Debt Collection in Myanmar
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- The COVID-19 pandemic triggered severe economic shock, particularly in countries like Myanmar that rely heavily on labour-intensive industries. The recent change in the government has added further concerns to the political state of Myanmar.
- Should the debt be disputed, the parties will be required to proceed as per the dispute resolution clause in the transactional documents. Where applicable, creditors may claim against the debtor in the proper forum in Myanmar.
The COVID-19 pandemic triggered severe economic shock, particularly in countries like Myanmar that rely heavily on labour-intensive industries. The recent change in the government has added further concerns to the political state of Myanmar. With this recent set of events, we have seen foreign investors and suppliers face difficulty in recovering debts in Myanmar. This Alert sets out actions that may be considered by creditors towards recovering debts from a Myanmar company.
Should the debt be disputed, the parties will be required to proceed as per the dispute resolution clause in the transactional documents. Where applicable, creditors may claim against the debtor in the proper forum in Myanmar.
Due Diligence on the Debtor Company
Company searches may be conducted on the Myanmar company online registration system (MyCo), which reveals, among other things, the status of the company (e.g., registered, suspended, struck off or dissolved), details of members, paid-up capital as well as mortgages and charges over assets of the company, if any. It is not uncommon that debtor companies are found suspended or struck off due to failure to comply with some filing requirement. In such cases, creditors may request the debtor company to apply for revocation of the suspension by the registrar or petition the court to restore the company as a creditor.
Inquiries with the court (typically of the Yangon region) in Myanmar may reveal ongoing and past litigation including winding-up proceedings. It is noteworthy here that official court searches are not available in Myanmar as there is no central repository of information whereby past or pending cases may be definitively found. The results of such unofficial inquiries may not be accurate and may not be exhaustive.
Drafting and Service of Demand Letters
Service of a demand letter is a necessary step before initiating legal actions against debtors in Myanmar. According to Section 162 of the Myanmar Insolvency Law 2020 (MIL) and Section 78 of Insolvency Rules 2020, a company will be presumed insolvent if a creditor serves a statutory demand requiring the company to pay a sum due over 1 million kyat (approximately USD $560) and the company has for 21 days afterwards neglected to pay the sum or secure or compound for it to the reasonable satisfaction of the creditor. In such cases, creditors may make a winding-up petition to the court on the grounds that the debtor company is insolvent.
Negotiation and Settlement
Typically, parties will work toward an amicable solution during this phase, such as negotiating over a revised repayment schedule and/or taking securities over the assets of the debtor company. It is noteworthy that foreigners (individuals or entities) are not allowed to own any immoveable property in Myanmar, including taking securities over land/real estate property (except for leasehold interest subject to the approval by the Myanmar Investment Commission).
Creditors may make a petition to the court to wind up the debtor company, provided that the conditions under paragraph 3 are satisfied. On hearing the winding-up petition, the court may order the company to wind up and appoint a liquidator. The winding-up order shall operate in favour of all creditors and of all contributories of the company as if made on the joint petition of a creditor and a contributory.
The principal functions of liquidators are to ensure that, as soon as reasonably practical, the property of the company is brought under their control and is distributed to the company's creditors and/or members, if there is a surplus. However, unsecured creditors may only be paid on a pari passu basis followed by the secured creditors, according to the order of priority under the MIL.
After commencement of the winding-up proceeding, the company must cease to carry on its business except so far as required for its beneficial winding up. In case of insolvency, subject to limited exceptions, transactions entered intoprior to the liquidation shall be void, including:
- Making gifts or entering into a transaction for a consideration that is significantly less than the value of the business assets being sold (Section 360);
- Entering into transactions with an unsecured creditor whereby the creditor receives more than what they would if the transaction was set aside (Section 361);
- Entering into extortionate credit transactions (Section 363); and
- Creating a floating charge over the undertaking or property of the company (Section 364).
Pursuant to the MIL, a "period" may be two months to five years depending on the type of the transaction and whether it was with an associated person. If any of the above transactions are identified, the court may order, among other things, the restoration of the position.
Pursuant to the MIL, directors may be personally liable for the following:
- Fraud in contemplation of winding up: Within 12 months prior to the winding up, if a director fraudulently removed any part of the company's property exceeding 500,000 kyats (approximately USD $280), or concealed any debt due to or from the company (Section 214);
- False representation to creditors: In the course of winding up, if a director makes any false representation or commits any other fraud for the purpose of obtaining the consent of any creditor to an agreement with reference to the company's affairs or to the winding up (Section 216);
- Fraudulent trading: In the course of winding up, if any business of the company has been carried on with intent to defraud creditors of the company (Section 218);
- Wrongful trading: At some time prior to the winding up, if a director continued to trade when they knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation (Section 219); or
- Reuse of company name: Within five years from the winding up, if a director carries out businesses or acts as a director of another company using the company's name, except for members' voluntary winding up (Sections 220).
Directors committing offences as described in Sections 214, 216 and 220 may also be punished by imprisonment in addition to pecuniary liabilities.
At this juncture, it would be prudent to conduct due diligence on local partners and traders before entering into any commercial arrangements or injecting any funds and to make sure transactional documents are properly drafted to safeguard your interests.
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