A new draft law relating to insolvency and bankruptcy is currently before the Chamber of Deputies for scrutiny by a responsible committee after the Plenary Sitting approved its relevance on June 8, after it was presented by Rwanda Development Board (RDB).
According to the explanatory note of the bill, in a market economy, some businesses will succeed while others will fail. When businesses fail, they are unable to pay their debts and creditors suffer a loss.
The overriding purpose of insolvency law is to fix default rules providing the order in which creditors will be paid in case of insolvency.
Here are the new provisions that the bill has proposed:
Cross border insolvency procedures
The draft law has proposed the principle of recognition of foreign insolvency proceedings. The current law relating to Insolvency and Bankruptcy (enacted in 2018) has not been providing for this.
The recognition of this practice and cooperation with foreign authority is a key element that has been proposed in the new draft law.
Clare Akamanzi, the CEO of RDB told lawmakers that a company can have property in Rwanda and any other country where it does business. When there is an insolvency case in court involving such a company, the law provides that such proceedings outside the country can be accepted, and be part of the proceedings in Rwanda.
Akamanzi said that this is an important provision that was proposed in line with the Kigali International Finance Centre – under which Rwanda wants to become an intentional hub in financial services.
Protection of creditors and other interested persons
In all circumstances, courts must ensure that the interests of the creditors and other interested persons are adequately protected, according to the draft legislation.
According to a provision on rule of payment in concurrent proceedings:
"Without prejudice to secured claims or rights in rem [real property], a creditor who has received part payment in respect of its claim in proceedings pursuant to a law relating to insolvency in a foreign state may not receive a payment for the same claim in proceedings in Rwanda regarding the same debtor, so long as the payment to the other creditors of the same class is proportionately less than the payment the creditor has already received.”
Supply of essential services
The new article on supply of essential services has been proposed in the bill basing on World Bank recommendation to the Government of Rwanda as part of the annual Doing Business Reports.
It states that a supplier of an essential service shall not refuse to supply the service to a liquidator, or to a company in liquidation, by reason of the company’s default in paying charges due for the service in relation to a period before the commencement of the liquidation.
Also, the supplier of an essential service shall not make it a condition to a liquidator, or to a company in liquidation, that payment be made of outstanding bills due for the service in relation to a period before the commencement of the liquidation.
The charges incurred by a liquidator for the supply of an essential service are an expense incurred by the administrator.
"If a company is in court for the insolvency process, there are services that we think are essential such as electricity, fiber optic (for internet connection), or water. The bill proposes that the provision of such services that people need in their daily lives do not get cut,” Akamanzi said.
Grounds for the Registrar General to appoint insolvency practitioner
The draft law relating to insolvency and bankruptcy has also proposed grounds for the Registrar General to appoint a provisional insolvency practitioner.
The current insolvency law is silent in a situation when the court has not appointed a provisional administrator or in case the appointed one has not been able to perform his/her duties due to different reasons.
As a result, the Registrar General may appoint an insolvency practitioner if it is to save a loss that may happen to company’s assets under insolvency; if the appointed insolvency practitioner has not been approved in the creditors meeting.
Other circumstances include if the insolvency practitioner has resigned from his/her duties due to different reasons; or he/she has failed to execute his or her duties and any other reason.
Defining the time after which loan security can be sold
The provision in the current law says that the stay on secured claims shall become effective from the date of the application [by the debtor] until the court renders the decision thereof.
In the new bill, the article on the stay on secured claims has been revised to serve the purposes including shortening the period of preparing the reorganisation plan; giving time limit for competent court to take a decision; protecting the interests of secured rights within a minimum timeframe, and to allow them to enforce their rights if the court has not provided a ruling in the specific period.
The debtor must submit to the court a reorganisation plan within a period not exceeding three months from the date of instituting the court case.
The period of stay on secured claims does not exceed six months including the three months of submitting the reorganisation plan.
If this period lapses without a court decision on the application, the secured creditor is automatically entitled to enforce the security in accordance with the relevant laws.
However, the creditor may petition the court to lift the stay where there is a justifiable cause.
"Many companies have been trying to delay the sale of their property given as loan collateral … This provision seeks to address that issue so that a bank or any other party which has the right to such property can sale it in due course,” Akamanzi said, indicating that it will give stability, security, as well as organisation in business.