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 Argentine Bankruptcy Act No. 24,522 provides for reorganization proceedings known as concurso preventivo. Debtors may seek court protection and propose a payment plan to creditors. Secured creditors are generally excluded from the restructuring unless they voluntarily agree to be bound. However, enforcement actions by secured creditors may be stayed during the exclusivity period granted to the debtor. Economically speaking, there are some similarities between this process and the one provided in Chapter 11 of the US Bankruptcy Act.
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 on the one hand and the judicial reorganization and transfer under the court’s supervision on the other:
Under this phase, the debtor can negotiate an amicable settlement with one or more of his creditors with a view to restructuring part or all of its assets and activities, without entering into a judicial reorganization. The content of this agreement can be decided freely by the parties and is not opposable to third parties not involved in the agreement. Should the company ultimately fail, these settlements are bankruptcy proof.
This decision shall not be published or notified. It is not open to appeal. Where appropriate, the president of the court may, at the debtor's request, appoint a restructuring expert (médiateur d’entreprise/herstructureringsdeskundige) to facilitate the execution of the amicable settlement.
The BELC distinguishes between two main types of judicial reorganization measures:
Both of these types can be either public (with a further differentiation between procedures for SMEs (Article XX.66/1 et seq. BELC) and large companies (Article 83/1 et seq. BELC)) or private. In the case of a private judicial reorganization by amicable or collective agreement, all proceedings will be confidential except for the debtor or the practitioner, the court and the specific creditors involved.
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.
In the case of a judicial reorganisation by collective agreement, large companies have to group creditors into separate ‘classes’. A restructuring plan is approved when a majority is achieved within each class, meaning that creditors representing at least 50% in value of the creditors belonging to that class, vote in favour. Exceptionally a plan can still be confirmed by the court even if not all classes have approved the plan, provided that the conditions in article XX.83/17 or XX.83/37 of the BELC are met (cross-class cram-down).
Initially, a transfer under court’s supervision was a reorganization procedure, however this is no longer the case for transfers opened as of 1 September 2023. The transfer under court’s supervision provides that the commercial court orders or at least supervises the transfer of all or part of the debtor’s business. Since 1 September 2023, the transfer must be followed by liquidation or bankruptcy proceeding of the debtor.
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.
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Under the Insolvency Act (Official Gazette no. 71/15, 104/17, 36/22 and 27/24) 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, were incorporated in the Danish Bankruptcy Act and came into force on 1 April 2011 with later amendments.
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 appoint an accountant if requested.
The administrator must draw up a restructuring plan (on how to make the debtor solvent, on what type of final restructuring proposal will be put forth later, etc.) Until the restructuring plan is adopted by the creditors, the debtor can secede from the restructuring (at the latest eight 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 final restructuring proposal or a bankruptcy.
If the proceedings end with an adoption of the restructuring proposal, the business is reorganised, either through a compulsory composition (on reduction or cancellation of debt) 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. It requires that the debtor is insolvent or, owing to financial difficulties, is likely to become insolvent. Thus, unlike the restructuring rules, preventive restructuring does not necessarily require insolvency.
The purpose of the rules on preventive restructuring is to give a debtor in financial difficulties an opportunity to reach an overall arrangement with its creditors.
The debtor can request an enforcement restriction order. This means that creditors cannot enforce their claims through the bankruptcy court. However, this requires that the company informs all its creditors accordingly and that an administrator be appointed. 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. In that case, it is not mandatory to appoint a restructuring administrator.
A debtor facing difficulties without being cash flow insolvent (en état de cessation des paiements) (or for less than 45 days in the case of conciliation proceedings) may request the opening of court-assisted pre-insolvency proceedings:
These preventive and consensual restructuring mechanisms, which are distinct from formal insolvency proceedings, are designed to address a company’s financial difficulties at an early stage. Their purpose is to enable the debtor to reach an agreement with its main creditors and stakeholders — for example, an agreement to reduce or reschedule its indebtedness.
These proceedings may only be initiated by the debtor itself, in its sole discretion. The mandat ad hoc is not subject to a statutory maximum duration. Conciliation, by contrast, is opened for a period of four (4) months, which may be extended once for an additional period of one (1) month upon application. A (3) three‑month waiting period must be observed between two conciliation proceedings.
Mandat ad hoc and conciliation proceedings are informal and confidential proceedings carried out under the aegis of a court-appointed officer (mandataire ad hoc or conciliateur, whose name can be suggested by the debtor itself) under the supervision of the President of the relevant court (usually the Commercial Court), which do not involve any stay of the claims nor pending proceedings.
As a consequence, creditors are not barred from taking legal action against the company to recover their claims. In any event, the debtor retains the right to petition the President of the court having opened the proceedings, for grace periods.
In addition, conciliation proceedings provide specific mechanisms regarding the granting of grace periods. The debtor can ask the President of the Court to defer or spread the repayment of the claim:
In conciliation proceedings, any agreement reached between the debtor and its creditors may either be acknowledged (by the President of the court) or homologated (by the court). In both cases, the agreement is enforceable between the parties.
A “new money privilege” applies only where the conciliation agreement is homologated. Creditors providing new money (or new goods or services) during conciliation proceedings may benefit from a priority payment right in the event of subsequent insolvency proceedings.
A third party having granted a guarantee (sûreté personnelle) or a security interest (sûreté réelle) can benefit from the grace periods granted to the debtor during conciliation proceedings as well as from the provisions of the acknowledged or homologated agreement.
Court-administered pre-insolvency proceedings – safeguard and accelerated safeguard proceedings – may be initiated upon petition by the debtor only and court-administered insolvency proceedings – judicial receivership and judicial liquidation proceedings – may be initiated upon petition by the debtor, any creditor or the public prosecutor.
Opening
The debtor may file for safeguard or accelerated safeguard proceedings at any time if it is facing difficulties that it cannot overcome. Regular safeguard proceedings can only be opened, if the debtor is not cash flow insolvent (en état de cessation des paiements) whereas accelerated safeguard proceedings may be opened as long as it was not cash flow insolvent for more than 45 days when it initially requested the opening of conciliation proceedings.
Observation period – judicial bodies
The period from the date of the court decision commencing the proceedings to the date on which the court takes a decision on the outcome of the proceedings is called the "observation period" and may last up to 12 months for safeguard proceedings. During the observation period, a judicial trustee (administrateur judiciaire) is appointed to supervise or assist the debtor’s management and investigates the debtor’s business.
A creditors’ representative (mandataire judiciaire) is appointed to represent the interests of creditors.
A supervising judge (juge-commissaire) is also appointed to ensure the proper conduct of the proceedings and to authorize certain significant acts or transactions that the debtor cannot carry out alone.
End of proceedings
At the end of the observation period, if the court considers that the debtor can survive as a going concern, it will adopt a safeguard or continuation plan which will entail a restructuring and/or rescheduling of debts and may entail the divestiture of some or all of the debtor’s assets and businesses (a sale of the entire business is not possible in a safeguard plan).
At any time during safeguard proceedings, the court may convert such proceedings into judicial receivership proceedings if the debtor appears to have been insolvent before the opening of the proceedings, or in the case where the debtor is cash flow insolvent (en état de cessation des paiements) or if the approval of a safeguard plan is manifestly impossible and if the debtor would shortly become insolvent should safeguard proceedings be closed. The court may also convert such proceedings into liquidation proceedings if the debtor is cash flow insolvent and its recovery is manifestly impossible. The outcome of these proceedings, which is decided by court without a vote of the creditors, may be a sale of the business through a disposal plan and/or isolated sales of the debtor’s assets in order to discharge the debtor’s liabilities.
Adoption and content of the safeguard plan without classes of affected parties
A safeguard plan may include debt rescheduling and debt write-offs as well as debt-to-equity swaps and may provide for a different treatment of creditors if the differences in their situations justify so.
The consultation of the creditors on the draft plan will be done on an individual basis. They will be asked by the creditors’ representative (mandataire judiciaire) whether they accept the draft plan. Where the consultation is in writing and includes proposals for debt rescheduling and/or debt write-offs, creditors shall have a period of thirty (30) days from receipt of the letter issued by the creditors' representative to submit their response. Failure to respond within this period shall be deemed to constitute acceptance of the proposed draft plan. Where the proposal entails a debt-to-equity swap, creditors shall likewise have a period of thirty (30) days to respond. In this case, failure to respond within the prescribed timeframe shall be deemed a rejection of the proposal.
The court has the right to impose uniform debt deferrals for a maximum period of 10 years (it being noted that debts the maturity dates of which exceed the duration of the plan are not concerned and their maturity dates shall remain the same) with a minimum instalment equal to 5% of the claim per year as from the third anniversary of the plan and 10% per year as from the sixth anniversary. The court is however not entitled to impose debt write-off or debt-to-equity swaps. All proposals in the draft plan to this end must be voluntarily accepted by creditors.
Adoption and content of the safeguard plan with classes of affected parties
Classes of affected parties must be constituted when the following thresholds of the debtor, measured at group level, are reached at the date of the opening of safeguard proceedings or judicial receivership: (i) 250 employees and 20 million (euros) net turnover; or (ii) 40 million (euros) in net turnover. The constitution of classes of affected parties is also permitted below these thresholds, by decision of the supervisory judge, on demand of the debtor in safeguard proceedings (and on demand of the debtor or the judicial trustee in judicial receivership proceedings). The constitution of classes is also mandatory within accelerated safeguard proceedings (see below).
The judicial trustee shall, on the basis of verifiable objective criteria, divide the affected parties into classes representing a sufficient community of interest (article L. 626-30 III of the French Commercial Code), it is specified that (i) the judicial trustee must at least distinguish between unsecured creditors and those secured by a security interest in the debtor's assets, (ii) the distribution between the classes must respect the subordination agreements and (iii) at least one class of equity holders must be formed if the plan changes the capital structure.
The draft plan will be drafted by the debtor’s management, together with the judicial trustee in safeguard proceedings. Please note that in receivership proceedings the plan is drafted by the judicial trustee, and a competing draft plan may also be submitted by a creditor.
Within each class of affected parties, voting rights are allocated among creditors in proportion to the amount of their claims and the rights impacted by the plan. Each class is consulted on the draft plan, which shall be deemed accepted by the class if it receives a two-thirds majority of positive votes.
Several scenarios may occur at the end of the voting process:
If the conditions of a cross-class cramdown are not fulfilled, the court cannot adopt the plan.
In such a situation in safeguard proceedings, this would lead to the end of the proceedings (if the debtor is cash flow insolvent (en état de cessation des paiements), the court could convert the safeguard proceedings into judicial receivership proceedings).
Accelerated safeguard proceedings
A debtor in the course of conciliation proceedings may request the commencement of accelerated safeguard proceedings with roughly the same applicable regime as the regular safeguard proceedings but with a duration limited to four months. The initiation of this procedure requires that, during the conciliation phase, a plan that can ensure the company’s long-term viability has been established and is likely to receive sufficiently broad support from the affected parties to make its adoption plausible. The effects of the accelerated safeguard proceedings can be limited only to debts owed to financial institutions and, as the case may be, bondholders which are subject to an automatic stay and dealt with under the safeguard plan. The accelerated safeguard proceedings have effect only against parties affected by the draft plan, with no impact on other creditors.
Status of creditors during safeguard (the same apply in judicial receivership or judicial liquidation proceedings which are proper insolvency proceedings)
Contractual provisions pursuant to which the opening of the proceedings triggers the acceleration of the debt (for safeguard or judicial receivership proceedings) or the termination or cancellation of an ongoing contract (for all court-administered proceedings) are not enforceable against the debtor, as well as, contractual provisions modifying the conditions of continuation of an ongoing contract, diminishing the rights or increasing the obligations of the debtor solely upon the opening of the proceedings. In any event, judicial trustee can request the termination of ongoing contracts (contrats en cours) which it believes the debtor will not be able to continue to perform. The court-appointed administrator can, on the contrary, require that other parties to the contract continue to perform their obligations even though the debtor may have been in default, on the condition that it fully performs its post-petition contractual obligations.
In addition, during the observation period:
As a consequence, the opening of a French court-administered pre-insolvency or insolvency proceedings may affect the rights of the beneficiaries of security and/or guarantee given by the debtor in proceedings to enforce such security interests. As a general rule, security interests benefiting from a retention right and/or a transfer of property will remain enforceable (fiducie, Dailly assignment, escrow account). Other security interests will be unenforceable (eg mortgage, bank accounts pledge, share pledge). In the event any French Asset Entity is put into French court-administered pre-insolvency or insolvency proceedings, this would therefore have an impact on the possibility to enforce some of the security and/or guarantees provided by said French Asset Entity in accordance with the French Security Agreements.
Under French law, as from the opening of insolvency proceedings, any increase under an in rem security agreement (few exception like Dailly assignment exists) (eg by adding or supplementing property or rights, in particular by registering additional shares or proceeds (fruits et produits), or by the transfer of property or rights from the debtor) is prohibited. As a consequence, the opening of insolvency proceedings may affect the rights of the beneficiaries of securities in rem by excluding future property and rights i.e. arising after the opening of insolvency proceedings from the scope of such securities.
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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, originally 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.
As an implementation of the 2019/1023 EU Directive (20 June 2019) on preventive restructuring frameworks, a new type of formalised pre-insolvency procedure called restructuring procedure (szerkezetátalakítási eljárás) has been introduced in 2022. Such restructuring procedure is halfway between contractual restructuring and formal bankruptcy proceedings. The purpose of the procedure is for the debtor to adopt a restructuring plan with some or all of its creditors in order to prevent its future insolvency and ensure its operability. Depending on the debtor’s choice it could be a public or non-public procedure. If the debtor applies for a general moratorium and it is ordered by a court, the proceedings are public; if the debtor requests a limited moratorium and the court orders it, the proceedings are not public.
Schemes of arrangement pursuant to Part 9 of the 2014 Act (“Part 9 Scheme”) exist under Irish law. A Part 9 Scheme 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.
There is no cross-class cramdown under Part 9 Schemes. Before a Court can sanction a Part 9 Scheme vis-à-vis any particular class of creditors, a majority in number representing at least 75% in value of the creditors voting in the relevant class must vote in favour of the scheme.
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.
A company can be in examinership for up to 100 days plus whatever period is required for the court to consider the scheme of arrangement proposed by the examiner, up to a maximum period of 12 months. Once the examiner has formulated a scheme of arrangement, it will be presented to meetings of the company’s members and creditors for approval.
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 interests 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.
The WHOA (Wet homologatie onderhands akkoord), which came into effect on 1 January 2021, is a Dutch pre-insolvency proceeding inspired by the English Scheme of Arrangement and Chapter 11 of the US Bankruptcy Code. The WHOA provides businesses with a structured and flexible process to negotiate debt agreements and restructure their financial obligations. The end goal of the WHOA is to create a new viable capital structure (debt and equity) that allows financially distressed companies to continue to operate, preventing a bankruptcy (faillissement).
The proceeding allows the debtor to impose a restructuring plan on dissenting (classes of) creditors and shareholders. The procedure is designed such that court involvement is in principle minimal and can be completed in a relatively short timeframe.
The WHOA grants companies significant freedom in determining the content of the WHOA plan. In addition to allowing creditors to be compelled to waive part of their claims, the WHOA, through Article 373 of the Bankruptcy Act (Faillissementswet), also provides the possibility to restructure burdensome contracts (such as rental or lease agreements). The relevant company can propose to modify (or terminate) such a burdensome agreement. If the contractual counterparty does not agree, the debtor has the right to unilaterally terminate the agreement, provided the Dutch court grants permission. A counterparty’s claim for damages resulting from such termination can be included in the WHOA restructuring plan as concurrent debt.
On 25 October 2024, the Dutch Supreme Court issued a landmark ruling regarding the WHOA. The Dutch Supreme Court determined that a WHOA plan cannot force financiers to provide entirely new funding or funding under previously committed credit facilities against amended terms. The Dutch Supreme Court further clarified that a WHOA plan can change the order of priority among creditors, provided the WHOA sanctioning criteria are observed.
Furthermore, with respect to mortgage rights in particular, if a 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:
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 (Konkursloven). 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 preliminary restructuring act has been passed. The Norwegian Restructuring Act (Rekonstruksjonsloven) is in effect until 1 July 2026. The Restructuring Act was passed to mitigate the economic effects of the COVID-19 pandemic and the main purpose was 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 credit 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 credit incurred to enable the debtor to continue its operations during the reconstruction 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 National Register of Debtors 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 totalling two thirds of the total sum of the claims approve it. Non-conclusion of the arrangement within four months from the date of the restructuring proceedings being instituted, results in its discontinuation
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 been 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).
A 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)) (the "Bankruptcy Law") came into force in December 2016. The Bankruptcy Law will shortly be replaced by Federal Law No. 51 of 2023 promulgating the financial and bankruptcy law (the "New Bankruptcy Law") which will become effective from 1 May 2024. Our responses to the questions set out in this report are based strictly on the current position under the Bankruptcy Law.
The Bankruptcy Law does not include any provisions relating to a 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 new, 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: rescuing the company as a going concern, achieving a better result for creditors than if the company went into liquidation or realising the property to make a distribution to one or more secured or preferential creditors. 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 compromise/arrangement 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.
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.
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
