The position of a creditor in an insolvency case is built entirely on regulation: when and how the application must reach the debtor, who compiles the creditors' register and within what period, which transactions the manager may challenge, when a creditors' committee is mandatory, and in what order the mass is distributed in the bankruptcy regime. This page explains these rules for the creditor who wants to protect a claim as effectively as possible in the insolvency process — from the filing of the application to the final distribution.
Registration of the Application and Delivery to the Debtor
Where an application on insolvency is filed by a creditor, the court chancellery ensures its registration and hands to the creditor a mailing — copies of the application and of the attached documents — for delivery to the debtor. The creditor is obliged, within 1 month of receiving the court mailing, to ensure its delivery to the debtor by post, through a court courier, by another means agreed by the parties, or by email; a mailing sent by email is deemed delivered where the debtor confirms receipt by electronic means.
The document confirming delivery must be submitted by the creditor to the court before the expiry of that period. The debtor, for its part, is obliged to submit, within 7 days of receipt of the court mailing, its own opinion on its insolvency or expected insolvency and on the opening of a rehabilitation or bankruptcy regime. Ignoring these deadlines halts the process, which is why the creditor's very first steps must be documented flawlessly.
The Creditors' Register and Its Boundaries
The claims of creditors are verified and the creditors' register is compiled by the manager or supervisor within 60 days of the ruling declaring the application admissible — on the basis of information received from the creditors and the debtor or of information procured by the manager itself. Only those creditor claims that the manager reasonably accepts are entered into the register; claims subject to ongoing enforcement proceedings are reflected in the register automatically, unless the creditor refuses their entry.
The manager has no right to recognise a penalty and overdue interest where their total amount exceeds 10 percent of the principal debt. The creditor must overcome this boundary by a claim to the court — with a demand to impose the unrecognised interest and penalty on the debtor and to enter them in the register. A claim is reflected in the national currency, and where the creditor enjoys a right of set-off under the relevant special regime, special rules apply to the set-off agreement.
Challengeable Acts and the Protection of the Mass
The manager or the rehabilitation supervisor has the right to challenge the deliberate reduction of the insolvency mass — an act aimed at diminishing the mass, disposing of or hiding the debtor's property in order to restrict its availability to creditors; the devaluation of the mass — the transfer of property for free or below market value; and the granting of preference — an act that gives a creditor an advantage it would not have had without that act.
For the creditor this instrument matters because doubtful transactions carried out by the debtor before the insolvency may be annulled through a challenge and the property returned to the mass. At the same time, the challenge procedure does not limit the application of other legal remedies against acts connected with the hiding or otherwise dishonest disposal of the debtor's property.
The Creditors' Committee
The creditors' assembly is authorised to elect a creditors' committee for the purpose of facilitating the exercise of creditors' rights. The election is mandatory where the debtor has no fewer than 50 creditors and the indicators of its last financial year meet at least one of two criteria: the total value of its assets exceeds 10 million GEL or its annual income exceeds 20 million GEL.
The committee consists of 3 members: 1 member is elected by the secured creditors and 2 by the unsecured creditors. The committee demands information from the manager, participates in the preparation of the draft rehabilitation plan and is authorised to apply to the court regarding the dismissal of the manager and the appointment of a new one. A sitting of the committee is competent where at least 2 members attend; decisions are taken by a majority of votes, and where the votes split equally the chairman's vote is decisive. The remuneration of a committee member is decided by the court no later than 5 days after the election and must not exceed 20 percent of the manager's remuneration.
The Order of Distribution of the Mass
In the bankruptcy of the debtor, the insolvency mass is distributed in the following order: first, the costs of the bankruptcy regime, including court process costs, the remuneration of the bankruptcy manager and case-related expenses; then, the debts arising against the debtor after the admissibility ruling, including tax obligations; and after that, the groups of creditors: preferential claims, preferential tax claims, unsecured claims, interest and penalties, subordinated claims and obligations arising from corporate relations.
The mass must be distributed according to the principle of proportionality: each subsequent rank is satisfied after the full satisfaction of the previous one, unless a different arrangement is provided for by the consent of the affected creditors. A creditor also has the right, in exchange for a partial waiver of its claim, to demand priority satisfaction compared with its own group — this requires the consent of all equally ranking interested creditors.
Frequently Asked Questions
Who compiles the creditors' register?
The manager or supervisor — within 60 days of the admissibility ruling; only reasonably accepted claims are entered.
What happens to the penalty portion?
The manager may not recognise a penalty and interest exceeding 10 percent of the principal debt — a court claim is needed to overcome this boundary.
When is the committee mandatory?
With no fewer than 50 creditors or with large indicators — assets above 10 million GEL or income above 20 million GEL.
In what order do I recover?
First the regime costs and post-ruling debts are covered, then the creditor groups proportionally — according to rank.
How We Help on Legal.ge
The lawyers of Legal.ge represent creditors at every stage of the insolvency process: we prepare the application and monitor the delivery deadlines, substantiate the entry of claims into the register, use the challenge instrument to protect the mass and ensure the creditor's representation in the assembly and the committee. Contact us for a consultation — we will assess your position and prepare an action plan.