4.3.7. Support Bankruptcy Law
Bankruptcy law includes legal procedures and regulations initiated by an individual or a business that cannot pay their debts and seeks to have the debts discharged or reorganized by the courts. Bankruptcy law is a risk mitigation tool, helping to protect lenders, so if a borrower defaults, a lender is protected.
- Ability to have commercial disputes resolved in a timely manner
- Ability to recover and sell property pledged as collateral
- Ability to resolve bankruptcies in a timely manner
MUST HAVE’S, CRITICAL POINTS, OR QUESTIONS TO CONSIDER
Until recently, outdated Mozambican insolvency laws dating back more than a century made the process to dissolve a business unduly complicated, slow and costly. These factors can impair growth, competitiveness, and the prevention and resolution of financial crises.
USAID’s Support Program for Economic and Enterprise Development (SPEED) identified this as an area where legislative reforms would yield significant benefit, particularly for small and medium enterprises. As a result, the program partnered with the Mozambican Business Confederation and local legal advisers Sal e Caldeira to advocate for new insolvency legislation.
While the process to reform Mozambique’s insolvency laws has been long, it has been successful. In 2011, USAID helped draft legislation that was submitted to Parliament that year and enacted in 2013. The new legislation facilitates potential recovery for struggling businesses and establishes legal methods to declare bankruptcy, if necessary. Rather than being forced to immediately sell assets or declare insolvency, entrepreneurs now have options to recover normal economic activity and maintain jobs. The new laws also protect the creditors of the companies that ultimately declare insolvency.