The USA Journals Volume 03 Issue 11-2021
104
The American Journal of Political Science Law and Criminology
(ISSN
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2693-0803)
Published:
November 30, 2021 |
Pages:
104-111
Doi:
https://doi.org/10.37547/tajpslc/Volume03Issue11-15
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‘
ABSTRACT
This scientific article discusses the legal issues of inheritance in the bankruptcy of an individual
entrepreneur, the norms of foreign legislation, as well as the development of proposals for improving
the national legislation on bankruptcy.
KEYWORDS
Bankruptcy, Liquidation Proceedings, Inheritance, Individual Entrepreneur, Citizen, Judicial
Administrator, Debtor, Creditors.
INTRODUCTION
The bankruptcy of an individual entrepreneur
or a physical person who has lost the status of
an individual entrepreneur is regulated by
Article 26 of the Civil Code of Uzbekistan
(hereinafter - the Civil Code) [1] and Chapter X
of the Law of Uzbekistan “On Bankruptcy”
(April 24, 2003, № 474-II), (hereinafter - the
Law) [2]. Individual entrepreneurs who are
unable to satisfy the claims of creditors related
to their entrepreneurial activities may be
declared bankrupt in accordance with Article
26 of the Civil Code.A physical person who has
lost the status of an individual entrepreneur
and is unable to satisfy creditors' claims (if the
corresponding claims arise from his previous
entrepreneurial activity) may be declared
bankrupt in accordance with the prescribed
procedure.When carrying out the procedure
for declaring a person bankrupt described in
parts one and two of this article, creditors (for
obligations unrelated to his entrepreneurial
activities) have the right to present their
Inheritance Issues In Bankruptcy Of Individual Entrepreneur
A.Maksudov
Independent Researcher, Department Of “Entrepreneurial (Business) Law” Tashkent State
University Of Law, Uzbekistan
O. Okyulov
Scientific Adviser, Doctor Of Sciences In Law, Professor, Uzbekistan
Journal
Website:
https://theamericanjou
rnals.com/index.php/ta
jpslc
Copyright:
Original
content from this work
may be used under the
terms of the creative
commons
attributes
4.0 licence.
The USA Journals Volume 03 Issue 11-2021
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The American Journal of Political Science Law and Criminology
(ISSN
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Published:
November 30, 2021 |
Pages:
104-111
Doi:
https://doi.org/10.37547/tajpslc/Volume03Issue11-15
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claims. The claims of the aforementioned
creditors that were not declared in this manner
remain in force after the bankruptcy procedure
is completed.
Pursuant to the provisions of the Law, at the
time the economic court makes a decision to
declare a debtor (an individual entrepreneur or
a physical person who has lost the status of an
individual entrepreneur) bankrupt, a decision is
also made to open liquidation proceedings.
The liquidation estate consists of all of the
debtor’s property that is available at the time
of the opening of liquidation proceedings and
that is revealed (discovered) during the course
of the liquidation proceedings. It should be
noted that, according to the Law (Part 1 of
Article 177), the debtor’s property (an
individual entrepreneur or a physical person
who has lost the status of an individual
entrepreneur) is not included in the liquidation
estate, which cannot be foreclosed under the
Law.
When a debtor (an individual entrepreneur or a
physical person who has lost the status of an
individual entrepreneur) is declared insolvent
(bankrupt) the Law takes priority over all other
legal acts in regulating their property relations.
Therefore, the execution of the rights of heirs
is suspended until the rights of creditors are
satisfied.
Article 179 (Part 3) of the Law states that if
there is information about the opening of an
inheritance in relation to a citizen (an individual
entrepreneur), the bankruptcy case of the
individual entrepreneur may be suspended by
the economic court until the issue of the fate
of the inheritance is resolved in the manner
prescribed by law. At the same time, the period
for resolving the issue of the fate of the
inheritance in the manner prescribed by law
determines the time of suspension. Hereditary
relations (grounds of inheritance, opening of
inheritance, acquisition of inheritance, etc.) are
regulated by the Civil Code and the Civil
Procedure Code of Uzbekistan [3].
The right to inherit is guaranteed by the
Constitution of Uzbekistan (Article 35) [4], and
its content lies in the ability of the heir-citizen
to choose between accepting or rejecting the
inheritance. Acceptance of inheritance is a
special type of inalienable right of the heir
under the rules of inheritance law.
The heir must accept an inheritance in order to
receive it. One method of accepting an
inheritance is for the heir to submit an
application for acceptance of the inheritance
or an application for the issuance of a
certificate of the right to inheritance to a
notary at the place of inheritance opening.
Acceptance of inheritance is, by legal
definition, a unilateral transaction aimed at
establishing civil rights and obligations.
Acceptance of the inheritance, in particular, is
intended to acquire the testator's property.
Based on this, we can discuss on the one hand
the right to inheritance, which arises from the
heir from the moment of its acceptance
through legal and actual actions (Article 1145 of
the Civil Code), and on the other hand, the right
to call to inheritance, which arises from the
moment of its opening, if the potential heir is
indicated in the will (Article 1120 of the Civil
Code) or is included in the circle of heirs by law
(Article 1134 of the Civil Code).
The nature of the right to call to inheritance has
not been developed in legal science, so it is
impossible to provide an unambiguous answer
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as to whether it can be attributed to the
property rights included in the liquidation
estate or not. One thing is undeniable: when a
citizen realizes the right to call to inheritance,
he or she also acquires the right to inheritance
(inheritance property), which is a property
right that should be included in the liquidation
estate of the debtor heir against whom the
bankruptcy case has been initiated.
Thus, the path to acquiring inherited property
is through the realization of the right to call for
inheritance, which necessitates a potential heir
taking legal actions that mediate the process of
declaring his desire to accept such an
inheritance.
A citizen in the process of bankruptcy, in
respect of whom the inheritance has been
opened and who, thereby, received the right to
be called to inheritance, realizes that the
inherited property can replenish the liquidation
estate if he takes actions to accept the
inheritance. In this regard, many debtor heirs
attempt to conceal information about the
opening of the inheritance and specifically skip
the deadline for its acceptance, so that other
relatives in the following queues are called to
inherit. Such inaction by a citizen-debtor
cannot be considered an illegal action in
bankruptcy, because there is no prohibitive
norm in the legislation prohibiting such debtor
behavior that actually harms his creditors.
The heir has the right not only to accept but
also to refuse the inheritance at any time after
the inheritance is opened (Article 1147 of the
Civil Code). At the same time, the rejection of
the inheritance is also a unilateral transaction
that entails certain legal consequences,
namely, the refusal to acquire the property of
the testator. Frequently, heirs attempt to give
up their inheritance in favor of other relatives,
mistakenly believing that by doing so, they will
be able to keep the property for their family.
The law establishes a rule that, from the date
the debtor is declared bankrupt at the stage of
the liquidation proceedings, all rights in
relation to the property constituting the
liquidation estate, including disposal, are
exercised solely by the liquidator on behalf of
the debtor. The liquidator is required to take
steps to identify and safeguard the debtor's
property (Article 128 of the Law).
Subject to the provisions of the Law
prohibiting
a
bankrupt
debtor
from
independently exercising rights in relation to
property that can be included in the liquidation
estate, a debtor citizen shall not be entitled to
renounce inheritance.
According to Article 178 of the Law,
transactions of a debtor (an individual
entrepreneur or a physical person who has lost
the status of an individual entrepreneur)
related to the alienation or transfer of his
property to interested parties in another way,
after filing an application for recognition of the
debtor (an individual entrepreneur or a
physical person who has lost the status of an
individual entrepreneur) bankrupt in the
economic court are void.
The economic court, at the request of the
creditor, applies the consequences of a void
transaction in the form of the return of the
debtor's (an individual entrepreneur or a
physical person who has lost the status of an
individual entrepreneur) property that was the
subject of the transaction. This transaction
includes the composition of an individual
entrepreneur’s property or the property of a
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The American Journal of Political Science Law and Criminology
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November 30, 2021 |
Pages:
104-111
Doi:
https://doi.org/10.37547/tajpslc/Volume03Issue11-15
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physical person who has lost the status of an
individual entrepreneur, as well as foreclosure
on the corresponding property held by
interested parties.
Because one of the consequences of
challenging the debtor's transactions is the
inclusion of the returned invalid transaction in
the liquidation estate, there are no obstacles
for the inheritance property, which the debtor-
heir has refused to accept, was realized in the
debtor's bankruptcy procedure. In such cases,
the
judicial
administrator’s
(liquidation
manager) action algorithm can be considered
already worked out.
But what should the liquidator do if an
inheritance has been opened in relation to the
debtor and the debtor does not refuse it and
intentionally misses the deadline for joining it?
It should be emphasized that the current legal
framework does not include the institution of
forcing the heir to accept the inheritance.
Furthermore,
the
judicial
administrator
(liquidation
manager)
currently
lacks
mechanisms for compelling the debtor-heir to
accept the open inheritance, as well as the
ability to accept the inheritance on behalf of
the citizen-debtor.
It is recognized that the gap in the legislation in
terms of the possibility of including in the
liquidation estate of the inheritance (which the
debtor citizen will not accept and will not give
up) cannot be overcome by analogy of law or
by analogy of law. In this regard, it shall be
prudent to supplement the Law with norms
expanding the powers of the judicial
administrator (liquidation manager) and the
debtor's informational duties, with the
condition of not relieving him of obligations,
after the completion of the procedure for the
sale of the property of the debtor-citizen. In
particular:
Firstly
, it is proposed that the judicial
administrator
(liquidation
manager)
be
granted the right to receive information about
the inheritance that has been opened in
relation to the debtor citizen, as well as the
obligation of the latter to provide such
information. It is necessary to note that among
the duties of the judicial administrator listed in
Part 3 of Article 128 of the Law is the obligation
to take measures to identify not only the
debtor's property and ensure the safety of this
property, but also the inheritance opened in
relation to the debtor citizen.
As a result, the liquidator will have a direct
obligation to obtain information about the
debtor's opened inheritance.
Furthermore, the right of the liquidator to
receive information about the opened
inheritance from the debtor and notary bodies
should be directly enshrined in part 2 of article
128 of the Law.
This right in relation to the debtor should
correspond to the latter’s obligation to provide
the liquidator with information about the fact
of opening the inheritance and the
composition of the inheritance property
known to the debtor, for which appropriate
amendments to the Law are required.
According to this amendment, the debtor
citizen's failure to fulfill his or her obligation to
provide information about the inheritance
must result in certain legal consequences.
The need for legal support of the relationship
between the judicial administrator (liquidation
manager) and the notary is the most important
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factor associated with obtaining information
about the inheritance opened in relation to the
debtor citizen.
In this regard, introducing the obligation of a
notary to provide the judicial administrator
(liquidation manager) with the necessary
information about the possible opening of an
inheritance in relation to a debtor citizen into
the legislation on notaries is not particularly
difficult.
However,
only
by
amending
regulations will the aforementioned technical
difficulties be quickly overcome. As a result,
the primary source of information for the
judicial administrator (liquidation manager)
regarding the opening of an inheritance
against the debtor citizen is the debtor himself,
against whom the bankruptcy case has been
initiated.
Secondly
, it is necessary to directly establish in
the Law the norm under which, if the debtor
citizen does not accept the inheritance during
the bankruptcy proceedings initiated against
him, such a right and obligation arises for the
liquidator. To accomplish this, appropriate
amendments should be made to Article 128 of
the Law.
In addition, it shall be necessary to separately
indicate in the Law the obligatory presence of
the hereditary estate (if any) in the liquidation
estate of the debtor-citizen, as well as in the
Civil Code - to establish the possibility of a
judicial administrator (liquidation manager), in
the event of bankruptcy, submitting to a
notary an application for accepting the
inheritance on behalf of the debtor-citizen.
Thirdly
, the hereditary estate may be
encumbered by the debts of the testator. And
according to article 1156 of the Civil Code, his
heir is responsible for this in the amount of the
accepted inheritance. In this regard, meeting
the claims of the testator's creditors from the
inheritance should be established in law as a
priority. And only then - the creditors of the
heir, in respect of whom the bankruptcy case
was initiated, can be claimed.
Such a situation will take place when the
inheritance property is encumbered by the
testator’s debts and has multiple heirs. In this
regard, the liquidator must resolve the
testator's debt repayment issues solely in
terms of the share of the estate inherited by
the bankrupt heir, for which, the testator’s
creditors need to submit their claims to the
liquidator.
It should be noted that current legislation does
not provide for creditor priority in the
satisfaction
of
the
testator’s
debts.
Meanwhile, it is obvious that such a priority
must be established, because it is entirely
possible that there will be insufficient funds to
pay all of the testator’s debts.
Fourthly
, it is necessary to financially stimulate
the
judicial
administrator’s
(liquidation
manager) actions in order to search for a
potential inheritance opened in relation to the
debtor-citizen. Furthermore, by providing
additional compensation to the judicial
administrator, the liquidator should be
encouraged to file the liquidation estate with
this property (in the form of a certain
percentage of the value of the estate that
added to the liquidation property).
It should also be noted that there is no
provision in current legislation that allows the
liquidator to accept the inheritance for the
citizen-debtor, in order to include the estate in
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the liquidation estate to satisfy the claims of
creditors. Furthermore, the current legislation
lacks provisions that establish negative
consequences for a citizen-debtor who has
concealed information about the discovery of
an inheritance in relation to himself.
As you are aware, the heirs are personally liable
for the testator’s debts. In the event that the
inheritance is actually accepted, the heirs are
liable up to the value of all inherited property.
However, in the absence or insufficiency of
inherited property, creditors' claims for the
testator's obligations are not satisfied at the
expense of the heirs' property. And the
obligations of the testator's debts are
terminated due to the impossibility of fulfilling
them.
In practice, many questions arise regarding the
determination of the testator's debt, by which
the heirs are held liable. This includes the
amount of adverse consequences imposed on
them, as well as the order and priority of
satisfaction of the claims of the testator’s
creditors
by
the
legal
successors.
Unfortunately, despite the detailed regulation
of hereditary relations in the Civil Code, these
issues have not been fully resolved.
A number of issues (including questions about
the debtor citizen’s property, belonging to him
on the basis of the right of common ownership
with his/her spouse, property received by him
in the order of inheritance, etc.) within the
framework of the individual entrepreneur’s
bankruptcy procedure, relate to the civil
court’s jurisdiction.
After an individual entrepreneur’s status is lost
due to his recognition as a bankrupt citizen, the
legislation allows for the filing of property-
related claims arising from his entrepreneurial
activities (part 3 of article 26 of the Civil Code).
At the same time, a whole complex of issues
arises that requires a decision by the legislator,
since the law does not provide answers to
them. For instance:
What property the debtor will be
responsible for;
How these debts will be collected; whether
the creditor will need to apply to a civil
court with a claim for debt collection for
this;
Can the execution be levied on property
that is in the common joint property of the
spouses;
How to consider the issue of the debtor's
liability if the property that he concealed
(which he concealed) during liquidation
proceedings is established after the debtor
is declared bankrupt;
The length of time the debtor's liability will
be extended;
How the fact of opening the inheritance
will affect, but if the debtor has not
received a certificate of the right to
inheritance and can evade its acceptance in
order to register it for other people
(relatives) in order to avoid liability.
Due to the lack of legislative decisions on these
issues, unscrupulous civil law participants can
avoid responsibility.
Unlike the legislation on bankruptcy of the
Republic of Uzbekistan, the Federal Law of the
Russian Federation (dated June 29, 2015 No.
154-FZ) “On insolvency (bankruptcy)” [5]
contains a paragraph that addresses the
specifics of considering a citizen's bankruptcy
case in the event of his death (rules which are
applied to relations related to the bankruptcy
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of individual entrepreneurs). An important
point to note is that, under this Law, a citizen
can be declared bankrupt even after his death
(at the request of creditors, authorized bodies,
or heirs): in this case, the debt can be paid from
his inheritance.
The law also provides that in the event of the
death of the bankrupt testator, the bankruptcy
proceeding continues and his debts are paid
out of the estate. The notary must check for
the existence of the bankruptcy procedure and
notify the liquidator when opening an
inheritance case. If the procedure for
instituting bankruptcy had not yet been
completed at the time of death, the liquidator
notifies the notary within the same time frame
that the inheritance will be burdened by
creditors’ claims.
The bankruptcy of a deceased citizen is, by
legal definition, the bankruptcy of the
hereditary estate. The property of the
deceased shall be separated from the personal
property of the heirs. Creditors of the testator
receive proportionate satisfaction from the
estate on which they had a claim during the
testator's lifetime. The termination of
obligations is canceled by the coincidence of
the debtor and the creditor; there is the
possibility of challenging transactions made by
the testator during his lifetime on bankruptcy
grounds.
The inheritance is opened due to the death of
a citizen or his declaration as deceased by the
court, according to part 1 of article 1116 of the
Civil Code.
As a result, filing for bankruptcy will be possible
even after a person's death or recognition as
deceased. In this case, the applicants may be a
creditor, an authorized div (for taxes and
other mandatory payments), or the heirs of a
citizen who accepted the inheritance.
If the status of creditors and authorized bodies
is clear, the status of heirs in a bankruptcy case
should be considered in greater detail.
First and foremost, we need to understand
that even if the deceased is declared bankrupt,
the heirs do not become bankrupt, i.e., they are
not debtors under the law. They take part in
the bankruptcy case as interested parties in
estate-related matters, with the rights
belonging to the person taking part in the
bankruptcy case.
Simultaneously, heirs can only participate in
the process if they have accepted the
inheritance and the deadline for filing such an
application has passed. The notary must
provide a copy of the inheritance file to the
court in order for the heirs to be recognized as
persons participating in the case. It is necessary
to include information about a citizen’s death
or recognition as deceased in the application
for declaring him bankrupt.
In the event of the bankruptcy of a deceased
citizen, only the procedure for the sale of the
property of the deceased is possible, because
the deceased, unlike the living, cannot reach an
amicable agreement or earn money to pay off
the debt according to the restructuring plan.
The notary’s role in this matter is critical,
because the notary is a person involved in the
process of a citizen's bankruptcy until the
inheritance is accepted and the term for filing
such an application expires.
At the request of the heirs, a notary may file an
application for declaring a deceased citizen
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bankrupt, applying special bankruptcy rules,
and proceeding with the sale of property. In
addition, he informs the court and the
administrator of the citizen’s property on the
day of death.
With a few exceptions, the liquidation estate
will include property that is a citizen’s
inheritance in the case under consideration.
If the heir has the right to a compulsory share
in the real estate and has taken over the real
estate (which became his only housing), the
property is not included in the liquidation
estate.
At the same time, it should be noted that the
heirs’ property, which belong(ed) to them
prior to accepting the inheritance, cannot be
included in the liquidation estate.
If the debtor citizen dies after the bankruptcy
procedure is initiated, the bankruptcy
procedure is not terminated. However, the
judicial administrator is required to notify the
court and the notary of a citizen’s death, file a
petition for the application of the rules
provided for a deceased person's bankruptcy,
and transition to the sale of property.
In the event of the bankruptcy of a deceased
citizen, first of all, the requirements for current
payments associated with the costs of burying
the deceased, the costs of protecting the
inheritance, the performance of notarial
actions by a notary are satisfied.
We believe that all of the issues raised in this
article are related to the absence of a
legislative
framework,
regulating
the
possibility of declaring a citizen bankrupt,
including after his death. In this regard, we
believe
it
expedient
to
make
some
amendments. All of these issues can only be
resolved by introducing appropriate changes
and amendments to the legislation on
bankruptcy.
REFERENCES
1.
The Civil Code of the Republic of
Uzbekistan;
2.
The Law of the Republic of Uzbekistan
(April
24,
2003,
No.
474-II)
“On
Bankruptcy” (New edition);
3.
The Constitution of the Republic of
Uzbekistan;
4.
The Civil Procedure Code of the Republic of
Uzbekistan;
5.
Federal Law of the Russian Federation
(January 8, 1998, No. 6-FZ) “On insolvency
(bankruptcy)”.
