How are existing contracts treated in restructuring and insolvency processes? Are the parties obliged to continue to perform their obligations? Will termination, retention of title and set-off provisions in these contracts remain enforceable? Is there any an ability for either party to disclaim the contract?
Restructuring & Insolvency (2nd Edition)
The Bankruptcy Proceedings and the PKPU Proceedings, in principle, do not change or affect the validity of the terms of the existing contracts that the debtor had previously entered into. The rights and obligations of the parties to such contract remain unchanged. Whether the parties are obliged to continue to perform their obligations would depend on the terms of the contract.
Regardless the terms of the contract, however, if after the Bankruptcy Proceedings and the PKPU Proceedings commenced, the contract has not yet or has only partially been fulfilled, then the debtor’s counterparty may request confirmation from the receiver / administrator with regard to the continuation of the performance of the contract within a time period to be agreed by the receiver / administrator and the counterparty. Where no agreement on the period is reached, the supervisory judge shall determine a time period. If within the period agreed or stipulated by the supervisory judge, the receiver / administrator has not responded or is unwilling to continue the performance of the contract, the contract shall terminate and the counterparty may claim damages and shall be treated as an unsecured creditor. If the receiver / administrator declares his willingness, then the counterparty may request the receiver / administrator to provide security for his willingness to perform the contract and the receiver / administrator should provide such security.
If the receiver / administrator has not responded or is unwilling to continue the performance of the contract, the termination provisions in these contracts should no longer enforceable.
If there are contractual delivery of goods commonly traded items in the contract imposing a certain time limit, and the party obliged to deliver them is declared bankrupt prior to delivering them, the contract is terminated by the bankruptcy / PKPU declaration. The parties harmed thereby may name themselves unsecured creditors to claim compensation. However, if the termination causes harm to the bankruptcy / debtor’s estate, the counterparty to the contract must compensate for the losses of the bankruptcy / debtor’s estate.
If the bankrupt debtor / debtor in PKPU has been leasing certain objects, either the receiver / the debtor, with the consent of the administrator or the lessor, may terminate the lease agreement, but a prior termination notice must be served in accordance with the local custom, or the notice period stated in the lease agreement or according within 90 days. If the lease fee has been paid in advance, the lease agreement cannot be terminated early before the lease period covered by the lease fee expires. As of the bankruptcy / PKPU declaration, the lease fee should constitute the bankruptcy estate’s debt.
With regards to retention of title provision in these contracts, such provision should be enforceable. However, the repossession of the goods that are subject to the retention of title provisions should be subject to the stay period.
With regards to set-off provision in these contracts, regardless the enforceability of the set-off provisions in the contracts, IBL provides that any person that has a debt to and a claim against a debtor under Bankruptcy / PKPU Proceedings, he can set-off such debt and claim, provided that:
a. the debt and the receivable already existed prior to the declaration of the debtor’s bankruptcy/PKPU; or
b. the debt and the receivable exist as a result of actions carried out by the debtor before the declaration of the debtor’s bankruptcy/PKPU.
A person who has taken over the debt or receivables from a third party prior to the pronouncement of bankruptcy declaration or the PKPU cannot exercise a set-off if: (i) the taking over of the debt and receivables was not based on good faith; and/or (ii) the taking over of the debt or receivables was done after the pronouncement of bankruptcy declaration or after the initiation of the PKPU process.
While the ability for the receiver / administrator to disclaim the contract does exist as discussed above, the ability for the counterparty to disclaim the contract would depend upon the terms of the contract.
Termination of Agreement by Debtor
After filing an NOI or a Proposal under the BIA, or after obtaining an Initial Order under the CCAA, a debtor (except a debtor who is a natural person and who does not operate a business) may, with the approval of the Trustee or Monitor and with notice to the other party or parties to an agreement, disclaim most agreements.
If the Trustee or Monitor does not approve the termination of the agreement, the debtor may apply to the Court for a determination in respect of same. The counterparty to the agreement to be disclaimed may also oppose the termination and apply to the Court for a determination in respect of same. The Court, in deciding whether to allow the contract to be terminated or not, will consider, among other things, (i) the approval or opposition of the Trustee or Monitor; (ii) whether the termination would enhance the prospect of a viable Proposal or Plan; and (iii) whether the disclaimer would likely cause significant financial hardship to a party to the agreement. If a counterparty to an agreement that is disclaimed by the debtor suffers a loss as a result of the termination the counterparty will have a claim in the restructuring for damages. The claim may then be addressed within the terms of the Proposal or Plan.
Certain types of agreements may not be terminated, such as “eligible financial contracts” (i.e. derivatives), financing agreements where the debtor is the borrower, and most leases where the debtor is the lessor. Specific rules also apply to intellectual property-related agreements, where a counterparty’s contractual rights, including the right to use the IP and extend the agreement, may not be altered for as long as the counterparty respects its obligations as per the agreement. With respect to collective agreements, the Court may order a renegotiation, but neither the Court nor the debtor may terminate or alter the collective agreement outright.
Termination of Agreement by the Counterparty
After a debtor has filed an NOI, a the Proposal under the BIA, or after the debtor has obtained an Initial Order under the CCAA, no party to an agreement with the debtor, including a security agreement but excluding “eligible financial contracts” (i.e. derivatives), may terminate or amend the agreement, or claim an accelerated payment or a forfeiture of the term (even if provided for in the agreement) by reason only that the debtor is insolvent, has filed an NOI, a Proposal, or has obtained an Initial Order. The words “by reason only” are important: any right of a counterparty to terminate an agreement with the debtor for another valid reason, repetitive failure to pay for example, remains enforceable.
In the case of a lease where the debtor is the lessee or with respect to a public utility contract (e.g. Internet, telephone, electricity, etc.), the lessor or the public utility company may not terminate their agreement with the debtor by reason only that the debtor has not paid rent or royalties or made any other payments of a similar nature, as applicable, in respect of a period preceding the filing of the NOI or the Proposal, or preceding granting of the Initial Order. However, no counterparty to any agreement with the debtor, including lessors and public utility companies, is obliged to advance money or credit to the debtor, or do anything with delayed payment, after the NOI or the Proposal has been filed, or after the Initial Order has been obtained. This means that, in practice, as soon as the NOI or the Proposal is filed, or as soon as the Initial Order is obtained, all commercial partners of the debtor who choose to continue to do business with the debtor may do so on a “cash on delivery” basis, demanding immediate payment for goods, services, use of leased or licensed property or other valuable consideration, as the case may be, in the post-filing or post-Initial Order period.
The foregoing trumps any agreement to the contrary and cannot be contracted out of. Nevertheless, it remains within the discretion of the Court to order the termination of most agreements upon the counterparty demonstrating that it will suffer significant financial hardship if the agreement is not terminated.
Assignment of Agreement
On motion in a BIA, or CCAA restructuring, or in a bankruptcy, and on notice to every party to the agreement, the Court may order an assignment of the rights and obligations of the debtor (except if the debtor is a natural person who does not operate a business) under the agreement to another person, or entity who has agreed to the assignment. Certain contracts are excluded from such an assignment by their nature, including “eligible financial contracts” (i.e. derivatives) and collective agreements. In deciding whether to order the assignment, the Court will consider, among other things, whether the person to whom the assignment is to be made is able to perform the debtor’s obligations, and whether the assignment would be appropriate in general.
The CCAA specifically preserves the law of set-off (or, in Québec, compensation), such that pre-filing debts may be set off against post-filing debts as there is no change of mutuality as there would in a bankruptcy. The Courts have adopted this provision in the context of BIA Proposal proceedings.
In the context of either a bankruptcy or a receivership, set-off rights may be exercised by or against the debtor, as per provincial law, provided that the obligations that are being set-off, or compensated, both arise either before or after the date of the bankruptcy, or the Receivership Order.
If the debtor and another party did not perform, or perform completely, a mutual contract at the date the insolvency proceedings were opened, the insolvency administrator may perform such contract, replacing the debtor and claiming the other party’s consideration. If the administrator refuses to perform such contract, the other party shall be entitled to its claims for non-performance only as an insolvency creditor. Contractual clauses excluding or limiting this election right of the debtor shall be void. If the other party requires the administrator to opt for performance or non-performance, the administrator shall state his or her intention to claim performance without undue delay. If the administrator does not give a statement, he or she may no longer demand performance.
The election right of the debtor set forth above is excluded or restricted by more specific rules for (i) certain fixed-date financial market transactions (ii) real estate transactions protected by priority notices (Vormerkung), (iii) real estate leases and (iv) service and employment agreements.
Retention of title rights
If before the insolvency proceedings were opened, the debtor sold a movable asset while retaining title and transferring its possession to the purchaser, the purchaser may claim performance of the sales contract.
If before the insolvency proceedings were opened, the debtor, purchased a movable asset in which the seller retained title, and the seller transferred possession of such asset to the debtor, the seller has a right to withdraw such asset from the estate without paying fees, if the insolvency administrator opts for the non-performance of the underlying purchase agreement. However, the insolvency administrator is entitled to execute its election right only after the first creditors’ assembly (Berichtstermin), unless a considerable reduction in the value of the movable asset is to be expected and the creditor has notified the administrator of this circumstance.
If a creditor had a right to set off a claim on the date the insolvency proceedings were opened, such right shall remain unaffected by the proceedings unless, among other things,(i) an insolvency creditor has become an obligor to the insolvency estate only after the opening of the insolvency proceedings; (ii) an insolvency creditor acquired its claim from another creditor only after the opening of the insolvency proceedings; (iii) an insolvency creditor acquired the opportunity to set off its claim by a transaction that is subject to contestation; and/or (iv) a creditor with a claim to be satisfied from the debtor’s free property is an obligor to the credit of the insolvency estate.
Are the parties obliged to continue to perform their obligations and is there an ability for either party to disclaim the contract
- Restructuring: Employees continue to be employed on the same terms, subject only to the extent that changes occur in the ordinary course of attrition, or the employees and the practitioner agree, in accordance with applicable labour law.
Contracts concluded prior to business rescue continue subject to the following. The practitioner may entirely, partially or conditionally suspend, for the duration of the proceedings, any obligation of the company under rescue that arises under an agreement (other than employment agreements) to which the company was a party at the commencement of the business rescue proceedings and would otherwise become due during such time. Subject to an order of court, the practitioner may further entirely, partially or conditionally, cancel, on any terms that are just and equitable, any obligation of the company arising under an agreement to which the company was a party at the commencement of the rescue proceedings.
In case of a suspension or cancellation, the counterparty may only assert a claim for damages against the company and where the contract is reciprocal, the other party is entitled to rely on the principle of reciprocity and withhold performance.
- Insolvency: Employee contracts are suspended with effect from the date of granting of a winding-up order, unless a liquidator and an employee have agreed to continue.
General commercial contracts are not suspended or terminated. However, the liquidator has the option to elect to perform in terms of a contract or not (i.e. to repudiate).
Will termination, retention of title and set-off provisions in these contracts remain enforceable
Insolvency: A clause reserving ownership until payment is received is effective to prevent the goods from vesting in the debtor’s estate. A clause providing for termination upon liquidation is not effective as it deprives the liquidator of his powers to liquidate the estate effectively. A set-off clause in favour of the solvent party is not valid as it enables the relevant creditor to receive payment in preference to other concurrent creditors.
Restructuring: A clause reserving ownership until payment is received is effective to prevent the goods from vesting in the debtor’s estate. However the owner will need the written consent of the practitioner to deal with the property in question.
There are no specific legislative provisions providing for termination or set-off clauses in favour of the solvent party. However the courts will likely follow the decisions in relation to insolvency as the same considerations apply.
There are still discussions in the legal doctrine on the matter, especially in situations where the parties have included a termination clause in the event of reorganization proceeding. However, in principle all contracts entered into by the debtor before the judicial reorganization will remain in full force during the proceeding, unless the BRBL or the approved judicial reorganization plan specifically determines otherwise.
Whenever an approved judicial reorganization plan entails the judicial sale of branches or separate unit’s production, the asset of the disposal shall be, in theory, free of any encumbrance and the buyer shall not succeed to any debtor’s obligations. In the event of any security exist over the asset the respective creditor must first agree with the release of the security in order to the asset to be sold.
Creditors may buy the debtor’s assets at a fair market value; however, in principle, they are not allowed to pay for the asset with their credits under the penalty of jeopardizing the collective reorganization proceeding, as far as the creditor would be receiving its credit prior to the other creditors and not per the approved plan.
According to the BRBL, the asset disposal may be by auction, via oral bidding; by sealed bids; or by public proclamation. However, the court may authorize, under exception conditions, other judicial modalities of disposal if duly substantiated by the trustee or the committee.
In insolvency proceedings the existing contracts may continue being performed by the judicial administrator, through Committee authorization, if the performance reduces or prevents an increase in the liabilities of the bankrupt estate or is necessary to maintain and preserve its assets.
In principle, if the contract between the debtor and another party is not fully discharged as of the declaration of liquidation bankruptcy/reorganization by the debtor or the other party, the insolvency trustee/debtor in possession may either fulfill the agreement for the benefit of the debtor and demand that the other party fulfill the agreement as well or may withdraw from the agreement.
If the debtor entered into a contract on lending a particular item of his property, the insolvency trustee is entitled to request that the item be returned even before the lapse of the agreed period.
The insolvency trustee/debtor in possession is entitled to rescind a lease contract or sub-lease contract to which the debtor is a party; the notice period shall not exceed three months. On the other hand, if such a contract was made by the debtor as the lessee or sub-lessee, the contract cannot be terminated or rescinded by the other party on grounds of the debtor defaulting on payments prior to the ruling on insolvency or on grounds of the deterioration of the debtor’s financial situation.
Prior to the declaration of insolvency, set-offs may be pursued free of any insolvency constraints.
After the declaration of insolvency, set-offs are also permitted, but are subject to constraints and requirements, such as:
(a) a creditor is not allowed to set off claims that have been acquired through an ineffective legal transaction or claims which the creditor acquired in the knowledge of the debtor’s insolvency;
(b) a claim must be registered prior to the set-off;
(c) a creditor must pay to the estate any sum which exceeds the creditor’s claim qualifying for the set-off.
All set-offs are principally prohibited in reorganization proceedings, and require approval by the insolvency court in the individual case.
Credit bidding has no tradition in Czech reorganizations, but is technically possible, subject to insolvency court consent.
Sale of assets in liquidation
The insolvency estate may only be turned into cash after the court’s declaration on bankruptcy liquidation (and in any case no earlier than the first creditors’ meeting). A sale of movable and immovable assets (including the sale of assets outside an auction) and a transfer of the debtor’s enterprise through a sole agreement must be approved by the creditors’ committee as well as by the insolvency court, as a prerequisite for the effectiveness of the respective transfer/sale/auction agreements. Throughout the entire sale process, the insolvency trustee is under the duty to inform the insolvency court and the creditors’ committee about the progress of the sale and details concerning the allocation of the proceeds.
Secured creditors will be allowed to grant binding instructions to the insolvency trustee in relation to the enforcement of collateral.
The insolvency trustee may only refuse to follow such instructions if they believe that the secured assets can be disposed of under more favorable conditions. In any case, any such action by the trustee would be subject to review by the insolvency court.
Sale of assets in reorganization
Czech reorganizations do not have a tradition of “363 asset sales”, even if they are technically possible. All sales of capital assets and major production assets in reorganization are normally pursued under the terms of the reorganization plan (once confirmed by the insolvency court).
Free and clear title
In principle, the purchaser acquires any assets from the debtor in insolvency free and clear of liabilities (though a different regime may be agreed among the parties).
Pre-packaged sales are allowed but are subject to confirmation of the reorganization plan by the insolvency court.
Other than employment contracts (see below), a winding up process will have no effect on contracts unless there is a specific contractual provision to that effect. Under Cayman Islands law, a liquidator has no right to disclaim either onerous property or unprofitable contracts, which will therefore continue to bind a company in liquidation, although the commencement of insolvency proceedings may constitute an event of default allowing a counter-party to terminate an existing contract in accordance with its terms. Therefore, the parties must perform their outstanding obligations, although in practice a liquidator may repudiate the contract and instead adjudicate whatever claim the contractual counterparty seeks to prove in the liquidation as a result of the repudiation.
Under common law, a winding up order serves to terminate all employment contracts of the company in official liquidation. The commencement of a voluntary or provisional liquidation will have no legal effect on employees' rights, except as for provided for in the relevant employment agreement.
Employees' rights will only be affected by a scheme of arrangement in the event that the scheme purports to compromise their rights as creditors under their employment agreements. Similarly, the impact of a scheme of arrangement on existing contracts and the parties' ongoing obligations under those contracts will depend on the terms of the scheme (in particular, the extent to which the scheme purports to compromise rights under the contracts) and the terms of the contracts.
Termination, retention of title and set-off provisions contained in the contracts to which the company was party prior to its winding up will remain enforceable by the contracting counter-party on any winding up. In the absence of any set-off provision, account must be taken of what is due from each party to the other in respect of their mutual dealings, and a set-off is applied in relation to those amounts.
The debtor may cancel a bilateral contract having obligations that neither the debtor nor the counterparty has yet completely performed. Even though existing contracts with the debtor often contain a termination clause providing that the filing of restructuring or insolvency proceedings is a cause of termination, such termination clauses are often regarded as void.
Where a creditor owes a debt to the debtor at the time of commencement of restructuring or insolvency proceedings, the creditor can set-off its claim against the debtor’s claim under some circumstances.
The Companies Act empowers the liquidator to disclaim property or contractual obligations of the company if they impose onerous burdens, are unprofitable or not readily realisable. The liquidator can exercise the power of disclaimer only with the leave of the Court or the committee of inspection.
The making of a judicial management order does not affect existing contracts, unless expressly provided for by the terms of a contract. There is also no equivalent power granted to Judicial Managers to disclaim contracts. However, a judicial manager may choose not to adopt certain contracts, leaving the counterparty with a claim for damages against the company. In this regard, the Companies Act grants the judicial manager a “grace period” of 28 days from the making of the judicial management order to review the company’s existing contracts, during which time the judicial manager is not taken to have adopted any contract by reason of anything done or omitted.
Upon liquidation, contractual rights of set-off are replaced by the insolvency set-off provisions governed by the Companies Act. As for judicial management, case law has held that the contractual right of set off is not affected by the moratorium imposed by judicial management.
British Virgin Islands
The commencement of liquidation does not prima facie affect existing contracts, though the liquidator has a power to disclaim an unprofitable contract into which the company has entered by filing a notice of disclaimer with the court under section 217 of the IA. In many cases, however, the contract will include express provisions in contemplation of either party’s insolvency. The liquidator has a power to carry on the business of the company so far as this is necessary to facilitate the liquidation.
Nothing in the BVI’s insolvency legislation invalidates termination, retention-of-title, or set-off provisions in commercial contracts, though the general common-law rules concerning these principles apply, such as the need in retention-of-title cases for the assets in question to remain identifiable and not to have been worked into new property or transferred to an innocent third party. As stated above, the IA expressly provides for a right of set-off in relation to mutual credits.
A contractual counterparty may apply to the court for an order rescinding the contract on such terms as to payment between the company and the counterparty of damages for non-performance as the court may think fit. If a counterparty is awarded damages, these may be claimed as a debt in the liquidation. No contractual counterparty may commence or proceed with any proceedings against the company without permission of the court having jurisdiction in the insolvency.
Again, the legislative provisions relating to restructuring procedures do not make express provision in relation to existing contracts.
The law empowers an administrator to unilaterally terminate any contract that has not been fully performed and the counterparty to the contract to urge the performance of the contract. If the administrator does not inform the counterparty within two months following the date when the competent court accepts the bankruptcy filing or not respond within 30 days following the date when the counterparty urges the performance of the contract, the contract will be deemed to have been terminated. If the administrator decides to continue the performance of the contract, the counterparty is entitled to demand the administrator to provide security, and the administrator’s failure to do so will result in the termination of the contract. If the contract is decided to be performed continuously, its existing provisions, including those on termination of the contract, retention of title, and debt offset, will remain valid, and should continue to be performed by the parties to the contract accordingly. No other person has the right to directly disclaim the contract, but if the administrator determines to continue the performance of the contract, it should promptly inform the creditor committee or the court of its decision.
As the law provides, bankrupt assets should be sold via auction, but the creditors’ meeting may resolve to dispose of the assets by other ways. In recent years, an increasing number of bankruptcy auctions are carried out online. Digital or physical, one thing remains unchanged is that open bidding is at the core of a fair auction. Buyers merely take away the debtors’ assets, which are free of liabilities and do not contain any equities in the debtors, either. In this way, buyers will not get embroiled in any dispute arising out of such liabilities or equities. Generally, the foregoing purchase will not incur any obligations that are not relating to the purchased assets, but under some circumstances, such as when the bankrupt assets are to be disposed of as a whole, the purchaser may be asked to shoulder extra obligations, for example, to employ the debtor’s employees. In bankruptcy procedures, existing security over bankrupt assets will not be released automatically, and the administrator may have the security released by repaying corresponding debts or provide other security to the satisfaction of the claiming creditor.
If the debtor reaches an asset disposal agreement with an intending investor before the bankruptcy filing is accepted by the court, such agreement should not be deemed different from any other agreement concluded before the acceptance, and it will not automatically become enforceable after the acceptance. If the administrator intends to continue the performance of the agreement, it may face various conditions precedent, for instance, the performance should be reviewed by the creditors’ meeting and be reported to the creditor committee or the court, and disposal of assets contemplated under the agreement may not be viable until the court announces the bankruptcy of the debtor.
There is no formal insolvency procedure that results in the automatic termination of contracts between the debtor and third parties.
Following appointment, administrators, receivers and liquidators can choose not to continue to perform a contract. Any damages flowing to the counterparty from the non-performance of a contract will rank unsecured against the company. However, any contract that an insolvency practitioner continues with may result in the practitioner being held personally liable under the Act.
Contractual and mandatory set-off will apply in formal insolvency processes, with certain exceptions. Section 533C of the Corporations Act provides for a statutory set-off in a liquidation where there have been mutual dealings between the distressed company and the relevant creditor. In such circumstances an automatic account is taken of the sum due from one party to the other in respect of those mutual dealings, and the sum due from one is set-off against the sum due from the other. Retention of title provisions will remain enforceable so long as the creditor has a perfected registered security interest in the property.
Under the current landscape, contracts may contain ipso facto clauses allowing a counterparty to terminate or renegotiate a contract on the occurrence of any insolvency event (which can be defined to include any form of restructure). However, the Australian landscape in respect of ipso facto clauses is in the process of reform. From 1 July 2018, a new ipso facto clause regime will operate in Australia following the introduction of the Insolvency Law Reform Act 2016 (Cth) (ILRA) and its associated instruments. That regime will impose an automatic stay on the enforcement of ipso facto termination rights that are triggered simply because a company enters a formal or informal insolvency or restructuring process. The stay will operate during a “stay period”, the length of which is determined by reference to the length of the relevant restructuring process. There are also circumstances in which the stay period will be indefinite. A court will have the power to lift the automatic stay where it considers it is in the interests of justice to do so.
The full effect of the regime will take some time to be properly understood as it does not operate retrospectively and only applies to contracts entered into after 1 July 2018. All existing contracts as at 1 July 2018 that contain ipso facto termination clauses will continue to confer rights on the counterparty to enforce those rights in accordance with the terms of the contract.
Existing agreements are not automatically terminated; any contractual provision to the contrary is deemed ineffective (exception: a close-out provision of a netting agreement). The debtor has the right to decide not to perform (except for employment contracts) during the stay if such non-performance is necessary for its reorganisation, or to enable a transfer of activities. The opening of judicial reorganisation proceedings does not have an impact on a retention of title clause.
Existing agreements are not automatically terminated, unless parties agreed otherwise, or if the agreement was concluded intuitu personae. The trustee may decide not to perform under the existing agreement (a party can force the trustee to decide within 15 days); in such case, the damages for non-performance will be treated as an unsecured claim. Under certain conditions, movable assets sold under a retention of title clause may be recovered.
Under the Financial Collateral Law of 15 December 2004, set-off provisions will be enforceable notwithstanding insolvency proceedings if certain conditions are met. Insolvency proceedings include bankruptcy, judicial reorganisation proceedings or other situations of concurrence of creditors known under Belgian law, and foreign administrative, judicial or voluntary collective or reorganisation proceedings. Certain limitations apply to the enforceability of set-off provisions in case of judicial reorganisation.
One of the principles of Dutch insolvency law is that contracts are in principle not affected by insolvency procedures. However, another important effect is that the bankrupt can no longer be forced to perform under a contract.
The trustee can (on behalf of the insolvent estate) demand performance from the debtor’s counterparty, if the debtor has performed his obligations prior to the commencement of bankruptcy proceedings.
Furthermore, the Bankruptcy Act deals with contracts that – at the time of declaration of bankruptcy – have not yet been (fully) performed by both the debtor and his counterparty. In that respect, the counterparty can request the trustee to notify him within a reasonable period of time whether the trustee shall perform the contract. If the trustee does not timely respond or in the event the trustee states that the liquidation estate is not bound by the contract, the trustee will lose his right to demand performance from the counterparty.
Under Dutch law, a retention of title, a right to terminate an agreement and a right of set-off are generally enforceable in bankruptcy.
Upon notice and a hearing, the debtor may reject most pre-petition executory contracts or leases, subject to a business judgment test, which is highly deferential to the decisions of the debtor. In most circumstances, a debtor has until confirmation of the plan to assume or reject executory contracts and until that time, both parties must continue to perform under the contract regardless of whether the debtor has paid outstanding prepetition amounts or not.
If the debtor chooses to assume the contract, it is responsible for all pre and post-petition defaults and is bound by the contract going forward. Should the debtor reject the contract, the debtor is no longer bound but the rejection is considered a pre-petition breach that results in an unsecured claim for damages. If the debtor chooses to continue to receive benefits from a counterparty pending the decision to assume or reject the contract, the debtor is required to continue paying for the reasonable value for such services. Further, claims from contract counterparties who supply such goods or services pursuant to a contract are afforded administrative priority to the extent that the goods or services were provided during the reorganization.
In safeguard or judicial reorganisation proceedings, the judicial administrator has the exclusive power to continue or terminate the debtor’s contracts. The judicial administrator may request the termination of a contract which is deemed necessary to the safeguard of the debtor and if the contract involved does not excessively prejudice the other party’s rights. If contracts are continued, all its provisions remain the same as prior to the opening of the proceeding. The creditor shall continue to honor its commitments despite the default of payment by the debtor prior to the proceedings. If the contract is rejected, the effect may also be favorable to the debtor since the burden will be reduced. The creditor will have to file its claim (stemming from the rejection of the contract). In liquidation proceedings opened with an observation period, the same provisions will apply.
Under controlled management proceedings, the debtor cannot dispose of its assets without the receiver’s prior approval.
The bankruptcy receiver, with the supervisory judge’s approval, may immediately sell perishable movable assets.
Assets may only be sold with the prior consent of the relevant practitioner/court. There is no credit bidding process provided under Luxembourg law and a receiver would not be entitled to sell assets that are owned by or secured in favour of a third party, without that party’s approval.
In general, if a contract contains an ipso facto clause which allows a party to terminate in the event of the other party entering receivership, voluntary administration or liquidation, there is generally no restriction on the operation of that clause (there are limited exceptions for contracts for the provisions of essential services). Even in cases where there is no ipso facto clause in a given contract, it is possible, albeit in very rare circumstances, for a Court to imply a term that the duration of the contract was intended by the parties to only last while the (now insolvent) company was trading, meaning that the contract becomes frustrated upon one of the parties entering receivership, voluntary administration or liquidation.
Pre-existing contracts – Receivership
Contracts that existed prior to appointment of a receiver are not automatically brought to an end by the occurrence of receivership, other than where the contract provides for that as an "ipso facto" termination event. Subject to available funding, a receiver may elect to allow the company to continue to perform contracts that the debtor company entered into pre-receivership, and those contracts would continue to subsist on the same contractual terms as agreed prior to the receiver's appointment. Otherwise, a receiver, acting as the debtor company's agent, may choose to cause the company to repudiate those contracts, which will typically leave the counterparties having to claim against the debtor company (in respect of any unpaid amounts, damages for breach or repudiation) as unsecured creditors. Claims by unsecured creditors in this context are often not worth pursuing, both because their claims are subordinate to that of the secured creditor that appointed the receiver, and because (subject to the exceptions described below) a receiver is not personally liable for pre-receivership contracts in his or her personal capacity, unless the receiver acts in bad faith or expressly adopts or assumes personal liability for those contracts (or holds itself out in a manner which prevents the receiver from denying personal liability). A receiver is, in general, personally liable for any contracts entered into by the receiver on behalf of the debtor during the receivership, but the receiver may expressly limit or exclude personal liability by contract.
There are two statutory exceptions to the rule that a receiver is not personally liable for contracts that the debtor entered into prior to the receiver's appointment, namely: employment contracts and those relating to property that was leased before, and continues to be leased after, the appointment of a receiver. The Receiverships Act 1993 provides that if a receiver does not give lawful notice terminating an existing contract of employment within 14 days of the receiver's appointment, he or she becomes personally liable for the payment of wages or salary which accrue to the employee from the date of receivership. In complex cases where a receiver is unable to determine within 14 days whether certain employees should be retained or dismissed, he or she is able to apply to the Court for an extension of the 14 day time period.
Similarly, the Receiverships Act 1993 also stipulates that a receiver is personally liable for rent and other payments accruing during the receivership that relate to property leased or rented by the debtor pursuant to a pre-receivership contract . The receiver's personal liability in relation to such payments begins 14 days after the receiver's appointment and continues until such time as the debtor company no longer uses or occupies the property, or until the receivership ends.
Pre-existing contracts – Voluntary Administration
Similarly unless there is a specific provision in the contact allowing for an "ipso facto" termination, contracts that existed prior to appointment of an administrator are not automatically brought to an end by the occurrence of voluntary administration. Subject to available funding, an administrator may elect to allow the company to continue to perform any of the contracts that the debtor company entered into pre-administration and those contracts would continue to subsist on the same contractual terms as agreed prior to the administrator's appointment. Otherwise, an administrator, may choose to cause the company to repudiate those contracts, leaving the counterparties having to claim against the debtor company as unsecured creditors.
An administrator is liable for debts of the company in administration that the administrator incurs in the performance of the functions and powers of an administrator, including for the purpose of funding the company in administration, for services rendered, for goods bought or for any property, hired, leased or occupied. Accordingly personal liability of an administrator can extend to pre-administration contracts in respect of debts incurred under such contracts during the period of administration without any requirement for "adoption" of such contracts by the administrator. This general rule as to personal liability is subject to particular rules for lease and employment obligations as discussed further below.
In addition to the moratorium that is imposed upon the appointment of an administrator (as discussed above in question 7), there is a further restriction in relation to transactions affecting the property of a company in administration. Any transaction entered into, or dealing made by a company in relation to its property is void unless personally authorised by the administrator or an order of the Court.
Unlike a liquidator or statutory manager, an administrator does not have the ability to disclaim contracts entered into by the company in administration prior to his or her appointment.
As to employment contracts, a regime similar to that of receivership exists in the case of voluntary administration. While the appointment of an administrator does not automatically terminate any employment contract(s), there exists a 14 day window in which an administrator may give lawful notice of termination to any given employee(s) so as to avoid being personally liable for wages or salary that accrue during the administration of the company under those contracts.
As to leases, a regime similar to that of receivership exists in the case of voluntary administration. While the appointment of an administrator does not automatically terminate any lease contract(s), there exists a 7 day window in which an administrator may give a "non-use notice" that states that the company does not propose to use the property or otherwise exercise any rights in relation to it, to any given lessor so as to avoid being personally liable for any obligation of the company under those contracts. After the expiry of the 7 day period, the administrator will be personally liable for rent in respect of all leased property during the administration for so long as the company continues to use, occupy or be in possession of the subject property.
Pre-existing contracts – Liquidation
The Companies Act 1993 does not specifically provide that pre-liquidation contracts come to an end solely by virtue of a company entering liquidation.
In general, unless there is a specific provision in the contract allowing for an "ipso facto" termination, contracts that existed prior to appointment of a liquidator are not automatically brought to an end by the occurrence of liquidation. Subject to available funding, a liquidator may elect to allow the company to continue to perform any of the contracts that the debtor company entered into pre-liquidation and those contracts would continue to subsist on the same contractual terms as agreed prior to the liquidator's appointment. Otherwise, a liquidator, may choose to cause the company to repudiate those contracts, leaving the counterparties having to claim against the debtor company as unsecured creditors.
A liquidator has the power to disclaim onerous property, which includes unprofitable contracts and property of the company that is unsaleable, or not readily saleable, or that may give rise to a liability to pay money or perform an onerous act. In order for a contract to be determined to be "unprofitable" so as to be capable of disclaimer, the liquidator would need to be able to establish that such contract is a burden on the company in terms of prospective liability, detrimental to creditors as a whole and not simply a "bad bargain".
In accordance with section 269(3) of the Companies Act, a disclaimer by a liquidator:
- brings to an end on and from the date of the disclaimer the rights, interests, and liabilities of the company in relation to the property disclaimed; and
- does not, except so far as necessary to release the company from a liability, affect the rights or liabilities of any other person.
Persons suffering loss as a result of a disclaimer can claim for that loss in the liquidation.
Contracts that grant a counterparty an interest in real property owned by the debtor in liquidation may not be able to be effectively disclaimed.
Pre-existing contracts – Statutory management
When a corporation enters statutory management, many of the rights that contracting counterparties would have otherwise been able to exercise are subject to a comprehensive moratorium (as discussed in question 7) which both restricts creditors from exercising rights against the corporation and allows the statutory manager to suspend obligations and terminate certain contracts that the corporation is party to. There are only very limited exceptions to the moratorium that is imposed following a corporation entering statutory management. Those exceptions include certain rights of set-off and the commencement or continuation of proceedings for the purpose of determining whether any right or liability exists (provided that leave of either the statutory manager or the Court is first obtained). Additionally, a statutory manager also has the ability to suspend the repayment of any deposit, payment of any debt, or the discharge of any obligation. Critically, the Corporations (Investigation and Management) Act 1989 ("CIMA") also provides that when this power is exercised by the statutory manager, it does not amount to either a breach or a repudiation of the contract on the part of the corporation being managed.
Whether many executory contracts survive statutory management depends largely on the actions of the statutory manager. The CIMA confers a discretion on a statutory manager that allows him or her to terminate, at any time, any contract of service or agency that the corporation being managed is party to. The discretion may be exercised even in circumstances where, but for the appointment of a statutory manager, the contract could not have been terminated until a later date or without cause. Termination of contracts by the statutory manager both discharges the corporation from future performance and all liability for subsequent non-performance. Like contract counterparties that have had their contracts disclaimed by a liquidator, those that have been terminated pursuant to a statutory manager's discretion to do so are entitled to apply to the Court for compensation within six months of receiving notice of their contract being terminated. In making a determination as to whether a contract counterparty is entitled to compensation, the Court is to have regard to the value of the consideration provided by the counterparty, all amounts and benefits that the counterparty has received under the contract, and the conduct of the parties.
Sale of Assets/Business
In general an enforcement sale can be conducted by a receiver, liquidator or administrator in respect of the assets of a company.
The terms and conditions of any sale in an insolvency process will be the subject of commercial negotiation in each case. However, generally assets are sold on an "as is where is" basis without any representation or warranties and without any assumption of personal liability by the relevant receiver, administrator or liquidator negotiating the sale on behalf of the insolvent vendor.
Where a receiver completes a sale of assets, section 30A of the Receiverships Act 1993 provides that all security interests in property which are subordinate in priority to the security interest pursuant to which the receiver was appointed will be extinguished on sale (without any requirement for the consent of the relevant secured creditor(s) whose interests are so extinguished). Accordingly a receiver is able to complete a sale of assets free and clear of all subordinate security interests provided that the security interest they were appointed pursuant to is first ranking. Specific releases will typically need to be obtained in respect of any prior ranking security interests in respect of assets a receiver wishes to sell.
Where an administrator or liquidator completes a sale of assets, specific releases will need to be obtained in respect of any security interests over assets an administrator or liquidator wishes to sell. There is no provision for any automatic extinguishment of any security interests in a sale by an administrator or liquidator.
Additionally for any sale of real property, owned by an insolvent debtor, a receiver, administrator or liquidator must obtain discharges from all registered mortgagees regardless of order of priority, in order to complete a sale free and clear of all such security, as there is no automatic extinguishment of prior or subordinate interests.
In some situations a first ranking secured creditor in respect of real property (first mortgagee) can carry out a mortgagee sale by way of direct enforcement (as an alternative to a sale by a receiver, administrator or liquidator) and this will have the effect of automatically extinguishing (without any requirement for the consent of the relevant parties whose interests are so extinguished) most types of subordinate interests on settlement so that the purchaser in a mortgagee sale can take title to the relevant real property free and clear.
Under New Zealand law a mortgagee exercising its power of sale in respect of real property may not sell the property to itself (other than by using a mortgagee sale conducted through a Court registrar process, which a rarely used process) or foreclose on real property in satisfaction of the secured debt. However, the scope of this rule is fairly narrow in practice, as it does not prevent a sale by the mortgagee to its subsidiary and does not apply to sales by receivers, administrators or liquidators, albeit that in respect of such sales the mortgagee or receiver or administrator (as the case may be) must still comply with their statutory duties in undertaking that sales process.
Section 120 of the PPSA, which applies to security over personal property, allows a first ranking secured creditor to retain the relevant collateral in satisfaction of the secured indebtedness (which is a form of voluntary foreclosure). The application of section 120 can be contracted out of. If that power is exercised it will satisfy the relevant debt in whole, irrespective of the value of the asset concerned, which may produce a windfall if the asset value is in excess of the debt concerned (or a shortfall as the case may be). For this reason, section 120 requires notice by the enforcing secured party to the debtor and other interested parties before the exercise of such power, and those parties are entitled to object if they would be adversely impacted by the retention of the asset. If a valid objection is received within the required time the secured party cannot retain the collateral and is bound to sell the collateral in accordance with the requirements of enforcement sale under the PPSA.
There is no formal recognition of 'credit bidding' (as an enforcement or restructuring procedure) under New Zealand law, although a credit bid can effectively be achieved through transaction structuring (in the right circumstances). It is generally possible for a secured creditor to bid for an asset (either directly or indirectly through a newly formed company) being sold through an insolvency process. If the secured creditor has first ranking security over the asset then the secured creditor could normally expect that most, if not all, of the sale proceeds would be paid to it from the sale process in satisfaction of the secured debt (for example costs, expenses, prior ranking preferred creditors and taxes may still need to be deducted). In some circumstances it can be possible to structure this money flow to occur without requiring actual cash payments (other than to meet amounts payable to third parties). In structuring any sale to a creditor particular consideration must also be given to the duty on receivers and mortgagees when exercising a power of sale to obtain the best price reasonably obtainable as at the time of sale.
Such 'credit bids' are not particularly common in New Zealand, although they have attracted more attention in recent years due to larger numbers of distressed investment funds pursuing the possibility of 'loan to own' strategies in the New Zealand market.
Pre-packaged insolvency sales (as practiced in United Kingdom and elsewhere) are possible but relatively uncommon in the New Zealand market for a number of reasons, including:
- that receivers (and mortgagees) are subject to a statutory duty to take all reasonable care to sell the property for ‘the best price reasonably obtainable as at the time of sale’. This has been interpreted by the Courts as requiring a focus on the process followed by the receiver (or mortgagee) to value and market the property (rather than on the price necessarily obtained); and
- that administrators and liquidators are subject to duties of independence, which prevent them from having a ‘substantial prior involvement’ with companies prior to their appointment.
It is possible in New Zealand for a majority of the relevant group of creditors and the company to pre-agree a restructuring to be effected by way of a scheme of arrangement or creditors' compromise. Typically this would be done by agreeing the substantive terms of a proposed scheme or compromise in advance, to put together a proposal that is likely to achieve the requisite majority approvals of creditors when formally proposed (75% (or more) in value and a majority in number of the relevant creditors). In practice it may be difficult to secure the majority in number of creditors if there is a large number of small creditors.
There can also be a degree of pre-planning involved in formulating a deed of company arrangement to be proposed by a director or creditor in a voluntary administration. Typically however this is less formal than the practice involved ahead of schemes of arrangement or compromises, in part because it is not possible to propose or approve a deed of company arrangement immediately at the outset of a voluntary administration, but instead this must wait for the second 'watershed' meeting of creditors (which is no sooner than between 20 to 25 days after the administrator is appointed).
When the insolvency procedure is opened, the ongoing agreements to which a debtor is a party are maintained, any contractual clauses of termination of the ongoing agreements, of forfeiture of the term or declaration of anticipated exigibility for the reason of opening of the procedure being null. For maximizing the debtor’s estate, the official receiver is the one entitled to appraise if an ongoing agreement should be maintained or terminated, which right may be exercised in a term of 3 months from the insolvency procedure opening date – nonetheless, an agreement executed essentially may not be terminated, there always being the risk of payment of indemnities. The same term applies also to the co-contracting party for the exercise of its right to notify the official receiver for pronouncing on the maintaining or termination of an agreement, in the absence of an answer in a term of 30 days the agreement being considered terminated. The insolvency law provides for a series of special rules applicable to certain categories of ongoing agreements: credit agreement, employment agreement, lease agreement, a series of variants of the sale-purchase agreement, a distinct situation being that of the leasing and utility supplier agreements and, at the same time, termination and set-off of receivables may be applied, and if an agreement is not terminated, the parties will execute their assumed obligations. The opening of an insolvency procedure does not affect the right of a creditor to invoke the set-off of its receivable with the one of the debtor on him, when the legal conditions are met. The reorganization plan may provide both for the sale of assets and the sale of business, the condition being that the sale is made in the conditions approved by the creditors. At the same time, under the law, the assets sold in the insolvency procedure are purchased by the buyer free of any encumbrances, such as privileges, mortgages, pledges or retention rights, seizures of any kind, except for the precautionary measures ordered in the criminal trial for special confiscation and/or extended confiscation. As an exception from the general provisions, mortgages shall be deregistered only under the sale deed signed by the official receiver/judicial liquidator, no express agreement on the secured creditor’s part being necessary to this end. There is the possibility to release a mortgage without the creditors’ consent only in the conditions in which the reorganization plan is approved by the vote on classes and is confirmed by the syndic judge subsequently or by the sale of the asset according to a sale regulation approved by the creditors. Adjudication on the account of the receivable and pre-package sale are possible, but they are not frequent in practice.
In case of bankruptcy proceedings, there are certain types of contracts that are terminated automatically under applicable substantive contract law (e.g. mandates governed by Swiss law). For other types of agreements, the applicable substantive contract law or the specific contract may provide for a termination right in case of bankruptcy. Automatic termination or termination rights are generally upheld in a Swiss bankruptcy. A contract which has not been terminated continues to exist as a matter of Swiss bankruptcy laws. If so, the receiver in bankruptcy may choose to perform the bankrupt's obligations under a so-called synallagmatic agreement (so called cherry-picking right). If the receiver in bankruptcy decides to perform the bankrupt party's obligations to secure performance by the other party, these obligations qualify as so-called estate obligations which are satisfied in advance and in full prior to all other creditors. Special rules apply to long-term contracts. In case no cherry-picking right has been exercised by the receiver in bankruptcy, even if they are not terminated upon the opening of bankruptcy procedures, future claims arising under such long-term contracts will only be admitted to the schedule of claims if they cover the period until the next possible termination date (calculated from the opening of bankruptcy) or until the end of the fixed duration of a contract. In addition, the cherry-picking right can be exercised for future obligations only. It is heavily debated under Swiss law whether an obligation of the non-affected party to perform agreements which have not been terminated and where no cherry-picking right has been exercised continues to exist.
In composition proceedings, contractual relationships between the debtor and its counterparties generally continue to be effective during the moratorium unless terminated ex lege or based on a contractual termination right (which, again, would generally be upheld). For contracts which have not been terminated, the administrator has the authority to order conversion of a performance owed by the debtor into a monetary claim of corresponding value which will then become subject to the terms of the composition agreement. Furthermore, the debtor may terminate long-term contracts without respecting the contractual notice periods during the moratorium against full indemnification of the counterparty (but only as an unsecured and non-privileged insolvency claim) if the continuing existence of these contracts would jeopardise the restructuring as a whole. The administrator's consent is required for such a termination.
Set-off rights generally continue to be available in insolvency proceedings, subject, however, to certain restrictions which may, in particular, prohibit set-off of pre-insolvency with post-insolvency claims. Retention of title arrangements are not typically effective in an insolvency scenario of a Swiss debtor unless the very strict rules, including registration requirements for retention of title arrangements under Swiss law have been properly followed (which is the exception rather than the rule).
An existing contract may be continued (notwithstanding the existence of a cause for termination) or dismissed by the appointed court officer, to the extent such act is required for the recovery of the company and with the approval of court. The company’s obligation under an existing contract adopted shall have the status of recovery expenses, and any damage to the other contract party shall be deemed as a debt recoverable in the Arrangement proceedings.
The other party may terminate an existing contract only with the approval of the court officer or the court. A termination cause relating to the occurrence of insolvency proceedings will not be enforced.
Set off provisions with respect to mutual business between the parties will usually be enforced. Set-off in framework agreements with respect to derivatives or repo transactions such as ISDA agreements, will be enforced by virtue of the Financial Assets Agreements Law, 2006.
Retention of title provisions will be enforced only if such retention of title is not considered under the Israeli law as collateral for securing obligation. However once a stay order is granted such enforcement will be subject to the court's approval. Such approval will be granted only if the retained asset does not guarantee proper protection to the creditor, or if granting of such approval shall not harm the chances of recovery.
A contract will not be automatically terminated by the examinership of a company. However, in general a counterparty is not prevented from exercising a right to terminate in accordance with the terms of the contract. Notwithstanding that, a landlord will generally not be entitled to terminate the lease of a premises occupied by the company in examinership provided that the company is able to discharge the rental obligation for the period of the moratorium.
Parties with rights of set off continue to be able to exercise those rights during the period of the examinership. Parties that have retained title to goods supplied to a company in examinership are not permitted to repossess those goods whilst the moratorium is in place. However, the company is not able to dispose of goods without the approval of the Court and where such approval is given the Court will generally direct that the proceeds of the sale of the ROT assets is applied against the monies owing to the ROT creditor.
A company in examinership can, with Court sanction, repudiate any contract where some element of performance (other than payment) remains to be rendered by both the company and the contracting party and where proposals for a scheme of arrangement are being put forward. Where a contract is repudiated, the damage caused to the counterparty will be assessed and constitute an unsecured claim under any scheme of arrangement.
Unless otherwise expressly provided, existing contracts will not automatically terminate upon the appointment of a liquidator to a company. Termination, retention of title and set-off provisions will remain enforceable notwithstanding the liquidation of the company.
A liquidator may, within two months of the winding-up of the company, apply to the High Court to disclaim certain onerous or unprofitable contracts of the company. Unconditional contracts for the sale of property cannot be disclaimed, and where a liquidator refuses to complete such a contract, an order for specific performance can be sought.
Unless otherwise expressly provided, existing contracts will not automatically terminate upon the appointment of a receiver to a company. Termination, retention of title and set-off provisions will remain enforceable notwithstanding the appointment of a receiver to the company. It has been held in case law that a receiver may disregard the contractual obligations of the company where he can prove that there would be no benefit to the company or the secured creditor in fulfilling the contractual obligations.
A receiver cannot repudiate contracts however, as agent of the company, a receiver may refuse to perform contracts whereby the only recourse available to the contracting party is to sue an insolvent company for breach of contract whereupon he would rank as an unsecured creditor only in respect of any award made in its favour.
The general rule is that a company’s contracts remain enforceable upon insolvency.
Properly drafted, a retention of title clause will survive an insolvency filing.
Contractual provisions allowing parties to terminate upon a counterparty’s insolvency will be upheld save in limited circumstances relating to essential supplies (e.g. gas, electricity, water and communication and IT services). There is also an ‘anti-deprivation’ principle which prohibits any contract from providing that property will transfer to another on the occurrence of an insolvency event.
In a liquidation or a distributing administration, statutory set-off applies where a creditor of the insolvent company is also a debtor of the company. Set-off is mandatory and automatic, and the relevant rules supersede all other contractual rights of set-off that are inconsistent with them.
A liquidator (but not an administrator) has the power to unilaterally disclaim onerous executory contracts to avoid incurring future liabilities.
As a general rule, the insolvent entity must continue to comply with its obligations under existing agreements, except (i) if the Mediator opposes to such performance in protection of the entity’s estate or (ii) as provided in the Insolvency Law. The Insolvency Law provides specific rules for certain types of contracts, for example:
A. Purchase of goods. If an insolvent entity acquired goods prior to the Insolvency Judgement, the relevant seller shall not be bound to deliver them unless the price has been paid or secured. In the event of goods in transit for their delivery that have not been paid, the seller may oppose to such delivery.
B. Purchase of real property. If the seller of real property is declared insolvent, the purchaser shall have the right to receive the real property, provided that (i) such transaction was duly perfected prior to the Insolvency Judgement; and (ii) seller received the relevant purchase price.
As a rule, all contracts of the debtor that are not yet fulfilled by any party are suspended until the insolvency administrator decides whether or not the insolvent will comply with them. The administrator can decide not to fulfil a contract and the other party is entitled to make a credit claim in the insolvency proceedings in the amount of the unfulfilled obligation (discount its own obligation, that it would have to perform) plus any amount due as compensation.
Furthermore, contracts that are harmful to the debtor’s assets can be terminated by the administrator – see question 6.
During insolvency proceedings, the court-appointed administrator will be in charge of the sale of the insolvent’s assets and, preferably, he should conduct an electronic auction, on a special platform. However, he can choose another method of sale (namely, sale through offers by letter, sale in regulated markets, direct sale, particular negotiation, auction in an auction house, etc.) as long as that choice is justified. Credit bidding is permitted. The sale of the entire business of the debtor is always the preferred solution, unless there is a specific advantage in the separate sale of the assets.
A creditor holding a security over an asset will be accessed about the method and the price of sale and he can propose to acquire the asset himself.
Assets are sold free of all claims and liabilities.
As a rule, pre-packaged sales are possible in restructuring and insolvency proceedings, but they will depend on the approval of the court-appointed administrator when concerning significant assets of the debtor.