The New Bankruptcy Law no. 11 of the year 2018

The New Bankruptcy Law no. 11 of the year 2018

On February 19, 2018, the Egyptian Government set a new milestone in the

investment plan by passing Bankruptcy Law no. 11/2018 in a significant move to

encourage more local and foreign investment and a part of the Government

noticeable efforts in the last few years to revive the economy and the investment

environment by introducing new laws regulating entering and exiting the

Egyptian market.

The New Law is considered the first bankruptcy law in Egypt, for instance, it

introduces for the first time the concepts of mediation and reorganization, giving

both the debtor and the creditor a higher degree of flexibility in dealing with

debts. It also regulates the penalties by including a whole chapter explaining and

organizing the same unlike the previous legislation.

The absence of a law organizing the bankruptcy was one of the main factors for

which Egypt was considered as a high-risk country for investment. Thus, it was

crucial to issue an effective law to organize and regulate the bankruptcy.

The new Bankruptcy Law introduces the following new concepts:

• Reorganization System

– The Reorganization System is a new mechanism introduced by the Bankruptcy

Law to reorganize the administrative and financial business of the non-viable

companies through a plan including the ways to get over the financial and

administrative crises.

– The Reorganization System is open for any merchant with a minimum capital of

one million EGP as long as his business remained active for two years prior to the

submission of the application of reorganization and did not commit any

fraudulent act.

– In case of applying for reorganization, the bankruptcy as well as the preventive

settlement requests shall be suspended until the reorganization request is

examined.

– The merchant shall continue in managing his business normally during

implementing the reorganization plan which is determined by five years; with the

possibility of appointing an assistant to the merchant if required.

• Mediation

– The Bankruptcy Department has been established by virtue of the Bankruptcy

Law and initiating the mediation procedures is considered as one of its significant

competencies.

– The Department works on settling the disputes between the debtors and creditors

amicably prior to commencing the procedures of declaration of bankruptcy.

• Penalties

– The legislator under the Bankruptcy Law is trying to create a balance between the

act committed and the penalty prescribed. Hence, the Law differentiated between

the fraudulent and the non-fraudulent bankrupt in terms of the penalty prescribed.

– The fraudulent bankrupt is penalized by fine and imprisonment from three to five

years; while the non-fraudulent bankrupt is penalized by fine only without

imprisonment unlike the old rules which did not consider whether the bankruptcy

involved fraud or not.

In the light of the above mentioned, it is clear that the new Bankruptcy Law shows

the Egyptian Government efforts to promote the national economy by encouraging

foreign and national investments and solving the financial crisis of investors and

facilitating the entry and exit of funds from the Egyptian market smoothly under a

solid legal system, delivering a message of reassurance to the foreign and local

investors about the possibility of liquidation or bankruptcy without being subject to

imprisonment.

Moreover, it eliminates the barriers and obstacles that may face the creditors in

order to obtain their rights.

The new law assists in reducing the accumulation of cases in the courts by creating

a mediation system for the settlement of commercial disputes by convergence of

views between the parties