Newsletter
CONSUMER INSOLVENCY ACT PROMULGATED
The Consumer Insolvency Act was promulgated on 11 July 2007, and will take effect nine months after that date. The Act provides that an indi-vidual who has not been engaged in business activities during the last five years, or whose average monthly business turnover over the last five years has not exceeded NT$200,000, and whose total debts other than secured and senior debts do not exceed NT$12 million, may petition the court for rehabilitation.
During a rehabilitation procedure, secured and senior creditors can still pursue the debt through litigation and compulsory enforcement on the collateral, but ordinary creditors may not file for or continue litigation or compulsory enforcement procedures. However, ordinary creditors may still offset their own debts toward the debtor that existed before commencement of the rehabilita-tion procedure.
If the debtor proposes a rehabilitation plan for repayment of a proportion of his debts over a period of up to six to eight years which is ac-cepted by the meeting of creditors and approved by the court, and the debtor does fully perform the plan, then the outstanding debts after the performance of the rehabilitation plan will be deemed to be discharged. The Act does not af-fect creditors' rights toward other joint debtors, guarantors, and collateral providers. The court may limit the debtor's living expenses prior to completion of the rehabilitation procedure.
The Act also provides a procedure for liquidation of the debtor's assets. During a liquidation pro-cedure, the rights of secured creditors are not affected or restricted and the secured creditor may foreclose the collateral out of the liquidation procedure. Ordinary creditors may still offset their own debts existed prior to commencement of the liquidation procedure toward the debtor. The debtor's assets should be managed and dis-posed of by an administrator acting according to the resolution of the meeting of the creditors or in an appropriate manner.
The liquidation procedure terminates upon the completion of the proceeds distribution. Once the liquidation procedure is completed, the debtor is discharged from the debt that has not been repaid, unless the debtor conducted im-proper behavior as defined in the Act before or during the liquidation procedure. However, this will not affect the creditors' rights toward other joint debtors, guarantors, or collateral providers. After a debtor has petitioned the court for a liq-uidation procedure, his living expenses may not exceed those of an ordinary person, and the court may impose further restrictions on his living expenses. The debtor may not leave his place of residence without the court's permission, and the court may restrict him from leaving the country.
If a debtor has any liabilities toward a financial institution for consumer loans, self-use mortgage loans, or credit card or cash card debts, then be-fore petitioning the court for a rehabilitation or liquidation procedure, he should first request the financial institution which is his largest creditor to negotiate a debt repayment plan. If such ne-gotiations should fail, the debtor may directly petition the court for a rehabilitation or liquida-tion procedure.
The Act provides heavily indebted consumers with an opportunity to emerge from their finan-cial difficulties. However, it is also certain to impact the interests of financial institutions and other creditors, and is thus likely to influence financial institutions' future risk assessment and lending policies.