Commercial laws: 4. INSOLVENCY

Commercial laws: 4. INSOLVENCY


November 11, 2022


Afghanistan enacted a new insolvency in 2018 with the goal of creating a transparent and fair procedure when a business fails, maximizing value to creators, and meeting international standards. A business is considered insolvent when its liabilities are greater than its assets, or when a business is unable to pay debts as they fall due. An insolvency case may be voluntary (initiated by the debtor) or involuntary (initiated by creditors). When the commercial court accepts an insolvency case, a receiver is appointed to oversee the debtor company’s affaires. The receiver, with the consent of the creditors and the court, has the option of keeping the company operating under a settlement plan or liquidating the company and selling its assets. If the company continues to operate, the receiver will negotiate payment, terms with the creditors and may seek additional funding to keep the company running. Under a liquidation, the receiver attempts to generate as much cash as possible through the sale of assets.


If the company is liquidated, the insolvency law provides a clear procedure for the repayment of creditors. Consistent with international best practices, secured creditors are paid before any other category of the creditors. The policy behind the law is to encourage lenders and investors to support afghan businesses by minimizing their risk in the event of business failure.





Related Contents

Commercial laws: 1. COMMERCIAL CONTRACT

Commercial laws: 2.BUSIUNESS FORMATION

Commercial laws: 3. INTELECTUAL PROPERTY

Commercial laws: 4. INSOLVENCY

Commercial laws: 5. COMMERCIAL ARBITRATION/MEDIATION

Commercial laws: 6. PUBLIC PARTNERSHIP AND PUBLIC PROCURMENT

Commercial laws: 7. CONSUMER PROTECTION LAW

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