This collaborative guide serves as a quick, practical reference for those with bankruptcy, insolvency, and rehabilitation needs in these jurisdictions.
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BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS: AN INTERNATIONAL GUIDE
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This guide offers an overview of legal aspects of bankruptcy, insolvency, and rehabilitation in the requisite jurisdictions. It is meant as an introduction to these marketplaces and does not offer specific legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney- client relationship, or its equivalent in the requisite jurisdiction. Neither the International Lawyers Network or its employees, nor any of the contributing law firms or their partners or employees accepts any liability for anything contained in this guide or to any reader who relies on its content. Before concrete actions or decisions are taken, the reader should seek specific legal advice. The contributing member firms of the International Lawyers Network can advise in relation to questions regarding this guide in their respective jurisdictions and look forward to assisting. Please do not, however, share any confidential information with a member firm without first contacting that firm. This guide describes the law in force in the requisite jurisdictions at the dates of preparation. This may be some time ago and the reader should bear in mind that statutes, regulations, and rules are subject to change. No duty to update information is assumed by the ILN, its member firms, or the authors of this guide.
The information in this guide may be considered legal advertising.
Each contributing law firm is the owner of the copyright in its contribution. All rights reserved.
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Table of Contents CHAPTER CONTRIBUTORS & FIRMS ............................................................................................................ 4 Bankruptcy, Insolvency & Rehabilitation Proceedings in Australia ............................................................ 6 Bankruptcy, Insolvency & Rehabilitation Proceedings in Canada .............................................................. 9 Bankruptcy, Insolvency & Rehabilitation Proceedings in Cyprus ............................................................. 17 Bankruptcy, Insolvency & Rehabilitation Proceedings in Finland ............................................................ 22 Bankruptcy, Insolvency & Rehabilitation Proceedings in Greece............................................................. 26 Bankruptcy, Insolvency & Rehabilitation Proceedings in India ................................................................ 33 Bankruptcy, Insolvency & Rehabilitation Proceedings in Israel ............................................................... 37 Bankruptcy, Insolvency & Rehabilitation Proceedings in Italy ................................................................. 43 Bankruptcy, Insolvency & Rehabilitation Proceedings in Mexico ............................................................ 48 Bankruptcy, Insolvency & Rehabilitation Proceedings in the Netherlands .............................................. 55 Bankruptcy, Insolvency & Rehabilitation Proceedings in Portugal .......................................................... 60 Bankruptcy, Insolvency & Rehabilitation Proceedings in Romania .......................................................... 72 Bankruptcy, Insolvency & Rehabilitation Proceedings in Slovakia ........................................................... 77 Bankruptcy, Insolvency & Rehabilitation Proceedings in Spain ............................................................... 86 Bankruptcy, Insolvency & Rehabilitation Proceedings in Thailand .......................................................... 94 Bankruptcy Proceedings in The United States........................................................................................ 102
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CHAPTER CONTRIBUTORS & FIRMS
“Bankruptcy, Insolvency & Rehabilitation Proceedings in Australia” Lawyers at Kalus Kenny Intelex – Melbourne “Bankruptcy, Insolvency & Rehabilitation Proceedings in Canada” Lawyers at Fogler Rubinoff LLP – Toronto
“Bankruptcy, Insolvency & Rehabilitation Proceedings in Israel” Lawyers at Jst & Co. – Tel Aviv
“Bankruptcy, Insolvency & Rehabilitation Proceedings in Italy” Lawyers at EXPLegal – Italian & International Law Firm – Rome “Bankruptcy, Insolvency & Rehabilitation Proceedings in Mexico” Lawyers at Martinez, Algaba, de Haro y Curiel, S.C. – Mexico City “Bankruptcy, Insolvency & Rehabilitation Proceedings in the Netherlands” Lawyers at UdinkSchepel – The Hague
“Bankruptcy, Insolvency & Rehabilitation Proceedings in Cyprus” Lawyers at LLPO Law Firm – Nicosia
“Bankruptcy, Insolvency & Rehabilitation Proceedings in Finland ” Lawyers at Fenno Attorneys at Law – Helsinki “Bankruptcy, Insolvency & Rehabilitation Proceedings in Greece” Lawyers at A&K Metaxopoulos and Partners – Athens “Bankruptcy, Insolvency & Rehabilitation Proceedings in India” Lawyers at LexCounsel Law Offices – New Delhi
“Bankruptcy, Insolvency & Rehabilitation Proceedings in Portugal” Lawyers at MGRA & Associados – Lisbon
“Bankruptcy, Insolvency & Rehabilitation Proceedings in Romania” Lawyers at PETERKA & PARTNERS – Bucharest
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“Bankruptcy, Insolvency & Rehabilitation Proceedings in Slovakia” Lawyers at PETERKA & PARTNERS – Bratislava “Bankruptcy, Insolvency & Rehabilitation Proceedings in Spain” Lawyers at López-Ibor Abogados – Madrid “Bankruptcy, Insolvency & Rehabilitation Proceedings in Thailand” Lawyers at Dej-Udom & Associates – Bangkok “Bankruptcy, Insolvency & Rehabilitation Proceedings in the United States” Lawyers at Connolly Gallagher LLP – Wilmington, Delaware, USA
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KALUS KENNY INTELEX
Bankruptcy, Insolvency & Rehabilitation Proceedings in Australia
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KEY FACTS OF BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS UNDER AUSTRALIAN LAW Companies
an amount to creditors to avoid the company being placed in liquidation. There is a limited time for a scheme of arrangement to be proposed. For example, shareholders might advance funds equal to say 50% of amounts owing to creditors. A scheme of arrangement requires 75% of the value of the creditors, and a majority in number, to agree. Creditors need to be satisfied that the Scheme of arrangement would create a better return than if the company was placed in liquidation. The Administrator would usually recommend the scheme of arrangement to creditors if that was the case. Otherwise, the company will go into liquidation. The Administrator then becomes the Liquidator. Liquidators will then take such steps as they can to recover funds for creditors. Those steps often include: - Asking creditors (including the taxation office) who were paid in the 6 months prior to the liquidation to repay the funds to the liquidator; - Selling assets; - Collecting debts, including debts owing by directors or shareholders; - Recovering uncommercial transactions entered into to defeat the interests of the creditors. Traps for directors Liquidators can pursue bad corporate behaviour by directors. Directors of a company that goes into liquidation can then have a poor credit rating. Banks may then be reluctant to lend to the director or to
Corporate insolvency in Australia mostly involves a company being placed in liquidation or administration. Companies can be placed in liquidation by: 1. The directors, or 2. A creditor applying to the court, or 3. An oppressed minority shareholder applying to the Court, or 4. The shareholders, or 5. After an administration process, if a scheme of arrangement is not entered into by the company with its creditors. A liquidator is appointed to control the affairs of the company to recover funds for creditors. The liquidator will be a private practitioner who will charge fees for his and his firm’s work. Those fees are a priority payment before unsecured creditors are paid. The liquidator needs to be independent. Liquidators that have had a prior association with the company or its directors can be removed. The voluntary administration process requires the directors to appoint an Administrator to investigate if the company can be saved, most commonly by a sale of assets or a scheme of arrangement with creditors. When a company is in administration, there is a moratorium that prevents, among other things, the winding-up of the company, secured parties enforcing security interests, landlords taking possession of leased property, and court action cannot commence or proceed. A scheme of arrangement usually involves shareholders agreeing to provide funds to pay
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any new company, and creditors may be reluctant to extend credit. If a person is a director of 2 or more companies that have gone into liquidation, and if the return to creditors was less than 50%, the director can be banned from being a director of a company for 5 years. If the company was trading and incurring debts when the directors ought to have known the company was insolvent, the directors can be held personally liable for any such debts. Individuals Personal insolvency is called bankruptcy in Australia. A person who is unable to pay his or her debts, can declare themselves bankrupt, or a creditor can apply to the Court to bankrupt an individual, if they have a judgment against them for at least $5,000. Bankruptcy releases a person from unsecured debts and allow them to make a fresh start. Bankruptcy normally lasts for 3 years and 1 day. It can be extended for up to 8 years most commonly if a person’s bankruptcy Trustee has
reason to believe that the person has not been truthful about their affairs. When a person becomes bankrupt a Trustee is appointed. A Trustee is a person who manages your bankruptcy. A bankrupt person must provide details of their debts, income, and assets to their Trustee. Your Trustee notifies creditors that you are bankrupt - this prevents unsecured creditors from pursuing the debt. The trustee can sell certain assets to help pay debts. A bankrupt may need to make compulsory payments if their income exceeds a set amount. Bankruptcy is an option, but a person may also try to enter into a personal insolvency agreement, requiring 75% of creditors to agree. Bankruptcy may have serious consequences and prejudice a person’s ability to obtain credit, travel overseas or gain certain employment. Certain types of professions may be in jeopardy such as a lawyer or a builder.
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Bankruptcy, Insolvency & Rehabilitation Proceedings in Canada FOGLER RUBINOFF LLP
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KEY FACTS OF BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS UNDER CANADIAN LAW
1. Canada's Political and Legal System Canada has a federal system of government, subject to its Constitution, which was significantly overhauled in the early 1980's, including the creation and implementation of the 1982 Canadian Charter of Rights and Freedoms. Canada places a high value on 'rule of law' concepts in Anglo-American legal traditions. It has both federal and provincial political and legal systems and courts, subject to the common law in various jurisdictions, and civil law in Quebec. The Canadian Parliament is responsible for federal laws, and various provincial legislatures enact local legislation in their jurisdictions. The Province of Quebec implements its Civil Code, largely derived from the French Napoleonic Code in origin and amended over time, in its legislature, called Assemblée nationale du Québec. There are courts with both federal and provincial jurisdiction that make rulings within their jurisdiction, resulting in a general body of common law (with civil law in Quebec), in either official language: English or French, or sometimes in both. Where necessary, the legal principle of 'paramountcy' is applied, whereby federal statutes are intended to prevail over provincial statutes when their terms and application conflict. 2. Canadian Insolvency Regime Insolvency and bankruptcy laws in Canada are generally of the federal domain. Provincial and regional laws are used to implement and interpret issues falling within this domain. There is no single law or statute governing corporate, commercial, or institutional restructuring, bankruptcy or insolvency issues. Insolvency professionals with standing in insolvency proceedings in Canadian courts are usually either licensed lawyers or accounting professionals, with appropriate accreditation.
There are multiple applicable Canadian insolvency and restructuring statutes, listed below. The Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 (the " BIA ") and the Companies' Creditors Arrangement Act , R.S.C. 1985, c. C-36 (the " CCAA "), collectively called the " Acts ") comprise the "main" statutory framework for individual and corporate insolvencies, restructuring, and bankruptcies in Canada. Stays of proceedings are implemented to allow for re- organisations, restructurings, or liquidations to occur in the best interests of stakeholders and in an orderly fashion. Proceedings under the BIA and CCAA are monitored and regulated by the federally regulated Office of the Superintendent of Bankruptcy, to whom provincial Official
Receivers submit their reports. Applicable statutes in Canada :
i. The BIA ; This is the main federal statute for personal or 'consumer' bankruptcies. It also has a broader section for both higher net-worth personal bankruptcies and larger corporate and commercial bankruptcy or restructuring opportunities. The BIA contains rules for both liquidations or debtor-driven restructurings and reorganisations (generally called 'proposals'), with both creditor remedies (including receiverships), and 'debtor in possession' (" DIP ") remedies. A statutory priority waterfall for claims against the estate of an insolvent person or entity exists for secured and preferred creditors, thereby implementing rules for dealing with those priority claims in multiple scenarios. DIP proceedings under the BIA generally occur in situations in which the debts of the debtor are below CAD5,000,000. The "bankruptcy" provisions of the BIA are analogous to Chapter 7 of the U.S.A. Bankruptcy Code (the " Code ") but has many differences beyond the scope covered here. The "proposal"
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provisions of the BIA are more analogous to Chapter 11 of the Code. ii. The CCAA ; This is the principal federal restructuring and recovery insolvency statute for DIP debtors. In comparison with the analogous BIA framework, it is generally more flexible in scope and application. The CCAA evolved from a largely unused and very brief statute conceived in the 1930s but has been extensively used and adapted since that time. In the present day, it is used mainly for the restructuring of large commercial enterprises with aggregate debt owing in excess of CAD5,000,000. While analogous to Chapter 11 of the Code, the CCAA differs in many material respects, not the least of which are the generally increased speed and lower costs in most scenarios. The CCAA remains a relatively brief statute, and not all aspects of the law applicable in connection with proceedings there under have been codified. It allows for wide powers of judicial discretion, which is of utility in quickly changing fact scenarios. Cases coming within its wide scope have received a considerable display of jurisprudential flexibility and expediency in many cases, due to the lack of codified rules and procedures. iii. The Personal Property Security Act/Civil Code in each Province (collectively, " PPSAs "); Each province outside Quebec has enacted statutes relating to property rights in assets and security, to partially replace a pre-existing patchwork of common law that preceded them. They also allow for the appointment of receivers both in and out of court. The PPSAs contain attachment, perfection, and priority rules in collateral that were initially modelled on the Uniform Commercial Code used in US States (collectively, " UCC "), but do nevertheless have significant differences. For instance, the PPSAs are mainly notice registry systems, and are not title based. There are also differences with UCC Article 9 procedures and accommodation for security
interests in cash collateral, and other personal property. iv. Rules of Court/Rules of Practice (" Rules "); These apply in all provinces other than Quebec and have direct and indirect influences on judgements and rulings regarding enforcement and interpretations under applicable statutes. For instance, where it is found to be 'just or convenient', courts may appoint receivers for interests including secured creditors. v. The Winding Up and Restructuring Act (" WURA "); This federal statute has been used infrequently and is generally for the restructuring and reorganisation or liquidation of specific entities, mainly banks and insurance or trust companies. In the context of more recent financial upheaval in financial markets and financial institutions in Canada and abroad, this legislation may assume a more prominent role than has unfolded in its recent past. vi. Business Corporation Statutes; These include multiple statutes in both the federal and provincial domains, such as the Canada Business Corporations Act (" CBCA ") and the various provincial counterparts. These are significant because they allow courts to authorise fundamental changes in corporate structure in distressed scenarios. They contribute to balance sheet refreshments through such arrangements where debt can be converted to equity including through implementation of distress preferred share arrangements as may be approved in Canadian insolvency proceedings. These statutes may also be used to effect liquidations in certain circumstances. 3. The Acts: Basics BIA Applications for bankruptcy orders may be filed by the debtor, or by his/her/its creditors. When filed by creditors, there can be proceedings contesting the filing, to be heard by the
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bankruptcy courts. Otherwise, liquidations ensue once the trustee in bankruptcy is appointed under a bankruptcy order and that person is usually an accredited accounting professional. That trustee in bankruptcy acts in the estate, effectively on behalf of the general body of creditors. Secured creditors holding perfected security interests take outside of the bankruptcy estate to the extent of the value of their collateral held and will file claims in the estate for unpaid residual amounts of debt not recovered from realization of their specific collateral held. To avoid bankruptcy, proposals may be filed by debtors under notices of intention (" NOI "). These are not initially bankruptcy filings. An accountant is engaged as "Proposal Trustee" to oversee and review the affairs of the debtor, and to report to the court in all proceedings. On filing the NOI, the time "starts ticking". Initially, a 30- day stay is granted, and can be extended up to a maximum of six months by the court, to enable the debtor to file a plan. Time is granted to compose a plan, which is distributed to creditors for a vote. For the proposal to be approved, a 'double majority' vote that occurs with approved creditors will be necessary, in which a majority of both creditors by number and total of outstanding debt thresholds must be met to pass the vote. If the creditors approve the plan, court approval is thereafter required. If timelines are not met, or a plan is neither presented nor approved by creditor vote and court approval, then there is an automatic deemed bankruptcy. At that point, the proposal trustee becomes the trustee in bankruptcy, and liquidation ensues. All asset bankruptcy estates are subject to a 5% levy, payable to the Superintendent in Bankruptcy.
CCAA Qualified applicants under the CCAA are usually applicants being corporate entities who are insolvent, or who have committed an act of bankruptcy under the BIA . Total claims against that debtor must exceed CAD5,000,000 before that debtor may commence a CCAA filing. Proceedings are initiated by court applications. Filings for 'first day orders' are done by application of the debtor to the applicable court. There may be an initial order implementing a statutory stay of proceedings, but it is granted for a very short period of time and on restricted terms and conditions (colloquially sometimes referred to as the 'skinny order'), in effect for no more than ten days. The applicants must return to court within that time period with another application for the full form of court orders giving broader protections to the Applicant. Monitors are appointed upon initial orders being granted and are deemed to be officers of the Court, and as such are the "eyes and ears" of the Court in the proceedings. The debtor's auditors are excluded from being appointed as Monitor. Monitors are ideally positioned to act in the 'best interests of the general body of creditors'. Their views and recommendations are submitted to the courts in formal reports, which are generally given a high degree of factual and professional deference. Once appointed to oversee the CCAA estate in the first day orders, Monitors coordinate multiple roles. Those include the review of financial information, filing of statutory reports, review of debtor forecasts and plans, implementation of a sale process, and assisting in the drafting of a Plan of Compromise or Arrangement ( "Plans" ). Plans, once approved by creditors in a double majority vote, must also be sanctioned by a Canadian court. Plans can include sale processes, such as 'stalking horse' bidding procedures for all or part of the business, assets and operations of the debtor, or a broader group of companies and
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partnership entities connected to the debtor. They may also include full or partial liquidations of their assets, termination of contracts, key employee retention plans, settlement of debts and charges amounting to a balance sheet restructuring. Monitors interact with officers, directors, and management of the debtor and their counsel. They are also responsible to conducting all statutory proceedings, including any votes of creditors or other stakeholders, outside of the court proceedings. Assets disposed of in CCAA proceedings are not subject to any bankruptcy levies. Stays of Proceedings Under the BIA , statutory stays of proceedings are initiated on issuance and filing an order for bankruptcy, or upon filing a NOI. Under the CCAA , statutory stays are initiated by the courts in first day orders and continue under the directions of the court. Stays of proceedings can be implemented for groups of companies domestically, within the ambit of the Canadian courts. For cross-border groups, the continuing cooperation of foreign courts is required, with varying results from case to case. Cross Border Proceedings Coordination of cross-border proceedings with foreign courts is encouraged and implemented on a regular basis. Canada adopted the UNCITRAL model law on cross border insolvency in 1997, with changes specific to Canada at and after that time. This is incorporated into Canadian law under Part IV of the CCAA and Part XIII of the BIA , for both recognition of foreign proceedings in Canada, and for recognition of the orders of Canadian courts in foreign proceedings. Canadian courts can exercise jurisdiction over non-Canadian entities and assets if the 'centre of main interest', known as "COMI", is in Canada. These always involve questions of fact and can be hotly contested at the outset of proceedings. In the Matter of
Voyager Digital recently saw the Ontario Superior Court provide renewed guidance on the determination of COMI in the context of a public company. Cross border cooperation of foreign courts with Canadian courts has occurred in multiple cases, including under Chapter 15 proceedings under the Code. Officers and Directors Generally, directors and officers of corporations have statutory duties to act honestly and in good faith with a view to the best interests of the corporation (including under the CBCA ). Directors of an entity entering proceedings under the Acts must continue to generally act in the general best interests of that debtor. They must exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. Officers have similar duties including remittance obligations to government authorities. While there are duties to 'stakeholders', such as government entities, creditors and employees, there is no specific duty on directors or officers to look after the interests of shareholders. Unlike other jurisdictions, such as Australia, Germany, and France, there are no 'trading while insolvent' liabilities or exposures while the debtor is undergoing a formal restructuring while also operating its business. Remedies sought for breach of such duties, in the absence of fraud, are generally fact-based proceedings, within these general principles. Additionally, directors should take note that under certain statutory circumstances, directors may be found personally liable for unpaid employee wages and holiday pay, and source deductions for employee income taxes, employment insurance and government pension plan contributions.
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4. The Acts: Changing Rules and Features and Updates In recent years, the Acts were amended to achieve better accountability and transparency
to defined benefit pension plans in the course of an employers' insolvency. Importantly, a transition timeframe has been built into this expansion of the super-priority (four years) for defined benefit plans. This will provide existing lenders and employers with some ability to pivot around the new reality, but not much and new employers will not have the same transition period. Director and Officer Compensation Clawbacks The amendments expose directors to more scrutiny on the eve of insolvency. The courts may "look back" into payments (including termination pay, severance pay, incentive and other benefits) made to directors, officers, and other managing personnel in the year preceding the initial bankruptcy event. If the payments were made when the corporation was insolvent or rendered the corporation insolvent, exceeded the fair market value of the consideration received by the corporation, or were outside the ordinary course of business, the court may issue judgments against the directors personally, as
in Canadian insolvency proceedings. Disclosure of Economic Interests
The CCAA was amended to allow interested persons to apply for a court order requiring a person to disclose any "economic interest" in the debtor company. An "economic interest" includes a claim, eligible financial contract, an option, a mortgage, charge, lien, other security interest, the consideration paid for any right or interest, or any other prescribed right or interest. The court must consider whether the information sought would enhance the prospects of a compromise or arrangement for the debtor company and whether any interested person would be materially prejudiced by the disclosure. The purpose of this may be aimed at leveling the playing field in the administration of estates. Possible scenarios where disclosure might be particularly important are (i) where claims are traded at discount values to purchase blocking votes or (ii) where related parties or parties with undisclosed collateral interests bid on assets of the insolvent estate. Pension Funding and Obligations To protect the interests of retirees and pensioners, the Acts were amended to require that funds earmarked for registered disability savings plans be added to funds in RRIF plans and RRSPs so that they are exempt from seizure under the BIA . The CBCA was simultaneously amended to require that directors take into account the financial interests of retirees and pensioners in board deliberations of CBCA companies on the eve of insolvency. Further, in 2023 legislation was passed expanding the super-priority positions afforded
may be appropriate. Third Party Releases
Court-ordered releases within CCAA Plans are common in the context of sanction orders. In many cases, it is management and board members who benefit. Directors and officers will usually insist on these in return for avoiding mass resignations during the reorganisation of
the insolvent entity. Procedural Changes
Stays of proceedings will be granted in CCAA proceedings if "reasonably necessary" for the continued operations of the debtor companies. The initial stay period was reduced from 30 days to 10 days. Also, other initial relief in first day orders will only be granted if "reasonably necessary". These amendments will help ensure that orders granted at the commencement of
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insolvency do not over-reach and are fair to other creditor interests. Certain relief like new funding (DIP financing orders) and pre-baked solicitation proceedings for the sale of assets, which may prejudice stakeholders who had no notice of insolvency proceedings, may now be challenged earlier. Statutory Duty of Good Faith In Bhasin v Hrynew , the Supreme Court recognized a general duty of honest performance in contractual dealings which has been broadly applied. Canadian courts must now consider good faith and disclosure of economic interests to enhance their jurisdiction in restructuring matters. Parliamentary debates preceding the amendments suggest that they were intended to protect the public from the effects of high-profile corporate bankruptcies like Nortel and Sears where many Canadian employees lost their pensions. A statutory duty to act in good faith will now apply to all participants in Canadian insolvency proceedings. Although debtors previously had a duty to act in good faith, the statutory duty now applies to all parties. This amendment is consistent with developments in the common law. In Century Services Inc v Canada (Attorney General) the Supreme Court of Canada stated that "the requirements of appropriateness, good faith and due diligence are baseline considerations that a court should always bear in mind when exercising CCAA authority". A statutory duty of good faith is also consistent with British and American insolvency statutes and will therefore be useful in cross-border proceedings. No Equitable Subordination in Canada, so Far The doctrine of equitable subordination is an American legal doctrine that allows a court to subordinate a creditor's claim and ranking in an insolvency proceeding where that creditor has acted badly, in the determination of the court. Canadian courts have resisted its application
over an extended period of time in numerous insolvency proceedings. However, it remains an attractive equitable doctrine to be applied as a potential course of redress. Recent statutory implementation of the duty of good faith in Canada appears to have provided another reason to not apply this doctrine in Canadian proceedings to address the bad behavior of certain creditors. However, this doctrine has not yet been definitively shut off by the highest Canadian courts either, to date. Reverse Vesting Orders There have been recent developments in the case law regarding the use of reverse vesting orders ( "RVO" ) as a means of providing court approval to certain transactions to be effected in the context of an insolvency proceeding. Through the use of a reverse vesting order, the court may transfer liabilities or undesired assets "out of" the debtor company and "into" a new company or other available existing subsidiary entity. The impact is to "cleanse" the debtor problematic assets or liabilities so as to effect a new state of affairs in assistance of the restructuring. This is a "reverse" to the approach of the traditional approval and vesting order where in the valuable assets are transferred to the court approved buyer with secured interests being vested out. Of particular in note, in Harte Gold Corp. Re , the Ontario Superior Court provided some important new guidance on what questions the court should investigate when asked to approve a RVO: (1) Why is the RVO necessary in this case? (2) Does the RVO structure produce an economic result at least as favourable as any other viable alternative? (3) Is any stakeholder worse off under the RVO structure than they would have been under any other viable alternative? (4) Does the consideration being paid for the debtor's business reflect the importance and value of the licenses and permits (or other intangible assets) being preserved under the
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RVO structure? While this test has been set out, the body of law firmly establishing the conditions under which the court might refuse a RVO is in its relative infancy and still developing. Environmental Obligations and Priorities In 2019 the Supreme Court of Canada released its decision in the case of Orphan Well Association v. Grant Thornton Ltd. , which held that certain environmental remediation obligations of an insolvent entity can and should be prioritized over and above the rights of secured creditors in the context of a closed oil and gas operation. More recently, the court in the Province of Alberta has issued several decisions that have potentially expanded the context in which such a super-priority might be found to apply. At the time of this update, however, there are active appeals in this area and so further clarity on the law in this area may be expected in the near future.
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Bankruptcy, Insolvency & Rehabilitation Proceedings in Cyprus LLPO LAW FIRM
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KEY FACTS OF BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS UNDER CYPRIOT LAW
1. The Legal Framework Insolvency matters in Cyprus are governed by the Bankruptcy Law Cap.5 which deals with the bankruptcy of natural persons, and the Companies Law Cap.113, supplemented by the Companies (Winding Up) Rules and certain provisions of the Bankruptcy Law which regulate the insolvency of legal persons. In 2015 the Cypriot Insolvency Law has been substantially amended and expanded in order to provide for the possibility of debt restructuring of natural persons through personal repayment plans and debt relief orders by the enactment of the Insolvency of Natural Persons (Personal Repayment Plans and Debt Relief Order) Law of 2015 (L. 65(I)/2015). In Cyprus, only licensed insolvency practitioners can be appointed and act as trustees in bankruptcy, bankruptcy advisors or liquidators. Cypriot Insolvency Law is expected to be amended further to align with Directive (EU) 2019/1023 on preventive restructuring frameworks, discharge of debt and disqualifications and measures to increase efficiency (Preventive Restructuring Frameworks Directive). In this publication, while it is not possible to describe exhaustively all matters of importance, we set out key aspects of the Cypriot insolvency legal framework that we have deemed useful to provide a general understanding. 2. Bankruptcy According to Bankruptcy Law Cap.5, in order for a person to be declared bankrupt, an application must be filed before the Court. The application may be filed either by the debtor’s creditors or by the debtor himself, provided that the conditions set by Bankruptcy Law are met.
A creditor may file an application for bankruptcy against the debtor if, inter alia , it is proved to the satisfaction of the Court that: (a) the debt owned by the debtor exceeds the amount of €15,000; (b) the debtor has committed an act of bankruptcy within six months before the filing of the petition; and (c) the debt is a liquidated sum payable either immediately or at a certain future time. A debtor may file a petition for voluntary bankruptcy if the total amount of his debts exceeds the amount of fifteen thousand euros (€15,000) and the debt is not secured. With the issuance of a bankruptcy order, the debtor’s property is vested under the custody and administration of the Official Receiver, or a private insolvency practitioner appointed by the creditors, who will be responsible for realising the debtor’s assets and distributing the same proportionally amongst the creditors as per the priority provided by the Bankruptcy Law. Importantly, three years after the issue of the bankruptcy order, the bankrupt person is automatically discharged from his verifiable debts. If the bankruptcy property has not been distributed in its entirety, it shall remain at the hands of the administrator to the benefit of creditors. Protection Before the issuance of the bankruptcy order and after filing a bankruptcy application, the Court may at any time, order the stay of any action, execution or other legal processes against the property or the debtor. After the issuance of the bankruptcy order, creditors are prevented from initiating any legal proceedings against the debtor or his/her property, without first obtaining leave from the Court.
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Further, no creditor shall be entitled to register a judgment or mortgage or any other encumbrance on the debtor's property 3. Winding up (Company Liquidation) The Companies Law, Cap.113 provides for two principal forms of winding up a company. A company may be wound up voluntarily, out of court, by its members or by its creditors, or it may be placed under a compulsory winding up following an application to the court which can be made by the company itself, a member, or a creditor. 3.1 Voluntary Winding Up by Members A company may be wound up voluntarily by its members by the passing of a special resolution with at least 75% majority of the members present and entitled to vote. Within 5 weeks before the members’ resolution approving the winding up, the majority of the company’s directors must make a statutory declaration of solvency under oath, declaring that they have made a full inquiry into the affairs of the company and that they are of the opinion that the company will be in a position to pay in full all of its debts and liabilities within a period not exceeding twelve months from the commencement of the winding up. The winding up is deemed to commence on the date of passing the special resolution for this purpose. With the commencement of the winding up, all the powers of the directors are shifted to the liquidator, unless the liquidator approves that any of them are to be exercised by the directors. The liquidator takes possession of the company’s assets, liquidates and distributes them amongst the creditors as per the priority provided by the law and any surplus to the members.
To complete the process, the liquidator submits to the Registrar of Companies and Official Receiver the final winding up accounts along with the minutes of the final meeting. Three months after the final submission to the Registrar, the company is deemed dissolved, and the Registrar issues a certificate of dissolution. 3.2. Voluntary Winding up by Creditors Where the company is insolvent, a voluntary winding up shall be a voluntary winding up by creditors . The procedure initiates with a general meeting of the members and a meeting of the creditors. At the meetings, the members and creditors nominate the liquidator. Where the person nominated by the creditors differs from the one proposed by the members, the creditors ’ nomination prevails. Same as in a voluntary winding up by the members, following the carrying out of the liquidation of assets and payment to creditors, with the expiration of three months as from the submission of the final accounts and minutes of the members’ and creditors’ meetings to the Registrar of Companies, the company is deemed dissolved, and the Registrar issues a certificate of dissolution. 3.3 Compulsory Winding up The most common grounds on which a company may be placed in a compulsory winding up are when: (a) the company is unable to pay its debts; and/or (b) the Court is of the opinion that it is just and equitable that the company should be wound up. The date of the commencement of the compulsory winding-up is the date that the petitioner’s application is filed with the court. With the issuance of the winding up order, the Official Receiver is appointed as provisional liquidator and shall act as such unless and until,
ILN Restructuring & Insolvency Group – Bankruptcy, Insolvency & Rehabilitation Series
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[BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS IN CYPRUS]
the Official Receiver himself or the creditors and contributories in their respective meetings, petition to the court for the appointment of a private insolvency practitioner. 3.4 Protection Following the filing to the court of a winding up application, any court proceedings against the company are stayed and with the issuance of a winding up order, no proceeding may commence or continue against a company without leave of the court. Any attachment in the hands of a third party, bailment, seizure or execution which commences against the property of the company after the commencement of the winding up is void. During the winding up, any disposal of property of the company and any transfer of shares or change of status of the members of the company is void, unless the court orders otherwise. 3.5 Priority of Payments A secured creditor may rely on execution of his security in order to satisfy his claim and is not obliged to submit a “proof of debt”. Unsecured creditors must submit proof of their debts to the liquidator, in order to participate in the distribution of the liquidated assets of the company. The order of priority of payments may be summarised as follows: (i) costs of the winding up; (ii) preferential debts such as government and local taxes, (iii) sums due to employees; (iv) amounts secured by securities; (v) unsecured ordinary creditors; and
(vi) deferred debts such as dividends declared but unpaid. 3.6 Transactions subject to challenge The liquidator has the right to challenge any questionable transactions entered into by the company or its directors which may have been made at an undervalue, that may be a fraudulent preference, or made to defraud creditors. 4. Receivership Receivership is the process whereby a creditor, by the appointment of a receiver, enforces its security over the company’s assets. The appointment of the receiver may be made out-of-court under the powers contained in any document (e.g., a debenture), or by order of the court after application by a creditor. The powers of the receiver are determined by the court order by which he is appointed, or by the document under which he is appointed. With the appointment of the receiver, the powers of the company’s directors in connection with the secured assets cease and are shifted to the receiver. Once the receiver disposes of the company’s assets covered by the security he was appointed to realise, his powers cease. The Companies Law does not provide for an automatic moratorium or stay of proceedings against the company in receivership proceedings. 5. Schemes of Arrangement A scheme of arrangement is a procedure provided by the Companies Law, under which a company may enter into a compromise or arrangement with its members and/or creditors. A scheme of arrangement may be pursued by the company, any member, a creditor or the liquidator of the company.
ILN Restructuring & Insolvency Group – Bankruptcy, Insolvency & Rehabilitation Series
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[BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS IN CYPRUS]
The scheme must be approved by the members and by the creditors of the company (by a single majority in value of each class of members or creditors voting for the arrangement). Following approval of the scheme as stated above, the scheme is brought before the court which decides whether it is fair and in the circumstances proper to be sanctioned. Generally, for a scheme to be approved, it must be shown to the satisfaction of the court that with the implementation of the scheme, the members and creditors of the company will not be placed in a worse position than that in which they would be, had the company been liquidated. Opposing members or creditors have the right to be heard at the court. Once the court sanctions the scheme, it becomes binding on all the company’s members and creditors. LLPO Law Firm Contacts: George Polemidiotis Partner - Advocate - Insolvency Practitioner gcp@llpolawfirm.com Kypros Louca Senior Associate - Advocate - Insolvency Practitioner kal@llpolawfirm.com
ILN Restructuring & Insolvency Group – Bankruptcy, Insolvency & Rehabilitation Series
Fall 23
I NTERNATIONAL L AWYERS N ETWORK
Bankruptcy, Insolvency & Rehabilitation Proceedings in Finland FENNO ATTORNEYS AT LAW
ILN RESTRUCTURING & INSOLVENCY GROUP
[BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS IN FINLAND]
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KEY FACTS OF BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS UNDER FINNISH LAW
Corporate restructuring in Finland Insolvency legislation in Finland provides for two alternative statutory processes: bankruptcy and corporate restructuring, which both have separate proceedings. The purpose of restructuring may be to rehabilitate the viability of the healthy parts of the business or to facilitate their operation, and to make debt adjustment possible. Corporate restructuring in Finland can be done via formal legal proceedings or via out of court proceedings. As it is common in other countries, also in Finland the voluntary, out of court proceedings are done mostly in big companies. In the SME sector it is popular to do restructuring by formal restructuring proceedings based on law. In this text we are focusing on formal corporate restructuring proceedings in Finland. Three steps of process Corporate restructuring in Finland divides into three steps: 1) Application 2) Restructuring proceedings 3) Restructuring programme. 1. Application The Corporate restructuring process in Finland starts when the debtor or a creditor files an application for restructuring to a district court. The decision to start a corporate restructuring process is made by a district court whose jurisdiction the general administration of the debtor is located in. The Court hears the biggest creditors about the application. Negative statement should be justified with arguments which are based on the law. Under the restructuring proceedings the restructuring debts are defined to the day when application for the proceedings has been filed for the district court. Debts which have arisen before that day are considered
as restructuring debts. Once the application has been filed, the company can apply a court order to protect it from the debt collection acts. Starting debt collection after the debtor has filed for restructuring is in most cases pointless and may cause extra costs for the creditor. Because the corporate restructuring in Finland is based on law, the court appoints almost without exception an administrator for the proceedings. An administrator appointed is almost in every case an attorney. 2. Restructuring proceedings Administrator´s role is to monitor and supervise the debtor´s activities during the restructuring proceedings. Administrator also audit the debtor´s activities before the proceedings. Administrator is responsible to react if illegal acts are founded. The administrator is also responsible to react if the company has started to lose money again and it cannot pay the debts which have arisen after the filing of the application. In those cases, administrator will file the application for interruption of the restructuring proceedings to the court. If it seems that the restructuring proceedings can continue, administrator prepares a report of the debtor´s assets, liabilities and other undertakings and on the circumstances that affect the financial position of the debtor. The report will be sent to all known creditors by the administrator. The report will be done in Finnish, but the administrator can usually give translation or summary of the report also in English if needed.
ILN Restructuring & Insolvency Group – Bankruptcy, Insolvency & Rehabilitation Series
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