Insolvency Law
Overview of the Law
The Insolvency Law No. (21) of 2018 provides the legislative framework governing the resolution of financial distress for persons carrying out economic activities in Jordan. The Law regulates insolvency proceedings, the identification of the debtor’s assets and liabilities, the reorganisation of the debtor’s business where its continuation is viable, or the liquidation of its assets where reorganisation is not feasible. It also defines the roles of the court and the insolvency practitioner, as well as the rights of creditors throughout these proceedings.
Insolvency and Imminent Insolvency
The Law defines insolvency as a debtor’s cessation of, or inability to, regularly pay debts as they fall due, or where the debtor’s total liabilities exceed the total value of its assets. It also recognises imminent insolvency, which refers to a situation in which the debtor is expected to lose the ability to pay debts as they fall due within six months, despite currently being able to meet its payment obligations. This distinction allows the debtor to seek intervention before actual financial distress occurs.
Scope of Application
The Law applies to persons carrying out economic activities for the purpose of generating profit or gain, including civil companies, government-owned companies, sole proprietors engaged in commercial activities, and registered and licensed professionals. The Law excludes certain categories, including banks and insurance companies, as well as natural persons subject to the provisions of the Civil Code, unless they are professionals covered by the Law.
Insolvency Application
The debtor, any of its creditors, or the Controller General of Companies, where the debtor is a company, may apply to the court for a declaration of insolvency. The debtor may apply in cases of both actual and imminent insolvency, whereas creditors and the Controller General may apply only in cases of actual insolvency. The Law requires the debtor, or the person responsible for its management if it is a legal person, to submit the application within two months of becoming actually or constructively aware of the insolvency. Failure to comply with this obligation may result in liability for any resulting damage.
Stages of Insolvency Proceedings
The Law divides insolvency proceedings into three stages. The preliminary stage begins with the declaration of insolvency and is intended to identify the debtor’s assets and creditors and gather the information necessary to assess whether the debtor’s business can continue. This is followed by the reorganisation stage, which aims to establish a plan to address the debts and maintain the debtor’s economic activity. The liquidation stage applies where the business cannot continue, or where a reorganisation plan cannot be approved or implemented.
Effects of the Declaration of Insolvency and Creditors’ Rights
The declaration of insolvency subjects financial claims to collective proceedings, requiring creditors to file their claims in accordance with the Law. Within the limits and timeframes prescribed by the Law, individual enforcement proceedings against the debtor’s assets are suspended, while the position of secured creditors is regulated. Interest and late payment penalties on insolvency debts cease to accrue from the date of the declaration, subject to the exceptions provided for by the Law. These provisions aim to manage creditors’ claims in an orderly manner and preserve the value of the debtor’s assets throughout the proceedings.
Reorganisation and Liquidation
Reorganisation allows for the adoption of a plan to address the debtor’s debts and determine how they will be repaid, taking into account the prospects of continuing the debtor’s business and the interests of creditors. The Law governs the preparation and consideration of the plan, as well as creditors’ participation in the decision-making process. Where reorganisation is not feasible, or the plan cannot be approved or implemented, the proceedings proceed to the liquidation of the debtor’s assets and the distribution of the proceeds in accordance with the rules and priorities prescribed by law.
Oversight, Liability and Cross-Border Insolvency
The Law sets out the responsibilities of the debtor and the insolvency practitioner, requiring the debtor to cooperate and provide the information necessary for the proceedings. It also establishes rules on liability where assets are concealed, false information is provided, or insolvency assets are mismanaged. In addition, the Law provides for the recognition of foreign insolvency proceedings and cooperation with courts and competent authorities outside the Kingdom, subject to the conditions it prescribes.
