Amid the current economic climate, it is anticipated that an increasing number of companies will face insolvency, making the role of administrators more crucial than ever. 

These administrators are the backbone of effective insolvency proceedings, guiding companies through the tumultuous waters of financial distress and ensuring fair treatment for all stakeholders. 

Recognising their critical importance, HBS Law Firm, in collaboration with the Ministry of Justice, hosted a workshop on the "Prakas on the Granting of Administrator Licences in Insolvency Proceedings" at the Hyatt Regency Phnom Penh on June 14.

The event marked a pivotal moment in the understanding and enforcement of Cambodia's insolvency law.

Justice ministry secretary of state Tan Heang Davan opened the workshop by emphasising the crucial role of licenced administrators in aiding companies through rehabilitation and liquidation during insolvency proceedings. 

Davan noted that this was the first seminar of its kind since the prakas was issued.

"Licenced administrators are crucial for supporting companies in distress," Davan said. "They help navigate the most challenging situations in insolvency proceedings, ensuring that the process is orderly and equitable."

The prakas, signed by justice minister Koeut Rith on March 12, implements Article 68 of the Insolvency Law, establishing the conditions and process for granting  administrator licences. 

Davan said the insolvency law is vital in a free market economy where not all businesses succeed.

He highlighted the necessity of a collective procedure for debt repayment to prevent competition among creditors and maintain social and economic order.

"If the repayment is done according to the demands of the respective creditors, there will definitely be competition between creditors to receive payment first" he said. "This is a matter of social and economic order, with the public interest in mind."

Despite nearly two decades of the law's existence, Davan acknowledged that its understanding and implementation had been limited, with more than ten insolvency cases processed. 

Attributing this to limited understanding and a lack of regulatory support, he said the new prakas aims to address some of these issues by detailing the conditions, procedures, rights and obligations of administrators.

In response to concerns that applying the for opening of insolvency proceedings means the debtor is already bankrupt, he said the law and administrators are crucial. 

"Insolvency law is not just a legal necessity; it's a social safeguard," Davan said. "Proper implementation can prevent extreme measures, such as suicide, by ensuring fair asset distribution and protection of both creditors' and debtors' rights."

Ly Tayseng, managing partner of HBS Law Firm and licenced insolvency administrator, further elaborated on the objectives of the workshop. 

He highlighted the importance of disseminating information about the prakas which provides a competent institution for governing the licenced administrators, the procedures for issuing and revoking the licences and the roles and responsibilities of licence administrators.

"The workshop also provides an opportunity for experts from various fields – judiciary, administration and law – to share knowledge and experience," Tayseng said. "It is essential for the effective implementation of the Insolvency Law of the Kingdom of Cambodia, which aims to create a predictable, equitable and transparent mechanism for handling insolvencies."

Tayseng outlined the fundamental purposes and benefits of the law, including risk allocation amongst interested participants, asset protection and value maximisation, credibility and financial stability, debtor rehabilitation and protection for creditors. 

He said the law ensures that risks are shared among stakeholders by establishing clear roles and responsibilities. It provides a collective process where all creditors participate in decision-making in an equitable and transparent manner.

“Insolvency law includes mechanisms to protect and enhance the value of the debtor's assets,” he explained. “This involves continuing existing contracts and adopting compromise plans that can reduce payments or adjust repayment schedules, and preserving jobs for employees and maintaining tax collections etc.”

Tayseng said that by ensuring the effective exercise of stakeholder’s rights, insolvency law enhances the credibility of the credit system. It facilitates lending and access to financing at lower costs, contributing to financial stability and economic growth. 

The law aids debtors in rebuilding their lives and businesses after completing insolvency proceedings, preventing drastic measures such as suicide or fleeing village or country.

“It also offers protection to shareholders, directors and managers from personal liability for corporate debts,” he added.  

Tayseng emphasised the need for an independent and credible judiciary and administrators equipped with extensive legal, business management, financial and ethical knowledge to fulfill their roles effectively.

Role of licenced administrators 

Tan Keattech, a lawyer from HBS Law Firm, discussed the dual objectives of insolvency proceedings: to rehabilitate the debtor's business and to liquidate assets to provide sequential payments to creditors. 

He explained that insolvency law applies to businesspeople and legal entities in Cambodia, including entrepreneurs, vendors, sole proprietors, artisans and professionals with specific provisions for who can file for it and the reasons for doing so.

Keattech said those who are eligible to file for opening insolvency proceeding are creditors, debtors (or directors of capital companies) and public prosecutors. 

A debtor must file for insolvency if they fail to pay obligations totaling 5 million riel (approximately $1,250) or above within 30 days of the due date. 

“The administrators are responsible for protecting creditors' interests, which may include securing assets or suspending other claims,” said Keattech. 

The court is required to hold a hearing within 15 days of receiving a petition from a debtor or within 30 days if the petition is from a creditor, company director or public prosecutor. 

Cases of fraud or malicious intent will be dismissed and proceedings may not be filed if the debtor’s assets are insufficient to cover costs unless an advance payment is provided.

Decisions are to be made public in at least two daily newspapers and notified to the Commercial Registrar and the Security Filing Office. 

“Administrators may authorise creditors to seize and sell collateral or use it to settle debts,” said Keattech. “Debtors' assets under insolvency include all types of assets, rights and debts, with certain exemptions for natural persons.” 

The administrators must convert non-cash assets to cash quickly and effectively. After the saleable assets are cleared, they must report on their activities and the final account of allotments within 30 days. 

He said the court will convene a final meeting of creditors within 14 days of receiving the report to approve the final account and decide on the use of unsold debtor property. The court will close the case immediately following this meeting.

"The process involves converting non-cash assets into cash and using appropriate commercial means to obtain the highest yields for the debtor," Keattech said. 

"This ensures that the interests of creditors are protected, and the process is fair and transparent," he added.  

He said that when the assets are sold, the compensation is prioritised to employees, administrator’s renumeration and fees, administrative fees and then secured creditors, taxes and all other admissible claims.

Qualification of administrators

Vong Kimsan, director of the Office of Administrator Licences and liquidator for the ministry, described the role of administrators in insolvency proceedings. 

He said they are responsible for managing assets, facilitating business rehabilitation and ensuring collective repayment to creditors if rehabilitation is not possible.

To qualify as an administrator, applicants must be Cambodian citizens with no criminal history, bankruptcy records or engagement in dishonest behaviour. 

“They must hold at least an undergraduate degree in fields such as law, commerce, finance, accounting, auditing or business management, and possess at least five years of relevant experience. Applicants must have a workplace located within Cambodia,” said Kimsan. 

The application process involves submitting a form to the ministry, accompanied by documents including educational qualifications, work experience, an ID card copy, a criminal record report, photographs and proof of payment. 

The ministry will review and decide on the application within 45 days. All applications and renewal fees are specified in an inter-ministerial prakas and are non-refundable if the application is not approved.

Kimsan said licences issued are valid for two years and can be renewed at the end of each cycle. Renewal requests must be submitted at least 60 days before the licence's expiration. 

“Licensed administrators are required to submit annual reports by October 30 each year, notify the justice ministry within 15 days of any change in workplace or contact details and obtain professional indemnity insurance, which is currently not yet required until further notice.”

They must also maintain records and documents for at least six years from the closing of proceedings and attend relevant training organised by the ministry or authorised institutions. 

He said the ministry reserves the right to revoke the licence if the holder fails to meet any criteria or obligations. Penalties for non-compliance include verbal or written reprimands, suspension or revocation of the licence. 

“Administrators operating without a valid licence may face further criminal and civil liabilities,” said Kimsan. 

He noted these stringent measures aim to ensure transparency, efficiency and accountability in the management of insolvency proceedings.