House of Representatives passes Bankruptcy Act
LEGISLATION WATCH- The House of Representatives voted yesterday to approve the long-awaited Bankruptcy Act in a plenary session, Youm7 reports. The Act effectively decriminalizes bankruptcy by abolishing prison sentences and allows companies more time and options for restructuring by introducing mechanisms to help settle commercial disputes outside the courtroom and simplify bankruptcy proceedings. The law also mandates the formation of special bankruptcy courts within the Economic Courts system, which would mediate and arbitrate cases. Under the law, a restructuring plan must be completed within 60 days of filing for a standstill, and bankruptcy court judges will have the right to extend that period at their discretion. The bankruptcy law also reduces the liquidation period for companies to nine months, instead of the current average of more than two years.
Passage of the act is a victory for the Ismail cabinet and its economic reform agenda that has been a long time coming. Speaking on the vote, Investment Minister Sahar Nasr said, “The Investment Act would help investors enter Egypt, while the Bankruptcy Act will help investors exit it,” she added.
The law has so far been well received outside the nation’s borders. The new bankruptcy law should be a welcome development for banks, writes Samuel Wendell for Forbes Middle East. Wendel goes on to note how the act ends a dysfunctional system that hurt both the lender and creditors. “Creditors in Egypt recover an average of USD 0.26 for every USD 1 lent, compared with USD 0.712 in countries that are members of the Organisation for Economic Co-operation and Development (OECD). Bankruptcy proceedings can take an average of 2.5 years, although anecdotal evidence points to longer actual time periods. By comparison, the bankruptcy duration is 1.7 years on average in OECD countries,” he writes. Most other outlets, including Reuters, are taking particular note of the banishing of prison sentences. As we noted yesterday, the act has been labelled as “credit positive for Egypt’s banks” by ratings agency Moody’s.
In other key economic legislation news, the House Economics Committee signed off on the new Consumer Protection Act, Ahram Gate reports. The law would force retailers to print prices on products as well as imposing harsher fines and criminal penalties on violators.
This has freed the committee to get the ball rolling on that other key economic legislation: The Capital Markets Act. The committee issued a call to industry representatives and financial regulators to attend hearings on the amendments to the act tomorrow, according to Al Mal. The securities division of the Federation of Egyptian Chambers of Commerce will recommend that the law be further amended to include protections for managing directors for any violations committed by employees, said the division’s head Awni Abdel Aziz. As it stands, the amended act is expected to pave the way for a basket of new financial instruments to be introduced, including futures trading and a commodities exchange, in addition to introducing penalties for financial crimes and new rules governing taxes for the sector.
The House’s economic agenda before the summer recess appears stacked. Upcoming legislation still being discussed by varying committees includes amendments to the Unified Building Code, which aim to facilitate licensing, tightening safety codes, and enforcement. The committee will also look at amendments to the Auctions and Tenders Act, which would decentralize tender procedures and streamline the selection process for winning bids as well as setting new quotas for domestic components and SME contractors.
No new taxes, right? Deputy chair of the Planning and Budget Committee Yasser Omar surprised us with the announcement that the parliament is expecting new tax legislation from the government, but offered no further details, Al Mal reports. Don’t expect new taxes, though: Finance Minister Amr El Garhy and his team have made policy and tax rate stability hallmarks of their term in office and haven’t telegraphed imminent changes in rates.
Other laws passed in the House yesterday include:
- Passing amendments to the Importers Registry Act to extend the compliance period to the end of June of this year, Ahram Gate reports.
- Extending the charter of the Arab Petroleum Pipelines Company (SUMED) for another 27 years, according to Al Mal.
- Passing amendments to the Civil Aviation Act that impose harsher penalties for pointing laser beams at aircraft, Ahram Gate reports.