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We look at the reforms to the insolvency law of Armenia prompted by the coronavirus (COVID-19) pandemic. Written by Makar Yeghiazaryan, Bankruptcy Manager, member of INSOL Europe, Managing Partner of Yeghiazaryan & Partners Law Firm.
Many countries have suffered from the spread of coronavirus, not only because of the great number of infected people, but also from undertaking certain steps against the spread of virus . Almost everywhere, the economy has suffered a great deal—many businesses have had to stop their operations, and many employers have had to cut their employee numbers because of the decrease in business operation volume. Armenia is no exception.
The measures undertaken by the government against the spread of the coronavirus has led to amendments to legal regulations, in order to resolve the issues arising out of the current situation. Some laws were amended drastically, however the RA Law on Bankruptcy is yet to be amended, although draft amendments have been suggested to the RA National Assembly.
Until now, according to the RA Law on Bankruptcy:
‘in case there are grounds for declaring the debtor bankrupt as prescribed by Article 3 of this Law with respect to cash liabilities to the Republic of Armenia and community budgets (including taxes, duties, and other mandatory payments), the state or local self-government bodies shall be obliged to apply to the court with a claim of declaring the debtor bankrupt in the following cases and time limits: (a) the respective competent state authority: within six months from the moment of revealing the liability in connection with the delay of payment of taxes, duties, customs, and other mandatory payments or fines arising from administrative actions’.
In light of the negative economic consequences of the new coronavirus pandemic and the deteriorating solvency of economic entities, one of the RA National Assembly deputies suggested reforms to the RA Law on Bankruptcy.
According to the draft, the above-mentioned regulation will be amended as follows: (a) the respective competent state authority: within six months from the moment of revealing the liability in connection with the delay of payment of taxes, duties, customs, and other mandatory payments or fines arising from administrative actions, except when the amount of the claim does not exceed three million AMD.
The main reason for this is the decrease in turnover and in financial flows. As a result, shortfalls in the payment of obligations, including taxes, duties, customs duties, other fees or fines imposed by the administration, become objectively possible.
If the draft is adopted, the relevant competent state body will be released from the obligatory requirement to apply to the court with the demand to declare the debtor bankrupt unless the stated amount is exceeded.
The draft was suggested on 17 April 2020 and still needs to be discussed and approved by the RA National Assembly and for now it is impossible to predict when this addition to the law draft will come into force. This draft also suggests that this addition to the RA Law on Bankruptcy, if approved, enters into force 10 days after official publication and will be effective until 31 December 2021.
The duration of the new law is defined (ie is in force until 31 December 2021), as it is mainly connected with the impact of coronavirus on the economy and as soon as the virus has a less destructive effect on the economy, this proposed reform will have no further effect. According to the predictions of the RA National Assembly deputy, we will no longer be at risk of the virus and the economy will already be recovered by that time and there will be no place for the regulation to exist anymore.
As this is still at draft stage (ie it has not been approved by the National Assembly of the RA and no practical implementation as such exists), it is difficult to comment on the practical impact of the amendment. However, taking into consideration the overall impact of coronavirus on the economy, it is obvious that this amendment will release the state authorities from the additional court claim filings for bankruptcy regarding small debts, as they are mainly due to businesses being unable to operate under the measures adopted by the government and after these measures are over, those businesses might continue to operate and develop. This is also a huge support to businesses that potentially have the chance to recover after the coronavirus danger is over. At the same time, this will help employers to maintain their staff, as a result of which the state won’t have higher unemployment rates.
In conclusion, this is a win-win regulation, as businesses will have a chance to recover and increase operation volumes, the state authorities won’t have to file bankruptcy claims in the courts, the courts won’t get overloaded and the state, where those businesses recover, won’t suffer lower consumer spending due to a higher unemployment rate as a result of those businesses becoming bankrupt.
A tracker of insolvency reforms globally produced by LexisNexis in partnership with INSOL Europe is now available: Coronavirus (COVID-19) Tracker of insolvency reforms globally.
We look at various countries worldwide which are expediting reforms to their restructuring and insolvency laws, temporarily suspending onerous insolvency law provisions, increasing limits for statutory demands, suspending enforcement powers and introducing other measures to deal with the coronavirus crisis. As the situation is rapidly evolving with more countries adding new measures daily, you should contact local lawyers in the relevant jurisdiction to check the current measures in force.
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