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Insolvency procedures

Procedures
What are the main insolvency procedures applicable to companies in your jurisdiction?

  • Bankruptcy
  • Liquidation

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

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

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

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

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

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

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

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

Between eight and ten weeks.

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

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

Position of creditors

Forms of security
What are the main forms of security over movable and immovable property?

Security over immovable property is taken by:

  • lien
  • mortgage

Security over movable property is taken by:

  • lien
  • mortgage

Security over tangible property is taken by:

  • Pledge
  • lien

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

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

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

  • claims secured by pledged property
  • life-annuity payments
  • compensation, restitution and similar claims
  • claims of private individuals not originating from economic activities
  • debts owed to social security funds, taxes, default interest and late charges, surcharges and
  • penalties and similar debts
  • general creditors

The following debts are subordinated:

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

Treatment of foreign creditors
Are foreign creditors treated equally to domestic creditors?

Yes.

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

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

Retention of title
Are retention of title clauses effective?

Yes.

Setting aside transactions

Transaction avoidance provisions
What are the main transaction avoidance provisions, and who can challenge transactions?

In liquidation proceedings a creditor or liquidator can challenge:

  • transactions defrauding creditors if the counterparty knows or should know of that intention to defraud creditors, and the transaction is entered into after or in the five years prior to the date of the liquidation petition
  • transactions at an undervalue entered into after or in the two years prior to the date of the
  • liquidation petition
  • preferences entered into after or in the 90 days prior to the date of the liquidation petition

Position of directors

Risks for directors
What are the risks facing the directors of an insolvent company?

Directors can be held civilly liable for damages if:

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

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

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

  • concealing, damaging or destroying any asset
  • causing the company to enter into a sham transaction or acknowledge a doubtful liability
  • acting in any other way contrary to the requirements of reasonable management