Insolvency Law at Dominican Republic
In the Dominican Republic, insolvency law is primarily governed by Law No. 141-15 (the Insolvency Law), which was enacted on July 13, 2015. This law introduced significant reforms to the country's legal framework regarding insolvency and corporate restructuring, aligning it with modern international standards. It replaced the previous framework and introduced more comprehensive procedures for handling bankruptcy, liquidation, and debt restructuring.
Key Aspects of Insolvency Law in the Dominican Republic:
1. Types of Insolvency Procedures
The Dominican Republic's Insolvency Law provides two main types of procedures to address insolvency:
Reorganization (Reorganización):
This procedure is designed to help companies or individuals in financial distress restructure their debts and continue operations. It is similar to a Chapter 11 reorganization in the United States.
The court appoints a reorganization administrator (a professional with experience in restructuring) to manage the process.
The debtor has the opportunity to propose a reorganization plan, which must be approved by creditors. The plan may involve debt rescheduling, partial debt forgiveness, or other measures to facilitate the company’s recovery.
Objective: To rehabilitate the debtor, preserve jobs, and maintain the continuity of the business.
Liquidation (Liquidación):
If reorganization is not possible or fails, the company can enter into a liquidation procedure. This involves the sale of the company’s assets to pay off creditors.
A liquidator is appointed by the court to oversee the liquidation process and ensure that creditors receive payment according to their legal rights.
The company’s business ceases, and its operations are wound up.
Objective: To ensure an orderly dissolution of the company and the equitable distribution of assets to creditors.
2. Insolvency Process and Procedure
Filing for Insolvency:
The insolvency process can be initiated by the debtor or a creditor. If a company is unable to pay its debts or meet financial obligations, it may file a petition for reorganization or liquidation.
If creditors initiate the petition, they must prove that the company is insolvent and unable to meet its payment obligations.
Court's Role:
The insolvency process is overseen by the Commercial Chamber of the Courts of First Instance in the Dominican Republic. This court is responsible for managing the insolvency procedure and making critical decisions, such as whether to approve the reorganization plan or order liquidation.
The court also appoints a supervisor or administrator to oversee the insolvency process, ensuring that creditors' interests are protected and that the process is followed according to the law.
Insolvency Administrator:
The insolvency administrator plays a key role in both reorganization and liquidation procedures. The administrator is responsible for managing the debtor’s assets, negotiating with creditors, and proposing or overseeing the implementation of a reorganization plan.
3. Priority of Creditors
In liquidation proceedings, creditors are ranked in a specific order of priority, similar to other legal systems. The general order of priority is as follows:
Secured creditors: Creditors with a lien or collateral on the debtor’s assets.
Preferred creditors: These may include employees, tax authorities, and other entities with preferential claims.
Unsecured creditors: These are typically trade creditors, suppliers, and other creditors without specific security interests.
Equity holders: Shareholders or owners, who typically only receive payment if there are remaining assets after all other creditors have been paid.
4. Reorganization Plans and Debt Settlement
Reorganization Plan: The debtor submits a plan for reorganizing its debts, which must be approved by a majority of creditors and the court. This plan may involve:
Rescheduling debt payments
Reducing the amount of debt (in some cases)
Other financial adjustments to facilitate the debtor’s recovery.
Debt Settlement: If the debtor’s reorganization plan is not accepted, or if reorganization is not feasible, the company may enter liquidation. The debtor may propose a settlement with creditors to avoid liquidation, in which creditors agree to receive a portion of the debt owed rather than pursuing full recovery.
5. Cross-Border Insolvency
The Dominican Republic, like many other countries, is increasingly involved in cross-border insolvency issues, especially given its importance in international trade. The Insolvency Law does not have specific provisions for cross-border insolvency, but the court will typically recognize foreign insolvency proceedings and cooperate with international courts under certain circumstances, in accordance with international treaties and cooperation agreements.
6. Avoidance of Fraudulent Transactions
The Insolvency Law includes provisions for the avoidance of fraudulent transactions. This allows the liquidator or insolvency administrator to seek the reversal of transactions that have been made with the intention of defrauding creditors, such as asset transfers made just before the insolvency proceedings were initiated.
7. Protection Against Creditors
During the reorganization or liquidation process, the law provides protection to the debtor against creditor actions:
Automatic stay: Once insolvency proceedings are initiated, an automatic stay on creditor actions is put in place. This means that creditors are prohibited from taking legal action to collect debts outside the insolvency procedure.
8. Rehabilitation for Individuals
In addition to corporate insolvency, the law also provides mechanisms for the rehabilitation of individuals who are over-indebted. Individuals in financial distress may access a reorganization procedure to restructure their debts, similar to corporate reorganization.
Summary of Key Points:
The Dominican Republic’s insolvency law is governed by Law No. 141-15, which allows for reorganization and liquidation procedures.
Reorganization aims to restructure debts and preserve the company, while liquidation involves the sale of assets to pay creditors.
Creditors are ranked in order of priority in liquidation, with secured creditors having the highest priority.
The court and insolvency administrators play crucial roles in overseeing the process.
The automatic stay protects debtors from creditor actions during insolvency proceedings.
The law allows for cross-border cooperation in insolvency cases, although specific provisions are not outlined.
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