OHADA Uniform Act on Insolvency

New act comes into force
December 17, 2015

On 10 September 2015, a new Uniform Act on Insolvency (the Uniform Act) was adopted by the 17 African countries members of the Organization for the Harmonization of Business Law in Africa (OHADA).  The Uniform Act was published in the Official Gazette of the Organization on 25 September 2015 and will therefore come into force on 24 December 2015, i.e. 90 days following its publication in accordance with Articles 9 of the OHADA Treaty and 258 of the Uniform Act.

The new Uniform Act will replace the previous 1998 one, with the aim of speeding up and strengthening the efficiency of insolvency proceedings, facilitating the safeguard of viable companies and the substantial payment of creditors, and thereby leveraging access to better financing for businesses.

The most significant innovations include:

Innovation

Take Away

Articles

Definition of key concepts

Definition of key concept to facilitate the implementation of the Uniform Act.

For example, suspension of payments (cessation des paiements) – which is the trigger allowing a party to initiate curative insolvency proceedings – is now defined as the state in which the debtor is unable to pay its outstanding liabilities with its current assets, but excluding from outstanding liabilities credit reserves or payment terms which the debtor enjoys from its creditors and which allow it to meet its outstanding liabilities. See also definition of judicial representative (mandataire judiciaire) and small business entities (petite entreprise) referred to below.

However, it should be noted that key concepts such as “irremediably compromised situation” – the pivotal point between judicial recovery and liquidation of assets, and “serious financial or economic difficulties”- which is the trigger allowing the debtor to initiate preventive settlement – and which have been defined through case law only, are not specified.

1-3

Widening the scope of implementation

Extension of insolvency proceedings to all individuals who conduct an independent professional activity, not only commercial but also civil, craft or agricultural.

1-1

Conciliation procedure

New procedure created for companies facing actual or foreseeable difficulties but which are not yet insolvent, with a view to avoiding suspension of payments and safeguarding the relevant debtor, by concluding an amicable agreement with its main creditors and counterparties. It is a consensual and confidential procedure.

2, §1

5-1 et seq.

Simplified proceedings

Simplified proceedings for preventive settlement, judicial recovery and liquidation of assets implemented for the benefit of small business entities.

A small business entity (petite entreprise) is defined as a sole proprietorship, partnership or other non-public legal entity in which the number of employees is less than or equal to 20, and whose turnover does not exceed 50,000,000 CFA francs, excluding taxes, in the twelve (12) months prior to referral to the competent court under the Uniform Act.

1-2, §2

24 et seq.(preventive settlement)

145 et seq. (judicial recovery)

179 et seq.(liquidation of assets)

New mandatory deadlines

New deadlines defined to speed up proceedings.

For example, in the judicial recovery procedure: 1 month to obtain the report on economic and social situation of the debtor, 15 days to bring an appeal against the judicial decision in relation to a claim challenge, 30 days for the trustee (syndic) to respond to an asset claim.

It should be noted that the innovation consists principally of new deadlines for procedures for which no deadlines were provided under the previous 1998 Uniform Act.

Except for simplified proceedings (e.g. closing of the simplified liquidation of assets must occur within 120 days following its opening vs. 18 months for the standard proceedings), existing deadlines have globally not been reduced and in some cases have even been extended (e.g. the deadline for the existing creditors to submit their claims in the proceeding has been extended from 30 days to 60 days following the second publication of the opening judgement).

Not relevant

Legal framework for insolvency practitioners

Legal framework defined for judicial representative to ensure skills and ethics and to provide guidelines for their remuneration.

The judicial representatives (mandataires judiciaires) include experts for preventive settlement and the trustee (syndic) for judicial recovery and liquidation of assets.

4 et seq.

“New money” privilege

New incentive for creditors providing fresh cash contributions to companies which are facing difficulties to facilitate their restructuring and recovery.

In the event that a liquidation proceeding is opened following completion of a preventive insolvency proceeding or where a judicial recovery is converted into liquidation proceeding, proceeds from liquidation of the relevant debtor will be allocated first to the “new money” creditors, including in priority to cost of judicial proceedings and before “super-privileged” employees.

5-11 (conciliation)

11-1 (preventive settlement)

33-1 (judicial recovery)

Clarified order of priority of creditors

Order of priority of creditors clarified through, among others, cross references to the relevant provisions of the Uniform Act organising Security Interests which specifically relate to the ranking of creditors benefiting from a general privilege.

Also, the order of priority for allocation of proceeds from enforcement of movable assets is expressly stated to be without prejudice to the exercise of retention rights.

166 et seq.

New cross-border insolvency regime

New regime based on the UNCITRAL Model Law.

This regime aims at ensuring cooperation between jurisdictions and competent authorities of OHADA member countries and foreign countries (i.e. which are not OHADA members) where, e.g., insolvency proceedings are pending in respect of the same debtor in both an OHADA member country and a foreign country.

The United Nations Commission on International Trade Law (UNCITRAL) is the core legal body of the United Nations system specialising in commercial law reform worldwide. Its business is the modernization and harmonization of rules on international business.

256 et seq.

As a result of the new Uniform Act, the following insolvency proceedings will now be available to debtors:

  • Preventive insolvency proceedings available before any suspension of payments:
    • Conciliation, for debtors experiencing actual or foreseeable difficulties;
    • Preventive settlement*, for debtors who can demonstrate that they are facing serious financial or economic difficulties;
  • Curative proceedings available upon suspension of payments:
    • Judicial recovery*, for debtors the situation of which is not irremediably compromised;
    • Liquidation of assets*, for debtors the situation of which is irremediably compromised.

* Simplified proceedings available for small business entities

The reform undertaken by this new Uniform Act will undoubtedly contribute to the attractiveness of the region to international investors. It is important to note particularly that the simplification efforts created for the benefit of small businesses will probably run to the benefit  of the renewable energy sector, in which project developers are often likely to be SMEs, and improve access to financing for a number of projects.