Obligor's Registry Procedures Introduced

Issue I, January, 2010

The procedure of keeping Obligors' Registry was approved by the Order No. 234 of the Minister of Justice of Georgia, dated 28 December 2009. Above Order determined the Obligors' Registry as a set of systematized electronic data regarding those natural and legal persons, as well as other organizational entities (except for state authority and local self-governing bodies) against which enforcement commenced from 1 January 2010 and which failed to voluntarily discharge monetary obligations subject to enforcement, other than secured ones.

The aim of introduction of the Obligors' Registry is:
(a)   to increase efficiency of compulsory enforcement measures;
(b)  to secure publicity of enforcement process;
(c)  to support possible risk reduction in private legal relationships; as well as
(d)  to create additional guarantees for potential partners' reliability.

The Registry is kept by the Legal Person of Public Law National Enforcement Bureau at the Ministry of Justice of Georgia.

The Obligors' Registry is unified (maintaining of individual registries by executors is not allowed) and the data kept at the Registry are public.

The data registered with the Obligors' Registry among others shall include the ground for registration/removal of an obligor with/from the Registry as well as number and date of such ground along with the details of executor/private executor.

Both executor and private executor shall apply to the National Enforcement Bureau on the same business day when the respective grounds established by the law for registration or removal with/from the Registry have arisen.

The person submitting the data (i.e. either executor of Enforcement Bureaus (such bureaus are territorial bodies of the National Enforcement Bureau) or private executor) is responsible for their accuracy, however, in case of doubt the data provided for registration or those already registered are subject to immediate check of the respective territorial entity of the National Enforcement Bureau.

Extract from the Registry as well as the respective certificate is issued immediately or no later than next business day from filing an application. Both of them are documents created by automated management system and do not require additional certification by stamp or signature.

New Attitude towards Discharging the Claim Secured by Mortgage
We should note as well amendments introduced by the Law of Georgia on Making Changes and Amendments to the Civil Code of Georgia, dated 4 December 2009.

According to the amendments, paragraph 11 has been added to Article 301 of the Civil Code of Georgia, pursuant to which claim secured by mortgage shall be deemed as discharged, even if the proceeds received as a result of realization of the assets subject to the mortgage do not cover the secured claim in whole, unless otherwise provided by law or agreement of the parties. It should be noted that under the above code the similar provision existed for transfer of the mortgaged assets into ownership of the mortgagor and introduction of the identical attitude towards realization of the mortgaged assets seems to be reasonable.

Enforcement of Mortgage through Writ Issued by Notary
Furthermore, the amendments introduced one more enforcement mean for mortgagees. In particular, pursuant to paragraph 31 added to Article 302 of the Civil Code of Georgia, mortgagee and mortgagor may agree that the transfer to the mortgagee as well as realization of the assets subject to mortgage may occur on the basis of an enforcement writ issued by a notary. However, the above provision will be enforceable provided that the mortgage agreement is certified by a notary (please note that paragraph 31 of Article 302 mentioned above takes effect from 1 April 2010).

Waiver by Preliminary Agreement of the Right to Damages for Intentional Breach
The amendment was made among others to Article 410 of the Civil Code of Georgia. In particular, the previous version of the above article stated that waiver by preliminary agreement of the right to damages for breach of an obligation is not allowed. Pursuant to the amendments such waiver is not allowed, unless otherwise provided by law or agreement of the parties. However, it should be noted that paragraph 2 of Article 395 of the above code remained unchanged, pursuant to which "a preliminary agreement of the parties on releasing the obligor from liability for damages in case of intentional breach of an obligation shall not be allowed". Therefore the issue, whether waiver by preliminary agreement of the right to damages for intentional breach of an obligation is allowed or not if directly referred to in the agreement, is still equivocal.


Recent amendments to the Georgian Law on Entrepreneurs introduced certain changes on status of entrepreneurial and non- entrepreneurial entities, their organization and registration related matters as well as on status of a competent registering body. Some (but not all) core issues set forth in the said amendments are as follows:

Ministry of Justice of Georgia in Charge
Authorities of the Ministry of Finance (and it territorial bodies - tax inspections) have been transferred to the Public Registry of the Ministry of Justice (and its territorial bodies throughout the country). Public Registry will now conduct registration of entrepreneurial and non-entrepreneurial entities, changes in their registration records, maintain data on registered entities and ensure relevant public access.

Requirement of Reorganization/Liquidation of Registered Partnerships
It is important that "registered partnerships", recently introduced corporate vehicles, will cease existence from 1 January 2011. All those entities must either be reorganized into any of the available legal forms or be liquidated.

Updating the List of Documents Required for Registration of a Entity
Further on, registration procedures, namely requirement on the documents submitted in such course, have been slightly amended. Registration of a charter - main constitutional document of legal entities - will now be compulsory. Charters shall envisage Information on shareholders (except in joint stock companies) and shall be signed by all shareholders. Submission of amended charter will also be necessary when conducting amendments in registration details of legal entities (such as legal address, shareholders, name. etc). Submission of the evidence on legal address (e.g. consent of the owner of a premise, lease agreement) will become one of the prerequisites for company registration.

Website of Public Registry- making Available Extracts on Companies
Information on legal entities in the form of relevant extracts will be widely available to public on the website of the Public Registry ( Contrary to previous practice, extracts on limited liability companies shall include information on identity of shareholders and their respective shareholdings. Therefore, all limited liability companies shall furnish the Public Registry with information on their shareholders (previously such information was maintained internally by the companies or by independent registrars).

No Requirement of Registering Branches of Local Legal Entities
Finally, branches of local legal entities will no longer be registered as per the recent amendments made to the Law on Entrepreneurs of Georgia.


Georgian-Malta Tax Treaty Signed and Ratified
On 23 October 2009 Georgia has signed comprehensive double taxation agreement with Malta. The agreement, ratified by Parliament of Georgia on 15 December 2009, provides significant treaty benefits for residents of both Georgia and Malta.

New Rules on the Status of International Enterprise
Recent amendments to Tax Code of Georgia have partially lifted the restrictions under which delivery of goods or provision of services by Georgian tax payer to free industrial zone enterprise (the "FIZ Enterprise") would result in forfeiting the status of "International Enterprise" for FIZ Enterprise.

The amendments to the Tax Code state that the Government of Georgia shall adopt the list of the services provision of which to International Enterprise would not entail loss of this status. International Enterprise shall notify tax authorities about the services obtained from the Georgian tax payer or entity without the status of international enterprise pursuant to the procedures approved by the Minister of Finance of Georgia.

Further, Government of Georgia shall adopt the list of the goods delivery of which by Georgian tax payer or the entity without the status of international enterprise to International Enterprise is restricted to the effect that such delivery will entail loss of International Enterprise status. A contrario it follows that generally International Enterprise may source raw materials/goods from Georgia without facing the risk of loosing International Enterprise status unless the list of Government of Georgia explicitly provides to the contrary. However, International Enterprise may not deliver those goods to the Georgian territory or within the free industrial zone which have been acquired from the Georgian tax payer or entity without the status of international enterprise.

The Tax Agreement Procedure Is Introduced
Tax Code of Georgia has introduced rules for tax agreement (the "Tax Agreement"). The goal of these rules is to reduce tax obligation/tax penalty accrued to the tax payer or to determine non-declared tax obligation of the tax payer if the following conditions are met:
>  A total tax obligation exceeds GEL 10 000; and
>  Said tax obligation is not recognized by a tax payer.

The tax payer may apply to the Revenue Services of Ministry of Finance of Georgia with the proposition to conclude a Tax Agreement. The Tax Agreement is executed between the tax payer and Ministry of Finance if conclusion of the agreement is permitted by the decision of Government of Georgia. Further, the Ministry of Finance can reduce the tax obligation/tax penalties imposed on the tax payer if the tax obligation determined under the decision of Government of Georgia is dully and in a due manner performed by the tax payer.

Conclusion of the Tax Agreement amounts to the irrefutable presumption that the tax obligation indicated therein is irrevocably recognized by the tax payer. Same time, additional tax obligation may not be accrued to the tax payer on the same ground (except for a tax obligation imposed for the nonperformance of the Tax Agreement).

The tax payer may bring the appeal against the Tax Agreement only in case the agreement is concluded by a non-authorized person.

Amendments were introduced to the Law of Georgia on Insolvency Proceedings on November 2009. The changes include:
Requirement of Written Contest
For the right of filing the insolvency application to arise creditor should not have received written contest from the debtor on the claim. Previous wording of the same provision referred to the need of an appeal towards the claim, current formulation lowers the threshold and requires inexistence of a simple written contest/rejection.

51% of Creditors' Attendance
Under the amended law, explicit indication of 51% of the creditors attending the meeting of the creditors is required. Noteworthy is also removal of the obligation for delivering of the invitation for attendance at the creditors meeting, provided however that common notice on holding the meeting is published in "Sakartvelos Sakanonmdeblo Matsne" (official gazette).

Common Litigation
Right to common litigation could be referred in cases when the parties to the process possess right to the claims not mirrored in the creditor list. In such a setting, the applicant has to prove the circumstances used as the ground for application. If the right to common litigation is applied, party has to file a claim to the court hearing the insolvency case within a term of 5 (five) days from the date of the first meeting of creditors. The court has a strict timeline of 5 (five) days for admitting the claim and 20 (twenty) days for finalizing the hearing of a case. Decision of the first instance court can be appealed within 5 (five) days from the receipt of the decision; the Court of Appeals has the same timeframe for admitting the claim and rendering ruling thereof.

New Rules for Holding Auction
Important changes are made to the rule of organizing auction. Current wording of the article provides that at the first auction it is Prohibited to sell the property in parts, thereby strengthening the need of sale of the property put to auction as one complex. Additionally, changes are made to the calculation of the price of the trusted property: as per the old version of the law the price had to be not less that the joint amount of the claims raised by the creditors of all the ranks. Current wording altered the attitude and provides that the starting price of the trusted property should amount to the market price of the latter as evaluated by respective expert.

Another novelty with the rules of organizing auction/sale of trusted property is mirrored in the newly incorporated provision providing that in case the property is not sold at the first auction, the property can be purchased before holding the second auction for its starting price as announced at the first auction.

With the second auction, the amendment offers possibility of selling the property both either as one complex or in parts. New law removed the third auction and provides that in case the trusted property is not sold on the second auction, the creditors are entitled to receive the property or instruct the trustee in bankruptcy on ways of realization. In case within 60 days from the second auction the property is not transferred into the ownership of the creditors or is not realized as advised, creditors are offered to receive the property. Denial to the receipt of the property will be deemed as the rejection of the claim. Would all the creditors reject acceptance of the property, liquidation of the enterprise will start 


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