Order 78: Facilitation of Court-Supervised Debt Resolution Procedures

by L. Paul Bremer, Coalition Provisional Authority

COALITION PROVISIONAL AUTHORITY ORDER NUMBER 78


FACILITATION OF COURT-SUPERVISED
DEBT RESOLUTION PROCEDURES


Pursuant to my authority as Administrator of the Coalition Provisional
Authority (CPA) and under the laws and usages of war, and consistent with
relevant U.N. Security Council resolutions, including Resolutions 1483 and
1511 (2003),

Having worked closely with the Governing Council to ensure that economic
change as necessary to benefit the people of Iraq occurs in a manner acceptable
to the people of Iraq,

Acknowledging the Governing Council’s desire to bring about significant
change to the Iraqi economic system as necessary to improve the condition of
the people of Iraq,

Determined to improve the conditions of life, technical skills, and opportunities
for all Iraqis and to fight unemployment with its associated deleterious effect
on public security,

Recognizing that companies, lenders and entrepreneurs require a fair, efficient,
and predictable mechanism for resolving burdensome indebtedness when
incurred by businesses,

Noting that several provisions within Iraqi legislation call for unduly harsh
punishments for financially distressed entrepreneurs,

Further noting that resolving the indebtedness of large corporations through in-
court procedures is a challenging task requiring training and experience,

Recognizing the CPA’s obligation to provide for the effective administration of
Iraq, to ensure the well being of the Iraqi people and to enable the social and
economic functions and normal transactions of every day life,

Acting in a manner consistent with the Report of the Secretary General to the
Security Council of July 17, 2003, concerning the need for the development of
Iraq and its transition from a non-transparent centrally planned economy to a
free market economy characterized by sustainable economic growth through
the establishment of a dynamic private sector, and the need to enact
institutional and legal reforms to give it effect,

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Having coordinated with the international financial institutions, as referenced
in paragraph 8(e) of U.N. Security Council Resolution 1483,

In close consultation with and acting in coordination with the Governing
Council, I hereby promulgate the following:

Section 1
Definitions


1)
“Bankruptcy Law” means Part V of Law No. 149 of 1970 on the Code of
Commerce, as amended.

2) "Penal Code" means the Law No. 111 of 1969 on the Penal Code, as
amended.

3) “Enforcement Law” means Law No. 45 of 1980 on Enforcement of
Judgments (Law on Execution).

4) “Civil Code” means Law No. 40 of 1953 on the Civil Law.

5) Gender specific language in this Order shall apply equally to male and
female, and where appropriate, to entities (juridical persons) and things.

Section 2
Designation of Judges to Hear Petitions for Bankruptcy and Schemes of
Arrangement


1) One or more first instance court judges in each governate shall be
designated to hear cases arising from petitions for bankruptcy or a scheme
of arrangement.

2) A judge described in paragraph 1 of this Section shall also hear petitions for
relief filed by foreign companies with a head branch office in his designated
region.

3) The Council of Judges shall designate the judges described in paragraph 1 of
this Section within 45 days from the date this Order enters into force. Such
judges shall have demonstrated a high level of expertise and/or potential
ability with respect to disputes concerning companies, entrepreneurs, and
banks.

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4) The designated judges shall hear petitions for bankruptcy or a scheme of
arrangement as a portion of their regular caseloads.

Section 3
Licensing of Bankruptcy Trustees


1) The Ministry of Justice (“Ministry”) shall be authorized to license
individuals to serve as bankruptcy trustees under the Bankruptcy Law. The
Ministry shall issue licensing procedures to govern this activity.

2) The Ministry’s licensing procedures shall ensure that license holders have a
clear understanding of the procedures under the bankruptcy law as well as
particular expertise in at least one of the following areas:

(a) commercial law and civil procedures;
(b) accounting and business finance;
(c) business management.
The procedures shall further ensure that license holders have a general
knowledge in the areas described item (a) through (c) where they lack
particular expertise.

3) The Ministry shall ensure that license holders perform their duties in
conformity with the Bankruptcy Law and its goals. A license holder failing
to perform his duties may be subject to fine, or suspension or cancellation
of his license in accordance with procedures to be established by the
Ministry.

4) The Ministry shall establish and promote a licensing program sufficient to
provide bankruptcy judges and creditors a reasonable number of choices of
qualified candidates to serve as bankruptcy trustees by no later six months
after the date this Order enters into force.

Section 4
Amendments to the Bankruptcy Law


1) A new, unnumbered heading entitled “Preliminary Provisions” shall be
added to the Bankruptcy Law (“Law”) prior to Chapter One.

2)
Four new articles shall be added to the Law under Preliminary Provisions
and prior to Chapter One. The articles shall read as follows:

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Article 562. In this Part of the Commercial Code, the terms
below shall be defined as follows:

(1) A “general privileged creditor” is a creditor that has a
preference in payment to the debtor’s property that is not subject
to a mortgage or special privilege. The general privileged
creditors include those described in sub-paragraphs (a) - (c) of
paragraph 2 of Article 708.
(2) An “ordinary creditor” is a creditor whose claim is
neither secured by mortgage nor otherwise privileged.
(3) The “body of creditors” consists of the general
privileged and ordinary creditors.
(4) The “state of union of creditors” is the stage of the
bankruptcy proceedings where the property of the bankrupt is
disposed of, with the proceeds used to repay the creditors to the
extent possible.
Article 563. The purpose of this Part of the Commercial Code is
to establish judicial proceedings by which a trader and his
creditors may resolve the trader’s indebtedness in a collective,
transparent, and realistic manner, when the trader no longer can
pay debts when they come due. Such resolution may result in a
judicially approved agreement between the trader and his
creditors or may result in the sale of the trader’s property for the
repayment of the trader’s debts. In either case, the proceedings
shall respect the pre-existing contractual and property rights of
the trader’s creditors to the extent possible.

Article 564. A trader holding a permit or license to engage in
banking business and other banking activities may not be subject
as a debtor to the proceedings described in this Part.

Article 565. During the proceedings established in this Part,
Articles 1361-1380 of the Civil Code shall apply to the extent
they do not conflict with the provisions contained herein.

3) Article 569 (chapeau paragraph) is amended to read as follows:

(1) A trader must present a bankruptcy petition against
himself within fifteen days of the date of suspension of payments.
This period may be extended up to an additional forty-five days if
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the trader has informed substantially all his creditors of his
financial difficulties and is attempting in good faith to renegotiate
the terms of his obligations. The bankruptcy petition shall be in
the form of a report, giving the grounds for the suspension of
payments, and must be presented to the court with the following
documents:

4) Article 570, paragraph 1 of the Law is amended to read as follows: “A
creditor or group of creditors with undisputed commercial debts worth
more than five hundred thousand dinars, the scheduled payments for which
have been missed for more than thirty days, may present a bankruptcy
petition against the debtor.

5) Article 570 of the Law is supplemented with paragraphs 3, 4 and 5, which
shall read as follows:

(3) Five or more employees of a trader with undisputed
claims for wage arrears exceeding one month may jointly present
a bankruptcy petition against the debtor.
(4) The government body or bodies authorized to enforce
obligations to pay taxes and other mandatory payments to the
state treasury may present a bankruptcy petition against the
debtor. The bases for presentment shall be the same as those for
bringing a forced execution of obligations for payment of taxes
and other mandatory payments to the state under applicable law.
(5) A debt described in this Article shall be presumed to be
undisputed if it is reflected in a judgment or an executive
document.
6) Article 571 of the Law is suspended.

7) Article 573 of the Law is amended to read as follows:

“(1) The court of first instance designated to hear cases
arising from petitions for bankruptcy or schemes of arrangement
in the governate or subsection thereof wherein lies the head office
of the debtor shall have jurisdiction to adjudicate his bankruptcy.

(2) A trader that is under bankruptcy proceedings in a
foreign state and that has a branch in Iraq may seek the following
relief in the court designated to hear bankruptcy petitions:
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(a) an order suspending all individual suits brought against
the trader in any court in Iraq by ordinary creditors or
those having general privileged rights;
(b) an order prohibiting the seizure of assets of the trader
wherever located in Iraq unless such assets are subject
to a mortgage or privileged right under Iraqi law;
(c) an order requiring third parties holding the trader’s
property to surrender such property to the
representative of the trader;
(d) an order providing other necessary relief.
(3) In determining whether to grant the relief described in
the preceding paragraph, the court shall consider:
(a) the
protection of creditors in Iraq and the
inconvenience in pursuing their claims in a foreign
proceeding;
(b) the just treatment of all creditors through resort to a
unified bankruptcy proceeding;
(c) whether other jurisdictions have given recognition to
the foreign proceeding;
(d) the extent that the foreign proceeding recognizes the
rights of creditors and other interested parties in a
manner substantially in accordance with the
bankruptcy proceedings in Iraq;
(e) the extent that the foreign proceeding has recognized
and shown deference to Iraqi bankruptcy proceedings.”
8) Article 574, paragraph 2 of the Law is suspended.

9) Article 576 of the Law is amended to read as follows: “The judge who
adjudicates the bankruptcy shall be the judge in charge of the bankruptcy
(Judge Commissaire); the court of appeal may at anytime order his
replacement by another judge designated to hear bankruptcy cases if it
determines that such replacement will serve the general interests of the
creditors and the debtor.”

10) Article 578 of the Law is supplemented with a new paragraph 2, which
shall read as follows: “The date of payment suspension will be the date on
which the debtor could no longer make payments on his debts as they fell

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due regardless of whether he paid such debts in part.” Paragraph 2 of
Article 578 shall be renumbered as paragraph 3.

11) Article 580, paragraph 2 of the Law is amended to read as follows: “On
the day following the adjudication, the court shall cause the applicable order
to be posted on the Bulletin Board of the court for thirty days. Within five
days from the adjudication date, the trustee in bankruptcy shall submit
copies thereof to every court within the jurisdiction of which lies a head
office, branch, agency or office of the debtor for having the same posted on
the Bulletin Board of such court for thirty days.”

12) Article 585, paragraph 1 of the Law is amended as follows: “twenty” is
replaced with “one hundred thousand” and “two hundred” is replaced with
“one million.”

13) Article 586 of the Law is amended to read as follows:

(1) The court may in the bankruptcy adjudication appoint a
paid agent to manage the bankruptcy, who shall be called the
"bankruptcy trustee."
(2) The court shall choose the bankruptcy trustee from a
roster of individuals licensed by the Ministry of Justice to
perform such duties. Where the number of licensed bankruptcy
trustees in the court’s jurisdiction willing to serve is less than
three, the court may designate a lawyer to serve as the bankruptcy
trustee, even if such lawyer lacks a bankruptcy trustee’s license.
14) Article 587, paragraph 1 of the Law is amended to read as follows: “A
person may not be appointed as a bankruptcy trustee if he is a creditor,
debtor, or competitor of the bankrupt, the spouse of the bankrupt, or has a
relation to the bankrupt of the fourth degree or closer. He may not be
appointed if he has been a partner, employee, accountant, or agent
(attorney) of the bankrupt during the two years preceding the declaration of
bankruptcy.

15) Article 587 is supplemented with articles 3 and 4, which shall read as
follows:

(3) A bankruptcy trustee shall immediately disclose to the
Judge Commissaire and the controller (auditor) any of the
circumstances in paragraphs 1 or 2, should they arise during the
course of the proceedings.
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(4) The Judge Commissaire shall dismiss the bankruptcy
trustee unless the latter can demonstrate that the circumstances
will not undermine his ability to serve the best interests of the
creditors and the confidence that the creditors have in him.
16) Article 589 of the Law is amended to read as follows:

(1) The bankruptcy trustee may delegate the performance
of tasks to others where such delegation is likely to more
efficiently and effectively safeguard the assets of the bankrupt,
benefit the creditors, or otherwise facilitate the progress of the
bankruptcy proceedings.
(2) The bankruptcy trustee shall be jointly liable with his
deputies for the latter’s actions.
(3) No delegation may occur without the prior approval of
the Judge Commissaire, save for instances in which actions by
deputies are necessary to safeguard the assets of the bankrupt or
otherwise protect the interests of the creditors. In such cases the
bankruptcy trustee shall apply for post-delegation approval as
soon as reasonably possible, explaining in his application the
basis for the delegation.
17) Article 591 of the Law is amended to read as follows: “The bankruptcy
judge may of his own accord, or upon application being made by the
bankrupt or the controller, decide to dismiss the trustee; the Judge
Commissaire shall give a ruling in regard to such application within ten
days of its submission, which is subject to appeal.”

18) Article 593, paragraph 2 of the Law is amended to read as follows: “The
Judge Commissaire shall summon the creditors to a meeting in the cases
stipulated in the law and shall chair such meetings or delegate such duties to
the bankruptcy trustee.”

19) Article 594 of the Law is supplemented with a paragraph 3, which shall
read as follows: “The Judge Commissaire may name the bankruptcy trustee
as the official agent to receive service of decisions and summonses on
behalf of interested parties or a group thereof if such appointment would
expedite proceedings and facilitate distribution of information. In such
cases, the bankruptcy trustee shall subsequently serve notices on interested
parties in accordance with procedures approved by the Council of Judges.”

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20) Article 595, paragraphs 2 and 3 of the Law are amended as follows: In
paragraph 2, “three” is replaced with “ten”. In paragraph 3, “ten” is
replaced with “twenty”.

21) Article 596, paragraph 1 of the Law is amended to read as follows: “The
Judge Commissaire shall appoint a controller from among the creditors who
nominate themselves for the post, or, with consent of a majority of the seven
largest creditors from the private sector, shall appoint an independent auditor
chosen by such group. In the latter case, the independent auditor shall serve as
a controller but shall be compensated in accordance with procedures for
compensating the bankruptcy trustee. He shall also be subject to the restrictions
in Article 587.

22) Article 599, paragraph 1 of the Law is amended to read as follows: “The
controller shall not receive fees in consideration of his work, except in cases
provided for in Article 596.”

23) Article 602, paragraphs 1 and 2 of the Law are amended to read as follows:

(1) A person who is adjudicated bankrupt shall disclose
such information upon request, and, regardless of request, shall
disclose such information to any person relying on the bankrupt’s
integrity and competence.
(2) An adjudication of bankruptcy may be the basis for a
justified termination of any arrangement in which the bankrupt’s
integrity and competence is relied upon by the counterparty.
24) Article 604 of the Law is amended to read as follows: “Having been
adjudicated bankrupt, a bankrupt may not pay or receive debts owing to
him. Negotiable instruments reflecting an obligation of the bankrupt shall
be deemed opposed.”

25) Article 614 of the Law is amended to read as follows: “All acts of disposal
by the bankrupt occurring 90 days prior to suspending payments other than
those set down and within the time limits stipulated in the preceding Article
shall be adjudged ineffectual against the body of creditors and shall result in
the return of the asset for the benefit of the creditors, if the act of disposal is
detrimental to their interests and the counterparty in the disposal was aware at
the time of the disposal that the bankrupt had suspended payments.”

26) Article 622 of the Law is amended to read as follows: “The adjudication of
bankruptcy bars the running of interest on ordinary debts and debts that are

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subject to a general privilege in regard to the body of creditors only; interest
on secured debts may only be claimed on amounts resulting from the sale of
the mortgaged or charged property; the principal amount of the debt is
collected in the first place, then the interest which accrues prior to the
bankruptcy adjudication, and then interest which accrues thereafter.

27) The title of Section III of Chapter III is amended to read as follows:
“Creditors whose Debts are Secured by a Mortgage or Special Privileged
Right over Movable Property and Creditors with General Privileged
Rights”.

28) Article 631, paragraph 1 of the Law is amended to read as follows: “After
seeking the leave of the Judge Commissaire, the trustee may within the ten
days following the adjudication of bankruptcy pay out of the funds
available to him, and notwithstanding the existence of any other debt, the
wages and salaries accruing to the workers and employees before the
adjudication of bankruptcy for thirty days; where the trustee does not have
at his disposal sufficient funds to pay the foregoing debts, payment thereof
must be made from funds of the bankrupt or the first lot of funds coming to
the bankruptcy that have resulted from the sale of property not subject to
mortgage or special privilege, or from excess proceeds from the sale of such
property, even though there are other debts having a priority of order.”

29) Article 633 of the Law is amended to read as follows: “The general
privileged right accorded to the Government on grounds of various kinds of
taxes shall cover only the principal portion of the debt of the tax due from
the bankrupt for the two years which preceded the adjudication of
bankruptcy; other taxes due shall be considered ordinary debts.”

30) Article 634 of the Law is amended to read as follows: “Where a
distribution of the properties to which the right of the body of creditors
relate is to occur prior to the sale of movable property secured by mortgage
or special privilege, such creditors may participate in such distributions as
ordinary creditors to the extent they have abandoned their claim to such
security. Mortgagees or creditors having priorities who have not received
all or part of their debts from the price of the movable property may
participate in regard to the balance remaining for them with the ordinary
creditors in the distribution of the properties to which the right of the body
of creditors relate, provided their debts have been proved.”

31) An article, to be enumerated as Article 637-A and to be inserted after
Article 637 shall read as follows: “The bankruptcy trustee may, at any time
after obtaining leave from the Judge Commissaire, pay the debt secured by

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a mortgage and or special privilege on immovable property and recover it
for the account of the body of creditors.”

32) Article 646 of the Law is amended to read as follows:

(1) Where a purchaser is adjudged bankrupt before he pays
the price of goods which have entered into his possession or that
of his agent, the vendor may not claim rescission of the sale nor
the recovery of the goods and he loses his right of priority, except
as provided in paragraph 2 of this Article.
(2) A stipulation enabling the vendor to recover or retain
his right of priority over the goods may not be adduced against
the body of creditors, unless there is a stipulation which retains
ownership of the property in the seller, which has been registered
according to the applicable law.
(3) A vendor who has made the stipulation in paragraph
(2) and has registered it according to the applicable law shall
have the same rights over the goods that a mortgagee has over the
mortgaged property.
33) Article 661, paragraph 2 of the Law is amended as follows: “five hundred”
is replaced with “two million, five hundred thousand”.

34) Article 666 paragraph 1 of the Law shall have appended to it the following
sentence: “If the bankruptcy trustee is effecting service in accordance with
paragraph 3 of Article 594, the statement shall also include the preferred
method by which the creditor shall receive notices with regard to the
proceedings.”

35) Article 667 of the Law is amended as follows: In paragraph 1, “ten” is
replaced with “thirty”. In paragraph 2, “ten” is replaced with “thirty” and
“twenty” is replaced with “sixty”.

36) Article 668, paragraph 3 of the Law is suspended.

37) Article 669, paragraph 2 of the Law is amended as follows: “sixty” is
replaced with “one-hundred”.

38) Article 670 of the Law is amended as follows: “ten” is replaced with
“thirty”.

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39) Article 678, paragraph 1 of the Law is amended to read as follows: “The
debtor, or creditors representing 25% of the amount of the ordinary debt,
may request that a composition offer be considered. The right to submit
such request shall expire on the tenth day after the filing of the list of debts
prepared in accordance with Article 671. In such cases, the Judge
Commissaire shall summon the creditors whose debts have been accepted
finally or provisionally to be present at the deliberations of the composition.

40) Article 678, paragraph 3 of the Law is amended to read as follows: “The
bankruptcy trustee shall within the time limit stipulated in the preceding
paragraph have the notice to the meeting to be present at the composition
deliberations published in one or more daily newspapers determined by the
Judge Commissaire.”

41) Article 679, paragraph 1 of the Law is amended to read as follows: “The
composition meeting shall be held at the place and time determined by the
Judge Commissaire who shall preside over the meeting. Such meeting shall
occur within thirty to forty-five days after the last newspaper publication of
the notice stipulated in Article 678.

42) Article 681 of the law is amended to read as follows: “The composition
shall not be concluded except with the consent of a majority of the creditors
with the right to vote whose debts have been accepted finally or
provisionally provided they hold two thirds of such debts; creditors who did
not participate in the voting shall not be counted for the purposes of the
foregoing two majorities and their debts shall not be considered .”

43) Article 682, paragraph 2 of the Law is suspended.

44) Article 683 of the Law is amended to read as follows:

(1) Creditors holding a mortgage or special privilege over
particular property of the bankrupt or having the status of a
general privileged creditor may not take part in the voting on
composition for their debts secured or privileged as aforesaid
unless they abandon such securities or privileges in advance; the
abandonment may be confined to part of the security or privilege;
the abandonment shall be mentioned in the minutes of the
meeting.
(2) Any one of the creditors mentioned in the preceding
paragraph who takes part in the voting on the composition but
fails to declare abandonment of all or part of his security or
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privilege shall be deemed to have abandoned the entire security

or privilege.

(3) In all cases, the abandonment shall be final regardless
of whether the composition is concluded.
(4) The security or privilege covered by the abandonment
shall regain its validity if the composition is annulled.
45) Article 684, paragraph 2 of the Law shall be amended to read as follows:
“Where the consent stipulated in Article 681 is not attained, the
deliberations shall be adjourned for ten days, after which no adjournment
shall be made.”

46) Article 687 of the Law is supplemented with new paragraphs 4 and 5,
which shall read as follows:

“(4) A composition shall provide for equal treatment of
ordinary creditors. An ordinary creditor may nevertheless agree
to less favorable treatment under the composition.

(5) A composition shall not be concluded unless all of the
arrears on obligations corresponding to claims secured by
mortgage or that are otherwise privileged are paid, unless
individual creditors with such claims agree to less favorable
treatment.”
47) Article 689 of the Law is amended to read as follows:

“(1) A composition shall be valid in regard to the ordinary
creditors even when they have not participated in the proceedings
or did not approve the composition.

(2) A composition shall have no effect with respect to
claims secured with a mortgage or that are otherwise privileged,
except where the creditors with such claims agree on an
individual basis to be subject to the composition.”
48) Article 691, paragraph 1 of the Law is amended to read as follows: “All the
effects of bankruptcy shall cease by the issue of the order of the Judge
Commissaire approving the composition, except for the consequences
mentioned in Article 602.”

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49) Article 699 of the Law is supplemented with new paragraphs 4 and 5,
which shall read as follows:

“(4) So long as general privileged creditors are paid in full,
such composition may stipulate the full forgiveness of debts in
exchange for the abandonment of the debtor’s property.

(5) When the debtor is a limited liability company or joint
stock company, the composition may allow for the cancellation
of all outstanding shares of the debtor and the issuance of new
shares. In lieu of selling the debtor’s property, such shares may
be sold with the price thereof distributed to the creditors.”
50) Article 701, sub-paragraph (a) of the Law is amended to read as follows:
“if the debtor fails to apply for a composition within the time limits
established in Article 678;”.

51) Article 705 of the Law is supplemented with a new paragraph 1, which
shall read as follows:

“(1) The property of the debtor available for the benefit of
the body of creditors shall include:

(a) property not subject to mortgage or special privilege;
(b) property not subject to recovery under Articles 641646;
(c) property not exempted from execution;
(d) the
excess proceeds described in Articles 630 and
635.”
The remaining paragraphs in Article 702 are renumbered accordingly.

52) Article 708 of the Law is amended to read as follows:

“(1) The fees, expenses of the administration of the
bankruptcy, the aids determined for the bankrupt and his
dependents and sums due to creditors enjoying priorities shall be
deducted from the proceeds of the sale of the bankrupt’s property
and the balance distributed to the creditors in accordance with
this Article.

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(2) The balance described in the preceding paragraph shall
be distributed among the body of creditors according to the
following order:
(a) the claims described in paragraph 1 of Article 1372 of
the Civil Code;
(b) claims for unpaid taxes, duties, and other obligatory
payments to the government that arose within the two
year period prior to the adjudication of bankruptcy and
during its administration;
(c) all claims not having a general privilege, and claims of
creditors who have fully or partially abandoned
secured or privileged claims.
(3) No category of creditor in the preceding paragraph
shall receive distributions until the prior category has been paid
in full. Where a distribution is not sufficient to pay a category of
creditors in full, creditors in such category shall be paid in
proportion to the amount of their claims.
(4) The dividends of the contested debts shall be set aside
and kept until a decision is made in regard to said debts.”
53) Article 714 of the Law (chapeau paragraph) is amended as follows: “one
thousand” is replaced with “five million”.

54) Article 717, paragraph 2 of the Law is amended to read as follows: “The
report provided for in Article 569 shall be submitted to the court designated
to hear bankruptcy cases within the jurisdiction of which lies the head office
of the company.”

55) Article 719 of the Law is suspended.

56) Article 722, paragraph 1 of the Law is amended to read as follows: “The
Judge Commissaire may of his own initiative or pursuant to an application
by the trustee, controller or a creditor order that the consequences stipulated
in Article 602 be suffered by directors or managers of a company who
would have committed gross faults which led to the disruption of the
business or the suspension of payments of the company.”

57) Article 730 of the Law is amended to read as follows: “Except for the case
of fraudulent bankruptcy, the consequences described in Article 602 shall
cease to have legal effect after the lapse of one year from the date on which
the bankruptcy terminated (was concluded).”

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58) Article 743, paragraphs 1 and 3 of the Law are amended to read as follows:

“(1) A trader may present an application for a scheme of
arrangement if his financial operations suffered a disruption
which may result in a suspension of payments.

• • • 
      

(3) A scheme of arrangement may be granted to a
company which satisfies the terms laid down in the preceding
two paragraphs; nevertheless a scheme of arrangement may not
be granted to a company in liquidation.”
59) Article 744, paragraph 1 of the Law is amended as follows: “two years” is
replaced with “one year”.

60) Article 749, paragraph 1, sub-paragraph (c) of the Law is amended by
replacing “the two years” with “the year”.

61) Article 753 of the Law is amended as follows: “twenty” is replaced with
“one hundred thousand” and “two hundred” is replaced with “one million”.

62) Article 754, paragraph 1 of the Law is amended to read as follows: “Where
the court decides to accept the petition for a scheme of arrangement, it shall
order the opening of proceedings, establish a preliminary date of the
suspension of payments, and appoint in the order a trustee to carry on and
follow up the proceedings of the scheme.”

63) Article 760 of the Law is supplemented with the following paragraphs 3
and 4:

“(3) The stay of proceedings of execution with respect to
claims secured by mortgage or special privilege shall expire as a
matter of law either as of the date the order approving the scheme
of arrangement or 120 days from the date of the order opening
the proceedings, which ever comes first.

(4) A creditor described in paragraph 3 of this Article shall
be entitled to a level of security equal to the extent to which his
claim was secured as of the date of the order opening the
proceedings. The judge in charge shall have the authority and
duty to take all steps necessary to ensure the level of security is
maintained for such a creditor.”
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64) Article 761 of the Law is amended to read as follows:

“(1) The making of the order of opening the proceedings
of the scheme shall not cause the debts owing by the debtor to
mature nor shall it stop the running of interest thereon; any
stipulation to the contrary shall be void.

(2) The effects on the debtor’s contracts stipulated in
paragraphs 2 and 3 of Article 638 and paragraphs 2, 3, and 4 of
Article 639 shall apply to proceedings for a scheme of
arrangement.
(3) The debtor may continue to retain possession of
property of others so long as he is performing the obligations on
which his right of possession is based. Any stipulation otherwise
is null and void.
(4) The trustee may initiate suits resulting from the
application of the provisions of Articles 613, 614, 615, 616 and
618.”
65) Article 763, paragraphs 1 and 2 of the Law are amended as follows: In
paragraph 1, “ten” is replaced with “thirty”. In paragraph 2, “twenty” is
replaced with “sixty”.

66) Article 765, paragraph 1 of the Law is amended as follows: “thirty” is
replaced with “seventy”.

67) Article 774, paragraph 1 of the Law is amended to read as follows: “The
scheme shall not be concluded except with the consent of the creditors who
hold more than half of the ordinary debts which have been accepted finally
or provisionally.”

68) Article 776, paragraph 2 of the Law is amended to read as follows: “Where
the consent stipulated in Article 774(1) is not attained, the stipulations of
Article 684 shall be applied.”

69) Article 776 shall be supplemented with a paragraph 3, which shall read as
follows: “A proposal for a scheme of arrangement that is not approved in
the second meeting shall be deemed rejected. Creditors shall be free to
pursue their claims, pending any judgment of bankruptcy against the
debtor.”

CPA/ORD/19 April 2004/78

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70) Article 778 of the Law is supplemented with paragraphs 4 and 5, which
shall read as follows:

“(4) A scheme of arrangement shall provide for equal
treatment of ordinary creditors. An ordinary creditor may
nevertheless agree to less favorable treatment under the scheme
of arrangement.

(5) A scheme of arrangement shall not be concluded
unless all of the arrears on obligations corresponding to claims
secured by mortgage or that are otherwise privileged are paid,
unless individual creditors with such claims agree to less
favorable treatment.”
71) Article 780, paragraph 1 of the Law is amended to read as follows: “A
scheme of arrangement shall be valid in regard to the ordinary creditors
even when they have not participated in the proceedings or did not approve
the scheme of arrangement. It shall have no effect, however, with respect to
claims secured with mortgage or that are otherwise privileged, except where
the creditors with such claims agree on an individual basis to be subject to
the scheme of arrangement.”

Section 5
Amendments to the Penal Code


1)
Article 470 of the Penal Code (chapeau paragraph) is amended as follows:
“100 dinars” is replaced with “500,000 dinars.”

2)
Article 470, paragraph 4 of the Penal Code is amended to read as follows:
“If he fails to make application to the bankruptcy trustee or the judge in
charge of the proceedings in person when required to do so without a
reasonable excuse or if he fails to provide statements required by such
persons or if such statements are false.”

3)
Article 470 of the Penal Code is supplemented by a paragraph (6), which
reads as follows: “If, after adjudication of bankruptcy, he fails to disclose
such fact to persons when required to do so by law.”

4)
Article 474 of the Penal Code (chapeau paragraph) is amended as follows:
“200 dinars” is replaced with “1,000,000 dinars.”

CPA/ORD/19 April 2004/78