The foundations of Georgian insolvency law were laid as early as the first half of the 20th century, when it developed within the Soviet legal sphere as one of the institutions of civil procedural law. From November 1931, the Georgian SSR adopted the "Civil Procedure Code of the Georgian SSR," the second annex of which regulated the "Rules on the Insolvency of Private — Natural and Legal — Persons." The rules consisted of 46 articles. It was precisely the "Civil Procedure Code" that laid the groundwork for the development of a new branch of law — insolvency law.
It should be noted that during this period, the law of the Georgian SSR was mainly formed under the influence of the laws of the RSFSR. The Civil Procedure Code was no exception in this case, as it was based on the analogous legislation of Russia (then the RSFSR) — the 1929 "Civil Procedure Code of Russia." The Georgian term "insolvency" is not an entirely accurate translation of the Russian term — несостоятельность. This Russian term could have been translated with closer and similar terms, such as: "inability to pay" or "bankruptcy." At that time, it was still too early to consider such a modern term as "insolvency," which appeared in the Georgian legal sphere in the 1990s. At the beginning of the 20th century, when "insolvency law" was still in its infancy and had not yet been conceptually understood as a distinct branch of law, nor its specific institutions, naturally, it was too early to talk about the modernization of terms.
It is a fact that the "Rules on the Insolvency of Private — Natural and Legal — Persons" regulated in the second annex of the 1931 Civil Procedure Code of the Georgian SSR, which gave rise to "insolvency law," served as the precursor to bankruptcy, inability to pay, and insolvency law.
Insolvency law regulated such important institutions characteristic of this branch of law as: declaring a person insolvent or refusing to do so, insolvent debtor, authority to initiate insolvency proceedings, liquidation estate, insolvency case liquidator, consequences of insolvency, and others. Today, modern terms for these institutions have already been established: recognition as insolvent (insolvency), insolvent debtor, authority to open insolvency (bankruptcy, insolvency) proceedings, insolvency (bankruptcy, insolvency) estate, bankruptcy or rehabilitation manager, etc.
"Insolvency law," which regulated the activities of private natural and legal persons, did not last long in the Soviet legal sphere. The repressions of the Soviet regime also affected this law, and it was completely removed from civil proceedings as bourgeois law. The reforms in civil procedural law that began in the late 1950s and continued in various republics until the end of the 1960s resulted in the removal of the rules regulating insolvency, similar to insolvency law, from all new procedural codes of the republics, including the 1964 Code of the Georgian SSR.
Thus, Georgian insolvency law, which was founded in 1931, existed for only 33 years and ceased to exist in 1964. However, it remains to be researched and determined whether this law was actively used in judicial practice during those 33 years, how many insolvency cases were brought before the so-called people's courts, how many persons were declared insolvent, and what the outcomes of those cases were.
2. InsolvencyLawRejectionPeriod
The period during which insolvency law was completely expelled from the Georgian legal sphere lasted 28 years and ended in 1992, when the Decree "On the Bankruptcy of Enterprises" was adopted.
During the period of rejection of insolvency law, "developed socialism" was declared in the Soviet Union. The hegemony of Soviet (state) enterprises was established in the country, while everything private — whether property or enterprise — was rejected. Soviet ideology was incompatible with the principles of a market economy, and economic relations developed centrally and according to plans drawn up in offices. Therefore, the economy of the Soviet Union was called a planned economy (Russian: плановая экономика). The implementation and practical introduction of the principles of planned economy were entrusted to the so-called "State Planning Committees" (Russian: Госплан) established at the level of the Soviet Union and Soviet republics. These committees centrally planned not only the creation, development, and expansion of state enterprises, and the types of activities, but also their liquidation, merger, or other similar measures.
The planning committees existed almost until 1990 and, until the very end — that is, until the collapse of the Soviet Union — performed their negative role in the development of the country's economy. Unlike a market economy, under a planned economy, the economic and social policy of the Soviet Union and its individual republics had to be based solely on specific plans developed in offices. Economic planning was carried out in every field of the economy, from the production of consumer goods to the production of rocket, military, and other strategically important goods.
Under the conditions of a planned economy, naturally, the existence of insolvency law was completely useless, as it is a branch of law applicable only to private business entities, and that too — under market economy conditions. The Soviet planned economy was also unacceptable for commercial (entrepreneurial) law. Entrepreneurial law is also based on the ideology of private property and private business entities. And under conditions where only Soviet (state) enterprises are created and only they operate, there is no practical application for either insolvency or entrepreneurial law, and both laws appeared as foreign bodies in the Soviet legal system.
The reforms initiated in 1985 throughout the country by the then General Secretary of the Communist Party of the Soviet Union, Mikhail Gorbachev, could not save the Soviet economy. The so-called "Perestroika" (Russian: Перестройка) initiated by him was supposed to facilitate the construction of real socialism in the Soviet Union and allow for critical thinking in society. However, the development of such a policy, on the contrary, led to the erosion of the ideology of the Communist Party and the rise of national ideology, which gradually deprived the Communist Party of its controlling role.
The period of "Perestroika" continued until the collapse of the Soviet Union (until 1991), and the reforms carried out during this period also affected economic relations. As an alternative to state enterprises, the creation of private enterprises began in the Soviet Union. The legal basis for their creation was the 1988 USSR Law "On Cooperation." A law with a similar name was adopted in Georgia in 1989. As a result, during the period of "Perestroika," the first private enterprises appeared in the legal form of cooperatives. Naturally, cooperatives gave impetus to private initiatives in entrepreneurial (business) activities. The emergence and operation of private enterprises seriously undermined the foundations of the planned economy.
In June 1990, the Council of Ministers of the USSR approved the Regulation "On Joint-Stock Companies and Limited Liability Companies," which provided the legal basis for the creation of joint entrepreneurial companies by legal entities and citizens. This regulation also allowed for the existence of joint enterprises established with the participation of foreign legal entities (foreign companies). The regulation expanded the range of business entities: in addition to cooperatives, joint-stock and limited liability companies also became involved in business. The appearance of foreign companies on the Soviet market and the inflow of foreign investments completely buried the Soviet planned economy and gave rise to the beginnings of a market economy.
After Georgia declared independence on May 26, 1991, in one of its very first normative acts — the Law of June 14, 1991 "On the Fundamentals of the Economic System of the Republic of Georgia" — Georgia declared the principles of market relations and freedom of entrepreneurial activity as the basis of the economic system. The implementation of the new economic system became dependent on the existence of entrepreneurial entities (companies) based on private law relations. On July 25, 1991, the independent legislative body of Georgia — the Supreme Council of Georgia — adopted the Law "On the Fundamentals of Entrepreneurial Activity." With the adoption of this law, the hegemony of state enterprises in the country ended, and the foundation was laid for the creation of private entrepreneurial companies of various legal forms. As a result, in addition to cooperatives, joint-stock companies, limited liability companies, individual and sole proprietorships, local and public organization enterprises, and others appeared in Georgia. The newly established private enterprises, whose number increased daily, began operating in various sectors of the economy.
The abundance of entrepreneurial entities created a certain competitive environment, as a result of which many of them were doomed to economic and financial collapse. This was compounded by the lack of knowledge of doing business and the absence of sufficient skills to manage a business, which inevitably led to the dissolution and liquidation of companies.
For the orderly and state-organized liquidation of business entities (companies) that had fallen into economic collapse, the need arose to introduce a normative act regulating bankruptcy. The result was not long in coming, and on September 8, 1992, the State Council of Georgia adopted the Decree "On the Bankruptcy of Enterprises."
3. 1992 year 8 SeptemberDecree "On theBankruptcyof Enterprises"
From March 1992 to October 1992, the highest authority in Georgia was the State Council of Georgia, which temporarily also assumed the functions of the legislative body. During this period, which lasted a full 7 months, the highest normative act adopted by the State Council of Georgia was called a "Decree."
Surprisingly, the State Council of Georgia, which was considered a temporary (illegitimate) government in the political history of Georgia, under conditions of its "illegitimacy" and almost a month and a half before the end of its powers, adopted the Decree "On the Bankruptcy of Enterprises." It should be noted that this decree was not the only one regulating issues related to the development of the economy during that period. During its existence, the State Council of Georgia adopted such important acts in the form of decrees as: the "Customs Code," the Decree "On the Restriction of Monopolistic Activity and the Development of Competition in the Republic of Georgia," the Decree "On Customs Tariffs," and others. The question of what was the reason for the temporary authority to adopt economic decrees during the most critical and transitional period for Georgia, and how necessary it was to adopt these decrees, should be left to researchers of legal history.
In the history of the development of Georgian insolvency law, the adoption of the Decree "On the Bankruptcy of Enterprises" was of utmost importance, as the legal term "bankruptcy" appeared in the Georgian legal sphere. The decree is replete with terms derived from bankruptcy: "bankruptcy subject," "bankruptcy proceedings," "recognition as bankrupt," "declaration as bankrupt," and others. The significance of the decree is not diminished by the fact that it was an unsuccessful reception of the analogous Russian law.
It is noteworthy that the Decree "On the Bankruptcy of Enterprises" was in force until January 1, 1997. However, during its existence of more than 4 years, this decree was not applied in practice at all, except for the single case when a bankruptcy petition was filed against the wine company "Zegaani" on the basis of this decree. Due to the novelty of the legal concept, neither the court nor the interested parties understood the distinct nature of the bankruptcy petition and its difference from a statement of claim, as a result of which the bankruptcy petition was processed under the norms of the Civil Procedure Code and was considered in the format of a statement of claim. Consequently, the bankruptcy proceedings against the debtor company "Zegaani" did not take place, nor were other institutions of the decree implemented.
The Decree "On the Bankruptcy of Enterprises" did not leave a significant mark on legal science either, as no legal scholar has conducted scientific research on it, either as law or as individual institutions.
Nevertheless, it can be said that the Decree "On the Bankruptcy of Enterprises" to some extent paved the way and prepared the necessary prerequisites for the subsequent adoption of the "Law on Bankruptcy Proceedings" of a European model in insolvency law.
