New bankruptcy law boosts investment climate

CAIRO – 11 January 2018: Egypt’s parliament has provisionally approved a new bankruptcy law Tuesday in another boost to the investment climate.

Minister of Investment and International Cooperation Sahar Nasr said the law will help improve Egypt’s investment climate and improve its ranking on global business indices.

The new law abolishes prison sentences in bankruptcy cases and limits punishments to a monetary fine. It also aims to minimize the need for companies or individuals to resort to the courts and to simplify post-bankruptcy procedures.

Difficulty in exiting the Egyptian market had been a concern among investors, a reason which lowered the country's ranking on the World Bank's Doing Business Index.

Until now, Egypt has had no specific law on bankruptcy, meaning failed companies have had to go to court on a case-by-case basis, which caused difficulties such as long judicial procedures.

A recent World Bank report entitled “Access to Finance and Economic Growth in Egypt” said that bankruptcy rules in Egypt adhered to historical perceptions of the bankrupt betraying creditors’ trust and that the law focused on personal bankruptcy, as opposed to corporate bankruptcy.

It further said that the rules relied on liquidation and failed to provide any regulation for reorganization, and that the process was multi-layered, complex, and time-consuming.

The report stated that Egypt needed to re-conceptualize all bankruptcy rules and to amend its rules on bankruptcy to provide “ailing firms with an orderly means of exit through the liquidation process, to help reallocate assets to better uses through rehabilitation and to ensure a timely resolution of the problems of insolvent or financially distressed firms.”

The new approved law is supposed to address these issues as it aims to simplify procedures after declaring bankruptcy. The law would cut down on lawsuits and protect foreign investors as it removes the danger of imprisonment and only requires the possible payment of fines in bankruptcy cases.

In this way, the law conveys a message of reassurance to foreign and domestic investors that they can liquidate or declare bankruptcy without being subjected to imprisonment.

Once it is finally approved, the law will allow any business that is close to bankruptcy to have the option of conciliation with its creditors or restructuring its financial position.

The new law is expected to improve Egypt’s rating in global indices such as the Global Competitiveness Index (GCI) and Doing Business Report because criteria for ease of exiting the market are currently major obstacles for the business environment.

Egypt ranks number 115 in the Resolving Insolvency index in the 2018 Doing Business report, while it dropped 18 places in its overall ranking in the 2018 edition, standing at 128 out of 190 countries, down from 122 in the 2017 report.

The bankruptcy law was approved by the cabinet in January 2017, and it now awaits final approval by the Parliament before being ratified by the president.

The law complements the investment law, which was passed by the Parliament last year, to attract foreign investors and reduce bureaucracy. They come as part of the reform drive aimed at encouraging investment.