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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. As you will appreciate, this is a dynamic situation, and both the measures announced and applicable legal framework will continue to evolve in the coming days, weeks and months

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: 27 March 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 has 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.                                                                                                                                                                                 
No restrictions on creditor insolvency filings as yet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

No formal suspension of insolvency filing duties has been implemented as yet. Furthermore, access to courts has been restricted to any urgent matter, bail applications, Maintenance and Domestic Violence related matters and cases involving Children issues. In our view, insolvency procedures will not fall into these categories.  

 

A general extension has been 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 will not run during the period 27 March 2020 until 16 April 2020 for business rescue proceedings that have not yet commenced.

 

CIPC has 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.

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Asia Pacific

Australia

Content provided by our alliance partner Allens.
Last updated: 22 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.                                                                                                                                                                                                                                                                                                                              

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.                                                                                                                                                        

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 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: 31 March 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: 24 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 statutory restrictions on creditor rights as yet.

 

However, by a notification dated 29 March 2020, the Reserve Bank of India (“RBI”) has permitted banks, all India financial institutions and non-banking financial companies (“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 May 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 May 2020 and permit such interest to be paid immediately after the completion of the moratorium period.

 

Indian courts have taken a note of the economic disruption causes by COVID-19 and also interpreted the RBI notification liberally to provide borrowers relief against actions taken by lenders. While the language of the RBI notification suggests that the moratorium and related benefit are discretionary on the part of the Lending Institutions, the cases in relation to the RBI notification before the courts have proceeded on the basis that such moratorium is applicable, and courts have gone on to interpret the notification to exclude the time period of the moratorium for asset classification purposes. In one recent judgment, the court permitted a finance company to suspend payment on its bonds since it had granted a moratorium to its own borrowers, though the RBI notification does not cover bonds or capital markets investors. Separately, courts have granted interim injunctions against lenders for enforcement of security and even payment under bank guarantees in light of the covid situation.

No restrictions on making insolvency filings as yet.

 

However, 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. 

 

From separate new reports, we understand that the Government of India is considering suspending section 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 (which relate to initiation of CIRP) for a period of 6 months so as to stop companies at large from being forced into insolvency proceedings in such force majeure causes of default.

No suspension as yet                                                                                                                                                                                                                                              

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Indonesia

Last updated: 4 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.
  • 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: 27 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 binding restrictions on creditors’ rights "as yet".

 

  • However, on 7 April, the Financial Services Agency 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.

No binding restrictions on creditor insolvency filings as yet.

No suspension as yet

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Singapore

Last updated: 12 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
                                                                                   

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

 

  • 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.                                                                                                                                                                                        
                                                                                                     

Threshold for company bankruptcy filings to be raised from S$10,000 to S$100,000.

 

Statutory period to respond to creditor demands to be extended to 6 months from 21 days.

 

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: 21 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
                                                                                   
  • 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: 22 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
                                                                                   

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: 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
                                                                                   
  • The following measures apply 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 is prevented from 24 April until 17 June 2020 for contracts entered into before 24 April 2020.
  • Conservatory and executory attachments are suspended, and no other enforcement measures can be taken by creditors. Exceptions apply to mortgages and financial collateral.
  • 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”).
  • Creditor insolvency filing is not possible from 24 April to 17 June 2020 in respect of 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.. 
  • The company insolvency filing duty is lifted from 24 April to 17 June 2020. 
  • The measures can be extended beyond 17 June 2020 by way of a new Royal Decree (this does not apply to the Payment Moratorium).There is no political agreement on the restructuring and insolvency measures to be taken as yet.  We continue to monitor.                                                                                                                                         

France

Last updated: 28 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
                                                                                   
Where their purpose is 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) shall be deemed not to have commenced or taken effect if that period has expired between 12 March 2020 and 23 June 2020 (included) (the "Protected Period".

 

Such clauses will become 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 has not performed its obligation in the meantime.

 

The effectiveness of acceleration or termination clauses sanctioning the breach of an obligation (other than the payment of a sum of money) which are to be performed at a date beyond the end of the Protected Period, will also be 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).
Note that the parties can 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.

A state of cash-flow insolvency (état de cessation des paiements) is where a debtor is unable to meet its outstanding liabilities with its available assets, including any undrawn credit lines or moratoria granted. But, cash-flow insolvency assessment rules have now been amended (by ordinance No 2020-341 and ordinance No 2020-596).

 

Until 23 August 2020 (included), the state of cash-flow insolvency shall be assessed in light of the debtor’s situation as at 12 March 2020.

 

This means that creditors will not be able to apply for the insolvency of a debtor unless they can evidence cash flow-insolvency as at 12 March 2020 or fraud on the part of the debtor.

Ordinarily, the state of cash-flow insolvency would trigger 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 already filed for (pre-insolvency) conciliation proceedings in the meantime.

 

As noted, under the amended cash-flow insolvency assessment rules, until 23 August 2020 (included) cash-flow insolvency will be assessed in light of the debtor’s situation as at 12 March 2020. As such, the debtor’s legal representative will not be liable for a late filing (except in case of fraud) if the debtor becomes cash flow insolvent between 12 March 2020 and 23 August 2020 (included).

 

This means that:

 

  • the debtor can still file for judicial reorganisation or liquidation proceedings (notably to benefit from the coverage of wages via the French State wages guarantee fund) but has no obligation to do so;
  • the debtor may also file for safeguard proceedings or request the opening of conciliation proceedings, regardless of its cash-flow situation after 12 March 2020; and
  • the debtor may also request the opening of conciliation proceedings after 12 March 2020 to the extent it was not cash-flow insolvent for more than 45 days as at 12 March 2020 according to the Commercial Court of Paris’ interpretation of the Ordinance No 2020-341 published on 5 April 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) have been relaxed (pursuant to ordinance No 2020-341 and ordinance No 2020-596).

 

Amendments have also facilitated communication with the court and the court appointed trustees, as well as the organisation of hearings (using larger means of communication in particular) (pursuant to ordinances No 2020-341, No 2020-304 and 2020-306 dated 25 March 2020, and No.2020-595).

 

Ordinance No 2020-596 recently introduced further amendments of French insolvency law:

 

  • 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);
  • 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);
  • facilitating the implementation of restructuring plans in certain circumstances (all debtors are now eligible to file for accelerated safeguard and accelerated financial safeguard, exclusion of challenged claims in the draft plan, shortening of creditors’ individual consultation deadline);
  • aiming at facilitating the financing of the observation period (and beyond) as wellas the restructuring plans (creation of a safeguard and a reorganisation privilege).

Germany

Last updated: 30 March 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.                                                                                                                                                                                                                                                            

For an insolvency petition filed by a creditor to be successful, the insolvency of the debtor must have occurred before 1 March 2020.

 

The rules on the suspension of the duty to file for insolvency (see right) do not apply for the filing by a creditor.                                                                                                                                                      

                                  

A new law suspends the otherwise criminal liability for failure to file when required. There is a temporary suspension of the duty to file for insolvency (usually within 21 days of cash-flow insolvency and/or over-indebtedness) until 30 September 2020.

 

The suspension does not apply in the following events:

 

  • 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.

 

The new law enters into force with retroactive effect from 1 March 2020.

 

In addition to the suspension of filing duties, the law clarifies the impact of the suspension to file for insolvency on payment restrictions:

 

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

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

Italy

Last updated: 23 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                                                                

SMEs: moratorium on loans

 

Legislative Decree no. 18 issued on 17 March 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.

 

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

 

Legislative Decree no. 23 issued on 8 April 2020 (the “Liquidity Decree”) 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).
  • Please note that the abovementioned measures are subject to further amendments that could be made when such Legislative Decrees will be converted into law.

  • (i) Insolvency petitions (filed both by creditors and directors of the relevant company) and (ii) petitions aimed at obtaining by the Court the declaration of insolvency of those companies subject to compulsory administrative liquidation or extraordinary administration procedure and not to bankruptcy, filed between 9 March 2020 and 30 June 2020 (the “Relevant Period”) are not admissible, except for those petitions filed by the public prosecutor together with the request that precautionary measures are issued by the Court to protect the assets of the company.
  • Furthermore, the Liquidity Decree states that if, following the Relevant Period, bankruptcy is declared, 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 Relevant Period.
  • No obligation since, pursuant to the Liquidity Decree, insolvency petitions filed by directors between 9 March 2020 and 30 June 2020 are not admissible by the Court.
  • 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.
      

Proceedings in the Italian courts are generally suspended until 11 May 2020, except for proceedings whose delay may cause a material injury to the parties. Some local courts have already clarified that insolvency proceedings and the periods set out under Italian insolvency law are also suspended. 

 

Additional measures are expected to be approved by the Italian Government in the coming weeks.

 

Luxembourg

Last updated: 11 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. 

 

But, general principles of acting in good faith and reputational questions to be considered.                                                                                                                                                                                                                                         

No restrictions on creditor bankruptcy filings as yet.

 

But reputational questions to be considered.                                                                                                                                                                                                                                                                                    

A Grand-Ducal Regulation dated 25 March 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 following matters are being maintained by the courts:

 

  • bankruptcies and liquidations of companies on special grounds of urgency
  • bankruptcy oppositions

Bankruptcy writs are maintained as follows:

 

  • Commercial matters referred by the 2nd chamber: Tuesday 9 AM (6th chamber) and Monday 3 PM (15th chamber)
  • Bankruptcy cases referred by the 2nd chamber: Monday 3 PM (15th chamber)
  • Winding-up of companies: Thursday 9 AM (6th chamber) 

All other matters are being adjourned.

 

Prudent to provide to the court registry the name of any Lux entity who wishes to file for bankruptcy to avoid any liability risks for the managers.

 

Service by a bailiff shall not be done in person but through the deposit of a copy of the document in a sealed envelope. On the same day or at the latest on the first working day following the day of service, the bailiff shall send a copy of the document by postal mail to the address indicated in the document.

 

The Luxembourg Bar, the Luxembourg Courts and the Ministry of Justice are currently working on a draft grand-ducal decree aiming at suspending all legal timeframes until the situation gets back to normal. The draft is likely to address procedural timeframes, contractual timeframes and other applicable timeframes (e.g. the timeframe to ask or provide the motives of a dismissal).

 

The ability to submit a third-party opposition or appeal against a declaration of bankruptcy are suspended (Grand-Ducal Regulation dated 25 March).

Netherlands

Last updated: 22 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. 

 

But a number of major Dutch banks (ABN AMRO, ING, Rabobank, Volksbank and Triodos Bank) have announced that they intend to grant a 6 month extension for repayments and 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.

 

The Dutch government, banks and insurers have agreed on a general suspension of the possibility of enforcement sales on residential mortgages until (at least) 1 July 2020

No restrictions on creditor insolvency filings as yet.                                                                                                                                                                                                                                                                                                                                                                               N/A - no obligation, though delay can give rise to liabilities.                                                                                                                                                                                                                                                                         

Dutch courts are closed but remain open for ‘urgent matters’, including for the handling of insolvency proceedings. 

 

Insolvency proceedings are conducted through written submissions and telephone/video conferences only. 

 

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 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: 11 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
                                                                                   

Moratorium on loans until 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 social security and tax obligations.

 

A number of banks (e.g. Caixa Geral de Depósitos, BPI, Santander and Crédito Agrícola) are also offering moratoriums, in addition to the government imposition.                                         

No restrictions on creditor insolvency filings as yet.                                                                                                                                                                                                                                                       Duty to file within 30 days of cash flow insolvency is currently suspended.                                                                                                                                                           

Proceedings in the Portuguese courts are generally suspended, except in case of urgent proceedings. Insolvency proceedings are qualified as urgent proceedings and therefore they are currently not suspended.   

 

Additional measures are expected to be approved by the Portuguese Government

 


 

 

Spain

Last updated: 27 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
                                                                                   

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.).
  • 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.

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).
  • Until 31 December 2020, judges will not agree to process petitions for compulsory insolvency proceedings filed by creditors after the state of emergency was declared. If a debtor voluntarily files for insolvency 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, insolvent debtors will not be under a duty to file for insolvency proceedings, whether or not they have submitted the pre-insolvency notice for protection from creditors under article 5 bis of the Spanish Insolvency Law.
 
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, those debtors whose refinancing agreement has been sanctioned by the court can inform the court that they are in negotiations with creditors to 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.
  • If there is a breach of a court-sanctioned refinancing agreement, debtors will have an additional period (7 months from the declaration of the state of emergency) in which they may inform the courts of the initiation of negotiations with creditors to amend the agreement or to reach another one (and courts will not process any creditor applications for a declaration of breach of the agreements). 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, 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).

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: 23 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.                                                                                                                                                                                                                                                     

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: 22 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
  • The Corporate Insolvency and Governance Bill (introduced to Parliament on 20 May) (the “Bill”) introduces 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, and which may be used primarily by SMEs.
  • The moratorium would be similar in scope to the existing administration moratorium, but it would also prevent the crystallisation of floating charges.
  • 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 Bill also proposes a 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 the long list of exceptions to this prohibition. For example, the prohibition does not apply to:
  • contracts entered into by banks, insurers, investment banks, investment firms, electronic money institutions, payment institutions, operators of payment systems, infrastructure providers, recognised investment exchanges, securitisation companies or any overseas entities performing a similar function. This is the case whether it is one of these entities which is in distress or where one of these entities is a supplier to another firm in distress; 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.
  • In a joint statement issued by the Financial Reporting Council, the Financial Conduct Authority and the PRA on Thursday 26 March 2020, lenders and other users of financial statements are urged 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 Bill temporarily prohibits creditors from bringing winding-up petitions against a company on the basis that it is unable to pay its debts as they fall due, where the company’s inability to pay results from the impact of Covid-19 on its business. A creditor may, however, still present a winding-up petition where they have reasonable grounds to believe that the company would still have been insolvent, even if the impact of Covid-19 on its business were to be disregarded, and the Court may still make a winding-up order based on that petition, if it agrees with the creditor’s assessment. This provision has retrospective effect, applying to any petition presented on or after 27 April 2020. It is, however, only a temporary measure, and will cease to apply on 30th June 2020, or, if later, on the date falling one month after the Bill comes into force.
  • HMRC has announced that, for now, it will not petition for winding-up orders unless it is deemed to be 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 Bill provides that the Court should assume that a director was not guilty of wrongful trading during the period between 1st March 2020 and the later of 30th June 2020 and the date falling a month after the new legislation comes into force. The blanket protection does not, however, extend to the directors of banks and insurance companies.
  • It is important to note that while liability for wrongful trading may not apply, the legislation does not release directors from any liability resulting from a breach of other statutory and common law duties, including their duty to have regard to the interests of their creditors and their duty to exercise due skill and care. The legislation is also silent as to whether a director could still be disqualified for conduct which might otherwise have amounted to wrongful trading.
  • For more on the Corporate Insolvency and Governance Bill see our client alert 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.
  • The temporary Insolvency Practice Direction also provides users with guidance as to the type of hearings which the Insolvency and Companies Court list will endeavour to provide during the period for which this practice direction is in force. Companies House has temporarily paused its strike-off process to prevent companies being dissolved (e.g. voluntarily or for late filing of accounts). Under the new policy, when a company makes a voluntary application for strike off, Companies House will publish a notice in the Gazette in accordance with its usual process. But Companies House will suspend any further action to dissolve the company in order to protect those who may wish to object to the company being struck off. Companies House will continue to write to companies that have failed to file their annual accounts or confirmation statement but will not publish a Gazette notice indicating its intention to strike off the company. These changes do not apply to businesses being dissolved under an insolvency procedure, such as administration or liquidation.