What form of stay or moratorium applies in insolvency proceedings against the continuation of legal proceedings or the enforcement of creditors’ claims? Does that stay or moratorium have extraterritorial effect? In what circumstances may creditors benefit from any exceptions to such stay or moratorium?
Restructuring & Insolvency (3rd edition)
Protection from Creditors
As previously stated (see Question 4), once a debtor has become bankrupt, all of the debtor's property, wherever located, vests in the trustee subject to the rights of secured creditors. The trustee then proceeds to administer the estate for the benefit of the bankrupt's unsecured creditors. The BIA provides for an automatic stay of proceedings once the bankruptcy has commenced. The debtor's unsecured creditors are prevented from:
i) exercising any remedy against the debtor or its property; and
ii) commencing or continuing any action, execution or other proceeding for the recovery of a claim provable in bankruptcy.
The bankruptcy stay is of national force and effect, but it does not have extraterritorial effect. Recognition proceedings must be sought in any jurisdiction outside of Canada for the stay to become enforceable in such jurisdiction (see Question 16).
Exceptions to Stay
The bankruptcy stay does not affect secured creditors, who are generally free to enforce their security outside of the liquidation process. The stay also does not affect the claims of holders of eligible financial contracts with the debtor or the actions of governmental, administrative and regulatory bodies such as the Crown and the provincial securities commissions in carrying out their regulatory or administrative duties, other than the enforcement of a payment ordered by the regulatory body.
Protection from Creditors
The order appointing the court-appointed receiver will typically provide for a stay of proceedings against the receiver and debtor (see Question 4).
A receiver appointed under the BIA has jurisdiction across Canada, unlike a receiver or receiver and manager appointed under provincial legislation who has no power outside the province of its appointment. Accordingly, the stay of proceedings that is effective upon the court appointing a receiver under the BIA is of national force and effect – there is no need to seek recognition orders in each province.
The stay contemplated by a receivership order does not have extraterritorial effect. Similar to a bankruptcy, recognition proceedings must be sought in the jurisdiction outside of Canada for the stay to become enforceable in such jurisdiction (see Question 16).
Exceptions to Stay
The stay does not affect the claims of holders of eligible financial contracts with the debtor as well as the regulatory actions of governmental, administrative and regulatory bodies such as the Crown and the provincial securities commissions. The model receivership order specifically contemplates that there is no exemption provided to the receiver or the debtor from compliance with statutory or regulatory provisions relating to health, safety or the environment.
British Virgin Islands
An automatic stay is imposed following the appointment by the Cayman Court of provisional or official liquidators. The stay prohibits any suit, action or other legal proceedings from being commenced or continued against the company without the leave of the Cayman Court. However, it does not prevent secured creditors from enforcing their security.
The Cayman Court may also order a stay in advance of the appointment of provisional or official liquidators, but after the presentation of a winding up petition. On the application of a creditor, member or the company itself, the Cayman Court may stay any proceedings against the company before the Cayman Court and/or restrain any proceedings from being pursued before a foreign Court.
For the automatic stay to take effect outside of the Cayman Islands, the liquidators will usually need to apply for recognition and enforcement of the stay in the Courts of the foreign jurisdiction, and it is a matter of the law of the foreign jurisdiction as to whether such relief will be granted.
After the court accepts a bankruptcy filing, the measures that have been adopted to preserve the debtor’s property should be discharged, any enforcement proceedings suspended, and any pending civil action or arbitration discontinued and not resumed until the administrator takes over the property of the debtor. Chinese law provides details for conversion of an enforcement procedure into a bankruptcy procedure, or specifically, if the party subject to enforcement in an enforcement procedure is an enterprise legal person and has the ground to be bankrupted, the enforcement applicant or the party subject to enforcement may apply for conversion of the enforcement procedure into a bankruptcy procedure. A bankruptcy procedure initiated in accordance with Chinese law has legal effect on the debtor’s assets located outside China, so a stay or moratorium has extraterritorial effect, subject to the acknowledgement by the foreign court concerned.
Under Danish insolvency law, a moratorium may only be agreed voluntarily between a debtor and the debtor’s creditors or as part of restructuring proceedings filed for or completed. As long as restructuring or bankruptcy proceedings filed for are pending, unsecured creditors are also barred from pursuing their claims.
A moratorium does not release the debtor from payment of the debt but for as long as the moratorium is maintained, the creditors cannot levy execution against the debtor or file a petition in bankruptcy against the debtor.
As a result of the circumstance that it cannot be requested that a Danish bankruptcy order be acknowledged abroad (with the exception of the Nordic countries) a moratorium only has extraterrestrial effect in connection with bankruptcy and restructuring proceedings if the country of the foreign creditor acknowledges the Danish insolvency proceedings. The reason for this is that Denmark has not yet acceded to the Insolvency Regulation of the EU. However, it must be mentioned that several countries will acknowledge Danish bankruptcy/restructuring proceedings in accordance with UNCITRAL’s model law on cross border insolvency.
- In what circumstances may creditors benefit from any exceptions to such stay or moratorium?
The starting point of a voluntary arrangement in respect of an extension of payments (moratorium) is, as stated above, that the participating creditors are barred from seeking satisfaction in the debtor’s assets by means of individual creditor action, but this is to be agreed individually in each arrangement.
If the moratorium is agreed as part of restructuring proceedings filed for or completed, the starting point is that the creditors are barred from pursuing their claims irrespective of whether they wish to participate or not.
However, there are some exceptions to the above starting point, which will be outlined below.
Creditors that have levied execution against claims before the commencement of the restructuring proceedings (in practice the rule is relevant for execution levied no later than three months prior to the reference date) may exercise dispossession and seek satisfaction on the basis of the charge on the claims in question, see section 12c(2) of the Danish Bankruptcy Act.
In restructuring proceedings filed for creditors that have a lien on the debtor’s property until a specific amount has been paid have a right to levy execution against the liened property and seek satisfaction in such property, see section 12c(3) of the Danish Bankruptcy Act. Furthermore, creditors whose claims are secured by a pledge, a floating charge on claims or receivables charge may seek satisfaction in the charged assets, see section 12c(4) of the Danish Bankruptcy Act.
Under section 12c(5) of the Bankruptcy Act a debtor must on request from a creditor pay the periodical payments on a claim secured by a charge that concern the period of time after the commencement of the restructuring proceedings. If the debtor fails to make a payment in due time, the creditor may seek satisfaction in the asset charged irrespective of the general prohibition against individual creditor action.
As seen previously, insolvency proceedings trigger an automatic stay (moratorium) on claims which prevents creditors from suing the debtor for payment and enforcing the securities.
That stay or moratorium have extraterritorial effect if the French insolvency law appears applicable in accordance with European law (Regulation 2015/848) or International law because of the “universal” effect of the French insolvency law.
However, Article 8 of Regulation 2015/848 (Third parties’ rights in rem) provides a limit to that universal effect: the opening of insolvency proceedings in a European Member State shall not affect the rights in rem of creditors or third parties in respect of assets belonging to the debtor which are situated within the territory of another European Member State.
After the opening of insolvency proceedings, general claims in regard to the estate cannot be pursued by suing. Instead, a creditor must register its claims with the insolvency administrator.
As of the opening of insolvency proceedings, legal proceedings regarding the debtor’s estate are suspended until (i) the administrator resumes such proceedings or (ii) the insolvency proceedings are terminated.
The same is true for enforcement of claims regarding the estate which are also suspended for the duration of the insolvency proceedings (Sec. 89, 90 Insolvency Code). Only creditors that can show that the respective asset does not belong to the estate on grounds of a right of segregation (Aussonderungsrecht, Sec. 47 Insolvency Code) may enforce their claim during insolvency proceedings.
The enforcement of title in immovable property that is encumbered with a mortgage or land charge is not blocked during insolvency proceedings, unless the insolvency administrator successfully files for a stay of enforcement according to Sec. 30d, 153b ZVG.
Creditors may benefit from such stay as individual creditors are not permitted to access the insolvency estate to the detriment of other creditors.
Pursuant to the rules of the European Insolvency Regulation 2015/848 and Sec. 335 Insolvency Code, German insolvency law, including, without limitation, the aforementioned stay does have extraterritorial effect.
All proceedings against the company are stayed upon the appointment of a liquidator or provisional liquidator. The stay has extra-territorial effect as a matter of Bermuda law. The stay of proceedings does not affect any ability to enforce security rights out of court. A creditor may be granted leave to continue legal proceedings on application to the Bermuda Supreme Court, however this is not typically granted except where the proceedings are necessary for the purposes of the creditor enforcing valid security interests in the property of the company.
See above and below regarding automatic stays in compulsory and voluntary liquidation an administration. Such stays would not have automatic extra-territorial effect absent recognition and specific relief to that effect in the foreign jurisdiction. However, it is unlikely that a Guernsey court would permit a foreign unsecured judgment creditor to enforce against the assets of a company that is being wound up since, by doing so, it would be permitting that creditor to gain an unfair advantage in the liquidation process over the other creditors. Allowing enforcement in this scenario would also effectively result in the judgment creditor circumventing the rule that the judgment debt ranks as unsecured and pari passu.
The automatic stay on creditor action commences on the filing of the papers in the court office on an ex-parte basis. The statutory moratorium can last for up to a maximum of 100 days by which time the examiner must have formulated his proposals for a scheme of arrangement. The moratorium is ineffective in relation to rights in rem by way of security in assets located outside of Ireland. Prohibited creditor action includes the appointment of a receiver, enforcement of security, repossession of goods on lease, hire purchase or supplied on retention of title (without the consent of the examiner), liquidation etc. No proceedings may be instigated against the company except b leave of the Court and the Court may, on the application of the examiner, make any order as it believes proper in relation to existing proceedings including an order to stay those proceedings.
Scheme of arrangement
Before a scheme of arrangement is proposed, an application can be made to the Court by the company itself, its directors, any creditor or member or, the liquidator appointed to the company (if applicable) for a moratorium on enforcement to stay all proceedings and restrain further proceedings against the company or its property for such period as the Court deems fit (as opposed to the maximum 100 day period applicable to examinership).
Compulsory liquidation: No proceedings or other creditor action can be commenced or continued against a company in compulsory liquidation without leave of the Court. Where a winding up petition has been presented to the Court, but the Order for winding up has yet to be made, the company or any creditor or contributory can apply to the Court to stay any proceedings until the winding-up petition has been determined.
Voluntary liquidations: No stay automatically arises when a company is placed into voluntary liquidation. Notwithstanding, the liquidator, any creditor or contributory of the company may apply to the Court for a stay on enforcement. On any such application, the Court will have regard as to whether the claim can be dealt with in the course of the liquidation and will apply certain factors to ensure that one creditor does not obtain an advantage over the other creditors.
No restrictions apply to a company in receivership save that the relevant assets over which the receiver is appointed will fall outside of the pool of assets available to satisfy claims of the company’s other creditors.
- Commencement of a désastre or creditors' winding up process gives rise to a moratorium on claims against the debtor. The moratorium is not expressly stated to be extra-territorial although it is likely that the Royal Court will consider applications for letters of request seeking the assistance of foreign Courts by way of the recognition of Jersey insolvency appointees in those other jurisdictions to enforce the moratorium . (Désastre Law 10 and Companies Law Art.159)
- Creditors may apply for the moratorium on claims to be lifted in facts specific circumstances and the Court has a general discretion to allow claims to be commenced or pursued.
From the concurso declaration, attachment and foreclosure on assets are generally stayed during the reorganization stage. Secured creditors may begin or continue foreclosing on assets that, in the opinion of the judge and the conciliator, are not essential for the ordinary course of debtor’s business.
The effects of concurso should apply broadly, worldwide (Mexico has adopted the universalism approach to insolvency or, as some treatises put it, puts it, a mitigated universalism approach). However, the nature of judiciary’s geographical reach makes it impossible to effectively protect assets outside of the bankruptcy court’s jurisdiction in the absence of judicial cooperation abroad. Whether the foreign court will grant comity or otherwise recognize and cooperate with the Mexican bankruptcy court is a matter of local law in the place where comity or recognition is sought.
The ordinary insolvency proceeding triggers an “automatic stay” which suspends the enforcement of the debtor’s obligations and protects the debtor’s assets against court, arbitration, or administrative enforcing actions. The automatic stay does not have a maximum effective term; it becomes effective upon publication of the insolvency filing of the debtor in the Insolvency Bulletin of the Bankruptcy Authority (INDECOPI) and its effective term ends when the Creditor’s Meeting approves the insolvency instrument (such as a Restructuring Plan, a Global Refinancing Agreement or a Liquidation Agreement). During the automatic stay the debtor’s obligations will not accrue any default interest nor will interests be capitalized.
The suspension of the enforcement on the debtor’s liabilities, which last throughout the automatic stay, can also exist in the preventive proceeding where the debtor so requests when the insolvency petition was filed.
In addition, an automatic stay does not prevent creditors from enforcing third party assets who had granted real or personal property securities to the debtor, which will legally be considered as granted to the original secured party; moreover, where a branch is under an insolvency proceeding, the non-enforcement of debts does not prevent creditors to file enforcing legal actions against the parent company's assets located in a foreign territory.
During the automatic stay, the authority that is trying the court, arbitration, enforcing, or out-of-court sales proceedings against the debtor may not legally order any precautionary measure affecting the debtor’s assets and may not execute any that may have already been ordered. Such prohibition does not include enforcing measures that may be registered or any other that entails the dispossession of the debtor’s assets, which may be ordered and executed but may not be subject to enforced execution.
If any precautionary measure entailing dispossession has been filed, the judge will order that it be suspended and that assets involved in the precautionary measure be returned to the liquidator or whoever is administering the debtor’s assets. However, precautionary measures that are subject to registration or those that do not entail the dispossession of the debtor’s assets shall not be stayed but may not be subject to enforced execution.
The automatic stay declaration and the suspension for the enforcement of its liabilities can also exist in the preventive proceeding when the debtor so requests when the insolvency petition was filed.
Under Polish Bankruptcy Law, declaring bankruptcy is connected with stay of enforcement of claims, and moratorium to commence such proceedings.
Execution proceedings initiated prior to the declaration of bankruptcy, should be, by operation of law, stayed on the date of declaration of bankruptcy. Once decision on declaring bankruptcy becomes final and non-appealable such proceedings should, by operation of law, be discontinued.
Said legal instruments have extraterritorial effect, however declaring bankruptcy is not an obstacle for awarding immovable property ownership if the bid for the property was validly knocked down prior to the declaration of bankruptcy and the execution acquirer pays the acquisition price on time.
A company proposing or intending to propose a scheme may apply to Court for a moratorium against, inter alia, all legal proceedings from continuing or commencing against the company, the appointment of receivers, the realisation of any security over the property of the company, and the execution, distress, or other legal process against the company’s property. Upon the making of such an application, the company will be entitled to an automatic interim 30 day moratorium (which may be extended by application to the Court).
A company applying for a moratorium in support of a scheme may also seek an order from the Court to have the moratorium bind all creditors outside of Singapore, as long as they are subject to the in-personam jurisdiction of the Singapore Courts.
Similarly, upon the filing of an application for Judicial Management, no steps may be taken to enforce any charge or security over the company’s assets, and no other proceedings or legal process may be commenced or continued against the company.
A creditor affected by a moratorium may apply to Court for leave to continue or commence proceedings against the debtor company. In deciding whether to grant leave, a Court will weigh the interests of the creditor against the need to grant the debtor room to carry out an effective scheme or meet the aims of judicial management.
Once bankruptcy proceedings are opened, no creditors may enforce their claims against the debtor. The only exception to this would be a creditor with security in the form of a pledge over specific property, which may be enforced even during bankruptcy proceedings as long as realization is co-ordinated with and accounted for to the bankruptcy receiver.
As for litigation proceedings, there is no stay that will apply in bankruptcy proceedings. Whether the debtor is the claimant or the defendant in such proceedings, they will continue even if the debtor enters into bankruptcy. What will happen is that the insolvent estate will have the right to assume the debtors standing as claimant or defendant and take over the proceedings. If so, the estate will assume all rights as well as all obligations of the debtor including litigation costs. If the estate does not enter into the proceedings and assumes the case, the debtor in bankruptcy (represented by its board of directors) will have the right to continue the litigation proceedings and ask the court to rule on the case.
The opening of bankruptcy proceedings has the effect that all pending debt enforcement proceedings against the insolvent debtor are stopped and no new debt enforcement proceedings may be commenced. This restriction does not apply (i) to claims arising after the opening of bankruptcy and (ii) where the secured creditor enforces into collateral posted by a third party for the debts of the insolvent debtor.
Further and in general, all pending civil law proceedings to which the insolvent debtor is a party are automatically stayed upon the opening of bankruptcy and are only resumed once the schedule of admitted claims has been published. During such stay, the statute of limitation does not continue to run. The stay in principle extends to all civil law proceedings irrespective of the (Swiss or foreign) venue. While the Swiss bankruptcy authorities have no meaningful way of enforcing the stay abroad, they may refuse to admit claims against the insolvent debtor resulting from such foreign proceedings to the schedule of claims.
The opening of moratorium proceedings has very similar effects, i.e. all debt enforcement proceedings are stopped and all pending non-urgent civil law proceedings are stayed. As an exception, creditors whose claims are secured by real estate may continue with the debt enforcement but are precluded from foreclosing on the real estate.
Please refer to section 1 above for enforcement options for secured creditors.
The Judge of the insolvency proceeding has the jurisdiction in exclusive and exclusion. It implies that the Judge will have the competency to judge all the procedures that affect the estate of the debtor. Inclusive procedures that are developing in other countries if the applicable law established it (art.8 SIA).
Regarding to the others initiated proceedings, the declaratory procedures and the arbitral proceedings where the debtor is a party, that there are in process at the moment of the insolvency proceeding being declared open, shall continue to be substantiated before the same court as that hearing such until their conclusion (art. 51 and 52 SIA). Likewise, the enforcement and coercive collection could continue until approval of the liquidate phase, administrative enforcement proceedings in which payment orders have been handed down and labor enforcements in which insolvent debtor’s aggregate assets has been seized may continue, if prior to the date of the declaration opening the insolvency proceedings, but as long as the assets subject to seizure are not necessary to continue the debtor’s activity (art. 55 SIA). And the execution proceeding that no affect necessary assets to continue the debtor’s activity, they could be continues until its conclusion.
On the other hand, when the execution proceeding affect necessary assets to continue the debtor’s activity, the procedure shall be stayed. However, it could be restarted if (i) the encumbered asset is declared as an asset which is not necessary to continue with the debtor’s professional or business activity (art. 56 SIA), or (ii) it is adopted a composition that no affect the creditor, (iii) or 1 years has passed since the DIP without the opening of the liquidate phase (art. 56 and 57 SIA).
Immediately upon the filing of a petition in a bankruptcy case under any chapter of the Code, a broad statutory injunction comes into effect as a matter of law without any court action. This injunction is known as the “automatic stay,” and it serves to enjoin any action to enforce a debt against the debtor or any property of the debtor. The injunction applies to all property of the estate, whether located within or outside of the U.S. Section 362(b) of the Code lists exceptions to the automatic stay, including certain types of financial contracts (e.g., forward contracts), the exercise of a governmental unit of its police or regulatory powers so long as the action is not to enforce a money judgement, and criminal proceedings.
The widest form of moratorium is offered by administration. The moratorium prohibits any steps/actions from being commenced or continued against the company and its property, except with the administrator’s consent or the permission of the court. This includes preventing any secured creditor from enforcing its security interest (unless the security constitutes a financial collateral arrangement - see Question 2. above regarding the remedy of appropriation, which is exempt from the moratorium in administration).
In a compulsory liquidation, no action or proceedings can be continued or raised except with the leave of the court. Creditors may however take steps to enforce their security or repossess assets which are not actually owned by the company (such as goods subject to a retention of title clause). In a voluntary liquidation, there is no moratorium on legal proceedings against the company.
A company voluntary arrangement (CVA) can also offer a (non-automatic) moratorium for small eligible companies (i.e. which satisfy two or more of the following criteria: (i) turnover not more than £10.2m, (ii) balance sheet total not more than £5.1m and (iii) not more than 50 employees). A scheme of arrangement (unless combined with an administration) does not offer a moratorium.
Unlike in the U.S., a moratorium under English law does not purport to have extraterritorial effect. Its recognition under the laws of another jurisdiction will depend on applicable national law. For example, EU Member States that are signatories to the Recast EU Insolvency Regulation will recognize the UK proceeding (including by recognizing the related moratorium in the relevant Member State) where the debtor’s CoMI is in, or such debtor has an establishment in, the UK (although see Question 21. regarding recognition post-Brexit).
The debtor is allowed a stay of payment from the time when the court order was published on bankruptcy proceeding with respect to the pecuniary claims which were due before the starting date of the stay of payment or becoming due thereafter.
The stay of payment has extraterritorial effect.
The stay of payment shall not apply:
- to claims for wages and other similar benefits existing at the time of submission of the petition for the opening of bankruptcy proceedings and those arising thereafter, as well as the related taxes and other similar charges (including membership payments made to private pension funds), severance pay, maintenance payments, life-annuities, compensation contributions, restitution and miners’ income supplement benefits, benefits and allowances of vocational students, furthermore, fees charged for electricity and natural gas (including network access fees) and all other fees charged for utilities due on the basis of compulsory services defined in the relevant legislation, account maintenance fees charged by payment service providers as well as the costs and expenses of the administrator, which are not covered by the registration fees; and
- to any value added tax, excise tax and products charges charged to the debtor after the time of the opening of bankruptcy proceedings as invoiced or incurred during the debtor’s transactions; furthermore
- to refunds of sums transferred to debtor’s account by mistake,
- to the payment assumed with a view to carrying on the economic activity, as endorsed by the administrator.
All proceedings pending on the date of the bankruptcy, in which the bankrupt party is involved, are legally suspended until the declaration of claim has been made by the claimant. If the submitted claim is accepted by the bankruptcy trustee in his first official report, the aforementioned pending proceeding will become void. However, if the submitted claim is disputed in the first official report, the bankruptcy trustee is presumed to resume the pending proceedings at least for the resolution of the disputed part.
Enforcement of creditor’s claims
The bankruptcy order will suspend the enforcement rights of the creditors except of for certain creditors with privileges on certain movable or immovable assets.