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Bankruptcy Law
Two recent developments have the potential to bring some semblance of order to a rather chaotic bankruptcy system in Armenia. The first is a major revision of the substantive law that is headed for passage sometime in March 2002. The second development is the creation of a new specialized court called the Economic Court. The latter began operations in October 2001 and will have jurisdiction over bankruptcy and other commercial law cases.
To give some idea of the confusion surrounding bankruptcy practice, the Chief Judge of the new Economic Court does not know how many pending bankruptcy cases are now being transferred from the Courts of First Instance to the new court. A year ago there were approximately 215 bankruptcy cases. At that time, however, there was a nationwide moratorium on new filings because the Parliament had inadvertently omitted any reference to bankruptcy in its latest revisions to the Civil Code (which is also weak in several other areas of commercial law). That moratorium was lifted six months ago. However, bankruptcy is still perceived by most stakeholders to be an experience fraught with corruption, ineptitude, lack of administrative resources and an overall poor alternative to privatization as a means of recycling unproductive assets. It is not understood in general as a means of rescuing or reconstructing a company in distress, being used primarily for liquidation.
Furthermore, there are hardly ever attorneys representing the parties in bankruptcy cases. Financial records are either non-existent or a mess. While notices and meetings of creditors are generally held in a timely fashion, there is a general lack of consensus about the judge’s role in the process and poor development of issues and representation of rights. A bank department clerk will often know more about bankruptcy law and procedure than a Court of First Instance judge, and judges will often call them for guidance. As one private attorney said, after handling a recent liquidation proceeding, “No one knows what to do, and the law is unimportant.”
In sum, bankruptcy is a cumbersome, expensive and risky collection device used almost exclusively by politically powerful creditors (banks and taxing authorities) with widely varying degrees of success. Even though bankruptcy relief is available to companies and individuals, it is believed that no debtor has ever initiated bankruptcy proceedings.
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