REALWorld Law

Real estate finance

Non-insolvency procedures

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?

Angola

Angola

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. 

Australia

Australia

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.

Belgium

Belgium

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:

Pre-procedural phase

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.

Judicial reorganization

Article XX.39 of the BELC distinguishes between three types of judicial reorganization measures:

  • the amicable agreement, whereby the debtor negotiates an individual agreement with his creditors (of whom there must be at least two) subject to confirmation in a judgment by the commercial court;
  • the collective agreement, whereby the debtor seeks the approval of his creditors for a reorganization plan, subject to ratification by the commercial court; and
  • the transfer under judicial supervision, which provides that the commercial court orders or at least supervises the transfer of all or part of the debtor’s business.

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.

Bosnia-Herzegovina

Bosnia-Herzegovina

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:

  • allow the bankrupt debtor to retain all or part of its property so that its business operations can continue;
  • transfer all or part of the bankrupt debtor’s property to one or more existing legal entities or new legal entities that will be established;
  • merge the bankrupt debtor with one or more legal entities;
  • sell all or part of the bankrupt debtor’s property, subject to or free of any lien; distribute all or part of the bankrupt debtor’s property among the creditors;
  • convert debt to equity; determine the manner in which the creditors will be satisfied;
  • satisfy or modify the rights of secured creditors;
  • reduce or postpone payment of the bankrupt debtor’s liabilities;
  • turn the bankrupt debtor’s liabilities into credits;
  • issue a guarantee or provide other kinds of security for the satisfaction of the bankrupt debtor’s liabilities; and
  • determine the bankruptcy debtor’s liability after the termination of bankruptcy proceedings; issue new shares etc.

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.

Canada

Canada

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.

China

China

Under the PRC Enterprise Bankruptcy Law, arrangements with creditors may be implemented.

Croatia

Croatia

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.

Czech Republic

Czech Republic

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.

Denmark

Denmark

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:

  • Within four weeks after the initiation of restructuring the administrator must hold a meeting in the bankruptcy court. At the same time, he must have worked out and submitted a draft restructuring plan to the creditors.
  • Within three months after the initiation of restructuring the administrator must send a statement to the creditors. The statement must contain all important information on the restructuring process and an indication of when he expects to submit a reconstruction plan to the creditors.

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.

France

France

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.

Germany

Germany

No.

Hong Kong, SAR

Hong Kong, SAR

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.

Hungary

Hungary

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.

Ireland

Ireland

Schemes of arrangement exist under Irish law. A statutory scheme of arrangement 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.

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 ten percent 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. 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. Once the examiner has formulated a scheme of arrangement, it will be presented to meetings of the company’s members and creditors for approval. If approved by one class of creditors whose interests are to be impaired by the examiner’s scheme, 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.

Italy

Italy

Other than bankruptcy (fallimento), Italian legislation also provides for different insolvency proceedings, in particular:

  • Certified Reorganization Plan (Piano attestato di risanamento), and aimed only at restructuring the company (not liquidating)
  • Debt Restructuring Agreements (Accordi di ristrutturazione), and aimed only at restructuring the company (not liquidating)
  • Composition with Creditors (Concordato preventivo) and aimed at restructuring or liquidating the company
  • Special administration procedures for financial institutions and/or insurance company enterprises (liquidazione coatta amministrativa) and aimed only at liquidating the company
  • Special administration procedures for large insolvent enterprises (amministrazione straordinaria delle grandi imprese in crisi) aimed at restructuring or liquidating the company.

The terms and conditions of these alternative insolvency proceedings derogate from the general bankruptcy provisions, as they are each designed to adapt to the special purposes and requirements of the relevant procedure.

General bankruptcy procedures aim to liquidate the assets of a company and/or (to the extent possible) to dispose of the company as a 'going concern'.

An amministrazione straordinaria is designed to facilitate the reorganisation of a company the subject of a likely bankruptcy. It is available only to a company having over 200 employees and a minimum share capital. Under current legislation there are two different forms of amministrazione straordinaria:

  • the so-called Prodi bis (implemented in 1999) which is mainly court-driven, and
  • the so-called 'Marzano/Parmalat procedure' (passed in response to the Parmalat crisis) which is mainly government driven and has been recently amended.

Both forms of amministrazione straordinaria permit the implementation of restructuring plans within a time-limited moratorium, the specific duration of which depends on the type of the procedure and the adopted restructuring plan.

Japan

Japan

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. 

Netherlands

Netherlands

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 mortgage 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.

Nigeria

Nigeria

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), 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.

Norway

Norway

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.

Poland

Poland

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 has to be opened by 30 June 2021, and it may 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 are subject to an automatic four-month moratorium (stay), including proceedings related to secured claims (claims secured with pledge or mortgage). It is 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 provide that the creditors will receive 100% of their receivables (on the proposed dates).

Portugal

Portugal

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.

Romania

Romania

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).

Slovak Republic

Slovak Republic

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.

Public Preventive Restructuring

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. 

Spain

Spain

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.

Sweden

Sweden

There are no such formal non-insolvency proceedings which may affect the rights of a secured lender.

Thailand

Thailand

Arrangements can be negotiated between the parties, unless otherwise prohibited by the law.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

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.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

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.

UK - England and Wales UK - England and Wales

UK - England and Wales

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.

UK - Scotland

UK - Scotland

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.

Ukraine

Ukraine

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.

United States

United States

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.

Zimbabwe

Zimbabwe

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