10
Nov

Due to the growth in recent years of various commercial sectors in the Dominican Republic, it has become mandatory to create tools in order to ensure they remain in service and prevent bankruptcy. By contrast, business organizations and merchants may continue their commercial activity, which contributes to the national economy. As a result of this need, Law 141-15 regarding Commercial Restructuring and Liquidation of Companies and merchants, promulgated on August 7th, 2015.

In the event that a business organization or merchant becomes bankrupt or insolvent as we previously mentioned, there are several negative economic implications for a given sector, as well as the following:

1. Creditors would lose their credits.

2. The debtor, along with its structure and business entity, is lost.

3. Tax debts.

4. The employees (payrolls) are affected if a closing process takes place. In the piece Responsibility of a company with its employees in the event of bankruptcy, closure or downsizing, we speak about the topic extensively.

When a financial institution ceases to exist, especially if it does so with active DEBTS (which leads to the situations mentioned previously), a series of complications come into play. The goal of the legislative novelty of restructuring is to avoid this specifically.

What is the purpose of a restructuring process for a merchant, corporation or company?

It would be a very relevant question, given that by answering it, we can see that the practicality of the process consists of:

A) It is intended to ensure the recovery of the debtor.

B) Ensure the continuity of your business operations.

C) Preservation of the jobs it generates.

D) Protect credits.

E) Facilitate and structure the eventual payment in favor of the creditors.

Who can exercise a restructuring or liquidation process?

1. Merchants. Unsurprisingly, many people create businesses and manage them directly, not through corporations or companies, but in a personal capacity. Therefore, the law has the distinction for natural persons.

2. Corporations and commercial companies.

3. Foreign corporations, duly registered in the country.

There are certain business purposes, companies and corporations that DO NOT QUALIFY for this option. These are:

1. Corporations in which the Dominican State is the largest shareholder or has control over it.

2. Financial Intermediation entities.

3. Security Intermediation entities.

Who can request Restructuring?

A) THE DEBTOR or owner of the business or company.

B) CREDITORS are able to do it as well (as long as their credit exceeds 50 minimum wages) through the appropriate court.

Steps of the Restructuring process

• Application.
• Approval or denial.
• Approval of restructuring plan (if applicable).
• Conciliation process and judicial liquidation or negotiation (as applicable).

Requirements to request a restructuring process

The restructuring request will be processed when at least one of the following conditions are met:

• Non-compliance for more than ninety (90) days of at least one payment obligation (redeemable and enforceable), for which payment intimation has been received.
• When the debtor’s current liability exceeds its current asset for more than six months.
• Failure to pay the taxes withheld in favor of the tax administration for not less than six tax installments.
• Failure to pay wages for two consecutive periods, except in the case of suspension of the employment contract or in the event of wage garnishment.
• Concealment or vacancy of the corporation’s administration, with the intention to defraud creditors.
• Involuntary closure of company premises or the partial or total transfer of assets and rights to a third party in the event of concealment or absence of the administration.
• Use of malicious or fraudulent practices, association with criminals, abuse of trust, simulation or fraud to meet or breach obligations.
• Communication to the creditors regarding the suspension of payments or intention of suspension of payments.
• Existence of a restructuring procedure, bankruptcy, insolvency or cessation of payments in a foreign country in regards to the parent company.
• Interposition of executive or real estate embargoes that affect more than fifty percent (50%) of the debtor’s assets.
• Existence of sentences or procedures of execution of sentences that could affect more than fifty percent (50%) of the debtor’s assets.

Consequences of the Restructuring process

Once the restructuring request is submitted by the debtor, or when the latter is notified if it comes from a creditor, the debtor must notify the court and the auditor of any act of administration or provision tending to:

• The modification of bylaws.
• Implementation of mergers or divisions.
• Provision of securities.
• Payments.
• Transactions.
• Mediation.
• Closing agreements with creditors.
• Disposal of assets or rights.

Auditor and Report

Once the restructuring request has been received, the court will designate an auditor, who, along with other assistants, will have full access to the debtor’s books, records and financial statements, as well as their deposits and repositories. The auditor will be tasked with presenting a report detailing the existence or nonexistence of the conditions listed in the restructuring request, along with the debtor’s financial status and ability to make payments.

The auditor will recommend either the start of the restructuring process, or the start of the judicial settlement process, taking into account the debtor’s estate status and the circumstances pertaining to the case.

Adjournment of shares

This is the fundamental and most important phase, in which shares are adjourned. Once the restructuring request is accepted, the restructuring plan is approved, the conciliation and negotiation procedure is completed or it becomes a judicial liquidation, the following will be suspended:

• Judicial, administrative or arbitration motions against the debtor.
• And any method of enforcement, such as:

A) Eviction or seizure of movable and immovable property of the debtor.

B) The calculation of interests and enforcement proceedings of tax credits.

C) Along with other payments, with certain exceptions.

In our Morillo Suriel Attorneys at Law firm, we have a division specialized in Corporate and Business Law in the Dominican Republic. Through that division, we can assist you with any inquiry you might have in the matter.