Cross-Border Bankruptcy and Egyptian legislation
Cross-border bankruptcy has been imposed by the reality of the global economy. This type of bankruptcy is not regulated by most of the national legislation, which has led to increasing legal problems requiring quick and effective solutions, in order to protect creditors and businesses and to achieve stability and development of the national economy. But how can cross-border bankruptcy influence individual and corporate traders, in light of the multiple and different jurisprudence between the states and within the jurisdiction of one state as well; in the absence of clear legal rules establishing direct solutions to these issues?
The individual and corporate trader's activity is no longer limited to a single state, as the bankruptcy system is no longer domestic, but it has exceeded the borders of the same state, resulting in many legal problems that are not easily solved until the system has been analyzed and possible legal solutions have been studied.Although international business firms proliferate and go overseas, there is no international bankruptcy system. Instead, bankruptcy law remains a matter for individual states. Hence, the failure of a multinational company raises difficult questions of conflict and cooperation among national bankruptcy laws.
If the trader has business in more than one state and stops paying outstanding commercial debts, many issues arise. Does the trader go bankrupt in one or more states, does the bankruptcy judgment extend to the debtor's funds in other states, or will it affect only the state in which the trader became bankrupt? Does declaring a trader bankrupt in a state enable it to open other bankruptcy proceedings in other states? In this case, when a trader becomes bankrupt, we are faced with a bankruptcy issue. However, not with the conventional bankruptcy in the ordinary understanding, but with bankruptcy which in one way or other trespasses the borders of one state. Therefore, the role of the judiciary, the coordination of the courts concerned and the adequacy of the rules of international bankruptcy system jurisdiction – all these come into play when considering the issue of cross-border bankruptcy.
Bankruptcy in Egyptian legislation
Under the Egyptian Trade Code, any trader is required to keep business records if the trader stops paying his business debts following the disruption of his financial business. The cessation of payment has no effect prior to the bankruptcy judgment, unless otherwise provided by law.
The Law No. 11 of 2021[1] amending some provisions of the Law No 11 2018 regulating Restructuring, Preventive Composition and Bankruptcy was issued which consists of 262 articles. This confirmed a continuation of the government’s approach to present a package of legislation that facilitates economic reforms.
Any efficient economic system is characterized by the following matters: ease of entry to the market, provision of guarantees, and ease of exit from the market. The House of Representatives has passed Law No. 72 of 2017[2] Promulgating the Investment Law, which provides easy market access, guarantees and the necessary facilities. Today, the House of Representatives is credited with completing this package of legislation by facilitating the trader's exit from the market in order to safeguard the rights of others and to maintain the current economic condition of the market itself.
The philosophy of those Laws is aimed at paving the way for the creation of conditions that stimulate investment and attract domestic and foreign capital by providing a sound legal environment. Competition in the area of attracting investment has become international, requiring continuous improvement in the investment climate, within a legal framework that protects investment projects and engenders a spirit of confidence on the part of investors.
In other words, the law guarantees the financial and administrative restructuring of enterprises that have failed or are unable to pay in an effort to remove them from the labor market or to reintroduce there, as well as to regulate their exit from the market in a way that guarantees the rights of the parties. In the end, this leads to reassurance among investors and creates an enabling and attractive climate for investment.
The Concept of Cross-Border Bankruptcy
The term “Cross-Border Bankruptcy” is used to describe a situation where the bankrupt debtor has assets and/or creditors in more than one State. But what's the international standard of Bankruptcy? The nationality of the creditor may differ from the nationality of the debtor or the trader may engage in trade on foreign territory. This is the situation where the rules of conflict of laws apply because of the existence of the foreign element in the legal relationship.
The French jurisprudence, for example, has maintained international approach, and according to the legislator, it is sufficient to have a foreign element that takes the dispute out of the national domain, such as the difference in the nationality of the arbitrator or the litigants, and the differences in the litigants’ places of business or the foreign law applicable to the subject matter of the dispute.
Some researchers in the field of international bankruptcy believe that international bankruptcy is determined according to the economic criterion derived from the issue of the relationship, which is the fact that the debtor’s money is distributed in more than one state.
According to Egyptian legislator, trader`s bankruptcy in Egypt means that some of the creditors are not from the state in which the bankruptcy proceedings were initiated or that the trader has assets and funds outside the state in which the bankruptcy took place. Therefore, we are faced with the issue of the accounting and distribution of the debtor's funds to creditors under the law of the state in which the debtor became bankrupt. The court should consider the application of this law in terms of its territorial jurisdiction and whether the debtor's assets are located beyond the limits of its jurisdiction. Thus, we are facing the application of bankruptcy proceedings in more than one state.
Many commercial lawyers in Egypt considering bankruptcy with an international element recognize that the solution to this issue lies in the field of private international law. Another opinion boils down to the understanding that each part of the debtor's funds is independent so that the bankruptcy judgment produced no effect beyond the limits of the state in which it was rendered. They maintain a position that it is unreasonable for the state on which territory the funds are located to accept execution of the bankruptcy proceedings by the public authorities of the state where the judgment is issued.
The general rationale for the bankruptcy system in Arab legislation is still different from other jurisdictions where they rely primarily on the protection of creditors against the actions of their debtors, whose funds may be removed from public security, thereby the debtor losing their rights, whether by smuggling their funds or transferring rights to others over the creditor’s assets. Accordingly, in most states, legislators have established the bankruptcy system and brought all its rules and procedures under judicial control, with enforcement proceedings over the debtor's funds remaining within territorial limits, i.e., on the territory of the state where the bankruptcy declaration was issued.
However, since due to the expansion of business beyond the borders of a single state which is intended to increase investment and promote the economy in several states, international bankruptcy rules need to be developed to provide a more comprehensive protection of creditors' rights to re-energize its business in order to push the economy wheel rather than stop it.
The Problem of Applying Foreign Bankruptcy Provisions in Egypt
The aim of the judiciary is to achieve harmony and consistency between courts`rulings within its own territory. The adjudicator also aims to apply the law to the legal relationship and pay attention to the necessity to go in one line with courts` approach outside the state in order to achieve international judicial cooperation.
It is no longer possible to maintain the traditional view to refuse to apply foreign laws or provisions on the national territory. It is imperative to develop international standard to the settlement of disputes involving a foreign element. It is therefore essential that a state accepts the enforcement of a foreign judgment on its territory, but this must be done in accordance with the rules that do not affect the sovereignty of the state.
The articles of the Code of Civil and Commercial Procedure are applicable to the enforcement of foreign judgments in Egypt. The request for an order for the enforcement of judgments and orders issued in a foreign state is to be submitted to the Court of first instance, under which Chamber enforcement is sought.
Also, the notions of insolvency and bankruptcy in Egypt differ from the similar expressions in other countries: the transaction involving the trader, whether an individual or a company, is described as bankruptcy, insolvency means the process involving persons who are not traders.
Ahmed Batran Ibrahem, Senior Associate
Sadany&Khalifa Law Firm, Cairo
[1]URL: https://www.cc.gov.eg/legislation_single?id=411781.
[2]URL: https://www.gafi.gov.eg/english/startabusiness/laws-and-regulations/publishingimages/pages/businessl...