What insolvency procedures are available in the jurisdiction? Does management continue to operate the business and / or is the debtor subject to supervision? What roles do the court and other stakeholders play? How long does the process usually take to complete?

Restructuring & Insolvency

Italy Small Flag Italy

Bankruptcy (fallimento) is the ordinary judicial procedure aimed at liquidating the insolvent debtor's assets and distributing the proceeds pari passu among the creditors in proportion to their respective claims. The application of the equal treatment rule has limited exceptions recognised in law that benefit secured and preferential creditors with statutory priority.

A bankruptcy adjudication means that the debtor is deprived of the power to manage and dispose of its assets and a trustee is appointed to administrate the estate. The trustee acts under the supervision of an insolvency judge and the creditors' committee, whose authorisation is required to carry out certain transactions outside the ordinary course of business.

Since bankruptcy proceedings generally take a very long time (being 7/8 years the average duration), a provision has been recently enacted declaring that liquidation of the debtor's assets must be finalised within two years from the bankruptcy declaration.

Certain kinds of enterprises (banks, insurance companies, co-operatives, public entities) are subject to different insolvency proceedings called compulsory administrative liquidation (liquidazione coatta amministrativa).

Spain Small Flag Spain

According to Spanish Insolvency Act, Insolvency judicial proceedings or Bankruptcy, is the compulsory process in which to handle financial distressed. Spanish Insolvency Act, therefore, only foresees one kind of judicial procedure - the so-called Concurso de Acreedores-. However, under certain circumstances, the proceedings could be managed throughout the abbreviated process envisaged by the Insolvency Act (i.e. when the debtor files together with a pre-packaged plan or a liquidation plan containing a binding offer to purchase an existing business unit , etc.)

All Insolvency proceedings are directed by the commercial court with jurisdiction and managed by a specific body called the “insolvency administrator” (administración concursal).

The declaration of insolvency implies that the directors lose control over the insolvent debtor’s activity, since their powers of management and disposition would be intervened or even exclusively controlled by the insolvency administration. In case the insolvency is voluntary, debtor’s powers to manage and dispose of its business may be under supervision by the insolvency administrator. However, if the insolvency is mandatory, then the debtor is removed from its power over its assets, which are managed by the insolvency administrator. These situations may be modified at any time by the competent court.

The insolvency procedure is divided into different phases which may last (approximately and always depending on the workload of the competent Court), in average:

  1. Common phase – between 6 to 18 months: it lasts from the insolvency is judicially declared until the insolvency administrator files its definite report.
  2. Composition phase – between 6 to 12 months: it lasts from the date when the common phase is closed and the composition phase is opened, until the proposal for composition agreement is judicially approved, or rejected by the creditors.
  3. Liquidation phase – between 12 to 18 months: it lasts from the date when the liquidation phase is initiated, until the conclusion of the insolvency proceedings.
  4. Categorisation phase – between 3 to 9 months: it lasts between 6 to 9 months. When the liquidation phase starts, the insolvency must be categorised. However, in the event of a composition, the categorisation process will not start when judicial approval of a composition agreement is granted whereby a debt relief lower than a third of the amount of the credits or a grace period not exceeding three years is established for all creditors or for one or several classes, including also those defined in article 94.2 LC (e.g. labour, public, financial and others), unless the composition is breached.

Japan Small Flag Japan

There are two options for court liquidation for insolvent companies: bankruptcy proceedings (hasan) and special liquidation proceedings (tokubetsu-seisan), the latter being more flexible than the former. Special liquidation proceedings allow a director or an officer of the company to be the liquidator to execute the liquidation, while bankruptcy proceedings require a court-appointed trustee to execute the liquidation.

Because of the nature of bankruptcy as liquidation, the main role of a trustee and a liquidator is to realise and distribute the debtor’s assets rather than to continue its business. However, a trustee may operate the debtor’s business to the extent necessary and appropriate to sell the debtor’s assets at maximum value.

Both of a trustee and a liquidator are subject to court supervision. For example, the court may on its own motion or upon a petition by an interested party remove a trustee or a liquidator if it finds that he/she is not administering the debtor’s assets appropriately. In addition, some activities of a trustee or a liquidator are subject to the court’s approval. Such activities include (but are not limited to):

  • the transfer of real property rights;
  • the borrowing of money;
  • the filing of an action; and
  • the waiver of a right.

According to court statistics, more than 90% of bankruptcy proceedings are completed within one year and it is rare to take more than two years to complete. No statistics are available for special liquidation proceedings but the period within which to complete them is generally similar to that of bankruptcy proceedings. In 2015, there were 71,533 bankruptcy proceedings (including those for individuals) and 286 special liquidation proceedings initiated.

Denmark Small Flag Denmark

There are two types of in-court insolvency procedures in Denmark; restructuring and insolvency.

The purpose of restructuring is to obtain an arrangement with the creditors, transfer a business, or a combination or wind down operations in cooperation with the former management.

The purpose of an insolvency procedure is to sell the debtor’s assets with a view to distributing the seller’s assets between the creditors.

• Does management continue to operate the business and / or is the debtor subject to supervision?
In respect of restructuring proceedings, the management continues to operate the business together with a restructuring administrator appointed by the in-solvency court. The management must not make important decisions without the consent of the restructuring administrator.

In certain circumstances the restructuring administrator may take over the management
When the insolvency order has been issued, the management is deregistered and subsequently the trustee takes over the management of the business.

• What roles do the court and other stakeholders play?
In restructuring proceedings, the proposed solution must be presented to the creditors for their approval. If the proposed solution is not accepted by the creditors, insolvency proceedings will be commenced against the debtor.

In insolvency proceedings, the trustee has the full decision-making power and may consequently deal with the assets of the estate without the consent of the creditors.
In respect of restructuring proceedings as well as insolvency proceedings, the insolvency court is the supreme authority and is not to approve transactions but is only to ensure that the administration is in accordance with the Danish Insolvency Act.

• How long does the process usually take to complete?
A restructuring process may take up to 12 months at which time a restructuring proposal is to be voted on. The restructuring administration usually takes 2-6 months.

There is no specific timeframe for the administration of an insolvent estate but it is typically 1-2 year. In case of particularly complicated estates or if legal proceedings are conducted, the administration may take considerably longer.

Australia Small Flag Australia

There are 3 formal insolvency procedures that operate in:

  1. Voluntary administration
  2. Liquidation (including provisional liquidation)
  3. Receivership

Each of the formal processes, other than receivership, has a moratorium in place to prevent unsecured creditors (including shareholders) from enforcing their rights. Whilst no such moratorium exists in a receivership, to the extent an unsecured creditor takes action to enforce its rights, it has recourse to the assets which are secured and in the control of the receivers.

Voluntary administration
Voluntary administration is a creditor driven process, and whilst designed to be short and temporary, can last for months if not years in complex situations.

Upon appointment, the administrator takes control of the company’s business, affairs and property. The administrator has extensive powers and is entitled to perform any function and exercise any power the company or its officers would otherwise perform. In performing this function, the administrator will be acting as the company’s agent. Administrators are granted a right of indemnity out of the company’s property (other than retention of title property that is subject to a perfected PPSA security interest).

The purpose of the voluntary administration process (outlined in Part 5.3A of the Corporations Act) is to either:

(a) maximise the chances of the company, or as much as possible of its business, continuing into existence; or

(b) result in a better return for the company’s creditors and members than would result from an immediate winding up, if it is not possible for the company or its business to continue to exist.

In practice, administrators tend to recommend or adopt one of three strategies; a simple sale of business and assets, a move to liquidation or a recapitalisation plan (effected through a deed of company arrangement). The latter two strategies require the approval of 50% in number and 50% in value of creditors.

Liquidation
In Australia, a company may be wound up:

  • if solvent, voluntarily by its members (members’ voluntary liquidation); or
  • if insolvent, by its creditors (creditors’ voluntary liquidation) or compulsory order of the court (provisional and compulsory liquidation).

Upon appointment, the liquidator will control the affairs of the company and has the power to realise and distribute assets to the exclusion of the directors and shareholders. A provisional liquidator will also control the affairs of the company to the exclusion of the directors and shareholders but cannot realise and distribute assets.

Court involvement is required in a compulsory winding up, where it will appoint the liquidator. It will also consider applications by the liquidator, pursuant to section 480 of the Corporations Act for an order that the liquidator be released and that the company be deregistered after the liquidator has realised all of the property of the company or so much of that property as can in his or her opinion be realised without needlessly protracting the winding up, has distributed a final dividend (if any) to the creditors, has adjusted the rights of the contributories among themselves and made a final return (if any) to the contributories The court must be satisfied that no creditor will be adversely affected by the order.

The length of a liquidation process will vary depending on the company and how complex the business and affairs of the company are. Other factors that will affect the length of the liquidation include whether litigation is necessary to recover funds/assets belonging to the company. For a small company, with uncomplicated affairs, the winding up can usually be completed between 12 to 18 months. Where the company has more complicated affairs and is the subject of litigation, the winding up can take some time.

Receivership
Upon the appointment of a receiver or receiver and manager the control of the company’s business and affairs is taken over by the receiver. The receiver will also take immediate possession of the company’s assets. Directors of the company maintain their statutory duties during this period and are obliged to assist the receiver if need be, but only have such powers as a receiver allows them to have.

Receivership is a process driven by secured creditors. Most commonly, receivers are appointed pursuant to the relevant security documents granted in favour of the secured creditor when a company has defaulted and the security has become enforceable. Although it is uncommon, a receiver can also be appointed pursuant to an application to the court. Court appointments are normally done to preserve the assets of the company in circumstances where it may not be possible to otherwise trigger a formal insolvency process.

Like liquidation, the length of the receivership process is uncertain. A receivership concludes when the secured assets are realised and the secured creditors are repaid (either in full or to the fullest extent possible). When realising assets, receivers are under a statutory obligation to obtain ‘market value’ or, in the absence of a market, the best price obtainable in the circumstances under section 420A of the Corporations Act. The process will depend on the nature and size of the assets to be realised and the relevant market in which they are to be sold.

Cayman Islands Small Flag Cayman Islands

Insolvency proceedings in the Cayman Islands are generally subject to the supervision of the Court. The main processes are as follows:

  1. Liquidation (Official and Voluntary);
  2. Provisional Liquidation (discussed at section 7 below); or
  3. Scheme of arrangement (discussed at section 7 below). (Although not an insolvency proceeding per se, schemes may be used within or outside an insolvency proceeding for the purpose of achieving a compromise with creditors or shareholders.)

Official Liquidation
A company is placed into official liquidation upon the making of a court order for the appointment of liquidators. Official liquidators will act as officers of the Court and their primary duty will be to collect in the company's assets and distribute them pari passu to the company's creditors in accordance with the statutory waterfall of payments, with any surplus assets available for distribution to the company's shareholders.

The powers of directors will cease upon the appointment of official liquidators, who will control the company's affairs, subject to the court's supervision.

On the making of a winding-up order, an automatic stay is imposed prohibiting any suit, action or other proceeding from being proceeded with or commenced against the company without the leave of the Court and any rights of action against the company are converted into claims in the liquidation proceedings. Notwithstanding the making of a winding up order, a secured creditor is not prohibited from enforcing any valid security interest.

The length of the liquidation process varies on a case by case basis and will largely depend on the nature and complexity of the company's business and the issues required to be dealt with in order to allow a liquidator to wind up a company's affairs. There is no timeframe within in which a liquidation must be completed.

Voluntary Liquidation
Although not technically an insolvency procedure, the Companies Law also provides a mechanism by which a company incorporated in the Cayman Islands may be wound up voluntarily by an ordinary resolution of its members if it is unable to pay its debts as they fall due.

The voluntary liquidator must apply to the Court for an order bringing the voluntary liquidation under the Court's supervision unless within 28 days of the commencement of the liquidation, the directors sign a declaration that the company will be able to pay its debts in full (with interest) within a period not exceeding 12 months after the commencement of the liquidation. If a supervision order is made, the liquidation will thereafter proceed in the same manner as an official liquidation.

Switzerland Small Flag Switzerland

There are two main types of formal insolvency and restructuring proceedings in Switzerland: bankruptcy (i.e., liquidation) proceedings (Konkursverfahren) and composition proceedings (Nachlassverfahren).

In bankruptcy proceedings, all business activities of the insolvent debtor are generally discontinued and the management can no longer validly act on behalf of such debtor. All acts necessary in the context of the bankruptcy proceedings are subsequently carried out by the competent bankruptcy authorities and the receiver in bankruptcy. In contrast, an insolvent debtor may generally continue its business in the context of composition proceedings. While the executive bodies continue to be in charge of business operations, the insolvent debtor is typically placed under supervision by an administrator who needs to approve certain transactions and can issue instructions of both general and specific nature. The court can further limit the management rights of the insolvent debtor.

The opening of both proceedings must be ordered by the court. The court's further involvement in bankruptcy proceedings is generally limited whereas its role is more prominent in composition proceedings where a number of actions and procedural steps must be approved or granted by the court. Creditors benefit from various rights in both types of proceedings, including inspection rights, rights to challenge certain acts of the insolvency practitioner and participation rights at court hearings.

The duration of insolvency proceedings largely depends on the complexity of the case. Composition moratoria which are terminated due to a successful restructuring will typically take considerably less time (anywhere between a few months and two years) than bankruptcy proceedings in relation to large companies which involve numerous jurisdictions and entail a variety of complex legal issues (which may easily last up to five years or longer).

Where a debtor is over-indebted, restructuring may also be pursued by way of a corporate moratorium or postponement of bankruptcy (Konkursaufschub) which will also have to be granted by a court. An administrator may be appointed by the court but existing executive bodies generally remain in control of the management of the debtor. The statutory framework for a postponement of bankruptcy is fragmentary. In view of inherent uncertainties, it is not used very often in the German speaking part of Switzerland to restructure corporate debtors. The postponement of bankruptcy is proposed of being abolished within the context of the more general revision of Swiss corporate law referred to under section 3 above.

Germany Small Flag Germany

German insolvency law knows only a single, uniform procedure (Einheitsverfahren), so that when proceedings are commenced their result (restructuring or liquidation) is open. There are, however, two procedural phases (see below) and certain variations available designed to facilitate restructurings (see question 7).

Preliminary insolvency proceedings
The petition itself does not commence insolvency proceedings. Preliminary insolvency proceedings are commenced by court order, pursuant to the petition by the debtor or one of its creditors, to enable the insolvency court to gather all the information required to determine whether the prerequisites for the opening of insolvency proceedings are met. It may take any measures necessary to protect the creditors against any detrimental changes with regard to the debtor's assets until a decision with respect to the petition has been made. Those measures usually include the appointment of a preliminary administrator (vorläufiger Insolvenzverwalter), an order preventing the debtor from transferring assets and/or stipulating that transfers are only effective with the consent of the preliminary administrator.

The court generally allows the preliminary administrator four to eight weeks to submit a written report, including (i) a high level description of the company and its activities, (ii) a statement as to whether an insolvency event has occurred, (iii) a statement as to whether the company can be restructured as a going concern or whether it should be liquidated and (iv) a statement as to whether there are sufficient funds to cover the cost of the insolvency proceeding. In practice, the preliminary administrator is responsible for running the business as a going concern and not only establishing whether or not the company can be restructured but also laying the groundwork for any possible restructuring. He or she needs to co-operate with the managing director who regularly remains in charge, both regularly form a kind of a tandem.

Preliminary proceedings generally take up to three months because the preliminary insolvency administrator will often utilise the funding provided by the State to cover the employees’ wages during a three month period preceding the opening of insolvency proceedings to increase the chances of rescuing the company’s business. The preliminary proceedings end upon the issue of the court order opening (standard) insolvency proceedings.

Standard Insolvency Proceedings (liquidation)
Once insolvency proceedings are opened, the court appoints an insolvency administrator who normally will be the same person as the preliminary administrator. The authority to manage and dispose of the estate’s assets becomes exclusively vested in the administrator (Sec. 80 Insolvency Code). Dispositions made by the debtor’s management after the opening of proceedings are void.

The creditors have significant influence. Their assembly or committee (if appointed) is vested with important rights, including the approval of (i) the appointment of the administrator and (ii) the sale of the business as a whole, of significant assets or shareholdings belonging to the estate.

The court is not permitted to direct the administrator in the execution of his duties and does not approve sales or other transactions.

The order opening insolvency proceedings will include the date for the first creditors’ assembly, usually six to eight weeks thereafter. In the preliminary proceedings, it may already have been determined that the company cannot survive as a going concern. If the first creditors’ assembly agrees that this course should be pursued, the insolvency administrator liquidates the company’s assets and, usually after a period of several years, sets a date with the court for the final hearing, following which the unsecured creditors receive a dividend of the liquidation proceeds.

The following restructuring procedures (see question 7):

  • Self-administration Proceedings
  • Protective Shield Proceedings (Schutzschirmverfahren)
  • Insolvency Plan

Mexico Small Flag Mexico

The Mexican insolvency law (Ley de Concursos Mercantiles, the “Insolvency Law”) contemplates a single proceeding for reorganization (concurso mercantil) and bankruptcy (quiebra) (the “Insolvency Proceeding”) with two successive stages:

  1. Mediation. The first stage, known as the “mediation” stage, is compulsory and is designed to reorganize the insolvent entity (the “Mediation Stage”).
  2. Bankruptcy. The second stage, known as the “bankruptcy stage”, provides for the bankruptcy and liquidation of the insolvent entity (the “Bankruptcy Stage”).

During Mediation Stage, the directors or managers of the insolvent entity will remain in their respective positions, and the mediator (conciliador, the “Mediator”) will be in charge of supervising the accounting books and all transactions carried out by the insolvent entity, with the goal of maintaining the insolvent entity as an on-going business.

In order to preserve the estate of the insolvent entity, the Mediator may request the insolvency court (the “Insolvency Court”) to (i) remove directors or managers; or (ii) order the insolvent entity to cease operations. During the Bankruptcy Stage, directors or managers of the insolvent entity will be removed and the insolvent entity will be brought under the management of a bankruptcy trustee appointed by the Insolvency Court.

The Mediation Stage has a maximum term of 365 calendar days. If a valid reorganization agreement (the “Reorganization Agreement”) has not been reached upon the conclusion of such term, the insolvent entity will be automatically declared in bankruptcy. The Bankruptcy Stage will end upon the sale of the estate of the insolvent entity and the payment of its obligations up to the amount of its estate, as described in our answer to Question 5 below.

British Virgin Islands Small Flag British Virgin Islands

The main insolvency procedure available in the BVI is liquidation. Although the IA contains provisions for administration, these have not yet been brought into force.

The company, a creditor, a member, a supervisor of a creditors’ arrangement in respect of the company, the Financial Services Commission, or the Attorney General may apply to the court for the appointment of a liquidator on the bases that the company is insolvent, that it is just and equitable to appoint a liquidator, or that liquidation is in the public’s interest. The court will generally appoint the liquidator proposed by the applicant, though the company’s creditors may vote to replace the court-appointed liquidator at the first creditors’ meeting. Directors’ powers, functions, and duties cease on the appointment of a liquidator, save to the extent they are permitted by the IA or authorised by the liquidator. Additionally, the members of a company may resolve to put the company into liquidation without the need for an application to court.

Liquidations are conducted by the liquidator, though the liquidator must report to a committee of creditors, except in certain circumstances where the liquidator concludes that there is no real prospect of a distribution. The court exercises a supervisory jurisdiction and it is common for the order appointing the liquidator to require the liquidator to seek the court’s sanction before exercising certain powers such as compromising claims and entering into arrangements with the body of creditors.

The liquidator’s statutory duties are to gather in and preserve the company’s assets, to decide on claims, to make distributions in accordance with the statutory priorities, and to distribute any surplus to the company’s members. At the conclusion of the liquidation, the liquidator will apply to the court for release, and the company will be dissolved.

The BVI courts tend to hear commercial matters quickly and efficiently. It is possible to petition the court for a winding-up order and obtain the appointment of provisional liquidators within 24 to 48 hours, if the matter is particularly urgent. The order will be issued at the time of the hearing unless the decision is reserved. If judgment is reserved, it is typical for a decision to be given within a matter of days if very urgent, or two to three weeks.

In contested liquidations, it is possible to arrange a hearing very quickly if the matter is very urgent and if there would be significant consequences arising for one or more of the parties if the hearing were to be delayed.

In cases where no provisional liquidator is sought, the time between filing the initial application and the first hearing of the petition is generally around three weeks, to permit time for service of the application and advertisement of the hearing in compliance with time requirements.

Bermuda Small Flag Bermuda

Where a company is insolvent, there are two forms of liquidation that will be relevant: compulsory liquidation and creditors’ voluntary liquidation. Both are creditor driven processes whereby the liquidator takes over the company’s management.

A liquidator does not need to be a licensed insolvency practitioner nor resident in Bermuda. The liquidator may carry on the business of the company so far as is necessary for its beneficial winding-up, and during such period, will have the power and authority to supervise the conduct of the business on a day-to-day basis.

Compulsory liquidation

Compulsory liquidation is conducted under the supervision of the Court. It is initiated by a petition presented to the Supreme Court by one of:

  • a creditor, including contingent or prospective creditors;
  • the company itself (by a directors' resolution);
  • the power of the directors themselves to petition for the compulsory winding up of an insolvent company in certain circumstances has been recognised by the Supreme Court (In re First Virginia Reinsurance Ltd. [2003] Bda LR 47.
  • in certain circumstances, the Registrar of Companies (section 163 Companies Act 1981) or the Supervisor of Insurance (section 35 Insurance Act 1978).

The liquidator of a company in Bermuda is described as a permanent liquidator (in contrast to a provisional liquidator). On appointment, an automatic stay comes into effect staying creditor actions, though secured creditors remain entitled to enforce their security (section 167(4) Companies Act 1981).

Once the liquidator has realised all the company's assets and made distributions to creditors and shareholders, the liquidator must apply for a release from the Court and the company will be dissolved.

Creditor’s voluntary liquidation

A creditor’s voluntary liquidation is controlled by creditors of a company, although somewhat incongruously, it must be initiated by the company's shareholders through a resolution based on the recommendation of the board of directors (section 216 Companies Act 1981). Shareholders of the company approve the liquidation by a simple majority vote (unless the company's bye-laws specifically provide otherwise), after which a creditors' meeting must be held within 24 hours. At that meeting, a majority by value of the creditors present and voting appoint the liquidator and may also appoint a committee of inspection and fix the liquidator's remuneration.

The automatic stay on proceedings being commenced or continued against the company does not apply in a voluntary liquidation. However, the court can consider a liquidator's application to grant such a stay of creditor action.

At the conclusion of the voluntary liquidation, the liquidator must convene final creditors' and shareholders' meetings. Within seven days of the meetings, the liquidator must notify the Registrar of Companies of the meetings and provide an account of the liquidation.

Role of stakeholders

Those with an economic interest in the company will have influence during the process. For both compulsory liquidation and creditor’s voluntary liquidation, the unsecured creditors will therefore play the most significant role. In a voluntary liquidation, creditors can determine the course of the liquidation through their representatives on the committee of inspection.

Length of process

The length of time the process takes varies greatly depending on matters such as the size and complexity of the company and its debts.

Updated: April 27, 2017