As of February, 2017, and upon the issuance of Executive Decree No. 20-17, the Dominican Republic has a fully enforceable new Bankruptcy and Restructuring Law (No. 141-15) up to par with current international standards. The new law offers a clearer, more equitable path for economically-distressed companies and will provide both lenders and businesses, local as well as internationally-based ones, greater certainty for their future commercial or financing ventures in the country.
Prior outdated bankruptcy laws in effect before Law 141-15 did not allow for the restructuring of companies in distress and merely gave way for business asset liquidations. The new law shifts the playing field by setting a mandatory restructuring process prior to allowing liquidations to take place.
Aside from exceptions for certain regulated industries, such as Banks and Stock Exchange-related entities, as well as government-owned entities, the law will apply/benefit to any Dominican or foreign entity or commercial individual person with a permanent establishment in the country.
It is also worth mentioning that the new law sets out a regulatory framework to address transnational restructuring or liquidation proceedings.
All bankruptcy and restructuring proceedings as well as any actions related to the debtor's assets, will be heard by two specialized Courts of First Instance and their respective Appellate Courts, which will have territorial jurisdiction over proceedings over their assigned provinces. One is located in Santo Domingo (with jurisdiction over La Romana) and the other one in Santiago.
There are three key stages in the process, which we will briefly summarize below in chronological order:
Any creditor with at a credit of at least 50 minimum salaries can file a restructuring request before the Bankruptcy Court against their debtors. The debtor can also do this filing voluntarily. This request must be based in one of the list of pre-established conditions set by the law, of which we find noteworthy to mention our Casa readers the following:
- Non-payment of 2 or more salaries to the business' employees.
- Existence of a restructuring, bankruptcy or insolvency process in a foreign country in which the debtor's parent company or his permanent address is located.
- Existence of foreclosure or sequestration processes which could affect more than 50% of the assets.
Upon receiving the request, the court then appoints a qualified Examiner who will be in charge of preparing and submitting a report to the court describing the debtor's financial situation and recommending the court to either allow for the restructuring of the business or proceed immediately with the liquidation of its assets.
The debtor is considered to be under the Court and Examiner's supervision from the time the request is served to the debtor.
- Conciliation and Negotiation
If the court decides for the restructuring of the debtor it will appoint an official Mediator. This person's has two main tasks:
- To have the debtor and its creditors reach a restructuring agreement and submit it with his/her report to the court together with a final list of credits. In order to be assigned voting rights for the execution of the restructuring plan all creditors must submit their credit declarations before the Court prior to the Mediator's report filing. If no agreement is reached or deemed unviable by the Mediator he/she may request the Court to proceed immediately with the Liquidation phase.
- Oversee the correct execution of the Restructuring Plan upon its approval by The Court.
All of the following processes against the debtor will be deemed as automatically stayed or prohibited once the Court decides for the restructuring to take place:
- All legal, administrative, tax or arbitration claims or lawsuits, including foreclosure and sequestration processes.
- Computation of liquidated damages clauses and contractual or judicial penalties.
- Disposition of debtor's assets, unless otherwise authorized by the law.
- Payment against debts originated prior to the restructuring request.
- Judicial Liquidation
The liquidation must be authorized by the court upon receiving a request from either of the parties involved in the restructuring process in case of a breach in the restructuring plan's obligations. If the Liquidation is approved a Liquidator is named by the Court and the disposition and administration rights over all of the debtor's assets are automatically transferred from the debtor to the liquidator. This person will be in charge of presenting a liquidation plan for its approval by the court.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.