A foreign-owned distribution company operating in Tbilisi reached a point where obligations to six separate creditor classes had become impossible to service simultaneously. The company held valuable operating licences and maintained a functional supply chain. Liquidation would have destroyed both. The central question was whether Georgian insolvency proceedings could preserve that value while achieving an orderly resolution with each creditor group.
Corporate restructuring in Georgia is governed by dedicated insolvency legislation that provides for both rehabilitation and liquidation tracks. A debtor company may initiate formal insolvency proceedings before the competent court in Tbilisi, which then oversees an administrator-led process. The rehabilitation track allows a restructuring plan to be approved by creditor vote, binding dissenting creditor classes if statutory thresholds are met.
This case study outlines the strategy adopted, the milestones reached, the complications encountered, and three transferable lessons for businesses facing comparable multi-creditor challenges in Georgia and across CIS markets.
Client profile and the challenge
The client was a mid-sized distribution entity incorporated under Georgian corporate legislation. Its shareholders were based in Western Europe. The company carried debt to a local bank, two trade finance creditors, a foreign parent entity owed intercompany loans, a tax authority claim, and a judgment creditor from earlier commercial litigation.
Each creditor class held different security positions. The bank held a registered pledge over inventory. The tax authority had statutory priority under Georgian tax legislation. The judgment creditor had obtained an enforcement order. The parent company's intercompany claim was unsecured.
The divergence in security rankings made informal negotiation extremely difficult. Any bilateral settlement offered to one creditor risked triggering acceleration by another. The company's operating revenues were still positive, but shrinking. Without a binding collective mechanism, value would erode week by week.
For a detailed overview of the formal insolvency and restructuring options available in this jurisdiction, see the firm's dedicated page on insolvency and restructuring in Georgia.
Legal strategy and rationale
The team recommended initiating formal insolvency proceedings under Georgian insolvency legislation rather than pursuing a purely contractual workout. The rationale was straightforward. A formal process provides an automatic stay on enforcement actions. It imposes a structured creditors meeting. It compels all creditor classes to submit a proof of debt within defined deadlines. And it gives the court-appointed administrator authority to manage the estate without interference.
The rehabilitation track was chosen over liquidation because the company's operating licences were non-transferable. Liquidation would have extinguished them. Rehabilitation, if achieved, would preserve the licences and allow the business to continue under a court-confirmed restructuring plan.
The strategy had three phases. First, file for formal proceedings and secure the automatic stay before the judgment creditor could complete enforcement. Second, work with the administrator to map the full creditor pool and assess each proof of debt. Third, draft a restructuring plan acceptable to the requisite majority of creditors by value, then obtain court confirmation to bind any dissenting class.
Where parallel shareholder disputes threatened to complicate the process, the team coordinated with specialists handling corporate disputes in Georgia to ring-fence those issues from the insolvency track.
Key milestones and complications encountered
The filing was accepted within the standard window. The court appointed an administrator and the stay took effect, halting the judgment creditor's enforcement action at a critical moment.
The creditors meeting produced the first significant complication. The tax authority disputed the ranking of the bank's pledge over a portion of the inventory. Resolution required a separate court hearing. This added several weeks to the timeline and created uncertainty over the total secured debt quantum.
The foreign parent company's intercompany claim generated a second complication. Under Georgian insolvency legislation, subordination of related-party claims is subject to court review. The administrator scrutinised the loan documentation in detail. The team prepared a thorough evidentiary submission to establish the arm's-length character of the obligation. The claim was ultimately admitted, though at a reduced priority level.
Drafting the restructuring plan required negotiating separate treatment for each creditor class. The secured bank creditor accepted extended repayment terms in exchange for a subordination agreement from the parent. The trade finance creditors accepted partial write-downs against a cash payment funded by a shareholder injection. The tax authority claim was addressed through a statutory instalment mechanism available under Georgian tax legislation.
The plan was submitted to a vote at the reconvened creditors meeting. The requisite majority was achieved. The court confirmed the plan, binding the dissenting judgment creditor to its terms.
For a comparative perspective on how similar multi-creditor restructurings have been managed in neighbouring markets, the firm's case study on corporate restructuring in Russia outlines analogous strategic considerations.
Transferable lessons for cross-border matters
Lesson one: initiate proceedings before enforcement completes. The automatic stay is the most powerful tool in Georgian insolvency proceedings. Once a creditor completes enforcement and removes assets, that value cannot easily be recovered into the estate. The window between a creditor obtaining an enforcement order and executing it can be days. Engaging a lawyer in Georgia at the first sign of creditor pressure – not after enforcement has begun – preserves the stay as a live option.
Lesson two: the proof of debt process determines the negotiating map. Many restructurings stall because the debtor does not know the precise quantum and ranking of each claim until deep into the process. Commissioning an early internal audit of all creditor claims – before filing – allows the restructuring plan to be drafted with realistic parameters. Surprises at the creditors meeting destroy momentum and creditor confidence.
Lesson three: related-party claims require advance preparation. Georgian insolvency legislation gives the administrator and the court significant scrutiny powers over intercompany and related-party obligations. Documentation that appears adequate for ordinary commercial purposes may not satisfy the standard required in insolvency proceedings. International groups with intercompany funding structures should review that documentation before any formal process begins. Retrofitting documentation during proceedings is both difficult and reputationally damaging.
To explore legal options for corporate restructuring and multi-creditor management in Georgia, schedule a consultation at info@ferrazwhitmore.com.
About Ferraz & Whitmore
Ferraz & Whitmore is an international law firm based in Lisbon, advising business clients across 46 jurisdictions. Our team combines Portuguese civil law expertise with English common law tradition to deliver cross-border legal solutions in insolvency, restructuring, and multi-creditor matters across CIS and high-growth markets. Our insolvency and restructuring practice covers proceedings before courts in Georgia and neighbouring jurisdictions, supported by a network of local counsel with direct experience before Georgian courts and regulatory bodies. The firm's attorneys have advised on rehabilitation and liquidation matters across both civil law and common law systems, including administrator-led processes and court-confirmed restructuring plans. As a law firm in Georgia matters, we work with international entrepreneurs, institutional investors, and in-house legal teams who need results-oriented counsel across multiple legal systems. To discuss your situation, contact us at info@ferrazwhitmore.com.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.