senior class faculty of law English section ain shams university prepared and lectured by : Dr. Yassin EL shazly

1. OUTLINE OF THE EGYPTIAN BANKRUPTCY LAW
CONDTIONS - EFFECTS
Adopted from
Bankruptcy – Part 1
Prof. Dr. Nagy Abdel MOAMEN
Professor of commercial Law,
Faculty of Law, Ain Shams University
Translated by
Dr. Yassin EL SHAZLY
Lecturer of commercial Law,
Faculty of Law, Ain Shams University
1

2. Meaning of bankruptcy
 The plain meaning of the term bankruptcy
could be incapacity or weakness. However,
from a legal perspective it has a different
meaning.
 Bankruptcy is a system applied only to traders
and which aims to establish a collective
execution on the funs of the debtor who
stopped paying his commercial debts.
 This system includes a series of procedures
and rules designed to such procedures
2

3. Meaning of bankruptcy
 The legislator states that the bankruptcy
decisions will consequently prevent the
debtor from managing his funds and in the
time will entrust the distribution of his funds
to the creditors conduct to an agent called
trustee.
 This system has two major objectives:
 Firstly, bankruptcy aims to protect the
creditors from their bankrupted debtor
whose property is not sufficient to meet the
amount of their debts. 3

4. Meaning of bankruptcy
 Secondly, bankruptcy system aims to protect
creditors themselves from each other. In fact, the
bankruptcy situation could create a struggle among
the creditors as every one of them will try to collect
separately and rapidly his debts trying to get the
greatest possible interests from the debtor,
regardless the right and the interest of the other
creditors.
 To avoid such a prejudice of such a conflict the
bankruptcy system is used in order to create a fair
distribution of the debtor funs according to a
collective procedure in which all creditors are
included.
4

5. 5

6. 6

7. 7

8. Regarding the physical person -1
1. Taking the commercial acts as a
profession
2. Professionalism should be in the
person name and for his own account
3. Enjoying the legal capacity
4. Being obligated of holding
commercial books ( article 21)
8

9. 9

10. 2- Regarding the moral persons
1. The company should take one of the forms
mentioned in the law ( article 10-2)
2. Special case : public sector company –
public private companies)
3. Exception related to the silent company
4. The company in the phase of liquidation
10

11. 11

12. Definition
 Art no 10 of the new commercial code defines the
merchant as: exercises regularly commercial
transactions in own name, and for his own
account.
 2- "Every company which takes one of the forms
stipulated in the company law for whichever
purpose it is establish
 From that we can understand that the law
recognizes two kinds of merchants : A person who
acts by his own name and for his a commercial act
and takes this act as a profession. And, a
company that takes the form of commercial
company if this company is engaged in civil acts
(e.g. law firms)

13. Kinds and forms of
companies
13

14. Professionalism=Regular basis
 That is to say a merchant is one who operates at least
one of the acts presented by law to be commercial in
 nature such as buying for the purpose to sell or lease,
etc.
 Should any one carries a commercial transaction for
once, he cannot be considered a merchant. A man
purchase an aircraft or establishes a company the act
is commercial but he is not a merchant unless he
makes this act regularly and takes it as a profession.
 It was decided that persons who are.- being prevented
from practicing trade such as judges or lawyers are
deemed merchants if they practice these acts on a
regular basis in spite of this prohibition.

15. Professionalism=Regular basis
 Art. 17 of the new code which stipulates. "If
any person exercises commerce whom is fo,-
bidden from trading by laws, regulations and/
or a special system will be considered as a
merchant, and the provisions of commercial
law are applicable to him.
 A profession means that the person involved
must carry on this business regularly as an
occupation he follows for making livelihood.
Should a mere employee has a taxi which he
sometimes uses to improve his income he is
not a trader because he does not depend
upon such commercial act for living.

16. On the merchant's own name, and
for his own ac-count
 It is submitted that exercising of the commercial
acts must be on the merchant's own name, and for
his own ac-count: Thus an employee or sales
representative will not be qualified as merchant
but his master is. On the contrary a commercial
agent can be considered a merchant when he acts
independently even for the principal account or by
the principal naive. Such as brokers, commission
agents and commercial agents.
 In the case of agents the issue will de-pend upon
the control and supervision practiced by the prin-
cipal and the kind of independence he has in
performing the job.

17. On the merchant's own name, and
for his own ac-count
 The question is raised where a man practicing trade
behind the name of somebody else. According to Art 18
of the code the character of a merchant shall be proved
to any-one who exercises commerce professionally by
a false name, or who is concealed behind another
person, besides proving the said characteristic to the
ostensible person.
 Professionalism is not presumed but must be proved.
The burden of proving such thing lies upon the person
who relays upon the charac-ter of the merchant. (e.g.
man wants claim bankruptcy of his debtor). However, it
could be proved by the fact that the al-leged person has
an office and employees of special skill or by the fact
that the person is registered in the commercial
Registry. It is also for the court to deduce the
characteristic of a merchant for someone

18. On the merchant's own name, and
for his own ac-count
 According to art no. 14 of the new code a
man as-sumes the character of merchant by
advertising it through journals, circulars
radio, television, or any other means, will be
presumed as a merchant. This assumption
can be dis-proved by proving that he did not
in fact exercise commerce.
 Anyway the state and other organs
associations and departments of public law
shall not have the character of a merchant
although commercial law rules will apply to
com-mercial operations done by them. (art 20
of the code).

19. Legal capacity
 (1) Anyone reaches the age of twenty one has the right of
exercising commerce in Egypt. The rule will include any
Egyptian woman and also any foreigner even if the law of his
country deems him a minor in such age (21 years)'
 (2)- Egyptians minor, completed 18 years old male or female
can exercise. commerce, subject to the obtaining of special
permission from the competent court.' Such a person must be
express clear and limited. A court permit may be conditional by
restricting certain transactions or limited to certain fund.
 .A minor who is authorized to practice tirade has full capacity
to carry out all legal operations which his trade re-quires. He
has to fulfill the legal obligations of a `merchants and can.
declared bankrupt.
 (3) For aliens the matter need more details: alt must be noted
that aliens even adults are prevented from practicing some
kinds of business (e.g. importing, agency).

20. 20

21. 1- what is meant by
discontinue of payment
 First view :
 The merchant should stop paying the debts
of his creditors regardless the reason behind
the discontinue of payment
 Second view :
 The discontinue of payment of the creditors
should be due to a real financial turbulence
which the debtor is passing and a real crisis
facing him
21

22. 22

23. Elements of the -2
discontinue payment
 1- the actual or material stop of payment :
 It means that the debtor should stop paying
his debts.
 It should be noted that a merchant can not
be declared bankrupted if he resorted to
fraudulent means in order to hide his
financial situation , like complement bill of
exchange or contracting loans with high
interest.
 The court take in consideration the actual
date of discontinue of payment and not the
real date ( date of the collapse of the debtor
23
financial statues).

24. Elements of the discontinue payment -2
 2- The financial turbulence of the debtor
status :
 The discontinue of payment of the creditors
should be due to a real financial turbulence
which the debtor is passing and a real
crisis facing him
 Financial turbulence should lead to the lost
of confidence between the debtor and his
creditors as well as weakling the credit.
 Temporary financial turbulence won’t lead
to declaration of bankruptcy.
 Financial turbulence is not related to asset/
debt equation.
24

25.  2- The financial turbulence of the debtor
status :
 It is not necessary that the discontinue of
payment cover the whole debts. In other
terms, It could be partial.
 A merchant could be declared bankrupted if
he stops the payment of only one creditor as
long as the non-payment reflects a serious
financial turbulence.
 The detriment factor is the amount of the
unpaid debts and how it reflects the collapse
of the financial status of the debtor which
could threaten the rights of his creditors.
 Financial turbulence covers only the
commercial acts performed by the merchant.
25

26. The proof of the discontinue of -3
payment
 Burden of proof is upon the plaintiff
 The plaintiff should proof the discontinue of
payment by all means of evidence.
 The proof should cover the existence of a
debt and that such non-payment will lead to a
legal discontinue of payment due reflecting a
real financial turbulence.
 It should be noted that the discontinue of
payment should continue until the date of the
declaration of the bankruptcy judgment.
26

27. The proof of the discontinue of payment -3
It should be noted that the plaintiff should proof
that his debtor enjoyed the status of merchant
when he stopped paying his debts.
A person who is dead or quite exercising
commerce could be declared bankrupted under 2
conditions :
A- he should die or quite at a moment where he
was in situation of discontinue of payment his
debts.
B - the bankruptcy claim should be filed within
one year from the date of death or abolishment of
the merchant name from the commercial registry.
27

28. conditions of the unpaid -4
debt
1. The debt should be an amount
of money
2. The debt should be immediately
due
3. The debt should be cleared from
claims
4. The debt should be commercial
28

29. 1- The debt should be an amount of
money
1. The unpaid debt should not be an
obligation to do or an obligation not to
do.
2. This could be justified by the fact the
bankruptcy is a system which tends to
the liquidation of the debtor assets and
fairly distributed among his creditors.
3. This is also following the objective of
protecting the credit and trust between
merchants.
29

30. 2- The debt should be immediately due
1. The unpaid debt should be immediately due
and not postponed.
2. The debt should be conditioned.
3. To know whether the debt is due or not, we
should look to the date of filing the
bankruptcy action.
4. According to article 554/2, a creditor with a
postponed debt could exceptionally request
the bankruptcy of his debtor if : his debtor
run away or didn’t have a known domicile in
Egypt or committed an act with the
intention to prejudice his creditors.
30

31. 3- The debt should be cleared from claims
1. A debtor can be declared bankrupted if his
debts was doubtful and not certain.
2. If there is a claim or a dispute related to the
debt, the bankruptcy action should be refused.
3. However, the claim should be serious. This is
appreciated by the court discretionary power.
4. The power of court in this regard is to examine
the seriousness of the debt without dealing
with the substantial defenses or merits.
5. Consequently, the court can not transfer the
action to investigate or examine a claim of
falsification.
31

32. The debt should be commercial -4
1. A merchant can not be declared bankrupted if
he stops paying his civil debts.
2. A merchant can not be also declared
bankrupted if he stops paying taxes or
criminal fines or social insurance.
3. The appreciation of the commercial character
of the debt is at the moment of discontinue of
payment and not when the debt has been
created.
4. According to article 554 : a civil creditor could
request the bankruptcy if he proofs that his
debtor stopped paying his commercial debts.
32

33. 33

34. 1- Persons entitled to initiate the
bankruptcy procedures
34

35. The debtor -1
 The debtor is most people knowing his financial
status.
 Presenting a bankruptcy declaration protects the
debtor from exposing himself to the criminal
sanction of stated in the case of bankruptcy by
negligence.
 The court can confine the debtor if he presents a
request of bankruptcy within 15 days of his
discontinue of payment.
 Regarding companies., the legal representative is
the one who is entitled to present such a request.
 If the court refuses the debtor request, it can
order how to be a fine for superficially creating a
bankruptcy status. 35

36. One of the creditor -2
 This is the most common way to request
bankruptcy.
 This is allowed to all kind of debtor even those
with a civil debt.
 A partner in a company could present a
bankruptcy request if he is a creditor of the
company.
 The debtor could be declared bankrupted
although he has only one creditor.
 Rules of bankruptcy are related to public order
and can not be contracted in any agreement.
 Any agreement to avail a debtor from declaring
36
his bankruptcy is considered void.

37. The competent court -3
 Before 2008, the subject matter jurisdiction of
the bankruptcy request was in the competence
of the primary court regardless the amount of
the dispute.
 After the promulgation of the law no120 for the
year 2008, the competence is now transferred
to the economic courts.
 Regarding the local jurisdiction, the
competent court should be the court of the
commercial domicile of the debtor or his
regular place of residence.
 Regarding companies, the action must be filed
in the company head-office or the company
local-office if the head –office is abroad. 37

38. the authority of the court in -3
postponing the bankruptcy action
 According to article 702, the court is entitled to
postpone the bankruptcy action, only for
companies and not individuals.
 The postpose should be for a period of 3
months and should be done once.
 This faculty is restricted on two conditions :
 A- the potentiality of a support to the debtor
financial status.
 B- The need to protect the interest of the
national economy.
38

39. .The content of bankruptcy judgment -4
39

40. Characteristics of the bankruptcy -5
judgment
 The res judicata of the bankruptcy judgment
is absolute and not relative as ordinary
judgments :
A- regarding the persons : the debtor is
considered bankrupted in his relationship
with the all his creditor not only the one who
filed the bankruptcy claim.
B- regarding the assets : the judgment is not
only related to the debt subjected to the
claim but all the debtor money even though
those unrelated to commercial activities.
40

41. Characteristics of the bankruptcy -5
judgment
1. The double nature of the bankruptcy
judgment:
A- Declaring or Clearing judgment : as it
declares the status of discontinue of
payment as well as the invalidity of the
transactions committed by the debtor
during the suspect period.
B- Constitutive judgment : as one of its result
lead to the creation of the creditors
assembly – confining the debtor from the
management of his assets – stopping the
unilateral actions - 41

42. 42

43. 43

44. 1) Effects of bankruptcy judgment s to
the debtor assets before the
issuance of bankruptcy declaration
The suspect period
1. The meaning of the suspect period
2. The sanction ( the non-enforcement)
3. Types of non-enforcement
44

45. 1- The meaning of the suspect period
 Performing certain transaction during the
suspect period is not void in itself.
 On the other hand, there is a fear that certain
transaction could affect the creditor rights.
 The suspect period starts from the date of
discontinue of payment till the date of the
issuance of the bankruptcy judgment.
 The court has discretionary authority in
determining the date of the discontinue of
payment.
 according to article 563 the suspect period can
not go retroactively to more than 2 years before
issuance of the bankruptcy judgment 45

46. 46

47. Firstly : Mandatorynon-
enforcement
 The court has no authority regarding the
mandatory non- enforcement. The action
should be initiated by the trustee
 Conditions of mandatory non- enforcement :
 The transition should be among those
enumerated in article 598.
 The transaction should be performed during
the suspect period.
 The transaction should be from the debtor
and concerning his assets.
47

48. The date of discontinue of payment
Absolute non-enforcement Relative non-enforcement
suspect period
The issuance of the bankruptcy judgement
48

49. Donations -1
 All donations made by the debtor is not enforced
towards the creditors regardless its objective or
substance.
 Donations for charity reasons are also not
enforced.
 The court has discretion to qualify the transaction
regardless the parties agreement.
 The dowry (wedding gift) is not considered
donations as contract of marriage is not donation
contract.
 Life insurance policy for the debtor son or his wife
is not a donation contract however the premium
paid is considered indirect donation and should be
restituted.
 Small gifts are excepted according to customs.49

50. 2- Settling debts before its maturity date
 It should be noted that the main objective of
the bankruptcy system is to achieve equity
between all creditors.
 This case could lead to a violation of the
equity between the creditors as it shows that
the debtor favored one of his creditor on the
others.
 Creation a consideration for an undue
commercial paper (cheque –bill of exchange)
is considered as settlement before the
maturity date.
 In the previous case the paper will remain
valid but the consideration will be part of the
debtor estate. 50

51. 3- Settling due dates with a thing other
than the agreed upon
 The aim of such interdiction is the fear that
the debtor could fulfill his obligation with a
thing more valuable from the thing originally
agreed upon.
 Interdiction in this case also aims to achieve
equity between all creditors and not to
disadvantage one of them.
 Exception : commercial papers and banking
transfer are considered equivalent to money.
51

52. 4- issuance of securities or pawn after
the debt has been created
 The assumption here is the debt was created
clear from any securities and then a pawn has
been created during the suspect period.
 Interdiction in this case also aims to achieve
equity between all creditors and not to
disadvantage one of them.
 Example : Mortgage – Pledge -
HYPOTHECATION.
 Privileged rights are out of scope of this
interdiction.
52

53. 4- issuance of securities or pawn after
the debt has been created
 HYPOTHECATION
An agreement whereby someone puts up
collateral to secure the debt of another. This
means that someone may agree that a piece
of real estate will be collateral for a debt. If the
debt isn't paid the creditor may have the
property seized to satisfy the debt, although
the person hypothecating the property is not
personally liable if the collateral doesn't pay
off the debt. Thus the property is liable for the
debt, not the person guaranteeing the debt.
53

54. OPTIONAL NON-ENFORCEMENT -2
 This decision is in the discretion authority of the
court.
 The optional non enforcement of all the transaction
performed by the debtor during the suspect period is
the rule and not the exception.
 According to article 600 : the payment of commercial
papers is excluded from the scope of optional non-
enforcement.
 The previous exception tends to balance between two
different interests : on the one hand, the creditor
union and on the other hand, the interests of those
using the commercial papers.

54

55. Conditions of OPTIONAL NON- -2
ENFORCEMENT
 Firstly : The transaction should be preformed during
the suspect period.
 Secondly : The transaction should prejudice the
interests of the creditors unions. This condition is left
to the appreciation of the court. The court should take
in consideration the interests of the entire creditor not
few of them.
 Thirdly : The other contracting party should be aware
the debtor stopped paying his debts. The legislator
didn't require the knowledge of the financial
turbulence of the debtor.
 The burden of proof of the previous conditions is on
charge of the trustee.
55

56. 2) Effects of bankruptcy judgment s to the
debtor assets after the issuance of bankruptcy
declaration
 Binding the debtor hands from
managing and disposing his
assets = article 589.
56

57. Binding the debtor hands from managing
and disposing his assets = article 589.
 Binding the debtor hands is a mean to
liquidate his assets collectively and distribute
it fairly between his creditors each according
to his proportion.
 This effects is not considered as an
expropriation or sealing the debtors assets.
 Banding the debtor hands doesn’t mean that
he lost his legal capacity.
 Banding the debtor hands shall not prevent
him from taking the necessary measures
towards maintaining and preserving his rights.57

58. 58

59. Firstly : Binding the debtor hands regarding
his assets
59

60. Secondly : Binding the debtors hands regarding
legal transitions
60