Do sociopolitical factors give additional influence to certain stakeholders in restructurings or insolvencies in the jurisdiction (e.g. pressure around employees or pensions)? What role does the state play in relation to a distressed business (e.g. availability of state support)?

Restructuring & Insolvency (2nd Edition)

Denmark Small Flag Denmark

Generally, the opinion in Denmark is that employees are not to be affected by the employer’s unsuccessful restructuring and subsequent insolvency and consequently the employees’ back pay will prior to the insolvency as well as during the subsequent notice period be secured by the Employees’ Guarantee Fund.

China Small Flag China

As provided for in China’s bankruptcy law, employees’ claims rank second only to security interests in collateral and are followed by social insurance premiums payable and taxes due. Employees’ claims established before August 27, 2006 prevail over secure interest, according to relevant policy. Since the current Enterprise Bankruptcy Law came into force, government or political factors have stopped playing a key or decisive role in bankruptcy proceedings, and bankruptcy cases have been handled by operation of law and in a market-oriented manner. The state’s role has turned to focusing on providing funds and policy support. For instance, 1) some local governments allocate funds to pay compensation of administrators; 2) some local governments set up a mechanism to secure back pay for employees of bankrupt enterprises, helping the employees fulfill their claims; 3) some enterprises form their administrative liquidation teams during their internal sorting of debts, and such teams may take the role of administrator after bankruptcy process commences; and 4) courts emphasize coordination between governments and courts in dealing with bankruptcy cases, whereby governments may tap their powers and resources in investigating assets, handling taxes, protecting employees’ rights and interests, addressing complaints and calls from the people, etc., thus helping move along bankruptcy proceedings.

Australia Small Flag Australia

There is very little state involvement or government intervention for distressed businesses in Australia. However there are certain circumstances where the government has stepped in to guarantee some financial support in formal insolvency proceedings, in particular, in relation to employee entitlements. Whilst employee entitlements (including wages, superannuation, leave entitlements and redundancy payments) are given statutory priority over the payment of other unsecured debts in a distribution of assets, it is sometimes not possible for those debts to be met out of the recoverable assets of the company in a timely manner or indeed, at all.

Pursuant to the Federal Government’s Fair Entitlement Guarantee (FEG), when a company is placed into liquidation leaving employee entitlements unpaid, the Federal government, through FEG, can make payment to employees of certain levels of unpaid entitlements. The government then becomes the creditor and is afforded the same priority in the distribution as the employee claims it paid. Importantly, the position of directors and management is different, and the priority afforded to them is capped substantially.

Belgium Small Flag Belgium

No. However, employee representatives and labour unions are frequently given the floor by courts in insolvency proceedings, and Belgian courts tend to lean towards decisions that safeguard the continuity of employment. Unions (through their affiliated political parties) do have an increased say in big insolvency proceedings, which can be used as leverage against the debtor/creditors.

The Netherlands Small Flag The Netherlands

The trustee should primarily look after the interests of the creditors. However, the trustee could in specific circumstances take into considerations the interests of other stakeholders (e.g. preservation of employment). While trade unions could exercise some (political) pressure with respect to the preservation of employment, the State does not actively participate in a rescue operation. In that respect, we note that the State (e.g. Tax and Customs Administration) is generally one of the preferred creditors and therefore could have a role in a restructuring.

United States Small Flag United States

For the most part, sociopolitical factors do not provide tremendous additional influence to certain stakeholders. However, the Code itself does provide protections for certain constituencies. For example, debtors may not unilaterally terminate collective bargaining agreements, qualified registered pension plans and retiree benefits unless it is able to demonstrate that the modification is necessary to properly effectuate the reorganization.

As noted above, a U.S. Trustee is appointed at the commencement of the case and is charged with overseeing the administration of the estates and able to object to certain actions of the debtor when necessary.

France Small Flag France

French trade unions tend to adopt fairly aggressive behaviors. This applies also in the context of restructuring proceedings where trade unions usually are very vocal when jobs are at risk.

The state may play a relevant role in relation to distressed businesses. Thus the CIRI (comité interministériel de restructuration industrielle) aims at helping distressed businesses turn around. The CIRI is competent for companies with more than 400 employees.

Companies with less than 400 employees can be assisted by the CODEFI (comités départementaux d’examen des problème de financement des entreprise) which are the local equivalent to the CIRI.

Luxembourg Small Flag Luxembourg

The Luxembourg state provides for certain schemes of support for distressed businesses with employees. In particular, businesses can ask, under certain conditions, to a specific governmental “Conjuncture Committee” to benefit from "part-time" unemployment schemes (chômage partiel), which are designed to avoid redundancies.
State support is available to local businesses in general and in particular in certain strategic branches, but not specifically to distressed businesses.

New Zealand Small Flag New Zealand

There is very little involvement or intervention by the New Zealand government in respect of distressed businesses in New Zealand. The key exceptions are where the relevant entity is partly or wholly state owned or in the extremely rare instances where the New Zealand government considers that the distressed business is systemically significant or otherwise meets the public interest criteria so as to engage the statutory management procedure (as discussed above at questions 4 and 7).

The preferential creditor regime (as discussed in question 5) provides a statutory super priority for certain classes of creditor such as the Crown (in respect of certain unpaid taxes) and employees up to a statutory cap.

Any sale of substantial New Zealand assets (value NZ$100m+) and/or 'sensitive land' (which includes most rural land and large holdings) to overseas persons requires the approval of the New Zealand Overseas Investment Office (OIO) in accordance with the Overseas Investment Act 2005. These rules also apply to distressed and/or enforcement sales of such assets. In recent years the sale of New Zealand assets to offshore investors has become a politically sensitive issue and recent changes in policy settings indicate that it will become more difficult for overseas purchasers to satisfy the necessary tests in order to obtain consent.

Romania Small Flag Romania

In principle, the state offers protection to employees, there being a special fund that may be accessed for the payment of salary receivables. At the same time, there is also a certain determinable tendency on the state’s part to create a certain legislative framework slightly favouring budgetary creditors – quite relatively recently there have been amendments that have caused confusions regarding the possibility for budgetary creditors to execute their receivables individually, separately from the insolvency procedure.

Switzerland Small Flag Switzerland

Unlike in other jurisdictions, pension authorities do not typically play an important role in restructuring or insolvency proceedings in Switzerland. Unions may play a more active role, namely where a restructuring requires a (mass) dismissal of employees. That said, employment laws in Switzerland are fairly liberal when compared to other jurisdictions.

Leaving aside the TBTF discussion for financial institutions, Swiss governmental authorities do not play a relevant role in relation to distressed businesses and state support would not generally be available. State creditors may, however, be willing to discuss payment terms etc. as any other creditor.

Israel Small Flag Israel

The court take special interest in the rights of traded bondholders, held by pension and trust funds and therefore represent the public savings, as well as in the interests of the company's employees.

The Israeli Official Receiver is a party to any insolvency proceeding and it supervises the court officers appointed in such proceedings.

Updated: April 20, 2018