Resolving Insolvency

Improving provisions applicable to the treatment of contracts and voidable transactions 
Implementing efficient and transparent regulatory mechanisms for the management of the debtor’s assets during insolvency proceedings may improve the likelihood of high recovery. Such mechanisms prevent debtors from distributing assets that can otherwise be used to pay off the creditors or to preserve the business so that it can be sold as a going concern.³ Good practice suggests including explicit and direct provisions authorizing continuation and rejection of contracts after the commencement of insolvency proceedings (by either the debtor or the insolvency representative) if such contracts are for goods and services essential to the debtor’s business operations. Equally important for the preservation of the insolvency estate is to ensure that the debtor’s assets are not dissipated in the period after the debtor first learns of financial difficulties but before formal commencement of insolvency proceedings by allowing the avoidance (invalidation) of undervalued transactions, which were made as a gift or in exchange for less than equivalent value and which occurred when the debtor was insolvent or resulted in the debtor becoming insolvent.^4 5 6
For these two important reasons, the bulk of reforms have been aimed at improving the management of debtor’s assets during insolvency proceedings. Fiji adopted a new Companies Act in 2015 introducing new categories of obligations that can be avoided by a company during insolvency proceedings, such as insolvent transactions (unfair preferences and uncommercial transactions), unfair loans and unreasonable director-related transactions concluded before or on the day of filing for insolvency. New amendments to legal insolvency framework in Georgia enacted in 2017 incorporated a rule that contracts supplying essential goods and services to the debtor shall be continued despite the commencement of insolvency proceedings. The amendments also allowed courts in Georgia to invalidate undervalued transactions (resulting in the depreciation of trusted property) which were carried out within one year before the filing of the insolvency application. In 2019 Mauritius amended its insolvency law to allow the administrator to continue or disclaim the contracts of the debtor, thereby allowing for the continuation of contracts supplying essential goods and services to the debtor when necessary.