Procedural considerations in insolvency of a local debtor: the creditor position in Georgia against state-owned enterprises

When a Georgian state-owned enterprise enters insolvency proceedings, foreign creditors frequently discover that the procedural framework governing their position differs in material respects from what a straightforward reading of Georgian insolvency legislation would suggest. The public character of the debtor, combined with the specific rules that apply to state-owned entities under Georgian law, creates a set of asymmetries that can affect priority, access to creditor committees, and the practical enforceability of any recovery. For foreign investors and trade creditors with Georgian counterparty exposure, understanding these procedural particularities before a restructuring or liquidation becomes live is materially more valuable than attempting to navigate them under time pressure once proceedings have commenced.

Georgian insolvency law establishes a general framework applicable to legal entities. State-owned enterprises -- those in which the Georgian state or a state-controlled vehicle holds a majority stake or exercises decisive control -- are not excluded from that framework as a matter of principle. However, several layers of additional regulation apply to them, and these layers interact with the insolvency procedure in ways that the general framework does not address directly.

The first consideration is the commencement threshold. In practice, proceedings against a state-controlled entity are considerably less likely to be initiated by a creditor than proceedings against a privately held debtor. Georgian courts have, in the majority of observed cases, required a higher threshold of demonstrated insolvency before admitting an application filed by an external creditor against a state-linked entity. This is not an explicit statutory carve-out, but it reflects a consistent judicial posture that foreign creditors should treat as a working assumption.

The second consideration concerns the automatic stay. Once insolvency proceedings are admitted, an automatic stay on enforcement actions applies under the general rules. For foreign creditors who hold a pledge, mortgage, or other security interest over assets of the debtor, the stay temporarily suspends individual enforcement. Secured creditors retain priority in the distribution waterfall, but the timing of that priority realisation is subject to the administrator's management of the asset pool -- a process over which individual creditors have limited direct control.

The third, and often the most consequential, consideration is the treatment of state guarantees and sovereign-adjacent obligations. Where a Georgian state-owned enterprise carries obligations that are explicitly or implicitly backed by state undertakings -- whether through guarantee instruments, concession agreements, or intergovernmental arrangements -- the creditor's practical recovery path may run partly outside the formal insolvency proceeding and partly through administrative or diplomatic channels. Georgian courts have not adopted a uniform position on the extent to which such parallel claims can be pursued concurrently with the insolvency.

Note: Foreign creditors who hold claims arising from a concession agreement, public-private partnership, or any arrangement in which a Georgian state agency was a direct counterparty should obtain specific advice on whether their claim is properly characterised as a claim against the insolvent enterprise or as a claim against the Georgian state. These are procedurally distinct, and conflating them at the filing stage can result in the creditor's claim being incorrectly registered or inadvertently waived against the sovereign counterparty.

Foreign creditors -- typically trade creditors, financial institutions, or foreign companies with Georgian subsidiaries or joint-venture partners -- encounter three recurring procedural difficulties when the debtor is state-owned.

First, access to the creditors' committee. Georgian insolvency procedure provides for a creditors' committee that exercises oversight over the administrator and certain asset-disposition decisions. In practice, the composition of the committee in SOE proceedings tends to be dominated by domestic institutional creditors, including Georgian commercial banks and state-adjacent financial vehicles. Foreign creditors holding unsecured trade claims, in particular, may find that their voice on the committee is structurally marginal. This is not a legal prohibition, but it has operational consequences for the creditor's ability to monitor the proceeding and challenge administrator decisions.

Second, the administrator's relationship with the state. In SOE insolvency proceedings, the administrator is appointed by the court but operates in an environment where state bodies retain a significant interest in the outcome. This creates practical tension between the administrator's statutory duty to maximise recoveries for all creditors and the reputational and political considerations that typically surround state-linked entities. Foreign creditors should not assume that the administrator will be an adversarial counterparty to the state interest; in practice, the administrator's decisions may reflect an implicit accommodation of that interest.

Third, cross-border recognition of any recovery. Where a foreign creditor obtains a distribution in Georgian insolvency proceedings, converting that recovery into enforceable value across jurisdictions -- for example, in Russia, Kazakhstan, or an EU member state -- involves a separate recognition analysis in each jurisdiction. Georgia is not a member of the EAEU and does not benefit from the streamlined insolvency recognition frameworks that apply within that grouping. Cross-border coordination must therefore be arranged bilaterally, and the applicable time and cost margins should be factored into the creditor's recovery model from the outset.

For creditors with exposure that spans both Georgia and Russia, the [Cross-border Disputes](/jurisdictions/georgia/disputes/) and [Enforcement of Foreign Judgments & Awards](/jurisdictions/georgia/enforcement/) practice pages address the recognition mechanics in more detail. The firm's [Restructuring & Insolvency](/jurisdictions/georgia/) overview for Georgia provides the broader jurisdictional context.

Foreign creditors facing analogous questions in neighbouring jurisdictions may also find the comparative frameworks for [Kazakhstan](/jurisdictions/kazakhstan/insolvency/) and [Armenia](/jurisdictions/armenia/insolvency/) a useful reference point for benchmarking Georgian procedural treatment against regional alternatives.

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Vetrov & Partners is a Russian boutique law firm established in 2009, recognised by Pravo-300 for eight consecutive years. The firm advises foreign creditors and investors on cross-border recovery matters, including insolvency proceedings in CIS and post-Soviet jurisdictions. For matters governed by Georgian or other non-Russian law, the firm works in coordination with qualified local counsel.

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This publication is provided for informational purposes only and does not constitute legal advice under Russian or any other applicable law. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Vetrov & Partners is a Russian-qualified law firm. For matters governed by foreign law or requiring local admission in another jurisdiction, we collaborate with trusted counsel in the relevant jurisdiction. For advice regarding your particular situation, please contact info@vetrovpartners.com.

-- Giorgi Kavtaradze Contributing Regional Analyst -- Georgia · Commercial Disputes and Enforcement vetrovpartners.com/contributions/