What are the greatest barriers to efficient and effective restructurings and insolvencies in the jurisdiction? Are there any proposals for reform to counter any such barriers?

Restructuring & Insolvency (2nd Edition)

Hungary Small Flag Hungary

Market participants are still concerned to use the official bankruptcy proceeding due to negative PR effects and are usually trying to achieve an out of court settlement with creditors. Macroeconomic factors, such as good growth and increasing foreign investments have improved the efficiency of the restructurings and liquidations by creating demand for assets and “more room” to achieve mutually acceptable restructurings.

On the legal front we would welcome legislation enabling super senior position for fresh money invested into insolvent companies and recognition of contractual subordination which would enable more efficient resolution of insolvency situations.

Indonesia Small Flag Indonesia

The greatest barriers to efficient and effective restructurings and insolvencies in Indonesia would be the following:

  • The lack of transparency of the restructuring and insolvencies process.
  • The lack of capacity, skill, experience, qualities, professionalism, ethics of the actors and the professionals involved in the restructuring and insolvencies in Indonesia;
  • The lack of single authority to monitor, to evaluate the performance of the restructurings and insolvencies, as well as to intervene when the implementation as a system is considered failed (e.g.: due to misuse / abuse of the system by certain parties in bad faith);
  • The lack of rules governing the issue of guarantee, the group of company / affiliate, as well as the cross-border insolvency;
  • The system applies one set of rules to all types of debtor, regardless the nature of the debtor (e.g.: individual, corporation).

Yes there are various proposals to reform to counter any of these barriers which are currently under discussions.

Canada Small Flag Canada

One of the greatest barriers to efficient and effective restructurings and insolvencies in Canada are costs, especially with respect to restructurings and liquidations under the CCAA.

Since the CCAA involves a considerable amount of Court discretion during the course of a CCAA proceeding rather than statutory instructions, as discussed above, court attendances can be frequent. The fees and expenses of the Monitor in a CCAA restructuring, as well as the fees and expenses of the Monitor’s legal counsel, must be borne by the estate and may be substantial, especially in large, complex, and long-lasting CCAA restructurings/liquidations. Finally, the relatively recent openness of Canadian Courts to (i) ordering the formation of “creditor committees” and (ii) ordering that the legal expenses of other court-appointed representatives (and their legal counsel) be paid by the debtor’s estate also significantly increase the costs of CCAA restructurings/liquidations. The increased likelihood of prohibitive costs underlie the reason why the CCAA, as discussed above, is, in practice, almost exclusively used for the restructuring/liquidation of large corporate debtors. Canadian Courts are becoming more technologically adapted and it maybe possible for Courts to reduce the costs associated with insolvency/restructuring proceedings by permitting, for example, that hearings be conducted via videoconferencing, which is being encouraged by the Ontario Superior Court of Justice (Commercial List) for unopposed matters that would be heard “in Chambers”.

There are currently no ongoing or foreseeable reform of the Canadian insolvency and restructuring statutes. The latest major reform of the BIA, the CCAA and the WURA dates back to 2009.

Germany Small Flag Germany

The German insolvency law has been consistently improved (most recently by new rules regarding group insolvencies (see Question 18)) and is currently under official review by the government and legislator. Although the results have not yet been published, it is expected that they will lead to further improvements.

Restructuring proceedings prior to insolvency or in the form of an insolvency plan proceedings frequently require the (partial) waiver of creditor claims that are not or not fully recoverable. Based on the German tax acts, such waivers trigger taxable gains. The German tax authorities were instructed by the government to grant tax privileges for restructuring purposes if certain prerequisites were met. However, on 28 November 2016, the German Federal Tax Court (Bundesfinanzhof) decided that this administrative practice is unconstitutional and can no longer be applied. The German legislator reacted quickly and resolved upon a new law to exempt restructuring profits from taxation (section 3a, draft Income Tax Act). The new law will become effective only as soon as the European Commission notification process is completed. Therefore, at present, legal practice has to find ways in order to avoid a taxation and/or delay a waiver until a revise tax law comes into force.

Another barrier can constitute the fact that restructuring measures outside of insolvency proceedings sometimes fail due to the lack of approval by individual creditors. So far, interventions in creditors’ rights against their will are only permitted in insolvency proceedings which themselves trigger some disadvantages like the costs of the proceedings, the negative impact on the debtor’s reputation and its business. In this regard, a European legislative proposal could lead to an improvement: In order to implement a pan-European legal framework for restructuring proceedings, the European Commission issued the proposal for a “Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures” in November 2016. The proposed rules would allow for setting up a privy restructuring plan only affecting certain classes of creditors and taking restructuring measures based on a majority vote of the affected creditors at an early stage.

South Africa Small Flag South Africa

  • The insolvency laws of South Africa are outdated and insolvency legislation is interspersed among a number of Amendments Acts.
  • Raising financing in restructuring proceedings have proven difficult due to the lack of protection or certainty offered to financiers.
  • Court/departmental (i.e. Master (department of justice) involvement cause delays in executing proceedings due to court capacity, efficiency and competency to deal with the proceedings.

Following reports by the South African Law Reform Commission in February 2000 and the Standing Advisory Committee on Company Law in October 2000, a draft Insolvency and Business Recovery Bill (the Bill), was drafted and submitted to the Cabinet.

The amendments in the Bill are based on the premise that it is possible to have one Act dealing with all insolvency provisions. Although in March 2003 the Cabinet approved the submission of the Bill to Parliament for consideration, this was delayed pending a decision on modern provisions for business rescue. Since March 2003, the Bill has been revised in light of scrutiny from various task teams and ministerial committees, but never taken up.

The provisions relating to business rescue were subsequently included in the Companies Act of 2008 and this has resulted in a somewhat “disjointed” regime.

Brazil Small Flag Brazil

The biggest issues the parties involved in a reorganization or insolvency proceeding faces is the delay of the Brazilian judiciary, especially due to overly bureaucratic procedures and the large number of ongoing proceedings.

Also, Brazil has not adopted Uncitral law nor the BRBL has any provisions regarding cross-border bankruptcies, instead Brazilian Courts adopt the territoriality principle meaning that Brazilian Courts have exclusive jurisdiction over the debtor and all its assets. In this regard, the lack of regulation of cross border bankruptcy procedures it is a problem especially in a civil law country as Brazil, as decisions in the transnational bankruptcies is taken by Bankruptcies Court in random basis and without any kind of predictability. However, this issue is being addressed in the one of the various drafts of Bill that are waiting for approval by the House of Representatives and Federal Senate.

In fact, there are several drafts of Bills which deals with changes in the BRBL and are pending in the House of Representatives and Federal Senate, the most relevant being Bills No. 6.229/2005, No. 1572/2011 and No. 487/2013.

Among other changes, these drafts includes provisions that: (i) extends the application of the BRBL to other entities, like cooperatives and rural producers; (ii) provides the possibility for creditors to submit a plan that considers more advantageous; (iii) deals with transnational insolvency, including rules that prescribe cooperation between the Brazilian and foreign courts, a reduction of formalism among judicial authorities, the existence of a main court and subsidiary courts and also respect for the sovereignty of each country; and (iv) creates new specialized courts in insolvency proceeding.

In this regard, it seems that the intention of these drafts is to simplify and to reduce the bureaucracy and the costs of the reorganization and liquidation proceedings. However, for the moment the drafts still causes intense controversy and discussion in the legal community and its future is still unknown. However, for the moment the drafts still causes intense controversy and discussion in the legal community and its future is still unknown.

Czech Republic Small Flag Czech Republic

A lot of new laws address past inefficiencies, which is in principle considered a major improvement. The major institutional constraint remains to be the relative slowness of insolvency proceedings (which however has improved significantly over the past decade).

Cayman Islands Small Flag Cayman Islands

As noted in section 8 above, the present uncertainty regarding the ability of the directors of a Cayman Islands company to unilaterally access the provisional liquidation regime for the purpose of effecting a restructuring without shareholder support has been the subject of criticism from practitioners.

However, as noted above, it is anticipated that section 94 of the Companies Law will be subject to legislative reform, such that directors of a Cayman Islands incorporated company will have the ability to petition for the company's winding up and apply for the appointment of provisional liquidators without the sanction of a resolution passed at a general meeting. This legislative reform will increase the ability of a company to restructure its debts under the supervision of provisional liquidators with the protection of an automatic moratorium on claims.

In addition, another area of potential legislative reform is the proposed introduction of a court supervised restructuring moratorium. The proposed regime would allow a company to petition for the appointment of restructuring officers to obtain a stand-alone restructuring moratorium. It is proposed that such restructuring moratorium proceeding would be separate from the winding up regime given that it would not require the presentation of a winding up petition as a pre-requisite. These proposed legislative reforms would offer companies with more avenues by which to benefit from an automatic stay on claims thereby providing companies with the necessary breathing space they need to plan a rescue or restructuring without having to deal with constant creditor pressure. However, whilst the legislative draftsman considers the proposed amendments to bring in effect the reforms, companies undergoing restructurings will need to continue to utilise the provisional liquidation process to take advantage of an automatic stay on claims under Cayman Islands law.

Japan Small Flag Japan

First, in Japan, restructuring plans in out-of-court workouts must be approved by all creditors, and this rule sometimes makes it difficult to achieve successful restructuring plans. Therefore, some practitioners and scholars have proposed to change this rule in several ways, through new legislation or amendments to existing laws.

Second, if the restructuring plan is not approved by the creditors, the priority of new bank loans in out-of-court workouts cannot be confirmed and is subject to the court’s approval thereafter during restructuring or insolvency proceedings. This sometimes makes it difficult for debtors without enough collateral to obtain new bank loans. Therefore, there have been discussions to change this rule as well so that court approval would not be required.

Singapore Small Flag Singapore

Unfortunately, debtors seldom commence restructuring efforts until it is far too late, leaving little resources for the insolvency practitioner to implement an effective restructuring. It is also not unusual to see failing companies pillaged by errant directors prior to the commencement of insolvency proceedings. However, recovering these assets can be a challenge, are the debtor typically has insufficient funds to commence litigation to reverse these transactions or to mount a claim against the former directors.

Both the legislature and the judiciary have acknowledged these challenges, and have lowered the barriers to obtaining rescue financing as well as litigation funding for companies in liquidation.

British Virgin Islands Small Flag British Virgin Islands

There is no route by which a moratorium can be triggered for the benefit of companies in distress. This means that in some situations where the rescue of a company may be possible, an uncooperative creditor or member could upset the process of negotiating a sensible plan or scheme of arrangement, or creditors’ arrangement, by bringing an application for the appointment of a liquidator.

In addition, the BVI has not developed the role of the provisional liquidator as a route by which a company may be restructured. It is not known whether or not there are any proposals to remedy these shortcomings.

Finally, the BVI has not brought provisions enacting the UNCITRAL Model Law into force, so the routes by which a validly appointed foreign office-holder can seek recognition and support are limited.

Denmark Small Flag Denmark

The greatest barriers to successful in-court restructuring is funding and speed because the appointed restructuring administrator and the appointed restructuring accountant must not have advised the company before. Such persons must also quickly familiarize themselves with the company’s affairs and submit statements and restructuring plans to the creditors.

This results in costly administration even in small-scale restructurings.

In addition, there are limited possibilities of obtaining funding for employees’ salaries during an in-court restructuring.

In insolvencies there is often a conflict between company charge holders which hold a charge on the majority of the company’s assets and the financial obligations that to a buyer of a company mean that the employees are entitled to have their employment transferred to a buyer of the business. This may lead to inexpedient termination of employees because it is not possible to set off the employee obligations transferred against the purchase price of the charged assets.

Transfers prior to an in-court restructuring or insolvency come with substantial liability for the management and advisors and it is subsequently often alluring to the management to have insolvency proceedings commenced against the business than to transfer it prior to insolvency.

The Danish Bankruptcy Council under the auspices of the Danish Ministry of Justice has issued a report on revision of the rules on employees’ legal status during insolvency proceedings. If the proposed rules are implemented, this will give a wider scope for handling employees during a restructuring and transfer of insolvent businesses.

The legislative work based on the report has been suspended for an indefinite period.

China Small Flag China

The biggest hurdles facing efficient and effective bankruptcies in China are perhaps the public’s lack of understanding of the bankruptcy law, overgeneralization of the law, and insufficient social supporting systems that are needed in the implementation of the law. To clear these hurdles, we recommend: 1) stepping up efforts to raise public awareness of China’s bankruptcy law, 2) summarizing experience gathered in handling bankruptcy cases since the promulgation of the bankruptcy law, and timely publishing judicial interpretations of the bankruptcy law to address pressing issues in practice; and 3) improving social supporting laws and systems for the implementation of the bankruptcy law, for example, normalizing government’s financial support to bankrupt enterprises in paying social costs, setting up funds to secure payment of employees’ pay and administrators’ compensation, and bringing about market-oriented reforms in industrial and commercial administration, financial bailouts for distressed enterprises, restoration of the credit of restructured enterprises, tax adjustment for bankrupt enterprises, deregistration of bankrupt enterprises, management of enterprises’ archives, etc., in each case with an aim to solve existing problems at their roots. In recent years, Chinese courts have gained a lot of ground in the trial of bankruptcy cases, and the number of accepted filings has surged significantly. By handling bankruptcy cases, courts endeavor to resolve overcapacity and remove zombie companies, thus setting up a comprehensive system for bankruptcy proceedings and greatly improving China’s business environment. According to the 2017 evaluation of business environment of 190 economies by the World Bank, China ranks 53rd in the number of bankruptcy cases, a rise of 29 spots from its 82nd place in 2013.

Belgium Small Flag Belgium

In all, the legal framework of Belgian insolvency provides for a well-balanced and efficient system. On 11 September 2017, the new bill of 11 August 2017 on the reform of the existing Belgian insolvency and restructuring law was published in the Belgian Official Gazette. The bill seeks to recodify the relevant laws into one single code (Book XX of the Code on Economic Law), and introduces some modernisation, e.g:

  • the scope of application of the insolvency and restructuring proceedings is broadened;
  • modernization and modification of both insolvency procedures;
  • the introduction of an electronic file/procedure (the Central Registry of Solvency, www.regsol.be, was launched on 1 April 2017); and
  • the introduction of a set of coherent rules with respect to director’s liability.

The bill will enter into force on 1 May 2018.

Australia Small Flag Australia

Prior to the introduction of the ILRA, the greatest barriers to efficient and effective restructuring and insolvencies in Australia were:

  1. The prohibition on directors from incurring a debt where the company is (there are reasonable grounds to suspect the company is) insolvent, as it shifted the focus of company directors from trying to manage business distress to managing their own risk and exposure to personal liability;
  2. The operation of ipso facto clauses in contracts triggering termination rights, given the value those contracts may have had for the company and the necessity of those contracts to the company’s survival; and
  3. The statutory duties on receivers and liquidators in relation to administering a ‘pre-pack sale’, as the consequences that may flow from implementing such a transaction (including personal liability) renders them unattractive.

Since the introduction of the ILRA, the landscape has changed somewhat, particularly in relation to the operation of ipso facto clauses and the insolvent trading regime.

Safe harbour

The concept of a safe harbour has been introduced to the Corporations Act via a new section 588GA which provides that section 588G(2), being the provision which makes directors personally liable for insolvent trading, will not apply if, after starting to suspect the company is, or may become, insolvent, the director takes steps to develop one or more courses of action that is “reasonably likely to lead to a better outcome for the company” than the immediate appointment of an insolvency practitioner. There are a number of criteria that will be used to assess whether the test has been satisfied so as to enliven the protection, including the engagement of appropriately qualified advisors to provide advice on the restructuring plan. The Explanatory Memorandum accompanying the legislation states that “reasonably likely” requires that there is a chance of achieving a better outcome that is not “fanciful or remote”, but is “fair”, “sufficient” or “worth noting”.

The safe harbour rule does not provide protection in respect of all debts and only covers debts that are incurred:

  • in connection with the relevant course of action being pursued; and
  • during the period commencing at the time the course of action is being developed ending at the earliest of a “reasonable period” following the course of action not being pursued, when the director ceases to take such course of action, when the course of action ceases to be ‘reasonably likely’ to lead to a better outcome or following the appointment of an insolvency practitioner.

Care should be taken when relying on the safe harbour principle as it will not operate to automatically exempt a director from exposure to personal liability; rather it will be relevant to a director seeking to defend an insolvent trading claim.

Ipso facto clauses

The legislative reform regarding the effect of ipso facto clauses (discussed at question 12 above) should operate to the benefit of a company seeking to implement a restructure or work through an insolvency process enabling more efficient and effective processes to be adopted and implemented.

The Netherlands Small Flag The Netherlands

In the context of the legislative programme Reassessment Insolvency Law, various important developments can be identified. This concerns (amongst others) the following legislative proposals: Corporate Continuity Act I (CCA I) and Act On Dutch Court Confirmation Of Extrajudicial Restructuring Plans To Avert Bankruptcy (Wet homologatie onderhands akkoord; the WHOA).

The CCA I seeks to facilitate a structural and effective winding up of bankruptcies and/or aid the restart of commercially viable parts of the debtor’s business after bankruptcy. It allows the debtor to prepare and negotiate the transaction prior to bankruptcy, i.e. “precook” it as much as possible with the involvement of an intended trustee in a structured manner. Following the judgement of the European Court of Justice regarding the Estro pre-packed bankruptcy (see question 13), the implementation of the CCA I has been stayed until the Minister of Security and Justice has discussed the implications of the aforementioned judgement with the relevant stakeholders.

With respect to the Act On Dutch Court Confirmation Of Extrajudicial Restructuring Plans To Avert Bankruptcy (influenced by the English scheme of arrangement and the US Chapter 11), the possibility is introduced in the Netherlands for companies to offer a composition outside an insolvency proceeding. In this respect, the legislator intends improve the process regarding restructuring of problematic debts at companies outside of insolvency by making the process more flexible, faster and with minimal formalities, costs and uncertainties. Importantly, the WHOA will introduce the possibility to cram down secured creditors, which is currently missing from the Dutch restructuring and insolvency regime.

United States Small Flag United States

Prolonged and expensive litigation is the greatest barrier to effective restructurings in the United States. As noted above, expenses incurred by the official creditors’ committee are paid by the debtor’s estate rather than the committee members themselves, which can result in litigation or other similar actions that prolong the restructuring process and do not necessarily result in the most efficient process. Presently, there are no reform efforts in place to combat this inefficiency in the system.

France Small Flag France

Squeeze out of shareholders through a forced sale of their shares or a forced dilution of their equity stake is viewed as essential by most practitioners to enforce a debt-equity-swap against dissenting shareholders when the equity has lost all value and conversion of debt is the only solution to preserve the business as a going concern.
The law dated 6 August 2015 sought to address this issue and provided for a limited squeeze-out of the shareholders in reorganization proceedings.
However, several authors emphasize that such reform is not audacious enough and think that the conditions to such squeeze-out are so restrictive that it will only be enforced exceptionally. They are in favour of a reform similar to the reform which was recently adopted in Germany, which provides for the possibility to evict shareholders on the sole and sufficient condition that the restructuring plan, accepted by the majority of creditors’ committees, offer them better position than the position they would have had in a liquidation proceeding.

Luxembourg Small Flag Luxembourg

Rescue proceedings in Luxembourg are not very much used as they are considered too costly and burdensome.
On 1 February 2013, the government filed a draft bill No. 6539 on the preservation of business and modernisation of bankruptcy law. This draft bill includes various preventive, repressive, restorative and social provisions which aim to reduce, or at least stabilise, the recent increase of bankruptcies in Luxembourg.
The draft bill was heavily criticised by the State Council (Conseil d'Etat) as lacking efficient processes, providing for complex procedures and creating new duties on court officers, raising questions regarding feasibility and practicability. The bill is currently being redrafted.

New Zealand Small Flag New Zealand

In general, there are no significant barriers to efficient and effective restructurings and insolvencies in New Zealand. However, the absence of a strict regime for the qualification or licensing of insolvency practitioners in New Zealand is a significant ongoing challenge to public confidence in the transparency and legitimacy of insolvency processes in New Zealand. At present, provided an insolvency practitioner is over age 18 and not otherwise disqualified (e.g not be a creditor, shareholder, undischarged bankrupt or mentally ill), they can accept an appointment as a liquidator, receiver or administrator. There is otherwise currently no 'fit and proper' person test or qualification requirement which must be met.

In 2015, the New Zealand government formed an 'Insolvency Working Group', to give advice to the government on a wide ranging review of insolvency law.

The Insolvency Working Group had a broad scope of reference (including reviewing the law in relation to phoenix companies, voluntary liquidations, voidable transactions and any other potential improvements to New Zealand insolvency law), but a key part of the mandate of the Insolvency Working Group was to advise on the adequacy of the Insolvency Practitioners Bill, which was introduced into the New Zealand Parliament in April 2010 but has not progressed significantly in the period since. The Bill proposed a light touch regulatory scheme for insolvency practitioners in New Zealand without any requirement for formal qualifications, in order for a practitioner to accept appointments.

The Insolvency Working Group has now produced two reports. The first report issued in July 2016 addressed the question of the regulation of insolvency practitioners and voluntary liquidations. The Government in October 2016, accepted all recommendations of the first report of the Insolvency Working Group and publicly stated its intent to amend legislation to introduce a co-regulatory licensing regime for insolvency practitioners, alongside a number of additional amendments aimed at further raising the practice standards of insolvency practitioners and ensuring they act in accordance with their statutory duties. These statutory proposals remain pending for implementation by the new Government of New Zealand elected in September 2017.

The second report of the Insolvency Working Group was issued in May 2017 and focused on voidable transactions, Ponzi schemes and other corporate insolvency matters. The report made a number of recommendations but most notable are the changes suggested in respect of the law relating to voidable transactions. These proposals include the reduction of the period in which transactions are vulnerable to a voidability challenge from 2 years to 6 months prior to liquidation and removing the "gave value" element of the creditor defence to a voidable transaction claim. The second report went through a process of consultation in late 2017. The new government elected in September 2017 has not yet made any statements as to whether any of the recommendations of the second report will be implemented.

Romania Small Flag Romania

At present, the main barrier in what regards the reorganization chances is quite the companies’ managements that, most of the times, either resort too late to a restructuring procedure and in many cases even after having tried their own recovery measures, but which, unfortunately, in many situations, do nothing else but create financial imbalances at the company’s level, such as, for example, financing of long-term investments with short-term liquidities or over-indebtedness of the company. Another important aspect is relating to taxation, reduction of the receivables by the reorganization plan generates new tax obligations and, at the same time, there are serious restrictions regarding the purchase of the budgetary receivables, as only the par value price is accepted. Currently, there are no clear intentions with regard to the amendment of the insolvency legislation, there being only certain discussions regarding the European directive proposal on increasing the chances for reorganization of companies.

Switzerland Small Flag Switzerland

A silent (non-public) moratorium is currently only available for four months. This is a rather short window to achieve a consensual restructuring. It is proposed to extend the maximum duration of a silent moratorium to eight months in the context of the more general amendment to Swiss corporate law referred to above (cf. section 3 above).

For out-of-court restructurings, there has been much debate (and uncertainty) for how long a debtor may attempt to restructure in the state of over-indebtedness on the basis of a viable restructuring plan. This is an uncomfortable situation for the members of the highest executive body of a Swiss corporate in view of the daunting liability risks (cf. section 14 above). It is currently proposed to set the relevant period to ninety days and to clarify the starting point.

Finally, some scholars hold that the mandatory equal treatment of the disparate and large group of third class creditors (cf. section 5 above) creates a meaningful barrier to successful restructurings in Switzerland as no tailored cram-down is available. There is some truth to this but we consider it unrealistic that this fundamental principle of Swiss insolvency laws will be changed in the near future. Also, experience shows that a further distinction may be achieved contractually (although, of course, without the cram-down feature).

Israel Small Flag Israel

The Israeli insolvency laws are mainly based on the Bankruptcy Ordinance and Companies Ordinance, which are archaic legislation based on British legislation which were revoked in the 1980s'. Therefore, court policies and legal precedents govern most of the insolvency legal field.

As set forth above, on March 2018 the new Insolvency Law has been approved. The new Insolvency Law will effectively replace and/or amend the entire existing Israeli insolvency regime, and will create a modern and uniform insolvency legislation.

Bermuda Small Flag Bermuda

Bermuda is a creditor friendly jurisdiction and restructurings and insolvencies can generally be conducted efficiently and effectively.

The process of restructuring provisional liquidation will benefit from greater certainty as more cases are decided and the parameters of the procedure become more defined.

As Bermuda companies so often form part of larger corporate structures, one of the primary barriers to efficient restructurings is coordinating a restructuring/insolvency with processes in other jurisdictions. As noted above, the Courts have demonstrated a willingness to be flexible when dealing with cross-border restructurings and insolvencies, in particular in relation to recognizing and assisting foreign processes, but case law in this area is still developing.

There are currently no formal proposals for reform before the government of Bermuda. The need for reform has, however, been cited by various interested parties, most notably the Chief Justice of the Supreme Court of Bermuda. Therefore, such proposals may be presented in the near future.

Ireland Small Flag Ireland

In our view, broadly speaking, Irish law provides for effective and efficient restructuring solutions for most corporate insolvency scenarios. We find, however, that a key issue that often arises, and which can act as a barrier to an efficient process, is the availability of DIP financing. There is a lack of a structured and formal DIP financing arrangement applicable equally to all forms of insolvency proceedings. Currently Irish company law only allows for partial priority status for DIP finance in an examinership, and this can make it more difficult to raise the necessary cashflow funding during the period of the moratorium. We are not aware of any proposals to reform this aspect of Irish insolvency law.

United Kingdom Small Flag United Kingdom

The UK’s departure from the EU (Brexit) is formally due to occur on 29 March 2019, following which a transition period is expected. It remains to be seen what the impact of Brexit and the transition period will be on the English restructuring and insolvency regime.

As a member of the EU, the UK has had the benefit of the Insolvency Regulation recast, which, as noted above, gives primacy to insolvency proceedings opened in the Member State of the debtor’s COMI. Once the UK leaves the EU (and without any agreement to the contrary), the treatment of English insolvencies by other Member States will be subject to their national private international law regimes. This could threaten the attractiveness of the English insolvency regime to foreign debtors. The loss of the Insolvency Regulation recast is less significant in the case of schemes of arrangement however, which are a company law (rather than insolvency) process.

In relation to schemes, an as yet unresolved matter is whether the Brussels I Regulation applies when considering the court’s jurisdiction to sanction a scheme proposed by a debtor incorporated in another Member State. An affirmative answer would place a limitation on the court’s jurisdiction. The court’s recent practice has been to assume that the Regulation does apply (without deciding the issue) and then to find jurisdiction so long as the proposed scheme would satisfy one of the Regulation’s exceptions, in particular Art. 8 or Art. 25 (e.g. see Van Gansewinkel Groep). If a scheme company cannot rely on these exceptions, the court will be required to decide this issue before sanctioning scheme. Of course, if Brexit is to involve the disapplication of the Brussels I Regulation from English law, the court will not be so impeded.

Mexico Small Flag Mexico

The greatest challenges to effective restructurings lie within Mexico’s judiciary system. The workload of Mexican courts is huge.

Given the specialization that insolvency cases require, we understand there are some preliminary discussions about appointing judges that would only hear insolvency cases (currently general federal courts hear insolvency cases), which would be ideal.

Spain Small Flag Spain

Previously, the regulation of the insolvency proceeding was focused in the liquidation of the assets. Nonetheless, with the last legal amendment of SIA (Act 9/2015 Amendment of Insolvency Act) it was introduced a number of pre-insolvency mechanisms in order to achieve a solution to the situation of insolvency in advance and avoid that the insolvent company applies for the DIP as the agreement of the article 5 bis of SIA and refinancing agreement of art. 71 and the Additional provision nº4 of SIA.

However, nowadays there are relevant legal problems regarding the purchase of the production unit, since the buyer not only has to assume the Social Security and labor debts of the worker that will still work for the company once it is acquired, but also he will have to assume, additionally, all the Social Security and labor debts of the rest of the workforce. Despite having caused detrimental effects to the purchase of production units in Spain, the legislation will not be amended in the near future.

Portugal Small Flag Portugal

The legal regime of restructuring and insolvency has been amended several times in the recent years.

The main guideline of recent reform has been to anticipate the intervention in restructuring proceedings – either through negotiations with the creditors or through court with the appointment of an administrator.

The goal is to promote the recovery and solvability of debtors, both natural and legal persons, and avoid that they achieve a situation of insolvency.

Accordingly, barriers to restructuring have been gradually eliminated and new regimes have been created to promote negotiations with creditors and achieve restructuring agreements.

Given the recent changes, reforms are not anticipated at this point.

Updated: July 9, 2018