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 (2nd Edition)

Denmark Small Flag Denmark

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 question is not understood.

China Small Flag China

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.

Australia Small Flag Australia

Receivership

There is no moratorium in receivership and creditors may take action against the company including initiating court proceedings, but such actions are treated as unsecured claims (subordinated to the claims of the secured creditors who appointed the receiver). The receiver will be in control of the company’s material assets and is permitted to realise such assets for the benefit of the secured creditor only (with any surplus being provided to the company capable of being distributed to unsecured creditors).

Voluntary administration and liquidation

An automatic moratorium operates following the appointment of a voluntary administrator or upon the winding up of a company. Consequently, civil legal proceedings cannot be commenced except, in the case of a voluntary administration, with the administrators consent or leave of the court and in the case of liquidation, with the leave of the court.

Under the Cross-Border Insolvency Act 2008 (Cth), foreign creditors, save for tax and penal debts, have the same rights regarding the commencement of, and participation in, insolvency proceedings as an Australian creditor. All foreign claims must be converted into Australian currency for the purposes of the insolvency process.

Belgium Small Flag Belgium

As a general rule, ongoing legal proceedings are not impacted by the opening of insolvency proceedings. In case of a bankruptcy, however, the bankruptcy trustee must decide whether to continue the litigation. If the litigation is not in the interest of the bankrupt’s estate, a trustee has the right to file a discontinuance (which implies that the trustee is no longer pursuing or challenging the claims at dispute).

The general rule does not apply in case the enforcement of creditors’ claims. The opening of an insolvency procedure (in some cases temporarily) suspends all enforcement proceedings, although certain exceptions exist (e.g. the enforcement of a pledge on financial collateral or specific receivables is not affected by the insolvency).

The opening of an insolvency procedure by a Belgian court shall be recognized in all other EU Member States, pursuant to Article 19 of the Insolvency Regulation 2015/848.

The Netherlands Small Flag The Netherlands

As a result of the bankruptcy all legal proceedings against the bankrupt are stayed and all attachments on the debtor's assets are terminated by operation of law. Secured creditors are in principle not affected by a bankruptcy (unless a cooling-off period is ordered by the bankruptcy court).

The EU Insolvency Regulation (nr. 2015/848) (the Insolvency Regulation) is applicable in the Netherlands. Therefore, the initiation of an insolvency proceeding by a Dutch court shall be recognized in all other EU Member States.

United States Small Flag United States

Upon the filing of a bankruptcy proceeding, the automatic stay is triggered, thereby protecting the debtor and the property of the estate. Subject to certain exceptions, at that point, no creditors may pursue collection efforts, foreclosure actions or other enforcement actions against the debtor without first obtaining authority from the court. Section 362 of the Bankruptcy Code provides that a creditor may not “create, perfect, or enforce” a lien against the estate, thereby preventing all creditors, subject to certain exceptions, from taking any action to enforce a security interest or improve its position relative to other creditors after the filing of the bankruptcy petition. The automatic stay expressly prohibits acts to obtain possession of “property of the estate,” thus generally barring creditor collection efforts with respect to estate property located both within and outside the U.S.

The Code provides certain exceptions to the automatic stay under section 362(b), including criminal proceedings, enforcement of a governmental unit’s police or regulatory powers, and a non-debtor party’s right to close out securities or financial contracts, among others. Similarly, pursuant to section 362(d), upon the creditor’s request and following a hearing, the court may grant relief from the automatic stay in the following circumstances: (i) “for cause” such as lack of adequate protection, (ii) if the debtor does not have equity in the property and the property is not necessary to effectively reorganize, (iii) with respect to a stay of an act against single asset real estate in certain circumstances and (iv) where with respect to a stay of an act against real property, under certain circumstances the bankruptcy was part of a scheme to hinder, defraud creditors.

France Small Flag France

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 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.

Luxembourg Small Flag Luxembourg

Following the declaratory judgment of bankruptcy, all creditors must file a proof of claim. During both reorganization proceedings and bankruptcy, individual legal actions by privileged and unsecured creditors against the debtor are suspended.

However, “bankruptcy proof” secured creditors, such as security receivers under the Financial Collateral Law and mortgagees, can freely take enforcement action regardless of the bankruptcy proceedings. Both secured creditors and mortgagees are being considered as outside of the bankruptcy estate (“hors masse”) and are not, in principle, subject to ordinary distribution and priority rules. In other words, they will be entitled to enforce their rights without the Commercial Court’s approval.

In practice, such creditors will also file a proof of claim in order to secure their claims in case the enforcement of their security does not fully repay their debt.

Romania Small Flag Romania

In certain conditions, during the conducting of the insolvency prevention proceedings, which we shall describe herein below in the next item, a provisional stay of enforcements is possible. At the same time, from the opening date of the insolvency procedure, all individual enforcement proceedings shall be stayed de jure. Practically, all creditors may enforce their receivables only in the insolvency procedure, without the creditors’ headquarters or other aspects relating to territoriality having any relevance. In certain conditions, creditors having a mortgage right may request the lifting of such stay and the immediate sale of the asset that is the object of their security, but in the insolvency procedure as well and provided that the procedure expenses have been paid.

Switzerland Small Flag Switzerland

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 the same 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 question 1 above for enforcement options for secured creditors.

Israel Small Flag Israel

A liquidation order will automatically trigger a stay of all proceedings against the company, unless otherwise permitted by the court. Any transaction in the company's assets or any proceeding with respect to the company made after the date of the liquidation order shall not have any force and effect.

A stay order is not mandatory in case of Arrangement proceedings. A stay order in Arrangement proceedings is granted for a period of nine months, which may be extended by three months periods. The stay order will prevent any proceedings taken against the company, including the foreclosure of any pledge, the crystallization of floating pledge or receipt of possession of any asset under retention of title, unless authorized by the court. Such court approval will be granted only if the pledged or retained asset does not guarantee proper protection to the creditor, or if granting of such approval shall not harm the chances of recovery.

The existing law does almost not refer specifically to the extraterritorial effect of the stay order or moratorium. In practice, the cooperation and recognition of the relevant foreign court may be required in order to enforce such proceedings in foreign jurisdiction.

In the well-known Israeli case of the collapse of Urbancorp Inc., a Canadian company with Canadian assets raising debt by issuance of traded bonds to the the Israeli public capital market, the Canadian court recognized the Israeli proceedings as foreign main proceedings, to which an automatic stay of proceedings applies.

The new Insolvency Law set forth specific provisions, based on the UNCITRAL Model Law on Cross-Border Insolvency, and international standards, in order to regulate the relation between different proceedings in different jurisdiction or the proceedings with respect to a debtor having assets of creditors in different countries. Under such provision if the Israeli court recognized a foreign proceeding as a foreign main proceeding, it will order a stay of proceedings.

Updated: April 20, 2018