New Debt Liquidation Act to Include Reorganization and Bankruptcy Rules

     On Feb. 12, officials from the Ministry of Economic Affairs (representing the Executive Yuan) met with officials from the Judicial Yuan with the aim of working out a single procedure for resolving corporate debt problems. The two sides reached an agreement to include the rules governing corporate reorganization and bankruptcy in the new Debt Liquidation Act, which is now being formulated by the Judicial Yuan. The Judicial Yuan is to be the agency in charge of legislative work regarding the establishment of a corporate reorganization and bankruptcy mechanism.

The Executive Yuan has been working on a draft corporate reorganization and bankruptcy act since 2005 with the objective of providing a unified and modernized legal procedure for the two processes. Corporate reorganization is currently governed by the Company Law, for which the Ministry of Economic Affairs (MOEA) is the competent authority, while the formulation of the Bankruptcy Act was headed up by the Judicial Yuan. This situation led to a dispute over which agency should be in charge of the Corporate Reorganization and Bankruptcy Act, which originally was drafted by the MOEA. During their meeting, the MOEA and the Judicial Yuan both recognized the need to have the procedures for reorganization and bankruptcy governed by a single law, and agreed that the differences between the two bills was not very large. They further recognized that all of the steps involved in corporate reorganization, from application and ruling to supervision and wrap-up, are all judicial procedures that should be included in the overall legal debt liquidation system being set up by the Judicial Yuan. This will facilitate the establishment of a mechanism for corporate withdrawal from the market. The MOEA also asked the Judicial Yuan to speed up progress on the Debt Liquidation Act and to add a provision for accelerated disposition of debt liquidation cases by the courts.

The draft Debt Liquidation Act which the Judicial Yuan completed recently is divided into eight chapters: general principles, conciliation, bankruptcy, reorganization, liquidation of legal person debt, recognition of debt-liquidation procedures of foreign courts, punitive provisions, and supplementary provisions. The objective of the law is to provide a means for debtors who have fallen into economic difficulty, whether they be natural persons, legal persons, or civic groups, to choose the most appropriate way to handle their debt according to their own situation. Under the new law, they will be able to choose a rehabilitation-type procedure such as conciliation or reorganization, or a liquidation-type procedure such as bankruptcy. The aim is to assure an appropriate balance between the rights and obligations of debtors and creditors, and to assure that creditors receive fair compensation while giving debtors an opportunity to rebuild their enterprises or economic lives. In addition, according to Article 121 of the revised act, should an accountant commit any falsehood in the checking or certifying of a financial statement, leading to the bankruptcy of a juridical or non-juridical group, that accountant will be liable for the payment of compensation for damages done.

To view the content of the revision, please visit one of these websites: http://jirs.judicial.gov.tw or http://notes.npa.gov.tw/police/rulesinfo.nsf/853ac6beb936ceef48256ba600091249/0ff28851aae02dle48257281001e954c?OpenDocument.

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