Cyprus Mail

Race against time for bankruptcies bill

By Elias Hazou

GOVERNMENT technocrats and lawmakers will be racing against time to produce a first draft of an omnibus bankruptcies bill before international lenders return to the island in mid October.

The timetable for the colossal task was unveiled to a committee of ‘experts’ of parliamentary parties during their first meeting with the finance minister on Monday.

The committee comprises a representative from each of the parties, save AKEL, who declined to participate.

The insolvency omnibus bill – consisting of six items – is designed to complement foreclosures-related legislation, the aim being to weed out uncooperative borrowers and give solvent debtors incentives to settle their arrears with banks.

Ultimately, the goal is to reduce bad loans on banks’ balance sheets, around 50 per cent of whose loan portfolio is currently classed as non-performing. Should Cyprus’ fragile banks fail to recover non-performing loans, the loans’ asset value would be heavily marked down and lenders forced to seek additional risk capital under European banking rules.

Earlier this month parliament passed a foreclosures law, but the opposition – which controls the House – says the law must not enter into effect until updated bankruptcy laws are enacted as well, providing a ‘safety net’ to vulnerable groups.

Under the schedule given by the government, by late September to early October the first draft of the insolvency bills must be ready, so they can be presented to the troika of international creditors before their next review mission to Cyprus – most likely around mid-October.

Next, the government will initiate dialogue with the Public Sector Guidance Committee, and after that a ministerial committee will green-light the start of talks with private-sector stakeholders.

A second draft of the omnibus bill is slated to be ready by early November, along with legal vetting of the items.

The final draft is to be submitted to parliament in December.

According to reports, the six items comprising the omnibus bill are: a new personal insolvency law; an amendment to bankruptcy law; an amendment to the Companies Law, streamlining and speeding up liquidation; an addition to the Companies Law regulating viable businesses under examinership; a debt restructuring scheme for viable businesses, placed under administration; and regulations governing the profession of insolvency consultants.

It’s understood also that the new law will allow for debt forgiveness for certain delinquent debtors and under specific circumstances.

Under the terms of the island’s bailout, Cyprus must adopt a comprehensive reform framework establishing appropriate corporate and personal insolvency procedures.

Based on that framework, corporate and personal insolvency legislation will be adopted, which will include licensing and regulation of insolvency practitioners, by end-December.

The recovery of non-performing loans and of distressed assets is a key component of the updated memorandum of understanding (MoU) on specific economic policy conditionality.

As part of financial sector reform, the updated MoU calls for a reform of the debt restructuring framework “with a view to facilitating the voluntary workout of non-performing loans, avoiding strategic defaults by borrowers.”

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