whereas compensation of such losses shall be done as unsecured debt on bankruptcy, in the fifth order, according to ranking, as specified in this Law.
5. In all cases when debts (or liabilities) of debtor are to be paid later, term of their fulfilment is regarded as transferred to the moment of bankruptcy of debtor, so that agreement could be considered terminated and creditors should have the right for presentation of claims. If administrator of property estimates sum of compensation to be paid against such transferred (ahead of time) claim, he will have to make discount from the sum of claim, to reflect the fact of presentation of claim ahead of time. Within the context of this Law, sum of claim with discount shall mean net current value of claim.
6. If the debtor has liabilities to his employees concerning illness allowance, these liabilities also shall have to be fulfilled sooner, as all other debts and they are paid in such order of priority as specified in Chapter XII of this Law.
7. Shareholders or owners have the right for compensation of their contributions to the capital of insolvent debtor after claims of all other creditors have been fulfilled in compliance with Chapter XII of this Law. However, in the context of this right, shareholder or owner is not the creditor of insolvent debtor and has no right to vote at the meeting of creditors, or take part in proceedings on bankruptcy in some other way, except cases when such shareholder or owner has separate debt under some other deal, where he is a creditor. Shareholder or owner has no right for clearing of any liability due to him from insolvent debtor with respect to his contribution to the capital on account of any debt which he could have to insolvent debtor. When establishing order of payments to the shareholders, administrator of the property must take into account category of shares belonging to shareholder.
2. If administrator of property accepts or rejects a claim, in full or in part, he must explain his reasons in writing and forward such written explanation to creditor by post.
3. If the creditor does not agree with decision of the administrator of property regarding his claims, he may apply to the law court for annulment or change of this decision. Such application must be submitted within a term not exceeding 21 days from the day when explanation prepared in accordance with clause 2 of this article has been received.
4. Law court appoints the term for consideration of application under clause 3 of this article and notifies administrator of property as such.
b) sum of accepted claim;
c) position of claim within the rank.
b) introduce such changes and amendments into the schedule which to his opinion are relevant, and approve such amended schedule; or
c) instruct administrator of property to take other measures which the law court considers proper and submit amended schedule of claims again, later.
4. Any creditor has the right to be acquainted with the schedule of claims (or its copy).
Article 47. Secured creditors
2. Administrator of property notifies secured creditor about initiation of proceedings on bankruptcy of debtor. If secured creditor fails to implement his rights with regards to security within 14 days from the day when notification has been received, administrator of property will have the right to sell security (separately, or together with all assets or part of assets of debtor) and to report to secured creditor about returns from sale, minus sale costs, within the limits of total agreed amount of claims of secured creditor. Any surplus of sale returns will remain part of debtors property.
3. In case if secured creditor initiates proceedings on bankruptcy, he will not loose his right of applying claims at the expense of security.
4. During the period of bankruptcy administrator of property must convince himself in legal value of security belonging to creditors. Validity of security is defined in accordance with existing legislation and Chapter XIII of this Law.
5. Administrator of property satisfies claims of secured creditor by the following ways, as secured creditor may desire:
b) assignment of the ownership right for the object of security to secured creditor;
c) sale of the object of security to a third person indicated by secured creditor.
b) approximate market and balance cost of assets;
c) sum to be paid to secured creditor by the debtor under secured liability and contract of pledge;
d) list of all former and future pledges with respect to assets which the parties know about at the moment of conclusion of agreement, and also any ownership rights and rights of use with respect to these assets.
8. If returns from sale of security are not adequate for payment of compensation to secured creditor in full, the latter might submit claim on bankruptcy as unsecured creditor.
9. Secured creditor has the right to refuse benefits under his security and to submit claim on bankruptcy as unsecured creditor.
10. Owner of any property being in possession of the debtor has the right to come into possession again, except cases when the owner is lessor, or preserves right of ownership according to agreement. In such case this owner has the right for return of this property only with consent of the administrator of property or by resolution of the law court.
Article 48. Meeting of creditors
2. Meeting of creditors is considered legally summoned when written notification is sent to all known creditors at least 14 days before, as follows:
b) by creditors representing at least one third of the cost of debt;
c) by law court;
d) otherwise, by request of the law court.
4. Meeting of creditors has the right to take any decision related to proceedings on bankruptcy with respect to the debtor which does not contradict this Law or resolution of the law court taken in accordance with this Law and does not prevent administrator of property to fulfil his obligations.
5. Decisions taken at the meeting of creditors on any issue, except when passing vote of no confidence in the administrator of property are powerful only when they have been supported by:
b) majority representing larger part of sum of all known unsecured debts which are due to creditors attending the meeting or represented at the meeting;
7. All decisions of the meeting of creditors which need approval of the law court become valid only after they have been approved by law court.
2. In case if cost of the object of security estimated in accordance with legislation does not fully cover sum of debt due to secured creditor (creditors), the latter has the right to vote at the meeting of creditors within the limits of obtained difference.
2. Meeting of the committee of creditors is regarded powerful, if;
b) not less than two members of this committee are present.
4. Committee of creditors has the right to give recommendations to the administrator of property. Administrator of property takes such recommendations into account on condition that they satisfy the interests of all creditors.
However, administrator of property is not obliged to follow recommendations of the committee of creditors (or meeting of creditors).
5. In case if actions of the administrator of property are considered as unsatisfactory, committee of creditors will have the right to summon meeting of creditors independently and to suggest to pass a vote of no confidence in the administrator of property. Such meeting may be summoned by the committee of creditors by way of notification of all known creditors by letter sent 14 days the latest before the date of adjourned meeting.
6. In case of bankruptcy of state enterprise relevant executive power body has the right to joint the committee of creditors as its member.
b) such decision was supported by creditors attending the meeting or represented at the meeting, who represent 75 % or more of total sum of debt.
When considering application, law court may adopt or reject decision of the meeting of creditors, or, accounting for interests of creditors in general, law court may dismiss administrator of property from his position, and appoint new administrator of property, irrespective of the fact whether his candidature was suggested by the meeting of creditors or not.
Article 52. General procedure of ranking in debt payment
b) or by way of direct transfer of assets constituting property of debtor to creditors as coverage of their claims.
3. In case if distribution has to be done for one category of creditors, all creditors of this category must be regarded as equal and receive compensation in proportion with sums of liabilities due to them.
4. In case if secured creditors were guaranteed security with respect to same assets, then security which was registered first will be of the first priority.
5. In case if in the course of bankruptcy it is revealed that the debtor has unpaid liabilities or will have liabilities later as a result of deals concluded before the moment of bankruptcy, or he may have contingent liability to other person, while such other person has existing, current or contingent liability, or debt to insolvent debtor, then:
b) if money equivalent of debt or liabilities cannot be estimated with certainty, said equivalent is defined approximately by the administrator of property;
c) any debts and liabilities which appeared after the moment of initiation of the bankruptcy case, cannot be accounted for with the purpose of this clause.
7. Claims of creditors submitted after expiration of the term for submission of claims, as specified in Chapter IX of this Law, will be satisfied from the assets remaining after the claims of creditors submitted within the specified term have been paid.
8. Claims of creditors which remain unpaid due to lack of assets constituting the property of insolvent debtor are regarded annulled, except cases when the cause of such shortage is either illegal attitude, or illegally concluded (by the debtor) deal.
9. Claims of creditors rejected by the administrator of property (which have not been settled positively on appeal) and also claims rejected by the law court are considered annulled.
b) claims of employees of debtor with regards to body injuries or death which occurred during working hours shall be paid in the second place;
c) claims of employees of insolvent debtor with regards to pensions, allowances, privileges and wages which is limited by a term of up to 6 months, expired to the moment of bankruptcy of debtor, shall be paid in the third place;
d) the following shall be paid in the fourth place:
· claims of credit organisation, including non-residents, with regards to unsecured loans which have not been paid before the date of enactment of this Law and interest on such loans before said date;
f) claims of owners of the enterprise-debtor are paid in the sixth place;
Article 54. Persons connected with debtor
b) any subsidiary, branch, representation of debtor;
c) any manager (director) of debtor, including persons who stopped to be managers of the enterprise-debtor 1 year before the moment of institution of proceedings on bankruptcy;
d) partner in any form of partnership.
b) during 90 days before the moment of institution of bankruptcy process as specified in article 2 of this Law;
c) during 1 year before the moment of institution of bankruptcy process, if to the moment of said transfer creditor or guarantor was person connected with the debtor, in accordance with article 54 of this Law.
2. When examining any application submitted in compliance with this article, the law court may:
b) cancel or annul, completely or in part, any security provided by debtor;
c) in compliance with legislation, request from any person, regarding any benefit received from the debtor, payment of such sums which law court could require;
d) envisage that any guarant whose obligations have been cancelled or annulled, completely or in part, in accordance with this deal, becomes bound by such new or renewed obligations;
e) request that losses incurred as a result of such assignment should be paid at the expense of director (manager) of debtor;
f) issue other resolutions and instructions, depending of specific circumstances.
Article 57. Obligations of director
2. When estimating actual responsibility of heads of enterprises, in line with provisions of this chapter, the law court may, at its discretion, take into account their actual experience and qualifications, and also experience and qualifications which would be normally expected from persons occupying such positions.
3. Director of the enterprise shall be obliged to initiate the process of bankruptcy from the moment when he finds out about insolvency of debtor.
4. Administrator of property may apply to the law court with request to issue resolution that director of the enterprise must personally transfer (pay) to the property of debtor such property which corresponds to additional losses suffered by creditors as a result of violation of obligations of debtors director.
The law court may issue any resolution in accordance with circumstances.
b) he did not know about activity or deals which resulted in such losses, as management of the enterprise gave him false information;
c) he directly informed management of the enterprise that he was against activity or deals under consideration, and asked for resignation from the post of director immediately after he had received information that said activity or deals were carried on, or continued despite his objections.
Article 60. Grounds for termination of the process of bankruptcy
b) if claims of all creditors are paid in full;
c) when administrator of property advises the law court that composition with creditors has been accomplished, or sanation has been completed;
d) in all other circumstances, when law court so decides.
b) in case if bankruptcy has been terminated due to other reasons, liquidation (dissolution, recall of license, etc.) of debtor takes place in an order specified by legislation.
4. After termination of bankruptcy of individual debtor, all debts which existed before the bankruptcy are regarded as fully paid, except alimony and money paid for keeping children under age.
5. On liquidation of the enterprise-debtor, respective resolution is forwarded to the body which has registered said enterprise, and in case of individual debtor - to the body which has registered it or issued license.
6. Entry about dissolution of debtor in accordance with sub-clause ´bª, clause 2 of this article should be made in the relevant state register.
b) illegal concealment or transfer of property of insolvent debtor;
c) illegal concealment, destruction, change or forgery of documents of insolvent debtor;
d) presentation of false claims by creditors;
e) illegal sake or presentation as security of any property of insolvent debtor, which was taken as credit or which was not paid for;
f) creation of illegal obstacles for activity of the administrator of property, or provisional administrator of property;
g) illegal purchase, direct or indirect, of any assets of debtor by the administrator of property, or provisional administrator of property.
Baku, 13 June 1997
Decree of the President of the Azerbaijan Republic
application of the Law of the Azerbaijan Republic
1. To authorise Cabinet of Ministers of the Azerbaijan Republic, within two months:· to develop and submit to the President of the Azerbaijan Republic proposals on bringing into correspondence of existing legislative acts and the Law of the Azerbaijan Republic ´On insolvency and bankruptcyª;
· to provide that normative legal acts of the Cabinet of Ministers and relevant central executive power bodies are brought into correspondence with this Law, and to inform the President of the Azerbaijan Republic;
· to develop and to submit to the President of the Azerbaijan Republic drafts of legislative acts establishing various types of responsibility for violation of this Law;
· to solve, within the limits of its competence, other issues following this Law.
· authority of ´relevant executive power bodyª envisaged by clause 5, article 2 , sub-clause ´bª, clause 2, article 5, clause ´cª, article 7, clause 1, article 13, first part of article 14, clause 1, article 15, clause 3, article 16, clause 2, article 19 and clause 6, article 50 of this Law will be exercised by the State Committee of the Azerbaijan Republic on property.
Baku, 23 June 1997