On April 12 of this year, the Law of the Republic of Uzbekistan “On Insolvency” was adopted. The purpose of the adoption of this Law is to regulate the relationship of insolvency of legal entities and individuals, including the restoration of the economically insolvent legal entities’ and individuals’ activities through the application of insolvency procedures.
The Law provides the following basic standards:
1. The Law includes rules on temporary and permanent insolvency to encourage the use of insolvency proceedings against a debtor.
If the debtor fails to fulfill its obligations for at least 3 months, regardless of the amount of accounts payable, it is considered temporarily insolvent and initially undergoes rehabilitation procedures, and the payment of current tax payments is suspended.
If during the last reporting year the debtor's liabilities constantly exceeded his assets, he is recognized as permanently insolvent and the liquidation procedure is applied to them.
This procedure was introduced in order to prevent the bankruptcy of economically insolvent legal entities and individuals and to restore their activities by applying the initial rehabilitation procedure to them.
2. Even if insolvency proceedings are initiated, the execution of contracts necessary for the debtor to resume their business will continue.
Conversely, prior to the prosecution of insolvency proceedings, it is established that contracts below the market value of the debtor and deteriorating the financial condition of the debtor may be declared invalid by the court.
This procedure was also introduced to stimulate the activity of insolvent enterprises.
3. If a debtor's insolvency is caused by the unlawful actions of its founder or officials, the creditor is subject to subsidiary liability for the unpaid portion of the debt.
4.The Law also granted lawyers the right to participate as court administrators in insolvency cases. In addition, the rights of court administrators were expanded, the possibility of access to public services provided through the Public Service Centers without prior payment, as well as free access to information about the debtor in the state bodies.
At the same time, based on the volume of work, the practice of remuneration and incentives for court administrators has been introduced.
5. In order to ensure the repayment of accounts payable, such norms as reassigning the debtor's property at an auction, gradual reduction of the initial price of the property by up to 50% by decision of a meeting of creditors, exemption from value added tax and income tax on a portion of the funds used to repay the debt are applied.
6. This Law introduces the institution of insolvency of an individual from January 1, 2023.
If insolvency proceedings are initiated against an individual debtor, first of all, the debt restructuring procedure is applied, and the individual debtor is given the opportunity to repay their debt according to a repayment schedule within 3 years.
If an individual fails to pay own debt in installments, the court will declare of bankruptcy. In bankruptcy proceedings, a debtor-individual is exempted from paying uncovered debts due to insufficient assets.
It should be noted that in an insolvency case, an individual is not exempt if it is proven that the insolvency of an individual was intentionally caused due to misconduct or illegal actions of the individual debtor, fraud, unjustified refusal to pay debts, provision of knowingly false information to the creditor, concealment or intentional destruction of property when receiving a loan.
7. The Law defines the peculiarities of the recognition of developers insolvent in order to protect the rights of owners who have purchased housing, built at the expense of shared construction.
This procedure establishes guarantees to protect the rights and interests of shareholders in the event of insolvency.
The Law introduces norms aimed at supporting sincere and honest business entities and individuals in financial difficulty to improve their financial situation, and, conversely, provides for strict liability in cases of willful insolvency.
This Law serves to restore and preserve jobs, secure the interests of debtors and creditors, and improve our country's position in international rankings by applying rehabilitation procedures to insolvent businesses.
Thank you for your attention
