Section 9

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The value of the assets is exceeds the liabilities. 363 § 1: The grounds mentioned in clauses no. 1, 2, 3, and 4 may be pleaded, which ever may be ground for declarations of insolvency; however, the grounds shall not be entertained if it is found that the person declare as insolvent is registered as businessman. § 2: The ground mentioned in clause no. 9 may be invoked only in respect of limited liability companies and when insolvency was declared on grounds of insufficiency of the assets for the satisfaction of the liabilities. § 3: Other grounds may be urged only when they have direct relation with the fact on the basis of which declaration of insolvency is sought. Article 1149 – Raising, admission and opposition to objections - The objections are to be filed by way of pleadings and paragraph wise and thereafter the office is to present it to the judge to pass the order either accepting or rejecting the objections. In the event the objections are admitted, within 48 hours, notice shall be issued to the administrator and applicants of proceedings for insolvency to contest them, if so desire, within period of 5 days. § 1: From the order which admits the objections appeal from order lies and against the order which reject the objections appeal from final judgment lies. § 2: With the objections and corresponding written statements, opposing them, evidence shall be listed and which the parties propose to avail. Article 1150 – Hearing and judgment - Subsequent to the written statement and production of the evidence which the party wants to avail before the trial, and trial will start and the provisions of article 1144 shall be observed to the extent applicable. Article 1151 – Steps in proceeding stayed by objections - The objections suspend only the steps subsequent to the passing of final judgment namely the verification of the claims of the creditors, however in the case of urgency even sale of the assets may take place. Article 1152 – Mandatory finding on bad faith of applicant - In case the claim of declaration of insolvency is declined or the final judgment which has declared it has been revoked, it will always be examined whether the applicant has acted in bad faith to secure the order and in the 364 affirmative the applicant will be directed to pay the fine and compensation for damages in accordance with articles 465 onwards, without prejudice to criminal proceedings which may take place. SUB SECTION II CONSERVATORY MEASURES Article 1153 – Seizure of assets - After the insolvency is declared, steps shall be taken immediately to seize all the assets of the insolvent, even though the assets have been seized or attached or by any manner detained, without prejudice to the right of the creditors for the legitimate withholding. § 1: The court of the insolvency may solicit to the court or competent authority the remission of the proceedings where seizure attachment, apprehension or detention has been made and directing handing over of the respective assets to the administrator, except were the assets have been attached in the fiscal execution or the Government lending agency.. § 2: The assets which are exempted from the attachment as per articles 822 onwards, shall not be seized except where they have been voluntarily delivered by the insolvent. Article 1154 – Seizure of amount paid - The amounts paid by the insolvent whenever the inefficacy of such payment has been declared by the final judgment, shall be seized in the hands of those who have received them, on the condition that the same person shall deliver the assets to the estate, failing which penalty will be imposed on a receiver in default. Article 1155 – Who attends the seizure - The act seizure shall be presided over by the judge and in the presence of Public Ministry and of insolvency trustee who may preside under authority delegated by the former. Article 1156 – Delivery of assets to administrator or Receiver - Whenever the seizure has been made the assets seized shall be delivered to the administrator, who, on his own responsibility, may entrust the custody to the any other person of his choice and take steps which he deems fit. The administrator may also be authorized by the insolvency trustee to receive the assets under a list prepared which shall be filed in the court. 365 § Sole Paragraph: The assets seized in a judicial division different from that of the insolvency shall be handed over to the custody of receiver appointed by court to which rogatory letters was addressed. Article 1157 – Advance sale of assets - The provisions of article 851 and its paragraph shall be applicable to the administrator to the extent they deal with the receiver and the hearing of the parties shall be substituted by hearing of the insolvency trustee. SUB-SECTION III EFFECT OF INSOLVENCY DIVISION I EFFECTS OF INSOLVENCY IN RELATION TO THE INSOLVENT AND TO HIS CREDITORS Article 1158 – Interdiction of Insolvent - The declaration of the Insolvent has the effect of disabling the debtor from administering and disposing of his assets which he owns or which he may acquire in the future, until the vacating of the interdiction, as foreseen in article 1317, and results in suspending, in relation to his assets, the further prosecution of the inventory on his death. § l: The interdiction of the debtor includes the carrying out the business, and holding the positions of manager, director or administrator of any commercial or civil society. § 2: The liquidator shall be representing the debtor, for all purposes, except in relation to his exclusive personal life or alien to the insolvency.  Articles 1158-1368 (210 Articles) - Insolvency is a large portion of the code broadly corresponding to the Insolvency and Bankruptcy Code 2016. Article 1159 – Ineffectiveness of the acts and contracts by the Insolvent after the declaration – The acts and contracts done by the debtor, subsequent to the declaration of Insolvency by judgment shall be of no effect in relation to the assets of the debtor, independent of any declaration by the court. § 1: However, the contracts of rendering service, Will, acceptance of inheritance for the benefit of 366 the inventory and any other acts relating to public functions or alien to the Insolvency. § 2: It is lawful to the debtor, in any case, to acquire by his work the means of subsistence. Article 1160 – Fixation of maintenance for the Insolvent - In the event the debtor requires badly the means of subsistence, the judge may, after hearing the liquidator, award him temporarily reasonable subsidy as maintenance. § Sole Paragraph: There being a reasonable ground, even the maintenance may be stopped at any stage of the proceedings, by decision taken either ex-officio or on the application of the liquidator or of any creditor. Article 1161 – Fixation of residence of Insolvent - After the judgment declaring the Insolvent is pronounced, the debtor shall sign a declaration fixing his residence, and is not permitted, during the pendency of the proceedings, to absent himself from his domicile without express permission from the court or the trustee to whom he shall inform where is he going and period of his absence. § 1: All the services of the notice to the debtor, when he has not appointed attorney with domicile in the Judicial division shall be made at the residence indicated in the undertaking. § 2. What is provided in this article is not applicable to the administrators, managers, directors of the society with limited liability, who shall be notified within the jurisdiction of respective court. Article 1162 – Duty of Insolvent to appear in person - The debtor is bound to appear personally in the court whenever so ordered by the judge or by the liquidator, except where there is legitimate impediment permitted by the court by express order to that effect for representation through his attorney. Article 1163 – Penal sanctions – On breach of the preceding two articles the debtor shall incur criminal liability for disobedience. Article 1164 – Effect of Insolvency on Creditors - The declaration of the Insolvency has the effect of closing the current accounts of the debtor, and immediate maturing of all his debts and suspension of accrual of any interest against the estate of a debtor, except those arising from mortgage which are guaranteed by mortgage in accordance with the civil law. 367 § 1: However, the accrual of the interest even in the respect of debts guaranteed by mortgage and duly executed and registered at the time when the debtor was not a businessman stand suspended, if the respective creditors, having not participated in the Insolvency proceedings, have not initiated, within the period fixed, the claims, the competent suits, or executions, or not prosecuted further the normal course of the proceedings. § 2: To the debts which are not matured, which only on account of the Insolvency become recoverable, the interest which is accumulated or capitalized, in respect of the period which falls short of the time for normal accrual of the debts shall be deducted. § 3: Penalties imposed on account of delay in the payment or forcible recovery and specially the increase of rate of interest and fees of the judicial attorney are not to be enforced against the debtor. Article 1165 – Effect of Insolvency on proceedings to which the Insolvent is a party - Once the Insolvency is declared, all the matters in which questions relating to estate of the debtor is in issue shall be appended to the Insolvency proceedings, except where there is any appeal pending from the final judgment, because in such cases the appendage shall be done only after the judgment becomes res judicata. § 1: From the cases mentioned in the body of the article stand excluded the matters in which the debtor is the plaintiff, the suits relating to property, the suit relating to the status of the persons and those in which there are other defendants besides the debtor. § 2: The declaration of the Insolvency prevents institution of any execution against a debtor; however, if there are other execution opponents the case shall proceed against them. Article 1166 – Subsistence of bilateral contract by the Insolvent - The Insolvency declaration does not cause the rescission of bilateral contracts in which the debtor is a party, which may or may not be given effect, depending upon the view of the syndic and decision given by the judge which is found convenient to the estate of the bankrupt debtor. In the second case, the administrator shall notify the other contracting party to whom right is safeguarded to demand from the estate the appropriate damages for losses in the proceeding for verification of the credits. § 1: If the tenancy contract of the house, establishment and godown of the debtor is continued, 368 then rent shall be paid fully by the liquidator of the Insolvency. § 2: However, what is provided in this article shall not apply in the event there is express provision of law declaring that with institution of the Insolvency proceedings the contracts stand rescinded. Article 1167 – Set off of Credits - If there is, before the declaration of the Insolvency, off- setting, provided in articles 765 and following of the Civil Code, the same shall be taken into consideration in the verification of the credits. § 1: When there are reciprocal credits which cannot be off-set as per the body of this article, the debtor shall pay to the estate fully his debt, and if there is no preferred credit or preference, he shall receive payment of his credit only proportionate to what he is to receive. § 2 : The debtor of the estate who off-sets shall prove that he was entitled to those credits on the date of declaration of the winding up. DIVISION II EFFECTS OF INSOLVENCY IN RELATION TO THE ACTS WHICH ARE PREJUDICIAL TO THE ESTATE Article 1168 – Acts which may be annulled to the benefit of the estate - The following acts shall be annulled to the benefit of the bankrupt estate:- 1) The acts which involve decrease of the value of the estate of the debtor, executed by way of gratuitous title, within 2 years prior to the judgment declaring the Insolvency, including the renunciation of the estate, legacy or usufruct; 2) The guarantees for the debts; 3) Amicable partitions in which the debtor has received only amounts which may be easily concealed and to the other interested parties all the immovable property are allotted or nominal values, when executed one year prior to the declaration of the winding up. § Sole Paragraph: What is provided in clause no. 1 does not cover the gifts by usage and custom, nor those which arise from fulfillment of moral or legal duties. 369 Article 1169 – Rescission of fraudulent act and those to the detriment of creditors - The acts done by the bankrupt debtor before the lifting of the interdiction are liable to be rescinded before the vacating of the interdiction, in the case of articles 1030 and following of the Civil Code. Article 1170 – Acts presumed to be in bad faith - Following acts are presumed to be executed with bad faith by the interested parties who intervene therein; 1) The acts done with consideration executed within 2 years prior to the date of declaration of the Insolvency in favour of the spouse, of the relation up to sixth degree, of the concubine, of the servants or subordinates by any legal relation; 2) The payments or compensations agreed upon for the debts not matured or for the debts matured during one year prior to the date of the judgment of the Insolvency, with the payments usually made with the money not meant for the same; 3) The guarantees created on the properties by documents subsequent to the obligations one year prior to the judgment of declaration of the Insolvency and those constituted simultaneously with the respective obligations within 90 days prior to the same judgment; 4) The alienations with consideration, in favour of any persons who are not mentioned in clause no. 1, when: executed within 90 days prior to the date of the judgment declaring the Insolvency. Article 1171 – Effect of rescission or annulment - Once an act is rescinded or annulled, all the respective values revert back to the estate of the debtor. In the cases where other contracting party has right to restitution, the same shall be considered an unsecured credit. Article 1172 – Appending of suits for annulment or rescission - The suit for annulment or rescission shall be dependent on the Insolvency proceedings and may be filed by the administrator authorized by the syndic, or by any other creditor. § Sole Paragraph: In the same proceeding it is lawful to seek annulment or rescission of different acts, even though the ingredients prescribed by articles 29 and 30 are not satisfied. SUB SECTION IV ADMINISTRATION OF THE BANKRUPTCY ESTATE Article 1173 – To whom does the administration of the bankruptcy estate befall - The administration of the properties of the debtor falls on the administrator under the supervision of the syndic in accordance with following provisions. 370 Article 1174 – Powers of administrator – Personal character of the post - The administrator may do all the acts of general administration, and any special powers may be exercised with the express permission of the syndic and to that the provision of the agency would apply, which are not inconsistent with the provision of this sub-section, and besides in respect of assets of the estate subject to penalties of infidelity of the depository. § Sole Paragraph: The exercise of the role of administrator is strictly personal, except in cases where there may be necessity of judicial attorney. Article 1175 – Duties of administrator - The administrator shall immediately assume the charge, doing whatever necessary for the preservation of the assets and rights of the debtor, in his interest and of his legal creditors and inquiring in detail the status of the estate of the debtor, and condition in which the business was done and the causes which have given rise to the insolvency. Article 1176 – Opening of correspondence addressed to the Insolvent - All the correspondence addressed to the debtor till the date of the pro rata apportionment to the creditors shall be delivered to the administrator, in order to be opened in the presence of the debtor; or; he being an absentee, in the person chosen by him for such purpose, and, in his absence, in the presence of the judge and handing over to the same Insolvent or representative the papers not concerning the administration of the estate and keeping entirely confidential the private matters contained in the correspondence. Article 1177 – Permission of the Insolvent to do certain act - The administrator upon the proposal of the manager may permit the debtor to help the administration and to do specific acts of the business, and fixing for the purpose period and remuneration. § Sole Paragraph: The syndic may, at any time, revoke such permission. Article 1178 – Balance sheet of the exercise of administration - In first three days of each month the manager shall submit to the administrator, one balance sheet of the exercise of the administration of the previous month, in which specific mention shall be made of all the amounts received and spent during that period. 371 Article 1179 – Questioning of the administrator - The suspicion may be raised against administrators in the same manner as against the head of the office of the court. § Sole Paragraph: The suspicion having been raised, the administrator shall continue to hold the office until the same issue of suspicion is decided.  See also Article 134 of this Code. SUB SECTION V VERIFICATION OF DEBTS Article 1180 – Claiming of credits - Within the time fixed in the judgment declaring the Insolvency, the creditors of the debtor may by way of application claim their credit either common or preferential, indicating their nature, amount and the origin. They may also express their view on the aspect of insolvency. § Sole Paragraph: The credits of the claimants of the insolvency shall be judged and marshalled independent of specific application. Article 1181 – Filing and attaching claims - The verification of the debts shall be made on the basis of objection made and, duly processed and to which subsequent objections and respective documents shall be taken on record. Article 1182 – Certificate of encumbrance and notice to creditors - Before crossing half of the period fixed for the objections the administration shall produce on record certified copy of all the encumbrances on the assets of the estate and stating the expiry of the period by way of the registered letter addressed to the all the creditors already registered and besides those who are found from the books and documents of the debtor even though they have not put their claims of their credits. § 1: The administrator shall prepare a list from where names of all the creditors are found in accordance with these articles, their addresses and number of registrations of the post of each of them, which shall be annexed to the file along with the opinion to which reference has been made in the article 1185. § 2: The lack of notice, in accordance with these articles, to the creditors not listed is not a ground to put up the claim beyond the limitation period. The lack of such notice to the creditors who have been listed is applicable what is provided in sole Paragraph of article 864. 372 Article 1183 – List of unclaimed credits - After the time for raising the objections is over, the administrator shall within 3 days, produce in the office, as appendage to the file, the indication of any credits which have not been claimed and which are found from the record and may appear to be genuine and true. Article 1184 – Disputing of credits - Within next 5 days after the time limit fixed the creditors or the debtor may contest by way of application, the existence or nature of any credit claimed or indicated by the administrator. § Sole Paragraph: The answers shall be annexed to the proceedings as per the order of their production and during the time fixed for the presentation they will be open for inspection in the office of the court with the documents and books of the debtor in order to be examined by any interested party. Article 1185 - Say of the administrator on credit claimed - Within the period of 5 days after the time limit fixed in the preceding article the administrator shall give, on the penalty of the suspension, short opinion but, with all the particulars in respect of each of the credits claimed or indicated by him, declaring specifically from the record what particulars are found and with supporting documents, indicating since when the default causing winding up was started and furnishing any other particulars which he finds fit. In the same opinion the administrator may object, in totality or in part, the existence and nature of any credit supporting his grounds for objections. Article 1186 – Grounds for contesting - The answers of the creditors and of the debtor, as well as of the administrator, may be on the point of nullity, prescription, sham transaction and forgery or any other ground which may extinguish the obligations and contracts executed by the debtor or invalidity, postponement or suspension. In such case the grounds shall be Paragraph wise and the written statement filing the opposition and drawing the conclusions. Article 1187 – Rejoinder by creditor - The creditor whose credit has been opposed in the manner indicated in the previous article may rejoin within 5 days next to the period indicated in article 1184. 373 Article 1188 - Evidence - With the applications, answers and rejoinders all the documents shall be produced and the list of witnesses and it may be applied to have any other step in support of the proof. § Sole Paragraph: If the party is not in position to produce any document, the judge shall grant him reasonable time for the production without prejudice to the course of the proceedings. Article 1189 – Chart of the objections - Upon the receipt of the opinion expressed by the administrator, the office shall prepare and produce in the main suit, within 48 hours, one chart of all the objections containing the particulars as to the name of the objector, date of the objection, folio of the appending proceedings where it is found, the quantum of the credits, their source, if they were objected and in the affirmative by whom, folio were the objection is found and, beside this, open place to be filled at the proper time with the indication of the decision, if appealed from or not, and result of the same. Article 1190 – Curative order and questionnaire - Thereafter, the proceedings shall be presented before the court in order that, within eight days, all the preliminary or prejudicial questions are decided and questionnaire is prepared, in accordance with articles 514 and 515. Article 1191 – Production of evidence - If there is evidence to be led before the trial, the judge shall take steps to see that they are carried out and which should be concluded within 60 days, from the day of the order directing to carry the same and such evidence led by any party may be relied upon by all the parties. Article 1192 – Say of Public Ministry and date for arguments and judgment - After the evidence is led to which reference is made in the preceding article or after the time fixed for letter of request is over, the proceeding shall be put before the Public Ministry, for a period of 5 days to express his opinion in general interest of all the creditors and particularly to secure that rights of the Government are safe guarded and thereafter alter subsequent 15 days date for the trial shall be fixed. § Sole Paragraph: The creditors whose credits have not been objected shall not be notified for the trial. 374 Article 1193 – Arguments and judgments - At the trial the evidence shall be read as per the order of the presentation of the objection. For the hearing of the arguments the advocate for the objectors shall be heard first and thereafter those who have offered the contestation, to the administrator of the estate if anybody has been appointed, and lastly, to the Public Ministry, without any replication. The hearing shall be continued in subsequent days, if it is not possible to conclude it on the first day. Article 1194 - Judgment - The judgment shall be delivered within 10 days, in which the judge shall fix date of bankruptcy, and thereafter either restitution or separation of the properties or rights claimed, to verify and rank the credits in accordance with law and decide the question referred to in article 1186. § 1: The ranking shall be general to the assets of the estate of the bankrupt and particular for the properties of preferred credits or preferences. § 2: In the ranking of credits the preference arising from hypothecation referred by article 676 shall not be considered, not even that arising from the attachment, but the cost paid by the plaintiff or creditor applicant shall be equated to the proceedings of winding up in order that getting the privilege of exclusion. § 3: The fixation of the date of bankruptcy establishes legal presumption of insolvency against third parties strangers to the proceedings and constitutes full proof of this fact against the creditor who has taken part. Article 1195 – Who can appeal - From the judgment of verification and ranking appeal may be file by the claimants, contestants, bankrupt and administrator of the estate and the Public Ministry. Article 1196 – Suit for verification of credit or right to restitution and separation of assets - After the period for objections is over, it is permissible to verify fresh credits and the right of the restitution or separation of the assets by way of suit instituted against the administrator and creditors, and for that purpose service of summons be effected against them by publication for the period of 10 days. 375 § Sole Paragraph: If any suit is filed, the plaintiff shall make a protest in the main proceedings for insolvency. The effects of the protest, mentioned herein after shall lapse if the plaintiff fails to take the necessary steps for a period of 30 days. Article 1197 – Position of Creditor and Interested Party who files the suit but does not observe the provisions of the preceding article - If the suit for verification of the credits has not been filed and has not followed the steps prescribed in the preceding articles and its paragraph, the creditor shall have a right to participate only with reference to his credit duly verified, in the apportionments subsequent to the respective judgment becoming res-judicata, even if the credit may be with a privilege. If the suit instituted and followed beyond the time prescribed in the previous article and has purpose of verification of right of restitution or separation of the assets, the plaintiff shall have a right to make them effective only if such rights have been recognized in the respective judgment, becoming res-judicata, in relation to the assets which by this time have not been liquidated; if they have been liquidated fully or in part, up to the quantum of the proceeds of the sale, when the same may be quantified, and when it cannot be, up to the quantum of the value which was attributed to them in the valuation. The plaintiff shall be paid with preference in relation to any creditors, but only by the value which have not been given or has been lifted with priority from the estate which have not been taken into consideration in the previous lifting or previous distribution either conditionally or finally, not even have been safeguarded in relation to the third party in view of appeal or protest in accordance with sole Paragraph of previous articles and which account of this are found free from the estate of the bankrupt. Article 1198 – Appending of actions and applicable procedure - The suits referred to in the preceding articles shall be appendage to the proceedings of insolvency and shall follow whichever may be value of the suit, the steps of summary proceedings, and costs shall be on the plaintiff, unless there is written statement filed. Article 1199 – Application for provisional delivery of mobiliary assets - The claimant of the specific movables shall apply for provisional delivery and the same shall be granted, upon the claimant filing a bond and furnishes a guarantee, if it is found necessary. 376 In respect of such prayer and on the value of the objects claimed, necessity of furnishing guarantee, fixation of the value of the same, or suitability of the surety, the administrator shall be heard. If the objection is finally rejected, the assets shall be returned to the estate of the debtor along with the objects provisionally delivered or the amount of the security. Article 1200 – Objections and verifications to which the procedures and time limit for verification of credit apply - The procedure and the period of limitation for objection and verification of the credits shall be also applicable: 1) To the objections and verifications of the right of the restitution, to their legitimate owners of agricultural properties and other assets which exists within the estate of the debtor and of which the bankrupt was depository commission agent, creditor of the pledge, depository or by any other title, a mere holder of the properties; 2) To the objections and verifications of right which the spouse may have to separate from the estates of the exclusive assets or dotal properties or the moiety in the common assets; 3) To the persons who propose to separate from the estate of the debtor the assets of third parties which have been unduly seized and as well as others, to which the bankrupt had no right, or has no exclusive right, but enjoyed jointly, or as usufructuary, fideicomissary, or under any other title which does not convey full and exclusive ownership, or which are strangers to the insolvency proceedings or cannot be lawfully seized to the benefit of the estate of the debtor; 4) To the case foreseen in article 468 of the Commercial Code in accordance with the same, by chance there has been unauthorized seizure of the thing sold; § 1: The separation of the assets mentioned in this article may be ordered by the judge, upon the application of the administrator of the insolvency, duly justified. § 2: When the objection is over merchandise or other mobiliary assets, the objector should prove his ownership over the same, except where there are perishable, but the amounts of money may be demanded if they are attached to the promissory notes or in any other manner detached from the patrimony of the debtor. § 3: If the merchandise sent to the debtor as depository or by way of commission and sold on credits, the commission agent may demand the price payable to the purchaser, so that he may collect it from the purchaser. 377 § 4: If the merchandise sent to the bankrupt in connection with sale on credits, the same may be demanded until they are on transit or even when they are found in the godown of the bankrupt if they can be identified and separated from the properties belonging to the estate of the debtor. Article 1201 – Claim by the insolvent or his wife for their exclusive rights alien to the insolvency - The bankrupt or his wife without permission of the husband, may enforce her own exclusive rights, alien to the insolvency. - Article 1202 – Application for restitution or separation of assets seized late - In case there is seizure of assets in favour of the estate of the debtor after the period fixed for objections is over, it is permissible to pray for satisfaction of the right of the restitution or separation of any such assets within the period of 5 days subsequent to seizure, by way of application, which shall be appendage to the main proceedings, and the creditors shall be summoned by way of publication for 10 days to contest within the same time thereafter the administrator may contest or give his opinion within 3 days. § Sole Paragraph: After the limitation periods prescribed in the body of the article are over, file shall be presented to the Public Ministry, for 48 hours and thereafter other formalities of the verifications shall take place. Article 1203 – Right of creditors in case of insolvency of debtors for joint liabilities – Whenever, there are insolvents with joint liability, the creditors shall have claim in the bankruptcy estate, but not exceeding their share in the credits. § Sole Paragraph: The creditors who exercise such right shall not demand payment of any sum due to them without production of their titles deed, or certified copies thereof, if they are produced in some proceedings and in them the payment received shall be noted; and necessary communication shall be sent in all proceedings wherever there claim has been put, failing which they shall be liable to pay double of amount received by them without right, being liable in all the cases for payment of damages. Article 1204 – Preference to costs and other amounts - The judicial costs, the expenses of the administration approved by the court, the remuneration to the administrator and the percentage 378 payable to the States are alien to the verification of the passive debt and shall be paid in preference over all the assets of the estate and in due proportion of the produce of each type of assets, mobiliary or immobile, even though they might have been subject of pledge or mortgage. SUB SECTION VI APPRECIATION AND LIQUIDATION OF THE ASSETS DIVISION I APPRECIATION OF THE ASSETS Article 1205 – Preparation of balance sheet - The balance sheet of the insolvent, either presented by him, or by the administrator, shall be accompanied by minute description of different items of the assets. Article 1206 – Valuation of assets in case of disagreement by administrator - When handing over of the assets has been done privately to the administrator and if he disagrees with the valuation done by the debtor to any item of the assets, he shall report the matter to the judge, who may direct judicial valuation, if found necessary; valuation may also be done on the application of any creditor. Article 1207 – Recovery of credits - The credits of the debtor shall be recovered by the administrator diligently, privately or through court, depending upon the circumstances, starting from date of the maturity till the verification of the credits, and thereafter the judge, after hearing the administrator, shall decide what is found fit and secure and convenient liquidation of what remains, and he may also grant moratorium for the payment, direct the auction of debts or declare the debt non recoverable and cancel the entries in the revenue office about the record of the debts. § Sole Paragraph: The administrator shall produce in the main file of insolvency a list of the credits receivable by the debtor, with the specification each of them, and of the result of the steps taken to recover the same in the suit which are pending for that purpose, and give his view over the convenience of instituting fresh suits or not. 379 Article 1208 – Recovery of sale of assets given on pledge or subject to lawful retention - The assets of the debtor given in pledge, legally created, or subject to lawful retention may, upon the application of the administrator and after hearing the administrator and the debtor may, at any time be discharged or sold, and in such case the credits with pledge shall be notified to be produced at the time of auction, failing which there will be seizure and loss of privilege, in addition to criminal liabilities incurred by them. DIVISION II LIQUIDATIONS OF THE ASSETS Article 1209 – Sale of assets and rights - After the verification of the liabilities, sale of all the assets and rights of the estate may take place until complete liquidation. § 1: Once the right of restitution or separation of assets under indivision or others over which the debtor had right or any other right undefined, only the right which the debtor had over the assets shall be taken for the purpose of the liquidation. § 2: If there is appeal pending from the judgment directing restitution or separation of the assets or protest by way of suit pending about the restitution or separation, no liquidation shall take place of those assets until there is a decision passed which has become res judicata, save when there is no decision which has become res judicata, except the cases of the consent of the appellant or protester and anticipated sale in accordance with article 1151. Article 1210 – Who effects the liquidation - The liquidation of the assets shall be done by the administrator under supervision of syndic, in accordance with articles mentioned herein under and within the time fixed by the judge, and which may be extended once for not more than half of the time originally fixed. Article 1211 – Sale by auction - The liquidation of the assets of the estate shall be done by way of auction, either in total, or lots or parcels, which ever may be more advantages, and the sale should be done in auction, announcing with due anticipation laid for judicial auctions and notice of which shall be given to the public by way of publication and by notices published in the local press. 380 Article 1212 – Sale by proposals in sealed covers - When it is found more convenient, the liquidation of all or part of the assets may be done by sealed tenders, and in such case notice shall be published in two successive issues of the newspapers of the locality, inviting competitors and fixing the period within which sealed proposals shall be received. The notices published shall specify which assets are to be liquidated and as well as the address of the person to whom the proposals are to be submitted, and the day, hour and local in which the opening will take place. § 1: The proposals shall be opened by the trustee in the presence of competitors and creditors who are present and record shall be prepared of all the happenings. § 2: The trustee, assisted of administrator, shall appreciate advantages or disadvantages of the proposals and he may resolve the acceptance in the very act of the auction or shall fix the time, never exceeding 8 days, for the purpose of appreciation, but in such case day, time and place for acceptance or rejection may be made public, § 3: After the acceptance of any proposal, the proposer, if he is present, shall effect the deposit referred to in the subsequent articles and if he has not appeared, he shall be served notice to effect the payment within 3 days, failing which, he shall be liable or compensation for losses and damages. Article 1213 – Deposit of part of price - No award shall be made without the auctioneer or proposer depositing at least 10% of the price. Article 1214 – Private Sale - In case of manifest benefit to the estate, the sale of any assets may be effected privately, but in such case with prior necessary permission, duly supported, of the trustee shall be necessary, preceded by hearing of the debtor, if available in the Judicial division. § Sole Paragraph: If it is a case of immovables, the permission will be always special and individual, except where several immovable assets were attached to operate one and the same industry. Article 1215 – External formalities of extra judicial sales - In the extra judicial sales of assets of the estate, in respect of documentation, the formalities provided in the law for alienation amongst the private persons, shall be observed and the manager shall intervene as representative of the estate. 381 Article 1216 – Exemption of deposit to creditors and guarantors of light of preference - To the creditors who acquire the assets of the estate and to the persons who have right of preference, the provision of articles 906 and 892, respectively, shall be applicable. Article 1217 – Complaints against irregularities in liquidation - Against irregular or prejudicial acts done in the course of liquidation, the creditors may address in writing complaints or objections to the judge of bankruptcy who after hearing the trustee shall decide. Article 1218 – Deposit of the proceeds of liquidation - When the process of liquidation is in progress, its proceeds shall be deposited in the judicial Treasury in a special account payable at the order of the manager, who may withdraw the amounts indispensible to carry out expenditure of the liquidation and administration, and the respective cheques shall be counter signed by the administrator. § Sole Paragraph: From the deposits referred to in this articles no percentage is to be drawn in favour of the treasurer, as the same shall be determined in the final account but only in relation to costs and stamps which have been calculated. Article 1219 – Transfer of balance and convening meeting of creditors - After the liquidation is over, the manager shall transfer immediately to the account of the court and at the order of the judge the balance existing in the special account preferred to in the preceding articles and shall give the accounts of all the acts to the assembly of the creditors. § Sole Paragraph: The assembly shall be convened by the manager by way of registered letters and notices published in one of the newspapers of the locality with minimum anticipation of 8 days designating therein the time, hour, place fixed by the administrator for the appearance of the creditors and also the place where the accounts have been kept for perusal with books and other papers to be examined by any interested party within the period of not less than 10 days. Article 1220 – Approval of debts by creditors’ meeting - The assembly shall be presided over by the syndic and in that the creditors shall deliberate, by majority of votes, about the approval of accounts and over the remuneration to be paid to the manager, which shall not exceed 5% of the amount recovered. To each lot of 1000 escudos shall correspond one vote. The creditors for lesser 382 amount may join together and appoint one representative provided that total amount be equal or superior to 1000 escudos. § Sole Paragraph: If no creditor appears personally or through representative, the syndic will decide on the approval of the account and the remuneration of the manager. Article 1221 – Minutes of proceedings - The deliberations of the assembly shall be recorded in the book and shall be sign by all the creditors present and who want to participate and shall be handed over by the manager to the office of the court to be annexed to the file. Article 1222 – Objection against deliberations - Objection Any interested party may complain against the deliberations taken in the assembly and referred to in the preceding articles, and the objection shall be decided by the judge of the bankruptcy after hearing the syndic and leading evidence which may be necessary. Article 1223 – Disposal of books and liquidation records - After the accounts are approved, the books and other papers concerning the liquidation shall be put in bundles and handed over to the chamber of managers of the bankruptcy, wherever they are available and to be kept in the archives of the respective office. Outside Lisbon and Porto the books and papers shall be compiled in bundles and kept in the Court office with reference of the number of proceedings. SUB-SECTION VII PAYMENT TO THE CREDITORS Article 1224 – Payment to secure creditors - After realization of money from the disposal of the assets covered by mortgage or any other security, immediately payment shall be made to the respective creditors up to the limit where the proceeds of the assets is sufficient to pay the creditors and in case the creditors are not fully paid they are included along with unsecured creditors to be shared amongst all, independent of any formality. Article 1225 – Proposal and chart of apportionment - Within 5 days subsequent to the disposal of the estate the manager shall present to be annexed to the file of the insolvency the proposal and chart of pro rata apportionment which he proposes to do. 383 Such chart shall be open for inspection to the Public Ministry, for 3 days, to give his say on its accuracy and conformity with conditions of verification and marshalling of the creditors and disposal of the assets and thereafter payment shall be ordered of which are found legal and respective cheque shall be issued. Article 1226 – Partial and successive apportionment - Before the liquidation of the total estate, it is incumbent to make pro rata apportionment whenever there is a deposit of amount which secures apportionment of not less than 5%. § 1: The operation of the apportionment shall be repeated as soon as new liquidations come into plea either are to be attended in view of favourable disposals of the appeals or success in the pending suits. § 2: There having been excess in the liquidation, at the end, of such small amount which may not be sufficient to cover all the expenses of the fresh apportionment, the administrator may permit that they be credited to the funds of any charity establishment in the judicial division and if there is none, in the funds of the court. Article 1227 – Reserve for costs, stamp duty and expenses - The payments referred to in the preceding articles and of article 1224 shall be directed in such a manner that there always is a deposit of 25% of net product of each of the properties, for the security of costs, stamps and other expenses which shall be calculated at the end. Article 1228 – Regime to be observed when the verification is not final - When there is an appeal pending against judgment of verification and marshalling of credits or protest on account of pending suit, it is considered that the respective credits are asserted conditionally to be attended in the apportionment at later stage. After the final judgment is delivered and if it is favourable to the appellants or protesters, they shall withdraw the amounts to which they have rights; if not, again there shall be pro rata apportionment amongst the creditors. § Sole Paragraph: Whoever by his appeal or protest had stopped the withdrawal of any amount and thereafter is not successful, shall indemnify the estate paying the interest for the delayed payment. 384 Article 1229 – Mode of payment in extra judicial liquidation - All the payments arising from disposal of assets outside the court shall be made by way of cheques issued in favour of the account of the court. SUB-SECTION VIII ACCOUNTS OF THE ADMINISTRATION Article 1230 – When does the administrator have to furnish accounts - The manager shall present his accounts within 10 days after his administration comes to an end and besides wherever he has been directed to do so and the time may be extended if there is a legitimate ground. Article 1231 – Procedure to compel rendering of accounts - If the manager does not voluntarily render the accounts, he shall be served with the notice, suo-moto or upon the application of any creditor, of the debtor or of the Public Ministry, in order that he presents them within the period of 10 days and failing which, they shall be prepared by head of the office of the court, taking into consideration the proceeds of the liquidation and expenditure authorized and justified in the proceedings. Once the accounts are liquidated in the manner indicated in this article, the administrator shall be directed to pay the short fall which arises that from and shall loose the right to the remuneration. Article 1232 – Cases in which accounts are rendered by heirs or representatives of administrator – In the event of death or disappearance or the manager having become incapable, the accounts shall be rendered by his heirs or representatives. Article 1233 – Organization of account – The accounts shall be submitted in the form of a current account showing at the end all the income and expenditure, wherefrom easily the position of the estate of the debtor are depicted and before they are presented they shall be submitted for the appreciation of the administrator, in order that he expresses his opinion thereon. The accounts shall be accompanied by all the supporting documents, duly numbered and different items of the accounts indicating the number of the documents which support them. 385 Article 1234 – Chart to be presented by Court office – After the receipt of the accounts, they shall be processed by way of appendage, and thereafter the office shall produce one map indicating the dates of principal acts of the insolvency in which the manager has intervened, total amount of the pro rata payments and amount which is recovered from the different parts of the assets. Article 1235 – Summons to the creditors, the insolvent – say of the syndic and Public Ministry - After satisfying what is provided in the preceding articles, summons shall be issued to the creditors and to the debtor by publication of 8 days, in order to give their say on the accounts, and for this purpose the syndic as well as the Public Ministry shall have right to give their say and thereafter file will be placed before the judge for trial. SUB-SECTION IX PREVENTIVE REMEDIES TO SUSPEND THE INSOLVENCY DIVISION I INSOLVENCY COMPOSITION SUB-DIVISION I GENERAL PROVISIONS Article 1236 – Who can initiate a composition - A businessman debtor or his heirs and representatives may enter into with composition with lawful creditors of the debtor, without privilege or preference, not less than absolute majority, representing, at least 2/3rd or 3/4th" of totality of the credits also neither preferential nor privileged, as per the balance sheet and he may also propose to one group of the creditors by his exclusive initiative, in accordance with steps provided in this sub-section. § Sole Paragraph: The composition is preventive or suspensive, depending upon whether it is presented to the court before or after the declaration of the bankruptcy. 386 Article 1237 – Number of creditors and credit representation required to admit composition – In order that a proposal of composition be admitted it is necessary that the same may be accepted by absolute majority of the creditors and that the acceptors represent 2/3rd of totality of the credits reflected in the balance sheet, if the percentage offered is 50% or higher than that and 3 quarters if the percentage is lesser. Article 1238 – Need of fresh consent in case of death of proposer - In the event of death of the proposer before the final approval of the composition, the same shall not be approved without fresh consent of the creditors as per legal number and representation. Article 1239 – Bar on composition by charged or convicted businessman - To the businessman who is charged or convicted by the offense of fraudulent insolvency it is not open to propose composition until the charge is against him is pending or redeemed or pardoned. Article 1240 – Bar on new composition before lapse of one year - No fresh composition shall be admitted unless one year passed after complete fulfillment of the previous composition. Article 1241 – Effect of approval of composition - The approval of the composition is compulsory to all the creditors without privilege and without preference, including those who have not put forth their claims for the verification of their credits or have not been indicated in the balance sheet of the composition provided that they are previous to presentation of the same to the court, even though the actual fulfillment of the obligations becomes effective at subsequent date. Article 1242 – Form and registration of composition - The proposal of composition shall be submitted by way of authentic document or authenticated document and shall be provisionally registered in the office of conservatory of the commercial registration, at the instance of the Public Ministry as soon as order is passed on the application showing the receipts. Such registration shall be converted into definitive or cancelled depending upon whether respective composition is approved or rejected by judgment which has become res-judicata. Article 1243 – Bar on suits or executions - After receipt and registration of the composition, and until the same is not rejected, no creditors by a previous credit figuring in the balance sheet 387 shall file suit or execution nor prosecute the party to the composition. The creditors for the credit not figuring in the balance sheet are not entitled, even though they have obtained the judgment, to prosecute or continue with the pending execution. § Sole Paragraph: From those are excepted when there is no bankruptcy declared, the privileged creditors and preferential creditors, except if they have accepted the composition for any such credits. The seizure, attachment and judicial mortgage do not turn the respective credits into preferential. Article 1244 – Insolvency of the applicant - or party to composition - Upon the receipt of the approved composition, the creditors with credit previous to presentation of the composition may apply for declaration of bankruptcy of the applicant or party to the composition, in case of escape or absence from the establishment, in accordance with clause no. 2 of article 1136, or if he, on account of dissipation or loss of assets or by any abusive conduct, demonstrates manifest intent to defraud the creditors and to frustrate the fulfillment of the obligations of the composition. § Sole Paragraph: To the declaration of bankruptcy in cases covered by this article objections may be raised, meant to challenge its grounds, within the period and by the procedure laid down in articles 1147 and following. Article 1245 – Rights of creditor by instrument of joint liability who accepts composition with any other joint debtor - The credit by way of bills of exchange or by any other debt instrument with joint liability who accepts the composition with any other joint debtor retains his right against the remaining in relation to parties to the composition, being liable for the difference between percentage of composition and the totality of the liability. Article 1246 – Consequences of the acceptance of composition by a privileged or preferred creditor - The creditor who accepts the composition, looses right to any preference or privilege which was entitled, except where the acceptance is limited to other joint credit. Article 1247 – Sanction against private agreement contrary to the composition - All the agreements or contracts made by the debtor with the creditor who had accepted the composition contrary to or beyond what is stipulated in the composition are null and void. § Sole Paragraph: The creditor who got from the proposer of the composition any special 388 advantage over other creditors shall be directed to make payment in their favour, one some equal to 5 times the benefit obtained. Article 1248 – Issuing of bills of exchange or promisory notes pursuant to composition - After the judgment approving the composition had become res judicata, the debtor, party to the composition visa vis that to any other creditor who are subject to the same and seek enforcement are bound to accept the bills of exchange or promissory notes for the amount and period agreed upon as per the composition shall have right, it being incumbent that in each of the such debt instruments may express mention what is the amount as per the composition and what is the percentage was obtained in relation to the original credit which shall be specifically mentioned. § 1: If there is more than one installment to be paid, specific mention shall be made of the number of the instrument in respect of each of them. § 2: When the party to the composition has accepted bills of exchange or issue promissory notes in accordance with this article, the creditor is liable to deliver to him the receipt of such instrument. Article 1249 – Insolvency resulting from rejection of composition - The judgment which rejects the composition shall declare at the same time the bankruptcy of the applicant or shall proceed with further steps if such declaration made. § Sole Paragraph: If the composition is rejected in appeal, the bankruptcy shall be declared by the Trial Court. Article 1250 – Need to justify regular investments of amounts in balance sheet - The party to the composition who becomes bankrupt before payment to the creditors of the respective percentages shall justify the regular investment of the amounts as per the balance sheet read with the composition, failing which the bankruptcy will be classified as fraudulent. § Sole Paragraph: The creditors of the amount prior to presentation of the composition, who accepted it, are not entitled to compete with bankruptcy save and accept towards the amount which has not received the stipulated percentage, and those who have not accepted it may compete for whatever they have not received from the totality of their original credits. 389 SUB-DIVISION II PREVENTIVE COMPOSITION Article 1251 – Requirements - A proposal for a preventive composition is not admissible, wherein the debtor offers percentage below 40% of the totality of the amounts payable in the two subsequent years or at 50% if the period is longer, but not beyond 3 years. § 1: If the payment of the percentage offered is to be tendered within 2 years, at first stage shall be payment of minimum 1/3rd ; if the payment is to be done for period of 3 years, in the first year minimum 1/5th is payable and in the second year minimum 1/3rd. § 2: The concession on the composition may be granted by the creditors subject to the clause “reserving right for better fortune”, which shall have effect for a period of 20 years. § 3: The debtor who has subjected to the clause referred to in the preceding paragraph shall be liable to make the payments proportionately to the creditors parties to the composition, without prejudice to the new creditors who shall have preference. Article 1252 – Competent Court - The proposal of the composition shall be presented to the court of the jurisdiction where the businessman has his principal place or in the absence of the same, of his domicile and which shall contain the indication of the percentage offered under period and manner as to how the payment shall he made. § Sole paragraph: The proposal shall be accompanied by balance sheet of the credits and debts and nominal list of the creditors, with the indication of their domicile and nature and quantum of the credits. Article 1253 – Production of books of accounts - With the proposal of the composition the party to the composition shall present his books relating to the last 3 years of his business or period which he has exercised, if it is more recent. § Sole Paragraph: The books shall be immediately closed writing therein by the office the record, it shall be signed by the judge and the same shall be handed over back to the debtor, who shall be liable to produce them in the manner provided in this subsection. 390 Article 1254 – Notice to debtor to accept the composition proposed by creditors - When the proposal is on the part of a group of creditors, the debtor shall be notified to declare whether he accepts the same, and in the affirmative, he shall take steps in accordance with previous article and of sole paragraph of article 1252. Article 1255 – Admission or rejection by Court - After the proposal is received, the papers shall be placed before the judge for admission or rejection. The proposal shall be rejected if the same has not been submitted in accordance with previous articles or when on simple perusal of the documents it is found that it does not satisfy the requirements of the law. Article 1256 – Publication and content of admission order - The order which admits the proposal of the composition shall be published by way of extract in one of the newspapers largely read in the locality and by affixation of the notice at the door of the domicile of the debtor and in the head office and branches of the establishment and in that following shall be observed: