Core provisions for an effective and efficient simplified insolvency regime

• Author: United Nations Commission on International Trade Law
• Pages: 48-196

48 UNCITRAL Legislative Guide on Insolvency Law for Micro- and Small Enterprises

“may” indicates permission and “should” indicates instruction; and (f) references

to “person” should be interpreted as including both natural and legal persons.

III. Core provisions for an effective and

efcient simplied insolvency regime

A. Key objectives of a simplied insolvency

regime

Recommendation 271: Key objectives of a simplied

insolvencyregime

271. States should provide for a simplied insolvency regime and for that purpose

consider the following key objectives:

(a) Puing in place expeditious, simple, exible and low-cost insolvency

proceedings (henceforth referred to as “simplied insolvency proceedings”);

(b) Making simplied insolvency proceedings available and easily accessible

to micro- and small enterprises (MSEs);

(c) Promoting the MSE debtor’s fresh start by enabling expedient liquidation

of non-viable MSEs and reorganization of viable MSEs through simplied insolvency

proceedings;

(d) Ensuring protection of persons aected by simplied insolvency proceed-

ings, including creditors, employees and other stakeholders (henceforth referred to

as “parties in interest”) throughout simplied insolvency proceedings;

(e) Providing eective measures to facilitate participation by creditors and

other parties in interest in simplied insolvency proceedings, and to address creditor

disengagement;

(f ) Implementing an eective sanctions regime to prevent abuse or improper

use of the simplied insolvency regime and to impose appropriate penalties for

misconduct;

(g) Addressing concerns over stigmatization because of insolvency; and

(h) Where reorganization is feasible, preserving employment and investment.

Section two. Commentary 49

ose objectives are in addition to the objectives of an eective insolvency law as set

out in recommendations 1–5, such as the provision of certainty in the market to pro-

mote economic stability and growth, maximization of value of assets, preservation of

the insolvency estate to allow equitable distribution to creditors, equitable treatment

of similarly situated creditors, ensuring transparency and predictability, recognition

of existing creditor rights and establishment of clear rules for ranking of priority.

27. Recommendations 1 to 5 list the key objectives and other features of an

eective insolvency law, including: providing certainty in the market to promote

economic stability and growth; maximizing value of assets; striking a balance

between liquidation and reorganization; ensuring equitable treatment of similarly

situated creditors; providing for timely, ecient and impartial resolution of insol-

vency; preserving the insolvency estate to allow equitable distribution to creditors;

ensuring a transparent and predictable insolvency law that contains incentives for

gathering and dispensing information; and recognizing existing creditors’ rights

and establishing clear rules for ranking of priority claims. e MSE Insolvency

Guide adds to that list the establishment of an eective simplied insolvency

regime that should focus on specic issues faced by MSEs in nancial distress, such

as MSEs’ lack of nancial and business sophistication, creditor disengagement, the

lack of (sucient) assets in the insolvency estate and concerns over stigmatization

because of insolvency.

28. Because of those specic issues, the key objectives of the simplied insol-

vency regime should be puing in place expeditious, simple, exible and low-cost

insolvency proceedings, both liquidation and reorganization, and making them

available and easily accessible to MSEs. ese measures should encourage MSEs

at an early stage of nancial distress to commence insolvency proceedings, which

may be vital for a successful reorganization of a viable MSE business and also for

preservation of employment and investment. Another key objective is to promote

the MSE debtor’s fresh start by enabling expedient liquidation of non-viable MSEs

and reorganization of viable MSEs. Because concerns over stigmatization oen

prevent MSEs from commencing insolvency proceedings, ghting stigmatization

because of insolvency should also be the key objective of the simplied insolvency

regime. It maers particularly in the MSE insolvency context where the name and

reputation of individuals behind an MSE are closely linked to the business.

29. Puing in place eective measures to address creditor disengagement in MSE

insolvencies, including procedural safeguards to prevent possible negative conse-

quences of such disengagement for a proceeding, is listed as another key objective

to consider in devising a simplied insolvency regime. ose measures should be

coupled with eective mechanisms to facilitate participation and to ensure

50 UNCITRAL Legislative Guide on Insolvency Law for Micro- and Small Enterprises

protection of not only the MSE debtor in a simplied insolvency proceeding but

of all persons aected by such proceeding, including creditors, employees and

other stakeholders (collectively referred to as “parties in interest”, see para. 25 (h)

above). Employees are specically mentioned because they can be aected by

insolvency proceedings beyond their role as creditors and may also enjoy additional

protections under domestic laws.

30. Implementing an eective sanctions regime to prevent abuse or improper use

of the simplied insolvency regime and to impose appropriate penalties for mis-

conduct is listed as another objective of the simplied insolvency regime. It is

included because simple, low-cost and fast procedures and easy access thereto may

increase risks of abuse or improper use of simplied insolvency proceedings.

Excessive sanctions and inappropriate imposition of sanctions may however dis-

courage honest and cooperative MSE debtors from applying for commencement

of simplied insolvency proceedings and may discourage creditors and other par-

ties in interest from participating in simplied insolvency proceedings. In deterring

abuses and improper use of a simplied insolvency regime, sanctions should thus

become an integral part of the simplied insolvency regime by not defeating inad-

vertently other objectives of a simplied insolvency regime.

B. Scope of a simplied insolvency regime

1. Application to all MSEs

Recommendation 272: Application to all micro- and

small enterprises

272. States should ensure that a simplied insolvency regime applies to all

MSEs. Aspects of the regime may dier depending on the type of MSE. (See

recommendations8 and 9.)

31. Although it is le to States to identify persons that will be qualied as MSEs

and thus be eligible for access to a simplied insolvency regime (see para. 25 (f)

and the accompanying footnote above), the MSE Insolvency Guide was draed

primarily for persons that share the characteristics described in paragraphs 7–11

above, that is, micro- and small enterprises, which larger enterprises, including

medium-sized ones, would not possess. A simplied insolvency regime should focus

on early resolution of nancial diculties of all types of MSE, irrespective of the

legal structure through which they conduct their economic activities (limited