The importance of financial recovery (sanatio- reorganization) in Armenian bankruptcy law and practice

Abstract

In early civilized societies, where a creditor’s rights protection was absolute and prevailed over a debtor’s rights, insolvency arrived in the aftermath of the insolvency of the latter, and could be fatal and cause irreparable harm. Thus, in ancient Rome, if one became insolvent and unable to pay his debts, Roman law “permitted the debtor’s creditors to dismember and distribute a debtor’s body to the creditors in proportion to the amount of debts owed to each.” It is rather hard to see how such harsh punishment helped to compensate these ancient Roman creditors for their loss. Bankruptcy is also documented in East Asia. During the reign of Genghis Khan, there was a provision mandating death penalty for anyone who became bankrupt three times. For centuries in ancient Greece, if an individual was unable to pay his debts then he, along with his wife, children and servants could be forced into servitude as debt slaves of the creditor until the debt was paid off. It follows from the above-mentioned that, in civilized society, over a rather long period in history, laws have acted only to protect creditor interests and rights, and debtor rights have always or typically been of secondary importance, even if they in fact existed. Moreover, not only have entrepreneur’s rights and lawful interests ever been taken into consideration, but also rights and lawful interests of other interested parties of current undertaking. If the entrepreneur or the enterprise has met with failure, then unconditionally latter’s property confiscation and/or disintegration followed- an individual has been physically destroyed or has been given to the slavery along with his family, and the company has been disintegrated and condemned to a non-existence and destruction. Of course, concomitant with development of economic and socio-legal relations and for the benefit of economic progress, within bankruptcy institutions the attitude toward debtors has been gradually changed as well; more humanist provisions were set out. It is not accidental at all, that even in medieval church canons provisions for alleviating punishment strictness that had been applied towards creditors were widely discussed, which has been significantly changed over time. Nevertheless, the bankruptcy, in essence and in fact, is still often identified with person’s property confiscation and/or with institution liquidation, which, nowadays, is comparable with physical elimination of debtors at civilization daybreak. Actually, the existence of bankruptcy institutions is needful to observe as a new possibility for entrepreneurs to reassess their own potential and possibilities for a start of a new undertaking. The research of the subject matter represented below lays down the issue of posing new legal mechanisms of separate systems directed to completion of financial recovery in the bankruptcy system acting in the RA.