Is it a debtor or creditor friendly jurisdiction?
Restructuring & Insolvency
The reforms introduced in the last years to the Spanish Insolvency Act have introduced changes that remove some of the practical problems arising in relation to refinancing process. The amendments introduced has included better tools to debtors and creditors to achieve out-of courts refinancing agreements and investors acquiring assets or business units in the in-court proceedings.
However, public creditors remains with privileges and they are not affected by the pre-insolvency status (5.bis notice), the stay in the enforcement of their security or the cram down related to the refinancing agreement sanctioned in courts (homologación).
With respect to restructuring proceedings, the creditor cannot take the initiative, nor has the right, to control the proceedings both institutionally and factually in Japan. For instance, in general, the debtor in civil rehabilitation proceedings or the trustee in corporate rehabilitation proceedings has the right to control almost the entire restructuring proceedings. As a result, we believe that Japan is a debtor friendly jurisdiction.
Generally, Denmark is a creditor friendly jurisdiction as restructuring and in-solvency proceedings may be commenced at the petition of a creditor.
As a starting point, the debtor cannot avoid the restructuring or insolvency proceedings if the creditor is able to prove that the conditions have been fulfilled.
Australia is widely considered to emphasise the rights of creditors over debtors and as such is recognised as a creditor-friendly jurisdiction. Whilst there are some limitations on the options that might otherwise be available to distressed companies and some inflexibility in certain of the tools available to insolvency practitioners, Australia’s insolvency regime is, for the most part, primarily focussed towards protecting the rights and interests of creditors over the interests of debtors. For example, Australia’s voluntary administration regime is controlled by creditors to the exclusion of management and members and its purpose is designed to maximise creditor returns. Further, unlike the United Kingdom for instance, receivership is alive and well in Australia.
Creditors are active participants in all insolvency processes in Australia. They can enforce their rights in each process and, whilst there are some timing limitations placed on their enforcement rights in a voluntary administration scenario, enforcement rights over secured assets are otherwise unfettered.
Secured creditors and employees enjoy a statutory priority in a distribution of assets and, in some circumstances, unsecured creditors can also place themselves in a position of protection. Unlike secured creditors, unsecured creditors are given no legal right to priority, yet due to a particular relationship that may exist with a debtor (for example, as a supplier of essential materials), they can exercise that power to obtain payment and ensure future payments as a practical necessity to maximise value and keep the debtor business running.
The Cayman Islands has traditionally been, and continues to be, regarded as a creditor friendly jurisdiction, with creditors being treated equally irrespective of the jurisdiction in which they are domiciled.
On balance, recent amendments to the DEBA have strengthened the role of the debtor and have made composition proceedings a more attractive tool for restructurings from a debtor's perspective. In particular, the availability of a silent (not published) provisional moratorium and the new statutory rule regarding an exit from a composition moratorium without the need for a composition agreement are aimed at facilitating in-court restructurings. That said, creditors are still adequately protected in various ways so that, from an overall perspective, the DEBA strikes a fair balance between the interests of the involved parties. Active creditors may exercise a significant influence on the proceedings (broad information access rights, consent requirements, participation rights at court hearings etc.) and passive creditors are protected by the supervision of the proceedings by an administrator (which is regularly appointed although not mandatory for all types of proceedings) and the court. Still, in our perception, the majority of restructurings is being pursued outside of formal restructuring proceedings. This route is typically faster but involves additional risks, namely for executive bodies of the debtor.
German insolvency law is creditor friendly:
- The primary goal of German insolvency proceedings is the payment of the creditors’ claims (Sec. 1 Insolvency Code). This applies also in insolvency plan procedures, in particular due to the ‘best interest test’, according to which a dissenting group may only be crammed down if it does not receive less than it would in straight liquidation (question 7).
- Security interests are respected by the Insolvency Code.
However, this conservative view is beginning to change in Germany, also in view of the EU Proposal of 25 November 2016 on preventive restructuring frameworks (COM(2016) 723 final). Practitioners begin to accept that also the debtor must have the right to initiate its restructuring.
We consider that our law is a well-balanced law. Its main purpose is to allow an insolvent entity to get a fresh start by reaching out an agreement with its creditors, but at the same time provides good protection to those creditors. Our Insolvency Law is based on the UNCITRAL Law.
British Virgin Islands
While there are measures that are designed to protect both stakeholders, and the BCA provides significant advantages for companies while they are solvent, the onset of insolvency triggers a number of protections for creditors. As such, the BVI is likely to be seen as a creditor-friendly jurisdiction.
The statutory scheme of Bermuda casts it as a creditor friendly jurisdiction with the emphasis being on creditor recoveries. There are no regimes in place akin to a UK administration or a Chapter 11 proceeding under the US Bankruptcy Code. In recent years however, there has been a strong judicial move in Bermuda, through case law, to embrace a culture of corporate rescue notwithstanding that the Companies Act does not expressly support such an approach. This has in turn has moved Bermuda away from its previous status as being creditor friendly. To date, it is only decisions at first instance which have promoted this approach and it remains to be seen whether the Courts of Appeal take a similar interpretation of the relevant statutory provisions.