Insolvency Law at Lebanon
Lebanon's insolvency framework is primarily governed by the Lebanese Code of Commerce, particularly Book VI, which outlines the procedures for bankruptcy and liquidation. While the legal structure provides a foundation, the practical application of these laws has faced challenges, especially during Lebanon's ongoing financial crisis. (Lebanon amends banking secrecy rules in victory for new government)
⚖️ Legal Framework
The Lebanese insolvency laws are encapsulated in Book VI of the Lebanese Code of Commerce, as amended by Law No. 126 of 2019. These provisions delineate the conditions and procedures for both voluntary and judicial liquidation of companies. Key aspects include: (Understanding Liquidation and Insolvency Procedures in Lebanon)
Voluntary Liquidation: Initiated by the company's shareholders when the business has fulfilled its purpose or is no longer profitable. This process requires the approval of shareholders and the settlement of all financial obligations before commencement. (Understanding Liquidation and Insolvency Procedures in Lebanon)
Judicial Liquidation: Commenced through a court order, often due to insolvency or the inability to meet financial obligations. Creditors or corporate representatives can petition the court for initiation if there is substantial evidence that the company can no longer satisfy its debts. (Understanding Liquidation and Insolvency Procedures in Lebanon)
🧑⚖️ Liquidation Process
The liquidation process involves several stages:
Appointment of a Liquidator: A court-appointed individual or entity oversees the liquidation process, ensuring compliance with legal requirements.
Asset Evaluation and Sale: The liquidator assesses and sells the company's assets to generate funds for debt settlement.
Debt Settlement: Proceeds from asset sales are distributed among creditors according to the legal priority of claims.
Finalization: Upon completion of the above steps, the company is formally dissolved, and its legal existence ceases.
📋 Priority of Claims
Lebanese law establishes a hierarchy for creditor claims during liquidation:
Secured Creditors: Those holding collateral against debts are prioritized and can recover amounts owed from the sale of secured assets.
Preferential Creditors: Includes employees owed wages and benefits, who are given priority to ensure compensation for their services. (Understanding Liquidation and Insolvency Procedures in Lebanon)
Unsecured Creditors: General creditors without collateral, who are addressed after secured and preferential claims have been settled. (Understanding Liquidation and Insolvency Procedures in Lebanon)
⚠️ Challenges and Considerations
The application of insolvency laws in Lebanon has been influenced by the country's economic instability:
Bank Insolvency: Depositors have filed actions seeking the insolvency of Lebanese banks due to the inability to access funds. However, courts have been reluctant to declare banks insolvent, citing concerns over economic stability and the interconnectedness of banks with the Central Bank and the state. (Chambers Global Practice Guides, Trends & Development for Litigation 2025 Lebanon - Obeid & Partners)
Legal Reforms: The 2019 amendments aimed to modernize the legal framework, introducing concepts like single-partner limited liability companies and enhancing transparency. These reforms also expanded the responsibility of company directors and auditors in cases of bankruptcy. (Law No.126 of 29/03/2019 modifying certain provisions of the Lebanese Code of Commerce (Legislative-decree No. 304 of 24/12/1942): – Aldic – Lebanon)
🏛️ Regulatory Authorities
Key institutions involved in the insolvency process include:
Commercial Court: Handles bankruptcy petitions and supervises liquidation proceedings.
Ministry of Economy and Trade: Oversees business regulations and commercial activities.
Lebanese Central Bank (Banque du Liban): Regulates financial institutions and monetary policy.
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