Bankruptcy
Bankruptcy Law for Mozambique
An effective bankruptcy system (including the judicial infrastructure) increases incentives to lend and invest in a country’s economy. And when things go wrong, it provides a template of principles and procedures for allocating scarce resources and making rational economic decisions as to the fate of a troubled company.
Experience has shown that getting to this point is a challenge. Bankruptcy laws are complex and emotionally charged. It is very easy for a legislature to do a less than perfect job implementing the law. Further, beyond the legislation, a country seeking to establish a workable system needs to address judicial performance, public attitudes, and administrator training. Without the infrastructure to support it, a bankruptcy law, no matter how well drafted, is unlikely to prove effective.
The Minister of Industry and Commerce asked the USAID Trade and Investment Project for assistance in outlining some of the considerations necessary for moving a bankruptcy law forward in Mozambique. In 2008, Mozambique introduced a draft bankruptcy law. The passage of this law will not only assist companies access finance, it will also help Mozambique raise its World Bank Doing Business Ranking.
The paper discusses the potential benefits of using improved bankruptcy procedures to resolve company indebtedness in Mozambique and how this might be accomplished over the next several years. The paper discusses:
- The benefits of an efficient bankruptcy system by depicting how bankruptcy cases would progress after reforms are enacted;
- Mozambique’s legislative options in developing such a system;
- The additional legal infrastructure that will be necessary to make the system work; and
- The particular benefits of an effective system and approaches used by other countries in addressing the issues.
SPEED conducted an independent review of the draft law on business insolvency which was prepared in 2009 and is expected to be submitted in parliament later this year. The SPEED team deemed it necessary to assess the draft law’s strengths and weaknesses and determine if further revisions are needed before submission. The new law would completely overhaul Mozambique’s existing framework and replace it with a far more modern model conforming to international standards. The review found the draft law largely appropriate, though seeing that it is based on a Brazilian model, adaptations should be made in implementation. The review also elaborated interventions and resources that will be needed for transitioning to the new insolvency system, most particularly in judicial system training, related institutional reforms, capacity building for insolvency administrators and other associated professions (legal, management and accounting). SPEED will work with key stakeholders in government, parliament, the banking sector, unions, and private sector associations to help move the draft law to passage in parliament during the year.