Insolvency Law at Mongolia
Mongolia's insolvency framework is governed by the Law on Bankruptcy, enacted on November 20, 1997, and amended in April 2010. This law provides a structured process for addressing the insolvency of business entities, including both voluntary and court-initiated procedures. (ДАМПУУРЛЫН ТУХАЙ)
🏢 Corporate Insolvency Procedures
1. Initiating Bankruptcy Proceedings
Bankruptcy proceedings can be initiated by:
A creditor submitting a claim to the court. (ДАМПУУРЛЫН ТУХАЙ)
The debtor declaring its inability to meet obligations.
Upon receiving a valid claim, the court must decide within five days whether to commence bankruptcy proceedings. If the debtor is found insolvent, the court appoints a trustee within five days to oversee the process. (ДАМПУУРЛЫН ТУХАЙ)
2. Role and Appointment of Trustees
A trustee, appointed by the court upon creditor request, manages the bankruptcy process. Trustees must possess higher education in law, finance, or economics and have no personal financial interest in the debtor's activities. They are responsible for:
Safeguarding and managing the debtor's assets. (Understanding Liquidation and Insolvency Procedures in Mongolia)
Conducting audits and evaluations.
Organizing creditor meetings.
Proposing actions regarding contracts and transactions.
Selling assets and distributing proceeds.
Trustees are personally liable for damages resulting from illegal activities or negligence.
3. Rehabilitation and Liquidation
Debtors may propose a rehabilitation plan within 60 days of being declared bankrupt. The trustee evaluates the plan and submits a report within 20 days. If rehabilitation is deemed feasible, the court may approve the plan, which must be completed within two years. If rehabilitation is not possible, the court proceeds with liquidation. (1 Mongolia country law assessment - Flipbook by hatanbaatar.ganbaatar | FlipHTML5)
💼 Liquidation Process
In liquidation, the debtor's assets are sold, and proceeds are distributed to creditors in the following order:
Payments to remedy harm caused to life and health. (Civil Code of Mongolia of January 10, 2002)
Tax debts and other court-ordered payments. (ИРГЭНИЙ ХУУЛЬ)
Operational expenses incurred during the bankruptcy process. (ИРГЭНИЙ ХУУЛЬ)
Claims arising from contracts concluded during rehabilitation. (ИРГЭНИЙ ХУУЛЬ)
Depositors' funds. (ИРГЭНИЙ ХУУЛЬ)
Employees' wages.
Other claims as per the law. (Civil Code of Mongolia of January 10, 2002)
If assets are insufficient to satisfy all claims, the available assets are distributed among creditors proportionally. (Civil Code of Mongolia of January 10, 2002)
📊 Tax Implications in Bankruptcy
During bankruptcy proceedings, the insolvent entity remains responsible for: (Tax Implications Of Bankruptcy In Mongolia - Insolvency/Bankruptcy - Mongolia)
Corporate income tax on any taxable income. (Tax Implications Of Bankruptcy In Mongolia - Insolvency/Bankruptcy - Mongolia)
Value-added tax on applicable transactions. (Tax Implications of Bankruptcy in Mongolia)
Outstanding property taxes. (Tax Implications of Bankruptcy in Mongolia)
Unpaid payroll taxes and social insurance premiums. (Tax Implications Of Bankruptcy In Mongolia - Insolvency/Bankruptcy - Mongolia)
Outstanding tax debts must be settled before other claims. The sale of assets may incur a 2% tax on income from the sale or transfer of immovable property. Purchasers of assets are not liable for the seller's tax debts. (Tax Implications Of Bankruptcy In Mongolia - Insolvency/Bankruptcy - Mongolia, Tax Implications of Bankruptcy in Mongolia)
🏛️ Ongoing Reforms
Mongolia is actively reforming its bankruptcy framework to enhance efficiency and support economic growth. In November 2017, the International Finance Corporation (IFC) signed a Memorandum of Understanding with the Ministry of Justice and Home Affairs to: (IFC supports insolvency reform in Mongolia)
Update the bankruptcy law. (IFC supports insolvency reform in Mongolia)
Develop capacities and standards for insolvency professionals. (IFC supports insolvency reform in Mongolia)
Promote non-judicial means of insolvency resolution. (IFC supports insolvency reform in Mongolia)
These reforms aim to improve access to finance, particularly for micro, small, and medium enterprises (MSMEs), and ensure financial stability. (IFC supports insolvency reform in Mongolia)
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