Consider a company that failed to recover its turnover after the pandemic, can no longer keep up with interest on a bank loan, and whose suppliers, instead of offering discounts, are filing lawsuits. There are two paths, either court disputes, piecemeal restructuring of individual loans and constant fighting with creditors, or an organized procedure in which relations with all creditors are brought under a single set of rules at once. Before April 2021, this second path practically did not work in Georgia, the old law was outdated, slow and ineffective. Since then, the situation has changed.
what the new law offers
On April 1, 2021, the law "On Rehabilitation and Collective Satisfaction of Creditors" entered into force, replacing the old law "On Insolvency Proceedings." The name itself reveals the essence of the reform: the law offers two entirely different scenarios, rehabilitation, meaning saving the business, and bankruptcy, meaning its orderly liquidation. In both cases the ultimate goal is the same, the collective and proportionate satisfaction of creditors, though the path is radically different.
The distinction between these two regimes is far more complex than simply "survival or closure." One ruling of the Tbilisi City Court explains this line well: rehabilitation is not a distribution procedure but a scheme for saving the business, in which creditors either "follow" the rescued business, for example through a share, participation in profits or another non-monetary form, or receive only money upon the eventual sale of the business. If creditors end up satisfied solely through monetary payment and no longer follow the business, the court has explained, this is in reality already bankruptcy, even if the procedure is formally called "rehabilitation."
The procedure begins with an application to the court, either by the debtor itself or by a creditor. As soon as the court issues a ruling admitting the application and opening the relevant regime, a moratorium automatically takes effect, probably the law's most practical tool for a business. From the moment of the moratorium, ongoing enforcement measures against the debtor's property and the initiation of new ones are suspended, tax pledges and mortgages and the accrual of fines and penalties are suspended, satisfaction of a secured creditor from the collateral is suspended, the accrual and payment of interest and contractual penalties are suspended, and so is the initiation of new court or arbitration disputes against the debtor's estate. In other words, the debtor is given real, legally protected breathing room, at least temporarily, so that creditors can no longer try to outrun one another individually.
One of the most significant innovations of the reform is the introduction of the institution of the insolvency practitioner, a person with the relevant qualification and authorization, registered in a special register, who acts at different stages of the procedure as rehabilitation supervisor, rehabilitation manager or bankruptcy manager. This is not merely a technical formality, the practitioner's conclusions and comments effectively determine whether the court will approve the submitted rehabilitation plan. If the plan is vague, fails to define one specific, realistic scenario, or does not contain an exact schedule for satisfying creditors' claims, the court will not approve it, and in practice this happens quite often.
A strict time frame also applies here: after the rehabilitation regime is opened, creditors must approve the draft plan no later than 6 months. If this deadline passes without the support of a majority of creditors being achieved, the court automatically issues a ruling opening the bankruptcy regime, rehabilitation is replaced by bankruptcy, a bankruptcy manager is appointed, and the debtor's management authority, except for certain narrow exceptions, is terminated. From that point on, the process is entirely focused on realizing assets and distributing the proceeds among creditors.
One detail debtors often forget is that rehabilitation is effective only if the business turns to the law at an early stage of financial difficulty, not when the company is already effectively empty. Both the legislator and court practice have clearly stated that the rehabilitation regime should not become a means of artificially prolonging an inevitable bankruptcy, if the business has no real prospect of recovery, the court sees this and does not approve the plan.
The 2021 reform gave Georgia's insolvency system what it lacked: two clearly distinguished, structured paths, the involvement of a professional practitioner, and an automatic moratorium that genuinely protects the integrity of the process. Yet the law is only a framework, the actual outcome depends on how realistically and promptly a business turns to this procedure. A rehabilitation plan submitted late, vague, or aimed only at buying time almost always ends in bankruptcy. That is why, for a business seeing signs of financial difficulty, the decisive question is not whether it is worth using this mechanism at all, but how early it turns to it.