Insolvency Law at Bolivia
Insolvency Law in Bolivia is primarily governed by the Bolivian Commercial Code (Código de Comercio), along with the Law No. 164 of 2011 on Business Insolvency (Ley N° 164 de 2011), which specifically addresses insolvency and bankruptcy matters for businesses in Bolivia. The country also follows broader principles of civil and commercial law, which impact insolvency proceedings.
Here’s an overview of Insolvency Law in Bolivia:
1. General Overview
Bolivia's insolvency framework is designed to provide a process for businesses and individuals in financial distress. The law primarily distinguishes between business insolvency (corporate insolvency) and the insolvency of natural persons (individuals). The aim of insolvency law in Bolivia is to protect creditors, provide an opportunity for debtors to restructure their obligations, and ensure fair and transparent processes for liquidation when recovery is not possible.
2. Types of Insolvency Proceedings
Bolivia offers two main types of insolvency proceedings:
Reorganization (Reestructuración): This allows for the restructuring or rehabilitation of the debtor's financial situation, enabling the business to continue its operations while paying off debts through an agreed-upon plan. This process seeks to preserve jobs and the value of the business.
Liquidation (Liquidación): If reorganization is not feasible or is unsuccessful, liquidation proceedings will be initiated. The debtor's assets are sold off, and the proceeds are distributed to creditors based on the order of priority set by the law.
3. Insolvency Proceedings: Initiation
Voluntary Petition: A debtor may initiate insolvency proceedings voluntarily, either for reorganization or liquidation. The debtor petitions the court when they are no longer able to meet their financial obligations and seek either a rehabilitation process or the liquidation of their assets.
Involuntary Petition: Creditors can also petition the court to declare a debtor insolvent if they have not received payment for a significant period, and the debtor is unable to meet their obligations.
Court's Role: Once an insolvency petition is filed, the court must determine whether the debtor is insolvent and decide whether to initiate a reorganization or liquidation procedure.
4. Reorganization Process (Reestructuración)
Reorganization Plan: In cases where the business is viable but struggling financially, the debtor can propose a reorganization plan to the creditors. The plan includes proposed debt restructuring and a timetable for repayment.
Creditors' Approval: Creditors have a critical role in approving the reorganization plan. A majority of creditors, usually those with secured claims, must approve the plan. If the plan is not approved, the case may shift to liquidation.
Administrator: The court appoints an insolvency administrator to oversee the process, ensuring that the reorganization is carried out as per the agreed-upon terms.
Stay on Debt Enforcement: During the reorganization process, a stay on debt enforcement is granted, meaning creditors cannot take further legal actions (such as garnishing wages or seizing assets) against the debtor without court approval.
5. Liquidation Process (Liquidación)
Orderly Liquidation: If reorganization is not possible, or if the debtor fails to propose a viable reorganization plan, the debtor will enter liquidation. The objective of liquidation is to sell the debtor’s assets and distribute the proceeds to creditors in a structured manner.
Appointment of a Liquidator: A liquidator is appointed by the court to manage the sale of assets and the distribution of the proceeds. The liquidator is responsible for managing the debtor's affairs during the liquidation and ensuring the process is transparent and fair.
Priority of Claims: Creditors are paid in a specific order, which is determined by the law. Generally, the order of priority is as follows:
Administrative expenses and costs of the insolvency process.
Secured creditors (those with collateral).
Preferential creditors (e.g., employees owed wages and benefits).
Unsecured creditors.
Shareholders (if any assets remain).
Dissolution of the Company: Once liquidation is completed and all assets are sold, the company will be legally dissolved.
6. Role of the Insolvency Administrator
Insolvency Administrator: The court appoints an insolvency administrator (also referred to as a trustee or liquidator) to manage the insolvency process. The administrator has the duty of preserving the debtor’s assets, managing the distribution of the proceeds, and ensuring fair treatment of all creditors.
Duties of the Administrator: The administrator’s duties include evaluating the debtor's financial condition, selling the debtor's assets, preparing and submitting reports to the court, and negotiating with creditors on the terms of the insolvency proceedings.
7. Creditor Rights and Claims
Filing Claims: Creditors must file claims with the insolvency administrator during the proceedings. The administrator will assess the claims and ensure they are verified before any payments are made.
Priority of Claims: As mentioned earlier, creditors are paid in a specific order. Secured creditors (those with collateral) are paid first, followed by employees, general unsecured creditors, and, lastly, shareholders.
Creditors' Committee: In more complex insolvency cases, a creditor’s committee may be formed to represent the interests of creditors. This committee can be involved in negotiating terms with the debtor and approving reorganization plans.
8. Discharge of Debts
Discharge in Liquidation: After the liquidation of assets, any remaining debts that cannot be paid are typically written off. The debtor may be discharged from personal liability for those remaining debts, though exceptions exist (e.g., debts arising from fraud).
Discharge in Reorganization: If a successful reorganization plan is approved and executed, some debts may be partially or fully discharged based on the terms of the plan. For example, creditors may agree to write off part of the debt or accept extended repayment terms.
9. Fraudulent or Undervalued Transactions
Avoidance of Fraudulent Transactions: The insolvency law in Bolivia allows for the avoidance of transactions that are deemed fraudulent or undervalued. For instance, if a debtor has transferred assets at less than fair market value or engaged in fraudulent conduct, these transactions can be reversed, and the assets can be recovered for distribution to creditors.
10. International Considerations
Cross-Border Insolvency: Bolivia is not a signatory to the UNCITRAL Model Law on Cross-Border Insolvency, but the insolvency law includes provisions for the recognition of foreign insolvency judgments in some circumstances, particularly where there are foreign creditors or assets involved.
International Cooperation: In cases where the debtor has assets or operations in other countries, the Bolivian courts may cooperate with foreign jurisdictions to ensure that insolvency proceedings are recognized and appropriately handled.
11. Rehabilitation of Debtors
Bolivia’s insolvency law aims to balance creditor interests with the possibility of debtor rehabilitation. If the debtor’s business is viable but in financial distress, the law allows for rehabilitation or restructuring, providing the debtor with a chance to recover and return to financial stability.
12. Legal Framework and Recent Amendments
Law No. 164 (2011) on Business Insolvency was enacted to modernize the country’s insolvency framework. It introduced concepts like reorganization and bankruptcy for individuals, aligning Bolivia's insolvency law with international best practices.
This law is regularly reviewed and amended to address the evolving financial environment and provide better protection to both creditors and debtors.
Conclusion
Insolvency law in Bolivia provides mechanisms for both reorganization and liquidation, with a focus on ensuring fairness to creditors and giving debtors a chance to rehabilitate. The Bolivian Commercial Code and Law No. 164 on Business Insolvency are the key statutes governing these processes. The law is designed to handle business insolvency and bankruptcy cases systematically, offering solutions such as the appointment of insolvency administrators and the establishment of creditor committees to ensure transparency and equity during the proceedings.
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