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BOOK V. BANKRUPTCY AND SCHEMES OF ARRANGEMENT
BANKRUPTCY AND SCHEMES OF ARRANGEMENT
TITLE I. GENERAL PROVISIONS
Art. 968. – Scope of application.
1. The provisions of this Book shall apply to any trader within the meaning of Art. 5 of this Code and to any commercial business organisation within the meaning of Art. 10 of this Code with the exception of joint ventures.
2. Without prejudice to such provisions as are applicable to physical persons only or to the provisions of Title IV applicable to business organisations only, the provisions of Titles I, II, III and V of this Book shall apply to traders and commercial business organisations.
Art. 969. – Conditions of bankruptcy.
Any trader who has suspended payments and has been declared bankrupt shall be deemed to be bankrupt.
Art. 970. – Bankruptcy of fact.
1. Where no judgment in bankruptcy is given, bankruptcy shall not result from mere suspension of payments.
2. A sentence may be passed by a criminal court in respect of bankruptcy or any offence connected with bankruptcy notwithstanding that suspension of payments has not been established by a judgment in bankruptcy.
Art. 971. – Facts constituting suspension of payments.
Suspension of payments shall result from any fact, act or document showing that the debtor is no longer able to meet the commitments related to his commercial activities.
Art. 972. – Notice of suspension of payments.
Any trader who suspends payment of his commercial debts shall within fifteen days file a notice to this effect with the registrar of the court having jurisdiction under Art. 974 or 1157, with a view to the institution of bankruptcy proceedings or the approval of a scheme of arrangement.
Art 973. – Documents to be annexed to the notice.
1. The following documents, dated and signed, shall be annexed to the notice given under Art. 972:
a. the balance sheet of the firm;
b. the profit and loss account;
c. a list of commercial credits and debts, with the names and address of the creditors and debtors.
2. Reasons shall be given in the notice where any of the documents required under sub-art. (1) cannot be provided or is incomplete.
TITLE II. BANKRUPTCY
Chapter 1. Judgment in bankruptcy
Art. 974. – Court having jurisdiction.
1. The Ethiopian court having jurisdiction in bankruptcy proceedings shall be the court of the place where the business of a trader who is a person is situate or, where there is more than one business, the place where the principal business is situate.
2. Subject to the provisions of international conventions, the Ethiopian court shall have jurisdiction notwithstanding that the principal place of business is abroad and a foreign court has exercised bankruptcy jurisdiction.
Art. 975. – Proceedings how instituted.
Bankruptcy shall be instituted by way of petition made by:
a. the debtor; or
b. one or more creditors; or
c. the public prosecutor; or
d. the court itself.
Art. 976. – Preliminary investigation.
1. The court may, where it thinks fit, appoint a judge for the purpose of investigating into the affairs and activities of the debtor.
2. Any judge so appointed may require the assistance of a trustee.
3. An information collected shall be reported to the court.
Art. 977. – Determination of the date of suspension of payments.
1. At the first hearing or, where appropriate, on receiving the report under Art. 976, the court shall:
a. fix the date of suspension of payments; and
b. subject to the provisions relating to schemes of arrangement, declare the debtor bankrupt.
2. Where the date of suspension of payments is not fixed, such date, subject to the provisions of Art. 978, shall be deemed to be that of the judgment declaring the debtor bankrupt.
Art. 978. – Extension of the date of suspension of payments.
1. The date fixed under Art. 977 ( 2) may be extended, after the judgment in bankruptcy, by one or more judgments given on the application of:
c. the trustee or any interested party; or
d. the public prosecutor; or
e. the court itself.
2. No application under sub-art. (1) may be entertained after the expiry of the period specified m Art. 1046 and the date of suspension of payments may not be altered upon the expiry of such period.
3. In no case may the date of suspension of payments be earlier than two years before the judgment in bankruptcy.
Art. 979. – Bankruptcy after retirement.
1. A trader who is a person may be dec1ared bankrupt within one year from his name being struck off the commercial register where he had suspended payments prior to such striking off.
2. Where the trader was not registered, he may be declared bankrupt at any time after having suspended payments.
Art. 980. – Bankruptcy after death.
1. Where a trader who is a person dies after having suspended payments, he may he declared bankrupt within one year after his death.
2. The petition may be lodged by:
a. creditor; or
b. the public prosecutor; or
c. the court itself.
3. An heir may lodge a petition for bankruptcy in order to prevent the assets of the succession being mixed with his own property.
4. Adjudication of bankruptcy after death shall suspend the effect of the separation of estates obtained by the creditors of the deceased under the provisions of the Civil Code.
Art. 981. – Judgment in bankruptcy.
A judgment in bankruptcy shall appoint a commissioner in bankruptcy and one or more trustees in bankruptcy.
Art. 982. – Enforcement of judgments.
All judgments and orders in bankruptcy shall been forced provisionally.
Art. 983. – Publication of judgment.
1. Extracts from judgments given under Art. 977, 979 and 980 shall be sent to the debtor, the trustee and the petitioning creditor or heir not later than the day following judgment. The extract shall give the names of the parties, the operative part and the date of the judgment.
2. An extract shall be posted by the registrar at the main entrance of the court on the day following the judgment and it shall remain so posted for a period of three months.
3. The registrar shall send an extract to the public prosecutor.
4. The registrar shall send three copies of the extract to the official in charge of the commercial register with a view to varying the entry in the register. Such variation shall be made in the local register, notified to the central register and published in the official Commercial Gazette in accordance with the provisions of Book I, Title IV, of this Code. .
5. An extract shall be published in a newspaper empowered to publish legal notices circulating at the place where suspension of payments took place.
6. Publication shall also be made at the places where the debtor carries on business.
Art. 984. – Application to set aside judgment.
1. An application to set aside a judgment in bankruptcy shall be mad within eight days from the date of such judgment. In respect of judgments. In subject to posting and to insertion in newspapers empowered publish legal notices or in the official Commercial Gazette, the period of time shall run only from the date when the last requirement has been satisfied.
2. An application to set may not be lodged by the petitioner.
3. An application to set aside lodged by the debtor shall not suspend judgment.
Art. 985. – Judgment on application to set aside.
1. A judgment rejecting an application to set aside shall be notified the person having lodged the application.
2. A judgment setting aside an adjudication of bankruptcy shall be notified to the trustee, the creditor having petitioned and the debtor, where the debtor has not lodged an application. The provisions of Art. 983 shall apply.
Art. 986. – Appeal against judgment.
1. An appeal against a judgment in bankruptcy may be lodged within fifteen days from notification.
2. The appeal shall be heard summarily within three months and the judgment shall be enforceable immediately.
Art. 987. – Judgments not open to applications to set aside or to appeal.
1. The following judgments shall not be open to applications to set aside or appeal:
a. those concerning the appointment or replacement of the commissioner in bankruptcy, or the appointment or removal of trustees;
b. those pronouncing as to requests for discharge and as to requests for assistance to the debtor and his family;
c. those authorising the sale of property and goods forming part of assets ;
d. those by which the court decides upon any application to set aside orders made by the commissioner in bankruptcy !Within the scope of his powers;
e. those authorising the operation of the business.
2. The commissioner in bankruptcy may not appear in proceeding: under sub-art. (1) (d).
Art. 988.-Setting aside of the adjudication.
1. An adjudication shall be set Hide where, between the pronouncement of the judgment and the date of the order given in respect of an application to set aside or an appeal, the bankrupt has restored his affairs by repaying his creditors or by obtaining a composition.
2. The effect of acts taken by persons responsible for conducting bankruptcy proceedings shall not be affected.
Chapter 2. Persons responsible for conductingBankruptcy Proceedings
Section 1. The Court
Art. 989. – Powers of the court.
The court which has declared the debtor bankrupt shall supervise all bankruptcy proceedings and shall make order on matters which are outside the powers of the commissioner. It shall hear appeals from orders of the commissioner.
Art. 990. – Jurisdiction.
The court which has declared the debtor bankrupt shall have jurisdiction to hear all claims arising in the bankruptcy, unless there be claims in rem concerning immovable property which remain subject to the ordinary rules relating to jurisdiction.
Section 2. Commissioner in bankruptcy
Art. 991. – powers of the commissioner.
1. The commissioner shall have power to supervise and deal with all matters concerning the bankrupt estate.
2. He shall refer to the court any claims which fall within the jurisdiction of the court and the court in its decisions shall mention such reference.
3. He shall take or cause to be taken by the competent authorities all steps and measure necessary to preserve the assets.
4. He shall call the creditors’ committee as required by law or where he considers it to be necessary.
5. Where it is in the interests of the estate, he shall authorise the trustee to appoint assistant, unless such an appointment is reserved to him by law.
6. He shall authorise the trustee in writing to enter appearance in legal proceedings.
Art. 992. – Orders of the commissioner.
1. Orders of the commissioner shall be deposited without delay in the court registry. All interested parties shall be notified by registered letter.
2. Any interested party may apply to set aside any such order. Application shall be made by notification to, the registry within ten days of the date of the sending of the registered letter.
3. The court shall decide on these applications at the first hearing.
Art. 993. – Replacement of commissioner.
The court may at any time of its own motion replace a commissioner by another of its members.
Section 3. Trustees
Art. 994. – Appointment of trustees.
1. Trustees shall be selected from a list of qualified persons of good repute resident in Ethiopia. Such list shall be prepared at, the beginning of each year by the Ministry of Commerce and Industry.
2. The trustees shall not exceed three in number.
3. Where several trustees are appointed they shall act jointly and severally: Provided that the commissioner may in certain circumstances authorise one or more of them to act individually. Trustees so authorised shall alone be liable.
4. The following persons may not be appointed trustees:
a. a person who has been declared bankrupt; or
b. a person who has been deprived of civil rights; or
c. a relative by consanguinity or affinity of the debtor to the fourth degree inclusive: or
d. a creditor
5. The trustees may not acquire the goods of the debtor.
Art. 995 – Powers of trustee.
1. The trustee shall lie responsible for the administration of the bankrupt estate under the supervision of the commissioner. He shall represent the universality of creditors in relation to third parties.
2. He may not assign his functions but may, with the approval of the commissioner, delegate them in respect of isolated transactions.
Art. 996. – Deposit of funds.
1. Any funds received by the trustee, less the amounts determined by order of the commissioner to meet legal costs and management expenses, shall be deposited without delay in the State Bank of Ethiopia in an account opened in the name of the bankrupt estate and may not be -withdrawn except by written order of the commissioner.
2. A trustee shall be removed where he fails to comply with the provisions of this Article, without prejudice to such civil sanctions or criminal penalties as may be appropriate.
Art. 997. – Recourse-against acts of trustees.
The bankrupt or any other interested person may object to any act of the trustees in respect of the bankrupt estate to the commissioner who shall decide on the objection within three days.
Art. 998. – Removal of trustees.
1. The commissioner may require the court to remove a trustee on the application of the debtor or the creditors’ committee or of his own motion.
2. Where the commissioner has not dealt with such applications within five days, the applicants may move the court themselves.
3. The court, sitting in chambers, shall consider the report of the commissioner, the explanations of the trustee and the opinion of the public prosecutor. Judgment shall be delivered in open court.
Art. 999. – Replacement of trustees.
The commissioner shall move the court to appoint additional trustees or to replace existing trustees.
Art. 1000. – Liability of trustees.
1. Trustees are public officials in the exercise of their functions. They shall carry out their duties with all care and shall show, where necessary, that they have exercised t1henecessary care.
2. They shall keep a register which has been stamped free of charge by the commissioner and make therein day to day entries of acts done by them.
3. Until the bankruptcy proceedings are completed, claims against a trustee who has been removed shall, with the prior consent of the commissioner, be instituted by the trustee who replaces him.
4. A trustee who retires from office, even during bankruptcy proceedings, shall give a report on ibis activities under Art. 1090.
Art. 1001. – Remuneration of trustees.
1. The costs and fees of trustees shall be fixed by the commissioner.
2. Fees shall be paid after be submission of the report under Art. 1090. An advance may be made to the trustees with the consent the commissioner and for good cause.
3. The bankrupt and the creditors may object to the court against an order made under sub-art. (1) within eight days of the making of the order. The objection shall be heard in chambers.
4. The trustees shall he entitled to no other payment than costs and fees. Any amounts paid in contravention of this Article shall be refunded, without prejudice to such civil sanctions or criminal penalties as may be appropriate.
Section 4. Creditors’ committee
Art. 1002. – Appointment of committee.
1. The creditors’ committee shall be appointed not later than ten days after the deposit with the registrar of the order showing the list of creditors provided in Art. 1044.
2. A provisional creditors’ committee may be appointed if the commissioner thinks such a step to be desirable.
3. Three or five creditors chosen by the commissioner from among all the creditors shall form the creditors’ committee. The commissioner shall appoint the chairman.
4. The members of the committee may on their request be replaced by the commissioner. They may only be removed by the court on the proposal of the commissioner.
5. No relative by consanguinity or affinity of the debtor, up to the fourth degree inclusive, may be a member of the creditors’ committee.
Art. 1003. – Functions of committee.
1. The committee shall give its advice where such is required by law or he considers a meeting desirable.
2. The chairman shall call the committee whenever its advice is requested or he considers a meeting desirable.
3. Decisions of the committee shall be by a majority vote.
4. The committee shall have special regard to the verification of the accounts and the statement of affairs prepared by the debtor and to the supervision of the acts of the trustees.
5. The committee may at any time require information on the state of the bankruptcy proceedings and on the position of receipts and payments. The committee shall he consulted by the trustees with regard to all legal proceedings.
6. Members of the creditors’ committee shall be liable only in respect of gross negligence.
7. The committee is entitled to no remuneration other than the reimbursement of expenses approved in writing by the commissioner.
Chapter 3. Provisional and Conservatory Measures
Section 1. Conservatory Measures
Art. 1004. – Closing of debtor’s books.
1. The trustees shall summon the debtor to be present at the writing up and closing of the books, the provisions of Art. 1011 having been complied with, where necessary.
2. Where the debtor does not appear, he shall be summoned by registered letter to appear within forty-eight hours and to produce his books if they are in his possession.
3. He may appear by his attorney if he satisfies the commissioner that there are substantial reasons preventing his personal appearance.
4. Where the debtor fails to appear, either in person or by his attorney, or where he absconds, the commissioner shall inform the public prosecutor who shall take the necessary steps to secure his attendance.
Art. 1005. – Preserving debtor’s rights.
1. The trustees on assuming office shall take all steps to preserve the rights of, the debtor in relation to his own debtors.
2. They shall enforce registration of mortgages uhere registration has not been enforced by the debtor. Registration shall be made in the name of the bankrupt estate by the trustees on proof of their status.
Art. 1006. – Mortgage registration on immovable property of debtor.
1. The trustees shall cause registration to be effected in the name of the bankrupt estate on all immovable property in the possession of the debtor or which may, at a later date come into his possession.
2. Mortgages shall not be registered on immovable property acquired by the debtor after payment of the last ,dividend under a composition or, where there is no composition, after the final closure of the winding-up procedure.
Art. 1007. – Registration of mortgage on business.
1. The trustees shall register the legal mortgage provided in Art. 172 (1) (b) of this Code charging the debtor’s business or businesses.
2. The entry shall show:
a. the name and address of the debtor;
b. the date of the judgment declaring the debtor bankrupt;
c. the court having declared the debtor bankrupt;
d. the purposes and address of the business;
e. the parts of the business to which the mortgage extends;
f. the address of any branch or agency mortgaged with the business, if any.
3. The provisions of Art. 179-193 of this Code shall apply to a mortgage under this Article.
Art. 1008. – Report to commissioner.
1. Within one month, from assuming office, the trustees shall send to the commissioner a report on the affairs of the debtor stating how they have occurred.
2. The commissioner shall send the report to the public prosecutor and his observations thereon. Where he has not received the report within the prescribed period, he shall inform the public prosecutor, explaining the cause of the delay in the submission of the report.
Section 2. Seals
Art. 1009. – Affixing of seals.
1. The court may when declaring the debtor bankrupt order that seals be affixed to all stores, pay counters, tills, bill-cases, books, documents, papers, furniture and chattels belonging to the debtor.
2. Where the debtor has absconded or where there has been misappropriation of the whole or part of the debtor’s assets, the competent authorities of their own motion or on an application made by a creditor may, before adjudication, affix seals, to the property specified in sub-art. (1).
Art. 1010. – Property not subject to affixing of seals.
1. The commissioner may, on the application of the trustees, dispense them with affixing, or authorise them to remove sea1s on the property specified hereinafter:
a. such movable property and chattels needed by the debtor and his family as have been set out in a list submitted to the commissioner;
b. perishable goods;
c. Property necessary for the continued operation of die business or undertaking, where such continued operation has been authrorised.
2. All property specified in sub-art. (1) shall be listed and valued by the trustees, in the presence of the competent authorities who shall sign the list.
Art. 1011. – Property removed from under seal.
1. Where hooks and accounting documents have been sealed under Art. 1009 (1), the seals shall be removed and the books and documents handed to the trustees by the competent authorities after having been closed by the said authorities which shall report on the state of the books and documents when handed over.
2. The competent authorities shall remove from under seal short term bills or bills to he presented for acceptance or in respect of which conservatory steps are required, list them and hand them to the trustees for purposes of collection or otherwise. A report shall be prepared and sent to the commissioner.
Art. 1012. – Correspondence addressed to debtor.
The debtor has the right to be present when letters addressed to him are opened by the trustees.
Art. 1013. – Removal of seals.
Within five days of affixing of seals, the trustees shall ask removal of the seals in order to prepare an inveulol1y of the property for the debtor’s property.
Section 3. Inventory
Art. 1014. – Preparation and deposit of balance sheet.
Where a balance sheet has not been prepared and deposited by the debtor, the trustees shall without delay prepare and deposit with the registrar of the court a balance sheet based on the books, documents, papers and other information as are available to them.
Art. 1015. – Inventory of debtor’s property.
1. An inventory of the debtor’s property shall be prepared, the debtor having been summoned by registered letter requiring an acknowledgement.
2. All property of the debtor under Art. 1010 (1) shall also be verified.
3. The inventory shall he prepared in two originals, one being deposited in the registry of the court and the other one being retained by the trustees.
4. The trustees may, with the consent of the commissioner, employ suitable persons in preparing the inventory and valuation of the debtor’s property.
Art. 1016. – Inventory in the event of bankruptcy after death.
Where the estate is declared bankrupt after the death of the debtor and no inventory has been prepared, or where the debtor has died before the inventory has been completed, the heirs shall be duly summoned to be present at the preparation or completion of the inventory.
Art. 1017. – Rights of public prosecutor.
The public prosecutor has the right to be present at the preparation of the inventory and to inspect at any time any documents, books or papers in bankruptcy proceedings.
Art. 1018. Handing over to trustees of debtor’s property.
On completion of the inventory, all goods, money, securities, books, papers and documents, furniture and chattels of the debtor shall be handed to the trustees and a note of such handing over shall be made at the foot of the inventory.
Chapter 4. Effect of adjudication in bankruptcy
Section 1. Effect as regards the debtor
Art. 1019. – Restrictions on debtor’s movements.
The debtor shall not leave the area in which he resides without, the permission of the commissioner. The provisions of Art. 433 of the Penal Code shall apply where the debtor breaks any such prohibition.
Art. 1020. – Assistance to the debtor and his family.
The commissioner may, when requested to do so by the trustees, permit part of the bankrupt estate to be applied in supporting the debtor and his family.
Art. 1021. – Employment of debtor by trustees.
The debtor may be employed by the trustees on such terms and conditions as the commissioner shall fix to facilitate the winding-up.
Art. 1022. – Prohibitions forfeitures.
The bankrupt may be subjected to such prohibitions forfeitures as are provided by law. Unless otherwise provided by law, such prohibitions or forfeitures shall cease to be effective where the convicted bankrupt is reinstated.
Art. 1023. – Bankrupt unable to deal with his property.
A bankrupt shall not administer or dispose of his property, however acquired, from the day he is declared bankrupt until he is discharged.
Art. 1024. – Legal proceedings.
After adjudication, all legal proceedings shall be instituted and all applications for execution be made by or against the trustees. The bankrupt may be authorised to intervene in any proceedings.
Art. 1025. – Universality of creditors in bankruptcy.
1. As from the day of the judgment in bankruptcy, all creditors whose claims are not secured by a special privilege, a pledge or a mortgage, shall bring their claims together in the universality of creditors in bankruptcy.
2. The universality is a legal entity. It may acquire rights or incur liabilities and shall be represented by the trustee.
Art. 1026. – Suspension of individual suits.
The judgment in bankruptcy shall prevent any creditor whose is included in the universality from bringing an individual suit. As from the day of the judgment, such creditor may not attach, the debtor’s property, whether movable or immovable.
Art. 1027. – Outstanding debts rendered due.
1. On adjudication all debts owing to the debtor shall become due immediately.
2. Debts expressed foreign currencies shall currency at the official rate of exchange on be converted into local the day of adjudication.
Art. 1028. – Interest not to run.
Interest on debts, with the exception of debts guaranteed by security in rem, shall cease to run against the bankrupt estate as from the day of the judgment. Only sums arising from property given as security may be used to pay interest on secured debts.
Art. 1029. – Acts prior to adjudication invalid.
a. Gratuitous assignments;
b. Payments of debts not due, whether in set-off or otherwise; cash or by assignment, sale, set-off or otherwise;
c. Payments of debts due otherwise than in cash, by negotiable instrument or by transfer to a bank;
d. Securities set up on the property of the debtor in respect of debts contracted before the setting up of such securities, between fifteen days before the date of suspension of payments and the date of adjudication shall be invalid and shall not affect the creditors of the bankrupt.
Art. 1030. – Other acts prior to adjudication may be invalidated.
Other payments made by the debtor in respect of debts due and all acts for consideration entered into by the debtor after the date of suspension of payments may be invalidated on the request of the trustee where the parties who have received payment or have dealt with the debtor did so knowing that suspension of payments had taken place.
Art. 1031. – Rights registered prior to adjudication invalid.
1. Rights arising out of securities in rem validly set up may he registered up to the date of adjudication. .
2. Registration effected after suspension of payments or within one month before suspension may be invalidated where more than one month has elapsed between the act creating the security and the date of registration.
Art. 1032. – Status of secured creditor ranking’ after party whose secured claim is invalid.
A creditor secured by a mortgage on an immovable or on the business who is classed after a creditor whose claim secured by mortgage has been invalidated shall substitute himself for such creditor in the distribution of the price of the immovable or of the business. He shall pay into the assets in the bankruptcy the difference between the sum distributed to him and the sum which he would have received, had the prior secured claim not been invalidated.
Art. 1033. -Negotiable instruments paid after suspension of payments.
1. Where negotiable instruments have been paid between the date of suspension of payments and that of adjudication, proceedings for reimbursement of sums so paid may only be instituted against the third party having first received the value of the instrument.
2. In the case of a promissory note, such proceedings may only be instituted against the first endorser.
3. The claimant under sub-art. (1) or (2) shall prove that the party against whom the proceedings are instituted knew of the suspension of payments at the time of payment of the instrument.
Art. 1034. -:- Limitation of actions.
Proceedings brought under Art. 1029, 1030 and 1031 shall be barred after, two years from the date of adjudication.
Section 2. Management of debtor’s property
Art. 1035. – General duties of trustees.
1. The trustees shall, with the permission of the commissioner, sell all depreciable or perishable goods or property the preservation of which is costly.
2. They shall collect debts and, where authorised, continue business operations.
Art. 1036 – Sale of goods.
1. After hearing the bankrupt, whether he presents himself of his awn motion or on being summoned by registered letter, the commissioner may authorise the trustees to sell other movable property or goods.
2. The commissioner shall fix the conditions of sale.
Art. 1037. – Sale of bankrupt person’s business.
The sale of a business by the trustees may only be permitted by the court and the court shall fix the conditions of the sale. .
Art. 1038. -Compromise and arbitration.
1. After taking the opinion of the creditors’ committee and after hearing the bankrupt, whether he presents himself of his own motion or on being summoned by registered letter, the commissioner may authorise the trustees to compromise and arbitrate in respect of any claim concerning the bankrupt estate.
2. Where the value of the subject matter of the compromise or arbitration is not determined or exceeds the jurisdiction of the trustees, the compromise or arbitration shall be ratified by the court. .
3. The bankrupt shall be summoned to attend the ratification proceedings and may make an application to set aside the compromise or arbitration.
Art. 1039. – Continuation of operation of business.
1. The trustees may continue operating the business or industry where authorised by the court after a report by the commissioner and a recommendation of the creditors’ committee, and recommendation of the creditors; committee, and authorisation shall not be given unless it is in the pub1ic or creditors’ interest:.
2. Where the business continues to operate, creditors, whose claim has arisen out of such operation shall be creditors of the universality. They shall not be subject to the provisions regarding bankruptcy and shall be paid from the assets of the bankruptcy before the creditors whose claims are included m the universality.
3. Instead of operating the business himself, the trustee may be authorised by the commissioner to appoint a receiver to carry on the business.
Art. 1040. – Continuation of leases.
1. Leases of immovable property used for the business or industrial operations of the debtor, including premises forming part thereof and occupied by him or his family, shall not be cancelled by reason of the lessee’s bankruptcy.
2. The trustees may either cancel or continue the lease and shall give notice to the lessor of their decision within fifteen days from deposit of the inventory as provided in Art. 1044. Where the trustees continue the lease, they shall carry out the duties of a lessee.
3. Notice may not be given except on the recommendation of the creditors’ committee and with the authorisation of the commissioner.
4. Until the expiry of the period mentioned in sub-art. (2), movable property used for the business or industry shall not be distrained upon nor shall leases be cancelled, without prejudice to provisional measures and, the right of the lessor to take possession of the premises. Where the lessor takes possession of the premises, distraint is effected.
5. Where the trustee has informed the lessor of, his intention to continue the lease, the lease shall continue unless the lessor applies for a cancellation of the lease within fifteen days.
6. A clause in the lease providing for immediate cancellation of a lease in the event of a bankruptcy shall be of no effect.
7. Nothing in, this Article shall affect the provisions of Art. 1061 and 1062.
Chapter 5. Proving of debts
Section 1. Procedure for proving
Art. 1041. – Production of proof by creditors.
1. After adjudication, the creditors shall produce to the trustees proof of their debts, the sums claimed.
2. The trustees shall issue receipts for proofs produced. They shall return the proofs after the bankruptcy proceedings are closed and shall cease to be liable for such return after one year.
Art. 1042. – Notice to creditors.
1. Creditors who appear on the balance sheet and who have not produced proofs within fifteen days from the adjudication shall be requested by the trustees to produce their proofs.
2. Such request shall he made by notice in a newspaper empowered to receive legal notice and in the official Commercial Gazette. Such notice in the Gazette shall refer to the issue number of the newspaper containing legal notice issued under this Article. Notice to creditors by letter shall also be sent.
3. Proofs shall be produced within fifteen days of the publication the Gazette.
Art. 1043. – Verification of debts.
1. Debts shall be verified by the trustees in the presence of the creditors’ committee or its representative, where such committee has already been formed and of the debtor, whether he presents himself of his own motion or on being summoned by registered letter.
2. The inventory of debts when finalised be counter-signed by the commissioner.
3. Where a debt is queried by the trustees in whole or in part, the trustees shall inform the creditor by registered letter, and he shall reply to the queries orally or in writing within eight days.
Art. 1044. – Deposit of inventory in registry.
1. Where the debts have been proved, the trustees shall deposit the inventory of debts with the registry, showing the proofs admitted and the proofs rejected.
2. They shall also send to the commissioner a list of creditors claiming special preferences over movables.
Art. 1045. – Notification of deposit.
1. The registrar shall inform the creditors of the deposit of the inventory of debts as provided in Art. 1042 (2).
2. He shall give notice by registered letter of rejected debts to the creditors concerned.
Art. -1046. – Claims.
1. Any creditor who appears on the balance sheet or who has proved has the right, either in person or through his agent, to lodge a claim with the registry by way of entry on the schedule, within eight days following the notice in the official Commercial Gazette.
2. The bankrupt may also lodge a claim.
Art. 1047. – Final drawing-up of inventory of debts.
1. Upon the expiry of the aforementioned period of time, the commissioner shall prepare the final inventory of debts, subject to any claims lodged with the court.
2. The trustees shall accordingly enter on the list of uncontested proofs the admission of proof of the creditor and the amount of the debt proved.
Art. 1048. – Judgment upon contested debts.
Contested debts shall be referred by the registrar to the first hearing to be judged upon the report of, the commissioner, after having duly notified the parties by registered letter five days prior to the hearing.
Art. 1049. Provisional admission.
1. The court may grant an interlocutory order allowing a creditor whose claim is contested to join in bankruptcy proceedings in respect of such amount as the court may decide.
2. The registrar shall inform by registered letter the parties concerned within three days.
Art. 1050. – Stay of proceedings or disallowance of objection.
1. Where an objection contesting a debt is lodged and such objection may cause delay, the court shall decide whether to stay bankruptcy proceedings until the objection is decided on by the ordinary civil court having jurisdiction or to disallow the objection. Where the court disallows the objection, it may at the same time make an order under Art. 1049.
2. Where a debt gives rise to criminal proceedings, the court may order a stay of bankruptcy proceedings. Where the court disallows the objection, it may not make an interlocutory order and the creditor holding the contested debt may not join in the proceedings until judgment in criminal proceedings has been given.
Art. 1051. – Creditors whose security is contested.
Where a creditor holds a security in rem and only the security is contested, such creditor may join in the proceedings as an unsecured creditor.
Art. 1052. – Creditors not having lodged proof within the specified period of time.
1. Creditors failing to lodge their claim within the specified period of time shall not share in any distribution but they may lodge an objection until final distribution of the residue and sha1l beer the costs arising out of such objection.
2. Any such objection shall not suspend any distribution ordered by the commissioner.
3. Where further distributions are made, such creditors shall share therein to the extent of an amount provisionally fixed by the court and retained in reserve until adjudication upon their objection.
Art. 1053. – Creditors subsequently admitted.
Creditors admitted after distributions ordered by the commissioner shall have no claim in such distributions, but they may deduct from undistributed assets, the dividends relating to their claims in the first distributions.
Art. 1054. – Period of time for proving debts.
All proceedings for proving debts shall be concluded not later than five months from the date of the judgment in bankruptcy. Such, period may be extended by the commissioner in exceptional oases.
Section 2. Parties jointly and severally liable and guarantors
Art. 1055. – Proof of claims jointly and severally guaranteed.
A creditor whose claim has been endorsed or guaranteed jointly and severally by the bankrupt and other persons who have suspended payments may prove in a1l the estates for the nominal value of his claim and share in the distributions until his claim is fully satisfied.
Art. 1056. – No claim as between bankrupt estates. .
No bankrupt guarantors, jointly and severally liable, may claim against one another in respect of dividends paid under Art. 1055, unless the total amount of the dividends paid in the several bankruptcies exceeds the total amount of, the claim. Any such excess shall devolve upon the persons having the others as guarantors, in the order of their liability.
Art. 1057. – Creditor having received payment on account before suspension of payments.
1. Any amount paid prior to suspension of payments to a creditor whose claim is jointly and severally guaranteed by the bankrupt and other persons shall be deducted in paying his claim. He shall retain, for what remains due to him, his rights against such other persons or guarantors.
2. Any person jointly and severally liable or any guarantor who has paid any amount on account towards the claim, shall be entitled to prove his claim to the extent of the amount so paid.
Section 3. Rights of creditors secured by a guarantee on movables other than business
Art. 1058. – Guaranteed creditors.
Creditors whose claim is secured by pledge shall be entered in the inventory for purposes of information only. With the authorisation of the commissioner, the trustees may at any time pay for and redeem the property pledged, for the benefit of the estate.
Art. 1059. – Sale by pledgee.
Where the property pledged has not been redeemed by the trustees, and it is sold by the pledgee for a sum exceeding the amount of the debt, the excess shall be collected by the trustees. Where the price of sale is less than, the mount of the debt, the pledgee may prove his claim for the difference, as an unsecured creditor.
Art. 1060. Extent of lessor’s preference.
1. Where a lease is terminated under Art. 1040, the lessor shall have a preference in respect of all claims arising out of the performance of the contract of lease and contingent damages for the two years of the lease prior to the adjudication of bankruptcy and for the two current year.
2. If the lease is not terminated, the lessor who has been paid all rents due may not claim payment of any rent for the current period and of any rent to fall due, if the guarantees given on the making of the contract are still in force or if those given since the adjudication of bankruptcy are considered be sufficient.
Art. 1061. – Removal of movables furnishing premises leased.
Where movables furnishing the premises leased are sold and removed, the lessor may exercise his preference as in the case of termination of a lease as provided in Art. 1060 (1), and such preference shall extend to a further period of one year to run from the end of the current year.
Art. 1062. – Continuation or assignment of lease by trustees.
The trustees may continue or assign a lease for the unexpired period, provided that they or the assignee shall keep the premises furnished with movables of sufficient value and carry out at the expiry of each letting period all obligations arising out of the law or the agreement, and provided further that the purpose for which the premises are utilised may not be changed.
Art. 1063. – Seller of movable property.
1. Without prejudice to the provisions of Art. 1075-1078, the guarantees provided in the Civil Code with regard to the seller of movable property may not be set up against the bankrupt estate.
2. Any provision contrary to the provisions of sub-art. (1) shall be of no effect.
Art. 1064. – Payment of creditors holding preferences over movables.
1. On presentation of the list prescribed in Art. 1044 (2), the commissioner shall, in appropriate cases, authorise the payment of creditors listed therein from the funds first collected;
2. Any question of contestation of a preference shall be decided by the court.
Section 4. Rights of mortgagees and creditors secured by immovables
Art. 1065. – Sale price of immovables distributed before that of movables.
Where the distribution of the proceeds of sale of immovables takes place before or at the same time as that of the proceeds of sale of movables, preferred or secured creditors not fully paid out of the proceeds of sale of the immovables shall (provided their debts were admitted to proof in accordance with the provisions of Art. 1041 et sq.) rank equally with the unsecured creditors for the amounts still due to them in respect of the residue of the estate.
Art. 1066. – Proceeds of sale of movables distributed before that of immovables.
Where one or more distributions of the proceeds of sale of movables takes place before the distribution of the proceeds of sale of immovables, preferred and secured creditors dully admitted to proof may participate in such distributions in proportion to the whole of their debts, subject otherwise to the appropriations set forth in Art. 1067.
Art. 1067. – Deduction of amounts collected from estate not subject to security.
1. After sale of immovables and the final establishment of the order of priority of secured and preferred creditors, creditors entitled to claim on the proceeds of sale of the immovables for the whole of their debt shall receive their secured dividend only after deduction of amounts collected by them from the estate not subject to security.
2. Amounts thus deducted shall not remain in the estate subject to, security but shall be transferred to the estate not subject to security to the benefit of which they shall be distrained.
Art. 1068. – Partial payment of secured creditors.
The following procedure shall apply in respect of secured creditors who have received partial payment from the distribution of the proceeds of the sale of immovables:
a. the rights of such creditors with respect to the estate not subject to security shall be finally settled on the basis of the amounts for which they remain creditors after the dividend received by them from the immovables;
b. any residue which they have received over such amount in the prior distribution shall be withheld from the amount of their secured dividend and allocated to the estate not subject to security.
Section 5. Rights of creditors secured by a mortgage on the business
Art. 1069. – Proceeds of sale of business distributed before proceeds of sale of other movable property.
Where the proceeds of the sale of a business are distributed before or together with the proceeds of the sale of other movable property, the creditors secured by a mortgage on the business who have not been fully paid from the proceeds of, the sale of such business shall rank together with ordinary creditors to the extent of their unpaid claim, provided their claim has been admitted in accordance with the provisions of Art. 1041 et sq.
Art. 1070. – Proceeds of sale of other movable property distributed before proceeds of sale of business.
Where the proceeds of the sale of other movable property are distributed before the proceeds of the sale of the business, secured creditors whose claim has been admitted shall share in the distribution to the full extent of their claim, without prejudice to the provisions of Art. 1067.
Art. 1071. – Deduction of sums paid from proceeds of sale of property not subject to security.
- After a business has been sold and the manner of distributing the proceeds of the sale has been fixed, creditors whose claim is fully secured by the business shall be paid from the proceeds of the sale of the business, subject to the deduction of sums paid to them from the proceeds of the sale of property not the subject of security.
2. Sums deducted under sub-art. (1) shall be repaid, to the estate not subject to security to the benefit of which they shall be distrained.
Art. 1072. – Deduction of sums paid from proceeds of sale of business.
The following procedure shall apply to secured creditors who have been partially paid from the proceeds of the sale of the business:
a. the rights of such creditors in respect of the unsecured estate shall be finally settled on the basis of the amount for which they remain creditors after having shared in the distribution of the proceeds of the sale of the business;
b. any residue which they have received in excess of such amount in the prior distribution shall be deducted from the amount of their secured dividend and repaid to the unsecured estate.
Section 6. Recovery
Art. 1073. – Recovery of negotiable instruments.
Negotiable instruments or other securities which have been handed to the debtor for purposes of collection for, the benefit of the owner and which, not having been collected, are in possession of the debtor at the time of adjudication of bankruptcy may be claimed by the owner. The same shall apply to remittances specially made by the owner to be appropriated to specified presents.
Art. 1074. – Recovery of goods in deposit or handed to an agent.
Goods consigned to the debtor for deposit or for sale on be shall of the owner may, if they exist in kind, in whole or in part, be recovered from the debtor.
2. The price or part of the price of the said goods may furthermore be recovered, where it has not been paid in cash, nor settled for value given, nor set off in current account between the debtor and the purchaser.
Art. 1075. – Recovery of goods the sale of which has been cancelled before bankruptcy.
- Goods, the sale of which has been cancelled prior to adjudication either by a decision of the court or by operation of the terms of the contract, may, if they exist in kind, be recovered from the debtor.
2. Where the cancellation of sale has been ordered or confirmed by a court after adjudication, goods may be recovered notwithstanding that proceedings for recovery or for cancellation were brought prior to adjudication by the unpaid seller.
Art. 1076. – Recovery of movables sold with ownership reserved.
Movables sold to the bankrupt with reservation of ownership may be recovered where, before the judgment in bankruptcy, such reservation has been registered in accordance with the provisions of Art. 2387 of the Civil Code.
Art. 1077. – Recovery of goods in transit.
- Possession of goods transmitted to the debtor may be recovered where such goods have not been delivered to the debtor’s warehouse or to that of an agent entrusted with their sale on the debtor’s behalf.
2. Recovery is not admissible where prior to their arrival the goods have been sold with no intent to defraud to a transferee in good faith on the basis of documents signed by the consignor.
Art. 1078. – Right of retention.
The seller shall be entitled to retain goods sold by him where such goods have not been delivered to the debtor or they have not been consigned either to him or to a third person on his behalf.
Art. 1079. – Right of trustees to require delivery.
- In the cases contemplated in Art. 1077 and 1078, the trustees may, upon authorisation by the commissioner, demand delivery of goods by paying the agreed price to the seller.
2. Where the trustees do not exercise such right, the seller repay to the estate any instalments received by him as well as any advances received from the bankrupt in respect of freight or transport costs, commission, insurance or other expenses and to pay such amounts himself: Provided that the seller may claim damages in respect of such non performance of the contract.
Art. 1080. – Admission of claims for recovery.
Claims for recovery may be admitted by the trustees with the authorisation of the commissioner.
Chapter 6. Settlement of the Bankruptcy
Section 1. Composition
Art. 1081. – Proposal for composition.
1. At any time after the expiry of the period of time provided in Art. 1046, the bankrupt may propose a composition, with the creditors and, submit the proposed composition to the commissioner.
2. The proposed composition shall specify the percentage offered to unsecured creditors and the period of time required for payment. It shall show the guarantees to cover the payment of debts, legal costs and the remuneration of, the trustees.
3. The winding-up is suspended by a proposal for a composition.
Art. 1082. – Examination of proposal and notification to creditors.
- On receipt of the proposal for a composition, the commissioner shall take the advice of the trustees and the creditors’ committee.
2. Where he considers the proposal has merit, he shall cause the creditors to he notified.
3. Such notification shall be by registered letter sent by the registrar of the court to each creditor. If the number of creditors makes, such form of notification impractical, the court may, after hearing the trustees and the public prosecutor, order the proposal for composition to be published by the commissioner in a newspaper empowered Ito publish legal notices and in the official Commercial Gazette.
4. In addition to the proposals made by the bankrupt, ,the notification shall refer to the recommendations of the trustees and the creditors’ committee together with a report by the trustees showing the state of the bankruptcy proceedings and what has been completed.
5. The notification to the creditors shall state a period not less than twenty days nor more, than thirty days within which the dissenting creditors may file with the registry their refusal to accept the proposed composition.
Art. 1083. – Creditors’ vote.
- Votes shall be recorded in the minutes signed by the commissioner and the registrar of the court.
2. All duly admitted creditors have the right to vote, including those admitted provisionally or subject to a reservation.
3. Votes of creditors enjoying special securities shall not be counted in respect of their debts in the transactions relating to the composition unless they forego their guarantees. The results of such renunciation shall cease to have effect where the composition is not finished, or is not finalised, or is not ratified, or is revoked or withdrawn.
4. The following may not vote the debtor’s spouse, his relatives by consanguinity or affinity to the fourth degree inclusive, and parties who have become assignees or purchasers with respect to these persons within less than one year before the declaration of bankruptcy.
5. Assignments of debts made after the declaration of bankruptcy give no voting rights.
Art. 1084. – Approval of composition.
- The composition shall be of no effect unless it be approved by two thirds of the creditors representing two-thirds of the debts. The claims of creditors who do not take part in the voting shall not be taken into account in calculating the major1ty under this Article.
2. Creditors who have not notified their dissent from the proposals of the bankrupt within the period of time provided in Art. 1082 (5) shall be deemed to be in agreement.
3. No subsequent decision regarding the number of creditors or the amount of the debts has any effect on the approval of the composition.
4. The provisions of Art. 1083 (1) shall apply to this Article.
Art. 1085. – Application to set aside composition.
- All creditors who were entitled to a vote or who have been accepted as creditors subsequently may apply to set aside the composition.
2. Such application to be of effect shall be sent together Wirth the reasons therefor to the debtor and trustees wi1hin eight days after the vote and shall summon them to appear at the next hearing.
Art. 1086. – Confirmation by the court.
- Application for the confirmation by the court may he made by any interested party. The court may give no decision thereon before the expiry of the period of eight days provided in Art. 1085.
2. Where an application to set aside has been made during this period, the court shall decide upon both the application to set aside and the application for confirmation at the same time and shall deliver one judgment.
3. Before delivering judgment, the court shall consider:
a. the report of the commissioner and his recommendations on the proposed composition;
b. the report of the trustees provided in Art. 1082 (4);
c. the observations, if any, of parties jointly and severally liable with the debtor.
4. Where the application to set aside is sustained, an order shall be made revoking the composition and such order shall be effective as regards an interested parties.
Art. 1087. – Refusal to confirm composition.
The court shall not confirm the composition:
a. where the provisions of the proceeding Articles have not been complied with; or
b. where confirmation of the composition is contrary to the public interest or the interests of the creditors.
Art. 1088. – Supervising carrying out of composition.
- After confirmation, the commissioner, the trustees and the creditors’ committee shall ensure the carrying out of the composition, in accordance with the detailed instructions contained in the judgment confirming composition.
2. The creditors’ committee may cause the mortgages on the estate to be struck out when the terms of the composition have been completed.
Art. 1089. – Results of composition.
- Confirmation of the composition shall be binding on all creditors other than those holding security in rem which they have not relinquished and unsecured creditors whose claims have arisen during the bankruptcy proceedings.
2. Confirmation shall not affect the creditors’ mortgage on the debtor’s immovable properly registered in the name of the estate under Art. 1006 and the mortgage registered on the business in the name of the estate under Art. 1007, unless the composition otherwise provides. To this effect the trustees shall register the judgment confirming the composition with the competent authority.
3. The composition shall not affect the creditors’ rights in respect of persons jointly and severally liable with the debtor.
Art. 1090. – Suspension of effects of bankruptcy.
- After confirmation the effects of the bankruptcy shall be suspended, subject to the provisions of Art. 1022 and 1088.
2. The trustees shall hand to the debtor a final account after it has been discussed and finalised in the presence of the commissioner and the creditors’ committee. They shall hand to the debtor all his hooks, papers and property, for which the debtor shall give a receipt. The trustees shall cease to be liable after two years from the finalising of the account where the debtor has failed to take possission of his books, papers and property.
3. When the provisions of this Article have been complied with the commissioner shall cause a report to be drawn up. Where there is any disagreement as to its contents, the matter shall be referred to the court for decision.
Art. 1091. – Setting aside of composition after confirmation.
- No proceedings to set aside a composition which has been confirmed, except on grounds of fraud, founded either on a concealment of assets or an over statement of liabilities, may be instituted by any creditor after five years from the discovery of the fraud.
2. Where the debtor is convicted of the offence of fraudulent bankruptcy, the composition shall be revoked and all sureties, other than those involved in the fraud, shall be discharged.
Art. 1092. – Provisional measures on prosecution for fraudulent bankruptcy.
- Where the debtor is prosecuted for fraudulent bankruptcy after confirmation of the composition, the court may make such provisional orders as appear to be necessary.
2. These orders shall cease to be of effect where a nolle prosequi is entered or the debtor is discharged.
Art. 1093. – Cancellation of composition.
1. Where the debtor fails to carry out the terms of the composition, an application may be made to the court to set aside the composition, the guarantors, if any, having been duly summoned to be present at the hearing of the application.
2. Where the composition is set aside, the sureties shall not be discharged.
Art. 1094. – Re-opening of bankruptcy proceedings after setting aside of composition.
- Where the composition is set aside, the trustees shall prepare without de1ay a fresh inventory of assets and papers on the basis of the former inventory and, if necessary, consult the authority who affixed the seals. They shall prepare, if necessary, supplementary inventories and balance sheets.
2. They shall publish a notice containing the operative part of the judgment and a request for new creditors to prove their claims under the conditions set forth in Art. 1043.
Art. 1095. – Verification of new debts.
- The trustees shall verify the proofs of debts under Art. 1094.
2. There shall not be further verification of debts admitted to proof earlier, without prejudice to the refusal or reduction of those paid in whole or in part in the meantime.
Art. 1096. – Acts of debtor subsequent to confirmation of composition.
Acts of the debtor between the date of the confirmation of the composition and the setting aside of the composition may only be invalidated where there has been fraud on the creditors.
Art. 1097. – Rights of creditors prior to composition.
Creditors prior to composition shall be restored to their original rights in respect of the debtor and of, the estate:
a. for the whole of their debts where they have received no part of the dividend; or
b. for that part of the debt which remains to be paid where they have received part of the dividend.
Art. 1098. – Opening of second bankruptcy proceedings.
Where second bankruptcy proceedings are opened at the instance of new creditors who did not share in a composition which has not been set aside or cancelled, the creditors in the first bankruptcy shall be creditors in the second bankruptcy proceedings without preferential rights over new creditors and shall be subject to the provisions of Art. 1097.
Art. 1099. – Composition by way of surrender of assets.
- Where a composition involving total or partial surrender of assets is approved, the procedure relating to ordinary compositions shall apply including the ordinary provisions relating to the effects and setting aside of compositions.
2. Surrendered assets shall he liquidated as provided in Art 1101 et sq.
3. A composition by way of surrender of assets shall not affect any property not included in the composition and any property subsequently acquired.
4. The composition shall not affect the rights of creditors in respect of persons jointly and severally liable with the debtor.
Art. 1100 – Entry in commercial register.
The registrar shall ensure that any judgment confirming, setting aside or canceling a composition be entered in the commercial register in accordance with the provisions of Art. 983 (4).
Section 2. Compulsory winding-up
Art. 1101 – Refusal to approve composition.
Where a composition is not approved under Art. 1084, the bankruptcy shall continue until compulsory winding-up and complete distribution of the assets to the creditors entitled.
Art. 1102. – Assistance to debtor.
Where the creditors’ committee agrees that assistance be given to the debtor and his family from the bankrupt estate, the commissioner shall fix the amount of assistance to be given in accordance with the proposals of the trustees.
Art. 1103. – Sale of assets.
1. The trustees shall sell the debtor’s movable and immovable property in accordance with the Code of Civil Procedure without requiring the presence of the debtor.
2. The proceeds of the sale shall be deposited in accordance with Art. 996.
3. The trustees may compromise and arbitrate under Art. 1038 without requiring the presence of the debtor.
Art. 1104. – Sale of immovables.
Where no proceedings for expropriation of immovables have taken place before the opening of the winding-up, only the trustees shall proceed to sell within one week, with the permission of the commissioner.
Art. 1105. – Sale of bankrupt person’s business.
Where no proceedings for expropriation of immovables have taken place before the opening of the winding-up, only the trustees shall proceed to sell with the permission of the commissioner and subject to, the provisions of Art. 1106.
Art. 1106. – Business carried on during winding-up.
1. The unsecured creditors may authorise the, trustees to continue business operations during the winding-up.
2. The commissioner shall consult each creditor by registered letter on the request of the creditors’ committee. The provisions of Art. 1082 (3) shall apply in appropriate cases.
3. Creditors shall be notified that within fifteen days they shall submit their vote to the court registry.
4. The resolution of the creditors shall specify the duration and scope of the powers of the trustees and the amount to be retained by them for costs and expenses. The resolution shall be approved by three-quarters of the creditors representing three-quarters of the debts and confirmed by order of the commissioner.
Art. 1107. – Lump sale of assets.
1. On the recommendation of the commissioner, the court may authorise the trustees to dispose of the assets, movable or immovable, by lump sale.
2. Such authorisation may be granted on the request of the creditors’ committee or of the debtor.
3. The creditors shall be consulted as provided in Art. 1106 (2) and the resolution approved as provided in Art. 1106 (4).
4. The terms of the sale shall be confirmed by the court.
5. Where the sale is approved, the debtor shall be discharged of his liabilities to the creditors.
Art. 1108. – Dealings involving liabilities in excess of the assets.
Where dealings by the trustees involve liabilities in excess of the assets in the winding-up, creditors who approved such dealings shall be personally liable beyond their share in the assets within the limits of the authorisation given by them, and in proportion to their debts.
Art. 1109. – Scheme of distribution.
1. After the expiry of the period specified in Art. 1046, the trustees shall send to the commissioner every two months a report on the state of the bankruptcy and an inventory of the amounts deposited under Art. 996.
2. They shall submit to the commissioner their proposals for distribution.
3. On the recommendation of the creditors’ committee, the commissioner shall make such changes in the proposals as he thinks fit and shall order the deposit of the amended proposals in the registry. He shall cause the creditors to be informed of such deposit.
4. Within ten days the creditors may submit their comments thereon. The commissioner, taking into account any observations of the creditors, shall fix the amount to be distributed.
Art. 1110. – Distribution of proceeds of winding-up. After the deduction of:
a. costs and expenses;
b. sums applied for the support of the debtor or his family; and
c. sums paid to preferred creditors,
the net proceeds of the winding-up shall he distributed to all the creditors in proportion to their debts proved and admitted, subject to the provisions of Art. 1065, 1066 and 1063.
Art. 1111 – Setting aside of share corresponding to contested debts.
A share corresponding to those debts on the admission of which a final decision has not been taken shall be set aside as a reserve.
Art. 1112. – Method of payment.
1. The trustees shall send to each creditor entitled to a dividend a cheque to his order, drawn on the distribution account opened in the name of the bankruptcy under the provisions of Art. 996.
2. A note of the amount paid shall he made on the proof of debt. Where the proof of debt cannot be produced, the commissioner may authorise payment on sight of the minute of deposit of the inventory of debts.
Chapter 7. Bankruptcy Proceedings closed
Art. 1113. – Grounds for closing bankruptcy proceedings.
Subject to the provisions of Art. 1081-1100, bankruptcy proceedings are closed:
a. by the final distribution of the Product of winding-up:
b. by reason of insufficiency of assets;
c. by reason of absence of any claim against the estate.
Art. 1114. – Closure by reason of insufficiency of assets.
1. Where at any time the bankruptcy proceedings cannot continue owing to insufficiency of assets, the court may on a report by the commissioner or of its own motion order the closure of the proceedings.
2. The judgment has the effect of restoring to each creditor the exercise of his personal rights.
3. The bankrupt shall remain dispossessed of the administration and distribution of his property and any new debts contracted by him may not be set up against the estate in which no further creditors may prove.
Art. 1115. – Revocation of closure order given by reason of insufficiency of assets.
1. The debtor or any other interested party may at any time apply to the court for setting aside the order upon showing that there are sufficient funds to meet the costs of the proceedings, or upon depositing with the trustees a sufficient amount to meet the costs.
2. He shall first pay the costs arising from proceedings under Art. 1114.
Art.1116. – Proofs not claimed by creditors.
The liability of trustees to hand back proofs shall be barred after five years from the adjudication of bankruptcy.
Art. 1117. – Closure by reason of absence of claim against the estate.
- After the deposit of the inventory of debts specified, in Art. 1044, the court may on the application of the debtor order the bankruptcy proceedings, to be closed, where the debtor proves that he has paid all the creditors who have proved or that he has deposited with the trustees an amount necessary to pay all the creditors having proved and all costs including the fees of the trustees. The court shall make its decision upon a report by the commissioner showing that the debtor has satisfied the above-mentioned requirements.
2. The judgment has the effect of bringing the bankruptcy proceedings to an end and of restoring the debtors to his full rights.
Art. 1118. – Entry in commercial register.
The registrar shall ensure that any judgment closing bankruptcy proceedings by reason of in sufficiency of assets or of absence of any claim against the estate he entered in the commercial register in accordance with the provisions of Art. 983 (4).
TITLE III. SCHEMES OF ARRANGEMENT
Art. 1119. – Application for scheme of arrangement.
Any trader who has or is about to suspend payments and has not been declared bankrupt may apply to the court for the opening of a scheme of arrangement, in accordance with the provisions of this Title.
Art. 1120. – Admissibility of application.
1. The application shall not be considered unless it is prepared in the form of a declaration which shall be deposited in the court registry.
2. The debtor shall file the documents specified in Art. 973 together with a report giving the reasons for his suspension or impending suspension of payments, and the reasons for his proposing a scheme of arrangement.
3. The debtor shall also show:
a. that he has been registered with the commercial registry from the opening of his business or for not less than two years;
b. that during this period he has kept proper accounts;
c. that he has not been adjudicated bankrupt nor made a scheme of arrangement within the preceding five years;
d. that he has not been converted of offences under Art. 680-688 of the Penal Code.
Art. 1121. – Proposals contained in application.
1. The application shall contain the following requirements:
a. an undertaking to pay not less cl1an 50% of the capital value of unsecured debts within one year from the date of confirmation of the scheme, or 75% within a period of eighteen month or 100% within a period of three years;
b. a promise to furnish material or personal guarantees to secure the undertakings made under paragraph (a) and giving details of the guarantees.
2. The debtor may propose to assign to his creditors all assets held by him at the date of the application for a scheme of arrangement where the assets are sufficient, to meet payments as provided in sub-art. (1)
Art. 1122. – Refusal to consider application.
After hearing the public prosecutor, the court may refuse the application where any of the conditions laid down in Art. 1120 is not present.
Art. 1123. – Additional reasons for refusing to consider application.
1. The court may refuse the application, notwithstanding that it is made in proper form, where it is of opinion that the debtor is not in a position to comply with the undertaking required under Art. 1121.
2. The court shall refuse, the application where the debtor has absconded closing his place of business, or has misappropriated or fraudulently reduced the value of part of his estate.
3. Where the application is refused under Art. 1122 or under this Article, the court shall make an order for adjudication of the bankruptcy where the debtor has suspended his payments.
Art. 1124. – Application to set aside.
1. No application shall be made to set aside judgments given under Art. 1122 and Art. 1123 (1) and (2).
2. An application to set aside an order under Art. 1123 (3) may be entertained in accordance with the relevant provisions of Art. 984-988.
Art. 1125. – Judgment opening proceedings under scheme of arrangement.
1. Where the court considers that there are merits in the application, it shall order the scheme of arrangement be opened and no application to set aside such an order shall be made.
2. In the decision on ,the application, the court shall;
a. appoint a delegate judge and a commissioner in accordance ‘With Art. 994 (1), (4) and (5);
b. order the calling of the creditors’ meeting within not more than thirty days from judgment and determine the period within which the judgment shall be published and notified to the creditors;
c. determine a period of time not exceeding eight days within which debtor shall complete the list of his creditors where the debtor has given reasons in his application for not having submitted such list;
d. fix a period of time not exceeding eight days within which the debtor shall deposit in the court registry an amount sufficient to cover the costs.
3. Where the debtor fails to comply with the provisions of paragraphs (c) and (d), the provision of Art. 1123 (3) shall apply.
Art. 1126. – Orders of delegate judge.
Any interested party may apply to set aside orders of the delegate judge in accordance with Art. 992.
Art. 1127. – Commissioner.
The provisions of Art. 997-1001 shall apply to the commissioner carrying out a scheme of arrangement.
Art. 1128. – Publication of judgment.
1. The judgment shall be published by the registrar by means of notices posted at the entrance of the court and by an extract published in a newspaper empowered to publish legal notices.
2. The registrar shall ensure that the judgment be entered in the commercial register in accordance with the provisions of Art. 983 (4.).
3. The delegate judge and the registrar shall enter and sign a note of the judgment at the end of the entries in the debtor’s books, and the books shall be handed back to the debtor.
Art. 1129. – Notice to creditors.
1. The delegate judge shall fix the place and time for the creditors’ meeting.
2. Within the period of time fixed by the court under Art. 1125 (2) (b), the registrar shall send to each creditor, by registered letter or cable as appropriate, a notice containing:
a. the names of the debtor, the delegate judge and the commissioner;
b. the date of the judgment calling the creditors and the place, date and time of the meeting; and
c. a summary of the proposals of the debtor.
Art. 1130. – Documentary evidence.
Documentary evidence showing that the publications required have been made and that notice has been given to the creditors shall be inserted in the application file of the proceedings.
Art. 1131. – Effect of application for scheme of arrangement.
1. After the application has been made and until final confirmation of the scheme, no creditor holding a claim arising prior to judgment may distrain, acquire a preferred right over the debtor’s property or register a mortgage.
2. Prescriptions, preemptions and forfeitures shall be suspended.
3. Unsecured debts enjoying no preferred rights shall be deemed to be due but interest shall be suspended as regards the creditors.
4. Amounts due in respect of taxes are not subject to the provisions of this Article.
Art. 1132. – Administration of debtor’s property.
During, the course of proceedings under a scheme of arrangement, the debtor shall retain the administration of his property and the management of his business under the supervision of the commissioner and the guidance of the delegate judge. The commissioner and judge may at any time inspect the books and accounts.
Art. 1133. – Acts of debtor not to affect creditors.
1. Gifts and other gratuitous acts or acts by way of the debtor during the proceedings shall not be creditors.
2. Acts by which the debtor has contracted loans, even by bill of exchange, or compromised or arbitrated, or agreed to assignments not falling within the exercise of the business, or to mortgages or the setting up of pledges, without the written approval of the delegate judge, who shall not give approval unless the necessity is clear, shall not be set up against the creditors.
Art. 1134. – Adjudication bankruptcy during proceedings under scheme of arrangement.
Where the debtor fails to comply with the provisions of Art. 1132 and 1133, or he is shown to have concealed part of his assets, fraudulently omitted certain creditors, increased his liabilities or committed fraudulent acts, the delegate judge shall refer the matter, to the court on the recommendation of the commissioner and the court shall adjudge the debtor bankrupt, without prejudice to such criminal penalties as may be appropriate.
Art. 1135. – Duties of commissioner.
The commissioner shall prepare an inventory of the debtor’s estate. He shall check the list of creditors and debtors and prepare a detailed report on the affairs and conduct of the debtor, on the proposed scheme and the guarantees offered to creditors. Such report shall be deposited in the registry not less than five days before the creditors’ meeting convenes.
Art. 1136. – Creditors’ meeting.
1. The delegate judge shall preside at creditors’ meetings.
2. Any creditor may be represented by an attorney appointed by an entry made on the notice calling the creditor to the meeting.
3. The debtor or his attorney shall appear in person. The debtor may be represented by a special agent where it is proved to the delegate judge that he cannot be present.
4. After the commissioner’s report has been read, the debtor shall submit his final proposals.
Art. 1137. – Consideration of proposals for scheme.
1. Any creditor may give reasons for not accepting the scheme and discuss the concurrence of debts.
2. The debtor may reply and discuss the debts. He shall give such information as may be required.
3. The discussion shall be summarily recorded in the minutes and the documents, if any, shall be annexed, thereto.
Art. 1138. – Extension of meeting. Where the business of the meeting cannot be finished on the day fixed, it shall be adjourned to the next working day without further notice to creditors, even though not present at the meeting.
Art. 1139. – Provisional admission of debts in dispute.
1. The delegate judge may grant provisional admission of debts in dispute in whole or in part, for the purpose of voting and calculation of the majority, but such admission shall not affect the final decision on the standing of such debts.
2. Creditors who have not been admitted may, at the time of confirmation of the scheme, appeal against their not having been admitted, where the majority would have been different, had they been admitted.
Art. 1140. – Majority required for approval of scheme.
1. The scheme of arrangement shall be approved by a majority of creditors representing not less than two-thirds of all non-preferred or unsecured debts.
2. Secured creditors may not vote, unless they give up their security. Such surrender may be partial but shall not be less than one-third of the full value of the debt.
3. Where a secured creditor has voted without having made a partial surrender under sub-art. (2), he shall be deemed to, have made a full surrender where he accepts the scheme under Art. 1141.
4. The court, when confirming the scheme, shall take into account the increase in the debtor’s assets which has occurred under sub-art. (2) and (3).
5. Where a scheme is not completed or confirmed or is set aside or cancelled, the surrender of a security, even though partial, shall cease to have effect.
6. The provisions of Art. 1083 (4) and (5) shall apply to voting under this Article.
Art. 1141. – Acceptance of scheme.
1. The names of the creditors, the value of their debts and the way each of them voted shall be recovered in the minutes of the meeting, which shall be signed by the delegate judge, the commissioner and the registrar.
2. Creditors notifying their acceptance of the scheme by cable or letter within ten days after the minutes have been prepared shall be entered in the margin of the minutes by the registrar and included in the calculation of the majority.
Art. 1142. – Nun-approval of scheme.
Where the scheme of arrangement is not approved in accordance with Art. 1140 and 1141, the delegate judge shall without delay inform the court, which shall of its own motion adjudge the debtor bankrupt.
Art. 1143. – Procedure for confirming scheme.
1. The delegate judge shall in the minutes and before such minutes are signed, make an order in writing for the parties to appear before the court within the next twenty days when the scheme will be confirmed.
2. The commissioner shall deposit his reasoned order in the registry not less than three days before the application for confirmation of the scheme is heard by the court and the delegate judge shall submit a report at the hearing.
3. The debtor and the creditors may be heard on the hearing of the application.
Art. 1144. – Confirmation of scheme by the court.
1. When the court is satisfied that the provisions of this Tide have been complied with, it shall:
a. Consider the financial advisability of the scheme with respect to the creditors, having regard to the existing activities and potentialities of the firm; and
b. seek the majorities required by law. To this effect, the court shall provisionally estimate the importance and amount of the debts declared with a view to estab1ishting whether there is a majority, without prejudice to the final judgments to be given; and
c. examine whether the securities offered are sufficient to guarantee the enforcement of the scheme and, in the case provided in Art. 1121 (2), whether the property assigned by the debtor is sufficient to meet the claims to the extent prescribed by Art. 1121 (1); and
d. consider whether the debtor deserves to be granted approval of the scheme, taking into account the reasons for his failure.
2. The court shall adjudge the debtor bankrupt where it does not confirm the scheme.
3. In its judgment confirming the scheme, the court shall make an order for:
a. the deposit of the dividend due in respect of declared debts;
b. the amount to be set aside to cover debts in dispute; and
c. the procedure for payment of amounts due at successive intervals under the scheme, unless this matter is referred to the delegate judge.
Art. 1145. – Assignment of property.
Where the scheme provides for the assignment of the debtor’s property under Art. 1121 (2) and subject to different stipulations, the court shall in its judgment:
a. appoint liquidators and a committee of the three or five creditors to supervise the winding-up; and
b. fix the details therof.
Art. 1146. – Prohibitions as regards debtor.
1. Unless otherwise provided in the scheme or in a resolution adopted under this Title and confirmed by the court, the debtor shall not dispose of or charge his immovable property, agree to rights of pledge or set aside any part of his assets otherwise than as required by the nature of his business, until he has fully carried out in duties under the scheme.
2. Any act done in violation of the provisions of sub-art. (1) shall not be set up against creditors prior to the confirmation of the scheme of arrangement.
Art. 1147. – Publication of judgment.
Judgments confirming or refusing confirmation of a scheme shall be published in accordance, with the relevant provisions of Art. 983.
Art. 1148. – Application to set aside judgement confirming the scheme.
1. The creditors who dissent and any interested party may apply to the court to set aside the judgment confirming the scheme within five days after the minutes have been prepared.
2. The reasons for the application shall be given and the application notified to the debtor and the commissioner.
Art. 1149. – Appeals against judgment confirming or refusing to confirm the scheme.
The debtor and the creditors who have made an application under Art. 1148 may appeal against the judgment confirming or refusing to confirm the scheme within fifteen days from the publication of the judgment, notice of appeal being served on the debtor, the commissioner and all parties to the proceedings.
Art. 1150. – Effect of judgment confirming the scheme.
1. The judgment confirming the scheme of arrangement shall bind all creditors prior to the opening of the proceedings for the scheme, but their rights against persons jointly and severally liable with the debtor, sureties and assignees shall not be affected.
2. Such persons may be heard on the hearing of the application for confirming the scheme. .
Art. 1151. – Supervision of carrying out of scheme.
1. The carrying out of a scheme which has been supervised by the commissioner, in accordance laid down in the judgment.
2. The commissioner shall inform the delegate judge of any fact likely to prejudice the creditors.
3. The delegate judge shall pay the costs and fees due to the commissioner during his term of office, notwithstanding any provision to the contrary.
Art. 1152. Setting aside of scheme of arrangement.
1. The provisions of Art. 1091 and 1093 shall apply where a scheme of arrangement is set aside but the duties of the trustee be carried out by the commissioner
2. Where a scheme of arrangement provides for an assignment of property under Art. 1121 (2), the scheme shall not be set aside where the proceeds of the assignment are sufficient to meet 50% of the debts.
Art. 1153. – Clause of return to good fortune.
The application of a clause in a scheme of arrangement providing that the debtor shall only be discharged where his fortune remains bad shall be limited, to a period of five years and to cases where the debtor’s assets exceed his liabilities by not less than 25%.
TITLE IV. SPECIAL RULES CONCERNING BANKRUPTCY AND SCHEMES OF ARRANGEMENT WITH RESPECT TO BUSINESS ORGANISATIONS
Art. 1154. – Application of general provisions.
Save as is otherwise provided in the preceding Titles, the provisions of this Title shall apply to business organisations.
Art. 1155. – Business organisations which may be adjudged bankrupt.
1. All commercial business organisations, other than a joint venture may be adjudged bankrupt or he granted a scheme of arrangement.
2. A business organization in liquida1ion may be adjudged bankrupt.
3. The provisions of this Article shall apply to business organisations which have been declared null and void but which exist in fact.
Art. 1156. – Notice of suspension of payments.
Notice of suspension of payments by a business organization under Art. 972 shall be made by the firm’s legal representatives and, in a firm in liquidation, by the liquidator.
Art. 1157. – Court having jurisdiction.
1. The Ethiopian court in whose area of jurisdiction the head office of the business organisation is situate shall have jurisdiction in bankruptcy proceedings.
2. Without prejudice to the provisions of international conventions, such court shall have jurisdiction notwithstanding that head office is abroad and a foreign court has exercised bankruptcy jurisdiction.
Art. 1158. – Bankruptcy of business organisation comprising partners jointly, severally and fully liable.
1. Each partner in a general partnership and general partners in a limited partnership shall make the notice under Art. 1156 within twenty days after the company having suspended payments.
2. The bankruptcy of a firm comprising partners jointly, severally and fully liable shall cause the bankruptcy of such partners.
Art. 1159. – Institution of liability proceedings.
Proceedings under Art. 365 and 366 of this Code shall be instituted by the trustee with the permission of the commissioner, the creditors’ committee having been heard.
Art. 1160. – Adjudication of bankruptcy in common.
1. Where a share company or private limited company is declared bankrupt, the adjudication may declare bankrupt any person who has carried out commercial operations on his own behalf and disposed of company funds as though they were his awn and concealed his activities under the cover of such company.
2. The provisions of sub-art. (1) shall apply to limited partners who have carried out acts of management in a limited partnership.
Art. 1161. – Retired partner with joint and several liability.
1. On request, a partner jointly and severally liable may be declared bankrupt within one year following his name being struck off the commercial register where payments were suspended by the partnership prior to the striking off.
2. Where the partner was not registered, he may be declared bankrupt at any time after his retirement.
Art. 1162. – Claim for payment of contributions.
The trustee may order the members or partners of any business organisation to complete the payment of their contributions, without regard to the time fixed by the articles of association.
Art. 1163. – Bankruptcy proceedings in respect of partners jointly and severally liable.
1. The court shall in one judgment declare both the firm and partners jointly and severally liable bankrupt and shall normally appoint one commissioner and trustee. The assets of the firm and of the partners shall be dealt with separately and the bankruptcy proceedings of the two, kept separate.
2. Debts proved in the firm’s bankruptcy by the creditors of the firm shall be deemed to be proved in each of the partner’s bankruptcy.
3. The firm’s creditors may participate in all distributions until they are fully paid, without prejudice to claims as between the various bankrupt estates regarding over payment of contributions.
4. Personal creditors of the partners may only claim in the estate of their debtors.
5. Any creditor may contest priority with other creditors.
Art. 1164. – Proposal for composition.
1. A proposal for a composition by a bankrupt firm shall be signed by the legal representatives of such firm.
2. In the case of a general or limited partnership, the proposals for and the terms of the composition shall be approved by partners representing an absolute majority of the capital.
3. In the case of a share company or private limited company, proposals for a composition shall be approved by an extraordinary-general meeting, unless such approval has been delegated to the directors.
Art. 1165. – Composition in respect of firm with partners jointly and severally liable.
1. Where a firm comprising partners jointly, severally and fully liable requests a composition, the creditors may approve such composition in favour of one or more partners.
2. In such cases, all the firm’s assets shall remain subject to a compulsory winding-up. The personal property of partners with whom the composition has been approval shall be excluded there from and the composition shall only contain and undertaking to pay a dividend on those securities which are outside the firm’s assets.
3. Where a composition with one partner is approval, he shall be discharged from joint and several liability.
TITLE V. SUMMARY PROCEDURE
Art. 1166. – Terms of application when applied.
1. Where the balance sheet submitted by the debtor or subsequent information shows that the assets in the bankruptcy do not exceed one thousand Ethiopian dollars, or where the dividend to the distributed cannot exceed ten per cent, the court may, either of its own motion or on the application of the creditors, order that the bankruptcy proceedings shall be by way of summary procedure.
2. Where in the course of such proceedings it is shown that the assets in the bankruptcy exceed one thousand Ethiopian dollars or the dividend exceeds ten per cent, the court shall order that the proceedings in bankruptcy shall continue under the normal procedure, but such order shall not affect the validity of any act already done.
3. The normal bankruptcy rules shall be applied where they are applicable to summary procedure.
Art. 1167. – Special rules applicable in summary procedure.
In a summary procedure:
1. seals shall not be fixed;
2. the appointment of a creditors’ committee shall be optional;
3. the commissioner shall decide on debts in dispute unless an application is made to the court;
4. the commissioner may authorize any negotiations;
5. there shall be one distribution only;
6. differences relating to the trustee’s accounts and his remuneration shall be decided by the commissioner.
Art. 1168. – Proof of debts.
1. The trustees shall prepare the list of creditors on the basis of the accounts, the statements of the debtor and any other information available.
2. The list, together with documentary evidence, shall be sent to the commissioner who shall ascertain the liabilities and order enforcement. The list of debts and the decree shall be deposited in t1he registry and shall be open to inspection by any interested party.
3. Within three days from such deposit, the trustee shall inform each creditor by registered letter of the decision taken regarding his debt.
4. Within fifteen days from such deposit, creditors not admitted may lodge a claim with the commissioner. Within the same period of time, objections with regard to creditors having proved may be lodged by other creditors.
5. The commissioner shall fix the date for hearing objections and, where they cannot be settled by agreement he shall make ibis final decision thereon.
Art. 1169. – Demands for recovery.
The provisions of Art. 1168 shall apply to demands for recovery and restitution of movable property in the debtor’s possession.
Art. 1170. – Composition.
1. A proposal for a composition shall be approved, by a majority vote of the creditors representing a majority of the debts.
2. The commissioner shall approve the composition where there is the required majority and the composition is acceptable. He shall enforce the composition against which there is no appeal of any kind.