Dictionary of Insolvency Terms in EU Member States

Austria - Italy

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Abschöpfungsverfahren

Proceedings for a levy on income (insolvency proceedings)

Available to all natural persons providing the individual has submitted an admissible payment plan (Zahlungsplan) to the creditors and such plan has been rejected by the creditors and the court have confirmed the plan has failed due to lack of sufficient consent by the creditors(unless the individual has no attachable income or it is only slightly above the subsistence level).
There are two different types of procedures: A procedure including a repayment plan (Tilgungsplan) and a procedure including a skimming plan (Abschöpfungsplan). Under both procedures, all attachable parts of the debtor's income are assigned to a trustee for a specified period of time and the debtor is only left with a subsistence minimum for the relevant period. In the case of a Tilgungsplan the relevant period is three years and in the case of a Abschöpfungsplan the relevant period is five years.
Considered to be the last resort for debtors. Any attachable income of the debtor exceeding the subsistence level will be used to satisfy the claims of creditors for a three-year or five-year period (as applicable)
Approval of an income levy plan automatically terminates on the commencement of insolvency proceedings and a statutory moratorium arising.
The debtor will be granted an automatic debt discharge after three or five years (as applicable).

Ausgleichsverfahren

Composition proceedings

No longer available. Composition proceedings have been replaced by reorganisation proceedings.

Gesamtvollstreckung

Overall enforcement

This is a continuation of execution proceedings as debt settlement proceedings but without residual debt discharge.
The proceedings are opened at the request of a creditor and are referred to in the insolvency legislation as Gesamtvollstreckung.
The Gesamtvollstreckung must be terminated as soon as the debtor applies for the acceptance of a reorganisation plan (Sanierungsplan) or payment plan (Zahlungsplan) or the initiation of debt settlement proceedings (Schuldenregulierungsverfahren).
If the debtor’s insolvency is established by the court, the creditors are referred to the insolvency proceedings for the collection of the outstanding debts. These insolvency proceedings are referred to as "perpetual bankruptcy". It occurs when neither an application for the acceptance of a payment plan nor for the initiation of debt settlement proceedings is filed and the proceedings are continued by realising the existing assets or attachable earned income until the claims have been paid in full (i.e. in most cases "forever").

Konkursverfahren (Insolvenzverfahren)

Bankruptcy proceedings (insolvency proceedings)

A court-led procedure for companies, partnerships and natural persons.
Instigated by a petition filed by the debtor or any insolvency creditor (a creditor whose claim is unsecured and arose prior to the opening of insolvency proceedings) or any creditor who has contractually agreed to be subordinated where there is either impending or actual inability to pay debts or over-indebtedness.
Bankruptcy results in the court appointing an insolvency administrator who realises the debtor’s assets and distributes the proceeds to its creditors. The debtor loses the right to dispose of its assets and, in the case of a company or partnership, the insolvency administrator takes over the management of the business from the entity’s directors/members.
A statutory moratorium arises after the application for insolvency. After this point, any claims by creditors against the debtor’s assets cannot be commenced and claims that are ongoing are suspended.
All claims in respect of the debtor’s assets must be filed with the insolvency court.

Reorganisationsverfahren nach dem Unternehmensreorganisationsgesetz

Reorganisation proceedings under the Business Reorganisation Act

A procedure enabling solvent companies, partnerships and individuals to reorganise their business to avoid insolvency.
Reorganisation proceedings do not affect creditors' rights.

Restrukturierungsverfahren

Restructuring Proceedings

The restructuring procedure is a new type of procedure introduced in July 2021 following the implementation of the EU Directive on Restructuring and Insolvency¹. This procedure is intended to enable an enterprise to avoid the occurrence of insolvency and to ensure the viability of its business. It is open to entrepreneurs and businesses, but not to consumers.
This restructuring procedure is another type of procedure and exists alongside the Business Reorganisation Act.
The new restructuring procedure is intended to enable debtors to obtain a reduction of liabilities even against the will of individual creditors to allow them to tackle necessary restructuring measures. The procedure is applicable to all debtors operating a business except for financial services and insurance companies both of which are excluded. The prerequisite is the probable insolvency of the company.
The Restructuring Regulation states that the debtor must commence restructuring proceedings by way of an application to the regional court in whose district the debtor’s business operates. The debtor must submit a detailed restructuring plan with its application to court or within a period to be determined by the court of no more than 60 days of the application having been filed at court. The plan must then be voted on in a court hearing by the affected creditors and approved by the court. There is no requirement to offer creditors a minimum quota in relation to their respective claims. The introduction of different creditor classes, which diverge both in terms of the order in which they are satisfied and in terms of the respective voting ratios regarding the restructuring plan, is so far alien to Austrian insolvency law.

Sanierungverfahren mit Eigenverwaltung (Insolvenzverfahren)

Reorganisation proceedings with self-administration (insolvency proceedings)

Debtor initiated reorganisation proceedings that can apply to natural persons carrying on a business, partnerships, legal persons (eg companies) and estates.
The directors, members or entrepreneur continue to manage the business (subject to some restrictions, for example an express prohibition from selling real estate) and an insolvency administrator is appointed by the court to supervise the proceedings. The insolvency administrator must carry out any transactions that are not in the ordinary course of business.
The debtor makes an application to court to initiate proceedings and must deliver a reorganisation plan that provides for the satisfaction of all secured and preferential debts and the repayment of at least 30% by value of unsecured debts within two years.
A majority (in number present at the approval meeting and by value of all claims) of unsecured creditors as well as secured creditors to the extent that they are under-secured must approve the reorganisation plan. If the requisite majority does not approve the plan either prior to the commencement of restructuring proceedings or at the latest 90 days after the opening of proceedings, the proceedings will be converted into bankruptcy proceedings.
If approved and adhered to, the reorganisation plan will terminate the insolvency proceedings automatically and satisfy creditors with preferential and subordinate claims as well as compromising the claims of all unsecured creditors.
A statutory moratorium, affecting enforcement by all creditors, arises after the initiation of proceedings by the debtor.

Sanierungverfahren ohne Eigenverwaltung (Insolvenzverfahren)

Reorganisation proceedings without self-administration (insolvency proceedings)

Debtor-initiated reorganisation proceedings that can apply to natural persons carrying on a business, partnerships, legal persons (eg companies) and estates.
The debtor makes an application to court to initiate proceedings and must deliver a reorganisation plan that provides for the satisfaction of all secured and preferential debts as well as claims against the estate (costs of insolvency proceedings, claims from employees, termination claims, claims for the performance of bilateral contracts the insolvency administrator adopts, claims arising from transactions entered into by the insolvency administrator) and the repayment of at least 20% by value of unsecured debts within two years.
A majority (in number present at the approval meeting and by value of all claims) of unsecured creditors as well as secured creditors to the extent that their claim is under-secured must approve the reorganisation plan.
If the requisite majority does not approve the plan either prior to the commencement of reorganisation proceedings or at the latest 90 days after the opening of proceedings, the proceedings will be automatically converted into bankruptcy proceedings.
The debtor must satisfy creditors with secured and preferential claims as well as claims against the estate and compromise the claims of all unsecured and subordinate creditors in accordance with the plan.
If approved, the restructuring plan will terminate the insolvency proceedings automatically.
A statutory moratorium affecting all creditors arises after the filing of the petition until the insolvency proceedings are terminated through approval of the reorganisation plan.
An insolvency administrator administrates the insolvency estate.

Schuldenregulierungsverfahren

Debt settlement proceedings (insolvency proceedings)

A compulsory form of proceedings for insolvent natural persons.
The aim of the procedure is to reach an agreement between the debtor and the creditors on a payment plan (Zahlungsplan). If these negotiations fail, the debtor has the option of entering proceedings for a levy on income.
A majority (in number present at the approval meeting and by value of all claims) of unsecured creditors as well as creditors with preferential and subordinate claims – insofar as they suffer a loss – must approve the payment plan. If approved, the individual will continue to manage their own assets.
A statutory moratorium arises after the initiation of proceedings by the debtor. If the creditors decline the proposed settlement plan, the debtor may ask for abschöpfungsverfahren (proceedings for an income levy) to be initiated.

EU Directive implementation

The EU Directive on Restructuring and Insolvency² requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021, with an option to extend that deadline by one year. The intention of the Directive is to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.

Notable features required to be included in Member States’ national laws include:

An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
An ability to cram down dissenting classes of creditors.
Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

Implementation in Austria

The EU Directive on Restructuring and Insolvency³ was transposed into Austrian law by the Restructuring Regulation ("Restructuring Regulation"). The new restructuring procedure is intended to enable debtors to obtain a reduction of liabilities, even against the will of individual creditors and sets out to help debtors tackle necessary restructuring measures in a timely manner. The procedure will be applicable to all debtors operating a business with the exception of financial services and insurance companies both of which are excluded. The prerequisite is the probable insolvency of the company.

EU Directive Implementation

The Restructuring Regulation states that the debtor must commence restructuring proceedings by way of an application to the regional court in whose district the debtor’s business operates. The debtor must submit a detailed restructuring plan with its application to court or within a period to be determined by the court of no more than 60 days of the application having been filed at court. The plan must then be voted on in a court hearing by the affected creditors and approved by the court. There is no requirement to offer creditors a minimum quota in relation to their respective claims. The introduction of different creditor classes, which diverge both in terms of the order in which they are satisfied and in terms of the respective voting ratios regarding the restructuring plan, is so far alien to Austrian insolvency law. Due to its clear legal framework, the Restructuring Regulation is likely to be welcomed.

Implementation date

The Restructuring Regulation and accompanying amendments to other laws (eg Insolvency Code) entered into force on 17 July 2021.

Recognition of foreign insolvency processes

EU Regulation on Insolvency Proceedings

The EU Regulation on Insolvency Proceedings⁴ applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State. The opening of main insolvency proceedings in an EU Member State precludes the opening of further main proceedings due to the principle of priority. Further insolvency proceedings can therefore – except for Denmark – only be initiated as secondary proceedings within the meaning of the EU Insolvency Regulation.

Recognition of third country insolvency processes

Foreign insolvency proceedings may be recognised pursuant to the EU Regulation on Insolvency Proceedings. Further, section 240 of the Insolvency Code governs the recognition of foreign insolvency proceedings outside the scope of the application of the EU Regulation on Insolvency Proceedings (ie from third countries or where the application of the EU Regulation on Insolvency Proceedings is not possible).

Recognition of foreign insolvency processes

The effect of recognition occurs ipso iure ( ie automatically, without the need for a formative or a declaratory court decision). However, in the event that an application is made with regards to the opening of main proceedings in Austria and it transpires that main proceedings have already been opened in another EU Member State, an applicant can request that the proceedings be reinterpreted and secondary proceedings opened instead. As a result, an Austrian court must only determine the effectiveness of the opening of the main proceedings in another EU Member State or their eligibility for recognition as secondary proceedings.

Contact: Oskar Winkler

Law stated as of 11 October 2023

_{[1] - Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.}_{[2] - Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.

[3] - Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.

[4] - Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast).}

Gerechtelijke reorganisatie (Dutch)

La réorganisation judiciaire (French)

Judicial reorganisation

A debtor facing financial difficulties may apply to the court for a judicial reorganisation procedure. The debtor will be granted protection against its creditors (a moratorium) and remains in control of its affairs.
Available to all businesses (a natural person, partnership, company or even an association in certain circumstances).

The judicial reorganisation procedure may take three possible routes. The debtor chooses the most appropriate and can apply to the court at any time to change the route it takes. The three routes are as follows.

1. Gerechtelijke reorganisatie door een minnelijk akkoord (Dutch)

La réorganisation judiciaire par accord amiable (French)

Judicial reorganisation through a collective settlement

Amicable settlement: provides for the debtor to agree a payment plan with a group (two or more) of its creditors.

2. Gerechtelijke reorganisatie door een collectief akkoord (Dutch)

Réorganisation judiciaire par accord collectif (French)

Judicial reorganisation through a collective settlement

Collective settlement: the second route provides for the debtor to propose a payment plan to its general body of creditors. If a majority of creditors vote in favour, and the court sees no reason not to approve it, the plan will be binding on all creditors.

3. Gerechtelijke reorganisatie door overdracht onder gerechtelijk gezag (Dutch)

Réorganisation judiciaire par transfert sous autorité de justice (French)

Judicial reorganisation through a transfer of assets under court supervision

Transfer of assets under court supervision: the third and most drastic option provides for the transfer (sale) of the debtor’s assets either in whole or in part by a court-appointed administrator. The administrator must give priority to preserving the debtor’s business.

Ondernemingsbemiddelaar (Dutch)

Médiateur d’entreprise (French)

Business mediator

A debtor can apply to court to appoint a business mediator to assist in facilitating a reorganisation, both within and outside the context of a judicial reorganisation.
Very rarely used for natural persons. More common for companies.

Voorlopig bewindvoerder or mandataris ad hoc (Dutch)

Administrateur provisoire or mandataire ad hoc (French)

Provisional administrator

In a number of situations, for example where there is serious disagreement between a company’s shareholders that paralyses the company or serious misconduct by the management, the court can, upon request of any interested party, transfer the management of some or all of the business to a provisional administrator.
It can do so both in the context of a judicial reorganisation (points 1-3 above) (for which there are express statutory provisions) or outside the scope of a judicial reorganisation through a measure developed by case law. This decision as such does not affect the rights of creditors.
Possible but very rarely used for natural persons.

Gerechtsmandataris (Dutch)

Mandataire de justice (French)

Court-appointed administrator

If the debtor is subject to a judicial reorganisation and the court concludes it has been seriously mismanaged, it may install and determine the role and duration of appointment of a court-appointed administrator.
The decision does not in itself have any bearing on the rights of the creditors.
Possible but very rarely used for natural persons.
This concept of an administrator may be somewhat confusing as it is used in Belgium for different types of court-appointed officers. A court-appointed administrator also supervises the procedure and assists the debtor in the context of a transfer of assets under court supervision and pre-packaged agreement or can, somewhat similar to a provisional administrator, be appointed in the event of deadlock or misconduct by the debtor.

Minnelijk akkoord (Dutch)

Accord amiable (French)

Amicable settlement

At any time, a debtor can agree a payment plan with some or all of its creditors. If the plan is concluded with two or more creditors and the debtor files it with the court registry, the plan and any payments made pursuant to it are protected against clawback actions by a bankruptcy administrator in the event the debtor is subsequently declared bankrupt.
The difference with a judicial reorganisation through an amicable settlement is that here the debtor is not given protection against its creditors. The payments made pursuant to the amicable settlement can merely not be challenged.

Faillissement (Dutch)

Faillite (French)

Bankruptcy

A debtor (both natural persons and corporations) can be declared bankrupt if: (i) it has ceased to pay its debts; and (ii) is no longer creditworthy. The Public Prosecutor or any creditor may apply to the court for such an order and the debtor is to apply for bankruptcy within one month after having come to the conclusion that it is in a state of bankruptcy (unless it chooses to follow one of the alternative routes outlined in this document).
The court will appoint a bankruptcy administrator (curator in Dutch, curateur in French) charged with the administration and liquidation of the bankruptcy estate and the distribution of the proceeds.
In principle, a debtor’s bankruptcy does not prevent secured creditors from enforcing their rights.

Vrijwillige vereffening (Dutch)

Liquidation volontaire (French)

Voluntary liquidation

A general meeting of shareholders decides to dissolve the company or association and put it into liquidation. A liquidator (vereffenaar in Dutch, liquidateur in French) is appointed to realise the assets and distribute the proceeds between creditors.
More flexible than bankruptcy (eg shareholders choose the liquidator, less court control).
In principle, a voluntary liquidation does not prevent secured creditors from enforcing their rights.
Applies to companies only

Gerechtelijke vereffening (Dutch)

Liquidation judiciaire (French)

Judicial liquidation

At the request of shareholders, the Public Prosecutor or any interested party, the court can order the dissolution and liquidation of the debtor. The court appoints a liquidator (gerechtelijk vereffenaar in Dutch, liquidateur judiciaire in French) to realise the assets and distribute the proceeds between creditors.
In principle, liquidation does not prevent secured creditors from enforcing their rights.
Applies to companies only.

Voorlopige ontneming van het beheer, bepaald in artikel XX.32 van het Wetboek van economisch recht(Dutch)

Dessaisissement proviso ire visé à l’article XX.32 du Code de droit économique (French)

Provisional administration pursuant to Article XX.32 of the Code of Economic Law

If the court finds that there are strong indications that the debtor is in a state of bankruptcy, the court can, on the application of any interested party or even of its own motion, decide to transfer the management for a limited period of time to a provisional administrator.
The provisional administrator will verify whether the debtor is virtually bankrupt and prevent the debtor’s management from disposing of its assets.
The procedure is similar to the Provisional administrator procedure outlined earlier in this document.
Applies to companies only

Collectieve schuldenregeling (Dutch)

Règlement collectif de dettes (French)

Collective debt settlement

Any natural person who is not conducting business activities may apply to the court to have a debt mediator (schuldbemiddelaar in Dutch, médiateur de dettes in French) appointed who will be in charge of the administration of that person’s assets. Natural persons who are conducting business that does not meet the definition of "commercial" can also resort to the collective debt settlement.
The debt mediator will try to agree a payment plan with creditors. If that proves to be unsuccessful, the mediator can, with the approval of the court, impose either a payment plan or even a (partial or complete) discharge of the debtor’s debts.

Secured creditor enforcement procedures

Enforcement of a mortgage or pledge, does not, in principle, require the intervention or approval of the court, unless the pledgor or mortgagor is a consumer. The court’s role is limited to an optional control based on deduction of probable cause.
Enforcement of a mortgage, however, requires the intervention of a notary public, who will have to be officially designated by the court.
As regards enforcement of personal or corporate guarantees, a creditor is always required to apply to the court for an order that the guarantor pays the sums due. The creditor will need a judgment ordering the guarantor to pay.

Voorbereidend akkoord (Dutch)

Accord préparatoire (French)

Pre-packaged agreement

A debtor may conclude a non-public preliminary agreement before an actual judicial reorganisation procedure with one or several creditors, under the supervision and with the assistance of a court-appointed administrator.
The court-appointed administrator can request the court to grant a grace period for the payment of the debts or similar measures for a maximum duration of 4 months.
This remains a preliminary phase, which will lead, if successful, to the opening of an actual, official judicial reorganisation procedure. This avoids the negative effects of the publication of the opening of insolvency proceedings and thus allows the recovery of businesses in financial difficulty, while preserving their value.

EU Directive Implementation

The EU Directive on Restructuring and Insolvency^[1] requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021, with an option to extend that deadline by one year. The intention of the Directive is to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.

Notable features required to be included in Member States’ national laws include:

An effective preventative restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
An ability to cram down dissenting classes of creditors.
Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

Implementation in Belgium

The Directive has not yet been implemented in Belgium.

Implementation date

The implementation date is currently unknown. The Directive had to be transposed to Belgian law by 17 July 2022 at the latest, which means that the deadline has expired.

Recognition of foreign insolvency processes

EU Regulation on Insolvency Proceedings

The EU Regulation on Insolvency Proceedings^[2] applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State be automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.

Recognition of third country insolvency processes

The recognition of insolvency proceedings from other EU Member States is governed by the EU Regulation on Insolvency Proceedings^[3]. This means that the Belgian courts will in the majority of cases recognise and thus give effect to proceedings opened in any other EU Member State.

Insolvency proceedings opened in other jurisdictions, such as in the United Kingdom, will be recognised provided the debtor had its principal place of business in that jurisdiction.

Insolvency changes in response to COVID-19

After the last moratorium on bankruptcies ended on 31 January 2021, a new law was adopted on 21 March 2021 to further support businesses facing financial difficulties.

This new law primarily intends to create a flexible framework allowing businesses to negotiate a reorganisation plan in a confidential manner, called a "pre-packaged agreement". If successful, this "pre-packaged agreement" stage will be followed by the opening of a judicial reorganisation procedure.

The new law also extended the circumstances where a judicial representative may be appointed and relaxed the admissibility conditions for the opening of judicial reorganisation proceedings for the debtor.

Contact: Ilse Van de Mierop

Law stated as of 1 October 2022

Predstecajni Postupak

Pre-bankruptcy proceedings

A voluntary procedure commenced by the debtor when the debtor is facing "impending insolvency" (as defined in the Croatian Insolvency Act (Stečajni zakon)) with a view to rescuing the debtor’s business (company or natural person) as a going concern.
Considered to be urgent and must be terminated within 120 days of opening (the court may extend for an additional 180 days).
The debtor prepares a restructuring plan, if available, to be put to creditors for approval (see below).
In the period between presentation of the petition and the court’s decision to open proceedings, the debtor may only make payments necessary for regular business operations and may not dispose of its assets.
The debtor’s management board conducts its business for the duration of the proceedings subject to the supervision and approval of a court-appointed pre-bankruptcy trustee.

Stecajni plan

Bankruptcy plan

One of the options available in bankruptcy proceedings, which enables the restructuring and continuation of the debtor’s business operations during the course of those proceedings.
The debtor can file the bankruptcy plan together with the proposal for opening bankruptcy proceedings. After opening the bankruptcy proceedings, the bankruptcy trustee and the individual debtor have the right to file the bankruptcy plan.
The plan will be accepted if approved by the majority of creditors in each class and if the sum of the claims of the creditors who voted in favor of the plan exceeds twice the sum of the claims of the creditors who voted against the plan. Creditors whose claims are not affected by the plan do not have voting rights. Secured creditors have the right to vote as a separate class if they are in any way affected by the plan.
The court will conclude the bankruptcy proceedings as soon as the decision to accept the bankruptcy plan becomes final.

Osobna uprava

Personal administration

When opening bankruptcy proceedings, the court may, by the same resolution, authorise the debtor to operate and dispose of its bankruptcy estate, under the supervision of a bankruptcy commissioner, who is appointed instead of a bankruptcy trustee.
In general, the court will grant a resolution for personal administration in the following circumstances: (i) if proposed by the debtor; (ii) if not objected to by any creditor who filed the petition to open the bankruptcy proceedings; and (iii) if, having regard to the circumstances in hand, it is not anticipated that such administration shall cause a delay in the bankruptcy proceedings, or be detrimental to the creditors’ rights and interests. The court may also grant a resolution for personal administration if it is proposed by the creditors at the first hearing.
The debtor continues to operate and perform activities in the ordinary course of its business, however activities that fall outside of this scope may only be undertaken by the debtor with the prior approval of the bankruptcy commissioner.
Despite the fact that personal administration entails a deviation from the usual course of bankruptcy proceedings, in these circumstances, bankruptcy proceedings may still be terminated, either by collective satisfaction of the creditors’ claims and subsequent dissolution of the company, or by the conclusion of a bankruptcy plan (in which case the debtor company survives the proceedings).

Postupak izvanredne uprave

Compulsory (extraordinary) administration proceedings

An extraordinary administration may be imposed in circumstances justifying pre-bankruptcy or bankruptcy proceedings of joint stock companies (and their related undertakings) that are of systemic importance to the Croatian economy.
During extraordinary administration proceedings, an extraordinary administrator represents the debtor and conducts its business activities. Other bodies involved in the proceedings are the court (the Commercial Court in Zagreb has exclusive competence), an advisory body and the creditors’ council.
Creditors submit their claims that are thereafter classified into groups, and subject to the approval of the extraordinary administrator.
From the moment of the opening of compulsory extraordinary administration proceedings until their conclusion, no bankruptcy proceedings (stečajni postupak), pre-bankruptcy proceedings (predstečajni postupak), liquidation (likvidacija), litigation, court or out-of-court enforcement (izvansudska ovrha) or procedures of interim measures may be initiated against the debtor or its related undertakings, except for proceedings relating to employment relationships.

Stecajni postupak

Bankruptcy proceedings

Commenced with a view to settling creditors’ claims and dissolving the debtor company (unless a bankruptcy plan is agreed). Bankruptcy proceedings can also be initiated over the assets of a natural person who is subject to tax on income from self-employment or who is a profit taxpayer.
Initiated by petition of the debtor, creditor, the Croatian Financial Agency (FINA) or a secured creditor, by reason of the debtor’s insolvency, over-indebtedness or impending insolvency.
On the opening of bankruptcy proceedings, the debtor’s capacity to conduct business ceases, it is represented by a court-appointed bankruptcy trustee, enforcement proceedings against the debtor are terminated, and litigation proceedings are stayed until the bankruptcy trustee assumes conduct of them.
Creditors are invited to register their claims, which are subsequently examined at a hearing before the court. All of the debtor’s claims become due (irrespective of the stated due date) and the bankruptcy trustee is obliged to manage the bankruptcy estate that is formed from the debtor’s assets. Assets subject to security form part of the bankruptcy estate, but secured creditors have priority, a so-called right of separate satisfaction.
Unless a bankruptcy plan is adopted (see section titled Bankruptcy Plan / Stečajni plan), after termination of the bankruptcy proceedings, the debtor ceases to exist.

Likvidacija

Liquidation / Winding up procedure

This is one of the ways to bring a company’s existence to an end where, for example, a company needs to be dissolved and the shareholders are unable to agree how the assets should be distributed, and they have not decided to declare bankruptcy.
The liquidation is generally conducted by the company’s directors, unless the company’s constitution or shareholders require a liquidator to be appointed.
After all liabilities of the company have been settled, the liquidator is obliged to propose the distribution of the company’s assets and to file an application to remove the company from the court register. Upon removal, the company ceases to exist.

Brisanje iz sudskog registra po sluzbenoj duznosti

Deletion from the court registry ex offo

A procedure whereby a company is removed from the court registry in the following circumstances: (i) it does not have any assets or has assets of insignificant value; (ii) it has not complied with laws concerning the subject in a prescribed term; (iii) it has not published annual financial statements for three consecutive years; or (iv) a foreign founder of the company’s branch has not delivered its annual financial statements to the competent registry court for three consecutive years.
An intention to remove the company from the register is recorded with the court registry so that interested parties may object to decision being made.

Postupak stecaja potrosaca

Consumer bankruptcy proceedings

A voluntary procedure intended to release a consumer from any of their obligations that remain outstanding after all their assets have been realised and the proceeds distributed among their creditors.
Prerequisites: the consumer must be acting in good faith and unable to pay debts exceeding HRK 20,000 during a period of at least 90 consecutive days.
Generally the preserve of consumers but may be initiated by a natural person engaged in business satisfying various criteria including the absence of employees.
If a consumer fails to conclude an out-of-court agreement with creditors (see section titled Izvansudski sporazum/Out-of-court agreement) within 30 days they may file a petition to open these proceedings before a competent court.
The course of consumer bankruptcy proceedings is similar to that of corporate bankruptcy proceedings: creditors are invited to register their claims, which are subject to examination at a hearing. The bankruptcy commissioner creates a final distribution list, followed by a decision on the conclusion of the bankruptcy proceedings.
The court determines a time period of good conduct for the consumer, during which the consumer’s assets are managed by an appointed bankruptcy commissioner. After the expiry of the good conduct period, the court releases the consumer from their remaining obligations.

Izvansudski sporazum

Out-of-court agreement

As mentioned in the section titled Postupak stečaja potrošača / Consumer bankruptcy proceedings, a consumer is obliged to seek to conclude an out-of-court agreement with their creditors before seeking the initiation of consumer bankruptcy proceedings. A consumer’s creditors may also request the execution of an out-of-court agreement, however only with the consumer’s consent.
Upon the request of either a consumer or any of their creditors, the out-of-court procedure can be conducted by a mediator from a Croatian Financial Agency (FINA) counselling centre or other authorised entity. The out-of-court proceedings should not last longer than 30 days from the date of the creditors’ meeting scheduled in the invitation for participation in the procedure (however, such time limit may be extended in certain circumstances).
If the parties fail to conclude an out-of-court agreement, the counselling centre issues a certificate to this effect. However, where such an agreement is concluded, it has the same effect as an out-of-court settlement and becomes immediately enforceable.

Izvansudska ovrha

Out-of-court enforcement

A creditor is entitled to enforce its claim in an out-of-court procedure if its security is established over movable assets or rights that are not considered immovable. Croatian law does not provide for out-of-court enforcement over immovable assets.
Out-of-court enforcement is mainly conducted by the Croatian Financial Agency (FINA). However, there are some specific situations in which it is possible to conduct an out-of-court enforcement without Croatian Financial Agency (FINA) (for example an out-of-court enforcement of an employer of the debtor).
When conducting an out-of-court enforcement it is necessary to provide Croatian Financial Agency (FINA) with a billing request, as well as basis for payment. These documents have the same power as a court order (Croatian Financial Agency (FINA) acts the same as in the case of an ordinary judicial enforcement).

Blokada racuna

Blockage of accounts

When Croatian Financial Agency (FINA) receives the above-mentioned documents, it may issue an order to preserve the accounts of the debtor. Croatian Financial Agency (FINA) will act in that manner if a payment order, made by a bank for settlement of claims in enforcement proceedings over a debtor’s cash assets, cannot be fully executed.
During the period of account preservation, the debtor is prohibited from making payments and transfers from its account. The account preservation is subject to registration with the Unique Register of Accounts, held by Croatian Financial Agency (FINA).
The period of account preservation lasts for 60 days during which a debtor can try to postpone the transfer of funds to the accounts of the creditors. After an expiry of the 60 days period, the funds will be transferred to the creditors based on an order issued by Croatian Financial Agency (FINA).

Izvansudsko namirenje

Out-of-court settlement

Alongside out-of-court enforcement, there is also a possibility of an out-of-court settlement by the creditors. The debtor in civil matters must expressly agree in writing to the out-of-court settlement at the time of establishment of the security. However, in commercial matters the out-of-court settlement is presumed if the debtor has not expressly excluded such a procedure.
The creditor is entitled to out-of-court settlement by means of a sale at public auction, or in any other way provided for in the underlying security document, prescribed by law, provided that it is the only possible way of effecting the settlement.

EU Directive Implementation

The EU Directive on Restructuring and Insolvency^{^[1]} (hereinafter referred to as the "Directive") requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021, with an option to extend that deadline by one year. The intention of the Directive is to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.

Notable features required to be included in Member States’ national laws include:

An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
An ability to cram down dissenting classes of creditors.
Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

Implementation in Croatia

The Directive has been transposed into Croatian law by two legal acts, namely (i) the Croatian Insolvency Act (Stečajni zakon) and (ii) the Croatian Consumer Bankruptcy Act (Zakon o stečaju potrošnikov).

Recognition of foreign insolvency processes

EU Regulation on Insolvency Proceedings

The EU Regulation on Insolvency Proceedings^{^[2]} applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.

The EU Regulation on Insolvency Proceedings applies on bankruptcy proceedings in Croatia, while the recognition of enforcement proceedings is regulated by Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

Recognition of third country insolvency processes

Third country bankruptcy processes are regulated by the Croatian Insolvency Act (Stečajni zakon).
For the recognition of a foreign court decision, it is necessary to submit a proposal to the competent court in Croatia. The said proposal may be submitted by the bankruptcy trustee or the creditor of the bankruptcy debtor.
A foreign decision on bankruptcy proceedings, will be recognized: (i) if it was issued by a court or body that has international jurisdiction under Croatian law, (ii) if it is enforceable under the law of the State in which it was enacted, (iii) if its recognition would not be against the public order of the Republic of Croatia.
Regarding enforcement proceedings for third countries, this matter is regulated by the Private International Law Act, which also prescribes the necessity of recognizing a foreign court decision by the Croatian courts.
A foreign court decision may be recognized if it is accompanied by a certificate of validity and a certificate of enforceability from the country in which it was issued.

Law stated as of 11 October 2023

_[1]_{Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.}
_{[2] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast).}

ΔΙΑΚΑΝΟΝΙΣΜΟΊ ΚΑΙ ΑΝΑΔΙΟΡΓΑΝΏΣΕΙΣ

Arrangements and reconstructions

Under the Cyprus Companies Law, Cap. 113, as amended, the terms "arrangements" and/or "reconstructions" are used to describe (amongst others) any form of internal reorganisation of a Cyprus company or its affairs including schemes for the amalgamation of two or more companies. Schemes can be used for solvent reorganisations of group structures, as well as for insolvent restructurings.
Where a compromise or arrangement is proposed between a company and its creditors (or any class of them) or between the company and its members (or any class of them), the court may, following the filing of an application for the same by the company, or by any of its creditors or members (or, where the company is in liquidation, by the appointed liquidator) order meetings at which the proposal is voted on.
A majority in value of the creditors or class of creditors or in number of votes of members or class of members, as applicable, present and voting at the meeting must approve the proposed compromise or arrangement for it to be binding. If subsequently sanctioned by the court, such compromise or arrangement becomes binding on all creditors (or the class of creditors as the case may be) or on the members (or the class of members as the case may be).
There is no moratorium during this process. The procedure is controlled by the company subject to the supervision of the court. It is flexible and, subject to proper preparation and planning, may be completed within a few months.

ΕΞΕΤΑΣΤΉΣ

Examinership

Examinership is a process intended to facilitate the survival of a viable company and the whole or any part of its undertaking as a going concern, by providing a period of protection from its creditors.
In accordance with the provisions of the Cyprus Companies Law, Cap. 113, as amended, the court may, upon the filing and/or submission of an application by the company and/or a creditor or potential or future creditor of the company or a member who holds not less than one tenth of the paid-up capital of the company and has the right to vote at the general meetings of the company, or a guarantor of any liabilities of the company, issue an order appointing a licensed insolvency practitioner as the examiner.
The application for the appointment of an examiner must be accompanied by an independent expert’s report in relation to the financial standing of the company on which the court will rely in order to decide whether there is a reasonable prospect of survival of the company as a going concern.
The examiner’s role is to prepare proposals for a compromise and /or scheme of arrangement of the company with its creditors and/or fulfil any other duties that the court may determine.
The court will issue an order appointing an examiner, only where the court deems that there is a reasonable prospect of the survival of the company and of all or any part of its undertaking as a going concern. The court will take into consideration whether the company is insolvent or there is a possibility to be insolvent (in accordance with the relevant provisions of the Companies Law), whether any resolution regarding the liquidation of the company has been approved and published in the Official Gazette of the Republic, and whether any decree has been issued for the liquidation of the company.
Once the company is placed into examinership, it is considered to be under the protection of the court for a period of 4 months with a right of extension (the protection period during which the company is protected from creditor action and (amongst others) no liquidation proceedings can be commenced against the company, no receiver can be appointed on any part of the company’s assets or business, no steps may be taken for the enforcement of any judgments against the company or where any claim against the company is secured by a mortgage, lien or other charge or pledge on or affecting the company’s property or income, no action may be taken for the enforcement of all or any part of such security, except with the consent of the examiner. The Court has the right to terminate the protection period under certain condit

ΑΝΑΓΚΑΣΤΙΚΉ ΕΚΚΑΘΆΡΙΣΗ ΑΠΌ ΤΟ ΔΙΚΑΣΤΉΡΙΟ

Compulsory Liquidation / Winding up

Compulsory liquidation (also known as compulsory winding up or winding up by the court) is a process where a company is wound-up following a court order, upon the filing and/or submission of a relevant application by (amongst others) the company or any of its creditors or contributors or by the examiner, by an administrator of another Member State or an official receiver in accordance with the provisions of the Cyprus Companies Law, Cap. 113, as amended.
Α fee must be paid to the Official Receiver on submission of the application. The Registry shall not accept the registration of a winding-up application without proof of payment of the fee.
The grounds for compulsory liquidation/winding up by the court are provided in the relevant section of the Companies Law and include (amongst others) the company being unable to pay its debts. The Companies Law sets out the circumstances under which a company is deemed to be ‘unable to pay its debts’.
"Insolvency" means a situation where a company is unable to pay its debts under subsection (3) of Article 202A OF THE Companies Law (Chapter 113) and "insolvent" shall be construed accordingly.
In the event of the possibility of insolvency, during the whole of that time the directors of the company, in exercising their powers, shall take into account the following:
- The interests of creditors, members and other interested parties;
- The need to take steps to avoid insolvency; and
- the need to refrain from acts with intent or gross negligence which threaten the viability of the company's business.
The official receiver is appointed as liquidator and on entry into liquidation, the powers of the company’s directors cease. At a later stage a licensed insolvency practitioner may be appointed to act as liquidator. The licensed insolvency practitioner will either be appointed by the court upon request by the official receiver or selected at the first meeting of creditors and contributors.
A request for the appointment of a person other than the Official Receiver as liquidator may be made either at the time of the winding-up application for winding-upor by an application made after thewinding-up application.
For the purposes of appointing a person other than the Official Receiver as liquidator, the Court may take into account any wishes or positions in the following priority order:
- The creditors and a majority in value thereof;
- The applicant
- the company; and
- the company's contributors,
which are brought before it without requiring a meeting of creditors or contributors to be convened or a call for the submission of such wishes or positions.
Where the company is being wound up and separate conventions of its creditors and contributors are convened for the purpose of deciding to apply to the Court for the appointment of a person other than the Official Receiver as liquidator:
- The creditors and contributors at their respective conventions may nominate a person as liquidator.
- The liquidator shall be the person nominated by the creditors or, where no such person has been nominated by the creditors, the person nominated by the contributors, if the contributors nominate such a person.
It is unusual for a company to trade in liquidation. Instead, the liquidator’s role is to liquidate the company’s assets and distribute the company’s property to its creditors in accordance with and subject to the relevant provisions of the Companies Law and settle all of the affairs of the company. Winding up includes the entire movable and immovable property of the company. Once all distributions have been made, the company is dissolved.
Compulsory liquidation/winding up results in a stay on actions against the company however it does not prevent secured creditors from enforcing their security.

ΕΚΟΎΣΙΑ ΕΚΚΑΘΆΡΙΣΗ

Voluntary Liquidation / Winding up ("VL")

Voluntary liquidation (also known as voluntary winding up) is a process commenced by a special resolution taken by the company’s members and/or its creditors.
Voluntary liquidation initiated by the members is available provided that the company is solvent, such that it is able to pay all of its debts within one year from the commencement of the liquidation procedure.
A company’s solvency is confirmed by the company’s board of directors who are required to execute an affidavit confirming the same.
Where a company is insolvent because its liabilities exceed its assets, in addition to convening a meeting of its members, the company must arrange to also convene a meeting of its creditors in order for the directors of the company to present to the creditors a full statement of the position of the company’s affairs together with a list of the creditors of the company and the estimated amount of their claims and to give the creditors the opportunity to nominate a person to be appointed as the liquidator (Creditors’ voluntary winding up).
A licensed insolvency practitioner is appointed to act as liquidator to settle the affairs of the company and distribute its assets. With the appointment of a liquidator all the powers of the directors cease, except to the extent that the company in general meeting or the liquidator or the creditors approve their continuation depending on the mode of VL. (members or creditors VL).
It is unusual for a company to trade in liquidation. Instead, the liquidator’s role is to realise the company’s assets and distribute the proceeds to creditors in accordance with and subject to the provisions of the Cyprus Companies Law, Cap. 113, as amended.
Once all distributions have been made, the liquidator convenes a General Meeting and presents the final accounts of the company and the company will be considered as dissolved 3 months after its final accounts and the report of the final meeting have been submitted to the Insolvency Service Department of the Registrar of Companies and Official Receiver.
Voluntary liquidation does not provide an automatic stay on actions against the company. However, the court may grant a stay either generally or in relation to specific claims on an application being made to the court.

ΔΙΆΤΑΓΜΑ ΑΠΑΛΛΑΓΉΣ ΟΦΕΙΛΏΝ//ΠΡΟΣΩΠΙΚΆ ΣΧΈΔΙΑ ΑΠΟΠΛΗΡΩΜΉΣ

Debt Relief Order (DRO) / Personal Repayment Plans

Under this procedure insolvent debtors that are natural persons can be discharged from specific debts.
Insolvent debtors need to meet the eligibility criteria set by the Insolvency of Natural Persons Law 65(I)/2015, which provides that such debtor (on issue of a debt relief order) must have no more than EUR25.000,00 of unsecured debt (such amount to include the unsecured element (if any) of any secured debt).
The procedure starts with the submission of a petition by the debtor to the Insolvency Service, which is required to include (amongst others) a statement of their assets and liabilities, together with the details of any alternative debt repayment solutions that have been identified/pursued.
If the Insolvency Service considers the application to be eligible, the Insolvency Service or the debtor submits a petition to the court, which may then issue a DRO.
A debtor who meets the eligibility criteria and wishes to restructure their debts by implementing a personal repayment plan is required to report fully on their financial standing to a licensed insolvency practitioner who shall then inform the debtor whether he/she meet the eligibility criteria for a personal repayment plan. The debtor confirms the appointment of such insolvency practitioner who will act on their behalf by signing a representation agreement.
The insolvency practitioner will prepare and submit a repayment plan proposal to the debtor’s creditors in accordance with the provisions of the Insolvency of Natural Persons Law 65(I)/2015. If the creditors do not consent to the proposed repayment plan, the debtor may, subject to and in accordance with the provisions of the Insolvency of Natural Persons Law 65(I)/2015, file an ex parte application to the court seeking to impose the personal repayment plan on all of the creditors.
A debtor who meets the eligibility criteria and who exercises a decisive influence on a micro-enterprise, meets the eligibility criteria to be entered into a Coordinated Repayment Plan procedure for natural persons and micro-enterprises (the Coordinated Repayment Plan Procedure Repayment Plan):
It is understood that the debtor is presumed to exercise decisive influence, when:
- owns the majority of the company's issued capital; or
- holds a majority of the votes corresponding to the securities issued by the company; or
- may appoint more than half of the members of the company's administrative, managerial or supervisory body.

ΠΤΏΧΕΥΣΗ ΑΠΌ ΟΦΕΙΛΈΤΗ / ΠΤΏΧΕΥΣΗ ΑΠΌ ΠΙΣΤΩΤΉ

Bankruptcy

A debtor or a creditor of such debtor is entitled to petition the court for the issue of a bankruptcy order. Once the Court issues the bankruptcy order, the property of the bankrupt is passed on to the bankruptcy administrator and is distributed between its creditors.
The Court may, after the filing of the bankruptcy petition and before the issue of the bankruptcy order, appoint an official receiver or a licensed insolvency practitioner as a temporary administrator of the debtor’s property.
Once the bankruptcy order is issued, the official receiver is appointed as administrator of the property of the bankrupt. Creditors may appoint a licensed insolvency practitioner as a private administrator during a creditors’ meeting convened by the official receiver at the creditors’ request.
To submit a petition to the Court for a debtor’s bankruptcy, the requirements of the Cyprus Bankruptcy Law, Cap.5 must be satisfied. Principally, the total unsecured debts of the relevant debtor must exceed the amount of EUR 15.000.
The Court may, upon request of any interested party, annul the bankruptcy of the debtor, if it considers that the debtor should not have been declared bankrupt or if the debts of the bankrupt have been fully paid or have been settled, or if the creditors have consented to the annulment of the order.
Three years after the issue of a bankruptcy order, the bankrupt is automatically discharged from its verifiable debts. If the bankruptcy property has not been distributed in its entirety, it shall remain in the hands of the administrator for the benefit of the bankrupt’s creditors.
The debtor, any creditor, the private bankruptcy administrator and the Insolvency Department may perform the following actions by electronic means:
- The submission of a proposal for compromise or a plan of arrangement;
- notifications to creditors
- debt verification.

ΔΙΆΛΥΣΗ ΟΜΌΡΡΥΘΜΩΝ ΣΥΝΕΤΑΙΡΙΣΜΏΝ

Dissolution of unlimited liability partnerships

1. ΔΙΆΛΥΣΗ ΜΕ ΛΉΞΗ Ή ΕΙΔΟΠΟΊΗΣΗ

1. Dissolution with expiry or notice

A partnership, subject to the provisions of any agreement between the partners, can be dissolved in the following circumstances:

if the partnership was established for a specific period, on or after the expiration of that period; or
if the partnership was established for a single activity or business, on termination of that activity or business; or
if the partnership was established for an indefinite period of time, from the date of dissolution on the notice sent by a partner to the other partners or, if no such date is indicated, from the date of notification.

2. ΔΙΆΛΥΣΗ ΛΌΓΩ ΠΤΏΧΕΥΣΗΣ, ΘΑΝΆΤΟΥ Ή ΕΠΙΒΆΡΥΝΣΗΣ

2. Dissolution as a result of bankruptcy, death or encumbrance

A partnership, subject to the provisions of any agreement between the partners, can be dissolved by the death or bankruptcy of one of the partners.
Αt the election of the other partners, if any partner tolerates the encumbrance of his share on the property of the partnership on the basis of the Law, for his separate debt.

3. ΔΙΑΛΥΣΗ ΛΟΓΩ ΤΟΥ ΟΤΙ Ο ΣΥΝΕΤΑΙΡΙΣΜΟΣ ΚΑΤΕΣΤΗ ΠΑΡΑΝΟΜΟΣ

3. Dissolution because the partnership has become illegal

If any event occurs that makes all or any of the work of the partnership illegal and/or for the partners thereof to carry out such work.

4. ΔΙΑΛΥΣΗ ΑΠΟ ΤΟ ΔΙΚΑΣΤΗΡΙΟ

4. Dissolution by Court

On the filing of an application to the court by a partner, the court may order the dissolution of the partnership in certain circumstances.

Διάλυση ετερορρύθμων συνεταιρισμών

Dissolution of limited liability partnerships

1. Διάλυση με λήξη

1. Dissolution with expiry

A partnership, subject to the provisions of any agreement between the partners, can be dissolved in the following circumstances:

if the partnership was established for a specific period, on or after the expiration of that period; or
if the partnership was established for a single activity or business, on termination of that activity or business.

2. Διάλυση λόγω επιβάρυνσης

2 Dissolution as a result of encumbrance

Αt the election of the other partners, if any partner tolerates the encumbrance of his share on the property of the partnership on the basis of the Law, for his separate debt.

3. ΔΙΑΛΥΣΗ ΛΟΓΩ ΤΟΥ ΟΤΙ Ο ΣΥΝΕΤΑΙΡΙΣΜΟΣ ΚΑΤΕΣΤΗ ΠΑΡΑΝΟΜΟΣ

3. Dissolution because the partnership has become illegal

See above

4. ΔΙΑΛΥΣΗ ΑΠΟ ΤΟ ΔΙΚΑΣΤΗΡΙΟ

4. Dissolution by Court

See above

ΔΙΑΧΕΙΡΙΣΤΉΣ/ΠΑΡΑΛΉΠΤΗΣ

Receiver / manager

A receiver or manager of the property of a company can be appointed either (i) by the court; or (ii) by a creditor who holds a charge over the property of the company (under the powers contained in the charge).
The receiver or manager is generally appointed to realise the assets subject to the charge and discharge the secured debt out of the proceeds of sale. The contractual powers given to receivers are extensive and include powers to preserve, manage and/or sell the charged assets of the company in the event of a default.
Powers to appoint receivers/managers are ordinarily found in fixed and floating charges. A floating charge is a form of charge over one or more classes of assets of a company that gives the company the freedom to deal with the assets during the ordinary course of its business until a specified event occurs which causes the charge to "crystallise" and become a fixed charge, preventing any further dealing by the company with the charged assets.
A licensed insolvency practitioner may be appointed as a receiver/manager of the company’s property.
The appointment of a receiver does not provide any protection against actions by other creditors.

ΔΙΑΧΕΙΡΙΣΤΉΣ ΣΤΗ ΒΆΣΗ ΈΓΓΡΑΦΟΥ ΥΠΟΘΉΚΗΣ

Receiver of a mortgaged immoveable property

A receiver may be appointed over a mortgaged immovable property if the mortgage agreement makes provision for a right of the mortgagee to make such an appointment.
In a fixed charge such as a mortgage agreement, the receiver is appointed only over the specific asset caught under the said charge. Appointments of receivers under mortgage agreements are very rare in Cyprus.

ΕΚΠΟΊΗΣΗ ΕΝΥΠΌΘΗΚΟΥ ΑΚΙΝΉΤΟΥ

Sale of mortgaged property

The sale procedure is initiated by the mortgagee serving a written notice on the mortgagor requesting that the mortgagor settle its debt within one month, and advising the mortgagor that in default of repayment, the mortgagee will apply to the Director of the Department of Lands and Surveys requesting the sale of the mortgaged property.
If the mortgagor fails to satisfy the mortgaged debt within one month following service of the written notice, the mortgagee is entitled to file an application for the sale of the mortgaged property with the Lands Office of the district where the property is situated.
A mortgagee may also initiate the sale of a mortgaged property in the event of the mortgagor’s default in payment, through public auction where the reserve price of sale by public auction is fixed by the Director of the Department of Lands and Surveys.
The reserve price is the lowest first bid accepted for the sale of such immovable property by public auction. Where no bid is made that is equal to or higher than the reserve sale price, the sale is deemed to be abortive and the Director of the Department of Lands and Surveys may, for any subsequent public auction, which shall take place within a reasonable period of time from the first auction, reduce the reserve sale price to an amount at its discretion.
The Director of the Department of Lands and Surveys is required to fix the date of sale and notify this to all interested parties. The auction will proceed unless the mortgagor, or any other person appearing on behalf of the mortgagor, pays to the auctioneer such amount to settle the debt and all expenses of the intended sale.
In addition to the above procedure, the mortgagee also has the option to proceed with foreclosure of the mortgaged property in accordance with the more recent foreclosure regime established following the amendments to the Cyprus Transfer and Mortgage of Immovable Properties Law of 1965, as amended, which is less time consuming given that it is driven by the mortgagee privately and without the need to involve significantly the Department of Lands and Surveys.

EU Directive Implementation

The EU Directive on Restructuring and Insolvency (the "Insolvency Directive") requires EU Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021, with an option to extend that deadline by one year. The intention of the Insolvency Directive is to reduce barriers to the free flow of capital stemming from differences in EU Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.

Implementation

In order to implement the Insolvency Directive, the House of Representatives of Cyprus amended:

The Bankruptcy Law (Chapter 5) with the 212(Ι)/2022
The Companies Law (Chapter 113) with the 213(I)/2022 Law.
The Insolvency Department Law (68(I)/2020) with the 211(I)/2022 Law.

Notable features required to be included in EU Member States’ national laws include:

An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
An ability to cram down dissenting classes of creditors.
Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

Recognition of foreign insolvency processes

EU Regulation on Insolvency Proceedings

The EU Regulation on Insolvency Proceedings (the "Insolvency Regulation") applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.

Recognition of third country insolvency processes

Given that Cyprus has not adopted the UNCITRAL Model Law on Cross-Border Insolvency, third country insolvency processes and judgments do not have direct operation and/or applicability in Cyprus and in the absence of an applicable statute and/or a bilateral treaty including provisions for the recognition and enforcement of foreign judgments, Cyprus courts may turn to common law principles, such as the long-established principle of universalism, when examining whether to recognise a third country insolvency procedure. As a result of the applicability of such common law principles, the courts in Cyprus are more likely than not to find in favour of a request for cross-border judicial co-operation and assistance.

Foreign insolvency proceedings are recognised by the Cyprus courts when the proceedings have been commenced and continued in accordance with the law of the country of the company and there is no domestic law which prevents recognition. The appointment of a foreign liquidator will also be recognised without the requirement for the liquidator to apply for formal recognition. If there are simultaneous proceedings in Cyprus and abroad, the Cyprus courts will consider the local proceedings as subsidiary to the foreign proceedings.

Foreign creditors can prove their claim in a liquidation in Cyprus under the normal procedure. In the event of concurrent liquidation of the same company in the foreign jurisdiction, a creditor who proved their claim in Cyprus will only receive a share in any distribution after any amount received in the foreign proceedings has been taken into account.

Notwithstanding the above, matters concerned with recognition of third country insolvency processes are yet to be heavily tested before the Cyprus courts and therefore there remains a degree of uncertainty in the procedural detail and outcome of such proceedings.

Insolvency changes in response to COVID‑19

For more information on changes to insolvency law in Cyprus as a result of the COVID-19 pandemic please see our Guide to changes in insolvency law in response to COVID-19.

With thanks to Alexandros Alexandrou and Andreas Paraskeva of Tornaritis for writing this chapter of the dictionary.

Law stated as at 11 October 2023

Konkurs

Bankruptcy

Konkurs is a terminal form of insolvency relevant to corporate and individual business debtors. It is declared by the court after an insolvency petition is filed either by a debtor or by a creditor. Konkurs may be declared either simultaneously with the declaration of insolvency or after this declaration.
Once insolvency has been declared, an insolvency trustee will be appointed to realise the debtor’s assets. The proceeds are divided among creditors. Secured creditors have absolute priority over other creditors with respect to the proceeds from the realisation of the assets that are subject to their security; unsecured creditors are paid from the proceeds of those assets only after satisfaction of the claims of secured creditors and those claims that take administrative priority.
Publication of the insolvency petition online immediately results in an automatic stay of creditor claims (secured and unsecured).
Where the debtor is a natural person and a non-entrepreneur, or where the annual turnover of the debtor does not exceed CZK2 million and the debtor does not have more than 50 creditors, the court may order a so-called minor bankruptcy: a shortened and simplified version of bankruptcy.
Secured creditors are entitled to give instructions to the insolvency trustee on how to administer and realise assets that are subject to their security.

ODDLUŽENÍ

Debt relief

A debt relief procedure is available for natural persons who meet the statutory definition of insolvency (debts that are more than 30 days overdue and owed to at least two or more creditors and the inability of the debtor to pay such debts).
Petition for debt relief cannot be drafted by the debtor themselves but must instead be submitted by an attorney, notary, executor, insolvency administrator or a legal person accredited by the Ministry of Justice for services related to debt relief, provided that their payment for this service does not exceed the statutory amount.
A debt relief procedure has two alternatives. The first is realisation of a debtor’s assets, in which scenario the secured creditors are satisfied only from the proceeds of the realisation of the assets that are subject to their security. This form of debt relief is completed upon the realisation of the debtor’s assets and the distribution of the proceeds among creditors.
The second alternative is realisation of a debtor’s assets via a payment calendar. Again, the secured creditors are satisfied only from the proceeds of the realisation of the secured assets (unless they opt for the payment calendar). Unsecured creditors are satisfied via a court and insolvency trustee driven payment calendar and the debt relief is completed when such payment calendar results in: (i) full satisfaction of unsecured creditors; (ii) 60% satisfaction of unsecured creditors in three years; (iii) 30% satisfaction of unsecured creditors in five years; or (iv) less than 30% satisfaction of unsecured creditors in five years provided that the debtor shows that they are using their best efforts to satisfy their debts.
Secured creditors are entitled to give instructions to the insolvency trustee on how to administer and realise assets that are subject to their security.

Reorganizace

Reorganisation

A court and creditor-driven process to reorganise the debtor’s liabilities based on a reorganisation plan approved by creditors and the court.
To be eligible, the debtor must have a turnover of at least CZK50 million per year or at least 50 employees. If these criteria are not met, the debtor may become eligible if they submit a reorganisation plan accepted by at least 50% of secured creditors and by at least 50% of unsecured creditors.
The debtor prepares a reorganisation plan that, to be approved, must be accepted by all of the debtor’s secured creditors and a majority of its unsecured creditors (it must be accepted by all creditors groups by majority). Further conditions of the approval are set out in the Insolvency Act, the most important of which is that each creditor must receive a higher return than in the potential konkurs scenario.
The insolvency trustee supervises the fulfilment of the plan.
There will be a stay on enforcement action by all creditors until the court approves the reorganisation plan. Once the plan has been approved, secured creditors can enforce their security under the terms of the plan.

PREVENTIVNÍ RESTRUKTURALIZACE

Preventive restructuringIts primary purpose is to maintain or restore the operability of the entrepreneur's business. It is, therefore, not to achieve the highest possible satisfaction of the creditors but to provide entrepreneurs with a way to effectively resolve their financial difficulties before declaring bankruptcy.
Once a so-called restructuring plan has been drawn up, regulating proposals for the settlement of claims, its subsequent approval by a majority of creditors is sufficient, unlike in insolvency proceedings.
Preventive restructuring is allowed only for business corporations willing to restore their business and facing such financial problems that they would only be able to fulfil their obligations with restructuring soon.
The debtor must not be in a state of factual insolvency.
The process is administered by the court and shall not publish information about proceedings in any way.

Moratorium

Moratorium

A moratorium can be applied for by the debtor either before the insolvency petition is filed or after the filing of the insolvency petition but before the court issues its decision on declaration of insolvency.
The purpose of the moratorium is to provide the debtor with protection from creditors’ enforcement actions in order to give it the opportunity to resolve its financial difficulties, or to prepare for organised insolvency (usually reorganisation).
The maximum duration of the moratorium is four months.

Pokyn Zajištěného Věřitele

Instruction of the secured creditors

Administration and realisation of the secured assets in konkurs or oddlužení may take place only in line with the instruction of the secured creditors.

Šikanózní Návrh

Protection against misuse of insolvency petitions

Before an insolvency petition can be published in the Insolvency Register it will be preliminarily assessed by the insolvency court, which will specifically consider its reasonableness. This is an attempt to prevent the misuse of insolvency petitions without proper grounds. In the event that the petition is found to be unreasonable the court has the power to impose a penalty up to CZK500,000 (approx. EUR18,000). As a further step to discourage the presentation of invalid petitions, the Act also requires any creditor presenting a petition to pay a deposit of CZK50,000 (approx. EUR1,800).

Mezera Kryti

Coverage gap

If the debtor meets the criteria of so-called "coverage gap" it is deemed able to fulfil its liabilities (and therefore is not bankrupt).
Coverage gap occurs if the amount of due financial liabilities exceeds the disposable income, provided the gap between the two figures is less than 10% of the liabilities due over the assessed period.
This effectively gives individuals a presumption of being solvent, meaning the creditor must prove otherwise, giving debtors an opportunity to remedy the problem, particularly if it results from cash flow issues.
The coverage gap must be evidenced by a report that meets statutory requirements and is prepared by a qualified person.

Soudní Výkon Rozhodnutí

Court ordered sale

Judicial sale of property initiated by a secured creditor, who must obtain an enforcement entitlement (in the form of an enforceable court judgment or direct enforcement agreement).
The process is administered by the court

Verejna Drazba

Public auction

The most common form of sale for the enforcement of security over property by a secured creditor who must obtain an enforcement entitlement (in the form of an enforceable court judgment or direct enforcement agreement).
The process is administered by a licensed public auctioneer.

EU Directive Implementation

The EU Directive on Restructuring and Insolvency¹ requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021, with an option to extend that deadline by one year. The intention of the Directive is to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.

Notable features required to be included in Member States’ national laws include:

An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
An ability to cram down dissenting classes of creditors.
Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

Implementation in Czech Republic

Partial transposition of the European Parliament and the Council (EU) Directive 2019/1023 on Restructuring and Insolvency should be implemented mainly by an amendment to Act No. 182/2006 Coll., On Bankruptcy and Ways of Resolving It, Insolvency Act. This amendment, proposed by the government of the Czech Republic, is currently being discussed in the Chamber of Deputies of the Czech Republic.

The matter of this Directive is mainly focused on the framework of the preventive restructuring as a tool to help debtors with financial issues, preventing their bankruptcy and assuring their viability. It should also increase efficiency of restructuring, insolvency and debt relief. Regarding the debt relief, it also focuses on debt relief of entrepreneurs.

Regarding the implementation in the Czech Republic, the biggest change that the amendment should bring is a change in the conditions for debt relief, especially the reduction of the length of debt relief to a period of three (3) years. The amendment should therefore unify the period for the duration of debt relief, regardless of the person of the debtor. At present, debt relief usually lasts five (5) years with some exceptions allowing three-year debt relief.

Implementation date

The Czech Republic has requested an extension of the transposition deadline for the mandatory part of the directive until 17 July 2022. However, the implementation is expected to take place in the beginning of 2024 at the earliest.

The directive has been partly implemented on 22 September 2023 referring only to the institute of preventive restructuring mentioned above.

EU Regulation On Insolvency Proceedings

The EU Regulation on Insolvency Proceedings² applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.

Recognition Of Third Country Insolvency Processes

Recognition of foreign insolvency proceedings requires: reciprocity of recognition with the state from which the proceedings originate; that the debtor’s "centre of main interests" is in the foreign state; and, where the debtor has an establishment in the Czech Republic, that Czech insolvency proceedings have not been commenced.

Recognition of UK insolvency proceedings under these conditions is untested. Czech law is unclear but it is likely that a UK insolvency officeholder cannot deal with the insolvent’s assets in the Czech Republic without a court order or some other form of court endorsement.

Key contact: Petr Sabatka

Law stated as of 11 October 2023

¹ Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.
²Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)

Forebyggende rekonstruktion

Preventive restructuring

Forebyggende rekonstruktion is the latest form of in-court debtor-in-possession insolvency proceeding, introduced in Denmark on 17 July 2022, with the implementation of EU directive 2019/1023 (the restructuring and insolvency directive). Preventive restructuring proceedings allows businesses to address financial challenges at an earlier stage.
Preventive restructuring proceedings can only be commenced by the debtor’s own request, subject to the conditions that the debtor carries on business activities and that the debtor is insolvent or likely to become insolvent.
By request of the debtor, preventive restructuring proceedings can be commenced with or without an automatic stay of enforcement. If the courts order a stay of enforcement, an administrator of the case must be appointed.
Commencement of preventive restructuring proceedings (without an automatic stay of enforcement) is characterised by the fact that (1) the commencement is not published, (2) appointment of a restructuring administrator or restructuring accountant is optional, and (3) the date of the commencement of preventive restructuring proceedings does not constitute a reference date.
Preventive restructuring proceedings enables the debtor to present the creditors with a restructuring proposal under the same rules as a traditional restructuring. The proposal must be adopted by the creditors (by vote) and ratified by the Bankruptcy Court to be valid.

Rekonstruktion

Restructuring

Rekonstruktion comprises both voluntary and involuntary debtor-in-possession procedures for insolvent entities.
Danish law contains rules on in-court restructuring, but not informal, out-of-court restructurings. The rules regarding in-court restructuring proceedings are included in the Danish Bankruptcy Act.
In-court restructuring proceedings canbe concluded by a compulsory arrangement, a transfer of the debtor’s business, or other measures that are likely to cause the insolvency to cease. Pursuant to the implementation of the EU directive 2019/1023, on 17 July 2022, the debtor’s share capital may also be reduced and at the same time increased with new (cash) share capital.
A compulsory arrangement can only be imposed on unsecured claims. Preferential and privileged claims must be paid in full.
Restructuring proceedings follow strict timelines and cannot extend beyond 12 months.
A debtor may step out of commenced restructuring proceedings without being declared bankrupt until a restructuring plan has been adopted (i.e. no later than after 8 weeks, providing the entity with a de facto time-out period to investigate the restructuring prospects).
The management remains in control of the day-to-day operations, but one or more restructuring administrators are appointed by the bankruptcy court to oversee the ongoing business and to secure the execution of the restructuring proceedings. All major actions must be approved by the restructuring administrator and, if considered necessary, the restructuring administrator may ask the bankruptcy court to replace the management of the company.
By amendment to the Danish Bankruptcy Act on 23 March 2021, it is no longer a requirement to appoint a restructuring accountant to assist the restructuring administrator. However, the debtor, the restructuring administrator or the creditors can still request the bankruptcy court to appoint a restructuring acc
Creditors vote on the restructuring plan (no later than four weeks after the petition is filed – extendable by the bankruptcy court for up to 8 weeks) and restructuring proposal (no later than six months after the adoption of the restructuring plan – extendable by the bankruptcy court for up to four months) at court hearings.
Pursuant to the implementation of the EU directive 2019/1023, on 17 July 2022, the voting rules was amended. Small and medium-sized enterprises (SME) can choose to divide the creditorsinto voting classes as an alternative to creditors voting individually in proportion to the amounts of the claims. Debtors, who are not classified as SME, are obligated to divide the creditors into classes. The plan and the proposal must get adopted by a majority of these classes.

Konkurs

Bankruptcy

Konkurs involves either voluntary or involuntary winding-up procedure for insolvent entities.
Once initiated, a trustee is appointed who is charged with liquidating all the debtor’s assets and distributing the proceeds in accordance with the statutory waterfall priority of clai
Konkurs triggers an automatic stay of enforcement. The normal organisational bodies – general meeting, board and management – will be deprived of their powers.
The trustee binds the estate in bankruptcy and is supervised by the bankruptcy court.
There is no fixed timeframe for the bankruptcy process, and the time the process takes to complete depends on the size and complexity of the estate.
By amendment to the Danish Bankruptcy Act on 17 July 2022, the possibility of performing a compulsory composition during bankruptcy proceedings was reintroduced.

Gaeldssanering

Debt rescheduling

If a natural person is hopelessly indebted, they may petition the bankruptcy court for an order to facilitate a debt rescheduling.
The bankruptcy court will appoint an insolvency practitioner to examine the financial affairs of the debtor and to provide a written opinion to the bankruptcy court on whether a debt rescheduling can be recommended or not. The opinion includes a budget concerning the debtor’s next three year period, listing all reasonable income and expenses and what debt can realistically be paid within that period, e. by how much the debts must be written down (up to 100%).
On 17 July 2022, the rules on debt rescheduling were amended with the implementation of EU directive 2019/1023 (the restructuring and insolvency directive). The new rules aim to align and standardize debt rescheduling proceedings.
Debt rescheduling proceedings may be denied if the debtor has acted financially irresponsible or if the debtor has been disqualified due to grossly irresponsible business conduct.
Gaeldssanering triggers an automatic stay of enforcement.

Tvangsfuldbyrdelse af sikkerhedsrettigheder

Enforcement of pledge / charge

Enforcement depends on the nature of the asset. If the debtor is not insolvent, then a nonperforming loan must be terminated, and the assistance of the bailiff’s court sought to enforce the secured interest. Pledges are unaffected by any of the insolvency If the security right is a charge, and the debtor is subject to restructuring proceedings, the charge may only be enforced if payments falling due during the restructuring period are not paid.
During bankruptcy proceedings, pledges may be enforced directly by the pledgee whereas enforcement of charges must be administered by the estate, i.e. they cannot be enforced without the cooperation (consent) of the trustee as a chargee can, if the estate has not made a petition for a forced sale within six months from the date of the bankruptcy order, demand that the estate conducts a forced sale without delay .
If the security right is not granted no later than simultaneously with the debt creation, the security right may be deemed void in subsequent insolvency proceedings of the debtor.

EU Directive Implementation

The EU Directive on Restructuring and Insolvency¹ required Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021, with an option to extend that deadline by one year.

The Directive aims to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.

Notable features were required to be included in Member States’ national laws including:

An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
An ability to cram down dissenting classes of creditors.
Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

Implementation in Denmark

On 17 July 2022, the EU directive 2019/1023 (restructuring and insolvency directive) was implemented in Denmark.

Recognition of foreign insolvency processes

EU Regulation on Insolvency Proceedings

The EU Regulation on Insolvency Proceedings applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.

Denmark is not part of or bound by the EU Regulation on Insolvency Proceedings due to the Danish opt-outs from the European Union.

However, EU Directive 2019/1023 (the EU Restructuring and Insolvency Directive) has been implemented in Danish law under the EU rules concerning the internal market, and not the rules concerning EU judicial co-operation in civil matters, which Denmark has opted out of.

Furthermore, certain EU rules regarding recognition of insolvency proceedings in another EU member state have been implemented in Danish law (these include the Bank Recovery and Resolution Directive (BRRD) and Bank Recovery and Resolution Directive II (BRRD II)). These Directives were also implemented under the EU rules concerning the internal market.

See below regarding recognition of third country insolvency proceedings, as this applies to EU member states as well as third countries.

Recognition of third country insolvency processes

There is no general statutory framework in place with regards to the recognition of foreign insolvency proceedings other than the Nordic Bankruptcy Treaty, pursuant to which Denmark recognises other Nordic countries’ bankruptcy proceedings. It is uncertain whether the convention also provides for recognition of in-court restructuring proceedings in the Nordic countries.

Under section 6 in the Danish Bankruptcy Act, The Minister of Justice may lay down regulations pursuant to which decisions by foreign courts of law and authorities in respect of bankruptcy, restructuring and other similar insolvency proceedings are to have binding effect and be enforceable in Denmark. The minister has not exercised this authority, though this does not necessarily mean that foreign insolvency proceedings can never be, or have never been, recognised in Denmark.

The legal position in Denmark is however still unclear. Danish case law indicates a prerequisite for recognizing of foreign proceedings that the bankruptcy has been initiated in the debtor’s country of residence (COMI for corporations), and that this country’s bankruptcy law may not obviously be incompatible with the Danish legal system. However, recent case law has still not had the opportunity to directly determine to what extent foreign bankruptcies can be recognized in Denmark. Further, the Danish bankruptcy courts have in some cases entered into singular agreements/protocols with foreign insolvency courts on a case-by-case basis.

Further information on Danish Insolvency law

For more information on Danish Insolvency law, please see our contribution to the Danish chapter of the Chambers Insolvency Guide² or our contribution to the Danish chapter of the Legal 500 comparative guide on Restructuring & insolvency².

Contact: Peter Hedegaard Knudsen

Law stated as of 11 October 2023

¹Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.
² Insolvency 2022 Denmark, Chambers and Partners
³ Denmark: Restructuring & Insolvency

Saneerimine

Reorganisation

The reorganisation of an enterprise means the application of a set of measures on the basis of a reorganisation plan in order for the enterprise to overcome economic difficulties, to restore its liquidity, improve its profitability and ensure its sustainable management.
A petition for the commencement of reorganisation proceedings may be submitted by the enterprise or an creditor of the enterprise. If the petition is submitted by an creditor, it must have the written consent of the enterprise in question appended. The petition must show that the enterprise is in danger of becoming insolvent and that a reorganisation is likely to solve its problems and restore its sustainability. Permanent insolvency precludes reorganisation. Reorganisation proceedings cannot be commenced if those conditions have not been met, a court has appointed an interim trustee in bankruptcy on the basis of a bankruptcy petition, the debtor is being liquidated, or if reorganisation proceedings have been attempted within the previous two years.
If the court commences reorganisation proceedings, any enforcement proceedings or other compulsory enforcement commenced in relation to the debtor’s assets are suspended until the reorganisation plan is approved or the proceedings are terminated. The court terminates seizure of the enterprise’s assets or changes its contents. Commencing reorganisation proceedings also stops the accumulation of fines and contractual penalties and, subject to court approval, may suspend court proceedings regarding a financial claim against the debtor until the approval of the reorganisation plan or the termination of the reorganisation proceedings (excluding criminal proceedings).
Where a reorganisation plan affects persons having different legal statuses, the reorganisation plan must prescribe that the affected persons are treated as different groups. Different groups are formed of, for instance, creditors with claims secured by a pledge and creditors with claims not secured by a pledge.
A reorganisation plan can propose to compromise the rights of secured creditors, but it is not possible to approve such reorganisation plan without the consent of the secured creditors.
If affected persons are divided into groups on the basis of a reorganisation plan, the plan is accepted if, in each group, the affected persons who hold at least two-thirds of all the votes represented in the group vote in favour of the reorganisation plan. If no groups of affected persons have been formed, a reorganisation plan is accepted if the creditors who hold at least two-thirds of all the votes vote in favour of the reorganisation plan. In limited circumstances, the court may approve a plan that has not been approved by the creditors.

The obligations that are the subject of the approved plan are amended accordingly.

Pankrotimenetlus

Bankruptcy

Bankruptcy provides for an insolvent company’s, or natural person’s, assets to be realised and the proceeds distributed to creditors. Any natural or legal person may be subject to bankruptcy proceedings, with the exception of the state or a local government.
The proceedings are commenced by a petition filed either by the debtor or one of its creditors which the court considers and, if it finds that the debtor is "permanently insolvent," the court will declare the debtor bankrupt and appoint a bankruptcy trustee.
After a declaration of bankruptcy is made, the powers of the directors cease, the bankruptcy trustee takes over control of the debtor’s assets and management of its affairs and all enforcement proceedings against the insolvent debtor in respect of both secured and unsecured claims are terminated. Interest is prevented from accruing.
Debts secured by pledge take priority and will be paid from the proceeds of realisation of secured assets (less the proportionate amount of the costs related to the bankruptcy proceedings up to a maximum of 10% of the value of the asset in question). The creditor can claim any shortfall as an unsecured debt.
All creditors have two months from the date of publication of the bankruptcy notice to lodge their claim with the bankruptcy trustee. Any unsecured creditors who have not lodged their claim within those two months will be subordinated to unsecured creditors who have lodged their claim within the requisite timeframe.
On the basis of an insolvency petition, a debtor is declared bankrupt or a debtor is declared bankrupt and proceedings for the release from obligations are initiated or debt restructuring proceedings are initiated.
The claims on the debtor's income received from an employment or service relationship or any other similar relationship or income received from business are deemed assigned to the trusted practitioner.
The court decides on the release of a debtor from the obligations which were not performed during the bankruptcy proceedings by an order three years after initiation of the proceedings for the release of the debtor obligations.

Kompromiss

Compromise

Once bankruptcy has been declared by the court (see section titled Pankrotimenetlus/Bankruptcy), a debtor or trustee may make a proposal to its creditors to compromise relevant debts and/or to extend the term for repayment. The right to propose a compromise is available to all legal and natural persons who have been declared bankrupt (not just companies), with the exception of the state and local governments.
Unsecured creditors vote on whether to accept or reject the proposal. A compromise will be approved by the court if at least one half of the creditors present (whose claims must constitute at least two-thirds of the total amounts owed to all creditors) vote in favour of the compromise.
If a compromise is approved by the court, the bankruptcy proceedings are automatically terminated and the debtor will manage its own affairs. However, the trustee will remain in office to supervise the performance of the compromise.
If a compromise is approved by a creditors’ meeting and the court, the debts subject to the compromise may not be enforced except in accordance with the compromise. Secured debts are not affected by the compromise unless the creditors have established that the pledged asset is necessary for continuing the business of the debtor. In such circumstances, the security cannot be enforced for a defined period, not exceeding one year.
Compromise is sometimes abused by creditors affiliated to the debtor; as such, the court may refuse to approve a bad faith compromise.

Võlgade ümberkujundamise menetlus

Debt restructuring proceedings

A flexible procedure under which natural persons can restructure their financial obligations so as to rearrange and/or reschedule their debts. The aim is to restore the individual to solvency and avoid bankruptcy proceedings.
A reorganisation is commenced by the debtor or creditor making a court application. On commencement of a reorganisation the court may stay any enforcement proceedings (ie there will be a moratorium on enforcement) until either the reorganisation plan is approved or the proceedings are terminated. During a reorganisation, the debtor retains control over its assets but is subject to the supervision of a trusted practitioner appointed by the court. The court will approve the reorganisation plan submitted by the debtor if it has not been challenged by any creditor or the debtor. The court may also approve the reorganisation plan in circumstances where the plan is rejected by creditors, but the court finds that the restructuring of the debts is justified, taking into account the legitimate interests and rights of the parties. A claim secured by a pledge may be restructured only if the creditor’s consent has been obtained.

Hüpoteek

Mortgage

A movable may be encumbered with a pledge such that the pledged thing is transferred into the possession of the pledgee and the establishment of a possessory pledge is agreed upon. A thing may also be encumbered by a pledge so that the thing is transferred to a third person and the pledgee obtains indirect possession of the pledged thing.
If the debtor has been declared bankrupt or is the subject of restructuring, the property encumbered with a mortgage or pledge can be sold by the insolvency administrator.
Secured debts have priority and will be paid from the proceeds of sale of the mortgaged or pledged assets.

Kommertspant

Commercial pledge

Commercial pledges are pledges on movable property of a company, equity in a company and vehicles. Commercial pledges can be perfected by registration to a public register without the undertaking transferring possession of the pledged property.
The commercial pledge is accepted without defence. In the event of compulsory execution or bankruptcy, a pledgee may demand the settlement of a claim out of the property encumbered with a commercial pledge to the extent of the amount of the pledge according to the ranking of the pledge.
A pledgee does not have a preferential right to payment from property which is seized before entry of the commercial pledge in the commercial pledge register or on the day the entry is made. Upon release of property from seizure or its exclusion from the bankruptcy estate, the commercial pledge also extends to such property.

Üürileandja pandiõigus

Lessor's right of security

Secured creditors’ claims, including a possessory pledge, commercial pledge or lessor’s right of security, are satisfied in the bankruptcy proceedings as claims with first priority.
The secured claims are met from the proceeds received from the sale of the pledged asset after the deduction of a proportionate amount of the costs relating to the bankruptcy proceedings, up to a maximum amount of 10% of the value of the sold asset.

EU Directive Implementation

Notable features required to be included in Member States’ national laws include:

An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
An ability to cram down dissenting classes of creditors.
Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

Implementation in Estonia

The Directive has been implemented in Estonia.

Implementation date

The entry into force of the law was 1 January 2022.

Recognition of foreign insolvency processes

EU Regulation on Insolvency Proceedings

The EU Regulation on Insolvency Proceedings^[2] applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.

Recognition of third country insolvency processes

Third country, including UK, foreign judgments, including insolvency judgements, for example UK Sanction orders, are recognized, provided that they fulfil the general criteria required for the recognition and enforcement of foreign judgments by the Estonian Code of Civil Procedure. The general rule under Estonian law is that all foreign judgments are recognized and enforced. The recognition and enforceability can be challenged on the basis that a foreign judgment or order is contrary to the essential principles of Estonian law, a party to the proceedings was not granted due process rights, a decision is in conflict with an earlier Estonian court decision (or the same proceedings are on-going in Estonia) or a recognized/recognizable foreign decision, or the court that made the decision did not have international jurisdiction.

A petition for declaring a court decision of a foreign state enforceable is submitted to the Civil Court. When dealing with a petition for declaring a court decision of a foreign state enforceable, the court examines the prerequisites for recognition of the court decision. The court does not verify the correctness of the court decision in respect of the merits of the matter.

Insolvency changes in response to COVID‑19

At present, no relevant legal acts related to changes to insolvency law in Estonia as a result of the COVID-19 pandemic are in force in Estonia.

With thanks to Mari Agarmaa, Triin Tõnisson, Anu Liinsoo and Maarika Maripuu of Sorainen for writing this chapter of the dictionary.

Law stated as of 1 September 2023

_{[1] Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.

[2] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast).}

Yrityssaneeraus

Restructuring of enterprise

A court-supervised restructuring procedure for companies and partnerships. A petition for restructuring can be filed by:
- the company/partnership itself;
- a creditor or group of creditors (except any creditors whose claims are disputed or unclear); or
- a party likely to experience financial loss because of the company/partnership’s insolvency.
A court appointed administrator drafts a restructuring plan that is approved if a majority of creditors (by value and number) vote in favour of it. Creditors are divided into groups (depending on their security) for voting purposes.
A secured creditor’s claim cannot be compromised without its consent. However, a creditor is secured only as far as the value of secured assets is sufficient to cover the creditor’s claim after deduction of liquidation costs and priority claims. Any resulting unsecured element of its claim can be compromised without consent.
Restructuring proceedings can be opened if one of the following is satisfied:
- imminent insolvency;
- the debtor is insolvent, but the insolvency may be remedied through restructuring; or
- at least two creditors whose total claims represent at least one-fifth of the debtor’s known debts support the debtor’s application.
A moratorium, ie a stay of enforcement proceedings (including secured creditor enforcement), commences when the decision is made by the court to open the proceedings and ends once the plan has been approved.
Within one month of the commencement of the restructuring procedure, the administrator shall provide information on the financial situation of the debtor, as well as an assessment of the viability of the business and the means of redevelopment.
Although the existing management remain in control of the company/partnership and retain authority to dispose of its property and manage day-to-day activities during the restructuring process, there are immediate restrictions on the debtor’s right of disposition (some actions and procedures require the consent of the administrator) and restrictions on a creditor’s rights of set off.
A restructuring plan cannot propose terms by which the amount of unpaid secured debt (save for any unsecured shortfall) is reduced unless the plan is approved by the relevant secured creditor. There are also restrictions on reducing the interest on secured debt. However, the administrator evaluates in the restructuring plan which debts are secured and which are unsecured. If a secured creditor disputes the valuation, they may withhold their consent to the restructuring plan but even without secured creditor consent, the restructuring plan can be approved if other conditions are met.
An indefinite or fixed-term contract concluded prior to the commencement of the restructuring procedure by which the debtor has undertaken to make a non-monetary payment repeatedly or continuously may be terminated by debtor upon the restructuring programme is approved, without the terms of the duration or termination of the contract, if the termination is necessary to safeguard the conditions for the implementation of the restructuring.

Konkurssi

Bankruptcy proceedings

A terminal procedure for companies, partnerships and natural persons that can be commenced by the debtor, its directors or creditors.
Following a declaration that the debtor is insolvent, the court appoints an administrator of the bankruptcy estate who takes over control of the debtor’s assets/business.
Secured creditors may liquidate secured assets and recover amounts due to them from the proceeds of sale, subject to exceptions in the Bankruptcy Act; for example, a secured creditor may be prevented from exercising their rights for up to two months, in order to clarify their rights or to secure the interests of the bankrupt’s estate. The secured creditor must notify the estate administrator in advance of the time, method and place of the proposed sale.

An automatic moratorium arises once the debtor is declared bankrupt by the court.

Ulosotto

Execution

A terminal procedure for companies, partnerships and natural persons.
This requires a creditor’s application for enforcement proceedings.
Creditor must have a ground for enforcement (court judgement etc.).
Execution is performed by an execution officer, who will seize and sell the debtor’s assets in order to meet the claims of creditors.

Yksityishenkilön velkajärjestely

Adjustment of the debts of a private individual

A restructuring procedure for natural persons commenced by the debtor (or jointly by co debtors/spouses).
A court may appoint a receiver to realise the debtor’s assets.
The procedure provides for an arrangement of debts, usually including a composition with creditors, that is approved by the court.
When a schedule of payments is attached to the application, the court will first give creditors an opportunity to provide written statements regarding the proposal. The court will approve a payment schedule (usually three years) for arranged debts. Finnish legislation provides a statutory standstill period for debts included in the debt arrangement.
The arrangement of debts cannot compromise the claims of secured creditors and a secured creditor may apply for permission of the court to bring execution proceedings.
At the end of the period prescribed by the schedule of payments, the debtor is released from his/her arranged debts. However, this happens only if the schedule of payments has been complied with and all payments have been made in accordance with it.

Secured creditor enforcement procedures

There are no specific enforcement procedures that are only available to secured creditors.

EU Directive Implementation

Notable features required to be included in Member States’ national laws include:

An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
An ability to cram down dissenting classes of creditors.
Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

Implementation in Finland

The directive has been implemented.

Implementation date

1 July 2022

Recognition of foreign insolvency processes

EU Regulation on Insolvency Proceedings

The EU Regulation on Insolvency Proceedings^[2] applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.

Recognition of third country insolvency processes

According to the EU Regulation on Insolvency Proceedings any judgment opening insolvency proceedings handed down by a court of a Member State which has jurisdiction pursuant to Article 3 shall be recognised in all other Member States from the moment that it becomes effective in the State of the opening of proceedings.

The judgment opening insolvency proceedings as referred to in Article 3(1) shall, with no further formalities, produce the same effects in any other Member State as under the law of the State of the opening of proceedings, unless this Regulation provides otherwise and as long as no proceedings referred to in Article 3(2) are opened in that other Member State.

Contact: Nina Aganimov

Law stated as of 1 September 2023

Mandat ad hoc

Preventive composition with creditors - Ad hoc proceedings

An out-of-court procedure opened by the President of the Court at the request of the debtor’s legal representative for a debtor experiencing legal, economic or financial difficulties but which is cash flow solvent.
A mandataire ad hoc – insolvency practitioner – is appointed in order to assist negotiations with the debtor’s principal creditors but the debtor maintains full control of its assets. The debtor must cooperate with the mandataire ad hoc and the major creditors to negotiate a solution to its difficulties.
Major creditors are invited to consider debt rescheduling and/or cancellation and/or an injection of new money. In addition, the main shareholders can be invited to negotiate and potentially re-capitalise the company.
A debt restructuring agreement accepted by some creditors cannot be imposed on other dissenting creditors, as the process is consensual and no cram-downs can be enforced.
There is no stay on enforcement proceedings on the opening of ad hoc proceedings. However, management can apply for a moratorium (for a maximum of two years) if creditors attempt to enforce their rights while ad hoc proceedings are pending. Mandat ad hoc is fully confidential.

Conciliation

Preventive composition with creditors - Conciliation

An out-of-court procedure opened at the request of the debtor’s legal representative. The debtor must face legal, economic or financial difficulties, and not be cash flow insolvent for more than 45 days.
A conciliateur is appointed by the Court for a maximum of five months with a view of reaching an agreement between the debtor and its main creditors: (i) to put an end to the debtor’s difficulties; and/or (ii) to prepare a plan for the sale of the business via safeguard proceedings, a pre-pack or judicial reorganization.
Conciliation is not an insolvency proceeding and remains confidential provided that the agreement reached by the debtor and its creditors is not judicially sanctioned by the Court. A restructuring plan accepted by some creditors cannot be imposed on others unless accelerated safeguard proceedings are opened.
The debtor remains in control of its assets. There is no freezing effect and the opening of conciliation proceedings does not trigger an automatic stay on creditor enforcement action. However, the judge may issue a debt deferral for up to two years against certain creditors. The debtor may also, in case of refusal of the creditor following a waiver request submitted by the conciliator, ask for the suspension of payments in respect of that creditor’s outstanding claims during the conciliation proceeding.
Parties to the agreement, once fully sanctioned or recognised by the Court, are barred from initiating legal proceedings against the debtor.

Sauvegarde

Preventive debt and business restructuring procedure – Safeguard proceedings

A Court-supervised procedure to alleviate a debtor’s financial difficulties. It is opened at the sole request of a debtor’s legal representative and is only available to cash flow solvent debtors experiencing difficulties that cannot be overcome.
Immediately following a judgment opening safeguard proceedings, an observation period starts for six months, renewable once for a further six months (a total of 12 months).
The observation period imposes an automatic stay on all actions against the debtor and the debtor is prevented from making payments of pre-procedure claims.
An administrateur judiciaire is appointed by the Court and supervises or assists the debtor or its management, who remain in control of the company and its assets.
The Court also appoints a mandataire judiciaire (creditors’ representative) to represent creditors’ interests and assess proofs of claim and a juge-commissaire (supervisory judge) who supervises the proceedings.
The debtor and the judicial administrator will prepare a plan de sauvegarde (safeguard plan) during the observation period. The content of the plan is flexible (rescheduling of debt, write-offs, debt for equity swap; disposal of assets, etc.) and voted on by classes of affected parties or creditors generally.
If the debtor fails to comply with the terms of the plan or becomes cash flow insolvent, the court may open either a redressement judiciaire procedure (judicial reorganization proceedings) if rescue remains possible or a liquidation judiciaire procedure (judicial liquidation proceedings) if rescue is manifestly impossible.

Sauvegarde accélérée

Accelerated debt and business restructuring procedure (pre-pack plan)

A Court-supervised procedure that can be opened at the sole request of the debtor provided it has not been cash flow insolvent for more than 45 days prior to the request to open a conciliation procedure that preceded it.
The debtor remains in control of its assets.
Intended to facilitate the negotiation of a pre-packaged plan with the ability to cram-down dissenting minority creditors through the votes of classes of creditors.
However, such proceedings are only available to debtors that:
- have previously been subject to a conciliation procedure; and
have drawn up a restructuring plan aimed at ensuring the sustainability of their business which is likely to be approved by at least a two-thirds majority of the votes of creditors (who will vote in creditor classes implemented by the appointed trustee) to enable the plan to be adopted within four months following the judgment opening the procedure.
Imposes a stay on creditor enforcement action limited to four months from the date of the judgment opening the procedure.

Redressement judiciaire

Judicial reorganization

An insolvency procedure available only for debtors that are cash flow insolvent.
Court-supervised, intended to safeguard the debtor’s activities and prospects of recovery. It can be commenced at the request of either the debtor’s legal representative, any creditor or the public prosecutor.
The judgment opening the redressement judiciaire starts an observation period of six months during which an automatic stay on creditor enforcement action prevents creditors from taking action against the debtor and the debtor is prevented from making payments to any creditor in respect of claims arising before the opening of the insolvency proceedings.
The observation period is renewable twice, up to an 18 months maximum period.
A mandataire judiciaire is appointed by the Court to represent creditors’ interests and deal with creditors’ claims.
The Court also appoints an administrateur judiciaire who manages the debtor’s assets and, in the case of a company, might either supervise the company, assist the directors in all or some management decisions, or be authorised to take over the management and the control of the company.
The administrateur judiciaire, with the help of the debtor, will prepare a plan de redressement (reorganization plan) or a plan de cession (disposal plan). The plan de redressement is flexible (rescheduling of debt, write-offs, debt to equity swap, etc.) and voted on by classes of affected parties or creditors generally. The plan de cession consists of transferring the debtor’s business to a buyer. To do so, the administrateur judiciaire will initiate a call for tenders. The Court will then choose the buyer from among the bidders on the basis of the price offered, the number of employees taken over and the continuity of the business.

Liquidation judiciaire

Judicial liquidation / bankruptcy proceedings

A Court-supervised procedure for debtors that are cash flow insolvent and where rescue is manifestly impossible.
Can be opened at the request of the debtor, any creditor or the public prosecutor.
The judgment opening the procedure starts an automatic moratorium and all enforcement actions against the debtor are stayed.
The Court appoints a liquidateur judiciaire whose task is to conclude the debtor’s business activities and sell its assets.
If the debtor is a company, its directors lose all powers of management and in all other cases the debtor loses all rights to dispose of its assets.
The liquidateur judiciaire sells all the company’s assets and then distributes the price collected to the creditors who have filed a proof of claim and whose claim was admitted, according to their rank.

EU Directive Implementation

Notable features required to be included in Member States’ national laws include:

An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
An ability to cram down dissenting classes of creditors.
The best interest test, which guarantees that creditors who voted against the plan will be better treated by the plan de sauvegarde/redressement than in the case of a judicial liquidation.
Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

Implementation in France

France has adopted the reform of restructuring and insolvency law by Ordinance 2021-1193 of September 15, 2021, which transposes into French law the European directive on preventive restructuring frameworks, and applies to proceedings opened as of October 1, 2021. Key points:

certain preventive mechanisms in conciliation proceedings are strengthened (eg. Possibility to get an automatic stay during the proceeding (cf. above);
a new accelerated safeguard procedure is introduced to serve as a key procedure for the implementation of the law;
the Ordinance introduces classes of affected parties and the application of cross-class cramdowns mechanism; and
a "post-money" privilege (which was created as a temporary measure in the context of the pandemic crisis) is extended indefinitely. This privilege benefits claims arising from (i) a cash contribution to the debtor during the observation period, authorised by the supervisory judge’s, or (ii) the implementation of the safeguard or reorganization plan adopted by the Court; or (iii) a modification of the plan, adopted by the Court.

Recognition of foreign insolvency processes

Eu Regulation on Insolvency Proceedings

The EU Regulation on Insolvency Proceedings^[2] applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.

Recognition of third country insolvency processes

The recognition of a foreign decision in France ("Procedure d’exequatur") renders this decision enforceable in France.

The recognition process is subject to three conditions:

Jurisdiction of the foreign Court: this means that the Court having rendered the decision must be sufficiently linked to the case and that a French Court did not have exclusive jurisdiction;
conformity of the foreign decision to the French public policy rules: these rules could be defined as the fundamental principles of the domestic law; and
lack of any fraud: such a fraud could result from the intention to avoid French law by requesting a foreign judge to give a decision that could not have been rendered under French law.

As part of the European Union's efforts to promote the Capital Markets Union (CMU), a new proposal for a directive on corporate insolvency (Insolvency III) has been unveiled on 7 December 2022. This directive aims to harmonize some aspects of the Member States' insolvency law and establish common minimum standards.

Three main aspects emerge from such a proposal: (i) to ensure that creditors can recover as much value as possible during liquidation, (ii) to guarantee the efficiency of insolvency proceedings, and (iii) to ensure a predictable and fair distribution of value.

Several measures are suggested to achieve this, such as inter alia:

harmonization of nullity actions: proposition to introduce a minimum harmonization of rules relating to nullity actions for acts prejudicial to the interests of creditors. This would apply to preferences granted to a creditor, acts concluded without consideration or prejudicial acts committed intentionally to the detriment of creditors.
improvement of cross-border asset traceability: proposition to introduce measures allowing access to various registers to facilitate the recovery and reclamation of assets, even in a cross-border context (access to the register of bank accounts, register of information on beneficial owners, etc.).
introduction of a negotiated pre-pack procedure in judicial liquidation: proposition to introduce liquidation proceedings, preceded by a negotiation phase. An initial confidential phase would be designed to prepare the way for finding a buyer, during which the debtor could benefit from a stay of individual proceedings. A second phase of liquidation would allow the sale of the company with the proceeds being distributed to creditors.
general obligation to apply promptly for the opening of insolvency proceedings;
representation of creditors' interests through the creation of creditors' committees: aims to generalize creditors' committees in order to protect their interests. The committee would be set up by a decision of the general meeting of creditors, with no threshold requirement.
introduction of a simplified judicial liquidation for insolvent companies: ultimately, this would enable debtors to bounce back once they have been fully discharged of their debts, and above all to limit costs by introducing a fast, cost-effective procedure.
increased transparency of national insolvency laws.

Contact: Caroline Texier

Law stated as at 11 October 2023

INSOLVENZVErFAHREN

(Ordinary) insolvency proceedings

Insolvency proceedings that can be opened by a petition of the debtor or a creditor in relation to a legal entity (juristische Person), all forms of German partnerships or a natural person (except consumers).
The insolvency court appoints a preliminary insolvency administrator (vorläufiger Insolvenzverwalter, selected by the court and creditors’ committee) and typically orders that any enforcement action against the debtor during the preliminary insolvency proceedings, including secured creditor enforcement, is prohibited (except for enforcement against real property).
A statutory moratorium applies by law once the insolvency proceedings are opened by the court.
The court will open insolvency proceedings if the debtor is facing (impending) illiquidity and/or, for companies only, is over-indebted (überschuldet), and as long as the costs of the insolvency proceedings are covered.
In the preliminary insolvency proceedings, the court typically orders that any actions of the directors are subject to the approval of the preliminary administrator (vorläufiger Insolvenzverwalter). Alternatively, the court may order that the preliminary administrator takes control of the debtor’s assets.
Upon the formal opening of insolvency proceedings, the power of administration and disposal over the debtor’s assets is vested in the administrator to achieve a sale of the company as a going concern, an insolvency plan or to liquidate the company.
After the insolvency administrator has distributed the available assets/proceeds to creditors or the insolvency plan has entered into force, the insolvency court will conclude the insolvency proceedings.

EIGENVERWALTUNG

Debtor-in-possession (DIP) proceedings

Specific type of insolvency proceedings in which a debtor (being a legal entity, juristische Person), all forms of German partnerships or a natural person (except consumers) applies to the court for permission to manage and dispose of its insolvent estate itself under the supervision of a court appointed supervisor (Sachwalter).
DIP proceedings primarily aim at restructuring the debtor as a going concern by way of an insolvency plan / share sale (see below) or, alternatively, by way of an asset sale of (a part of) the business as a going concern.
Management remains in place, normally supported by a director or officer with specific restructuring / insolvency knowledge. The debtor retains control of its assets, subject to the supervision of the court-appointed (preliminary) supervisor (vorläufiger Sachwalter). The person proposed to be appointed as (preliminary) supervisor is typically put forward by the debtor and approved and appointed by the court.
A moratorium applies during DIP proceedings (and insolvency plan proceedings, if any) similar to (ordinary) insolvency proceedings (see above).
Self-employed persons are entitled to apply to be released from their debts (Restschuldbefreiungsverfahren), which does not apply to company/partnership debtors.

INSOLVENZPLANVERFAHREN

Insolvency plan proceeding

A special type of insolvency proceeding available to companies, all forms of German partnerships and natural persons aimed at restructuring the debtor with the support of its creditors. It may be applied in addition to an ordinary insolvency proceeding or a DIP proceeding, see above.
The proceeding provides a flexible mechanism for debtors to regulate repayment of debts due to secured and unsecured creditors.
The debtor or an insolvency administrator (in case of DIP proceedings the court-appointed supervisor, Sachwalter) may submit a draft insolvency plan to the insolvency court.
The plan is to be voted on by classes of creditors and must be approved by the court. A simple majority by value and by number in each class must vote in favour of the plan for it to be approved. If any class of creditors votes against the plan, the votes of such class may be crammed down, if, inter alia, those creditors would not be prejudiced by the plan. Once approved, the plan binds all creditors.

SCHUTZSCHIRMVERFAHREN

Protective shield proceedings

Specific type of preliminary insolvency proceedings (based on preliminary DIP proceedings) that creates a moratorium to give a debtor (being a legal entity, all forms of German partnerships or a natural person) an opportunity to develop an insolvency plan to be implemented in a subsequent DIP / insolvency plan proceeding, while enjoying protection against enforcement by its creditors.
The debtor continues to manage and of its assets while preparing an insolvency plan under the supervision of a preliminary supervisor (vorläufiger Sachwalter), supervised by the insolvency court.
The court may order a stay on all creditor enforcement action for up to three months at the debtor’s request.
As one of the prerequisites for protective shield proceedings, the debtor must demonstrate that creditors will not be prejudiced by the proceedings.

VERBRAUCHERINSOLVENZVERFAHREN

Consumer insolvency proceedings

The only insolvency proceedings available to consumers.
Before instigating consumer insolvency proceedings, the consumer must try to reach a compulsory out-of-court settlement (außergerichtlicher Einigungsversuch) and has the option of pursuing a judicial debt settlement plan (gerichtlicher Schuldenbereinigungsplan), or residual debt exemption proceedings (Restschuldbefreiungsverfahren).
During attempts to reach a settlement, a moratorium protects the debtor from creditor action.
The court appoints an administrator (Insolvenzverwalter) to take over control of the debtor’s assets/income with the aim of repaying creditors. The moratorium continues while the administrator is in control of the assets.
Amongst the prerequisites for the court to appoint an administrator, the consumer must not benefit from any receivables arising from employment relationships and must be insolvent, ie facing (impending) illiquidity.

ZWANGSVERWALTUNG

Forced administration

A creditor holding security over real property belonging to a company, any type of partnership or individual may apply for a forced administration. The property is administered by an administrator appointed by the court following the creditor’s application.
The secured creditor’s debt is satisfied out of any income deriving from the property, such as rents from tenants, after deducting ongoing costs including public charges and enforcement costs. This form of foreclosure is often costly.

ZWANGSVERSTEIGERUNG

Forced sale

The procedure entails the local court effecting a compulsory sale of real property owned by a company, any type of partnership or individual by way of public auction following an application for foreclosure by a creditor holding security over the property.
The secured creditor’s debt is satisfied from the sale proceeds. The secured creditor may not reject bids of at least 70% of the determined market value in the first auction and 50% in the second auction (to the extent that the property does not sell at the first auction, or if a bid of less than 70 was rejected in the first auction). As auction sales tend to generate lower proceeds, it is possible fordebtor and security holder to agree after the land charge is enforceable to sell the property out of court.

VERWERTUNG VERPFÄNDETER GESCHÄFTSANTEILE

Share pledge enforcement

A share pledge granted by a company is enforced by way of a sale of the shares in a public auction run by a court or an auctioneer.
Shares may be sold in a private sale if the price for the pledged shares is determined on a stock exchange or if the parties agree so after the pledge became enforceable.

EU Directive Implementation

The StaRUG closes the gap that previously existed in German law between pre-insolvency restructuring, which is only possible with the consent of all creditors, and restructuring in insolvency proceedings, which may be costly, value-destructive and damaging to a company’s reputation, by providing a pre-insolvency procedure that enables restructuring at this early stage even against the will of obstructing creditors.

In implementing the requirements of the Directive, the "German StaRUG Scheme" includes, in addition to the possibility of a judicial plan vote and the judicial preliminary examination of issues relevant to the restructuring, the possibility of a moratorium and the judicial confirmation of the plan. The involvement of the court is only necessary for specific features. The respective court proceeding may be confidential or public.

The "German StaRUG Scheme" provides the possibility of implementing restructuring measures against the vote of individual creditors (cram down within a class) and also creditor groups (cross-class cram down).

However, the "German Scheme" does not make use of the possibility to terminate executory contracts or to provide super-senior financing under the plan.

In order to be able to make use of the public German StaRUG Scheme, the centre of main interest must be located in Germany; for non-public StaRUG the application of Brussels Ia regulation is being discussed. A “sufficient connection” to Germany does not provide jurisdiction for the German Scheme (TBC as opposed to eg a sufficient connection to England for the use of the English Scheme Arrangement and the English Restructuring Plan, and to the Netherlands for the use of the WHOA).

Recognition of foreign insolvency processes

EU Regulation on Insolvency Proceedings

The EU Regulation on Insolvency Proceedings^[1] applies to all EU Member States except Denmark, hence also in Germany, and requires that the collective insolvency proceedings which are listed in Annex A to the Regulation occurring in another EU Member State are automatically recognised, including the powers and authority of an insolvency practitioner appointed in such proceedings.

Recognition of third country insolvency processes

In Germany, third country insolvency proceedings may be recognised in accordance with § 343 German Insolvency Code (InsO). The recognition is automatic if the foreign proceeding satisfies the requirements of an insolvency proceeding under German law. However, the foreign proceeding is not recognised in Germany if the foreign court opening the insolvency proceeding lacks jurisdiction based on the application of German insolvency law or if the recognition would lead to results which are contrary to public policy.

No court application is required for the recognition of foreign insolvency proceedings.

The recognition is examined as an incidental question and upon objections in the course of any relief sought. Sections 336 et seq. InsO also provide specific choice of law rules inter alia for employment relationships, for real property governed by the law of the state in which the proceedings are located, for set-off as well as for transaction avoidance.

Contact: Florian Bruder and Dietmar Schulz

Law stated as of 11 October 2023

_{[1] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast).}

ΔΙΑΔΙΚΑΣΙΑΕΚΓΑΙΡΗΣΠΡΟΕΙΔΟΠΟΙΗΣΗΣ

Timely notification procedure

The debtor may request an assessment of his insolvency risk from both public and professional institutions and may also request advice on mitigating actions to avert the risk of insolvency.
This procedure can take the form of either an electronic mechanism, e. an automated platform where the debtor submits data and receives the outcome of the relevant assessment, or one or more in-person consultancy session(s).
Although the law does not provide explicit criteria for accessing this procedure, eligible debtors should be defined asthe ones facing an insolvency risk and can be classifiedinto three levels of insolvency risk; low, medium and high.

ΕΞΩΔΙΚΑΣΤΙΚΟΣΜΗΧΑΝΙΣΜΟΣΡΥΘΜΙΣΗΣΟΦΕΙΛΩΝ

Debt settlement mechanism

This mechanism covers debt owed to financial institutions, public sector institutions, as well as social security institutions.
As per article 7 of the Law 4738/2020, triggering this mechanism requires an electronic application by the debtor (natural or legal person). However, a debtor is not eligible when (i) either at least 90% of his debt is owed to one entity or the total amount of his debt surpasses the sum of EUR 10,000, (ii) he has already applied under a pre-existing form of debt settlement procedure, which is still ongoing, (iii) he is in liquidation, (iv) he has committed any financial crimes, and (v) there are no facts proving that the debtor’s financial situation is expected to worsen by minimum 20%.
The creditors have the discretion as to whether they will participate in this procedure.
This procedure (i) places the debtor and the participating creditors in a moratorium during which all enforcement measures are suspended and (ii) does not constitute a material reason justifying the termination of a contract for the debtor’s counterparties.
Upon agreement, the debtor and the creditor(s) sign a restructuring contract that averts the risk of insolvency.
Under article 28 para 1 of Law 4738/2020, If the primary residence of the debtor is at risk of foreclosure due to the debt owed and if it was provided for as a mortgage , then the debtor is entitled to receive state funds up to a certain extent under the conditions outlined inthe aforementioned article.

ΔΙΑΔΙΚΑΣIΑ ΕΞΥΓIΑΝΣΗΣ

Rehabilitation procedure

As per the rehabilitation procedure under Law 4738/2020, an agreement is formed between the debtor and the creditor, aiming at recovering the debtor’s business. It can be applied to any business (natural or legal person) or any for-profit legal entity that demonstrates a viable business plan.
The debtor or the bankruptcy trustee may apply to the competent court to initiate the rehabilitation. During rehabilitation, after a negotiation process between the debtor and its creditors a settlement is reached together with a separate business plan, both of which share the same duration.
A temporary suspension of enforcement measures against the debtor’s property may be granted by the court during the rehabilitation period..
Either the creditors or the debtor may apply before the court for the appointment of a mediator to facilitate the rehabilitation procedure.
Creditors’ claims regarding new financing provided to the debtor during the rehabilitation procedure rank senior to all other pre-existing claims.
As set out in article 54, in order to ratify a rehabilitation agreement, consent must be obtained from the debtor; and by creditors representing more than fifty percent (50%) of the claims of the debtor which have a special privilege and more than fifty percent (50%) of the other claims affected by the rehabilitation agreement. Alternatively, a plan can be approved by creditors representing at least 60% of all claims including at least 50% of secured creditor claims (or those with special privilege including those with mortgage pre-notations). Non-consenting creditors should not be worse-off as result of the agreement. A creditors’ meeting can be convened.
In case of debt owed to the state, its consent is deemed to exist subject to the fulfilment of certain conditions.
A rehabilitation plan must be ratified by the court and is then binding on all creditors.
In the interim period between the submission of a rehabilitation plan before the court and the court’s decision on the plan, (i) all enforcement actions against the debtor are suspended, and (ii) foreclosure measures against immovable property and business equipment are suspended for up to 4 months. A trustee may be appointed by the creditors in this interim period.
A transfer of business through an approved rehabilitation plan does not require any public tender procedure and can include a hive down to an established Special Purpose Vehicle (SPV).
It is possible to enter a rehabilitation plan when facing an insolvency risk, prior to the identification of an insolvency risk identified or even after the debtor has become insolvent.

Η ΕΙΔΙΚΗ ΕΚΚΑΘΑΡΙΣΗ ΕΝ ΛΕΙΤΟΥΡΓΙΑ

Special liquidation (now abolished)

This procedure has been abolished; its aim was the continuation of the debtor’s business as a going concern for public auction.
The procedure could be requested by the debtor or a creditor and commenced if payments to creditors had ceased or cessation was imminent.
If approved, management of the debtor’s affairs was taken over by a special liquidator.
During the procedure, creditors were not able to exercise any enforcement rights pertaining to the business assets under special liquidation.

ΘΕΣΜΟΣΕΚΤΑΚΤΗΣΔΙΑΧΕΙΡΙΣΗΣ (Law 4307/2014)

Special administration procedure (now abolished)

A procedure to transfer the debtor’s business as a going concern or its assets through a public auction and for creditors to be repaid from the auction proceeds.
A petition to open the procedure and appoint a special administrator (who would take over management of the debtor’s business for 12 months) could be filed before the court by the debtor’s creditors (at least one of which had to be a credit or financial institution) representing at least 40% of total debts.
Any debtor that was a legal entity pursuing a financial purpose could be subject to the procedure.
The special administrator would continue the business of the debtor until its transfer to a third party through a public auction.

Η ΠΤΩΧΕΥΣΗ

Bankruptcy

Bankruptcy under article 75 of Law 4738/2020 aims at the collective satisfaction of the creditors’ claims by liquidating the debtor’s estate.
As per article 76, bankruptcy proceedings can be initiated by or against any natural person. They can also be initiated against any legal person that pursues economic – yet not necessarily business – activity. Any debtor that has ceased payments in a general and permanent way (defined as an inability to pay debts as they fall due) must file a bankruptcy petition within 30 days following the cessation of payments.
A debtor that is in imminent financial distress can also file a bankruptcy petition as can a creditor, provided the debtor has ceased payments in a general and permanent way.
A debtor is deemed insolvent when payments are due for more than 6 months against one entity for an amount that represents more than 40% of the owed debt to this entity under the condition that the owed debt exceeds the amount of EUR 30,000.
Part of the assets that are subject to liquidation is also the annual income of the debtor that exceeds his reasonable living expenses.
Once a debtor is declared bankrupt, the creditor(s) must fille a bankruptcy petition. The bankruptcy petition includes the indication of an insolvency administrator (‘’Syndikos’’) who is appointed to manage the debtor’s assets and affairs. The application must also be accompanied by a written declaration of the insolvency administrator's acceptance of the appointment and the absence of any impediment. In exceptional circumstances, a debtor can remain in control of its assets and affairs, with the insolvency administrator’s cooperation. The bankruptcy court and the court-appointed reporting judge supervise the bankruptcy proceedings.
On the submission of an application for a bankruptcy declaration and until the grant of the relevant order, a stay against all enforcement actions can be provided as a preliminary measure.
Once the debtor is declared bankrupt, all unsecured and general preferential creditors are barred from enforcing their rights and remedies against the debtor.
Secured creditors can continue to pursue claims against secured assets unless the secured assets are closely connected to the debtor’s business, production unit or enterprise.
This remains in place until the creditors’ committee decides whether the liquidator will: (i) continue the debtor’s commercial activities for a certain period of time; (ii) lease the business; (iii) sell the company as a going concern through a public auction; or (iv) proceed to a piecemeal sale of the debtor’s assets.
Liquidation proceedings are concluded upon the liquidation of all the debtor’s assets.
Any credit institution whose licence is revoked by the Bank of Greece is placed into special liquidation, since Greece has adopted the Banking Resolution and Recovery Directive(BRRD) 2014/59/EU.
Investment services companies can also be declared bankrupt. However, Article 22 of Law 3606/2007, as amended by Law 4514/2018, if the Hellenic Capital Markets Committee revokes that company’s licence, any bankruptcy proceedings may be suspended, thus triggering the process of special liquidation, which is then proceeded by either liquidation or bankruptcy.

ΡΥΘΜΙΣΕΙΣΓΙΑΤΟΥΣΕΝΕΓΓΥΟΥΣΠΙΣΤΩΤΕΣ

Provisions for secured creditors

Secured creditors are ranked higher than unsecured creditors in the creditor hierarchy and thus receive priority payment from liquidation proceeds.
Any suspension of individual actions during insolvency proceedings does not apply to secured creditors in relation to the secured assets of the insolvency estate.
Security interests over movable assets, real estate, aircraft and ships can only be enforced in enforcement proceedings, in accordance with the applicable procedural requirements of the Greek Code of Civil Procedure.
Security interests over bank accounts, trade receivables, insurance claims and general monetary business claims and security interests qualifying as financial collateral (within the interpretation scope of the EU Directive 2002/47/EC on financial collateral arrangements, transposed into Greek law by Law 3301/2004) can be enforced without formal enforcement proceedings.

ΑΠΛΟΠΟΙΗΜΕΝΗΔΙΑΔΙΚΑΣΙΑΕΠΙΠΤΩΧΕΥΣΕΩΝΜΙΚΡΟΥΑΝΤΙΚΕΙΜΕΝΟΥ

Simplified procedure for bankruptcies of smaller amounts

A simplified procedure for natural or legal persons subject to bankruptcy proceedings applies upon the fulfilment of the 2 following conditions: (a) the debtor’s assets are valued at less than EUR 350,000; (b) the debtor’s net turnover is less than EUR 700,000; and (c) the debtor has employed an average of 10 persons or fewer at any point in time in the previous financial year.
The liquidator verifies and adjudicates creditor claims and makes distributions to creditors.

ΣΧΕΔΙΟΑΝΑΔΙΟΡΓΑΝΩΣΗΣ

Reorganisation plan (now abolished)

An agreement between the debtor and its creditors with a view to rescuing the debtor’s business. It used to be applied to any business (individual or legal entity) or any for-profit legal entity.
Any debtor was allowed, within four months of being declared bankrupt or filing a voluntary bankruptcy petition, to propose a reorganisation plan. A liquidator could also propose a reorganisation plan.
Acceptance of a reorganisation plan required a majority of 60% of total claims, at least 40% of which had to be secured.

EU Directive Implementation

The EU 2019/1023 Directive on Restructuring and Insolvency requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021, with an option to extend that deadline by one year. The main purpose of the Directive is to increase the free flow and circulation of capital l, reduce the barriers stemming from the differences in Member States’ restructuring and insolvency frameworks, and finally to enhance the rescue culture in the EU.

Notable features required to be included in Member States’ national laws include:

An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, thus aiming to prevent insolvency and ensure their viability.
A stay of 4 to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
An ability to cram down dissenting classes of creditors.
Adequate protection for financing to allow businesses pending a restructuring to survive or to preserve their value , and for new financing necessary to implement a restructuring plan.
Provisions for transparent , insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

It is worth noting that a Proposal was made by the European Commission at the end of 2022, for a directive aimed at harmonising insolvency law across the EU, with a particular focus on rendering insolvency proceedings more efficient and ensuring a more predictable and fair distribution of recovered value among creditors. This proposal, having been discussed by the EU Council and the EU Parliament, is currently subject to the EU legislative process.

Implementation in Greece

The EU Directive on Restructuring and Insolvency has been transposed into the Greek legal order pursuant to Law 4738/2020, effective as of 1 March 2021.

Recognition of foreign insolvency processes

EU Regulation on Insolvency Proceedings

The EU Regulation on Insolvency Proceedings applies to all Member States (except Denmark) and requires that certain collective insolvency proceedings -listed in Annex A of the Regulation.-that occur in one Member Stateare automatically recognised in all the other Member States. Simultaneously, it provides foraconsistent EU framework under which each Member State automatically recognises the authority of an insolvency practitioner appointed in another Member State.

Recognition of third country insolvency processes

Under the Greek Code of Civil Procedure (GCCP), the EU Insolvency Directive and bilateral or multilateral international treaties to which Greece is a contracting party, in order for a foreign insolvency process to be recognised in Greece, an application is required before the court, which is considered to be the competent judicial authority for Greek insolvency proceedings.

As a consequence, the foreign insolvency administrator has the right to submit an application to recognise a foreign insolvency process.

The foreign insolvency administrator needs to declare before the Greek court all pending insolvency procedures to the best of their knowledge Irrespective of the foreign insolvency administrator’s right to object on public interest grounds, the court recognises a foreign insolvency procedure after confirming its compliance with national law.

Insolvency changes in response to COVID-19

The Greek insolvency framework was entirely restructured to consolidate pre-existing procedures, transpose the EU Directive on Restructuring and Insolvency, and modernise existing mechanims. Though COVID-19 related considerations have been integrated into these recent amendments in order to provide viable businesses with a second chance and establish a more effective insolvency legal framework there are no further COVID-19 specific legislative amendments beyond the points raised above.

Contact: Orestis Omran

Law stated as of 28 August 2023.

Csődeljárás

Reorganisation proceedings supervised by the court – also known as bankruptcy proceedings

A court supervised procedure, available to both companies and partnerships, designed to allow for a reorganisation of the entity’s debt with a view to enabling it to keep trading. It is not necessary for the debtor to be insolvent.
Proceedings are instigated by the debtor filing a petition at court. Within 90 days of commencement of the reorganisation proceedings, the debtor must present a composition agreement/restructuring plan to its creditors. Creditors vote in classes (secured and unsecured). Provided that a simple majority of both secured and unsecured creditors vote in favour of the composition agreement, it will be approved and be binding on all creditors.
Under the composition agreement, secured creditors may not be repaid in full. However, this is subject to the overriding principle of good faith. The composition agreement should not contain provisions or conditions that are clearly and manifestly unfavourable or unreasonable from the point of view of creditors as a whole, or of certain groups of creditors.

Felszámolási eljárás

Insolvent liquidation proceedings

Proceedings can be initiated in respect of both companies and partnerships by creditor’s petition, the debtor, an insolvency practitioner appointed in main proceedings or by the court.
The aim is to liquidate the debtor and distribute its assets on a pro-rata basis among creditors, taking into consideration the priority of creditors’ claims.
The liquidator (felszámoló) in charge of the procedure is supervised by the insolvency court and a creditors’ committee.
Following the commencement of liquidation proceedings, no enforcement proceedings (including actions by secured creditors) can be brought against the debtor. The only exception to this is where a creditor is seeking to enforce security deposits (óvadék), which can be enforced outside of the liquidation proceedings for a limited period of time. Litigation commenced prior to the liquidation proceedings is permitted to continue alongside the liquidation proceedings. Notwithstanding the litigation, monetary claims need to be submitted to the liquidator for registration.
Following distribution of the proceeds of the debtor’s estate, the debtor is dissolved.

Természetes személyek adósságrendezési eljárása

Debt settlement proceedings available for natural persons

Aimed at facilitating the conclusion of a settlement agreement between a natural person and their creditors. Beyond this, there are no insolvency proceedings available for natural persons.
The value of the debt must exceed 70% of the debtor’s assets but not by more than 200% and the total debts must be between HUF 2 million and 80 million. Debts that arise, even partially, from shareholders’ or directors’ liability will not be subject to (or benefit from) debt settlement proceedings.
For the duration of the proceedings, creditors are not permitted to bring any enforcement action against the debtor.
Secured creditors’ claims can be compromised but only with their consent.
The individual remains subject to the debt settlement proceedings until the relevant claims are either paid or time barred.

Zálogjog érvényesítése

Enforcement of mortgage

Methods of enforcement available to pledgees:
Court (judicial) enforcement proceedings; requires a court judgment on the merits of the case or a court order/notarial warrant that confirms, without reviewing the merits of the case, the payment obligation.
Private sale by a pledgee.
Enforcement of a right or a claim against a third party.
A pledgee may accept title to property as consideration for full or partial discharge of the secured obligations if the parties agree (consensual).
For charges documented by notarial deed, and where both parties agree a minimum sales price, a sale through a simplified court enforcement sale.
None of the above methods of enforcement may be exercised once collective insolvency proceedings (csődeljárás or felszámolási eljárás or (in certain cases) szerkezetátalakítás) have been commenced against the debtor.

Szerkezetátalakítási eljárás

Act LXIV of 2021 on Restructuring and on the Amendment of Certain Acts for the Purpose of Approximation implemented the 2019/1023 EU Directive (20 June 2019) on preventive restructuring frameworks. The Act entered into force on 1 July 2022.
The Act established a new type of formalised pre-insolvency procedure. The formal restructuring is halfway between contractual restructuring and formal bankruptcy proceedings. The purpose of the procedure is for the debtor to adopt a restructuring plan with some or all of its creditors in order to prevent its future insolvency and ensure its operability. Proceedings may be initiated in the event of likelihood of insolvency by the debtor company.
Depending on the debtor’s choice it could be public or non-public procedure. If the debtor applies for a general moratorium and it is ordered by a court, the proceedings are public; if the debtor requests a limited moratorium and the court orders it, the proceedings are not public.
Restructuring practitioners can be involved in the proceedings as requested by the debtor or the creditor from the liquidation organisations registered in the register of liquidators.
The restructuring introduces a new element into the Hungarian law, the cross-class cramdown, which extends the scope of the restructuring plan to dissenting creditors’ classes. The debtor shall negotiate the restructuring plan with the affected creditors and submit the restructuring plan to the affected creditors with voting rights for adoption.
The claims of the affected creditors shall be classified as follows (creditor classes): 1) secured creditor claim, b) creditor claim related to economic activity of the debtor company (including among others the financial leasing) and interim/new financing, c) other creditor’s claims, and d) a creditor claim arising from a transaction in the debtor’s interest (including free transaction or transactions withs related affiliates).
The Act introduces the best interest of creditors test, that is satisfied if no dissenting creditor would be worse off under a restructuring plan than such a creditor would be if the normal ranking of liquidation priorities were applied, either in the event of liquidation, or if they were to use another method to satisfy the claims. Applied both within creditor classes and cross-class creditors.
The Act provides protection for financing that ensures the operability of the debtor during the procedure, and helps the efficiency of the procedure, and the rescue of the debtor. Interim financial support aims to preserve the operability and market value of the debtor during the negotiation and adoption of the restructuring plan and procedure. New financing is intended to provide support for the implementation of an already agreed plan.
An unsuccessful restructuring procedure does not result in automatic liquidation.

Recognition of foreign insolvency processes

EU Regulation on Insolvency Proceedings

The EU Regulation on Insolvency Proceedings applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.

Recognition of third country insolvency processes

Hungary has not adopted the UNCITRAL Model Law on Cross Border Insolvency nor is it a signatory to any treaties on international insolvency or the recognition of foreign insolvency judgments. Therefore recognition of foreign proceedings will mostly depend on the principle of reciprocity. However, for the time being no reciprocity in respect of insolvency proceedings is in place between Hungary and other countries.

State of emergency due to Russia-Ukraine war

The Hungarian Government introduced a state of emergency due to the armed conflict between Ukraine and Russia that is currently in force. Insolvency laws might be subject to government decrees ordering the different application of a given law in case of a special legal regime. To be reviewed from time to time.

Reorganizációs eljárás

As part of the COVID-19 emergency legislation, Decree 179/2021 on the reorganisation of companies in the event of the State of Danger. (IV. 16.) Government Decree ("Reorganization Decree") established a new type of formalised insolvency procedure (in addition to the formalised insolvency procedures already existing in Hungarian law (bankruptcy and liquidation procedures)): the socalled reorganisation procedure. The reorganisation procedure is similar to the existing bankruptcy procedure, given that the main purpose of both type of procedures is to reorganise a debtor company in financial distress, ie to restore its solvency.
The reorganisation procedure is introduced for the duration of the state of emergency and, according to the current wording of the Reorganisation Decree, it will currently expire on 31 December 2022. It is further noted that reorganisation procedures initiated before the repeal of the Reorganisation Decree may continue after the repeal.
There are two types of reorganisation procedure: private (when it only applies to creditors involved in the reorganisation) and public procedure (when it applies to all creditors). In the case of a public reorganisation procedure, with the exceptions set forth in the Reorganisation Decree, the rules on bankruptcy shall apply mutatis mutandis.
A reorganisation can be carried out by business organisations based in Hungary. The reorganisation procedure may be commenced only by the debtor, on the basis of the decision of its decision making body. A precondition for initiating the reorganisation procedure is that the debtor company is in imminent insolvency. The assistance of an external expert in the reorganisation procedure is mandatory.
In a private reorganisation procedure the reorganisation plan must be approved by all creditors involved in the procedure. In a public reorganisation, a reorganisation plan shall be deemed to have been approved by the creditors if the undertaking has received 60% of the votes in relation to the number of votes attributable to all creditors entitled to vote in the reorganisation plan. An important limitation for protecting creditors, however, is that no creditor can receive less recovery than 60% of its principal claim.
The Reorganisation Decree allows for the use of temporary or new financing for the operation and for the implementation of the reorganisation plan during the reorganisation procedure.

Contact: Gábor Borbély, Zoltán Fabók and Márk Seres

Law stated as at 11 October 2023

Scheme of arrangement

A Scheme of Arrangement is a flexible procedure which companies may use for restructuring debt or reorganising shareholdings. It can also be used outside of an insolvency context.
A Scheme of Arrangement allows a company and its creditors and/or members to enter into an agreement to financially restructure the business.
An arrangement is proposed and must be approved by a special majority (i.e. a majority in number representing at least 75% in value of the creditors or members present and voting). A notice that the resolution has been passed and an application is being made to the High Court must be advertised. The Scheme of Arrangement will not be binding unless it is sanctioned by the Court.
Once a scheme is approved, the company’s debts are treated in the manner provided by the scheme proposals.
The company continues to trade throughout the process and its directors remain in control.
The EU Regulation on Insolvency Proceedings^{^[1]} does not apply to schemes, there is no need to satisfy the higher test of establishing a centre of main interests (COMI) in Ireland.

Creditors’ Voluntary Liquidation (CVL)

Also called a Creditors’ Voluntary Winding Up, this is a terminal process usually commenced by the directors.
The company must hold a shareholders’ meeting followed on the same day or the next day by a creditors’ meeting. At the shareholders’ meeting, the shareholders resolve to place the company into CVL as it cannot continue to trade as a result of its liabilities. At the creditors’ meeting the directors present a statement of the company’s affairs together with a list of creditors and the amounts owed.
The shareholders’ meeting and creditors’ meeting may both nominate a liquidator. If the nominations differ, the creditors’ nominee prevails.
The liquidator proceeds to realise the assets of the company and distribute the proceeds to the creditors. After distribution, the company is dissolved.
Once a resolution for voluntary winding up has been passed, a party wishing to issue or continue proceedings must obtain leave of the court.
A CVL is a collective insolvency proceeding listed under Annex A to the EU Regulation on Insolvency Proceedings^{^[2]} and is thus automatically recognised in all other EU Member States.

Compulsory liquidation

This is a terminal process commenced by a petition to the court, usually by a creditor following non-payment of a debt. A petition can also be presented by the company itself, or by a contingent/prospective creditor.
A liquidator is appointed to realise the assets of the company and distribute proceeds to creditors and/or members. After distribution, the company is dissolved.
In cases of sufficient urgency, the court can appoint a provisional liquidator. There is a statutory prohibition on the continuation or commencement of all actions or proceedings following the appointment of a liquidator. This does not, however, prevent a secured creditor enforcing over its security outside the liquidation. Upon the appointment of the liquidator, the powers of the directors cease. The liquidator has a power to disclaim onerous contracts, which are more of a liability than an asset, with the leave of the court.
Creditors may exercise contractual or insolvency set-off or netting in a liquidation. There must be mutuality between the various amounts, however.
Creditors may be represented on a creditors’ committee. Creditors will also be entitled to attend an annual meeting where the liquidator provides updates on the process.
In terms of distribution, the liquidator may make an interim dividend to the creditors, as well as a final dividend.
Compulsory Liquidation is a collective insolvency proceeding listed under Annex A to the EU Regulation on Insolvency Proceedings^{^[3]} and is thus automatically recognised in all other EU Member States.

Examinership

This is the main rescue procedure for companies in Ireland. It is commenced when the company, its directors, creditors, or members (holding at least 10% of the paid-up share capital carrying voting rights) petition the court to appoint an Examiner.
Examinership is only available where a company is (or is likely to be) unable to pay its debts in accordance with a specific statutory definition, which provides that a company is unable to pay its debts if, amongst other things, it cannot pay its debts as they fall due or if it is balance sheet insolvent and there is no resolution or order for winding up. Similarly, an Examiner cannot be appointed to a company if a receiver stands appointed to the whole or any part of the property or undertaking of the company the subject of the petition and such receiver has stood so appointed for a continuous period of at least 3 days prior to the date of the presentation of the petition. The court must be satisfied that there is a reasonable prospect of the company’s survival as a going concern.
The Examiner examines the state of the company’s affairs and formulates proposals for a compromise or scheme of arrangement for the company’s survival (if the Examiner thinks the company has a viable future).
The company’s directors remain in control of the day-to-day running of the business (subject to the Examiner’s right to apply to the court to vest all or any of the directors’ powers exclusively in the Examiner).
Court protection is given for 70 days (which can be extended to 100 days in certain circumstances) to prevent the company from being wound up or its assets being seized by the creditors. In response to the COVID-19 pandemic, the Government has introduced a temporary measure[4] to allow for a further extension of 50 days (making the process 150 days in total) if there are exceptional circumstances. No proceedings may be commenced in relation to the company without leave of the court and secured creditors cannot take any action to enforce their security.
The Examiner’s scheme is put to the company’s creditors and will be deemed approved by the members/creditors if a simple majority (in number and value) of one class of “in the money” creditors (i.e. a creditor, which in the normal course would be expected to receive some dividend in a winding up) votes in favour of it. (Interim measures have also been introduced on the convening, conduct and notices of these meetings in light of the pandemic.)
The scheme must then be confirmed by the court. It then becomes binding on all creditors. If the court rejects the Examiner’s proposals, it may order the company to be placed into liquidation.
Examinership is a collective insolvency proceeding listed under Annex A to the EU Regulation on Insolvency Proceedings^{^[5]} and is thus automatically recognised in all other EU Member States.

Small Company Rescue Process (SCARP)

This is a rescue procedure for small and micro companies introduced into Irish law in December 2021.
It is largely modelled on the examinership regime. The process is led by a qualified insolvency practitioner who is appointed as the “Process Advisor”, who is tasked with formulating a rescue plan for agreement with creditors. The process will have a 70 day timeline from commencement. The majority of creditors required to approve a proposed rescue plan is 60% in number, with a majority in value.
The Process Advisor can repudiate certain onerous contracts on foot of a Court order or if the parties to the contract agree to the proposed repudiation.
Important distinctions from examinership include the fact that (1) there is no automatic protection afforded against creditors’ action (this can be sought once Process Advisor is appointed); and (2) Revenue and Department of Social Protection can “opt out”.
SCARP is not listed under Annex A to the EU Regulation on Insolvency Proceedings^{^[6]} and does not have automatic recognition in all other EU Member States.

Personal Insolvency Arrangement (PIA)

This is a formal agreement between a debtor (acting through a personal insolvency practitioner) and their creditors to settle and/or restructure secured debt up to a total value of EUR3 million (unless all secured creditors agree to raise the limit) and unlimited unsecured debt. A PIA is usually put in place for a period of six years.
It is a voluntary arrangement and requires the support of at least 65% in value of creditors (which must be made up of creditors representing more than 50% of the secured debt and creditors representing more than 50% of the unsecured debt participating and voting at the meeting).
A debtor is not eligible where 25% or more of the debt was accrued within the six months prior to the application.
If a secured creditor rejects the PIA, the court is authorised to review the arrangement.
After an agreed period, the debtor will be discharged from unsecured debts covered by the PIA, but secured debt will only be discharged to the extent agreed in the PIA.
A debtor can only avail of a PIA once in their lifetime.
A PIA is a collective insolvency proceeding listed under Annex A to the EU Regulation on Insolvency Proceedings^{^[7]} and is thus automatically recognised in all other EU Member States.

Debt Relief Notice (DRN)

This is an insolvency resolution mechanism for low income debtors with few assets and little capacity to repay. It is an agreement which allows for unsecured (and in some cases secured) debts up to EUR35,000 to be written off in full after a three year supervision period.
A debtor can only avail of a DRN once in their lifetime.
Subject to an improvement in personal circumstances, creditors cannot pursue the debtor for payment during the three year supervision period. An application for a DRN is made by the debtor via an Approved Intermediary under the Insolvency Service of Ireland.
There are conditions on what debts can be included in a DRN.
A DRN is a collective insolvency proceeding listed under Annex A to the EU Regulation on Insolvency Proceedings^{^[8]} and is thus automatically recognised in all other EU Member States.
A debtor can exit the process at any time by paying 50% of the total amount owed (and the remainder of the debt is then written off).

Debt Settlement Arrangement (DSA)

This is an agreed settlement that allows for the write-off of unsecured debt only, usually over a period of five years. There is no limit on the total amount of debt that can be covered.
It is not available to debtors who have completed a PIA or bankruptcy in the previous five years, or a DRN in the previous three years. A DSA proposal must be made through a Personal Insolvency Practitioner.
A debtor is not eligible where 25% or more of the debt was accrued within the six months prior to the application.
Support from creditors comprising at least 65% of the total debt is required.
After the period of the agreement, the debtor will be discharged from their debts.
A DSA is a collective insolvency proceeding listed under Annex A to the EU Regulation on Insolvency Proceedings^{^[9]} and is thus automatically recognised in all other EU Member States.

Bankruptcy

This is a formal High Court process where a debtor can petition the court for a Bankruptcy Order if the debtor is insolvent and their liabilities exceed the value of their assets by EUR10,000 for a single creditor or EUR20,000 or more in aggregate (although as an interim measure during COVID-19 this has been raised to EUR50,000). It can apply to both secured and unsecured debt. A creditor can petition the court where the debtor has committed an act of bankruptcy in the previous three months.
The debtor’s property and possessions transfer to the Official Assignee in Bankruptcy and are then distributed to creditors in accordance with the order of priorities. The debtor’s name is entered into the Bankruptcy Register.
The debtor is normally discharged from bankruptcy within one year. However, they can be liable to make payments to the Official Assignee for three years after the making of the bankruptcy order.
On application from the Official Assignee, the presentation of a petition for bankruptcy will result in a stay on all outstanding enforcement proceedings. A Bankruptcy Order, once made, means that no creditor can take action against the bankrupt person without the leave of the court.
Secured creditors can realise their security separately from the bankruptcy, and if there is a shortfall (or an unsecured portion), they can apply to have this dealt with in the bankruptcy process.
Bankruptcy is a collective insolvency proceeding listed under Annex A to the EU Regulation on Insolvency Proceedings^{^[10]} and is thus automatically recognised in all other EU Member States.

Receivership

A Receiver is appointed either by a debenture holder (if the ability to appoint is contained in the debenture) or by the court (on the application of the debenture holder).
The Receiver will take control and seek to realise the assets of the company (to the extent that the assets are secured by the debenture) on behalf of the debenture holder to pay off the principal and interest due to the debenture holder.
Subject to the terms of the relevant debenture so providing, a Receiver can be appointed over the entire undertaking of a company to manage its affairs and carry on its business for as long as is necessary (a receiver appointed with these powers is referred to as a receiver manager). The Receiver can dispose of any asset (or the entire undertaking) if they consider that the interests of the debenture holder requires it. The Receiver must exercise all reasonable care to obtain the best price reasonably obtainable at the time of sale.
Once a Receiver is appointed, any floating charges crystallise and become fixed charges and the powers of the company and its directors are suspended in relation to the assets covered by the receivership.
Receivership is not an insolvency proceeding for the purposes of Annex A to the EU Regulation on Insolvency Proceedings^{^[11]} and is not automatically recognised in all other EU Member States.

EU Directive Implementation

The EU Directive on Restructuring and Insolvency^{^[12]} required Member States to incorporate mandatory minimum common standards into their national restructuring and insolvency laws by 17 July 2022,. The intention of the Directive is to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.

Notable features required to be included in Member States’ national laws include:

An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
An ability to cram down dissenting classes of creditors.
Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

Implementation in Ireland

The Irish Government has adopted a two-phased approach to the transposition of the Directive into Irish law. The Irish Government transposed the mandatory provisions of the Directive into Irish law on 27 July 2022 pursuant to the European Union (Preventive Restructuring) Regulations 2022.

Under Phase 2, the Irish Government will consider the optional articles of the Directive.

Implementation date

Mandatory provisions were transposed on 27 July 2022.

Recognition of foreign insolvency processes

EU Regulation on insolvency Proceedings

The EU Regulation on Insolvency Proceedings^{^[13]} applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.

Recognition of third country insolvency processes

For third country insolvencies, there is no automatic recognition of foreign proceedings. Ireland has not adopted the United Nations Commission on International Trade Law (UNCITRAL) model law on cross border insolvency. An application can be made under common law to the High Court to recognise foreign insolvency proceedings and provide orders.

Contact: Gavin Smith

Law stated as of 1 October 2022

_{[1] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)

[2] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)

[3] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)

[4] At time of writing, until 31 December 2022.

[5] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)

[6] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)

[7] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)

[8] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)

[9] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)

[10] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)

[11] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)

[12] Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.

[13] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)}

Composizione negoziata per la soluzione della crisi di impresa

Composition procedure for the resolution of the company crisis

It is a new negotiated, out-of-court procedure, aimed at facilitating the reorganization of the indebtedness of entrepreneurs engaged in commercial or agricultural activities and/or companies which are in a condition of financial or economic imbalance such that an insolvency or financial crisis may follow.
The procedure is based on the appointment of a third-party, independent professional expert in the area of restructuring who will be responsible for assisting the debtor in the reorganization process and facilitating negotiations with creditors.
The procedure begins with the submission by the debtor of an application for the appointment of the expert together with (i) a "self-assessment" test of the debtor, used to assess the state of the company and the actual feasibility of the recovery process; and (ii) the supporting documentation necessary to allow the expert to properly evaluate the company's situation (financial statements, list of creditors, etc); and (iii) a draft rescue plan. The Chamber of Commerce will decide on the debtor’s request and will appoint an independent expert.
The expert is responsible for promoting negotiations between the debtor, creditors, and any other interested parties, in order to identify a solution for overcoming the crisis. Therefore, the expert will open the negotiations, which should be finalized within 180 days following the date of its appointment.
The debtor has the duty to represent the situation to the expert, creditors, and other interested parties in a complete and transparent way and to manage the assets and the company without causing any prejudice to the interests of creditors, who must keep information confidential and actively and fairly cooperate during the negotiations.
The debtor may seek the issuance by the Court of “interim measures" aimed at safeguarding the value and consistency of the company’s assets. The application is requested by the debtor by means of a petition published in the Companies’ Register and simultaneously filed with the Court, seeking the confirmation of the interim measures necessary, in its opinion, to complete the negotiations. Starting from the date of publication of the petition, creditors may not commence or continue any enforcement and/or precautionary actions against the assets of the debtor. The Court will decide to confirm, amend or revoke the interim measures, which cannot in any case last for more than 240 days.
The procedure does not affect the ability of the debtor to manage the business, which is therefore entitled, for the entire duration of the negotiations, to carry out ordinary and extraordinary transactions and make spontaneous payments. However, the debtor must inform the expert in advance, in writing, about acts of extraordinary administration and execution of payments that are inconsistent with pending negotiations or with the recovery prospects. Should the expert consider that any of the abovementioned acts may prejudice creditors, the ongoing negotiations, or the recovery prospects, he will report in writing his remarks to the debtor and to the board of statutory auditors. In the event that the act is actually carried out by the company, he may register his dissent in the Companies’ Register.
Pending the procedure, the following initiatives require the prior authorization of the Court: (i) confirmation / granting of the interim measures; (ii) the granting of super senior financing (including shareholders’ loans); and (iii) the transfer of the company’s business or parts of the of business.
Upon the conclusion of the negotiations, if a solution suitable for overcoming the company's difficulties is identified, the parties may, alternatively, enter into out-of-Court contractual arrangements or, alternatively, pursue one of the reorganization / restructuring / insolvencies proceedings under the Italian Insolvency Law.

Proposta di concordato semplificato

Simplified concordato proposal for liquidation purposes

The “simplified concordato” is a new Court-supervised proceeding aimed at liquidating the company’s assets, which can be pursued only upon conclusion of the composition procedure described in the Paragraph above and if the following conditions are met: (i) negotiations with creditors have been carried out in good faith but the achievement of a consensual agreement was not feasible; and (ii) the aforementioned circumstances are documented by the expert in his final report.
The application, together with the liquidation plan and other supporting documentation must be submitted by the debtor within 60 days from the communication of the expert's final report. The concordato proposal may envisage the split of creditors into classes.
Following the submission of the application, the Court, once it has verified the rituality of the proposal, will issue a decree providing for, inter alia: (i) the appointment of an auxiliary to express its opinion on the proposal submitted by the debtor; and (ii) the schedule of hearing for the validation (omologa).
The simplified concordato procedure is characterized by the absence of the admission phase and of the creditors voting process and by the absence of the appointment of a Judicial Commissioner (whose duties are carried out by the Court’s appointed auxiliary and by the Expert).
Creditors are entitled to file an opposition to the validation of the concordato proposal issued by the Court, within 10 days prior to the date of the hearing.
The liquidation plan may also be based on pre-determined offer(s) received by a third-party investor for the purchase of the company’s business or one or more parts of its business.

Piano di risanamento attestato

Rescue plan

The rescue plan is an out-of-Court proceeding by which entrepreneurs and/or companies in a condition of insolvency or financial crisis seek to restructure their outstanding indebtedness and rebalance their financial position.
The rescue plan must be supported by the opinion of an independent expert, who certifies the accuracy of the company‘s accounts and the economic feasibility of the rescue plan. The rescue plan and the relevant opinion of the expert may be published at the Companies’ Register.
During the execution of the rescue plan, the debtor remains in possession of its assets and the transactions or guarantee, or payment executed during such period, are exempted from claw back actions in the event of opening of judicial liquidation procedure.
The rescue plan is not subject to any scrutiny by the Court before its implementation. As a consequence, protections afforded by the Italian Insolvency Law in a judicial liquidation scenario might be voided following the implementation of the rescue plan by an Italian Court on the grounds of a subsequent review of the rescue plan, in case of its inaccuracy and/or unreasonableness.
In the event of substantial changes occurring between the effective outcomes and the forecasts set by the rescue plan, all transactions/payments executed after the occurrence of such a substantial change may not be entitled to the protection granted by law, such as the exemption from claw-back actions.
No automatic stay applies with respect to interim proceeding or enforcement proceeding or judicial liquidation procedure.

Accordi di ristrutturazione dei debiti

DRA / Debt Restructuring Agreement

The DRA is an agreement which may be executed between the entrepreneur and/or the company in a condition of insolvency or financial crisis, and its creditors representing at least 60% of the aggregate outstanding indebtedness, subject to the validation (omologa) by the Court.
The debtor must file the application for the validation (omologazione) of the DRA before the Court, together with (i) the rescue plan underlying the DRA; (ii) the supporting documents (e.g. financial statements, list of creditors, etc); and (iii) the opinion drafted by an independent expert who certifies the accuracy of the company’s accounts and the feasibility of the rescue plan, with focus on its suitability to reimburse in full the creditors who did not enter into the DRA within 120 days from the validation of the DRA (if the relevant claims are due and payable) or within 120 days from their maturity date (if the relevant claims are not due and payable).
The DRA is effective vis-à-vis third parties upon publication of the same at the Companies’ Register of the debtor.
The debtor may also file an application for the validation of the DRA “with reservation” (richiesta di accesso con riserva), to be supplemented with the required documents within 30 to 60 days (extendable to a maximum of 120).
During the proceeding for the validation of the DRA, upon specific request by the debtor, the debtor may benefit from protective and precautionary measures, preventing all creditors from initiating or continuing any interim proceeding, enforcement proceeding or judicial liquidation procedure against the company and/or its assets. The Judge will decide whether or not to grant these protective and precautionary measures, which cannot be effective for more than 12 months and can be revoked at any time by the Court. Should the aforementioned measures be requested with the filing of the application for the validation of the DRA, the same are effective upon publication of the DRA at the Companies’ Register, until the Judge decides whether or not to confirm them.
Any creditor or interested party may challenge the DRA within 30 days from the publication of the same in the Companies’ Register. If such possible challenges are overruled, the Court will validate the DRA. The validation decree may be challenged before the Court of Appeal within 30 days.
The DRA may also allow for tax and social security claims not to be repaid in full, or for the rescheduling of the relevant indebtedness, provided that an independent expert certifies that these claims are reimbursed for an amount at least equal to the possible reimbursement amount related to the liquidation of the assets which the pre-emption right arise from. The DRA is validated even without the consent of the Tax Authorities (cram-down) in the event that: (i) the consent of the Tax Authorities is necessary to reach the percentages for the filing of the DRA (i.e. at least 60%, or 30% (in case of Facilitated DRA, as defined below) of the aggregate indebtedness); (ii) the reimbursement amount of the Tax Authorities under the DRA is higher than their reimbursement amount in a liquidation scenario; (iii) the DRA is not aimed at the liquidation of the company; (iv) the tax and contribution claims are met for an amount of at least 30% of their amount; and (v) the aggregate claim of the creditors involved in the DRA is at least one quarter of the aggregate amount of the claims.

In the event that the item sub (v) is not met, the percentage of 30 % under item sub (iv) should be at least 40% and the re-payment plan should not exceed 10 years.

All acts, payments and security interests granted over assets of the debtor in implementing the validated DRA are exempted from claw-back actions in case of the subsequent opening of a judicial liquidation procedure.

Accordi di ristrutturazione agevolati

Facilitated DRA

The Facilitated DRA is a DRA which may be executed with the sole consent of creditors representing at least 30% of the aggregate outstanding indebtedness, subject to the following conditions: (i) the debtor does not request a moratorium (up to 120 days) with respect to the reimbursement of non-adhering creditors; and (ii) the debtor does not request and waives the application for any protective and precautionary measures against enforcement actions or interim proceedings.

Accordi di ristrutturazione ad efficacia estesa

DRA with Extended Effects

The effects of the DRA may be extended to non-adhering creditors belonging to the same class, identified on the basis of homogeneous economic interests and legal positions (cram-down), subject to the following conditions: (i) such creditors have been duly informed with respect to the negotiations relating to the DRA and the economic and financial performance of the debtor, and they had the opportunity to participate in the negotiations in good faith; (ii) the DRA is aimed at safeguarding the business continuity (either directly or indirectly); (iii) the DRA is approved by creditors representing at least 75% of the outstanding indebtedness of the relevant class of creditors; (iv) the non-adhering creditors shall be reimbursed for an amount which is not lower than the possible reimbursement amount under the judicial liquidation procedure; and (v) the debtor has notified the non-adhering creditors of the DRA and provided them with the application for the validation of the DRA and all the relevant documentation.
In the event the financial indebtedness of the company is equal to at least 50% of the aggregate outstanding indebtedness, the effects of the DRA may be extended to non-adhering financial creditors belonging to the same class, also in case the DRA is aimed at the liquidation of the assets of the company (i.e. condition sub point (i) of the Paragraph above does not apply to non-adhering financial creditors).
The non-adhering creditors cannot be required to undertake new obligations, or to grant and/ or to maintain credit facilities, or to provide any kind of new financing.
Other provisions related to ordinary DRAs (e.g. the opinion by the independent expert, the possible application for protective and precautionary measures, exemption from claw-back actions, etc) shall apply.
The non-adhering creditors may challenge the DRA within 30 days from the relevant notification by the debtor. If such challenges are overruled, the Court will validate the DRA. The validation decree may be challenged before the Court of Appeal within 30 days.

Convenzione di moratoria

Standstill agreement

The standstill agreement is an out-of-court procedure aimed at temporarily regulating the financial difficulties of the debtor, pursuant to which the creditors undertake to grant to the entrepreneur and/or the company a moratorium or rescheduling of the outstanding indebtedness. The standstill agreement is effective also vis-à-vis non-adhering creditors belonging to the same class (cram-down), subject to the following conditions: (i) such creditors have been duly informed of the negotiations relating to the standstill agreement and the economic and financial performance of the debtor, and they had the opportunity to participate to negotiations in good faith; (ii) the standstill agreement is approved by creditors representing at least 75% of the outstanding indebtedness of each class; (iii) there are concrete probabilities that the non-adhering creditors belonging to the same class will be reimbursed for an amount which is not lower than the reimbursement amount under the judicial liquidation procedure; and (iv) an independent expert has issued an opinion certifying the accuracy of the company's accounts and the suitability of the standstill agreement to temporarily regulate the financial distress of the company and the fulfilments of the condition (iii) above.
The non-adhering creditors shall not be required to undertake new obligations, or to grant and/ or maintain credit facilities, or provide any kind of new financing.
The non-adhering creditors may challenge the DRA within 30 days from the relevant notification by the debtor. If such challenges are overruled, the Court will validate the DRA. The validation decree may be challenged before the Court of Appeal within 30 days.

Piano di ristrutturazione soggetto ad omologazione

Restructuring plan subject to validation by the Court

The restructuring plan subject to validation by the Court is a new proceeding by which a commercial entrepreneur and/or a company in a condition of insolvency and/or financial crisis, seeks to restructure its outstanding indebtedness and rebalance its financial position.
The proceeding begins with the debtor filing the application for the validation of the restructuring plan and proposal before the Court, together with supporting documents (e.g. financial statements, list of creditors, etc), and the opinion drafted by an independent expert who certifies the accuracy of the company‘s accounts and the feasibility of the restructuring plan. The application is published at the Companies’ Register of the debtor.
The debtor may also file an application “with reservation” (richiesta di accesso con riserva) with respect to the restructuring plan, to be supplemented with the required documents within 30 to 60 days (extendable to a maximum of 120 days).
The restructuring plan must envisage the split of creditors into classes, on the basis of their homogeneous legal positions and economic interests.
The Court, after having verified the rituality of the restructuring proposal and the fairness of the split of creditors into classes, will then appoint the Delegated Judge and the Judicial Commissioner and will set the initial and final term for creditors to cast their votes on the proposal.
During the restructuring plan proceeding, upon specific request by the debtor, the debtor may benefit from protective and precautionary measures, preventing all creditors from instituting or continuing any interim proceeding, enforcement proceeding or judicial liquidation procedure against the company and/or its assets. The Judge will decide whether or not to grant these protective and precautionary measures, which cannot be effective for more than 12 months and can be revoked at any time by the Court.
Starting from the filing of the application for the validation of the restructuring plan, and until the validation of the same by the Court, the debtor will continue to carry out the ordinary and extraordinary management of the company in the interest of creditors and under the supervision of the Judicial Commissioner, notifying the Judicial Commissioner in advance of the completion of any extraordinary transaction and/or payment not compliant with the restructuring plan.
The restructuring proposal shall receive the approval of each class of creditors. The consent of each class of creditors is deemed to have been obtained if the following conditions are met: (i) favourable vote of creditors representing the majority of claims admitted to vote; or if such requisite is not met (ii) favourable vote of creditors representing 2/3 of the claims in relation to which the vote has been actually casted, provided that at least 50% of creditors entitled to vote have effectively cast their votes.
The main feature of such proceeding is that the restructuring plan may envisage the distribution of its cash-flow / resources even by way of derogation to the legal ranking of claims provided by Italian Law provided that the restructuring proposal be approved unanimously by the class of creditors, with the exception of the claims of the employees which must be repaid in full within 30 days from the validation of the restructuring plan.
The Court will validate the restructuring plan in case of approval by all classes of creditors. Should one or more creditors challenge the convenience of the restructuring proposal the Court will validate the restructuring plan if the relevant claim is reimbursed for an amount higher than the possible reimbursement under the judicial liquidation procedure.
If the restructuring plan is not approved by all classes of creditors (or at any time during the restructuring plan proceeding) the debtor may amend / convert the application for the validation of the restructuring plan by filing an application for the admission and validation of the concordato proposal.

Procedure di composizione delle crisi da sovraindebitamento

Composition procedure of the crisis due to over-indebtedness

The restructuring procedures described in this Section are available to consumers, professionals, entrepreneurs, companies as well as innovative start-ups who do not meet the requirements to be subject to the judicial liquidation procedure (see relevant requirements below) and are in a situation of over-indebtedness.
The over-indebted party may seek to restructure its outstanding indebtedness by means of (i) a restructuring plan, if the debtor is a consumer; or (ii) a “minor” concordato proceeding, if the debtor is a professional, an entrepreneur, an agricultural entrepreneur, a company or an innovative startup.
In the event that the restructuring of its indebtedness is not possible, the over-indebted party shall be subject to the controlled liquidation procedure (liquidazione controllata).

Familiar proceedings

Members of the same family may file a single application for the composition of the crisis due to over-indebtedness if such condition arises from a common origin or when the members of the family are cohabiting.

Piano del consumatore

Restructuring plan of the consumer

In the context of the restructuring plan proceeding the consumer is supported by the OCC (organismo di composizione della crisi, e. the Crisis Composition Body), which is a public and independent authority with the duty to supervise the implementation of the restructuring plan of the debtor.
The debtor by means of the OCC will file before the Court the restructuring plan which shall specify the terms and condition to overcome the crisis situation, together with (i) the supporting documentation (e.g. list of creditors, income tax return, extraordinary transactions performed in the last 5 years, etc), and (ii) the opinion issued by the OCC by which the same specifies: (a) the reasons of the indebtedness and the reasons why the debtor is unable to fulfil its obligations (b) the assessment on the completeness and reliability of the relevant documentation; (c) the costs of the restructuring proceeding and (d) information on whether the lender has taken into account the credit merit of the consumer when it granted any financing to the debtor.
The restructuring plan may envisage that secured creditors are not repaid in full, provided that an independent expert certifies that the secured claims are repaid for an amount at least equal to the value of the secured assets in a liquidation scenario.
Upon specific request by the debtor, the debtor may benefit from protective and precautionary measures, preventing all creditors from instituting or continuing any interim and enforcement proceeding against the debtor and/or its assets. The Judge may decide to revoke them at the request of creditors.
The Court, once it has assessed the legal admissibility and the feasibility of the restructuring plan, will validate the same. Should one or more creditors challenge the convenience of the restructuring proposal the Court will validate the restructuring plan if the relevant claim is reimbursed for an amount higher than the possible reimbursement under the judicial liquidation procedure.

Concordato minore

“Minor” concordato proceeding

In the context of the “minor” concordato proceeding the professional, the entrepreneur and/or the company is supported by the OCC.
The debtor by means of the OCC will file before the Court the concordato plan and proposal by which the same shall specify the terms and condition to overcome the crisis situation, together with (i) the supporting documentation (e.g. list of creditors, income tax return, extraordinary transactions performed in the last 5 years, etc), and (ii) the opinion issued by the OCC, by which the same specifies: (a) the reasons of the indebtedness and the reasons why the debtor is unable to fulfil its obligations (c) the assessment on the completeness and reliability of the relevant documentation; (d) the costs of the restructuring proceeding, (e) the terms and conditions of the reimbursement of creditors and the possible split into classes; (e) information on whether the lender took into account the credit merit of the debtor when it granted any financing to the debtor.
The concordato plan may envisage that secured creditors are not repaid in full if an independent expert certifies that the secured claims are repaid for an amount at least equal to the value of the secured assets in a liquidation scenario. The concordato proposal may envisage the split of creditors into classes.
The concordato proposal is aimed at preserving the business continuity or at liquidating all the assets of the debtor. In this last scenario the concordato plan must provide external resources in order to increase the reimbursement of the creditors substantially.
Upon specific request by the debtor, the debtor may benefit from protective and precautionary measures, preventing all creditors from instituting or continuing any interim proceeding, enforcement proceeding against the company and/or its assets. The Judge may decide to revoke them at the request of creditors.
The concordato proposal shall be approved by creditors representing the majority of claims admitted to vote and, if creditors are split into different classes, also by the majority of the classes. Should one creditor hold more than 50% of the claims entitled to vote, the concordato proposal shall also be approved by the majority (by number) of creditors entitled to vote.
The Court, once it has assessed the legal admissibility and the feasibility of the concordato plan, will validate the same. Should one or more creditors challenge the convenience of the concordato proposal the Court will validate the restructuring plan if the relevant claim is reimbursed for a higher amount than the possible reimbursement under the judicial liquidation procedure.

Liquidazione controllata

Controlled liquidation procedure

An alternative to the composition procedures due to over-indebtedness is the controlled liquidation procedure, by which the debtor may file before the Court, with the support of the OCC, the application for the opening of the procedure for the controlled liquidation of its assets and an opinion drafted by the OCC, whereby the OCC assesses the completeness and reliability of the relevant documentation and explains the debtor's economic and financial situation. If the debtor is insolvent, the application may also be filed by a creditor.
The Court, following the opening of the liquidation procedure, will appoint the liquidation commissioner and will confirm or appoint the OCC. The liquidation commissioner will manage the assets of the debtor for the purpose of liquidation of the same by means of competitive bidding procedures and the subsequent reimbursement of creditors in accordance with the legal ranking of the relevant claims (dispossession of the debtor applies). Each creditor will file its proof of claim before the Court within a term set forth by the debtor.
Creditors are prevented from initiating or continuing any interim or enforcement proceeding against the assets of the debtor, which will be liquidated in the context of the controlled liquidation procedure (automatic stay).
As a general rule, pending contracts as of the date of the opening of the controlled liquidation procedure (e. contracts not performed yet, in whole or in part, by both parties) remain suspended until the liquidation commissioner decides either to continue or to terminate the pending contract. Special rules apply for specific kinds of contracts.

Concordato preventivo

Composition plan with creditors / concordato proceeding

It is a Court-supervised proceeding by which the entrepreneur and/or the company having fulfilled the requirements to be subject to judicial liquidation procedure (see the relevant requirements below), which is in a condition of insolvency and/or financial crisis, seeks the restructuring of its outstanding indebtedness and the rebalancing of its financial position.
The concordato proceeding begins with the debtor filing the application for access to the proceeding before the Court, together with (i) the concordato plan and proposal, (ii) the supporting documents (e.g. financial statements, list of creditors, etc), and (iii) the opinion drafted by an independent expert by which the same certifies the accuracy of the company‘s accounts and the feasibility of the concordato plan. The application is published at the Companies’ Register of the debtor.
The debtor may also file an application for access to the concordato proceeding “with reservation” (richiesta di accesso con riserva), to be supplemented with the required documents within 30 to 60 days (extendable to a maximum of 120 days).
The concordato proceeding may be aimed at (i) liquidating all the assets of the debtor (“concordato liquidatorio”); or (ii) preserving the business continuity (“concordato in continuità”), either directly (when the business will continue to be managed by the debtor itself) or indirectly (when the business will be managed by a third party other than the debtor). Different provisions apply depending on the different type of concordato proceeding. However, the concordato plan may envisage any kind of restructuring of the indebtedness of the debtor: e.g. debt rescheduling, transfer of assets or transfer of business branches to third parties, assignment of assets or business branches to creditors, debt for equity swaps, etc.
The “concordato liquidatorio” (i) must provide external resources in order to increase the assets of the debtor for an amount equal to at least 10% of their value; (ii) must ensure the reimbursement of unsecured creditors for an amount at least equal to 20% of their claims; and (iii) may envisage the split of creditors into classes. The aforementioned external resources may be distributed to creditors even by way of derogation to the legal ranking of claims provided by Italian Law. The Court will assess the admissibility of the concordato proposal and the feasibility of the concordato plan, will appoint the Delegated Judge and the Judicial Commissioner, and the Delegated Judge will set the initial and final term for creditors to cast their votes.
The “concordato in continuità” (i) must envisage the split of creditors into classes; (ii) must provide the payment of all creditors, at least in part (in misura non prevalente) with the proceeds arising from the direct or indirect business continuity; (iii) will preserve, to the extent possible, the employment of workers; (iv) must provide for the reimbursement of creditors for an amount higher than the envisaged reimbursement in a judicial liquidation scenario; and (v) must provide that the liquidation value of assets is distributed in accordance with the legal ranking of the claims (absolute priority rule), while any surplus may be freely distributed to creditors to the extent that claims with an higher legal ranking (crediti di rango potiore) are satisfied for an amount higher than those having a lower legal ranking (crediti di rango inferiore) (relative priority rule). The Court will assess the rituality of the concordato plan and proposal, will appoint the Delegated Judge and the Judicial Commissioner, and the Delegated Judge will set the initial and final term for creditors to cast their votes.
With regard to the treatment of secured creditors, the concordato proposal may envisage (i) that they are not repaid in full, provided that an independent expert certifies that the secured claims are repaid for an amount at least equal to the value of the secured assets in a liquidation scenario (in such case, the unpaid portion of the claim is downgraded to an unsecured claim for voting purposes) and (ii) a moratorium for the repayment, it being understood that for labour claims the maximum term of the moratorium is 6 months.
The “concordato liquidatorio” shall be approved by the majority of creditors, or should the creditors be split into classes, by the majority of classes of creditors, taking into account the value of the relevant claims. Should one creditor hold more than 50% of the claims entitled to vote, the concordato proposal shall also be approved by the majority (by number) of creditors entitled to vote.
The “concordatoincontinuità” shall be approved by each class of creditors. The consent of each class of creditors is deemed to have been obtained if the following conditions are met:(i) favorable vote of creditors representing the majority of claims admitted voting; or if such requisite is not met (ii) favorable vote of creditors representing 2/3 of the claims in relation to which the vote has been actually casted, provided that at least 50% of creditors entitled to vote have effectively cast their votes. Once approved, the concordato is binding against all non-accepting creditors (cram-down).
The Court will validate the concordato proposal after having verified the admissibility and lawfulness of the proceeding (including the voting process), the fairness of the split of creditors into classes and the feasibility of the concordato plan. In a scenario where there is one or more dissenting classes, the “concordatoin continuità” proposal is validated by the Court upon request of the debtor (cram-down) if the following conditions are met : (i) the liquidation value of the assets is distributed to creditors in accordance with the legal ranking of the relevant claim (absolute priority rule); (ii) any surplus is distributed to creditors in accordance with the relative priority rule described in the paragraph above; (iii) none of the creditors receive a reimbursement higher than the amount of its claim; and (iv) the concordato proposal is approved by the majority of the classes of creditors and certain additional specific conditions are met.
The concordato proposal may also allow for tax and social security claims not to be repaid in full, or for the rescheduling of the relevant indebtedness, provided that an independent expert certifies that these claims are reimbursed for an amount at least equal to the reimbursement envisaged in the judicial liquidation scenario. In such case, the unpaid portion of the claim is downgraded to unsecured claim for voting purposes and the concordato plan and proposal is validated even without the consent of the Tax Authorities (cram-down) in the event that: (i) the consent of the Tax Authority is necessary to reach the approval of the concordato proposal by the relevant class of creditors, and (ii) the reimbursement amount under the concordato proposal is higher than the reimbursement amount of the Tax Authorities in a liquidation scenario.
Starting from the filing of the application for access to the concordato proceeding, and until the validation by the Court, the debtor will continue to manage the company with respect to both ordinary and extraordinary transactions under the supervision of the Judicial Commissioner. Any extraordinary transaction completed by the debtor is not effective vis-à-vis creditors under the concordato proceeding, unless expressly authorized by the Delegated Judge.
Should the concordato proposal envisage the reimbursement of unsecured creditors for an amount lower than 30% of their claims (or lower than 20% in case the composition procedure for the resolution of the company crisis has been successfully initiated), creditors holding claims for an amount at least equal to 10% of the aggregate indebtedness of the company may submit a competing concordato proposal. The final term for the filing of such competing proposal is 30 days prior to the beginning of the voting process.
Should the concordato plan provide for a binding offer by a third party for the purchase of the business or certain assets of the company, a competitive bidding process shall be carried out in case of expressions of interest by other parties.
As a general rule, the debtor may seek the authorization of the Court to terminate or suspend the effects of pending contracts which are not consistent and useful for the implementation of the concordato plan.
During the concordato proceeding, upon specific request by the debtor, the debtor may benefit from protective and precautionary measures, preventing all creditors from initiating or continuing any interim or enforcement proceeding or judicial liquidation procedure against the company and/or its assets. The Judge will decide whether or not to grant these protective and precautionary measures, which cannot be effective for more than 12 months and can be revoked at any time by the Court. Should the aforementioned measures be requested with the filing of the application for the access to the concordato proceeding, the same are effective upon publication of the application at the Companies’ Register, until the Judge decides whether or not to confirm them.
Following the validation of the concordato proposal, the Delegated Judge and the Judicial Commissioner will monitor the implementation of the concordato plan and proposal.

Liquidazione giudiziale

Judicial liquidation procedure

The judicial liquidation is a Court-supervised procedure which applies when a commercial entrepreneur is insolvent and the following thresholds are met: (i) the value of the assets has exceeded Euro 300,000 for the three years prior to the petition for the opening of the judicial liquidation proceeding; (ii) the annual gross revenue has exceeded Euro 200,000 for the three years prior to the petition for the opening of the judicial liquidation proceeding; and (ii) the total amount of indebtedness exceeds Euro 500,000.
The “insolvency” refers to the inability of the company to meet its obligations as they fall due regularly, whether manifested by defaults or other external factors.
The petition for the opening of judicial liquidation may be filed by: (i) the debtor itself (mainly to avoid the deepening of insolvency); (ii) one or more creditors; or (iii) the public prosecutor.
The Court will declare the opening of the judicial liquidation proceeding once the other possible restructuring proceedings aimed at solving the insolvency and/or financial crisis have been defined.
Following the opening of the judicial liquidation procedure, the Court will appoint the Delegated Judge and the liquidation commissioner, who will manage the assets of the debtor for the purpose of liquidation of the same by means of competitive bidding processes and the subsequent reimbursement of creditors in accordance with the legal ranking of their claims (dispossession of the debtor applies). The Court will set the date of the hearing aimed at reviewing the statement of liabilities of the debtor within 120 days from the opening of the judicial liquidation procedure. Creditors will file their proofs of claim before the Court at least 30 days prior to the abovementioned hearing.
The Court may authorize the liquidation commissioner to temporary continue the business activity of the debtor, provided that it does not prejudice the reimbursement of the creditors.
Creditors are prevented from initiating or continuing any interim proceeding or enforcement proceeding against the assets of the debtor, which will be liquidated in the context of the judicial liquidation proceeding (Automatic stay).
As a general rule, pending contracts as of the date of the opening of judicial liquidation procedure remain suspended until the liquidation commissioner, upon authorization of the Creditors' Committee, decides either to continue or to terminate the pending contract. Special rules apply for specific kinds of contracts.

Proposta di concordato nella Liquidazione giudiziale

Concordato in the context of the judicial liquidation procedure

Pending the judicial liquidation procedure, any creditor or third party is entitled to file at any time a concordato proposal for the closure of the procedure. The debtor and/or its affiliates may file the concordato proposal at least one year after the opening of the judicial liquidation procedure and within two years from the issuance of the final statement of liabilities by the Court. The concordato proposal filed by the debtor and/or its subsidiaries is admissible solely if the same provides for an increase of the value of the assets of the debtor by at least 10%.
The concordato proposal may envisage that secured creditors are not repaid in full, provided that an independent expert certifies that the secured claims are repaid for an amount at least equal to the value of the secured assets in a liquidation scenario. In such case, the unpaid portion of the claim is downgraded to an unsecured claim for voting purposes.
The concordato proposal may envisage the split of creditors into classes, provided that each class includes creditors having homogeneous legal positions and economic interests and the concordato proposal shall be approved by (i) creditors holding the majority of the claims admitted to vote (the applicant is not entitled to vote unless its claim is included in a specific class) and (ii) the majority of classes if creditors are split into classes. Once approved, the concordato is binding against all non-adhering creditors (cram-down).
The Court will validate the concordato proposal (i) if the legal admissibility and the feasibility of the restructuring plan is assessed, and (ii) if, in the event that one or more creditors challenge the convenience of the restructuring proposal, the relevant claim is not reimbursed for a lower amount than the possible reimbursement under the judicial liquidation proceeding.
The Court will validate the concordato proposal once it verifies the rituality of the proceeding and the lawfulness of its approval. Should one or more creditors challenge the convenience of the concordato proposal the Court will validate the same if the relevant claim is reimbursed for an amount higher than the possible reimbursement under the judicial liquidation proceeding.
Following the validation of the concordato proposal, the Delegated Judge, the liquidation commissioner and the Creditors’ Committee will monitor the implementation of the concordato plan and proposal.

Regolazione della crisi e dell’insolvenza di Gruppo

Crisis and insolvency proceeding related to a group of companies

Specific provisions apply with respect to the insolvency of a group of companies, i.e. a group of enterprises and entities, excluding States and territorial entities, which pursuant to the provisions of the Italian Civil Code, exercise or are subject to the management and coordination activities by the same company, entity or natural person.
In the event that a single application for the resolution of the insolvency and/or financial crisis of the group of companies is more convenient than filing multiple separate applications, the companies may file a single application for the validation of (i) a debt restructuring agreement of the group; (ii) a concordato plan and proposal of the group; and (iii) a rescue plan of the group, provided that such companies belong to the same group and their centre of main interests (COMI) is in Italy.
Each company's assets and liabilities will be segregated with respect to the assets and liabilities of other companies in order to protect and maintain the equal treatment between the creditors (e.g. par condicio creditorum) of each company of the group.
In the context of the concordato proceeding of a group of companies, the Court will appoint a Delegated Judge and a Judicial Commissioner, and the costs of the proceeding are shared among the group of companies in accordance with their individual assets and liabilities.
A group of companies may also be subject to a single judicial liquidation procedure, should the same provide for a better satisfaction of the creditors than the judicial liquidation procedures of each company of the group.

Liquidazione coatta amministrativa

Mandatory administrative liquidation procedure

It is a procedure supervised by the Court and also by an administrative authority which applies to banks, financial institutions and/or other entities expressly specified by law, which are insolvent.
The petition for the opening of a mandatory administrative liquidation procedure may be filed by: (i) the insolvent entity (ii) one or more creditors; or (iii) the Administrative Authority which supervises the insolvent entity.
Following the opening of a mandatory administrative liquidation procedure, the Court will appoint: (i) one (or three) Liquidation Commissioner(s) and (ii) a supervisory committee (comitato di sorveglianza) who are experts in the business of the company, and preferably among its creditors.
The Liquidation Commissioner, in accordance with the guidelines of the Administrative Authority and under the supervision of the supervisory committee will manage the assets of the debtor for the purpose of liquidation of the same by means of competitive bidding processes and the subsequent reimbursement of creditors in accordance with the legal ranking of their claims (dispossession of the debtor applies).
Each creditor will file its proof of claim before the Court within 60 days from the opening of the administrative liquidation procedure. Within 90 days from the opening of the administrative liquidation procedure, the liquidation commissioner(s) will draft the statements of liabilities. Should one or more creditors challenge the same, the Delegated Judge will decide whether or not to admit the creditors to the liquidation procedure.
Creditors are prevented from initiating or continuing any interim or enforcement proceeding against the assets of the debtor, which will be liquidated in the context of the mandatory administrative liquidation proceeding (automatic stay).
As a general rule, pending contracts as of the date of the opening of mandatory administrative liquidation procedures remain suspended until the Liquidation Commissioner(s), decides either to continue or to terminate the pending contract. Special rules apply for specific kinds of contracts.

Concordato nella Liquidazione coatta amministrativa

Concordato in the context of administrative liquidation procedure

The administrative authority which supervises the liquidation procedure, upon the favourable opinion of the Liquidation Commissioner(s), and following consultation with the supervisory committee, may authorize the entity under administrative liquidation, one or more creditors, or a third party to submit before the court a concordato proposal. The provisions of the concordato in the context of judicial liquidation procedure apply, mutatis mutandis. Creditors and any other interested party may challenge the concordato proposal within 30 days from the notification of the same.

Amministrazione straordinaria delle grandi imprese (Legge Prodi Bis)

Extraordinary administration of the large companies

The extraordinary administration procedure is a procedure supervised by the Court and by the Ministry of Enterprises and Made in Italy, which applies to “large companies” in insolvency. Only debtors which exceed the following thresholds, jointly, may be subject to an extraordinary administration procedure under Prodi-Bis Law: (i) employ at least 200 workers for one year, and (ii) have debts of an aggregate amount higher than 2/3 of its assets and its turnover.
The petition for the opening of extraordinary administration may be filed by: (i) the debtor, (ii) one or more creditors; or (iii) the public prosecutor.
The proceeding begins with the declaration of insolvency by the Court, once the Court has heard the opinion of the Ministry of Enterprises and Made in Italy.
Following the declaration of insolvency, the Court will appoint the Delegated Judge and one or three judicial commissioner(s), and will set the date of the hearing aimed at reviewing the statement of liabilities of the debtor, while each creditor will file its proof of claim before the Court at least 30 days prior to the abovementioned hearing.
No automatic dispossession of the debtor occurs, while the Court will decide case by case if the company should be managed by the debtor or by the judicial commissioner(s).
As long as the company demonstrates concrete possibilities to recover the economic balance of its activities (through the sale of business; or through an economic and financial restructuring) the company is eligible to be admitted to the Extraordinary Administration procedure.
Within 30 days of the declaration of insolvency, the judicial commissioner(s) shall file a report including the causes of the crisis and the possible financial re-balancing of the company. Within 30 days from the filing of the abovementioned report and taking into account the opinion of the Ministry of Enterprises and Made in Italy, the Court shall issue a decree either to declare the opening of the extraordinary administration procedure or to declare the opening of the judicial liquidation procedure.
The extraordinary commissioner(s) will manage the assets of the debtor (dispossession of the debtor applies) in accordance with a recovery plan drafted by them and authorised by the Ministry of Enterprises and Made in Italy after consultation with a supervisory committee (comitato di sorveglianza) composed of either three or five members appointed by the Ministry of Enterprises and Made in Italy. The transfer or lease of the business and/or parts of the business, as well as the transfer or lease of real estate properties, will be subject to the prior authorization of the Ministry of Enterprises and Made in Italy.
Creditors are prevented from initiating or continuing any interim or enforcement proceeding against the assets of the debtor (Automatic stay).
As a general rule, admission to the proceeding does not trigger the automatic termination of pending contracts to which the insolvent company is party, although the extraordinary commissioner(s) has the discretion to continue or terminate the same.
The extraordinary administration procedure may also apply for a group of companies

Amministrazione straordinaria delle grandissime imprese (Legge Marzano)

Extraordinary administration of the largest company

The extraordinary administration procedure is a procedure supervised by the Court and by the Ministry of Enterprises and Made in Italy, which applies to “largest company” in insolvency. Solely the debtor who exceeds the following thresholds, jointly, may be subject to an extraordinary administration procedure under Marzano Law: (i) employ at least 500 workers for one year, and (ii) has debts of an aggregate amount of at least 300 million Euros.

The debtor shall file an application for the opening of the extraordinary administration procedure to the Ministry of Enterprises and Made in Italy and simultaneously the debtor shall file a petition before the Court.

Upon the decision of the opening of the proceeding the Ministry of Enterprises and Made in Italy will appoint one or three commissioner(s), who will manage the assets of the debtor (dispossession of the debtor applies), while the Court shall ascertain the insolvency status of the debtor.

Following the opening of the extraordinary administration, creditors are prevented from initiating or continuing any interim proceeding or enforcement proceeding against the assets of the debtor (Automatic stay).

The Marzano procedure is aimed at either the (i) restructuring of the economic and financial situation of the company, or (ii) sale of the company’s assets (including, the assignment of pending contracts to a third party).

The extraordinary commissionaire(s) will draft a restructuring plan subject to the approval of the Ministry. The restructuring plan may be converted into a liquidation plan and/or into a liquidation procedure if the Ministry does not authorise the implementation of the restructuring plan.

Admission to the proceeding does not trigger the automatic termination of pending contracts in which the insolvent company is a party, although the extraordinary commissioner(s) has the discretion to continue or terminate the same.

The extraordinary commissioner(s) within the restructuring plan may provide for the satisfaction of creditors through a concordato

EU Directive Implementation

The EU Directive 2019/1023¹ on Restructuring and Insolvency requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2022 (as the option to extend that deadline by one year from July 2021 has been exercised). The intention of the EU Directive 2019/1023 is to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.

Notable features required to be included in Member States’ national laws include:

An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
An ability to cram down dissenting classes of creditors.
Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years

Implementation in Italy

On 15 July 2022, the Italian “Corporate Crisis and Insolvency Code” (Codice della Crisi d’Impresa e dell’Insolvenza) (“CCI”) – which was adopted by Legislative Decree no. 14/2019, as amended and supplemented from time to time, most recently by Italian Legislative Decree no. 83 of 17 June 2022 – came into force, by substantially amending the rules set forth under the Royal Decree no. 267 of 16 March 1942 (former Italian bankruptcy law) which remain in effect only for proceedings commenced prior to the entry into force of CCI.

According to the CCI, the legal term “bankruptcy” (fallimento) has been replaced by “judicial liquidation” (liquidazione giudiziale), while additional definitions have been introduced, including: “Crisis”, i.e. a situation which will likely lead to insolvency when the forecasts of cash flow is not sufficient to fulfil the company’s obligation over the next twelve months.

The CCI also provides for certain amendments to the Italian Civil Code that concerns, directly or indirectly, the crisis of companies: notably, the reform sets rules regarding organizational systems aimed at promptly discovering and taking action in case of a crisis situation, in order to avoid the loss of going concern (perdita della continuità aziendale). The CCI does not include provisions amending the regulation of the Marzano and Prodi-bis procedures, which remain subject to the current provisions.

Please find below a brief summary of the main features of the new CCI:

the replacement of the term "bankruptcy" with "judicial liquidation procedure": the change is mainly justified by the need to avoid the negative and disparaging connotations that are traditionally associated with the word "bankruptcy";
introduction of specific procedures of alert and assisted resolution of the crisis, aimed at facilitating the appearance of the situation of financial distress in its initial phase and simplifying the negotiations between the debtor and its creditors on a confidential basis. Specific bodies established in each Chamber of Commerce will be in charge of these procedures;
introduction of the possibility to present unitary proposals for the recovery of the "group crisis." Such provisions are aimed at regulating intra-group operations and transactions to preserve business continuity, with the purpose of guaranteeing the protection of the shareholders and of the creditors of each company within a group;
introduction of a unified (judicial) procedure to get access to crisis and insolvency regulation proceedings (DRA, concordato proposal, rescue plan) and judicial liquidation procedure.

Recognition of foreign insolvency processes

EU Regulation on Insolvency Proceedings

The EU Regulation on Insolvency Proceedings² applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognized in all other EU Member States and that each EU Member State automatically recognizes the powers and authority of an insolvency practitioner appointed in another EU Member State.

Recognition of third country insolvency processes

In general, the court before which the request to open insolvency proceedings has been filed must decide if it has jurisdiction over the case. If the court decides to open proceedings, it must specify if it is a main or secondary proceeding.

With reference to the immediate recognition of foreign bankruptcy judgments and decisions, the Italian courts can refuse to recognize them only if they may produce effects that are against Italian public order.

In order to ensure that creditors and judges receive correct information and to avoid the opening of parallel proceedings, it is provided that each EU country will provide a publicly accessible electronic register where relevant information on cross-border insolvency cases must be published.

Contact: Francesco De Gennaro

Law stated as of 11 October 2023

_{[1] Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132

[2] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast).}

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