Is it a debtor or creditor friendly jurisdiction?
Restructuring & Insolvency (2nd Edition)
Generally, Denmark is a creditor friendly jurisdiction as restructuring and insolvency proceedings may be commenced at the petition of a creditor.
As a starting point, the debtor cannot avoid the restructuring or insolvency proceedings if the creditor is able to prove that the conditions have been fulfilled.
The purpose of China’s bankrupt law is to settle claims and debts fairly and protect the legitimate rights and interests of both creditors and debtors, so as to maintain the order of socialist market economy. Although maximizing creditors’ interests is not highlighted in China’s bankruptcy law, the provisions on creditors’ meeting, the right to request for invalidation of prescribed acts, the right of offset, exemption right, etc. clearly demonstrate the legislator’s intention to lean towards protecting creditors’ interests during liquidation. In restructuring proceedings, the introduction of voting groups composed of capital contributors and the voting power granted to voting groups show the legislator’s attention to the rights and interests of contributors/shareholders and to equal protection of the interests of all parties including creditors, debtors and contributors.
Australia is widely considered to emphasise the rights of creditors over debtors and as such is recognised as a creditor-friendly jurisdiction. Whilst there are some limitations on the options that might otherwise be available to distressed companies and some inflexibility in certain of the tools available to insolvency practitioners, Australia’s insolvency regime is, for the most part, primarily focused towards protecting the rights and interests of creditors over the interests of debtors. For example, Australia’s voluntary administration regime is controlled by creditors to the exclusion of management and members and its purpose is designed to maximise creditor returns. Further, unlike the United Kingdom for instance, receivership is alive and well in Australia.
Creditors are active participants in all insolvency processes in Australia. They can enforce their rights in each process and, whilst there are some timing limitations placed on their enforcement rights in a voluntary administration scenario, enforcement rights over secured assets are otherwise unfettered.
Secured creditors and employees enjoy a statutory priority in a distribution of assets and, in some circumstances, unsecured creditors can also place themselves in a position of protection. Unlike secured creditors, unsecured creditors are given no legal right to priority, yet due to a particular relationship that may exist with a debtor (for example, as a supplier of essential materials), they can exercise that power to obtain payment and ensure future payments as a practical necessity to maximise value and keep the debtor business running.
Belgian insolvency laws provide for a good balance between the debtor and creditor’s interest. We do identify a tendency towards preserving the continuity of the debtor’s activities, combined with an increased accountability of the debtor towards creditors.
The Netherlands is generally perceived as a secured creditor friendly jurisdiction.
The United States is widely perceived as debtor-friendly jurisdiction, illustrated in large part by the deference afforded debtors. The debtor-in-possession regime permits companies to reorganize as going concerns with existing management remaining in place and running the business as it deems fit with courts examining their actions under the flexible “business judgment standard.” Further, in chapter 11 proceedings, the debtor has the exclusive right to propose a plan for the first 120 days, which may be extended through the date that is 18 months after the filing of the chapter 11 petition..
Historically, the French restructuring system has always been perceived as a debtor-friendly system. More recently, however, French legislation has rather favoured creditors’ interests and the courts have favoured a number of lender-led restructurings enabling lenders or a group of lenders to take control of the debtor out of the hands of its existing shareholders (mainly financial sponsors). Furthermore, a number of alternative funds have increased their focus on the French market and as such have provided liquidity to French banks willing to sell their claims on the secondary market.
The Order dated 12 March 2014 readjusted the balance of powers between creditors and debtors with for example the possibility for creditors to propose competing plan.
More recently, the law dated 6 August 2015 has introduced a system of shareholder squeeze-out under which shareholders may be forced to sell their shares if they do not consent to share capital increases required to redress the distressed business.
Luxembourg is generally perceived as a secured creditor friendly jurisdiction, especially in light of the very wide implementation under Luxembourg law of the Financial Collateral Arrangements Directive.
New Zealand is generally considered to be a creditor friendly jurisdiction. Whilst there are some procedural limitations in place on enforcement and recovery in respect of consumer debt and security over real property, in general New Zealand's insolvency regime is focused towards protecting the rights and interest of creditors over the interests of insolvent debtors.
Romanian jurisdiction is a balanced one. The purpose of the insolvency law is to institute a collective procedure to cover the distressed debtor’s liabilities, obviously by relating to its capacity to fulfil its obligations by the assets at its disposal, and with the granting, when possible of the chance of recovery. Thus, on the one hand, the Romanian legislation in the matter of insolvency grants the debtor the necessary protection for recovery, and, at the same time, it institutes for creditors certain rights allowing them to participate in the decision-making process with regard to the aspects related to opportunity. At the same time, for guaranteeing the conducting of a legal and balanced procedure, the law institutes clear mechanisms by which the court of law controls the legality of the measures taken either by the debtor or the creditors or by the official receiver or judicial liquidator.
On balance, recent amendments to the DEBA have strengthened the role of the debtor and have made composition proceedings a more attractive tool for restructurings from a debtor's perspective. In particular, the availability of a silent (not published) provisional moratorium and the new statutory rule regarding an exit from a composition moratorium without the need for a composition agreement are aimed at facilitating in-court restructurings. That said, creditors are still adequately protected in various ways so that, from an overall perspective, the DEBA strikes a fair balance between the interests of the involved parties. Active creditors may exercise a significant influence on the proceedings (broad information access rights, consent requirements, participation rights at court hearings etc.) and passive creditors are protected by the supervision of the proceedings by an administrator (which is regularly appointed although not mandatory for all types of proceedings) and the court. Still, in our perception, the majority of restructurings is being pursued outside of formal restructuring proceedings. This route is typically faster but involves additional risks, namely for executive bodies of the debtor.
Israel was generally a creditor's friendly jurisdiction. In the past several years, certain limitations were imposed on secured creditors in order to increase the chances of recovery and protect the interests of other stakeholders. The new Insolvency and Economic Rehabilitation law, might change this assessment, as it puts the possible rehabilitation of debtors as a main goal. I suppose practical answer to this question will be possible after the courts will start implementing the provisions of the new Insolvency Law.
However, the Israeli law and ruling still provide many protections and tools to creditors. Those include the requirement to appoint a court expert in any traded bonds Arrangement; the right of a creditors to initiate and approve a recovery plan notwithstanding the lack of consent of the company (Liquidation Case 36681-04-13 IDB Development Company Ltd. v. Hermetic Trust (1975) Ltd. Series 7 and 9 Bond Trustee); and the recent adoption of the creditors committee concept in the new Insolvency Law.