The restructuring, preventive composition, and bankruptcy law No. 11/2018 issued on 19th of February 2018 and entered into force on the 22nd of March 2018 (the “Law”) is the first law that is entirely dedicated to bankruptcy and is seen as a positive step in attracting investments in Egypt. The Law replaces the fifth chapter of the Trade Law no. 17 of 1999 which dealt with corporate bankruptcy in a perfunctory manner although the Egyptian corporate entities dominate 95% of Egypt’s enterprises.

By regulating and streamlining the bankruptcy process, especially corporate bankruptcy, investors find greater comfort in entering the market by knowing that they can now more easily exit it. The Law is part of a series of legislations that have taken place in Egypt aimed at galvanizing investments in Egypt including the new Investment Law which introduced drastic changes to the investment regime and energized the investment climate in Egypt.

Since the promulgation of the Law, Egypt’s ranking in the World Bank’s resolving insolvency index has risen from 115 to 104. By introducing restructuring and preventive composition while allowing the debtor to remain in almost complete control over the affairs of the enterprise, the Law decreases the need for bankruptcy and keeps it as a last resort for struggling debtors. Additionally, the Law attempts to streamline the process of bankruptcy and decreasing the bankruptcy and liquidation procedures from 2 years to 9 months. The Law is also expected to increase the recovered funds following bankruptcy and decrease the loss of assets.


  1. Preventive Composition

Preventive composition is the main mechanisms in the Law that attempts to prevent bankruptcy and resorting to formal court proceedings. In essence, it allows the debtor to reach a settlement with its creditors on past dues with the supervision of the court through both appointing a trustee as well as approving the final settlement. At the same time, it grants the debtor autonomy to run its business without many interventions.

There are, naturally, requirements and conditions to applying for preventive composition.

Application Requirements:(art.15 to 19 of the Law)

First, the debtor must not have committed fraud or mistake that cannot be committed by a normal merchant.

Second, the debtor must submit the application for preventive composition within 15 days of being in default of due payments.

Third, in case the debtor is a corporate entity, the debtor must not be in liquidation and it must have obtained the approval of the majority of its shareholders.

Fourth, the debtor must have been carrying out the business continuously for at least two years prior to submitting the application.

In addition to the aforementioned conditions, the debtor may not submit another reconciliation application during the course of preventive composition or restructuring. Moreover, if the debtor has applied for bankruptcy as well as preventive composition, the latter shall be ruled on prior to the application for bankruptcy.

The debtor must, of course, provide a plan to settle its debts, reasons for financial difficulty as well as providing supporting documents laid out in article 36 of the Law. The court may request additional documents as it sees fit.

Application Process:(art. 40 to 64 of the Law)

The court may decide to accept or refuse the application for preventive composition.

The court may refuse the application if the debtor:

  1. did not submit the documents required to consider the application;
  2. was convicted of a financial crime; or
  3. if the debtor has retired from commerce or fled.

Otherwise, the court shall accept the application and will order commencement of the procedures. This includes appointing a judge to supervise the preventive composition and appointing a trustee to undertake the procedures. This will also include a stay on all claims and enforcement measures against the debtor.

Within 5 days of the appointment of the trustee, the latter will register the judgement in the commercial registry and publish a summary of the judgement along with a meeting invitation to the creditors in a daily newspaper.

During the process, the debtor shall remain in control of its funds supervised by the trustee and any donations made by the debtor shall not be enforceable against its creditors. Meanwhile, any reconciliation, mortgage or disposal of assets outside the regular course of business shall require the prior approval of the court.

While all claims and enforcement measures against the debtor are held, claims and enforcement measures initiated by the debtor shall continue with the entry of the trustee as a party to the claim.

It is important to note that the Law has specifically barred the acceleration of due payments upon the commencement of preventive composition, however, due payments do continue to accrue interest.

List of Claims

Within 15 days from publishing the invitation to the creditors, all the creditors, even secured creditors, are to submit original a list of their debts and the original debt instruments. Within 40 days from the commencement of proceedings, the trustee must compile and deposit a list of claims by the creditors to the court and publish this list in a widely circulated daily newspaper. The creditors shall have 10 days to dispute any claims submitted in the list and the court shall rule on the disputed claims. The court’s decision in this regard may be appealed.

Meeting of Creditors

Upon the court’s examination of the list of claims, the court shall call for a meeting of the creditors in the same daily newspaper.

5 days before the meeting, the trustee shall deposit a report which, among other things, states the current financial status of the debtor and the trustee’s opinion on the settlement plan put forth by the debtor. This report will be available to any interested party.

The meeting is chaired by the mediation judge and the settlement plan is ratified by the majority of present creditors provided they represent two thirds of the present debt. A second meeting is called in case no majority is reached.

In case the debtor has issued corporate bonds or sukuk surpassing a third of the total claims against the debtor, the approval of general assembly of the bond/sukuk holders is required to approve the settlement. Secured creditors may only vote on the settlement plan if they waive at least a part of their security. However, waiving the security shall only be enforced in case the settlement is ratified and approved by the court.

Final Ratification (art. 64 and 65 of the Law)

After approval of the settlement plan in the meeting of the creditors, the court allows creditors 10 days to voice any objections on the plan and decides whether to ratify the settlement plan. Upon ratification, the settlement plan becomes binding on all creditors, even those that did not partake in the proceedings or rejected the settlement plan.

  1. Corporate Restructuring:(art. 15 to 29 of the law No.11/2018)

Corporate restructuring is one of the new alternatives introduced by the Law, which allows an insolvent company to settle its debts and have a second chance to access the market. The Law defines the restructuring in its first article as “the procedures serving the trader or the company to exit financial and administrative difficulty”. This includes reassessing assets, debt restructuring, capital increases and managerial restructuring. Any company or individual with commercial activities may resort to restructuring, provided they meet certain requirements.

Application Requirements

In order to meet the application requirements set out in article 15 of the Law, the debtor must:

  • have a capital of at least one million Egyptian pounds;
  • have been carrying out the business continuously for at least two years prior to submitting the application;
  • have not committed fraud; and
  • in case of a corporate entity, not be in liquidation.

The debtor may not submit an application for restructuring if the court has already deemed the debtor bankrupt or has begun preventive composition procedures. Submitting an application for restructuring automatically holds other applications until the restructuring application has been ruled on. Additionally, in case of rejection, the debtor must wait at least 3 months from the date of the ruling to submit another application.

The debtor must submit an application that includes the causes and details of the financial difficulty along with supporting documents set out in article 19 of the Law. The court may request additional supporting documents as it sees fit

Application Process

  • Step 1: The application for corporate restructuring is submitted to a restructuring committee of experts registered with the court.
  • Step 2: The restructuring committee submits a report to the court within three months of the date of the application including the feasibility of the restructuring and a proposed plan.
  • Step 3: The court approves the proposed plan submitted by the committee upon the approval of the creditors. The restructuing plan is only binding on the signing creditors.

The court may refuse the application if:

  1. the debtor did not submit the documents or pay the necessary fees required to consider the application;
  2. the reasons for submitting the restructuring applications have abated; or
  3. restructuring is not suitable for the debtor.

Restructuring Plan

Once the restructuring plan is ratified by the court, the debtor shall remain in control of its funds while remaining compliant to the restructuring plan. The debtor, however, is not permitted to engage in any action that may affect the interest of the creditors. This includes donations, borrowing, loaning, mortgaging and selling outside the regular course of business.

On the other hand, the signing creditors are not permitted to make claims against the debtor or the restructuring plan until the restructuring plan is implemented or terminated.

Interested parties, other than the signing creditors, may petition the court in relation to the restructuring plan.

The restructuring plan is terminated upon completion of by termination from the court.

  1. Corporate Bankruptcy

Article 192 of the Law defines corporate bankruptcy as “the failure of the company to pay its debts due to financial difficulty.”

The legal representative of the company may file for bankruptcy upon obtaining the approval of the majority of shareholders or partners. Additionally, the creditor of a company may file for bankruptcy even if the creditor is a partner in said company. However, a partner who is not a creditor may not file for bankruptcy on behalf of the company without obtaining the approval of the majority.

The Court is authorized, according to article 196 of the Law, to postpone bankruptcy proceedings for a maximum of three months in case a postponement may assist in improving the company’s financial standing or in the interest of the national economy.

Risks on Partners and Board Members

Article 197-200 of the Law outline the potential risks to partners in a partnership as well as members of the board of directors in case of a declaration of bankruptcy:

  1. A declaration of corporate bankruptcy in partnership entails that all the partners are personally declared bankrupt, as well as any partner that has left the partnership after it has become insolvent in the event that the partner has exited the partnership before the bankruptcy application was made by a period of one year. However, each partner’s bankruptcy shall be independent of the other;
  2. The court may decide to deprive board members of certain political and economic rights as stated in article 111 of the Law in case they have committed gross faults that led to the company’s financial difficulty;
  3. In case the assets of the company do not cover at least 20% of its debts, then the court may decide to order payment from all or some of the board members or managers; and
  4. In case the shareholders are yet to subscribe fully to the capital of the company, the bankruptcy trustee may order the shareholders to pay the remainder of their contribution to the capital of the company in order to pay the company’s debts.

Liquidation of Assets

Through various provisions, the Law attempts to reduce the process of bankruptcy and liquidation of assets to 9 months from the current average of 2.5 years, chief among them are articles 212 and 228 of the Law which reduces the timeframe for the appeal process.

The creditors’ union is required to finalize the liquidation of assets, otherwise, the union is required to submit a report to the court and is given the authority the decide on the liquidation after discussions with the union.

After the completion of the liquidation, a final account shall be submitted to the court who shall send it to the creditors with an invitation to discussion meeting. After its approval the union shall be dissolved and the bankruptcy shall be terminated.

  1. Conclusion

The Law attempts to place Egypt within competitive range of developed economies’ timelines and metrics for bankruptcy. Specifically, the Law aims to maximize the funds recovered from bankruptcy from a current average of 26 cents/dollar according to the Organization for Economic Cooperation and Development’s (OECD) to an average of 71.2 cents/dollar; minimize the loss of assets from 22% according to the OECD to an average of 9.1%; and finally reduce the timeline of bankruptcy from its current average of 2.5 years in comparison with the OECD average of 1.7 years.