Are there any schemes or arrangements which can be implemented in relation to a debtor company or business which is in financial difficulties (other than insolvency proceedings)? How do they affect the rights of a lender with security?
Under the Civil Procedure Code (CPC), the board of directors may file for bankruptcy before the company ceases all payments to creditors or in the ten days following this event. If the filing is performed in a timely manner, the CPC allows the insolvent company to propose an agreement to the creditors in order to achieve the restructuring of its debts and to avoid the declaration of bankruptcy. This agreement must be approved by creditors representing 75 percent of the credits.
Yes, the Bankruptcy act provides for arrangements which may be implemented. The process is known as Concurso Preventivo. It allows the companies to reorganize according to the provisions of the Bankruptcy Act, under the monitoring of a sindyc appointed by the competent judges. Economically speaking, there are some similarities between this process and the one provided in Chapter 11 of the US Bankruptcy Act. Lenders with a security may not be affected, except agreed by secured party.
A company may be placed in voluntary administration if it is in financial difficulties. A resolution for the company to enter voluntary administration may be made by the directors of the company, a liquidator or by a creditor of the company if that creditor is entitled to enforce a security interest over the whole, or substantially the whole, of the company’s property.
During a voluntary administration, an administrator is appointed to the company for the purpose of attempting a compromise with its creditors or a similar arrangement aimed at saving the company or the business and maximizing the return to creditors.
The administrator investigates the company and is required to submit a report to creditors within a prescribed time frame. The administration ends when creditors either vote to wind up the company, vote to accept a ‘Deed of Company Arrangement’ proposed by the administrator or vote to end the administration process. A ‘Deed of Company Arrangement’ will set out the agreed compromise with creditors and the extent to which the company is relieved from its debts.
The rights of secured creditors are not generally affected by the appointment of an administrator as the secured assets will be outside the reach of the administrator (unless the secured creditor elects to add its security to the pool of assets available to the administrator or elects to become part of the administration process).
However, a secured lender may be prevented from enforcing its security during the administration process. The administration process will usually last 28 business days, but may be extended.
Book XX of the Belgian Economic Law Code provides certain procedures aimed at allowing the continuation of businesses where it is economically possible. It is possible to distinguish between the pre-procedural phase and the judicial reorganization:
Debtors in financial difficulty may request the commercial court to appoint a ‘mediator of enterprises’ (médiateur d’entreprize/ondernemingsbemiddelaar) whose task will be to assist the debtor in the reorganization of his business.
Under this phase, the debtor can negotiate an amicable settlement with all his creditors, or with two or more of them, without entering into a judicial reorganization. Should the company ultimately fail, these settlements are bankruptcy proof.
Article XX.39 of the BELC distinguishes between three types of judicial reorganization measures:
If the commercial court grants one of the forms of judicial reorganization, a suspension period is imposed, during which the debtor cannot be declared bankrupt nor be wound up by a court order if it is a legal entity, and no enforcement measures can be taken. The commercial court appoints from amongst its members a ‘delegated judge’ (juge délégué/gedelegeerde rechter), who will assist the debtor and supervise the procedure.
In this procedure, the debtor is protected against his creditors. The debtor must demonstrate that the continuity of his business is threatened. If the debtor is a legal entity, the business continuity is presumed to be threatened when losses have reduced the company’s net assets to less than half of its share capital.
The procedure laid down by the Law on Bankruptcy provides for a reorganisation plan to be drawn up which may deviate from the provisions of the laws governing the distribution of bankrupt estate. A reorganisation plan may specifically:
The reorganisation plan is deemed to have been accepted if in each class of creditor, the majority of creditors with the right of vote have voted, and the sum of the claims of the creditors who voted for the plan is greater than the sum of the claims of the creditors who voted against the plan.
Yes, the debtor may have the right to petition for judicial recovery or a general claim of the latter before the creditors of extra-judicial recovery of debts. This may affect lenders with security if a certain percentage of the creditors and/or the judge, as applicable, approve debtor’s payment proposal within the procedure.
When a company gets into an economic and financial crisis, the debtor entrepreneur may request its judicial recovery. This can be granted not only to the debtor in financial crisis with temporary difficulties in their business, but also to one with illiquidity, insolvency or in a patrimonial situation that deserves a planned readjustment of their business activity.
However, only the debtor entrepreneur that regularly carries out its activities for more than two years, in addition to fulfilling the following requirements may apply for such benefit:
The debtor must file an application for judicial reorganization, demonstrating the reasons for its financial crisis and, mainly, the capacity to recover and its initial application must be mandatorily instructed with accounting statements, nominal list of creditors, among other documents expressly required by law.
Regarding the extra-judicial recovery of debts, it is a type of agreement signed between the debtor and its creditors to facilitate the payment of outstanding debts. It works in a similar way to a judicial recovery but with a fundamental difference: it’s not necessary for the negotiation to be carried out with the approval of Justice.
Extrajudicial recovery gives more autonomy to companies that are experiencing serious financial difficulties. The organization itself calls its creditors to make a collective negotiation, all the rights, payment conditions and obligations of each party are defined, the document is drafted and then signed by all.
Lenders to troubled real estate owners may be able, to the extent the mortgage agreement provides, to appoint a receiver or agent to collect rents and manage the property so as to protect the relevant collateral. The receiver can act to preserve the asset while foreclosure proceedings may be pursued.
Under the PRC Enterprise Bankruptcy Law, arrangements with creditors may be implemented.
No text yet.
Under the Insolvency Act (Official Gazette no. 71/15, 104/17) the debtor company may opt to initiate pre-insolvency proceedings for the purpose of restructuring. In the course of such proceedings the debtor company puts a (financial and operational) restructuring plan to its creditors and if the plan is adopted by the creditors a settlement in the form of an enforceable court settlement is executed between the debtor company and its creditors. If no such settlement can be reached, the debtor company enters into insolvency proceedings (liquidation).
Lenders with a security (creditors with separate settlement rights) may participate in the restructuring process. If they choose to participate they must waive their rights to a separate settlement during the proceedings and – once the settlement is executed – for as long as the debtor company fulfils its obligations as set out in the settlement. In such a case these creditors are granted voting rights in respect of the restructuring plan and they will be bound by the plan and the settlement (their claims usually being restructured, e.g. partially written off or converted into equity), however, their securities either not being affected by the settlement or being partially affected – to the extent set out in the settlement. These lenders may choose not to participate in the restructuring proceedings, in which case they will not be bound by the settlement and they retain their security in full and may initiate settlement proceedings to enforce their security (foreclosure).
A separate law has been adopted for companies of strategic importance for Croatia, the Act on Extraordinary Administration for Companies of Systemic Importance for the Republic of Croatia (Official Gazette No. 32/17), the “Lex Agrokor”. It applies to Agrokor and its affiliates (at present) and it provides for restructuring proceedings (scheme of arrangement) under the management of an administrator appointed by the government. As regards the rights of secured lenders, the same rules as in case of a standard insolvency apply.
In cases where it can justifiably be assumed, having regard to all of the circumstances of the case, that the debtor would be unable to satisfy a substantial portion of its monetary debts in a due and timely manner, the fact itself that insolvency is impending entitles the debtor to file the insolvency petition.
A debtor who engages in a business may, within seven days of the date of delivery of an insolvency petition, (or, in the case of a creditor's proposal for insolvency, within 15 days of the date of its delivery) file a motion with the insolvency court for a protection period or 'moratorium' to be imposed. A legal entity in liquidation, on the other hand, does not have this right. The motion must contain all of the facts, lists and supporting documents required to justify the moratorium. These include written statements of the majority of the creditors (calculated by reference to the proportionate size of their claims in relation to the overall debt) that they agree with a moratorium being imposed. The creditors' signatures on these statements must be authenticated.
The moratorium is effective as from the time the decision to impose the moratorium is published in the insolvency register. It lasts for the period set out in the relevant motion but cannot exceed three months. If the debtor files the motion, the insolvency court may extend the moratorium by up to 30 days, provided that the debtor attaches an updated list of its obligations as at the date of the motion, and a representation by a majority of the debtor's creditors, calculated by reference to the amount of their respective claims, to the effect that they consent to the extension; the creditors' signatures on the representation must be notarized.
While the moratorium is in place, no judicial ruling on an insolvency may be issued. Even during the moratorium, authorised persons may join in the proceedings and creditors may assert their rights by submitting their claims. These claims become effective when the moratorium expires, subject to some exceptions.
The insolvency court may appoint an interim trustee if it granted the moratorium or if that approach is justified by the extent of the assets that need to be ascertained and secured even on an interim basis, or if there are other equally important reasons. The insolvency court may, in order to prevent dealings with the assets which would be detrimental to the creditors grant a ruling that the debtor may only dispose of any of the affected assets with the consent of the interim insolvency trustee.
In Denmark debtors have the option of entering into restructuring. The rules, which replace the previous rules on the suspension of payment and compulsory arrangements with creditors, are incorporated in the Danish Bankruptcy Act and came into force on 1 April 2011.
Either the creditors or the debtor can request restructuring proceedings be initiated. The debtor must be insolvent. When restructuring proceedings are commenced the bankruptcy court will appoint an administrator (usually a lawyer). The bankruptcy court will also a nominee (an accountant) if requested.
The administrator must draw up a restructuring plan. Until the restructuring plan is adopted by the creditors, the debtor can secede from the restructuring (at the latest 8 weeks from the beginning of the restructuring). If the debtor secedes from the restructuring, the creditor can proceed to file for bankruptcy.
After this point the restructuring proceedings will end with either the adoption of a restructuring plan or a bankruptcy.
If the proceedings end with an adoption of the restructuring plan, the business is reorganised, either through a compulsory arrangement with the creditors and/or a business transfer.
There are certain time limits that must be complied with:
Mortgagees are not entitled to enforce their security during the restructuring proceedings.
Under the Danish Bankruptcy Act a compulsory arrangement in restructuring does not cover mortgage claims to the extent that the mortgage provides coverage. Determination of the value of the real estate will be made either by the administrator, the accountant or the bankruptcy court (if applied for by the debtor).
However, a mortgagee will be bound by the compulsory settlement in respect to the portion of its security that is not covered by the value of the mortgaged property.
In addition to the rules on restructuring, there are rules on preventive restructuring. Unlike the restructuring rules, preventive restructuring does not necessarily require insolvency. It requires that the debtor is insolvent or, owing to financial difficulties, is likely to become insolvent.
The purpose of the rules on preventive restructuring is to give a debtor in financial difficulties an opportunity to reach an overall arrangement with their creditors.
The debtor can request an enforcement restriction order. This means that creditors cannot enforce their claims through the bankruptcy court. However, it also means that the company must inform the creditors accordingly. A petition for an enforcement restriction order is also deemed to be a request for the appointment of a restructuring administrator. Alternatively, the company may choose not to request an enforcement restriction order, and then wait to inform the creditors until a restructuring proposal is made. Then, it is not mandatory to appoint a restructuring administrator.
The principal rescue procedure is the administration of the company. The administrator takes control over the whole of the company's assets with a view to producing a better result for creditors than if the company were to go into liquidation. Administration creates a moratorium which prevents creditors from enforcing their security without the consent of the administrator or an order of the court.
A corporate voluntary arrangement is an agreement between the creditors of a company which typically involves arrangements for reduced payments to creditors. This has to be approved by a majority of creditors holding together more than three quarters of the total debt, although this is not binding on secured creditors.
No.
The Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) enables a company to compromise or make arrangements with its creditors but requires the sanction of the court.
Where a compromise or arrangement is proposed between a company and its creditors or any class of them, the court may order a meeting of the creditors to be summoned in such manner as the court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors present and voting either in person or by proxy at the meeting agree to any compromise or arrangement, the compromise or arrangement is, if sanctioned by the court, binding on all the creditors or the class of creditors and also on the company.
A debtor company and its creditors may enter into any voluntary arrangement they choose to deal with the debtor’s financial difficulties. Such agreements may, for example, suspend payments and/or the enforcement of the creditors' claims (including security interests) for a mutually agreed period of time or extend the original repayment term to accommodate the borrower’s financial position. Such an agreement is normally not binding on any third parties not being parties thereto.
Furthermore, as an alternative to insolvent liquidation, the directors or creditors (in each case subject to further requirements) of a debtor company may file for bankruptcy procedure (csődeljárás) with the court. Such bankruptcy proceedings are voluntary reorganization proceedings, during which a preliminary statutory moratorium applies and the debtor endeavours to obtain a further moratorium in order to agree on a settlement (composition) with its creditors.
In addition to the above, as part of the COVID-19 emergency legislation, a new type of formalized insolvency procedure called reorganization procedure (reorganizációs eljárás) has been introduced. It is to some extent similar to the above bankruptcy procedure, given that the main purpose of both type of procedures is to reorganize a debtor company in financial distress, ie to restore its solvency. There are two types of reorganization procedure: private (when it only applies to creditors involved in the reorganization) and public procedure (when it applies to all creditors). In the case of a public reorganization procedure, with the exceptions set forth in the above relevant legislations, the rules on bankruptcy procedure shall apply mutatis mutandis.
Schemes of arrangement pursuant to Part 9 of the 2014 Act (“Part 9 Scheme”) exist under Irish law. A Part 9 Sscheme is a court-supervised process whereby a scheme is proposed by a company with its creditors or members which typically involves arrangements for reduced payments to creditors. Part 9 Scheme provisions are largely identical to the English scheme of arrangement provisions contained in Part 26 of the Companies Act 2006.
The principal procedure in Ireland in relation to the rescue/restructuring of Irish incorporated companies is the “examinership” process. An Irish company (or indeed its directors, creditors and shareholders holding at least 10% of the company’s paid-up voting share capital) may petition the High Court to appoint an examiner in circumstances where that company is unable (or is likely to be unable) to pay its debts but where there is a reasonable prospect of the survival of the company and the whole or part of its undertaking as a going concern..
On his appointment, the examiner (who is typically an accountant) will enquire into the affairs of the company, seek fresh investment and look to formulate a scheme of arrangement between the company and its members and creditors. Reference to a scheme or arrangement prepared in the context of an examinership is different from a Part 9 Scheme.
The scheme of arrangement must be approved by (1) majority of the voting classes of creditors whose interests or claims would be impaired by the scheme of arrangement have accepted them, provided that at least one of those creditor classes is a class of secured creditors or is senior to the class of ordinary unsecured creditors or (2) where 1 is not met, at least one voting class of creditor whose interest would be impaired by the scheme of arrangement and who would be an “in the money creditor” in a liquidation has voted in favour of the scheme of arrangement. In practice, it is the later provision which is relied upon most commonly.
If approved in accordance with the foregoing, the examiner can place his scheme before the High Court for approval.
During the period while an examiner is enquiring into the affairs of a company a moratorium prevents secured creditors from enforcing their security without the consent of the court. This does not apply to set off.
In 2021 a new administrative procedure for small and micro companies, colloquially referred to as SCARP was introduced. Under the SCARP process, a process adviser is appointed to a company with a view to trying to facilitate the company’s survival by restructuring its debts and seeking new investment. Unlike examinership, there is no automatic moratorium on enforcement but an application can be made to the court to seek that a moratorium is applied.
The main Italian legal framework for insolvency proceedings is provided by the Italian legislative Decree no. 14 of 12 January 2019 (as amended from time to time, the ‘Italian Crisis and Insolvency Code’) which regulates the treatment of commercial enterprises in financial distress by setting forth various procedures (collectively known as ‘procedure concorsuali’), which apply in those situations where creditors seek to collect from a debtor that has insufficient resources to satisfy its debts. Strictly speaking, in the Italian context, the term ‘fallimento’ that has been replaced by ‘liquidazione giudiziale’, refers exclusively to the liquidation of insolvent commercial entities or entrepreneur. Actually, other than bankruptcy, the Italian Crisis and Insolvency Code also provides for different insolvency proceedings, including (inter alia):
Civil rehabilitation under the Civil Rehabilitation Act and corporate reorganization under the Corporate Reorganization Act are available. In the case of corporate reorganization, creditors are, in general, prevented from enforcing their security.
Out-of-court workout and corporate reorganization ADR are also available, both of which often involves debt waiver only by financial institutions so that the debtor can continue its business smoothly. For such debt waiver, consent from all the persons waiving their debts is required.
If the debtor is having financial difficulties, a mortgagee, who is also the pledgee with respect to the rental income arising from the mortgaged property, can make its right of pledge public, as a result of which the tenants must pay the rent directly to the mortgagee/pledgee (and not to the pledgor).
The mortgagee is also entitled to take over the management of the property if the mortgagor seriously defaults in the performance of its obligations towards to the mortgagee and the Dutch court grants the mortgagee authorization to do so. This can only be the case when this is agreed upon beforehand in the mortgage deed. In such an event, the mortgagee must be aware that it could be deemed to be the manager of the relevant property under Dutch environmental law, in which case the authorities could require the mortgagee to comply with the applicable environmental rules. Therefore, this should only be done when the implications of potential environmental liability have been considered.
The mortgagee is also entitled to take the property under its control if this is required for purposes of foreclosure.
Both the borrower and the lender have options when the borrower company is in financial difficulty.
The company, any liquidator, any interim liquidator, a secured creditor (holding a charge over the whole, or substantially the whole, of the company’s property), directors, or the court can all appoint an administrator to the company. This is known as the voluntary administration regime. One of the primary objectives of an administrator is to convene a watershed meeting where the creditors decide the future of the company, such as whether the company should execute into a deed of company arrangement, or to simply be placed into liquidation.
One of the benefits to the company under the voluntary administration regime is that there is a moratorium period during which charges are unenforceable, property cannot be recovered if it is used by the company, proceedings cannot be commenced or continued, the enforcement process is halted, and guarantees of liability of directors cannot be triggered. This period ends once the watershed meeting is held and voting has occurred. However, a holder of a charge of the whole or substantially the whole of the property of the company may enforce its charge during a ten-working day window commencing on either notice of appointment of the administrator being given to the charge holder or when the administration begins.
A secured creditor may be able to appoint a receiver over the secured assets of the company. The right to appoint a receiver is contractual but there are legislated powers and obligations. Accordingly, the rights that the secured creditor has must be ascertained by examining the security documentation. However, it is common to see secured creditors have the right to appoint a receiver over the relevant secured assets if the secured company is insolvent.
Other regimes under the Companies Act 1993 include schemes of arrangement, amalgamations, and creditor compromises. These are less common than liquidations, voluntary administrations, and receiverships, but can substantially affect the rights that a creditor may have. For example, if a compromise is approved in accordance with the Act, a creditor is bound by that compromise, even if that creditor did not vote in favor of the compromise (on the basis that the relevant creditor is dragged by the decision of other creditors in the same class).
One of the formal rescue procedures is by way of a scheme of arrangement with the creditors or a corporate restructuring. This would involve a meeting and the passing of a special resolution (75% of the members present and voting in person or by proxy), the approval of the Securities and Exchange Commission and the sanction of the Federal High Court.
The law recognises company voluntary arrangements such as appointing an administrator who may do all such things as may be necessary for the management of the affairs, business and property of the company. Another is the appointment of a receiver/manager. Once a receiver is appointed, the power of the directors and shareholders to deal with the assets over which the receiver was appointed ceases and same is vested in the receiver. If a receiver is also appointed manager, he has the power in law to carry on and manage the business of the company while the directors remain in office.
The rights of the lender with security usually depend on the agreement of the parties. In practice, the schemes or arrangements of the debtor company of business does not affect the rights of the lender to enforce security. The secured lender may appoint the receiver/manager for the purpose of enforcing and realising security. The effect of a scheme of arrangement or restructuring with the creditors is to be able to give effect to the repayment of the loan and/or realising the security.
There are two non-insolvency proceedings under the Norwegian Bankruptcy Act (Act of 8 June 1984 No. 58). A debtor company in financial difficulties may apply for debt settlement proceedings before the court, either as a request for compulsory composition or as a request for voluntary composition.
A voluntary composition arrangement seeks to reach an agreement between the creditors of a company, which typically involves arrangements for reduced payments to creditors. Such an agreement has to be approved by all creditors (secured and unsecured) affected by the proposed agreement in order for it to be valid. Therefore, a voluntary composition agreement will not affect a secured creditor unless he voluntarily accepts the agreement.
A compulsory composition can be established by a vote of the unsecured creditors, and requires a qualified majority of the votes. A lender with security will not be affected by the compulsory composition.
The use of formal composition proceedings prevents creditors from enforcing their security without the consent of the creditors’ committee during the first six months of the composition proceedings (for claims established prior to the opening of the proceedings). Likewise, secured creditors cannot implement enforcement sales unless the creditors’ committee grants its consent.
In addition to the procedures outlined above, a new preliminary restructuring act has been passed to mitigate the economic effects of the COVID-19 pandemic. The preliminary Norwegian Restructuring Act (Act of 7 May 2020 No. 38), is in effect until 1 July 2023. The main purpose of the Restructuring Act is to reduce the risk of unnecessary bankruptcies of viable businesses that have suffered a sudden loss of revenue due to the COVID-19 outbreak.
The Restructuring Act allows a debtor to enter into restructuring negotiations in order to resolve liquidity issues and establish a payment plan with its creditors. Such negotiations may limit a creditor’s right to seize or enforce assets from the debtor, and may allow the debtor to incur additional credits to finance the operation of the business as well as improve the prospects for converting debt into equity in connection with the restructuring.
Furthermore, additional credits incurred to enable the debtor to continue its operations during the construction period may be secured with a lien with priority over previously established liens. The Restructuring Act also opens up for exemptions from the statutory priority of corporate tax claims, VAT claims etc and abolish the current principles of equal treatment of creditors upon voluntary compositions and a minimum dividend upon compulsory composition.
Furthermore, informal or private debt restructurings also exist. No statutes govern these proceedings, although the principles used are often based on those found in formal composition arrangements.
On 1 January 2016 a new restructuring law of 15 May 2015 (the “Restructuring Law”) came into force. It amended the Polish Insolvency Law, including the introduction of new restructuring procedures, the establishment of a Central Registry of Restructurings and Bankruptcy and a new definition of an “insolvent debtor”.
Under the regulations that are in force with effect from 1 January 2016, in consequence of the coming into force of the Restructuring Law, the regulations which form part of the Insolvency Law relate only to bankruptcy procedures and the Restructuring Law relates to restructuring procedures.
The Polish legal system allows for parties to institute restructuring proceedings where they are threatened with insolvency, meaning despite complying with their obligations they are according to a reasonable evaluation of their economic condition due to shortly become insolvent. The proceedings are commenced upon submission of a statement made by the parties on institution of restructuring proceedings together with amongst others a rehabilitation plan, in which the obligations to be restructured are defined. The restructuring of these obligations takes place through an arrangement concluded at a creditors’ meeting, which is later accepted by the court.
This means that the creditors participate and have their say in the process of restructuring the obligations by agreeing or disagreeing to the arrangement. Restructuring is approved if votes totaling two thirds of the total sum of the claims approve it. Non-conclusion of the arrangement within three months from the date of the restructuring proceedings being instituted, results in its discontinuation in the case of small and medium parties. In other cases the proceedings are discontinued four months from the day of institution.
It should be noted that upon the commencement of restructuring proceedings the party should suspend repayment of his obligations and security proceedings may not be instituted and outstanding security proceedings are stayed by law. This means that the lender’s rights are affected in such a way that, in case the arrangement is not concluded, they may not be able to take enforcement action for four months at the longest.
In order to combat economic consequences of COVID-19 pandemic, there is also a new simplified restructuring procedure introduced under the so-called Anti-Crisis Shield 4.0. This procedure had to be opened by 30 November 2021, and it may have be opened irrespective of whether the financial problems of the debtor or its insolvency were caused by the COVID-19 pandemic.
As of the date of opening the procedure, all pending enforcement proceedings against the enterprise were subject to an automatic four-month moratorium (stay), including proceedings related to secured claims (claims secured with pledge or mortgage). It was also not possible to initiate new enforcement proceedings. Secured claims can be included in the arrangement under this procedure without the creditors' consent, so long as the new payment terms provided that the creditors will receive 100% of their receivables (on the proposed dates).
Another possibility is the Special Procedure for Recuperation (PER), which involves a judicial liquidator appointed by a court who must propose the plan, the scope, the conditions and the duration of the proposed restructuring, which must then be approved by the creditors and by the insolvency court. Additionally, if the debtor is subjected to a PER, the approved plan binds all creditors even if they did not enter the negotiations. Consequently, lenders, even when holding a secured debt, may be subjected to the debtors' restructuring plan which, if approved by the creditors and by the insolvency court, prevents the immediate execution of any security. Security can only be enforced if the debtor fails to perform its obligations under the approved plan.
If financial difficulties arise, the debtor may make private arrangements with its creditors in order to reschedule its debt.
Other alternatives are the ad-hoc mandate (in which the debtor will ask a court to appoint a person to conduct its business) or the preventive concordatum (where the debtor losses its right to conduct its business and a person is appointed by a court to try and reach an agreement with the creditors).
The Bankruptcy Act regulates bankruptcy proceedings and court-protected restructuring. The purpose of restructuring proceedings under the Bankruptcy Act is to enable legal entities (except for financial institutions) that are in financial difficulties – even if they are already insolvent or over-indebted – to continue carrying out their activities after having undergone a restructuring. The primary motivation for restructuring is to try to ensure that the debtor can continue to carry out a substantial part of its operations. At the same time, creditors' claims are more likely to be satisfied if restructuring proceeding has taken place as opposed to in the case of bankruptcy of the debtor.
The commencement of the restructuring proceedings prevents the lender (security creditor) from beginning and/or continuing in execution of its security right. The execution of the security rights after the commencement of restructuring proceedings is ineffective.
The Act No. 111/2022 Coll. on Resolving Imminent Bankruptcy and on Amendments to Certain Acts provides protection to entities prior to insolvency. It is a tool intended to help creditors to secure their claims. It does not prevent the debtor from conducting business. Temporary protection is provided by court after the consent of majority of debtors calculated according to the amount of their unaffiliated claims.
As a general rule under Spanish law debtors are obliged to apply for a judicial declaration of insolvency within two months of the date on which they knew or should have known about the insolvency situation.
Notwithstanding this, the obligation does not apply to insolvent debtors who have started negotiations in order to obtain assent to a proposal for an agreement between the creditors, if these negotiations are communicated to the relevant judge within the two month period. If the debtor has not overcome the insolvency situation within three months from the communication to the judge, it must then apply for the declaration of insolvency within a month.
There are no such formal non-insolvency proceedings which may affect the rights of a secured lender.
Arrangements can be negotiated between the parties, unless otherwise prohibited by the law.
The UAE Bankruptcy Law (Federal Law No. 9 of 2016 as amended by Federal Law No. 23 of 2019) was issued in September 2016 and came into force in December 2016. The provisions do not include any private, out of court pre-insolvency procedure for companies which have not yet entered into insolvency. The law does introduce a court procedure for companies in financial difficulty but which are not yet technically insolvent, referred to as the Protective Composition Procedure (PCP).
The procedure commences with a debtor applying to the court for a PCP which will lead to the court appointing an expert to report on the financial condition of the debtor and whether it has the funds to cover the PCP. If the court grants the PCP, a moratorium on creditor action immediately applies. The moratorium does not prevent the enforcement of secured claims (such as mortgages) which may still occur with the permission of the court. The PCP is made public and proofs of claim are invited for the purposes of voting on the compromise by a claims bar date. During the process, the debtor still operates its business but under the supervision of the officeholder (appointed by the court). The officeholder has wide powers regarding the preservation of assets and the continuation of the debtor's business. The debtor is given time to form a restructuring plan under the officeholder's supervision and such plan cannot exceed three years. The court must review the plan and then convene the debtor's creditors to vote on it.
Please note that as the Bankruptcy Law is relatively new, a number of its aspects remain largely untested.
The UAE Bankruptcy Law (Federal Law No. 9 of 2016, as amended)) came into force in December 2016. The provisions do not include any private, out of court pre-insolvency procedure for companies which have not yet entered into insolvency. The law does however introduce a court procedure for companies in financial difficulty but which are not yet technically insolvent, referred to as the Protective Composition Procedure (PCP).
The procedure commences with a debtor applying to the court for a PCP which will lead to the court appointing an expert to report on the financial condition of the debtor and whether it has the funds to cover the PCP. If the court grants the PCP, a moratorium on creditor action immediately applies. The moratorium does not prevent the enforcement of secured claims (such as mortgages) which may still occur with the permission of the court. The PCP is made public and proofs of claim are invited for the purposes of voting on the compromise by a claims bar date. During the process, the debtor still operates its business but under the supervision of the officeholder (appointed by the court). The officeholder has wide powers regarding the preservation of assets and the continuation of the debtor's business. The debtor is given time to form a restructuring plan under the officeholder's supervision and the proposed implementation period of such plan cannot exceed three years from the date of ratification of the plan. The court must review the plan and then convene the debtor's creditors to vote on it.
Please note that as the Bankruptcy Law is still relatively recent, a number of its aspects remain largely untested, and so any consideration of these provisions would need to be done on a case-by-case basis.
The principal rescue procedure is for the administration of the company. The administrator takes control over the whole of the company's assets with a view to producing a better result for creditors than if the company went into liquidation. Administration creates a moratorium which prevents creditors from enforcing their security without the consent of the administrator or an order of the court.
A corporate voluntary arrangement is an agreement between the creditors of a company which typically involves arrangements for reduced payments to creditors. This has to be approved by a majority of creditors together holding more than three quarters by value, although this is not binding on secured creditors.
The principal rescue procedure is for the administration of the company. The administrator takes control over the whole of the company's assets with a view to producing a better result for creditors than if the company went into liquidation. Administration creates a moratorium which prevents creditors from enforcing their security without the consent of the administrator or an order of the court.
A corporate voluntary arrangement is an agreement between the creditors of a company which typically involves arrangements for reduced payments to creditors. This has to be approved by a majority of creditors together holding more than three quarters by value, although this is not binding on secured creditors.
A scheme of arrangement is a statutory procedure under the Companies Act 2006 whereby a company may make a compromise or arrangement with its members or creditors. There is no prescribed subject matter of a scheme therefore in theory, a scheme could be a compromise or arrangement about anything that a company or its members agree among themselves. In contrast to the restructuring plan (see below), there does not have to be any financial distress in order for a company to enter into a scheme of arrangement therefore it can be used to effect a solvent internal reorganisation, merger or demerger.
However, it can also be used to achieve insolvent restructurings such as debt for equity swaps. Unlike with the restructuring plan, the scheme of arrangement does not have a cramdown feature (whereby a reorganisation plan is approved even though an entire class of creditors vote against it). The Scottish courts will not sanction a scheme unless each and every class of creditor/shareholder, has voted in favour of the scheme satisfying the required statutory thresholds.
However, as long as the requisite thresholds are obtained in each class, claims of secured creditors can be compromised without their unanimous consent. A scheme will not automatically itself trigger a moratorium/stay on creditor enforcement action or legal proceedings against the company therefore usually schemes are accompanied by standstill agreements (agreements pursuant to which creditors agree not to enforce security or demand payment of sums due for a period of time to allow a consensual restructuring to be negotiated).
The Corporate Insolvency and Governance Act 2020 which came into force on 26 June 2020 introduces two new restructuring tools: a free standing moratorium and a restructuring plan (occasionally referred to as the super scheme).
The moratorium can be used to support the rescue of a company as a going concern. It gives a company breathing space from creditor action to pursue a turnaround plan. During the moratorium period creditors/lenders will not be able to take enforcement action against the debtor company and landlords cannot exercise rights of irritancy.
The restructuring plan is a court supervised restructuring process, largely modelled on schemes of arrangement but with the addition of a cross-class cramdown mechanism. The restructuring plan can be used with or without the protection of the new moratorium.
A company which “has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect, its ability to carry on business as a going concern” may make an application to use the restructuring plan process.
Dissenting creditors, including secured lenders, landlords and suppliers together with members of the company can each be bound by a plan if (i) at least one class of creditors who would receive a payment, or have a genuine economic interest in the company, vote in favour; (ii) the dissenting creditors would not be any worse off under the plan than they would have been in the event of whatever the court considers would be most likely to occur in relation to the company should the plan be rejected; and (iii) the court is prepared to sanction the scheme.
The special law on financial restructuring provides for special consensual workout procedures pursuant to which the borrower in the early stage of distress can agree with the creditors the restructuring plan and enjoy certain tax benefits. To implement the restructuring, the debtor and the creditors may mutually agree on the moratorium on the enforcement of security held by the creditors for the duration of the restructuring procedures. Ultimately a moratorium is tied to the statutory timeframe of the financial restructuring, which is 90 calendar days from the posting date, but can be extended up to 180 days. The law is effective until 19 October 2022 and has been introduced as a temporary measure to overcome a huge volume of non-performing loans in Ukrainian lending space.
Lenders to troubled real estate owners may, to the extent the mortgage agreement provides, appoint a receiver or agent to collect rents and manage the property so as to protect the relevant collateral. The receiver, though not actually an agent of the lender, will serve to preserve the asset while foreclosure proceedings may be pursued.
In terms of the Part XXIII Insolvency Act [Chapter 6:07], a company may be placed under corporate rescue for mismanagement or if for any other cause the company is unable to pay its debts or there is a probability it will be unable to pay its debts. There must be a “reasonable probability” that should the company be placed under corporate rescue , it will be able to pay its debts and meet its obligations. Furthermore, the decision to place a company under corporate rescue must be deemed just and equitable to all interested parties by the High Court.
When a company is granted a corporate rescue order, the assets of the company are placed under the control of the judicial manager, who is then tasked with the responsibility of restructuring the company and resuscitating the business. More importantly, creditors’ payments are suspended, and the company is protected from legal action against it by creditors.
A scheme of arrangement is also provided for in terms of section 147 of the Insolvency Act (Chapter 6:07) and involves giving the company flexibility to reach an agreement with shareholders and creditors. The lender will be one of the creditors involved in the scheme of arrangement.
In the event that more than one creditor holds a security interest over the same real estate asset, the provisions of the Insolvency Act (Chapter 6:07) will be applicable, which states that preference is given to creditors who prove their claim before the court has given judgement concerning the repossession and sequestration of an estate. A creditor of an insolvent estate who intentionally delays proving their claim until the court has given judgment in those proceedings may not be entitled to share in the distribution of any money or the proceeds of any property recovered as a result of those proceedings.
However, when two creditors’ security interests conflict, the creditor who financed the property is entitled to preferential rights.
Furthermore, secured creditors are given first priority before tax and all other claims. To secure the property, the creditor would also have to take physical control of
