Eversheds international-guide-to-company-insolvency

The Eversheds international guide to company insolvency

3

Introduction 4

Austria 5

Belgium 9

England & Wales 13

Estonia 17

Finland 21

France 25

Germany 29

Hong Kong 33

Hungary 37

Ireland 41

Italy 45

Latvia 50

Lithuania 54

Netherlands 58

Poland 62

Qatar 66

Romania 70

Saudi Arabia 74

Singapore 77

South Africa 82

Spain 86

Sweden 90

Switzerland 94

UAE 98

Other jurisdictions 102

Glossary 103

CONTENTS

4

Paul de la Peña Partner and UK head of restructuring

+44 20 7919 0706 [email protected]

The information contained in this document is intended as a guide only. Whilst the information is believed to be correct at the time of printing, it is not a substitute for appropriate legal advice. Eversheds can take no responsibility for actions taken based on the information in this document.

Local contacts for each of our offices are contained within this guide. If you have any questions or need case-specific advice, please do not hesitate to contact them.

INTRODUCTION

Although companies trade in an increasingly global market and despite advances in the recognition of foreign insolvencies in many jurisdictions, insolvency remains essentially national and the relevant law varies significantly from jurisdiction to jurisdiction. Eversheds has expert lawyers across the world to help you cut through the complexity.

The purpose of this booklet is to provide a quick reference guide to company insolvency laws and procedures in a range of jurisdictions. It summarises the law relating to corporate insolvency and restructuring on a country by country basis and answers some of the questions most likely to be asked by distressed companies or their creditors. Following the country profiles, there is a glossary of insolvency concepts that explains some common concepts found in more than one jurisdiction.

This guide only considers the rules that apply to general company insolvency. It does not address the insolvency procedures that apply to individuals or special insolvency regimes (for example, those applicable to credit institutions, investment banks or insurers). If you have a query in relation to such matters, please ask one of the Eversheds contacts named in the guide.

Eversheds’ restructuring and insolvency practice

Eversheds is one of the largest full service law firms in the world, with 55 offices across 29 countries. Our restructuring and insolvency practice covers key jurisdictions across the world and includes many lawyers listed as insolvency experts in the leading legal directories, Chambers and Legal 500.

“Varied practice with notable expertise in restructuring and insolvency matters.” “Represents an impressive range of leading financial institutions.”“Particularly strong choice for cross-border transactions”Chambers Europe 2014

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Insolvency proceduresWhat are the main insolvency procedures applicable to companies in your jurisdiction?

• Bankruptcy (Liquidation)

• Restructuring with self-administration

• Restructuring without self-administration

• Reorganisation

Bankruptcy (Liquidation) – A company or its creditor(s) can petition for bankruptcy of the company on grounds of insolvency or over-indebtedness. The court will appoint an insolvency administrator who is responsible for realising the company’s assets and dividing the proceeds amongst the creditors. On conclusion of the bankruptcy the company is liquidated and removed from the register.

Restructuring with self-administration - A company initiates a restructuring proceeding with self-administration by presenting a restructuring plan to the court along with the application for opening the insolvency proceeding. The plan must provide for repayment of at least 30% of the company’s debts within two years and be approved by the company’s creditors. As well as the restructuring plan, the company must also submit a financial plan setting out how the company will finance its continued trading for the next 90 days. Once the court has approved the restructuring plan, the company’s directors continue to manage the company. Day-to-day business will be conducted by the company’s directors, while more important decisions must be approved by the administrator or the court.

If the company makes the repayments set out in the restructuring plan, the remainder of its debts are written off.

Restructuring without self-administration - Where the restructuring plan provides for the repayment of only 20% to 30% of the company’s debts, a restructuring without self-administration can be opened with the approval of the company’s creditors. The court will appoint an administrator who manages and represents the company in all respects. If the company makes the repayments set out in the restructuring plan, the remainder of its debts are written off.

Reorganisation – Reorganisation is a court administered insolvency proceeding that aims to avoid insolvency proceedings by restructuring at an early stage. Reorganisation is rarely used as companies favour restructuring.

AUSTRIA

Can a company obtain a moratorium whilst it prepares a restructuring plan?

No - Austrian law does not provide for a free-standing restructuring moratorium. A company does not have the protection of a moratorium while formulating or preparing restructuring proceedings.

AU

STRIA

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To what extent do the directors of the company remain in control of its affairs during any of the above procedures?

In a restructuring without self-administration or a liquidation the powers of the directors cease and the administrator takes control of the company.

In a restructuring with self-administration, the directors remain in control of the company, although some actions require the approval of the administrator or the court (eg sale of real estate property).

How quickly can a creditor generally commence the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?

Do your courts recognise insolvency proceedings commenced in the courts of another jurisdiction?

Between four and six weeks.

Yes - insolvency proceedings commenced in the courts of other EU member states will be automatically recognised under the EC insolvency regulation.

Insolvency proceedings commenced in another country can be recognised, if: (a) the centre of the company’s main interest is in that country; and (b) the foreign insolvency proceedings are compatible with Austrian insolvency proceedings, in particular Austrian creditors must be treated equally to creditors domiciled in the country opening the proceedings.

Which classes of creditor are given preferential status? Are any classes subordinated?

All debts arising after the commencement of an insolvency procedure have preferential status.

Debts arising before commencement of insolvency proceedings are bankruptcy claims and do not have preferential status. No other classes of creditor are given preferential status.

Sums due to shareholders of the company which can be characterised as a form of equity replacement are subordinated to all other claims.

Position of creditorsWhat are the main forms of security over movable and immovable property?

Security over immoveable property is taken by mortgage.

Security over moveable property is taken by:

• assignments

• pledges

• liens

AU

STR

IA

7

Are foreign creditors treated equally to domestic creditors?

Are contract terms permitting termination of the contract by reason of insolvency valid?

Are retention of title clauses effective?

Yes.

No (in principle).

In principle yes, providing that the clause is incorporated into the contract between the parties and the goods in question can be identified. Retention of title can secure all monies due from the company to the supplier and is not limited to sums due under the particular order in question.

The insolvency administrator can challenge:

• transactions at an undervalue

• unusual gifts

• preferences

• security granted in the 60 days prior to the opening of insolvency proceedings

• debts repaid in the 60 days prior to the opening of insolvency proceedings

Setting aside transactionsWhat are the main transaction avoidance provisions, and who can challenge transactions?

Directors who fail to apply or delay applying for insolvency proceedings in respect of a company that is insolvent (on a cashflow or balance sheet basis) can be held civilly liable for:

• losses caused by their failure or delay

• the costs of opening insolvency proceedings (approx. EUR 4,000)

Directors who are grossly negligent and causes losses to creditors by not applying for insolvency proceedings in a timely manner can be held criminally liable and be imprisoned for up to two years.

A director can also lose his trade licence if he is a registered agent under Austrian Trade Law.

Position of directorsWhat are the risks facing the directors of an insolvent company?

AU

STRIA

8

AU

STR

IA

Silva Palzer

+43 15 16 20 12 [email protected]

Jakob Leinsmer


For more information on company insolvency in Austria please contact

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• Bankruptcy

• Judicial reorganisation

• Voluntary liquidation

Bankruptcy – If a company ceases to pay its debts and can no longer obtain credit, its directors, a creditor, the public prosecutor, an administrator or other insolvency officer can apply to the court for its bankruptcy. If the court declares the company bankrupt, it appoints a receiver who realises the assets of the company (either as a going concern or piecemeal) and distributes the proceeds to its creditors.

Judicial reorganisation – A financially distressed company can apply for a judicial reorganisation with the object of rescuing the company. There are four types of judicial reorganisation, one being a flexible out of court agreement with creditors and the others with more specific purposes (consensual agreement, collective reorganisation plan, sale of all or part of enterprise) closely supervised by the court.

Voluntary liquidation – This is an alternative to a court-controlled bankruptcy proceeding. In an ordinary voluntary liquidation the shareholders control the liquidation.

Yes, in a judicial reorganisation, a moratorium of up to six months can be granted (starting on the date of the court’s order for a judicial reorganisation).

In a bankruptcy the court appoints a bankruptcy trustee (curator/curateur) to manage the company, subject to the supervision by a judge-delegate. In high value or complex cases a committee of trustees is appointed.

In a judicial reorganisation, the directors remain in control of the company, however, the court can appoint a ‘judicial agent’ (gerechsmandatari/mandataire de justice) to assist the company in its reorganisation if a creditor (or a third party) demands it and the court finds this useful.

In a voluntary liquidation a liquidator appointed by the shareholders manages the company.

Three to four weeks.

BELGIUM




BELG

IUM

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Insolvency proceedings commenced in the courts of other EU members states will be automatically recognised under the EC insolvency regulation.

A foreign insolvency procedure commenced in a jurisdiction that is not an EU member state can be recognised and enforced by the Belgian courts if:

• it is not contrary to public policy to do so

• rights of any defendant are safeguarded

• the foreign judgment is final

• the assumption of jurisdiction by the foreign court is not contrary to principles of Belgian law

The fees and expenses of the bankruptcy are super secured and rank ahead of all other creditors including secured creditors.

The costs of contracts entered into during judicial reorganisation rank ahead of other unsecured creditors.

Unpaid wages, employee compensation, social security contributions and taxes have general privilege and rank ahead of other unsecured creditors.

Yes.

Yes.

A retention of title clause is effective if it is agreed in writing prior to delivery and the goods:

• are still in the physically possession of the company

• are not fixed to land such that they have become immoveable property

• are not mixed with other goods


Security over immovable property is taken by a mortgage.

Security over movable property is taken by:

• a specific pledge over that property

• a general pledge over a company’s business

BEL

GIU

M

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BELG

IUM


The bankruptcy trustee can challenge any fraudulent transactions that are prejudicial to the interests of the company’s creditors regardless of when they occurred.

The bankruptcy trustee can only challenge other transactions if they were entered into during the ‘suspect’ period. The suspect period is the period from when the company ceases to pay its debts until the time when the court declares the company bankrupt. There is a rebuttable presumption that these dates are the same, however, the court can decide that the company ceased to pay its debts on an earlier date. In which case the following types of transaction can be avoided on the application of the backruptcy trustee:

• gift

• transaction at an undervalue

• grant of security in respect of pre-existing indebtedness

• any transaction where the counterparty was aware that the company had ceased to pay its debts at the time of entering into the transaction

• payment of a debt not yet due

• any payment made by means other than cash or cash equivalent, eg payment in kind


Directors can be held civilly liable for the following actions:

• breach of their mandate to manage the company

• breach of fiduciary duties owed to the company

• breach of the Belgian Company Code

- failure to hold a shareholders meeting when the company’s net assets fall below 50% of share capital

- failure to present annual accounts to a shareholders meeting

• breach of the company’s articles of association

• serious fault which contributes to the company’s insolvency

• failure to pass on social security contributions deducted from employee wages to the state

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BEL

GIU

M

Koen Devos


Lieven Devos


Directors can be held criminally liable for:

• concealment or destruction of the company’s assets

• concealment or falsification of the company’s books and records

• causing the company to make unauthorised gifts

• reckless transactions to postpone insolvency

• false accounting

• abuse of the company’s assets

The court can disqualify a person from acting as a director if he is found liable for:

• fraudulent bankruptcy

• serious fault contributing to the company’s insolvency

• any bankruptcy related criminal offence

For more information on company insolvency in Belgium please contact

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• Administration

• Liquidation

• Company voluntary arrangements (“CVAs”)

• Schemes of arrangement

Administration – A flexible procedure that can be used to achieve a range of outcomes for a distressed company, from a restructuring to a liquidation of the company’s assets. It is frequently used in order to achieve a sale of the business of the company as a going concern (the terms of which have often been agreed in advance of the administrators being appointed, known as a “pre-packaged” sale or “pre-pack”). In order to protect the business and preserve its value, the company is protected by a statutory moratorium whilst in administration. Administrators can be appointed by the company itself or a creditor holding a floating charge filing a notice of appointment at court; alternatively, an application for an administration order can be made to the court by the company or by any creditor.

Liquidation – Intended to facilitate the realisation of the company’s assets, the fair assessment and payment of the claims of its creditors and, in the case of a solvent liquidation, the division of any surplus among the shareholders. It can be commenced by an order of the court (compulsory liquidation) – generally on the petition of a creditor – or by a resolution of the company’s shareholders (voluntary liquidation).

CVAs – Allow the company to propose a restructuring plan to its creditors which will be binding on those creditors if approved by the relevant majority of them (75% by value including at least 50% of creditors unconnected with the company). Secured or preferential creditors cannot be bound without their consent. A creditor can apply to court to challenge a CVA that it considers to be unfair.

Schemes – Like CVAs, the schemes allow the proposal of a restructuring plan to creditors, but they are also used to effect a wide range of other compromises and arrangement between the company and its creditors or shareholders. Unlike CVAs, schemes can bind secured creditors. Creditors or members whose interests are similar are divided into classes, and the scheme only becomes effective if approved by the relevant majority (at least 75% by value and 50% in number) of the members of each class.

ENGLAND AND WALES

ENG

LAN

D A

ND

WA

LES

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Security over immovable property is taken by:

• fixed charges including mortgages• floating charges


• fixed charges• floating charges

Security over tangible property is taken by possessory security:

• pledges• liens


Yes - insolvency proceedings commenced in the courts of other EU members states will be automatically recognised under the EC insolvency regulation.

Insolvency officeholders appointed in other jurisdictions can obtain recognition under the Cross-Border Insolvency Regulations 2006 (which implements the UNCITRAL model law) or section 426 Insolvency Act 1986.

Note, however, that judgments obtained in actions arising from insolvency proceedings (such as claw-back claims) abroad will not generally be enforceable against a defendant in England unless the defendant has submitted to the foreign jurisdiction.


In an administration or liquidation the powers of the directors cease, and the administrator or liquidator takes control of the company.

In a CVA or scheme the directors remain in control of the company (although, in the case of a CVA, subject to supervision by an insolvency practitioner).


Between six and ten weeks, depending on the process followed.

ENG

LAN

D A

ND

WA

LES


No - English law does not provide for any “free-standing” restructuring moratorium and a company does not have the protection of a moratorium while formulating or awaiting the creditors’ approval of a CVA or scheme (with the limited exception of CVAs proposed by small companies). As a result, where a company needs a moratorium to protect it from creditor action whilst a restructuring is effected, it will generally go into administration, with the administration being discharged once the restructuring plan has been approved.

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Preferential debts rank after debts secured by fixed charges and ahead of detbs secured by floating charges:

• contributions to occupational pension schemes

• unpaid wages up a maximum of £800 per employee

• accrued holiday pay

Sums due to the shareholders of the company in their character as shareholders are subordinated to the claims of unsecured creditors.


Yes.


Yes.


In principle yes, providing that the clause is incorporated into the contract between the parties and the goods in question can be identified. Retention of title can secure all monies due from the company to the supplier and is not limited to sums due under the particular order in question.


An insolvency officeholder can challenge:

• transactions at an undervalue (concluded in the two years prior to the commencement of insolvency proceedings)

• preferences (concluded in the six months prior to the commencement of insolvency proceedings (two years where the preferred creditor is connected to the company))

• floating charges granted in respect of pre-existing indebtedness (in the year prior to the commencement of insolvency proceedings (two years where the chargeholder is connected to the company))

• transactions defrauding creditors (no time limit on bringing a challenge)

ENG

LAN

D A

ND

WA

LES

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Directors can be held civilly liable for:

• wrongful trading - once the directors know or ought to know that the company cannot avoid insolvent liquidation, failing to take every step with an eye to minimising the losses to creditors

• fraudulent trading – trading while insolvent with the intention of defrauding creditors (this is difficult to prove)

• misfeasance – any breach of directors’ fiduciary duties, including causing the company to enter into avoidable transactions, that causes a loss to the company

In theory directors can be held criminally liable for a number of insolvency related offences including fraudulent trading, but in practice prosecutions are very unusual.

Directors whose conduct indicates that they are unfit to be company directors can be disqualified from acting as such or being involved in the management of a company for up to 15 years.

Paul de la Peña

+44 207 919 [email protected]

For more information on company insolvency in England and Wales please contact

Jamie Leader


ENG

LAN

D A

ND

WA

LES

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• Bankruptcy

• Reorganisation

Bankruptcy – Provides for the company’s assets to be realised and the proceeds distributed to creditors in accordance with the Bankruptcy Act. A bankruptcy is commenced by a petition, filed by either the company or one of its creditors. If a creditor has filed the petition, there will be a preliminary hearing at which the court will appoint an interim trustee. If the court finds the company to be “permanently insolvent”, the court will declare the company bankrupt and appoint a bankruptcy trustee. When determining whether the company is permanently insolvent, the court will take into account the balance sheet and cash flow insolvency of the company, Estonian law and court practice.

Reorganisation – A flexible procedure under which a company can restructure its financial obligations to compromise its debts, reschedule its debts so they are repaid over a longer period or both, with the aim of restoring the company to solvency. A reorganisation is commenced by the company making an application to court.

ESTONIA



On commencement of a reorganisation the court will stay enforcement proceedings against the company until a reorganisation plan is approved or the reorganisation proceeding is terminated.

On being declared bankrupt the powers of directors cease and the bankruptcy trustee takes control of the company’s assets.

On a reorganisation the powers of the directors continue subject to supervision of a court appointed reorganisation adviser while drafting and implementing the reorganisation plan.


Between six months and one year, depending on the court process, the bankruptcy trustee and the judge involved in the matter.


Yes - insolvency proceedings commenced in the courts of other EU member states will be automatically recognised under the EC insolvency regulation.

Insolvency proceedings commenced in a non-EU jurisdiction will be recognised in Estonia unless recognition would be contrary to Estonian law or public policy.

ESTON

IA

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The order of priority of payment on a bankruptcy is:

• secured debts, less the expenses of the bankruptcy up to a maximum of 15% of the proceeds of the sale of the secured asset. Any shortfall can be claimed as an unsecured debt

• unsecured debts where the creditor has filed their claim with the bankruptcy trustee within two months of the date of publication of the bankruptcy notice in the official publication Ametlikud Teadaanded

• unsecured debts filed after the two months deadline

Debts owed to directors and shareholders are subordinated.

Yes.

Yes – although terms that provide for termination on commencement of reorganisation proceedings or approval of a reorganisation plan are void.

Yes. The trustee will return property (which the company has not paid for at the time the bankruptcy commences) to a supplier who can prove he has a retention of title over that property.

Security is taken over real estate by way of a mortgage.

Security is taken over tangible property by a:

• possessory pledge

• commercial pledge

• lessor’s right of security

Security is taken over intangible property by pledge.


ESTO

NIA

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ESTON

IA


The bankruptcy trustee can challenge transactions that impair the rights of other creditors and were entered into in the five years prior to the appointment of an interim trustee.

The courts deal with applications on a case by case basis. The courts are more likely to avoid transactions if:

• the counterparty knew or should have known that the transaction would impair the interests of the creditors

• the counterparty was a connected party

The court will avoid security granted:

• after the appointment of an interim trustee

• in the six months prior to the appointment of an interim trustee where that security was granted in respect of pre-existing debts or at a time when the company was insolvent

• in the two years prior to the appointment of an interim trustee where the security was granted in favour of a connected person

Directors can be held civilly liable for losses caused to the company as a result of a director’s breach of duty.

Directors can be held criminally liable and fined or imprisoned for up to three years for:

• knowingly causing the company to become insolvent

• causing the company to prefer one creditor over others

• concealing the company’s property


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ESTO

NIA

Randu Riiberg


Tarmo Repp


For more information on company insolvency in Estonia please contact

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FINLA

ND


• Bankruptcy

• Business restructuring

• Voluntary arrangement

Bankruptcy – In a bankruptcy an administrator is appointed by the court to assist the creditors to realise the assets of the company and distribute the proceeds to themselves.

Business restructuring – In a business restructuring an administrator is appointed by the court to prepare a restructuring plan that requires the approval of the creditors. The restructuring plan can:

• extend the term of debts

• reduce the rate of interest on debts

• compromise unsecured debts

A restructuring plan that is unanimously approved by the company’s creditors is not subject to these restrictions and can compromise secured debts.

Voluntary arrangement – An alternative to a court sanctioned business restructuring is for the company and its creditors to agree a contractual restructuring out of court, although such a voluntary arrangement will only bind those creditors who are party to it.

FINLAND


Yes. On commencing a business restructuring a moratorium on debt repayments and creditor enforcement automatically arises. In certain circumstances a company can apply to the court for a moratorium in anticipation of commencing a business restructuring proceeding.


Business restructuring - the directors remain in control subject to the supervision of the administrator and, if one is formed, the creditors’ committee. Certain acts, such as the disposition of property, require the administrator’s consent.

Bankruptcy - the directors’ powers cease and the estate is controlled by the creditors as assisted by the administrator.


Five to six weeks.

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FIN

LAN

D


Security is taken over:

• company assets by a floating charge

• real estate by a mortgage

• goods delivered but not yet paid for by a contractual retention of title

• movable property by a pledge

• receivables by a pledge



Under the Nordic bankruptcy convention insolvency proceedings commenced in Denmark, Iceland, Norway and Sweden are automatically recognised in Finland.

International law principles apply to the recognition of insolvencies commenced before the courts of countries outside the EU or the Nordic bankruptcy convention.


Secured debts have specific preferential status and rank ahead of all other debts.

The following classes of debt have general preferential status and rank ahead of ordinary unsecured debts:

• the fees and expenses of the insolvency

• claims arising from the continuation of the company’s business after the commencement of insolvency


Yes.


Restructuring proceedings - a counterparty cannot terminate a contracts by reason of insolvency, however the company has a right to terminate certain lease contracts.

Bankruptcy – a counterparty can request the bankrupt estate declare whether it commits to the contract. If within a reasonable time the estate commits to the contract and posts acceptable security for its performance, the contract cannot be terminated by reason of insolvency.

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FINLA

NDAre retention of title clauses

effective?Yes, but not if the company has the right to:

• assign the assets to a third party

• attach the assets to other assets

• dispose of the assets as if it were the owner


The creditors or the administrator can challenge the following transactions if they took place in the five years prior to the commencement of insolvency and the company was insolvent at the time of the transaction or became insolvent as a result of entering into the transaction:

• preferences

• transactions defrauding creditors

• increasing the company’s debt to the detriment of other creditors

There are also specific avoidance provisions relating to transactions including:

• gifts

• disproportionate fees

• payment of debts before the due date

• granting security


Directors can be held civilly liable to pay damages to the company where they deliberately or negligently cause loss to the company, its shareholders or creditors. Proceedings can be brought by creditors or shareholders.

Directors can become personally liable to pay the losses of the company, its shareholders and creditors if, on the company’s capital becoming negative, they fail to report that fact to the company registrar.

A director can be held criminally liable for:

• dishonesty - causing the company’s insolvency or increases its indebtedness by:

- destroying property- making a gift or surrendering property without good cause- transferring property abroad to put it beyond the reach of creditors- increasing the company’s liabilities without valid grounds

• preferring a creditor – procuring that the company, at a time when it is unable to pay its debts:

- repays a debt before its due date- gives security for pre existing debts- makes a payment other than by cash or cash equivalent

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FIN

LAN

D

Jari Salminen


Pekka Kokko


For more information on company insolvency in Finland please contact

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FRA

NC

E


• Safeguard

• Rehabilitation

• Liquidation

Safeguard – A company that has not ceased to be able to pay its debts as they fall due but is nevertheless financially distressed can apply to court for safeguard proceedings, which provide for a moratorium on enforcement by creditors while a debt restructuring plan is prepared. The company has six months (extendable to 18 months) in which to negotiate and agree the rescheduling or compromise of all or part of its debts with its creditors. If the plan is successfully implemented the company returns to financial health.

Rehabilitation – An insolvent company can apply to court for rehabilitation proceedings, which provides for a moratorium on enforcement by creditors while a restructuring plan is prepared. The court approves the restructuring plan, which is binding on the creditors even though they have no say in it. If the plan is successfully implemented the company returns to financial health.

Liquidation – The purpose of liquidation is the realisation of a company’s assets and the distribution of the proceeds to its creditors.

FRANCE


A company can only obtain a moratorium while preparing a restructuring plan by applying for a safeguard or a rehabilitation.


Safeguard - the company’s managers remain in control subject to the supervision and assistance of the court appointed administrator.

Rehabilitation – depending upon the terms of the order commencing rehabilitation the court appointed administrator will either supervise the directors, assist them or directly manage the company.

Liquidation - the powers of the directors cease and the liquidator takes control of the company.


Two months, provided that:

• it is proven to the court that the company has ceased being able to pay its debts as they fall due; and

• the company is not capable of being rescued by means of a restructuring plan

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FRA

NC

E


Security over immoveable property is taken by:

• mortgage (hypothèque)

• lender’s lien (privilège de prêteur de deniers)

Security over tangible moveable property is taken by various forms of pledges (gage), many of which require registration at various registries.

Security over different kinds of intangible movable property is taken by various forms of a different kind of pledge (nantissement).


Yes – insolvency proceedings commenced in the courts of other EU member states are automatically recognised under the EC insolvency regulation.

Achieving recognition of insolvency proceedings commenced in countries that are not EU member states is possible in theory but impractical in reality.


Preferential status is given to debts owed to employees in respect of remuneration incurred after or in the two months prior to the judgment commencing insolvency proceedings.


Yes, provided that creditors who reside outside metropolitan France lodged their claim within four months of publication of the insolvency judgment in the BODACCC (official publication).


No, they are void by law as a matter of public policy.

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FRA

NC

E


Yes. Any demand for return of property under a retention of title clause must be made to the administrator by registered mail within three months of publication of the insolvency judgment.


Certain transactions entered into within the 18 months prior to the insolvency judgment are automatically void including:

• deeds assigning movable or immovable property

• payment of debts prior to the due date

• payments of debts by means that are not common business practice, eg payments other than in cash or cash equivalents

• grants of security

Any other transaction entered into in the 18 months prior to the insolvency judgment can be avoided at the discretion of the court where the counterparty knew that the company was insolvent at the time of the transaction. Where such a transaction was with a company in the same group, the counterparty’s knowledge of the company’s insolvency is presumed.


Directors can be held civilly liable for the company’s debts if they mismanaged the company and that mismanagement caused the company to become balance sheet insolvent.

Directors can be held criminally liable if their mismanagement of the company is sufficiently serious.

Directors found civilly or criminally liable for mismanagement may be disqualified from acting as directors.

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FRA

NC

E

Antoine Martin


Rémi Kleiman


For more information on company insolvency in France please contact

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GER

MA

NY


• Insolvency administration (“Insolvenzverwaltung“)

• Self-administration under supervision (“Eigenverwaltung mit Sachwalter“)

• Creditors protection scheme (“Schutzschirmverfahren“)

Insolvency administration – A court procedure in which an administrator takes control of the company. The directors of a limited liability company (GmbH and AG) that is cashflow or balance sheet insolvent must apply for insolvency administration. Where a limited liability company is likely to become cashflow insolvent its directors can voluntarily apply for insolvency administration.

The proceeding is flexible and can be used to achieve a range of outcomes for a distressed company from a restructuring to a liquidation of the company’s assets. It is frequently used in order to achieve a sale of the business of the company as a going concern. In order to protect the business and preserve its value, the company is protected by a statutory moratorium whilst in insolvency administration.

Self-administration under supervision – A court procedure in which the company’s management remains in control of the company subject to supervision by a procurator. This procedure can be applied for as part of the application for insolvency administration. It is frequently used in order to achieve a sale of the business of the company as a going concern or to ensure that key suppliers continue to sell to the company.

Creditors’ protection scheme – Only available to companies that are likely to become cashflow insolvent. This procedure allows the company to propose a restructuring plan to the creditors. Schemes can bind secured creditors. Creditors and members are divided into classes with similar interests. The scheme only becomes effective if approved by the relevant majority of each class and by the insolvency court.

GERMANY


Yes, the restructuring plan is prepared after the commencement of one of the three formal proceedings and the courts can (and regularly do) grant a moratorium in such circumstances.


In a creditor protection scheme or self-administration directors legally remain entitled to act for and on behalf of the company.

In an insolvency administration, however, the administrator takes over. During the first stage of the insolvency proceedings the directors remain in control of the company (although subject to supervision by a preliminary insolvency practitioner).

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GER

MA

NY


Two weeks to three months depending upon the case at hand and the process followed.



• mortgage (Hypothek)

• non-accessory land charge (Grundschuld)


• retention of title (Sicherungsübereignung)

• assignment by way of security (Sicherungsabtretung)

• possessory security such as pledges


Yes – proceedings commenced in the courts of other EU member states will be automatically recognised under the EC insolvency regulation.

Insolvency proceedings commenced in the courts of countries that are not EU member states are capable of being recognised by application to the German court, however, recognition will be denied where the foreign court does not have jurisdiction in accordance with German law or where recognition would be contrary to public policy, for instance where creditors of different nationalities are not treated equally under the foreign insolvency proceeding.


Debts owed to secured creditors are preferred as are debts incurred after the commencement of insolvency proceedings. Generally, debts owed to the company’s shareholders are subordinated to debts owed to unsecured creditors.


Yes.

31

GER

MA

NYAre contract terms

permitting termination of the contract by reason of insolvency valid?

Depends on nature of the contract. The terms will be invalid if they provide for automatic termination of a contract as are terms that deprive the insolvent party of the right to be paid sums that have fallen due prior to the commencement of insolvency. Inclusion of terms that provide for termination on insolvency are prohibited in certain contracts including leases of real estate and leases of chattels.


In principle yes, provided that the retention of title clause is validly agreed upon by the parties and the goods in question can be properly identified. In general, the validity of the retention of title is subject to the law of the jurisdiction where the goods in question are situated.


The insolvency administrator can challenge:

• transactions at an undervalue (concluded in the four years prior to filing for insolvency)

• preferences (given in the ten years prior to filing for insolvency)

• transactions entered into in the three months prior to filing for insolvency

• repayment of a shareholder loan (in the year prior to filing for insolvency)

• provision of security for a shareholder loan (in the ten years prior to filing for insolvency)


Directors of a company that is (or is likely to become) insolvent on a cashflow or balance sheet (overindebtedness) basis have a duty to file for insolvency. Directors in breach of this duty can be held personally liable to make good all funds disbursed by the company after the date on which they should have filed for insolvency.

Directors can also be criminally liable for fraud and other offences in relation to the insolvency of a company. On conviction, a director can be disqualified from acting as a director for five years.

32

GER

MA

NY

Dr Sebastian Zeeck, LLM


Dr Christian Hilpert, MBA


For more information on company insolvency in Germany please contact

33

HO

NG

KO

NG


• Liquidation

• Scheme of arrangement

Liquidation – There are three types of liquidation:

• members’ voluntary liquidation (MVL): solvent, commenced by a resolution of the shareholders

• creditors’ voluntary liquidation (CVL): insolvent, commenced by a resolution of the shareholders

• compulsory liquidation: insolvent, commenced by court order

The liquidator realises the assets of the company and distributes the proceeds to its creditors. In an MVL the surplus is paid to the shareholders. At the end of the process, the company is dissolved and ceases to exist.

Scheme of Arrangement – Where a company is in financial difficulties, it can propose a compromise of its debts to its members and creditors.

Creditors’ schemes must be approved by a majority of creditors in number and 75% in value.

Members’ schemes must be approved by 75% of the members and all members must vote. Special rules apply where the scheme is used to effect a takeover.

HONG KONG


There is generally no moratorium where a company is preparing a restructuring plan, although appointment of a provisional liquidator would effectively provide one.


On making of an order for compulsory liquidation by the court the directors’ powers of management cease.

In a voluntary liquidation the directors’ powers cease on appointment of a liquidator, although the shareholders or creditors can sanction the continuance of the directors’ powers.

In a scheme the directors remain in control of the company.

34

HO

NG

KO

NG


Around eight to ten weeks.


Security over immovable property is taken by a mortgage.


• fixed charge

• floating charge

• pledge


There is no legislation in relation to cross-border insolvency, however, the Hong Kong court generally recognises overseas insolvency proceedings.


Preferential debts include:

• payments to employees in respect of severance, long service, notice, holiday and statutory compensation, subject to certain limits

• all statutory debts owed to the State


Yes.

35

HO

NG

KO

NG


Yes.


Yes, provided that such clauses are incorporated into contracts that are valid under Hong Kong law.


A liquidator can challenge:

• fraudulent preferences

• floating charges granted in the 12 months prior to the company going into liquidation. The court will avoid the charge unless the chargeholder can prove that following the grant of the charge the company remained solvent


Directors can be found civilly liable for losses caused to the company by:

• breach of fiduciary duty

• fraudulent trading

Directors can be held criminally liable for fraudulent trading and punished by an unlimited fine and upto five years imprisonment.

36

HO

NG

KO

NG

Ivan Ng

+852 2186 [email protected]

Emily Li


For more information on company insolvency in Hong Kong please contact

37

HU

NG

ARY


• Bankruptcy

• Liquidation

Bankruptcy – A financially distressed company can petition to the court for bankruptcy proceedings, which permit the company to enter an arrangement or a composition with its creditors. If the company successfully executes the arrangement it is restored to financial health.

Liquidation – A creditor or the company can petition the court for the liquidation of an insolvent company, or the court can commence proceedings on its own motion. The court appoints a liquidator who realises the assets of the company and distribute the proceeds to the creditors.

HUNGARY


Yes, in bankruptcy the company can obtain a moratorium on payment, creditor enforcement and insolvency proceedings for 120 days from the date of court order commencing proceedings, extendable to 240 days with the consent of creditors.


In bankruptcy the directors remain in control of the company subject to supervision by an administrator appointed by the court.

In liquidation the powers of the directors cease and the liquidator takes control of the company.


Between eight and ten weeks.

38

HU

NG

ARY



• lien

• mortgage


• lien

• mortgage

Security over tangible property is taken by:

• Pledge

• lien


Yes - insolvency proceedings commenced in the courts of other EU members states will be automatically recognised under the EC insolvency regulation. Insolvency proceedings commenced in the courts of countries that are not EU member states are not recognised.


The expenses of liquidation including the liquidator’s fees and sums owed to employees have preferential status.

Other debts will be satisfied in the order specified by statute:

• claims secured by pledged property

• life-annuity payments

• compensation, restitution and similar claims

• claims of private individuals not originating from economic activities

• debts owed to social security funds, taxes, default interest and late charges, surcharges and penalties and similar debts

• general creditors

The following debts are subordinated:

• debts owed to majority shareholders and executive officers of the company and their close relatives (except for wages)

• debts owed to companies of which the company has majority control


Yes.

39

HU

NG

ARYAre contract terms

permitting termination of the contract by reason of insolvency valid?

Yes, provided that the contract terms expressly permit termination on grounds of commencement of insolvency proceedings.

Are retention of title clauses effective? Yes.


In liquidation proceedings a creditor or liquidator can challenge:

• transactions defrauding creditors if the counterparty knows or should know of that intention to defraud creditors, and the transaction is entered into after or in the five years prior to the date of the liquidation petition

• transactions at an undervalue entered into after or in the two years prior to the date of the liquidation petition

• preferences entered into after or in the 90 days prior to the date of the liquidation petition


Directors can be held civilly liable for damages if:

• they fail to act in the best interests of the company

• once they foresee or ought reasonably to foresee that the company will not be able to pay its debts as they fall due, failing to perform their duties primarily in the interests of the creditors

• they failure to assist the liquidator

If a director is held personally liable for the company’s debts the court can also disqualify that person from acting as a director.

Any person who intentionally disposes of all or part of the company’s assets can be held criminally liable for imprisonment for up to eight years if the creditors incur losses by that person:

• concealing, damaging or destroying any asset

• causing the company to enter into a sham transaction or acknowledge a doubtful liability

• acting in any other way contrary to the requirements of reasonable management

40

HU

NG

ARY

Dr. Ildikó Szegedi


Dr. Péter Sándor


For more information on company insolvency in Hungary please contact

41

IRELA

ND


• Examinership

• Liquidation


Examinership – A financially distressed company can apply to the court for an examinership. If granted a moratorium arises and the court appoints an examiner who formulates proposals for a scheme of arrangement between the company, its members and its creditors. If the scheme is approved by the court and successfully implemented, the company returns to solvency. If the court rejects the scheme or, following approval by the court the scheme cannot be successfully implemented, the moratorium is withdrawn and the company usually goes into liquidation.

Liquidation – A liquidation can be commenced by an order of the court (compulsory liquidation), usually on the petition of a creditor or by a resolution of the company’s shareholders (voluntary liquidation). The liquidator realises the assets of the company and distributes the proceeds among the creditors in accordance with the priority set by law.

Scheme of arrangement – An application can be made to court to call meetings of creditor and members to agree a scheme by which claims against a company can be compromised or arrangements made by the company with its members or creditors. A scheme must be approved by a company’s creditors or shareholders by a majority in number and 75% by value of the relevant creditors or shareholders. On approval at a second court hearing the scheme is put into effect.

IRELAND


No – Irish law does not provide for any freestanding restructuring moratorium. As a result where a company requires protection whilst a restructuring is effected, it will generally avail itself of the examinership process which will provide for a restructuring moratorium of 70 to 100 days (as directed by the court).


Examinership - the directors remain in control of the company.

Liquidation - the powers of the directors cease and the liquidator takes control of the company.

Scheme of arrangement - the directors remain in control of the company.

42

IREL

AN

D


Security over immoveable property is taken by:

• fixed charges

• floating charges


• fixed charges

• floating charges

Security over tangible property is taken by:

• pledges

• liens


Yes – insolvency proceedings commenced in other EU member states will automatically be recognised under the EC insolvency regulation.

In respect of non EU member states, insolvency proceedings will not be automatically recognised but the courts have inherent jurisdiction to grant recognition.


The costs and expenses of examiners and liquidators have priority to all debts including secured debts.

Debts owed to employees are preferred to ordinary unsecured creditors.

Sums due to the shareholders of a company are subordinated below the claims of unsecured creditors.


Six to ten weeks to appoint an official liquidator, depending on the caseload of the High Court.

If there are serious concerns about preserving the company’s assets, a provisional liquidator can be appointed in 24 to 48 hours.

43

IRELA

ND


Yes.


Yes.


Yes, provided that the clause is properly incorporated into the contract and that the goods in question can be identified.


The insolvency officer can challenge:


• fraudulent preferences entered into in the six months prior to the commencement of insolvency (two years if the creditor is a connected party)


Directors can be civilly liable for breach of their duty (arising when they know or ought to know that the company cannot avoid insolvent liquidation) to minimise the losses suffered by its creditors.

Directors whose conduct indicates that they are unfit to be company directors can be disqualified from acting as directors.

44

IREL

AN

D

Norman Fitzgerald


Neil O’Mahony


For more information on company insolvency in Ireland please contact

45

ITALY


• Pre-insolvency schemes of arrangement:

1. Out-of-court debt restructuring plan (“piano attestato di risanamento”) and

2. Debt restructuring agreement (“accordo di ristrutturazione dei debiti”)

• Pre-insolvency composition with creditors (“concordato preventivo”)

• Extraordinary administration (“amministrazione straordinaria delle grandi imprese”)

• Bankruptcy (“fallimento”)

Out-of-court debt restructuring plan – A means for a distressed company to obtain new financing without the intervention of the bankruptcy court and the risk of claw back actions. A restructuring plan is prepared by the company and agreed with its creditors. The plan is approved by an expert who considers the reasonableness of the assumptions and the company’s ability to fulfil its payment obligations. Plans generally include an industrial and financial plan, a moratorium, a debt refinancing or rescheduling plan and an analysis of all payments to be made and security granted under the plan.

Debt restructuring agreement – Enables a company to deal with excessive indebtedness while continuing to trade. Provides a moratorium without the need for the court to make a declaration of insolvency.

A debt restructuring agreement is confirmed by the court and binds only those creditors who are party to the agreement. For an agreement to be effective, creditors who are owed 60% in value of the company’s debts must be party to the agreement.

Composition with creditors – Enables a company to deal with excessive indebtedness while continuing to trade. Provides a moratorium without the need for the court to make a declaration of insolvency.

A composition with creditors is scrutinised and approved by the bankruptcy court and is binding on all creditors (including dissenting creditors).

Extraordinary administration – The extraordinary administration proceeding is for the restructuring of companies and groups of companies that have a strategic position in the Italian economy. The procedure is commenced by the Ministry of Industry who appoints extraordinary commissioners who in turn are supervised by the bankruptcy court.

ITALY

46

There are two types of extraordinary administration (under legislative decree and under the Marzano law). In both procedures the company is declared insolvent by the bankruptcy court.

A liquidation or restructuring plan is prepared by the commissioner and approved by the Ministry. Only under the Marzano procedure might creditors be requested to approve the plan.

Bankruptcy - Following a declaration of insolvency, the court appoints a supervising judge and a trustee who is entrusted with the management of the business (if any) and realisation of the company’s assets.

On declaration of insolvency an automatic moratorium arises. Creditors present their claims and the trustee draws up a list of creditors. Creditors are paid pro rata to their claims. Secured creditors whose debts are not repaid from the assets on which they are secured are entitled to prove for the shortfall along with unsecured creditors.

ITA

LY


Yes, a company can obtain the protection of a moratorium while preparing a plan in the context of a pre-insolvency composition with creditors. The moratorium will take effect from the date that the composition application is made to the court. The plan must be filed at the court within 120 days of obtaining the moratorium, although this period can be extended for a further 60 days.


In a bankruptcy or extraordinary administration the powers of the directors cease and a trustee or extraordinary commissioner takes control of the company.

In pre-insolvency proceedings the directors remain in control of the company, subject to supervision by the court (and in a composition, supervision by an insolvency practitioner).


A minimum of eight weeks.

47


Security over immovable property is taken by a mortgage (“ipoteca”)

Security over movable property is taken by a pledge (“pegno”).


Yes - insolvency proceedings commenced in the courts of EU member states are recognised under the EC insolvency regulation.

The Italian Court of Appeal will recognise insolvency proceedings commenced in the courts of countries that are not EU member states if:

• the proceedings are not contrary to a decision of the Italian court

• there are no proceedings pending before the Italian courts

• the proceedings are not contrary to Italian public policy


The following debts have preferential status:

• the expenses of the insolvency procedure

• debts incurred during trading after the commencement of insolvency (if authorised)

• debts having a general right of preference including salaries and professional fees

• social security contributions and taxes

Sums due to shareholders of the company are generally subordinated to the claims of unsecured creditors.


Yes.


In general the Italian law does not recognise a declaration of insolvency as a culpable default by the company.


Yes, although if the value of the property subject to the retention (as determined by an independent expert) exceeds the debt owed to the supplier, the surplus must be paid to the company.

ITALY

48


The bankruptcy trustee can apply to court for the annulment of certain transactions entered into prior to the commencement of the bankruptcy:


• transactions involving unusual means of payment

• security granted to secure pre-existing debts

• security granted to secure due and payable debts

The transaction must have taken place in a relevant period (six months to two years before the declaration of insolvency) and the trustee must prove that the counterparty was aware that the company was insolvent at the time of the transaction. There are various defences to avoidance actions.


Directors can be held civilly liable to pay damages for breach of their duties to:

• supervise the general conduct of the company’s affairs

• minimise losses

• prevent the company from entering in to prejudicial transactions

• preserving the company’s assets

Directors can be held criminally liable if prior to the commencement of bankruptcy they:

• dissipate the company’s assets to the detriment of its creditors

• prefer certain creditors (“bancarotta fraudolenta”)

• increase the company’s losses by imprudent and incautious actions (“bancarotta semplice”)

• conceal the company’s true financial position of distress or insolvency in order to obtain funding (“ricorso abusive al credito”)

On conviction directors can be imprisoned for up to ten years and are automatically disqualified from acting as a director.

ITA

LY

49

ITALY

Mariafrancesca De Leo


For more information on company insolvency in Italy please contact

50


• Legal protection proceedings (restructuring)

• Corporate insolvency proceedings (liquidation)

Legal protection proceedings (restructuring) – Commenced by the company and intended to restore the company in financial distress to solvency. The company prepares a restructuring plan that must be approved by its creditors (two thirds of secured creditors and a simple majority of unsecured creditors) and the court. On approval by the court the plan is implemented by an administrator chosen by the creditors or, failing that, appointed by the court. The plan can be prepared and approved by the creditors prior to application to the court, but if the application is made first then the company benefits from a moratorium while preparing the plan as well as while implementing it. The proceedings last for two years initially and can be extended by a further two years.

Corporate insolvency proceedings (liquidation) – Commenced by court order on the application of an unsecured creditor or the company. An administrator is appointed by the court unless the insolvency proceedings are commenced as a result of unsuccessful legal protection proceedings, where the existing administrator continues in office. The administrator realises the assets of the company and distributes the proceeds to its creditors.

LATVIA


Yes. On the court ordering commencement of legal protection proceedings a moratorium arises.


Restructuring - the directors, council and shareholders remain in control of the company, subject to supervision by the administrator.

Liquidation - powers of the directors, council1 and shareholders of the company cease and the administrator takes full control.

LAT

VIA

1 A council is the supervisory institution of a company, which represents the interests of shareholders during the time periods between the meetings of shareholders and supervises the activities of the board of directors within the scope specified in Latvian law and the articles of association.

51



• immoveable property by mortgage

• moveable tangible property by commercial pledge

• specific intangible property by commercial pledge

• Latvian registered ship by ship mortgage.


Yes - insolvency proceedings commenced in the courts of other EU Member States will be automatically recognised under the EC insolvency regulation.

The liquidator of an insolvent non-EU company will treated as the legal representative of the company but no further recognition is possible.


The order of priority in corporate insolvency proceedings is as follows:

• Claims of secured creditors (less costs of realisation)

• Expenses of the proceedings including tax, professional fees, maintaining the company’s property

• Debts incurred after commencement of the proceedings

• Employees’ claims

• Pre-insolvency tax

• Unsecured debts

• Interest on unsecured debts


Five weeks.

LATV

IA

52


Yes.


Yes.


In general – yes. The supplier who has the benefit of a retention of title clause will be able to retrieve the goods provided he submits documents to the administrator proving his ownership of the goods. If a dispute arises, the supplier can submit a claim to the court to prohibit the administrator from selling the goods until the dispute is settled.


The administrator or, if the administrator fails to act, a creditor can bring actions to avoid the following:

• Transactions at an undervalue entered into after or within three months prior to the company being declared insolvent, regardless of whether the counterparty was aware of the company’s insolvency

• Transactions at a loss entered into after or within three years prior to the company being declared insolvent provided the counterparty knew or should have known the company was insolvent

• Gifts

• Repayment of a debt before its due date or to a connected party in the period after or within six months prior to the company being declared insolvent


Directors can be held civilly liable for losses suffered by the company as a result of them failing to perform their duties to the standard of an honest and careful manager.

Directors can be held criminally liable for causing the company to:

• to enter into transactions at a loss

• perform activities which cause the company to become insolvent (eg transfer money to a new entity, leaving company only with debts)

On conviction they can be imprisoned for up to three years, given community service or fined up to EUR 48,000 and disqualified from all or some business activities for up to five years.

LAT

VIA

53

LATV

IA

Raimonds Groza


For more information on company insolvency in Latvia please contact

Māris Vainovskis


54


• Judicial bankruptcy

• Out of court bankruptcy

• Restructuring

Judicial bankruptcy – An application for a judicial bankruptcy of a company can be made by a company’s creditor, its shareholders (holding more than 10% of the company’s shares), its managing director or, where it is subject to a solvent liquidation and it transpires that there is an insufficiency of funds to meet the company’s debts in full, its liquidator. If the court judges the company to be insolvent it will initiate bankruptcy proceedings and appoint a bankruptcy administrator.

Out of court bankruptcy – A company’s managing director or shareholders can call a creditor’s meeting to consider a written proposal for an out of court bankruptcy (specifying the duration of the bankruptcy, the date on which debts will be settled and the identity of the bankruptcy administrator). The proposal requires the approval of 80% in value of the creditors. If approved the out of court bankruptcy commences. If not approved a judicial bankruptcy will usually be commenced instead.

An out of court bankruptcy cannot be commenced where the company is subject to debt recovery proceedings.

Restructuring – If a company is or is likely to become financially distressed, its managing director can prepare a draft restructuring plan and put it to a vote of shareholders. The plan must be approved by a two thirds majority of shareholders and two thirds majority in value of creditors. Court approval is required but the court will not look at the economic substance of the plan and its approval is usually a formality. A restructuring plan is intended to settle the company’s debts and restore it to financial health.

A restructuring cannot be commenced if the company is subject to either type of bankruptcy proceedings or has ceased trading.

LITHUANIA


No, a moratorium only arises on the making on an application to the court for the opening of restructuring proceedings and recognition of the already agreed restructuring plan.

LITH

UA

NIA

55


Judicial bankruptcy or out of court bankruptcy - the powers of the directors cease and the bankruptcy administrator assumes control of the company.

Restructuring - the powers of the directors continue, subject to the supervision of the restructuring administrator and the provisions of the restructuring plan. Certain significant decisions may require court approval.


Security over immoveable property is taken by a mortgage.

Security over moveable property is taken by a pledge.


Yes. Insolvency proceedings commenced in the courts of other EU members states will be recognised under the EC insolvency regulation.

Insolvency proceedings commenced in non-EU jurisdictions may be recognised by the Lithuanian Court of Appeal under the recognition of foreign courts’ judgements procedure.


The following categories of debt are preferred to unsecured debts and rank in the following order:

• debts owed to employees- remuneration- compensation for work related injury, disease or death

• debts owed to the state - taxes- social insurance contributions and compulsory health insurance contributions - loans provided by the state out of its own borrowing- loans guaranteed by the state or by guarantee institutions which are in turn guaranteed by the state


Two months.

LITHU

AN

IA

56


Yes. Foreign creditors have the same rights as domestic creditors.


Yes.


Yes, provided that the clause is incorporated into the contract and the goods in question can be identified.


In bankruptcy proceedings, the bankruptcy administrator examines all contracts entered into in the three years prior to the commencement of bankruptcy. The bankruptcy administrator can bring an avoidance action in respect of any transaction that:

• was contrary to the objectives of the company’s business

• contributed to the company becoming insolvent


A managing director can be held civilly liable for:

• failure to file for bankruptcy proceedings

• taking unreasonable commercial risks that prejudice the company or its creditors

A managing director can be held criminally liable for:

• taking unreasonable commercial risks that prejudice the company or its creditors where such behaviour is sufficiently serious

• intentional bad management, including:

• taking actions that will clearly cause the company to become insolvent

• causing the company to enter into obviously unprofitable contracts

• providing fraudulent financial information about the company that cause a creditor or shareholder to making a loss

A managing director can be disqualified from acting as a managing director of a company for

LITH

UA

NIA

57

LITHU

AN

IA

Jonas Saladžius


For more information on company insolvency in Lithuania please contact

Rimtis Puišys


three to five years for:

• failure to file for bankruptcy proceedings when required to do so by law

• failure to hand the company’s assets and documents to the bankruptcy administrator

• not providing relevant information to the bankruptcy administrator and the court

• interfering with the bankruptcy proceedings in any other way

58


• Suspension of payments

• Bankruptcy

• Pre-pack bankruptcy

Suspension of payments – A company that foresees it will not be able to pay its creditors can petition the court to grant a suspension of payments. The purpose of a suspension of payments is to enable the company to continue to trade and avoid bankruptcy. If the application is granted, the court will appoint an administrator (“bewindvoerder”) and a supervisory judge (“rechter-commissaris”). Generally the company will continue its business, however, if it cannot agree a composition with its creditors, secure refinancing or agree a restructuring plan within a few days then suspension of payments will usually end in bankruptcy.

Bankruptcy – The company or a creditor can file for bankruptcy. If the company is declared bankrupt the court appoints a bankruptcy trustee (“curator”) and a supervisory judge (“rechter-commissaris”). The bankruptcy trustee will interview the management board of the company, terminate all contracts of employment, realise the company’s assets and investigate whether the directors are liable to the company for misfeasance. The bankruptcy trustee must file regular bankruptcy reports with the court.

Pre-pack – A bankruptcy can be used to effect a pre-packaged sale of the business of a company in financial distress. Although not yet a formally recognised insolvency procedure, prior to a formal bankruptcy the court will appoint a ‘silent trustee’, who participates in negotiations with stakeholders in order to agree the sale of the company’s business. Once agreed, the company is put into bankruptcy and the bankruptcy trustee (usually the former silent trustee) makes the sale on the agreed terms.

NETHERLANDS


No, Dutch law does not provide for a moratorium (“afkoelingsperiode”) outside insolvency procedures.

NET

HER

LAN

DS

59


During a suspension of payments, the directors remain in office but require the approval of the administrator to enter into transactions.

On the court declaring a company bankrupt, the powers of the directors cease and the bankruptcy trustee takes control of the company.


Security over real estate, aircraft and large ships is taken by a mortgage (“hypotheekrecht”), registered in the public land register (“Kadaster”).

Security over movable property, receivables, bank accounts and shares is taken by a pledge (“pandrecht”).



Insolvency proceedings commenced in a court of a non-EU member state may be recognised if provided for in a relevant treaty.


The following debts are preferred:

• the fees and expenses of the bankruptcy trustee

• tax

• debts owed to employees

• the Employee Insurance Agency (which will pay certain debts owed to employees)

Debts can be contractually subordinated.


Between four and six weeks from filing the petition with the court.

NETH

ERLA

ND

S

60


Yes.


Yes.


Yes, provided that (i) the clause is incorporated in the contract between the parties (the supplier and the debtor) and (ii) the goods in question can be identified. The party claiming a retention of title must prove its claim to the administrator or bankruptcy trustee.


The bankruptcy trustee can nullify pre-bankruptcy legal acts which had a prejudicial effect on other creditors as voidable preferences (“actio pauliana”).

Dutch law distinguishes between legal acts where there is a due and payable obligation (obligatory acts), eg payment of a debt on a due date, and where there is not a due and payable obligation (voluntary acts), eg a transaction at an undervalue.

The bankruptcy trustee can nullify voluntary acts where both the company and the counterparty knew or should have known that the act would prejudice other creditors of the company. Where the act took place within the year prior to the commencement of bankruptcy and the counterparty was a connected party (a majority shareholder, director or company in the same group) such knowledge is rebuttably presumed.

A bankruptcy trustee can only nullify obligatory acts where either:

(a) the counterparty knew that a bankruptcy petition was pending against the company at the time the legal act was performed; or

(b) the company and the counterparty conspired to prejudice other creditors by entering in to the transaction.

NET

HER

LAN

DS

61


Directors can be held civilly liable to make good the losses caused to creditors by:

• mismanagement of the company - rebuttably presumed if the directors fail to ensure the company’s accounts are published in accordance with the law

• mismanagement of the company causing taxes or contributions to pension funds to be unpaid - rebuttably presumed if the directors did not inform the tax authorities or pension trustees in time that the company would be unable to pay its debts

• causing the company to enter into contracts - at a time when the director knew or should have known that the company would be unable to fulfill its obligations under the contract

Directors can be held criminally liable for fraudulently removing assets from the company before or during bankruptcy.

Miriam van Ee


For more information on company insolvency in the Netherlands please contact

Mark van Wouwe


NETH

ERLA

ND

S

62


• Bankruptcy - Liquidation

• Bankruptcy - Arrangement with creditors

Bankruptcy – Poland has a gateway insolvency proceeding that can be commenced by company or a creditor where a company is unable to pay its debts as they fall due or is balance sheet insolvent. The court will determine whether a liquidation or an arrangement with creditors (a form of restructuring) will provide the best return for creditors. If circumstances change a liquidation can be changed to an arrangement with creditors and vice versa.

Liquidation – The court appoints an insolvency receiver to realise the company’s assets and distribute the proceeds to the creditors in the statutory order of priority.

Arrangement with creditors – A flexible restructuring procedure in which the company has one month (which can be extended by a further three months by the court) to devise proposals for the restructuring of the company. The proposals must be approved by the court and two thirds in value of the creditors, voting in classes as appropriate. The proposals can include rescheduling of debt, compromise of debt or a debt for equity swap.

If the company carries out the arrangement successfully the insolvency proceedings are closed and the company is restored to financial health.

POLAND


Yes, if the restructuring plan is prepared during a formal bankruptcy of the arrangement with creditors type, but not if the restructuring plan is prepared outside of formal proceedings.


Liquidation - the insolvency receiver takes control of the company.

Arrangement with creditors - the directors generally remain in control of the company subject to supervision by a court supervisor, the insolvency court and a creditors’ committee. In some cases the management can be replaced by an administrator appointed by the insolvency court.

POLA

ND

63


Security over immoveable property is taken by a mortgage.

Security over moveable property and rights is typically taken by a pledge (either ordinary or registered).



Poland has enacted the UNCITRAL model law on cross-border insolvency proceedings and insolvency proceedings commenced in jurisdictions other than EU member states can be recognised by the Polish courts on the application of the foreign liquidator.


There are three categories of preferential debts that rank ahead of unsecured creditors. In order of priority these are:

1. expenses of the bankruptcy proceedings; pensions due post insolvency; sums due under pre insolvency contracts that the receiver requires the counterparties to perform; and sums due as a result of actions taken by the receiver;

2. wages and other employment related claims; pensions and social security payments due for the two years prior to insolvency; and

3. taxes, other public levies and social security payments not within (2).

Subordinated debts include interest arising after insolvency or more than one year prior to insolvency and court and administrative fines.


Six months to one year.

POLA

ND

64


Yes.


No.


Yes, as long as the clause is in writing and the date on the contact is officially certified by a notary public.


POLA

ND

Any creditor can challenge a transaction within five years of it being entered into if it is a:

• Fraudulent preference (actio pauliana) - a transaction entered into by a company that causes it to become insolvent or, if it is already insolvent, to incur further indebtedness at a time when the counterparty knows or ought to know that the company is insolvent.

A receiver, court supervisor or administrator can challenge the following transactions:

• Transactions at an undervalue entered into in the year prior to the commencement of insolvency

• Security granted for debts not yet due granted in the two months prior to insolvency unless a secured creditor can prove that it was not aware of the company’s insolvency at the time the security was taken

• Transactions with connected parties transactions between the company and its directors, directors’ family members, or shareholders or related companies entered into in the six months prior to the insolvency

• Excessive remuneration of the company’s representatives grossly overstated claims for remuneration of the company’s representatives that do not reflect the time and effort taken

• Security granted in favour of connected parties security in favour of a company’s directors, directors’ family members, shareholders or related companies granted in the year prior to insolvency, regardless of the amount of consideration provided by the counterparty

65


Directors can be held civilly liability for the company’s debts if they fail to apply for insolvency proceedings within the proper time limit.

Directors can be held criminally liable for:

• failing to apply for insolvency proceedings within the time limit

• failing to state the truth in a relevant application

• failing to cooperate with the receiver

The insolvency court has the power to disqualify delinquent directors from conducting business activity for three to ten years.

Dr Krzysztof Haładyj

[email protected]+48 22 50 50 73 1

For more information on company insolvency in Poland please contact

Stanisław Żemojtel

[email protected]+48 22 50 50 72 7

POLA

ND

Elżbieta Solska

[email protected]+48 22 50 50 721

66


• Liquidation

• Bankruptcy

Liquidation – A solvent process typically commenced by shareholder consent and conducted in accordance with the company’s articles of association. A liquidator is appointed to realise the company’s assets, pay its creditors and distribute any surplus to its shareholders. The consent of the court and the shareholders is required to finally liquidate the company.

Bankruptcy – Where a company has stopped paying its commercial debts, a petition for bankruptcy can be brought by the company, a creditor, the public prosecutor’s department, the court or a majority of the shareholders.

The court determines the date on which the relevant entity became unable to pay its debts which cannot be more than two years prior to the date of the bankruptcy order.

Up to three bankruptcy administrators are appointed to preserve, manage and realise the assets of the insolvent entity.

NB: Qatari insolvency law is not yet fully developed and is largely untested.

QATAR


No.


They don’t. The powers of management is transferred to the liquidator or the bankruptcy administrator (as applicable).

QAT

AR

Please note that this does not cover the insolvency regime in the Qatar Financial Centre

67


Security over immoveable property is taken by mortgages over land and affixed structures


• pledges over moveables

• assignments of receivables

• pledges over shares and bank accounts


No.


The statutory order of priority of creditors is as follows:

1. employees

2. Qatari government

3. landlords

4. judicial costs, taxes

5. secured creditors

6. unsecured creditors

7. shareholders


As a general guideline 12 to 24 months, however, bankruptcy proceedings are extremely rare in Qatar.

QATA

R

68


Yes.


Yes theoretically (and they are commonly used). We are not aware of this being tested before the courts.


Retention of title clauses are routinely included in contracts involving Qatari entities. There is no reason to doubt their efficacy but we are not aware of the position having been tested in the courts.


The following pre bankruptcy transactions can be set aside where they are entered into after the company has suspended payment of its debts:

• gifts

• settlement of debts before they fall due

• settlement of a debt in a manner otherwise than that agreed upon

• grants of security

• transactions where the counterparty knew the bankrupt company had suspended payment of its debts


The directors can be held civilly liable for the company’s debts if the value of its realised assets is less than 20% of those debts. The directors can escape liability if they can prove that they prudently administered the company’s affairs.

Directors can be held criminally liable for fraud or wilful misconduct.

QAT

AR

69

Ben Moylan


For more information on company insolvency in Qatar please contact

Dani Kabbani


QATA

R

70


For insolvent companies

• Insolvency proceedings

- judicial reorganisation

- liquidation

For distressed companies

• Ad hoc mandate

• Preventive concordat

Insolvency proceedings – Romania has a gateway insolvency proceeding that can be commenced by the company or a creditor. The person filing for insolvency must prove that the company is insolvent on a cash flow basis.

Insolvency proceedings usually commence with an observation period during which a court appointed official receiver supervises the company and a list of the company’s creditors is drawn up.

Judicial reorganisation – If the directors consider there is a chance of rescuing the company it is given the chance to prepare a judicial reorganisation plan that may include any or all of a compromise of debts, a reduction in interest rates on debts or a rescheduling of debt repayments. Creditors are divided into classes and the plan must be approved by the creditors and the court. The plan must be implemented within three years of approval. If it is the company returns to ordinary trading. If the company fails to implement the plan it will be liquidated.

Liquidation – If a company is not capable of rescue or a judicial reorganisation plan is rejected or the company fails to implement a plan it will be liquidated. A court appointed liquidator assumes control of the company solely for the purpose of realising its assets and distributing the proceeds to the company’s creditors.

Adhoc mandate – If a company is financially distressed but not yet insolvent it can apply to the court for the appointment of an ad hoc attorney to negotiate an agreement to restructure its debts and business with one or more of its creditors on a confidential basis. No moratorium arises and the ad hoc attorney has no power to bind creditors to the agreement.

Preventative concordat – If a company is financially distressed but not yet insolvent it can apply to the court for the appointment of a conciliator who has 30 days to agree a restructuring plan with creditors holding at least two thirds in value of the company’s undisputed debts. In order for a plan to come into force no more than 25% of the company’s debts can be disputed and the plan must be approved by a 75% majority in value of creditors (excluding disputed creditors) and the court.

ROMANIAROM

AN

IA

71


During a preventative concordat those creditors who approved the plan are automatically subject to a moratorium and the company can apply to court for a temporary moratorium on dissenting creditors enforcing their claims.

Where a company goes into insolvency proceedings a moratorium automatically arises and continues if the company follows the judicial reorganisation path.


On the commencement of insolvency proceedings the shareholders appoint a special administrator who takes control of the company for as long as the company retains the right to manage its own affairs. The special administrator can be an existing director.

The company retains the right to manage its own affairs during a judicial reorganisation subject to supervision by the judicial administrator and the court, unless and until the court orders otherwise. The creditors and the judicial administrator can apply to the court to have the special administrator relieved of the power to manage the company.

On a liquidation, the company automatically loses the right to manage its own business and the liquidator takes control of the company.


Security over immoveable property (land and buildings) is taken by mortgage.

Security over moveable property is taken by a mortgage that includes a floating charge.



There is a special court procedure for recognising insolvency procedures commenced in courts of countries outside the EU.


Usually six months to one year, sometimes longer in complex cases or if the courts are busy.

ROM

AN

IA

72


On a liquidation, debts are paid in the following statutory order:

1. the expenses of the insolvency proceedings including the fees of the insolvency officer

2. loans made after the commencement of insolvency proceedings

3. employment claims

4. debts incurred during trading after the commencement of insolvency

5. taxes, social security payments and fines

6. bank loans, payments for goods delivered and services rendered

7. other unsecured debts

8. loans made by shareholders holding more than 10% of the company’s share capital or voting rights

9. claims in relation to gifts


Yes.


In principle, no (except for certain netting arrangements).


Yes if the retention of title is correctly publicised. A retention of title takes effect as a mortgage over the asset retained, not as a right to the return of the asset.


There are two broad types of transactions that can be avoided on insolvency:

1. transactions injurious the company’s creditors (including gifts and transactions at an undervalue)

2. transactions with connected parties

Depending upon the value of the transaction, it is vulnerable to avoidance if it is entered into in either the six months or two years prior to the commencement of insolvency.

An avoidance action can be brought by the official receiver/liquidator or by the creditors, acting by the creditors committee or by the majority creditor.

ROM

AN

IA

73


Directors can be held civilly liable as persons responsible for part or all the company’s debts, if they committed specific acts leading to the company’s insolvency, including:

• using the company’s assets to the benefit of themselves or a third party

• fictitious accounting

• embezzlement

• unfair preferences

• an intentional act leading to the company’s insolvency

Directors can also be held criminally liable for their conduct, whether or not they have been found civilly liable for that conduct.

Cristian Lina

[email protected] +40 21 31 12 56 1

For more information on company insolvency in Romania please contact

Mihai Jelea

[email protected] +40 21 31 12 56 1

ROM

AN

IA

74


• Liquidation

Liquidation - The shareholders or a creditor of a company can apply to the Ministry of Commerce & Industry or the court (the Saudi Board of Grievances) to commence a liquidation. Insolvency is determined by reference to the company’s balance sheet and its books of account. If the company is found to be insolvent the Board of Grievances issues an order declaring the entity bankrupt and seizes the company’s assets with the intention of selling the assets and distributing the proceeds to creditors. From the date of the order, the company ceases to have the legal capacity to contract with third parties.

SAUDI ARABIA


No.


Upon the commencement of liquidation, the directors cease to have control of the company’s affairs. The court will appoint a trustee to take possession of the company’s estate. The trustee decides which contracts the company performs, can assign contracts to third parties and terminate onerous contracts.

SAU

DI A

RAB

IA


If there is a treaty in place between Saudi Arabia and the relevant jurisdiction regarding the enforcement of foreign court judgments then it is possible to apply to the Saudi courts to have such insolvency proceedings recognised in Saudi Arabia.


Two weeks.

75


Security over moveable and immovable property is taken by pledge.

SAU

DI A

RA

BIA


The fees and expenses of the liquidation and debts incurred in the course of the liquidation are preferred over all other debts.

Debts owed to employees rank after the fees and expenses of the liquidation but in preference to ordinary unsecured creditors.

Debts owed to certain creditors can be subordinated by contract provided that the contract does not diverge from the order of priority prescribed by law.


Yes.


Yes.


Yes.


Saudi law is somewhat uncertain in this respect. While there is no statue law which provides for transaction avoidance, the court can and does make orders setting aside or avoiding transactions and obligations entered into prior to insolvency.

76


Under the Saudi Companies Regulations directors of an insolvent company are jointly liable to compensate the company, its shareholders and creditors for losses arising from the directors’ mismanagement of the company’s affairs and any violations of the Companies Regulations.

Faisal Tabbaa


For more information on company insolvency in Saudi Arabia please contact

Muhammad Arif Saeed

+96 6 1 14 84 44 [email protected]

Leith Al-Ali

+96 6 1 14 84 44 [email protected]

SAU

DI A

RAB

IA

77



• Judicial management

• Liquidation (winding up)

Scheme of arrangement – A financially distressed company can apply to court for a scheme of arrangement to agree a compromise of its debts. The scheme is binding on all creditors if approved by the court and the company’s creditors.

Judicial management – An insolvent company, its directors or creditors can apply to the court for a judicial management order, which the court will grant if there is a likelihood that:

• the company can be rescued;

• a compromise with creditors or scheme of arrangement can be agreed; or

• the company’s assets can be realised more advantageously than on a liquidation

On making the order a moratorium arises and the court appoints a judicial manager to oversee the process.

Liquidation – There are three types of liquidation:

• members’ voluntary liquidation (MVL): solvent, commenced by a resolution of the shareholders

• creditors’ voluntary liquidation (CVL): insolvent, commenced by a resolution of the shareholders

• compulsory liquidation: insolvent, commenced by court order

The liquidator realises the assets of the company and distributes the proceeds to its creditors. In an MVL the surplus is paid to the shareholders. At the end of the process, the company is dissolved and ceases to exist.

SINGAPORE


Scheme of arrangement – the company can apply to the court for a moratorium while preparing an application for a scheme of arrangement

Judicial management – a moratorium arises automatically on the making of a judicial management order

SING

APO

RE

78


Scheme of arrangement – the directors remain in control

Judicial management – the judicial manager takes control of the company and the powers of the directors cease

Voluntary liquidation – the liquidator takes control of the company and the powers of the directors cease, save to the extent that the shareholders (in an MVL) or creditors (in a CVL) agree otherwise

Compulsory liquidation – the liquidator takes control of the company and the powers of the directors cease


Six to eight weeks from presentation of a winding up petition. If the winding up petition is preceded by a statutory demand, a further three weeks is required.



• mortgage

• charge


• fixed charge

• floating charge

• pledge

• lien


Yes – but only insolvency proceedings commenced in the courts of Malaysia are recognised.

SIN

GA

POR

E

79


Preferred creditors rank after secured creditors and are paid in the following order of priority:

• costs and expenses of the liquidation, including the liquidator’s fees

• unpaid salaries to the lesser of five months pay or SGD 7,500

• debts owed in relation to employees:

- retrenchment benefits and ex-gratia payments

- work injury compensation

- contributions to provident funds

- holiday pay accrued prior to the commencement of liquidation

• taxes assessed prior to the commencement of liquidation or the deadline for proving debts


Yes – although where a foreign company is liquidated in Singapore all domestic creditors must be paid in full before any proceeds are repatriated to the company’s jurisdiction of incorporation.


Yes.


Yes – however, such rights cannot be exercised without the permission of the court during the moratorium arising on the making of a judicial management order.

SING

APO

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A liquidator can challenge:

• Transactions at an undervalue entered into in the five years prior to the commencement of liquidation

• Undue preference transactions entered into in the six months prior to the commencement of liquidation (two years if the counterparty is an associate of the company)

• Extortionate credit transactions – a loan which:

• requires excessively high interest payments

• is unconscionable

• is grossly unfair

entered into within three years prior to the commencement of liquidation.


A director can be found civilly liable to make good losses caused to the company if that director:

• breached his fiduciary duties to act in the best interests of the company

• committed any other misfeasance

• carried on the business of the company with the intent to defraud its creditors

A director can be found criminally liable and punished by a fine of upto SGD 10,000 or two years imprisonment for the following offences:

• failure to co-operate with the liquidator

• causing a company to incur a debt without reasonable belief the company would be able to repay it

A director will be disqualified if convicted of:

• fraud or dishonesty punishable by three months or more months imprisonment

• any offence in connection with the formation or management of a corporation

SIN

GA

POR

E

81

Oommen Mathew


For more information on company insolvency in Singapore please contact

Kate Lan


SING

APO

RE

82


• Liquidation

• Compromise agreements and schemes of arrangement

• Business rescue proceedings

Liquidation – A liquidation is commenced on the application of creditors, shareholders or the company. A liquidator is appointed to realise the company’s assets and distribute the proceeds to creditors and acts as directed by creditors’ meetings.

Compromise agreements and schemes of arrangement – To avoid liquidation and attempt to trade out of financial difficulty an insolvent company can enter into a formal, court sanctioned compromise agreement or scheme of arrangement with its creditors and members. Typically creditors will compromise some of the company’s debt and extend repayment schedules. Schemes can also be used to effect the sale of the businesses of insolvent companies free of their debts.

Business rescue proceedings – Where a company is financially distressed but not insolvent it can apply to the court for business rescue proceedings. The directors remain in office but a business rescue practitioner takes control of the company’s finances with the aim of rehabilitating the company. Should the attempt at rehabilitation fail the company will be put into liquidation.

SOUTH AFRICA


Yes in business rescue proceedings.


In a liquidation the directors’ powers cease.

In a business rescue the business rescue practitioner takes full control of the company’s finances and supervises the board in the exercise of its other powers.

SOU

TH A

FRIC

A

83



• covering bond

• surety mortgage bond

Security over specifically identified moveable property is taken by a special notarial bond.

Security over all the company’s unspecified moveable property is taken by a general notarial bond that ranks behind fixed charge security and is similar to an English law floating charge.

Security over book debts and intangible moveable property is taken by a cession.


Yes, the courts will recognise a foreign liquidator on the basis of a letter of request from the foreign court to the South African court. The foreign liquidator will be granted the same powers as a South African liquidator. The court will seek to safeguard South African creditors and can require their claims to be paid before the foreign liquidator can repatriate the proceeds of realising South African assets to his home jurisdiction.

SOU

TH A

FRIC

A


The following debts have preferential status:

• the fees and expenses of liquidation rank ahead of all creditors including secured creditors

• ranking after secured creditors and ahead of unsecured creditors, preferential creditors including: employees’ claims for remuneration (up to a prescribed amount); taxes and social security contributions; and holders of general notarial bonds


A court application can be made and granted urgently, even on the same day if necessary. In the normal circumstances (where there is no urgency) a provisional order can be granted within a week of the issue if the court application is unopposed. The exact length of time depends on the available court dates.

84


Yes, although a foreign creditor who wishes to commence litigation before the South African courts may have to provide security before doing so.


Yes.


Yes, if the reservation of ownership clause is validly incorporated in the agreement.


On a liquidation, the following can be challenged:

• Transaction at an undervalue (dispositions without value) that caused the company to become balance sheet insolvent entered into in the two years prior to the commencement of insolvency

• Voidable preferences - the court can set aside a transaction that caused the company to become balance sheet insolvent entered into in the six months prior to the commencement of insolvency, unless the counterparty proves that the transaction was made in the ordinary course of business and that it was not intended to prefer one creditor over another

• Undue preferences - any disposition that causes the company to become balance sheet insolvent made with the intention of preferring a creditor

• Collusive dealings - any disposition prejudicial to the creditors as a whole or preferring one creditor over another where the colluded with another party to effect the disposition

• Voidable sale of business or property forming part of the business any disposal of a business, its property or goodwill if the sale is not properly advertised to creditors in accordance with the Insolvency Act entered into in the six months prior to the commencement of insolvency

SOU

TH A

FRIC

A

85


Directors can be held civilly liable for some or all of the company’s debts if they are knowingly party to the carrying on of the debtor’s business in a reckless or fraudulent manner.

In certain limited circumstances the public officer of the company (usually also a director) can be held personally liable for unpaid income tax, employees’ tax and VAT.

In business rescue proceedings, once the moratorium has come to an end directors can be held liable for being knowingly party to the carrying on of the debtor’s business in a reckless or fraudulent manner even if the company has been rehabilitated.

Sandro Milo


For more information on company insolvency in South Africa please contact

Andrew Turner


SOU

TH A

FRIC

A

86


• Concurso

• Mediation (“acuerdo extrajudicial de pagos”)

Concurso – Spain has a gateway insolvency procedure known as a concurso (insolvency). It can be commenced by either (i) by the directors of the company (voluntary insolvency) or (ii) by any creditor (compulsory insolvency). On declaring a concurso, the court will appoint an insolvency administrator.

The procedure commences with the common phase which can lead to either:

(i) a creditors’ composition agreement intended to rescue the business and provide repayment of the company’s debts; or

(ii) a liquidation in which the assets of the company are realised and the proceeds distributed to its creditors.

Mediation - An extra judicial procedure during which the company attempts to agree a payment agreement with its creditors. If no agreement can be reached, the company goes into concurso. A mediation is commenced by publishing a notice in the Official State Gazette (Boletín Oficial del Estado).

SPAIN


In a mediation the company can obtain a moratorium on enforcement and insolvency proceedings for up to three months.


Mediation - the directors of the company continue to manage and operate the business except that they are prohibited from obtaining further credit or borrowing.

Voluntary insolvency - the initial position is that the directors of the company continue to manage the business subject to supervision by the insolvency administrator.

Mandatory insolvency - the initial position is that the insolvency administrator assumes the management powers of the directors and the management.

In either form of insolvency the initial position can be varied by the court in light of the specific circumstances of the case.

SPA

IN

87



• real estate assets by real estate mortgage (“hipoteca”)

• moveable assets (including securities) by ordinary pledge

• industrial plants, business premises, airplanes, machinery and equipment by chattel mortgage (“hipoteca mobiliaria”)

• art collections, raw materials and stock in a warehouse by pledge without transfer of possession (“prenda sin desplazamiento”)


Yes. Insolvency proceedings commenced in an EU member state will be recognised in Spain in accordance with the EC insolvency regulation.

Insolvency proceedings commenced outside of the EU will be recognised if there is an international agreement or treaty (bilateral or multilateral) in place. If there is no such agreement then an exequatur must be obtained through diplomatic channels and presented to the courts in order for a non-EU insolvency judgement to be effective in Spain.

SPAIN


The order or priority of payment of debts is as follows:

1. the fees and expenses of the insolvency (créditos contra la masa)

2. special preferential debts secured by way of a pledge or mortgage

3. ordinary preferential debts including: (i) tax and social security liabilities; (ii) salary and redundancy payments up to a certain threshold

4. ordinary unsecured debts

5. subordinated debts including: (i) claims for interest for late payment and penalty payments; and (ii) claims of companies or individuals who are connected to the company


One to two months.

88


Yes.


No. Such terms are void under Spanish law


Yes, they have the status of a special preferential debt


The insolvency administrator can bring proceedings to have transactions entered into in the two years prior to insolvency avoided if those transactions were detrimental to the company’s estate.

There is a rebuttable presumption that the company’s estate has been prejudiced by:

(i) transactions with connected parties, even when entered into for good and valuable consideration

(ii) security is granted in respect of existing indebtedness

(iii) any refinancing of debt


Directors can be held personally liable for the debts of the company if their wilful misconduct or gross negligence caused or aggravated the company’s insolvency. They can also lose any rights as creditors of the company, be ordered to return assets or rights obtained from the company and may be ordered to indemnify the company for any losses they have caused.

Directors can be disqualified from acting as directors and managing third party assets for a period of two to 15 years.

SPA

IN

89

Juan Díaz


For more information on company insolvency in Spain please contact

Luis Bermejo


SPAIN

90


• Bankruptcy (“konkurs”)

• Public business reorganisation (“foretagsrekonstruktion”)

• Private reorganisation

• Liquidation

Bankruptcy – If a company is unable to pay its debts on a more than temporary basis it is considered insolvent and the company or a creditor can file for bankruptcy. If the company is declared bankrupt by the court a trustee in bankruptcy is appointed to realise the company’s assets and distribute the proceeds to its creditors.

Public business reorganisation – A company that is financially distressed can apply to the court for a business reorganisation. The court appoints an administrator. The directors and the administrator prepare a restructuring plan which can include rescheduling and waiver of debts. The plan can either be approved out of court unanimously by the company’s creditors. Alternatively it can be approved by the court and a majority in number and 75% majority by value of the creditors (if less than 50% of the company’s debts will be repaid under the plan). If more than 50% of the company’s debts will be repaid, only a 60% majority by value is required.

Private reorganisation – An informal reorganisation out of court can be used to compromise a company’s debts. The reorganisation only binds those creditors who are parties to it.

Liquidation – A solvent liquidation can be commenced by a resolution of the company’s shareholders. A liquidator is appointed to realise the assets of the company, pay its creditors in full and distribute the surplus distributed to its shareholders. A company can also be put into liquidation by the Swedish Companies Registration Office (“Bolagsverket”) or by an order of the court if the company has not complied with its reporting obligations or its remaining equity is less than half of its share capital.

SWEDEN


Yes, on commencement of a public business reorganisation. Execution and collection of debts cease and the company cannot be declared bankrupt.

SWED

EN

91


Bankruptcy – the directors’ powers cease and the trustee in bankruptcy assumes control of the company.

Public business reorganisation – the directors remain in day to day control subject to the supervision of the administrator. The directors require the approval of the administrator to:

• repay or grant security in respect of debts that predate the reorganisation

• enter into new commitments

• transfer, pledge or grant any rights in respect of property of material significance to the company’s business

Private business reorganisation – the directors remain in full control of the company’s affairs.

Liquidation – the directors’ powers cease and the liquidator assumes control of the company.



• real estate by mortgage

• tangible property and the assets of a trading company by pledge or floating charge

• most intangible property (bank accounts, shares, bonds, patents, trademarks and receivable) by pledge

• contractual rights by security assignment



Under the Nordic bankruptcy convention insolvency proceedings commenced in Denmark, Finland, Iceland and Norway are also automatically recognised in Sweden.

Sweden does not recognise foreign insolvencies commenced before the courts of countries not members of the EU or the Nordic bankruptcy convention.

SWED

EN


Two to six months.

92


Secured debts have specific preferential status and are paid in priority to all other debts.

The following classes of debt have general preferential status and rank ahead of ordinary unsecured debts in the following order:

1. the costs of petitioning for the insolvency proceeding

2. the fees and expenses of the insolvency proceeding

3. debts incurred under contracts entered into during the insolvency proceeding

4. costs of statutory audit and book keeping during the six months prior to the commencement of insolvency proceedings

5. wages and pensions


Yes.


Yes, however, depending on the circumstances the insolvent estate can request to enter into the contract instead of the company and continue to fulfil the company’s obligations, as long as it provides adequate security for its performance.


Yes, providing:

• the clause is in writing

• the clause was entered into on or before purchase/acquisition of the goods

• the goods can be identified


The following transactions made prior to the commencement of an insolvency proceeding that result in an unfair advantage for one or more creditors can be challenged by the insolvent estate, the administrator of a public business reorganisation or a creditor:

• unjustifiable transactions entered into in the five years prior to the commencement insolvency (ten years where the counterparty is connected to the company)

• gifts made and excessive salary paid in the six months prior to the commencement of insolvency

SWED

EN

93


Directors can be held civilly liable for damages if they deliberately or negligently cause loss or damage to the company, its shareholders or creditors.

Company directors can become personally liable for the company’s debts if the equity falls below half of the company’s share capital and the directors fail to take certain required action.

Directors can also become personally liable for outstanding taxes if the company’s failure to pay the taxes is a result of the directors’ gross negligence.

Directors can be held criminally liable for defrauding creditors and imprisoned for two to six years.

• in the three months prior to the commencement of insolvency (two years where the counterparty is connected to the company):

- repayments of debt before the due date

- repayments of debt other than in cash or cash equivalents

- repayments of debts causing a significant deterioration in the company’s financial position

- grants of security for pre-existing indebtedness

- preferences arising through foreclosure

Jan Österman


For more information on company insolvency in Sweden please contact

Magnus Andrén


SWED

EN

94


• Bankruptcy

• Composition (debt restructuring)

Bankruptcy – A liquidation proceeding in which a liquidator realises the company’s assets and distributes the proceeds to its creditors. A bankruptcy can be opened as a result of an enforcement action brought by a creditor or on the application of the company.

Composition – A proceeding that can be used in one of two ways: (a) a debt restructuring with assignment of assets, a more flexible way to liquidate a company in which the company’s assets are realised by the creditors, possibly including a sale of the company’s business to a third party; or (b) an ordinary debt restructuring in which there is either or both a debt-rescheduling and a partial compromise of debt. Composition proceedings are usually commenced by the company but can also be commenced by a creditor who would be entitled to request the bankruptcy of the company.

SWITZERLAND


Yes. The granting of a moratorium is the first step in a composition.


Bankruptcy – the powers of the directors cease and the liquidator takes control of the company.

Composition - the directors remain in control of the company subject to supervision of the court-appointed administrator. On the court’s final confirmation of a debt restructuring agreement with assignment of assets, the company ceases to carry on its business and the directors powers cease. On the court’s confirmation of an ordinary debt restructuring agreement, the company continues its business and the directors’ powers continue.

SWIT

ZER

LAN

D


Generally bankruptcy is commenced within three months of filing a debt collection request with the competent cantonal Debt Collection Office.

95



• mortgages

• mortgage instruments


• pledges

• fiduciary transfers of property titles

Security over intangible property (eg receivables, shares) is taken by:

• pledges

• fiduciary transfers


Yes. Foreign insolvency proceedings are recognised in Switzerland on application by the foreign liquidator or duly authorised creditor, if:

(i) the insolvency judgment is issued by the courts of the jurisdiction in which the company is domiciled;

(ii) the judgment is enforceable in that jurisdiction;

(iii) there is no public policy ground for non-recognition under the Swiss Private International Law Act; and

(iv) the relevant jurisdiction has reciprocal rights of recognition for Swiss insolvency proceedings.

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D


Debts owed to employees have preferential status. Social security contributions are also preferred, ranking after debts owed to employees. Both rank ahead of ordinary unsecured claims.

No classes of debt are legally subordinated.


Yes.


Yes.

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Yes, provided the retention of title clause is registered in the Title Register at the Debt Collection Office of the canton in which the company is domiciled.


The following transactions can be challenged by creditors of the company:

• if entered into in the year prior to the commencement of insolvency proceedings:

- transactions at an undervalue- transactions for no consideration- gifts

• if entered into in the year prior to the commencement of insolvency proceedings at a time when the company was overindebted and the counterparty knew or should have known of that overindebtedness:

- granting security for existing debt- settling a monetary debt other than in cash or by a standard means of payment, eg

settling a monetary debt in kind- settling a debt not yet due

• any transaction entered into in the five years prior to the commencement of insolvency proceedings with the intention of either disadvantaging its creditors or favouring certain creditors to the disadvantage of other creditors


Directors can be held civilly liable for losses caused to the company as a result of their failure to commence insolvency proceedings as soon as they knew, or should have known, that the company was insolvent.

Directors can be held criminally liable for mismanagement or giving undue preferences to creditors and punished by up to five years imprisonment and/or a fine of up to CHF 10,000.

Swiss law does not provide for delinquent directors to be disqualified from acting as directors.

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Joël Chevallaz


For more information on company insolvency in Switzerland please contact

Marc Nufer


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• Liquidation

• Bankruptcy

• Judicial composition

• Protective composition

Liquidation – Typically commenced by shareholder consent and can be either a solvent or insolvent proceeding. A liquidator is appointed to realise the company’s assets and distribute the proceeds to the company’s creditors and any surplus to its shareholders.

Bankruptcy – The company, creditors, the public prosecutor and the court on its own motion can petition for the bankruptcy of a company. The court will find a company bankrupt if it:

• is unable to pay its debts

• has ceased paying its debts

• has closed its place of business

• has acted to the detriment of its creditors

A trustee in bankruptcy is appointed to realise the company’s assets and distribute the proceeds to the company’s creditors.

Judicial composition – A company in financial distress can propose a contractual rescheduling or compromise of its debt to its creditors. The composition is binding on the company and all unsecured creditors if it is approved by the court and a majority of the company’s creditors. The court appoints a composition trustee to oversee the implementation of the composition. A judicial composition is only available if the company acts in good faith.

Protective composition – Where a bankruptcy petition is presented against a company, it can apply to the court for a protective composition and avoid bankruptcy, provided that the company:

• has a commercial registration

• is financially distressed

• acts in good faith

The court appoints a composition trustee who proposes a contractual rescheduling of debt to the company’s creditors. The composition is binding on the company and all unsecured creditors if it is approved by the court and a majority of the company’s creditors.

UAE


No.

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E

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Liquidation – the liquidator takes day to day charge of the company’s business, however, the directors retain those residual powers not assumed by the liquidator.

Bankruptcy – the directors’ powers cease and the court appoints a trustee in bankruptcy who takes control of the company’s affairs.

Judicial composition – the directors remain in control subject to the supervision of the composition trustee.

Protective composition – the directors remain in control subject to the supervision of the composition trustee.


Generally yes, subject to the laws and treaties governing the enforcement of foreign judgments.

UA

E


There have been very few liquidations in the UAE, however, typically under the essentially similar law of Dubai an unopposed liquidation can be commenced in six to nine months.



• moveable property by a pledge

• tangible and intangible business assets by a mortgage

• land and buildings by a mortgage

• receivables by an assignment


Preferential debts are:

• taxes and other sums due to the government

• costs and expenses of the insolvency

• wages

and they take priority over all other secured and unsecured debts.

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UA

E


Yes.


Yes, the law provides for termination in such circumstances, but no case has yet come before the court.


Yes.


In a bankruptcy the creditors can challenge any transaction that was to the detriment of the creditors as a whole and was entered into at a time when the counterparty was aware of the company’s insolvency.


Directors can be held civilly liable to discharge part or all of the company’s debts if:

• the company is unable to pay at least 20% of its debts

• they are found criminally liable for:

- concealment- false accounting - embezzlement

Directors can be held criminally liable and imprisoned for up to five years for:

• concealment

• misappropriation

• fraud

• deceit

• failure to keep proper accounts

• putting assets beyond the reach of creditors

• preferring one creditor over others

• false accounting

• embezzlement

A director convicted of a crime of dishonesty is liable to disqualification from acting as a director.

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UA

E

Nayiri Boghossian


For more information on company insolvency in the UAE please contact

Ben Bruton


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INSOLVENCY CONTACTS FOR JURISDICTIONS NOT COVERED IN THIS GUIDE

ChinaJack Cai

+86 21 61 37 10 07

[email protected]

IraqTawfiq Tabbaa

+96 26 56 60 51 1

[email protected]

JordanNadim Kayyali

+96 26 56 60 51 1

[email protected]

Insolvency law in the following jurisdictions is either extremely complex or not yet developed. If you require further informa-tion, please contact one of the relevant individuals below.

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GLOSSARY

Avoidable transactions

In most jurisdictions, transactions entered into by a company in the period preceding its insolvency can be unwound if they meet certain criteria. Assets transferred by the company may be restored to the company’s insolvent estate or compensation may be ordered.

Which transactions are vulnerable depends upon the rules of the relevant jurisdiction, however in most countries the following types of transaction are vulnerable:

• Transaction at an undervalue

A transaction where a company disposes of its property for no consideration (eg makes a gift) or for significantly less consideration than it gives (eg sells an asset for less than its true value).

• Preference

A transaction with an existing creditor of the company, by which the company deliberately seeks to improve the position of in a future insolvency (eg repaying a loan made to the company by a director). In some jurisdictions known as undue or fraudulent preference.

• Transaction defrauding creditors

Any transaction where the company intends to put its assets beyond the reach of its creditors (eg transferring valuable property overseas).

In civil law jurisdictions the following types of transaction are usually vulnerable:

• Repayment of a debt prior to the due date

• Repayment of a debt in an unusual manner

Where a debt is repaid other than in cash, cheque or bank transfer, eg repaying a cash debt by transferring ownership of a motor vehicle, unless specified by contract.

The period of time prior to the commencement of insolvency proceedings in which transactions are vulnerable to avoidance differs between jurisdictions and the kind of avoidable transaction in question. Vulnerability periods are usually longer where the counterparty to the transaction is connected with the company or the transaction was entered into with the intention of defrauding creditors.

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SSARY

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SSA

RY

In most cases, the transaction will only be vulnerable to avoidance if the company was insolvent at the time of the transaction or became insolvent as a result of the transaction. Insolvency is often presumed where the counterparty is a connected party.

Connected party

A connected party is a person or company who has a close association with the debtor company. The precise definition varies between jurisdictions, but usually includes:

• directors

• close relatives of the directors

• parent companies (direct or indirect)

• sister companies in the same group

• subsidiaries (direct or indirect)

EC insolvency regulation

The EC insolvency regulation applies to all EU member states except Denmark and provides for automatic recognition of insolvency proceedings and insolvency officers across the EU.

For the purposes of the regulation insolvency proceedings are proceedings under insolvency legislation and subject to the supervision of the court. As a result, pre-insolvency proceedings, some out of court proceedings and proceedings under company legislation (notably English schemes of arrangement) fall outside the scope of the regulation.

Floating charge

A floating charge is a charge which can be created over a variable class of assets (unlike a fixed charge, which can only be created over specific, fixed assets). Floating charges are usually taken over the whole of a company’s business or a changing class of assets, such as stock, and allow the debtor to deal with the assets as if they were unencumbered. On an event of default (eg breach of a financial covenant or failure to make a scheduled repayment), a floating charge will crystallise and take effect as a fixed charge, preventing the debtor from dealing with its property without the consent of the chargeholder.

Floating charges are often found in jurisdictions that derive their law from English law, although they are also available in some civil law countries.

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SSARY

Gateway proceedings

In a jurisdiction which has gateway proceedings, all companies that become subject to formal insolvency initially pass through the same type of legal proceedings. Following commencement, there is typically an examination period during which an insolvency officer assesses the circumstances of the company and produces a report on how best to proceed. Companies that are capable of rescue are put into rehabilitation or restructuring proceedings, while companies that cannot be rescued are liquidated.

The introduction of gateway insolvency proceedings has been a common theme in insolvency law reforms in Europe in the last two decades. Usually such proceedings have been introduced to replace a complex tangle of overlapping insolvency proceedings which may have been available at differing stages of financial distress.

Insolvent

Depending upon the jurisdiction a company is considered insolvent if either or both:

• it is unable to pay its debts as they fall due (often known as cashflow insolvency)

• its liabilities exceed its assets (often known as balance sheet insolvency)

The exact tests depend upon the jurisdiction and, particularly in relation to balance sheet insolvency, tend to be complex questions of law and accountancy.

Moratorium

Typically a suspension of all legal proceedings, including enforcement of debt and security and the making of applications for insolvency proceedings against a debtor. The exact extent of a moratorium will depend upon the jurisdiction and it may also include suspension of:

• exercise of retention of title rights

• rights of set-off

• seizure of goods or re-entry by landlords

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Nordic bankruptcy convention

The Nordic bankruptcy convention applies to Denmark, Finland, Iceland, Norway and Sweden and provides for automatic recognition of insolvency proceedings and insolvency officers across the participating states.

Out of court

Most insolvency proceedings in most jurisdictions are commenced by an application to court. Certain proceedings, typically pre-insolvency restructuring proceedings, may be commenced by a decision of the debtor company’s management or shareholders. These are known as “out of court” proceedings. Certain jurisdictions, in particular England and jurisdictions which derive their law from English law, permit formal insolvency proceedings to be commenced by decisions of shareholders or by simply filing of forms at the court. These too are known as out of court proceedings.

Preferential debt

A debt that is accorded payment in priority to ordinary unsecured debts (and possibly other classes of debt) in a distribution of a debtor company’s assets by an insolvency officer. In some jurisdictions the term “preferential” is used to describe any debts that rank ahead of ordinary unsecured debts, so both debts preferred by statute and secured debts are considered to be preferential debts. In other jurisdictions, the term “preferential” is used to describe only those debts that rank ahead of ordinary unsecured debts by statute, so secured debts are not considered to be preferential debts. In this guide we use the term “preferential” in this second sense.

Retention of title

A retention of title clause provides that title to goods delivered to the purchaser remains with the supplier until such time as the supplier has been paid (either in respect of those goods or all sums owed by the purchaser to the supplier). Where a purchaser becomes subject to insolvency proceedings a supplier with the benefit of a retention of title clause will typically seek to recover the goods subject to the clause or obtain payment in full.

Retention of title clauses work in principle in EU member states following the decision of the European Court of Justice in the Romalpa case. As a result retention of title clauses are sometimes known as Romalpa clauses.

Whether and how a retention of title clause works in practice depends upon the nature of the goods supplied, how the goods have been used and on the rules of the relevant jurisdiction. In many jurisdictions, a statutory right to damages or security for payment replaces the contractual right to delivery up of the goods. Contractual attempts to create a right to the proceeds of the sale of goods subject to a retention of title agreements are difficult to enforce.

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SSARY

Security

Where a company borrows money it may grant the lender security over some or all of its assets, which may include the whole of the company’s business. Otherwise than in respect of assets subject to a floating charge, the debtor will not be free to dispose of the secured assets until such time as the debt has been repaid. The lender will hold that security until such time as the loan is repaid or, if the debtor defaults, the lender will realise the secured assets and use the proceeds from the sale of those assets to repay the debt. Realisation is often through insolvency proceedings although many jurisdictions allow secured creditors other forms of enforcement.

Security comes in many different forms in different jurisdictions. Most jurisdictions have the following concepts, although the terminology differs:

• Mortgagea fixed charge over real estate and immoveable assets

• Charge fixed security over tangible or intangible moveable goods, may also be known as a pledge

• Possessory security over tangible moveable goods, may also be known as a pledge

Some jurisdictions have special forms of security in relation to particular assets, notably France. Seafaring nations often have special forms of security in relation to ships. England, jurisdictions deriving their law from English law and some other countries have the concept of a floating charge that permits a debtor to deal with its assets as if they were not subject to charge until such time as the charge crystallises (see above).

Eversheds international-guide-to-company-insolvency

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