Can you comment generally on the success of foreign creditors in enforcing their security and successfully recovering their outstandings on insolvency?
Lending & Secured Finance
The success of foreign creditors in the enforcement of their security and successful recovery of their outstanding claim primarily depends on the type of collateral.
Based on our experience, both, domestic and foreign creditors, are most successful in recovering their claim if it is secured by a pledge on real property, but success depends on:
- the established value of the real estate;
- the amount of the creditors’ outstandings in relation to the value of the real estate; and
- the amount collected at public auction for the sale of the real estate.
According to the Enforcement Act and the Bankruptcy Act the sale of the real estate is implemented by the FINA at an online public auction.
In enforcement proceedings, the real estate cannot be sold at the first online public auction for an amount less than 4/5 of the established value of the real estate and at the second 3/5 of the established value of the real estate.
In bankruptcy proceedings, there are 4 public auctions. At the first online public auction, the real estate cannot be sold for an amount less than 3/4 of the established value of the real estate, at the second for an amount less than 1/2 of the established value of the real estate and at the third for an amount less than 1/4 of the established value of the real estate.
On the fourth online public auction real estate can be sold for 1.00 HRK.
In general, claims of secured creditors are recognized by the insolvency trustee. In principle, Czech proceedings do not discriminate between domestic and foreign creditors. Known creditors from the EU shall be informed by the court immediately by a special notification of the opening of insolvency proceedings and bankruptcy decision. The period of 60 days for registration of claims of foreign EU creditors starts from the date of receipt of the notification. Governing law and a process of security establishment are subject to a close scrutiny by the trustee/court. Security interest over certain assets located in the Czech Republic may be enforceable only if created in compliance with the Czech law (typically shares in Czech companies, real property, pledge of business etc.). It happens from time to time that (even institutional) foreign lenders fail to reflect this in their global transactions involving assets in multiple-jurisdictions.
In practice, the banks usually seek for restructuring of the loans rather than to engage in uncertain and lengthy insolvency proceedings.
No official statistics in relation to the success of foreign creditors are available.
Successful enforcement and/or recovery does not depend on whether the creditor is Finnish or foreign. The enforcement procedures vary somewhat depending on the type of security.
Germany has a very stable enforcement regime and will not pay regard to a creditor's origin (i.e. whether it is a national or international creditor). There are multiple examples where foreign lenders have successfully enforced security, in and outside insolvency.
Enforcement of collateral in Germany requires a bit of planning as the right strategy will have a considerable impact on timing and recovery.
Spanish law does not contain any differential treatment for foreign creditors neither in enforcement nor in insolvency proceedings. Therefore, the success for foreign creditors in these proceedings may only depend on the quality of the security and on the solvency of the debtor.
Enforcement of security and recovery of claims are unlikely on insolvency because of the stay or suspension order which the court issues in the proceedings and the serious legal repercussions of enforcing the security in violation of an existing stay order. In cases that have reached the court involving the enforcement of a creditor’s security in rehabilitation proceedings, the court prefers to prioritize the rehabilitation and restructuring of the distressed company and minimize any burdens imposed by the creditor while the rehabilitation is ongoing, and to rescue the debtor. The Philippine Supreme Court has explained that the priority given to “expediting the rehabilitation of the distressed corporation by enabling the management committee or the rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the rescue of the debtor company.”
Our experience is that there is no difference between Swedish and foreign creditors as it relates to the success in enforcing their security and successfully recovering their outstandings on insolvency. Swedish courts and enforcement authorities shall treat Swedish and foreign creditors in the same way.
In the insolvency of a debtor, receivables of secured creditors are fulfilled from the sale of the pledged/mortgaged property at first; and a secured creditor would have preferential rights on the proceeds of sale. After their receivables are fulfilled, the remaining part of the sale proceeds is transferred to the bankruptcy estate for fulfilment of other creditors' receivables.
Pending enforcement proceedings would be stayed and new enforcement proceedings may not be initiated against a debtor in the event of declaration of bankruptcy or concordat. However, secured creditors may continue their pending enforcement proceedings or initiate enforcement proceedings against their debtor.
Fulfilment of receivables or secured creditor in full is an approval condition of concordat; and hence, a debtor seeking for concordat may not have the concordat approved without fulfilment of secured creditors' receivables in full.
Considering such privileges (i.e. preferential right on sale proceeds) provided to secured creditors, they would have a stronger position as compared with unsecured creditors. However, it is worth to note that, their receivables which are not fulfilled through sale of encumbered property will be subject to creditor's ranking category. Claims of each creditor within a particular category rank pari passu with claims of other creditors in the same category (save for secured debts which shall be paid in accordance with their respective rankings and degrees). Creditors of any category are not entitled to any payment until and unless all creditors of the superior category are satisfied in full.
Upon commencement of a bankruptcy case, an automatic stay immediately enjoins all creditors from enforcing their security rights against a debtor or the debtor’s property. While relief from this stay is sometimes possible, secured creditors are typically bound to pursue recovery by participating in the bankruptcy case along with all other classes of creditors and interested parties, thereby providing a central forum for the coordination and resolution of the restructuring and/or liquidation. Within that structure, while secured creditors often have high rank in payment priority, the success of a secured creditor in recovering its outstandings will typically depend on the ultimate size of the bankruptcy estate (money available to distribute to creditors) and the value of the collateral (leaving the creditor either over-or under-secured).
There is no statistic on the topic but subject to any voidable transactions (see question 24 above) enforcements of security interests are generally successful, without being able though to comment on the actual recovery of secured parties’ outstandings in insolvencies.
There are no restrictions on granting security or guarantees to foreign lenders, or on the making of loans by foreign lenders. Similarly, there are no exchange controls restricting payments to a foreign lender under a security document, guarantee or loan agreement.
As a matter of principle it is possible for foreign creditors to enforce and/or make claims in relation to securities that are recognised as conferring a valid security interest under English law subject to specific rules in particular types of insolvency process (e.g. administration) that place fetters on creditor enforcement action without consent or leave of the court.
Where (a) a foreign creditor held valid security which it enforced, and (b) the value of its debt is in excess of the enforcement proceeds, it is entitled to claim in désastre proceedings for the balance. Enforcement of Jersey security is comparatively rare and we are not aware of any particular issues arising.
Neither the laws of Hong Kong nor its courts discriminate or are otherwise biased against foreign secured creditors. The success of secured creditors enforce their security depends on their ability to trace and obtain control of the asset and the asset's disposal value. The courts will provide them the same assistance they extend to local creditors.
Foreign and domestic creditor are treated equally with respect to the possibility to enforce their security and successfully recovering their outstandings on insolvency. Due to the right of separation and the consequent preferential satisfaction, foreign creditors (as well as domestic creditors) have a high success rate in enforcing their securities (please refer to question 23 with respect to the right of separation).
Yes, under the Bankruptcy Law set-off is permitted upon delivery of the court's judgment and provided it was agreed among debtor and qualified creditors under the corresponding settlement agreements.
Bosnia & Herzegovina
The foreign creditors are entitled to the same level of protection as the domestic creditors. The success rate is dependable on the available assets of the debtor and its financial conditions and the provided security.