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What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?
An application for the declaration of bankruptcy may be filed by the debtor, its creditors or the public prosecutor (rarely used in practice) if the debtor is in cessation of payments, a threatened state of inability to fulfil its due obligations or in case of possible insolvency. In the latter two cases only the debtor may initiate the bankruptcy procedure.
Persons eligible to follow these proceedings include merchants and associations of persons with legal personality that pursue an economic purpose. Natural persons (not merchants) may follow the procedures provided by Law 3869/2010.
What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?
Bankruptcy, in the majority of cases, leads to the liquidation of the business’s assets (compulsory liquidation).
The main stages of bankruptcy proceedings are as follows:
- application for the declaration of bankruptcy;
- interim measures decision (on application of anyone having a legitimate interest) prohibiting changes to the debtor’s estate or a reduction in its value, typically including suspension of individual collection and enforcement actions;
- publication of the decision declaring bankruptcy – appointment of the bankruptcy administrator (the syndic) and the reporting judge on bankruptcy;
- sealing the insolvency estate;
- registration of mortgages over immovable assets of the bankruptcy estate and mortgages and pre-notices of mortgages against debtors to the bankruptcy estate;
- unsealing and inventory of the debtor’s assets;
- announcement and verification of creditors’ claims; and
- conclusion of the insolvency proceedings through either the ‘union of creditors’ stage, followed by the liquidation of the debtor’s assets through mandatory auction and disbursements to creditors or a reorganisation plan.
Voluntary liquidation follows the law applicable to each entity according to its form (eg, limited liability company or societe anonyme).
How are liquidation procedures formally approved?
Bankruptcy decisions are rendered by the multi-member first-instance court of the place where the debtor’s centre of main interests is situated.
What effects do liquidation procedures have on existing contracts?
Following the declaration of bankruptcy:
- ongoing bilateral contracts of a continuing character remain valid and in force unless otherwise provided by law (eg, in case of financial leasing contracts, which are automatically terminated on declaration of the lessee in bankruptcy);
- contracts of a personal nature are terminated; and
- employment contracts are not automatically terminated.
The syndic can terminate the employment contracts of an indefinite duration, while bankruptcy is considered a serious cause for the termination of fixed-term employment contracts or contracts for the provision of services.
What is the typical timeframe for completion of liquidation procedures?
The timeline for completion of liquidation procedures is largely dependent on the specific circumstances of each case. According to World Bank – 2017 Doing Business data, it takes approximately three-and-a-half years to enforce claims in bankruptcy. Following the latest Bankruptcy Code revision, the position is generally expected to improve.
Role of liquidator
How is the liquidator appointed and what is the extent of his or her powers and responsibilities?
The decision declaring bankruptcy initiates the appointment of the syndic, who undertakes the administration of the company and runs the bankruptcy procedures, including the liquidation of the debtor’s assets.
Under the current legal framework, any person who has been a lawyer for a minimum of five years may be appointed a syndic. However, under the new Bankruptcy Code provisions, a person will be appointed as syndic if he or she has been authorised to be an insolvency administrator (insolvency professional) following successful completion of relevant exams. A syndic has a general duty to protect the interests of both the debtor and its creditors, without prejudice to his or her duty of impartially conducting business administration, given that the syndic must aim at the collective satisfaction of creditors. Within this framework, he or she has an obligation of non-disclosure, non-competition and avoidance of any conflict of interests.
What is the extent of the court’s involvement in liquidation procedures?
The court’s involvement in bankruptcy proceedings extends to all stages of the procedure and refers to:
- declaration of bankruptcy, granting provisional measures and appointment of a syndic;
- hearing complaints and petitions; and
- cessation of proceedings due to lack of funds or easily liquidated assets necessary for the continuation of the proceedings.
What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?
Creditors may file an application for the declaration of the debtor’s bankruptcy only if the latter is in cessation of payments.
Creditors’ participation is crucial in the auditing claims process, conducted through the announcement and verification of claims.
After filing an application for the declaration of bankruptcy and through a relevant application, the court may order any preventative measures that it considers necessary to prevent any change to the debtor’s estate that could be harmful for the creditors’ satisfaction.
Following the declaration of bankruptcy, all individual recovery measures against the debtor are automatically suspended. The suspension does not apply with regard to creditors secured with a special lien or in rem security over the assets of the debtor, unless these are assets operatively and directly connected with the business activities of the debtor or with a production unit or exploitation. Financial collateral agreements are also exempt from suspension. The bankruptcy declaration does not affect the creditors’ right to propose the set-off of a counterclaim against the respective claim of the debtor, provided that the set-off conditions were fulfilled before the declaration of bankruptcy.
Director and shareholder involvement
What is the extent of directors’ and shareholders’ involvement in liquidation procedures?
The application for the declaration of bankruptcy is submitted by the debtor’s managing body.
On the issuance of the decision declaring bankruptcy, the syndic automatically undertakes administration of the company. Nevertheless, the court may assign the administration of the company’s assets to the board, with or without restrictive conditions and under the condition that such administration be conducted in cooperation with the syndic if it deems that such assignment better serves the creditors’ interests.
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