Law of the Azerbaijan Republic

On insolvency and bankruptcy

Chapter I. General

Article 1. Basic definitions

The following basic definitions used in this Law will mean:

• insolvency inability of debtor to pay debts;

• 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

1. Procedure of institution of proceedings on bankruptcy and examination of bankruptcy cases is controlled by existing legislation, accounting for specific requirements of this Law.

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:

a) law court at a place of location of major part of debtors property; or

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.

Article 3. Meaning of the term ´insolvencyª

A debtor undergoes the process of bankruptcy if he has been recognised insolvent. The debtor shall be recognised insolvent if he himself recognises this fact, or if the law court or creditor have proved that:

a) the debtor fails to fulfil legal request of payment which has been made by the creditor, within two months after submission of such request; or

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.

Chapter II. Institution of proceedings on bankruptcy in the law court

Article 4. Institution of proceedings by the debtor

1. Petition in bankruptcy submitted by the debtor must be prepared as specified by legislation and signed. If application of the debtor is submitted by his representative, power of attorney must be enclosed or other document confirming authority or official position of representative.

2. Petition in bankruptcy submitted to law court, should contain:

a) name of the law court;

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.

Article 5. Documents enclosed with the debtor petition in bankruptcy

1. The following documents are enclosed with the debtor petition in bankruptcy, besides those required by legislation:

a) document confirming payment of law court charges, except cases when debtor asks in his application about deferment with payment of law court costs;

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.

2. In case of the enterprise-debtor the following documents must be also enclosed:

a) copy of decision of competent body of debtor concerning application to the law court about institution of proceedings on bankruptcy; 

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.

Article 6. Institution of proceedings on bankruptcy by creditors

1. Petition in bankruptcy submitted by the creditor must be prepared as specified by legislation and signed. If application of the creditor is submitted by his representative, power of attorney must be enclosed or other document confirming authority or official position of representative.

2. Petition in bankruptcy submitted to law court, should contain:

a) name of the law court where petition in bankruptcy is submitted;

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.

3. Total amount of claim against debtor, if debts were not paid on the date of submission of petition in bankruptcy despite that term of payment expired, shall be defined as specified by relevant executive power body. 

Article 7. Documents enclosed with application on bankruptcy submitted by creditor

Besides documents required by legislation, the following documents must be enclosed with application on bankruptcy submitted by creditor:

a) document confirming payment of law court charges;

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.

Article 8. Result of failure to observe requirements

Non-conformity of petition (application) on bankruptcy submitted to the law court with provisions of this Law, including submission of application without enclosed required documents may end in respective results as envisaged by legislation (refusal of the law court to accept application/petition, abandonment of the application without examination, without movement or return of the application by the law court).

Article 9. Announcement about examination of the bankruptcy case in the law court

1. In case if legal proceeding on bankruptcy has been appointed, to inform creditors, an applicant shall have to publish announcement about this disposal in official newspaper which is being issued in the Azerbaijan Republic, twice, with interval at least 7 days between announcements. The second announcement must appear in the newspaper not later than 7 days before the date appointed for consideration of legal case. Published announcement will contain the following data:

a) name (surname, first name, middle name) of debtor and his address;

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;

2. In case if announcement about disposal of legal proceeding on bankruptcy was not published as specified in clause 1 of this article, this may entail respective results as envisaged by legislation (deferment, stay of proceedings, abandonment of the application without examination by 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.

Article 10. Payment of debts by debtor after submission of petition in bankruptcy

1. After the law court has accepted petition in bankruptcy for examination, the debtor may apply to law court requesting that he intends to make settlement with his creditors (to meet their claims). An issue of fulfilment of said application will be solved by the law court, in accordance with procedure of consideration of applications at respective stages of legal proceeding, as envisaged by legislation and results of proceedings.

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. 

Article 11. Results of examination of bankruptcy case in the law court

1. After bankruptcy case has been examined at the session of the court, law court, in accordance with legislation, makes the following decision:

a) on announcement about bankruptcy of the debtor and appointment of the administrator of the property;

b) about appointment or extension of appointment of provisional administrator of the property;

c) about refusal to announce bankruptcy of a debtor.

2. In case if case of bankruptcy cannot be solved at the session of the law court in essence, law court, in accordance with legislation, makes the following decision:

a) about deferment of examination of the case;

b) about stay of proceedings;

c) about abandonment of the case;

d) about leaving an application without consideration.

In its decisions law court might envisage abandonment of measures concerning coverage of debts, including confiscation of assets forming the debtor property (if this does not infringe on rights of secured creditor).

3. Besides situations envisaged by legislation, the law court may refuse to announce about the bankruptcy of the debtor in the following cases:

a) if the debtor was not insolvent in accordance with provisions of this Law;

b) if the applicant was not one of the parties described in article 2 of this Law.

In such cases the law court might demand in its decision payment of compensation for damage incurred to the debtor or creditor (creditors) as a result of petition in bankruptcy submitted without due reasons.

Article 12. Appeal against decisions of law court

1. Appeals of the parties under the legal proceedings, or other persons participating in the case, against decisions of the law court concerning bankruptcy case are submitted and examined in an order and in term specified by legislation.

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.

Article 13. Initial meeting of creditors after the debtor has been announced bankrupt judicially

1. After the debtor has been announced bankrupt judicially, administrator of the property summons initial meeting of creditors, by way of sending notification to all known creditors and relevant executive power body (if the debtor is state enterprise). Whereas, the meeting should be held not later than one month from the date when decision of the law court about the bankruptcy of debtor enters into force.

2. Notification will contain time, date and place of the initial meeting. It should be:

a) sent by post to all known creditors, not later than 14 days before the date of the adjourned meeting;

b) published twice in official newspaper, not later than 7 days before the date of the adjourned meeting.

3. Initial meeting of creditors shall be held as specified in this Law.

Chapter III. Institution of proceedings on bankruptcy by the enterprise-debtor without involvement of law court

Article 14. Institution of proceedings on bankruptcy without involvement of law court

Proceedings on bankruptcy without involvement of law court may be initiated only based on relevant decision taken by the enterprise-debtor (and relevant executive power body if the debtor is state enterprise). When such decision is taken, provisional administrator of the property is appointed. The moment when said decision comes into force is the moment of institution of proceedings on bankruptcy without involvement of the law court.

All above said does not exclude legal proceedings on bankruptcy initiated by the enterprise-debtor.

Article 15. Notification of creditors about expected bankruptcy

1. Enterprise-debtor notifies creditors (and also relevant executive power body if the debtor is state enterprise) about meeting of creditors which should be held not later than 21 days from the date when the enterprise-debtor makes decision about institution of proceedings on bankruptcy.

2. Notification should be:

a) sent by registered post to all known creditors, not later than 14 days before the date of the adjourned meeting;

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.

3. Notification should include:

a) name (surname, name, middle name) and address of proposed administrator of property;

b) statement saying that proposed administrator of property will be supplying creditors with free information concerning economic activity of debtor, which they may require.

Article 16. Initial meeting of creditors on initiation of proceedings on bankruptcy by the enterprise-debtor

1. At the initial meeting of creditors manager (director) of debtor must supply the following information to creditors:

a) names (surnames, names, middle names) and addresses of all known creditors and information about any security - assets belonging to them;

b) information about the property and liabilities of debtor;

c) additional information which creditors may require for better understanding of financial position of debtor.

2. At the initial meeting of creditors, the latter must:

a) confirm decision of debtor about institution of the bankruptcy case and carry on voting concerning announcement of bankruptcy of the 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.

3. If the debtor is state enterprise, then, when approving or electing administrator of the property opinion of relevant executive power body is taken into account. 

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. 

Chapter IV. Consequences of initiation of the case of bankruptcy and announcement of bankruptcy

Article 17. Consequences of initiation of the case of bankruptcy

1. According to requirements of this Law, from the moment of institution of proceedings on bankruptcy the debtor cannot dispose of any part of his property with the purpose of implementation of economic activity or his obligations, or with any other purpose. Such decisions might be made by the debtor only with permission from the law court, administrator of the property or provisional administrator of the property.

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:

a) continue payment of wages at rates existing at the moment of initiation of the process of bankruptcy;

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.

Article 18. Consequences of announcement of debtor bankruptcy

1. Moment of bankruptcy of debtor is:

a) moment when decision of the law court about announcement about the debtor bankruptcy comes into force; or

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.

2. From the moment when the debtor has been announced bankrupt:

a) all court examinations (proceedings) and other actions directed to withdrawal of sums due from debtors are stopped;

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;