Covid-19

Restrictions on creditor rights, relaxation of obligations to file and other insolvency-related reforms/proposals

Covid-19: Restrictions on creditor rights, relaxation of obligations to file and other insolvency-related reforms/proposals

Our tracker contains an overview of changes made in light of the Covid-19 outbreak which impose restrictions on creditor rights, relax debtor obligations to file for insolvency or concern other insolvency-related issues.

The tracker is intended merely to highlight legal issues and not to be comprehensive, nor to provide legal advice.

Should you have any questions on the issues reported here or on other areas of law, please contact one of your regular Linklaters contacts.

Explore each jurisdiction for further information.

Africa

South Africa

Content provided by our collaborative alliance firm Webber Wentzel.
Last updated: September 2020

Covid-19 related restrictions on creditor action?                          

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action? 

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   

The Department of Trade and Industry issued regulations to:

 

  • exempt a category of agreements or practices between designated retail tenants and the retail property landlords from the application of certain sections of the Competition Act, in order to facilitate discussions regarding rent relief/payment holidays and to avoid the eviction of retail tenants, which would otherwise be contrary to the Competition Act;
  • exempt a category of agreements or practices between Banks, Banking Association of South Africa and/or Payments Association of South Africa to prevent an escalation of the disaster, minimise the negative impact of the disaster and to manage the banking infrastructure.    

These remain in place and have not been revoked. 

An order granting a residential eviction can be obtained, but they cannot currently be executed upon unless specifically ordered by a Court on the basis that it is not just and equitable to suspend the order. 

No restrictions on creditor insolvency filings have been implemented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

No formal suspension of insolvency filing duties has been implemented as yet. Furthermore, restrictions on access to courts have been lifted.

 

A general extension was provided by the Companies and Intellectual Property Commission for business rescue proceedings which commenced, but which did not complete the procedure as stated with in section 129 of the Companies Act, 71 of 2008 (the Act), until 30 April 2020. The time periods set out in the Act did not run during the period 27 March 2020 until 16 April 2020 for business rescue proceedings that have not yet commenced. All timing has now reverted to normal.

 

CIPC issued a notice stating that it will not invoke its powers under section 22 of the Act. Section 22 of the Act empowers CIPC to issue notices to a company, where it has reasonable grounds to believe that the company is trading or carrying on business recklessly, with gross negligence or for a fraudulent purpose. In the circumstances, where companies are temporarily insolvent and still carrying on business or trading and where the reason for this is due to business conditions caused by the Covid-19 pandemic, CIPC will not issue a section 22 compliance notice. The notice issued by CIPC in this regard will lapse within 60 days after the declaration of a national disaster has been lifted.

The national state of disaster was extended on 15 August 2020 to 15 September 2020. The country was placed on Alert Level 2 from 18 August 2020 (down from Alert Level 3).                                                                                                                                                                
Asia Pacific

Australia

Content provided by our alliance partner Allens.
Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   

No restrictions on creditor rights as yet.                                                                                                                                                                                                                                                                                                                              

The current minimum threshold for creditors to issue a statutory demand on a company has also been increased from $2,000 to $20,000 for the next six months.


Companies will have six months to respond to a statutory demand (a significant increase from the previous 21 day timeframe), the precursor to winding up proceedings being commenced by creditors.   

 

The temporarily increased threshold and response period will be extended by regulation to 31 December 2020.

N/A - no obligation, though delay can give rise to liabilities.


On 23 March 2020, the Commonwealth Government introduced a new insolvent trading 'safe harbour' comprising a six-month moratorium on insolvent trading liability for directors in respect of debts incurred "in the ordinary course of the company's business". 

 

The 'safe harbour' was due to lapse after six months, but this insolvent trading relief will now be extended by regulation to 31 December 2020.

The Treasurer has been given instrument making power to amend provisions of the Corporations Act 2001 (the Act containing the significant provisions regarding insolvency procedures and directors duties), to provide relief from, or modify, obligations under that Act. The power is intended to allow the Treasurer the flexibility to deal quickly with unforeseen circumstances arising from Covid-19, without the need for legislation with its attendant delay. 

Hong Kong

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   

No restrictions on creditor rights as yet.

No restrictions on creditor insolvency filings as yet.                                                    N/A – no obligation and no concept of “wrongful” or “insolvent” trading (only fraudulent trading which is rare) -

India

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   

No statutory restrictions on creditor rights as yet.

 

However, by notifications dated 27 March 2020, 17 April 2020 and 23 May 2020  the Reserve Bank of India (the “RBI”) had permitted banks, all India financial institutions and non-banking financial companies (the “Lending Institutions”) to (i) declare moratorium on payment of instalments (including principal and interest amounts, credit card dues and equated monthly instalments) in relation to term loans which become due between 1 March 2020 and 31 August 2020, subject to interest continuing to accrue during the moratorium period, and (ii) declare a moratorium on interest on working capital facilities availed of in the form of cash credit or overdraft falling due between 1 March 2020 and 31 August 2020 and permit such interest to be paid immediately after the completion of the moratorium period. The moratorium has since ended on 31 August 2020 and RBI has not issued an extension yet.

Indian courts have taken note of the economic disruption caused by COVID-19 and various courts have interpreted the RBI notifications differently, though the general trend has been to grant some form of relief to the borrowers. While the language of the RBI notification suggests that the moratorium and related benefit are discretionary on the part of the Lending Institutions, owing to the lack of a formal clarification from the RBI, the cases in relation to the RBI notifications before the courts had been proceeding on the basis that such moratorium was applicable to all Borrowers. The RBI later clarified, during the proceedings in one of the cases that the moratorium was indeed discretionary. The courts have, however, gone on to interpret the RBI notifications to exclude the time period of the moratorium for asset classification purposes. In one recent judgment, the court prohibited a company from suspending payments on its non-convertible debentures which had been subscribed by a mutual fund since the moratorium under the RBI notifications did not cover mutual funds, debentures, bonds or capital markets investors. Separately, courts had also previously granted interim injunctions against lenders from enforcement of security and even encashment of bank guarantees in light of the covid situation. However, in recent judgments, the encashment of bank guarantees have been allowed, in light of the specific facts of these cases. Owing to the varying decisions of different courts on the implementation of the RBI notifications, it remains a challenge to conclude on what the final interpretation on the applicability of the moratorium would be. Since most of the court orders on the RBI notifications are interim in nature, the final judgements in these cases may shed more clarity on this aspect.

 

Presently, a petition for the waiver of interest payment during the moratorium period and the extension of the moratorium, is sub-judice before the Supreme Court of India.

The Central Government on 24 March 2020, has increased the threshold for the minimum amount of default to initiate corporate insolvency resolution process (“CIRP”) from INR 100,000 to INR 10,000,000. The move was aimed at preventing triggering of CIRP against medium, small and micro enterprises. 

 

The Government of India by way of the Insolvency and Bankruptcy (Amendment) Ordinance, 2020 has amended the provisions of the Insolvency and Bankruptcy Code 2016 to restrict filing of an application to initiate a CIRP on account of any default arising on or after 25 March 2020 until six months thereafter (which may be extended up to one year).

 

 

No suspension as yet                                                                                                                                                                                                                                              

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Indonesia

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   

No restrictions on creditor rights as yet.

 

 

  • No restrictions on creditor insolvency filings as yet.
  • Although not COVID-19 related, it is worth noting that in January 2020 the Indonesian Supreme Court issued guidance on the commencement of bankruptcy and suspension of payment (“PKPU”) cases. The Supreme Court guidance restricted a secured (but not unsecured) creditor from filing a PKPU petition at the Commercial Court. This guidance has now been revoked (April 2020) however and under the new guidelines the filing for PKPU can be made by all class of creditors (including secured creditors).Under the PKPU process, the court will grant a suspension period in respect of the debtor (including a moratorium on security enforcement). It enables the debtor and its creditors to reach an agreement on payment, including through a debt restructuring avoiding a value destructive bankruptcy filing.
  •  No suspension as yet.
                                                                                                                                                                                                                             

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Japan

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

 Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   

No binding restrictions on creditors’ rights "as yet".

 

However, on 7 April, the Financial Services Agency (the "FSA") announced its requests to the financial institutions which includes the following:

 

  • to flexibly amend the conditions of existing loans, such as payment schedule and period of loans;
  • not to treat the cases automatically and formalistically, where companies breach any covenants of the loans, more specifically, to (i) understand the business conditions of the borrower and avoid demanding immediate debt recovery and (ii) promptly and sincerely respond to each company's consultations concerning an amend or waiver of covenants;

 

  • to accept the request of grace period of the loan from the borrower who is adversely impacted by COVID-19 and not to report such cases as arrearage to credit information agencies.

Subsequently, on 22 May, the FSA published a list of practice examples for the FSA’s request on 7 April above.


No binding restrictions on creditor insolvency filings as yet.

No suspension as yet

-

Singapore

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   

The Covid-19 (Temporary Measures) Act introduced the ability of a non-performing party, during the prescribed period, to obtain a temporary stay on all creditor action for non-performance, in respect of (among others):

 

  • any loan to Singapore SME’s (with annual revenue of no more than S$100 million), which is secured (in whole or in part) by immovable property or movable property used for business purposes; and
  • any performance bond in respect of a construction contract or supply contract,

in each case, where such obligations due to be performed on or after 1 February 2020 under contracts entered into or renewed before 25 March.

 

The prescribed period is a period of 6 months commencing on 20 April 2020 (“prescribed period”).                                                                              

                                                                                                     

During the prescribed period:

 

  • the threshold for company bankruptcy filings is raised from $15,000 to $100,000.
  • the statutory period to respond to creditor demands is extended to 6 months from 3 weeks.
  • a moratorium on filing of court or insolvency proceedings based on non-performance of certain contractual obligations (see conditions left).                                                                                                                                                                                                                                    

There is no obligation to file for insolvency, though delay can give rise to liabilities for the directors. However, the draft law includes a temporary suspension of wrongful trading rules aimed at assisting directors to keep businesses going without the threat of personal liability – provided that debts are incurred in the ordinary course of business.

 

Directors remain criminally liable for fraudulently incurred debts.

Client alert:
What you need to know about the COVID-19 (Temporary Measures) Act 2020                                                                                                                                                                                                             

Thailand

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   
  • There is no change to the regulations in respect of calling defaults, acceleration, termination or enforcement however:
(A) On 28 February 2020, the Bank of Thailand (“BOT”) has requested for cooperation from banks and financial institutions in order to urgently consider assisting qualified debtors that have been affected by the COVID-19 situation with pre-emptive funding and liquidity enhancement measures.

 

These measures are, among others, (i) approving additional working capital loans and (ii) approving debt restructuring through extending payment terms for all types of credit facilities including packing credit or trust receipts, renewal/ maintenance of credit limit, conversion of a short-term loans to long-term loans, granting of temporary grace periods, reduction of interest, liquidated damages or fees and charges, reduction of interest rate (i.e. lower than the market rate), allowing repayment of principal before interest or any other measures as may be appropriate.

 

Note: Qualified debtors are debtors whose credit facilities are classified as either (i) non-NPL (stage 1 or stage 2) as at 1 January 2020 or (ii) NPL as at 1 January 2020, unless banks or financial institutions are able to prove that the NPL before 1 January 2020 was caused by the COVID-19 situation.

 

(B) The Thai Government has issued the Emergency Decree on 7 April 2020 prescribing the financial support measures for SMEs affected by COVID-19 situation B.E. 2563 (2020) (the “Thai Emergency Decree”). The measures prescribed under the Thai Emergency Decree are, among others, (i) granting of soft loan through banks and special financial institutions to qualified SMEs for a period of 2 years together with the government’s partial subsidy to such qualified SMEs and (ii) granting of 6 months grace period for loan repayment to qualified SMEs.                                                                             

                                                                                                     

  • There is no change to the regulations in respect of making insolvency filings                                                                                                                                                                      
  • There is no change to the regulations in respect of suspension of director/company insolvency filing duties
  • Please find further details of the updated Thai measurements in respect of Covid-19 here.

Client alert:
What you need to know about the COVID-19 (Temporary Measures) Act 2020                                                                                                                                                                                                             

Vietnam

Content provided by our alliance partner Allens.
Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   

Commercial banks have been instructed by the State Bank of Vietnam to issue internal rules and decide on restructuring debt repayment terms, exemption and reduction of interests and fees, and retention of debt groups for their customers affected by Covid-19 in accordance with the State Bank's regulations. Notable regulations of the State Bank include:

 

  • Restructuring debt repayment terms: (i) This is applicable to debt (including principal debt and/or interest) arising from lending or finance leasing activities that has to be repaid in the period from 23 January 2020 to the next day after three months have expired from the date the Prime Minister declares that the Covid-19 epidemic has ended; (ii) The extended payment term shall not exceed twelve months from the last day of the original term. 
  • Exemption and reduction of interests and fees: This is applicable where the obligation to repay the principal debt and/or interest arises in the period from 23 January 2020 to the next day after three months have expired from the date the Prime Minister declares that the Covid-19 epidemic has ended.
  • Retention of debt groups: Commercial banks shall retain the original debt groups as classified pursuant to the State Bank's regulations at the closest time prior to 23 January 2020 for the outstanding debts that are restructured or the outstanding debts on which interest is exempted/reduced as mentioned above. 

Other than above, no restrictions on creditor rights as yet.

No restrictions on creditor insolvency filings as yet.                                                                                                                                                                                                                                            

No suspension as yet                                                                                                                                                                                                                                              

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Emerging Europe

Poland

Last updated: 14 May 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   

No restrictions on creditor rights as yet.

  • No restrictions on creditor insolvency filings as yet.
  • Restructuring applications are classified as ‘urgent cases’ in order to be resolved by the courts with priority at the time of the epidemic.  

 

  • The obligation of directors of a company that has fallen into a state of insolvency to file for bankruptcy is deferred for the duration of an epidemic. The company will be obliged to file such a motion within three months from the date of cancellation of the state of epidemic threat.
  • A company that has fallen into a state of insolvency during the time of the epidemic is to be deemed insolvent due to the COVID-19 epidemic. The burden of rebutting this presumption would lie with the creditor.
  • New legislation came into force on 18 April 2020

Russia

Last updated: 6 April 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   

No restrictions on creditor rights as yet (note restrictions on enforcement over pledged assets in “Making insolvency filings” column).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

The Prime Minister has instructed the state bodies to postpose (until 1 May) any bankruptcy petitioning in relation to their debtors.

 

The Russian Government has enacted a six-months regime of a moratorium on insolvency filings of certain debtors pursuant to a recently enacted law on bankruptcy moratorium. The list of legal entities affected by the moratorium has been produced by the Government. It currently includes systemic entities and entities of strategic importance for the Russian economy as well as entities involved in certain economic activities.

 

Bankruptcy petitions filed during the moratorium period shall be disregarded by the courts. During the moratorium period any financial sanctions (fines, penalties) shall not accrue and in-court/out-of-court enforcement measures shall be postponed (in particular enforcement over pledged assets is not permitted).

 

Any transactions of an affected debtor - other than those entered into in the ordinary of course of the debtor’s business and whose value does not exceed 1% of the debtor’s assets - are void if entered into during the moratorium period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

The obligations of an insolvent debtor to file for bankruptcy will be postponed during the moratorium period. An insolvent debtor will, however, retain its right to file for its bankruptcy.                                                                                                                                                                                                                                                                      

 
The PM has asked the Government to facilitate the review of another draft bill which streamlines existing restructuring procedures in Russia                                                                                                                                                                                                                                                                           
Western Europe

Belgium

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   
    • There is a commitment of the Belgian financial sector to suspend the payment of loan instalments under existing credit lines for viable non-financial businesses with payment difficulties due to the COVID-19 crisis until 31 October 2020 without charge (the “Payment Moratorium”).
    • The following measures were applicable between 24 April and 17 June 2020 to enterprises whose continuity is threatened due to the Covid-19 pandemic and which had not yet ceased making their payments on or before 18 March 2020:
  • Unilateral or judicial early termination of contracts due to a payment default under the relevant agreement was prevented from 24 April until 17 June 2020 for contracts entered into before 24 April 2020.
  • Conservatory and executory attachments were suspended, and no other enforcement measures could be taken by creditors. Exceptions applied to mortgages and financial collateral.
  • Creditor insolvency filing was not possible from 24 April to 17 June 2020 in respect of enterprises whose continuity was threatened due to the Covid-19 pandemic and which had not yet ceased making their payments on or before 18 March 2020.  
  • The company insolvency filing duty was lifted from 24 April to 17 June 2020. 
  • The Payment Moratorium continues to exist until 31 October 2020.
  • The other measures have not been extended beyond 17 June 2020 by way of a new Royal Decree and cease to apply.                                                                                                                            

France

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   
As a reminder, where their purpose was to sanction breach of an obligation within a set period of time, acceleration or termination clauses provided in contracts (including loan agreements between a bank and a corporate) were deemed not to have commenced or taken effect if that period expired between 12 March 2020 and 23 June 2020 (included) (the "Protected Period").

 

Such clauses became effective again from 24 June (included) but only after the expiry of a ‘postponement period’ equivalent to: the time elapsed between 12 March 2020 (or, if later, the date on which the obligation arose) and the date on which the relevant obligation should have been performed, provided that the debtor had not performed its obligation in the meantime.
Theoretically, this postponement period could be of a maximum of 104 days (i.e. until 6 December 2020).

 

The effectiveness of acceleration or termination clauses sanctioning the breach of an obligation (other than the payment of a sum of money) which were to be performed at a date beyond the end of the Protected Period, have also been postponed by a period equivalent to: the time elapsed between 12 March 2020 (or, if later, the date on which the obligation arose) and 23 June (included) (i.e. 104 days maximum).
Note that the parties were entitled to waive or set aside these provisions.
 

Note that all financial obligations and related financial collateral referred to in Articles L-211-36 et seq. of the French Monetary and Financial Code are expressly excluded from the scope of the suspension regime. Even though loans between a bank and a corporate do not fall within the scope of Articles L 211-36, it does mean that loan facilities granted to certain qualifying parties (e.g. credit institutions, public entities (établissements publics) and local authorities (collectivités territoriales) are excluded from the suspension regime.

The temporary suspension and adaptation of the obligation to file for insolvency proceedings lapsed on 23 August 2020.

The state of cash-flow insolvency triggers an obligation for the debtor’s legal representative to apply for the opening of reorganization or judicial liquidation proceedings within 45 days of the debtor becoming cash-flow insolvent, unless it has filed for (pre-insolvency) conciliation proceedings in the meantime.

As noted in the previous column, since 24 August 2020, the ordinary statutory provisions and obligations in respect of cash-flow insolvency are back in force. 

Until 23 June, or, as the case may be, 23 August 2020:

 

  • Various deadlines related to pre-insolvency and insolvency proceedings (e.g. duration of conciliation proceedings, safeguard and reorganisation plans or the intervention of the wages/statutory redundancy payments coverage) were relaxed (pursuant to ordinance No 2020-341 and ordinance No 2020-596). As a result, certain proceedings and processes are still ongoing, by exception to the standard statutory provisions.

Further amendments of French insolvency law have been introduced by Ordinance No 2020-596, and are still in force:

 

  • improving the debtors’ protection as part of pre-insolvency proceedings (possible individual stay of a creditor’s rights refusing to suspend the maturity of its claim during the conciliation proceedings and relaxation of the conditions to benefit from grace periods, applicable until 31 December 2020);
  • aiming at preserving jobs (possibility for the existing directors and shareholders to submit a bid to be implemented as part of a sale of the business plan providing for the preservation of jobs as part of judicial reorganisation or judicial liquidation proceedings, applicable until 31 December 2020);
  • facilitating the implementation of restructuring plans in certain circumstances (until the transposition of the directive (EU) 2019/1023 dated 20 June 2019, all debtors are eligible to file for accelerated safeguard and accelerated financial safeguard; until 31 December 2020 challenged claims are not taken into account in the draft plans, and creditors’ individual consultation deadline can be shortened);

    aiming at facilitating the financing of the observation period (and beyond) as wellas the restructuring plans (creation of a safeguard and a reorganisation privilege, applicable until the transposition of the directive (EU) 2019/1023 dated 20 June 2019).

Germany

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   

Temporary suspension of the landlord’s right to termination of leases (commercial and residential) due to rent arrears up until 30 June 2022, if: (i) the arrears are accumulated between 1 April and 30 June 2020; and (ii) the rent arrears are caused by the Covid-19 pandemic.

Temporary suspension of lender’s right to termination under consumer loan agreements in case of payment defaults between 1 April and 30 September 2020 due to the Covid-19 pandemic.

Consumers’ rights to temporarily suspend ongoing contractual payments until 30 June 2020.

 

Insolvency petitions filed by a creditor between 28 March and 28 June 2020 could only have been successful, if the insolvency of the debtor occurred until and including 1 March 2020.

 

                                                                                                                                                

                                  

Temporary suspension of the duty to file for insolvency (usually within 21 days of cash-flow insolvency and/or over-indebtedness) applied until 30 September 2020. Only for the reason of over-indebtedness (and the debtor is not illiquid at the same time) the suspension of the filing obligation is extended until 31 December 2020 unless:

 

  • the insolvency has not occurred due to the impacts of the Covid-19 pandemic; or
  • there is no prospect of resolving an existing illiquidity.

If the debtor was not illiquid on 31 December 2019, a rebuttable assumption is established that the insolvency has occurred due to the Covid-19 pandemic and that there are prospects of resolving an existing illiquidity.

 


 

In addition to the suspension of filing duties, the law also clarifies the impact of the suspension in respect of the liability of the management:

 

  • payments made in the ordinary course of business are deemed to comply with the care required by a prudent management; 
  • this assumption applies in particular to payments serving the maintenance or resumption of the business, or the implementation of a restructuring plan.

Subject to certain conditions, the law also relaxes the rules on lender liability, facilitates the provision of new financing (including by way of shareholder loans) and exempts new financing from claw-back rules.

 

All aforementioned suspensions will end by 31 December 2020. On 1 January 2021 a new German restructuring law shall come into force implementing the preventive restructuring directive (EU) 2019/1023. The draft of the new German law foresees various pre-insolvency restructuring tools available for companies in the stage of impending illiquidity. Hereby, German legislator intents to provide a seamless transition from the aforementioned Covid19 related suspensions to the new restructuring law and creating a stabile legal framework for debtors, creditors and other involved stakeholders.

 

 

Italy

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement 

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties?  Other notes 

SMEs: moratorium on loans

 

Law Decree no. 18 issued on 17 March 2020, converted into the law no. 17 of 24 April 2020 (so called “Cura Italia”), provides that:

 

  • freely revocable credit facilities (aperture di credito a revoca) and receivables financings (anticipi su crediti) cannot be revoked (and the available commitment cannot be reduced), in full or in part, until 30 September 2020;
  • loans with bullet repayment expiring before 30 September 2020 are extended at the same terms and conditions until 30 September 2020; and
  • repayment of instalments of loans or leasing is suspended until 30 September 2020 and then the repayment profile is postponed accordingly. Borrowers may request to suspend the principal component only of the instalments.

These measures apply only to small and medium-sized companies (so called “SMEs”) whose exposure is not classified as non performing exposure as at 17 March 2020.

 

The law decree No. 104 of 14 August 2020 has further extended the moratorium on loans for SMEs in paragraphs (a) to (c) above from 30 September 2020 to 31 January 2021.


  • Provisions regarding compositions with creditors (concordato preventivo), debt restructuring agreements, automatic stay and entry into force of the new code of insolvency

Law Decree no. 23 issued on 8 April 2020 (the “Liquidity Decree”), converted into the law 5 June 2020 No. 40, provides that:  

 

  • any deadline for the fulfilment of the obligations arising from compositions with creditors (concordato preventivo) and debt restructuring agreements homologated by the Court, falling in the period between 23 February 2020 and 31 December 2021, is automatically extended by six months;
  • in case of any proceeding for the homologation of a composition with creditors or a debt restructuring agreement which is pending as at 23 February 2020, the debtor is entitled to file a petition with the competent Court to obtain a new term up to 90 days for the presentation of a new plan and a new proposal of a composition with creditors or a new debt restructuring agreement. The assigned term runs from the issuance of the relevant Decree by the Court and cannot be extended. The relevant petition can be filed until the date of the scheduled trial for homologation and it will not be admissible if the creditors' meeting has occurred and the majorities set out under Italian bankruptcy law have not been reached;
  • the debtor may also ask only for the postponement of the deadlines for the fulfilment of the obligations arising from compositions with creditors or debt restructuring agreements (up to six months), by filing a brief including the indication of the new proposed deadlines together with evidence of the necessity to amend the relevant terms;
  • in the case of a pre-application for a composition with creditors, which has already been extended by the competent Court, the debtor is allowed to file a petition for a further extension - up to 90 days - of the deadline for the filing of the relevant proposal, even if the filing for bankruptcy already occurred. The petition shall include specific references to the circumstances which make necessary the extension of the term as a consequence of the Covid-19 emergency. The extension of the term will be granted by the Court in the presence of concrete and justified reasons;
  • the same petition for an extension of the relevant term can be presented by the debtor in case of a pre-application of a debt restructuring agreement. In this case the Court shall also verify the existence of the requirements to reach a debt restructuring agreement with the majorities required by the law; and
  • the entry into force of legislative decree no. 14 of 12 January 2019 providing for the new Italian code of insolvency has been postponed to 1 September 2021 (originally it should have entered into force on 15 August 2020).
  • In case of bankruptcy, the calculation of the periods set out under Italian bankruptcy law for the purpose of bringing claw-back actions shall not take into account the period between 9 March 2020 and 30 June 2020.
  • The rules on civil and criminal liabilities applicable to the management of distressed companies (and whoever is aiding and abetting the management) - quite severe in Italy – have not been changed. Particular care is therefore to be paid to distress situations where filing is delayed only because of the non-admissibility set out in the Liquidity Decree.
      

 

Luxembourg

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes 
                                                                                   

No restrictions on creditor rights.                                                                                                                                                                                                                                       

No restrictions on creditor bankruptcy filings.                                                                                                                                                                                                                                                                              

A law dated 20 June 2020 has suspended the statutory requirement for directors to file for bankruptcy proceedings (aveu de faillite) within one month of the Luxembourg bankruptcy conditions being cumulatively met. The aforementioned obligation is suspended until 24 December 2020.                                               

      
 

Netherlands

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties?
                   
Other notes                                                                

No restrictions on creditor rights. 

 

But a number of major Dutch banks (ABN AMRO, ING, Rabobank, Volksbank and Triodos Bank) granted a 6 month extension for repayments and, in some cases, interest payments in respect of commercial loans of up to EUR 2.5m (or up to EUR 50m in the case of ABN AMRO). The 6 month extension will commence as of April 2020.

 

A legislative proposal has been submitted which introduces the possibility to request a temporary suspension of insolvency petitions, enforcement action and other measures of up to 6 months. The proposed measures applies to debtors (other than regulated entities) whose continuity is threatened due to Covid-19.

 

No restrictions on creditor insolvency filings as yet.

 

A legislative proposal has been submitted which establishes a temporary suspension on i.a. insolvency petitions, See under ‘Calling defaults, acceleration, termination or enforcement’.                                                                                                                                                                                                                                                                            

N/A - no obligation, though delay can give rise to liabilities.                                                                                                                                                                                                                                                                         

Insolvency proceedings are conducted through written submissions and telephone/video conferences as much as possible. 

 

Dutch courts will consider all relevant circumstances to determine whether an insolvency filing constitutes an abuse of the current situation. This expressly includes consideration of the impact of COVID-19 and the resulting economic situation. Dutch courts have expressed that they will exercise restraint in granting enforcement actions or insolvency petitions where liquidity problems are primarily caused by Covid-19.

 

Dutch insolvency judges are being requested to consider referring insolvency applications to mediation where appropriate, e.g. where a resolution between the debtor and its (main) creditors would take away the need for insolvency proceedings.

 

Portugal

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties?   Other notes
                                                                                   

Moratorium on loans until 31 March 2021, provided that the moratorium is requested by 30 September 2020. This entails:

 

  • a restriction on Lenders’ acceleration or termination rights;
  • an extension of financings with bullet repayments; and 
  • deferral of all payment obligations.

Insolvency adjudication, the submission to special revitalization proceeding or to the extrajudicial company recovery scheme of the borrower shall not affect the Lender’s rights, in accordance with applicable legislation.

 

Moratorium on tax obligations.                                    

No restrictions on creditor insolvency filings as yet.

 

Suspension of judicial surrender procedures for the family home.

Insolvent can request suspension of acts to be carried out in the course of insolvency proceedings relating to sales and judicial deliveries of real estate that are likely to cause damages to the insolvent’s subsistence.

 
Duty to file within 30 days of cash flow insolvency is currently suspended.                                                                                                                                                           

Portuguese Government has announced a new, more expedient, type of recovery proceeding (plano especial de viabilização de empresas) for companies in difficult financial situation due to the Covid19 pandemic. This legislation is also intended to amend insolvency provisions (for example, introducing more flexibility to change the insolvency plan). This legislation is currently being discussed in parliament.

 


 

 

Spain

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   

1. Spanish government-ordered moratoria (moratoria legal):

 

  • Moratorium of three months on mortgage payments for habitual residence for borrowers experiencing difficulties in making mortgage payments as a result of the Covid-19 crisis (in the cases of economic vulnerability described in the emergency law: unemployment, substantial loss of income etc.). 
    Debtors can apply for this moratorium until 29 September 2020.
  • This moratorium has also been extended to:

(i) natural persons who are professionals or entrepreneurs (with regard to the premises where their professional activity is carried out); and


(ii) mortgages for the acquisition by natural persons of housing to be rented (when the owner ceases to receive the rent as a result of the COVID-19 crisis).

 

  • During the moratorium, lenders cannot demand mortgage payments or any repayments of principal or interest. No interest or late payment interest will accrue. The same measures apply to guarantors and sureties of the main debtor, in respect of their habitual residence and with the same terms as for the mortgage borrower.   
  • Moratorium of three months on repayments for consumer credit and other non-mortgage loans (including leasing agreements) for natural persons experiencing difficulties in making payments as a result of the COVID-19 crisis (in the cases of economic vulnerability described in the emergency law). No interest or late payment interest will accrue. The same measures apply to guarantors and sureties of the main debtor and with the same terms as for the borrower. Debtors can apply for this moratorium until 29 September 2020.
     

2. Private payment moratoria (for mortgages and non-mortgage loans) (moratoria convencional):

 

  • Specific rules have been introduced for payment deferrals agreed voluntarily between lenders and their customers under a sector-wide initiative by Spanish lenders’ associations. The rules set out the requirements for lenders to benefit in terms of the treatment of these payment moratoria for accounting and prudential regulatory purposes under European Banking Authority guidelines (EBA/GL/2020/02).
  • Notwithstanding the interest due under the original loans, lenders and borrowers can agree for deferred payments to be made by

(i) changing the repayment calendar, without changing the termination date, or

 

(ii) extending the termination date by the same number of months as the moratorium lasts.

 

  • The procedures for arranging moratoria have been relaxed and made simpler (simplified pre-contractual information, relaxation of the requirement to sign documents in the presence of notaries etc).

3. Moratorium on mortgage payments within the tourism sector:

Relief is available for self-employed workers and firms registered in Spain: (i) that have mortgage loans subject to Spanish law on properties used in the tourism sector in Spain (a hotel, tourist accommodation, travel agency or other related activities), taken out before the state of emergency; and (ii) that have been caused financial difficulty by COVID-19; and (iii) provided they have not already benefited from another type of moratorium on payments under the loan for a period of more than 12 months. 

The moratorium consists on a deferral of up to 12 months in payment of the principal of the mortgage debt relating to the property used for the tourism business. Payments that would be due from the borrower if the moratorium was not applied will not be considered in arrears. However, the principal of the loan of which payment is deferred while the moratorium applies will accrue loan interest at the rate stated in the original agreement.
Legal entities that benefit from the moratorium cannot distribute profits, repay capital, buy back own shares or pay out returns on capital in any way until the moratorium has ended.
Applications can be made from 7 July 2020 to 30 September 2020.

4. Moratorium within the transport sector:
Self-employed workers and firms that have been caused financial difficulty by COVID-19 can request a moratorium consisting on a deferral of up to 6 months in payment of the principal of the loan, leasing or renting agreements for the acquisition of the vehicles for the transport of passengers by bus or for the freight transport.

The principal of the loan/agreement of which payment is deferred while the moratorium applies will accrue interest at the rate stated in the original agreement.

 
  • Until 31 December 2020 (inclusive), judges will not agree to process petitions for compulsory insolvency proceedings filed by creditors after the state of emergency was declared (i.e. 14 March 2020). If a debtor voluntarily files for insolvency on or before 31 December 2020, this will be processed as a priority even if it comes after creditors petition for compulsory insolvency proceedings.                                                                                                      
  • Until 31 December 2020 (inclusive), insolvent debtors will not be under a duty to file for insolvency proceedings, whether or not they have submitted the pre-insolvency notice on initiation of negoatiations with creditors.
  • If debtors file for the pre-insolvency notice on initiation of negotiations with creditors on or before 31 December 2020, they will not be under a duty to file for insolvency until 6 months have elapsed from such notice (instead of the general rule of 4 months).
     
Other measures related to pre-insolvency and insolvency (we highlight the key points):

 

  • For one year from the date the state of emergency was declared (i.e. until 14 March 2021), those debtors whose refinancing agreement has been sanctioned by the court can amend that agreement or reach a new one, even if the legal deadline of a year has not elapsed since the previous application for court approval.
  • Until 31 October 2020, courts will not process any creditor applications for a declaration of breach of a court-sanctioned refinancing agreement and will communicate such creditor applications to the debtor. The debtor will have an additional month in which it may inform the courts of the initiation of negotiations with creditors to amend the agreement or to reach another one. Debtors will have 3 months from the notice to the court to reach the new agreement or amendment of the existing one.
  • Similar measures (although with different deadlines) are established for compositions or arrangements with creditors within the insolvency proceedings (convenios).
  • In insolvency proceedings that are opened within the 2 years after the state of emergency was declared (i.e. until 14 March 2022), loans and finance provided to debtors by persons closely connected with them (personas especialmente relacionadas) after the state of emergency began will be treated as ordinary claims (and not as subordinated), without prejudice to the privileges to which they may be entitled.

Measures related to the obligation for winding-up:

 
  • The winding up of a company due to the expiry of its duration has been extended for two months after the end of the state of emergency.
  • In the case of legal or statutory compulsory winding up, the legal period for directors to call the shareholders meeting is suspended until the end of the state of emergency. If the legal or statutory grounds for winding up occur during the period of the state of emergency, the directors will not be liable for the corporate debts inccurred during such period.
  • Losses in 2020 will not be considered in determining whether companies are legally required to be wound up due to the reduction of their net assets to less than half their share capital. If companies post losses for 2021 that reduce their net assets to less than half their share capital, directors must (or any shareholder may) call general meetings within two months from the year end to dissolve the company, unless capital is raised or reduced sufficiently.

Sweden

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement                                         

Covid-19 related restrictions on creditor action?

 

Making insolvency filings

Suspension of director/company insolvency filing duties? Other notes
                                                                                   

No restrictions on creditor rights as yet.                                                                                                                                                                                                                                                     

No restrictions on creditor insolvency filings as yet.                                                                                                                                                                                                                      No suspension as yet. An insolvent company should enter in to bankruptcy procedures if it cannot pay its debts and the liquidity issues are not temporary, i.e. there is no duty to file within a certain time. However, delay can give rise to liabilities by continuing the business or through other means aggravating the insolvency. View currently seems to be that this offers sufficient flexibility. We continue to monitor.                                                                                  

United Kingdom

Last updated: September 2020

Covid-19 related restrictions on creditor action?

 

Calling defaults, acceleration, termination or enforcement;

Covid-19 related restrictions on creditor action?

 

Making insolvency filings         

Suspension of director/company insolvency filing duties? Other notes
  • The Corporate Insolvency and Governance Act 2020 (introduced to Parliament on 20 May) (the “Act”) came into force on 26 June.
  • The Act introduced a new standalone moratorium (initially for 20 business days but extendable) which is intended to give viable companies an opportunity to develop a business rescue plan, free from immediate creditor pressure. Given the extent of the eligibility exclusions, the standalone moratorium procedure is unlikely to be suitable for companies with complex financing structures. It may however be useful for SMEs.
  • The extent of the moratorium is similar to the existing administration moratorium, but it also provides for a payment holiday for certain pre-moratorium debts and prevents the crystallisation of floating charges (there are carve-outs for financial collateral).
  • However, debts or other liabilities arising under a contract or other instrument involving financial services are excluded from the moratorium payment holiday. Such liabilities would include amounts owed under loans, finance leases, security contracts and swaps. The company would therefore have to be able to pay all such amounts as and when they fell due, in order to use the moratorium process.
  • The Act introduced a new prohibition on the enforcement of contractual termination rights which arise solely because a party has entered into an insolvency procedure. This may have significant consequences for some suppliers of goods and services, although its impact will be lessened by a long list of exceptions. For example, the prohibition does not apply to:
  • contracts entered into by banks, insurers, investment banks or securitisation companies (whether such entity is the customer or the supplier); or
  • contracts for the provision of financial services consisting of (i) lending (including the factoring and financing of commercial transactions), (ii) financial leasing and (iii) providing guarantees or commitments. The list of excluded contracts also includes swap agreements, derivatives, futures or forwards contracts, securities contracts and commodities contracts.
  • The Financial Reporting Council, the Financial Conduct Authority and the PRA issued a joint statement in March 2020, urging lenders and other users of financial statements to consider carefully their responses to potential breaches of covenants arising directly from the Covid-19 pandemic and its consequences. Where those uncertainties are of a general nature or are firm-specific but unrelated to the solvency or liquidity of the borrower, the authorities have said that they would expect lenders to consider the need to treat them differently compared to uncertainties that arise because of borrower-specific issues and in doing so consider waiving the resultant covenant breach. They would expect firms to do so in good faith and not to impose new charges or restrictions on customers following a covenant breach that are unrelated to the facts and circumstances that led to that breach.
  • The Act introduced temporary restrictions on creditors presenting winding-up petitions where the company’s inability to pay is due to the financial effects of Covid-19 on its business. A creditor may still present a petition if they can successfully show that they have reasonable grounds to believe that the company would still have been insolvent irrespective of the impact of Covid-19.
  • These restrictions apply (retrospectively) to petitions presented between 27 April and and 31 December 2020 (extended from 30 September 2020. A new court Practice Direction relating to the Act sets out a revised practice for dealing with winding-up petitions during this period. It involves a lengthier process - a pre-trial review and a preliminary hearing before, if appropriate, the petition can be heard at a winding-up hearing.
  • HMRC paused its insolvency activity in March 2020 announcing that it would only petition for winding-up orders where essential (i.e. fraud, criminal activity).
  • There is no obligation to file for insolvency, though delay can give rise to liabilities for the directors.
  • However, the Act provides that the Court should assume that a director is not liable for wrongful trading during the period between 1st March 2020 and 30th September 2020. The blanket protection does not, however, extend to, among others, the directors of banks and insurance companies.
  • It is important to note that while liability for wrongful trading may not apply, directors may still face liability for breach of other statutory and common law duties, including their duty to have regard to the interests of creditors and their duty to exercise due skill and care. Directors would also risk being disqualified for conduct which might otherwise have led to liability for wrongful trading.
  • For more on the Corporate Insolvency and Governance Act see our client alert on the Bill (as originally published) here.
  • A temporary Insolvency Practice Direction has been introduced with effect from 6 April 2020 to provide workable solutions for court users during the current COVID-19 pandemic. Its intention is to avoid, so far as possible, the need for parties to attend court in person and to take into account the likelihood of the Court needing to operate with limited staff and resources.
  • In March 2020, Companies House introduced a temporary suspension of voluntary strike-off action. This applied to applications registered before 10 July, but on that date Companies House announced that the suspension would be lifted from 10 September and that the process to dissolve companies that have filed for voluntary dissolution would restart.
  • The compulsory strike-off process (e.g. for late filing of accounts) will be resumed for dormant/ non-compliant companies from 10 October 2020.
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