Bankruptcy Legal Requirements, 2014 - CESifo Group … · An out-of-court settlement is an...

Bankruptcy − Legal Requirements, 2014

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Austria Insolvency procedures There are various ways of proceeding if a company becomes insolvent: An out-of-court settlement is an extra-judicial agreement between the debtor and creditors. It can be viewed as a type of contract under private law. If no settlement is reached in this procedure, the debtor must file for insolvency proceedings no later than 60 days after insolvency has been deter-mined.

The settlement proceedings enable an insolvent company to be restructured and then continued. There are settlement proceedings with and without the debtor‟s personal responsibility. Unlike settlement proceedings, proceedings for bankrupt companies are continued by the liqui-dator rather than the debtor. Debtors as well as any of their creditors can file for bankruptcy pro-ceedings. Other proceedings can be initiated within the context of bankruptcy proceedings

A payment plan is an administrative procedure without a minimum repayment amount. A payment plan can either be put forward together with the application for insolvency proceedings or during the course of the bankruptcy proceedings.

The absorption procedure represents a „safety net‟ for cases in which administration or a pay-ment plan cannot be agreed due to lack of consent by the creditors. Reasons for this may be that creditors view the repayment period as excessive or that the repayment amount offered is too low.

Handling bankruptcy Insolvency remuneration assurance Insolvency remuneration assurance guarantees the means of subsistence of employees and their dependants should their employer be unable to pay them due to insolvency. It is based on the prin-ciple of insurance and is regulated by the Insolvency (Remuneration Assurance) Act (IESG).

Re-establishment after insolvency The Austrian Trade Regulations Act dictates who is allowed to carry out business activities in Austria. Within the context of bankruptcy and insolvency, the following are examples of circum-stances in which permission to carry out business activities would not be granted:

unpaid liability orders (e.g. fraudulent bankruptcy);

dismissal of insolvency proceedings due to lack of assets;

annulment of insolvency proceedings due to lack of assets.

Re-organisation Insolvency may be avoided by carrying out a re-organisation process as set out in the Business Re-organisation Act. A prerequisite for this procedure is that re-organisation is required but insol-vency is not imminent.

Re-organisation is required if a company becomes endangered due to negative economic trends and action must be taken in order to ensure that the business can be continued on a sustainable basis.

Belgium In Belgium, the most important insolvency procedures are:

judicial composition;

bankruptcy;

collective debt settlement.

The Belgian legal system makes a distinction between commercial and non-commercial parties. Only commercial parties can file for judicial composition and be declared bankrupt.

The bankruptcy process is governed by the law of 8 Aug 1997, as purely a liquidation mechanism. Bankruptcy has no time limit.

The law of 17 Jul 1997, for its part, defines judicial composition as a preliminary step in bankruptcy. During judicial composition, debtors are given relief from their creditors and are protected against involuntary bankruptcy.

For non-commercial parties, the collective debt settlement procedure is subject to the Judicial Code (article 1675/2, paragraph 1).

Bulgaria The Bulgarian Trade Act (TZ) lays down what companies need do in such cases. A business is deemed bankrupt if it is late in paying its arrears, or if the owner of a business is only able to pay off part of the company's debts.

Bankruptcy proceedings are defined in a separate law for banks and insurance companies: the Bankruptcy Act (ZBN).

There are special rules on bankruptcy for private supplementary pension insurance companies in Chapter 38 of the Social Security Code (KSO).

The Guaranteeing Payments to Employees upon Employer Bankruptcy Act (ZGVRSNR) stip-ulates what employees can do in such situations.


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Bulgaria (cont.)

Bankruptcy procedures When launching bankruptcy proceedings against a bank, the court:

declares the bank insolvent and sets the date of insolvency;

launches bank bankruptcy proceedings;

declares the bank insolvent and ceases its business activities;

suspends the bank's authorities;

issues a general foreclosure and distrait on the bank's assets;

strips the bank of its right to dispose of its assets in bankruptcy;

orders the commencement of proceedings to sell off the assets in bankruptcy, and to distribute their proceeds.

At the request of the administrator or the bankruptcy fund, the court may authorise legal measures on the bank to secure its existing assets.

The proceeds from the sale of any assets are distributed among the bank's creditors when there are sufficient cash funds from this sale.

Competent authorities Bankruptcy proceedings are instituted when the Bulgarian National Bank, as the central bank, has revoked the bank's operating licence. The launch of bank bankruptcy proceedings may be re-quested from the court only by the Bulgarian Central Bank.

On the day, or the following day at the latest, that the copy of the decision to launch bankruptcy proceedings arrives, the Bank Deposit Guarantee Fund shall appoint an administrator for the bank.

Dealing with bankruptcy The aim of bankruptcy proceedings is to ensure that the bank's account holders and other creditors are justly satisfied as soon as possible.

In bankruptcy proceedings for banks, there are no creditors' meetings and no recovery plans are proposed.

Cyprus Insolvency procedures Under Cypriot legislation a business is pronounced bankrupt if it cannot meet its financial liabil-ities within a set time limit. In such cases, the liquidator of the business will use its liquid assets to pay off creditors. Cyprus's Companies Act governs bankruptcy proceedings. Compulsory liquidation may be initiated by the courts. Voluntary liquidation is initiated by a decision made by shareholders and creditors. The procedure may be initiated when, for in-stance:

the members of the enterprise deem it necessary for the business to be liquidated;

the business fails to begin trading within a year of its formation, or it ceases trading for 1 year;

the business is unable to discharge its debts.

Responsible bodies The competent court is the court of the district in which the company has its declared registered office.

Dealing with liquidation Once the company liquidator sells the assets of the company, earnings are split among creditors in accordance with the priorities established by the Act.

Czech Republic

Bankruptcy and insolvency proceedings are regulated by the Insolvency Act, which specifies:

the cases in which a debtor becomes insolvent,

how the debtor settles with creditors;

individual methods of credit settlement.

You may be declared insolvent if you have creditors whom you are unable to repay. The law speci-fies under which exact circumstances the debtor is considered incapable of repaying debts. This is often when the business owner has multiple creditors and when the sum of liabilities exceeds the value of the business owner's assets.

The act also sets out the procedure where there is a threat of bankruptcy, in other words a situa-tion where, in view of all the circumstances, there is reason to expect that the debtor will not be able to service a significant portion of his/her debts duly and on time.

Insolvency Register The Insolvency Register is a public database (accessible also electronically) providing information on insolvent persons, the status of insolvency proceedings and the delivery of court documents. Creditors should regularly monitor the register.


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Czech Republic (cont.)

Entries are made in the Insolvency Register by the relevant Regional Court, and the Ministry of Justice then makes an entry in the insolvency administrators' list.

Ways of addressing bankruptcy There are several ways of addressing bankruptcy:

Bankruptcy proceedings involve the gradual sale of the bankrupt's assets, and the sharing out of the revenue generated among the creditors. New forms of managing the insolvency procedure, such as reorganisation and discharging the

debt.

Bankruptcy Bankruptcy is the most frequent method of dealing with a debtor's insolvency. The debtor's assets are sold and the proceeds divided among the creditors based on conditions laid down by law (claims of certain creditors will be given priority).

The court may also decide for a so-called minor bankruptcy, which is a shortened and simplified version of bankruptcy in cases where:

the debtor is a natural person;

the debtor is not an entrepreneur;

the annual turnover of the debtor does not exceed CZK 2 million and the debtor does not have more than 50 creditors.

Reorganisation Corporate insolvency can also be dealt with through a procedure called reorganisation. Reorgani-sation allows you to meet creditors' claims gradually while keeping your company in operation. To make use of this method, you have to meet a number of legal criteria and have the agreement of the majority of your creditors.

Discharge of debt Persons not registered as entrepreneurs can use discharge of debt as an alternative method of resolving insolvency. If the court allows debt discharge, it suffices for the debtor to pay back the creditors at least 30% of the liabilities. Debt discharge may take the form either of a payment calendar or of a realisation of underlying assets. The creditors decide on the form of debt dis-charge. After the completion of debt discharge the court may decide that the debtor does not have to pay back the remaining liabilities.

Denmark The Danish Bankruptcy Act is based on the following main principles:

Divestment of the debtor: Control over the estate is taken from the debtor after the bankruptcy decree has been issued, and is transferred to the creditors/administrators.

Ban against individual prosecution: Bankruptcy m0oves from individual prosecution in the county court to universal prosecution in the bankruptcy/insolvency court so as to be able to satisfy all creditors' demands equally.

Equality: Debts are shared equally among creditors. However, there are many exceptions from this in the "priority of bankruptcy claims".

Priority of bankruptcy claims: The Danish Bankruptcy Act contains rules on the 'priority of bankruptcy claims', i.e. the se-quence in which claims against the bankrupt estate are covered. The priority of bankruptcy claims means all claims in the same category are treated equally and those in a lower one only receive dividends to the extent that the claims in higher categories have been fully paid off.

The claims are prioritised in the following sequence:

so-called "mass claims";

other "privileged claims" (secondary pre-preferential claims);

"employee privilege";

"supplier privilege",

"simple claims",

"subordinated claims".

Invalidation principle Bankruptcy means that certain dispositions and current creditor proceedings during the period prior to bankruptcy may be annulled under specific conditions.

Distribution, etc. The aim of bankruptcy is to wind up a company or a personal debtor's assets, so that the values can be distributed among the creditors who have outstanding debts. The bankruptcy procedure is completed by distributing the resources in the estate to the creditors. A creditor retains his/her rights against the debtor in respect of the part of the debt that is not covered by distribution.


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Denmark (cont.)

Insolvency procedures In addition to the bankruptcy rules, the bankruptcy legislation contains rules on notified reorganisa-tion and composition agreements. Furthermore, the bankruptcy legislation also contains rules on any opportunities that a debtor might have for debt relief.

Reorganisation without notification to the bankruptcy court and voluntary agreements also exist and depend on agreements between the debtor and the creditors who are affected.

Responsible bodies Cases of notified reorganisation, bankruptcy, composition agreements and debt relief are heard by the bankruptcy courts, which are connected to the municipal courts. In the Greater Copenhagen area, however, such cases are handled by the bankruptcy division of the Maritime and Commercial Court.

Coping with bankruptcy It is possible to start a new company even after bankruptcy. If, however, it is established that the debtor has committed a criminal offence, they generally forfeit their right to found the company,

be the managing director or sit on the board of directors.

Estonia When a debtor is declared insolvent by a court judgment, this is called bankruptcy. The bankrupt-cy procedure is specified in the Bankruptcy Act.

Bankruptcy procedure In case of bankruptcy, a court judgment declares a debtor‟s insolvency. If the liabilities of a debtor become too great and the owner's equity of the company becomes negative, the debtor must file a bankruptcy petition with a court.

The aim of the bankruptcy procedure is the satisfaction of creditor claims from the debtor‟s as-sets. The defending of claims takes place in the bankruptcy procedure. The creditors shall receive money proportionally to the amount of their claim. A natural person debtor is, through the bank-ruptcy procedure, given an opportunity to be released from his or her obligations.

A bankruptcy procedure is carried out by the court and the trustee in bankruptcy. Upon declara-tion of bankruptcy, the debtor‟s right to manage and dispose of the bankruptcy estate transfers to the trustee in bankruptcy. The hearing of bankruptcy matters is within the competence of county courts.

Finland Under the Bankruptcy Act, the imposition of bankruptcy may be demanded by a creditor, whose receivables from the debtor are based on a judgment or solution with legal force, other grounds for execution or an agreement signed by the debtor which clearly cannot be contested by the debtor.

A debtor is declared bankrupt by a court decision which comes after a bankruptcy application has been submitted by either the debtor or the creditor. The purpose of bankruptcy is to bring about the liquidation of the debtor's assets.

The Bankruptcy Act is applied in bankruptcy proceedings. The Bankruptcy Ombudsman is an official who monitors the administration of bankrupt estates and who works in collaboration with the Ministry of Justice.

Responsible bodies The company's management and/or Board of Directors is responsible for the company's commit-ments. Even if debt reorganisation is the intended solution for private finance problems, a debtor who pursues a trade may also be granted debt reorganisation as a private individual.

Coping with bankruptcy Business owners can prevent bankruptcy by predicting difficulties and turning to experts as early on as possible. Information on bankruptcy procedure can be found on the bankruptcy ombudsman's website.

France The laws of 25 Jan 1985 and 10 Jun 1994 contain details of France's restructuring and receiver-ship procedures.

Law on business restructuring and receivership; Law on preventing and managing business difficulties.

Company restructurings or receiverships usually have no repercussions for a director, unless he or she is found to be at fault and therefore liable for a:

professional penalty; professional bankruptcy, i.e. a business owner is barred from serving as a company director for

at least 5 years;

barred from managing a business for at least 5 years; penalty on assets (two types); liability payments, if the court rules that debts are to be paid by the directors;

bankruptcy or receivership on the part of directors themselves; criminal penalty, if the director has, for example, misappropriated or concealed business assets.


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Germany German insolvency law, as enshrined in the Insolvency Code, does much to support and promote restructuring.

Insolvency procedures If a business or the owner of a business becomes insolvent, or a business is overindebted, insol-vency proceedings can be initiated by filing for insolvency; legal persons are even obliged to do so. The Insolvency Code differs between:

Procedure (Insolvency procedures): With a regular procedure, the insolvent business is general-ly broken up in order to release as much money as possible through the sale of individual items or rights or even of parts of the company, and this money can then be paid out to the creditors in the insolvency proceedings. The distribution of the monies to the creditors follows the detailed instruc-tions of the Insolvency Code. Jobs are generally only retained if related parts of the company are sold as a whole.

Insolvency procedures (Insolvency procedures): Going-concern procedures help to prevent a company being broken up and instead restructure and maintain it. Already prior to the opening of proceedings, the debtor may, within a 3 month period, draw up a type of “protective shield pro-ceedings” as a reclamation concept, which later may be used as an insolvency plan. If the restruc-turing of the company is successful, a large proportion of jobs can often be saved. Those involved can reach agreements that deviate from the specifications of the Insolvency Code, particularly with regard to the distribution of monies to the creditors. An insolvency court ensures that smaller credi-tors are not disadvantaged here. Under certain circumstances, self-administration by the compa-ny‟s previous management is possible.

Consumer insolvency procedures (Small business owner insolvency procedures): Consumers and creditors must first try to reach an amicable settlement with the support of a publicly acknowl-edged credit counselling centre, lawyer, notary or tax advisor. If no settlement is possible, the debtor may apply to the insolvency court to have the consumer insolvency procedure initiated. Through this procedure, a small business owner can be granted exemption from his debts (exemp-tion from residual debt); this requires a probationary period of 6 years.

Responsible bodies The body responsible is the district court (insolvency court), in most cases the district court cover-ing the business‟s registered office.

Coping with bankruptcy The insolvency administrator will dispose of the debtor‟s assets. Taking into account decisions taken by the creditors‟ meeting/committee, the insolvency administrator takes the fundamental economic decisions in the proceedings (restructuring, continuation of the business, liquidation), notably within a going-concern procedure.

Greece Bankruptcy is regulated by the New Bankruptcy Code.

It provides a simplified up-to-date, fair and functional system of regulations based on the second chance notion, which can be summarised as follows:

giving priority to rescuing the business;

giving business a second chance;

treating the bona fide party (the innocent party as opposed to the fraudulent one) with more leni-ency than has been the case to date;

adoption of faster bankruptcy proceedings in the event that the company's reconstruction efforts are unsuccessful;

greater transparency;

introduction of a conciliation procedure;

special treatment of small bankruptcies.

According to the Bankruptcy Code, a debtor unable to pay their overdue financial obligations must be declared bankrupt. Bankruptcy conditions are as follows:

The commercial status of the debtor (natural or legal person). An exception to this are legal per-sons pursuing economic purposes, even if they have no commercial status, and which may go bankrupt.

The cessation of payments by the debtor, as defined by law as the failure to pay overdue finan-cial obligations, in a general and permanent way. Bankruptcy may be declared on the basis of mere "threatened" failure to perform, when requested by the debtor himself.

The following entities may request that bankruptcy be declared:

creditor with a legal interest;

the District Attorney, in the case that this is justified by public interest;

the debtor himself, who is obliged to request bankruptcy, if he has already entered a state of in-solvency.


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Greece (cont.)

The bankruptcy court will declare the debtor bankrupt if it finds that the above conditions apply, otherwise it will reject the request.

Responsible bodies The court responsible for declaring bankruptcy is the Multi-member Court of First Instance, in which district the debtor's main interests lie (in other words where the trader's main business is based).

Athens Court of First Instance;

Piraeus Court of First Instance;

Thessaloniki Court of First Instance.

Hungary The following laws regulate bankruptcy and liquidation proceedings, and the accounting re-quirements relating to them:

Bankruptcy and Liquidation Proceedings Act;

Companies Act;

Publicly Available Company Information, Company Court Procedures and Solvent Liquidation Act;

Accounting Act;

Regulation of Accounting Tasks relating to Liquidation.

Bankruptcy proceedings Bankruptcy proceedings are proceedings that aim for the debtor to reach agreement with its creditors and to conclude an agreement on it. If bankruptcy proceedings are initiated by the debtor, the court grants the debtor an immediate, temporary payment deferral until the date on which the bankruptcy proceedings commence. In a bankruptcy agreement, the debtor's debts may be as-sumed by its creditors or by third parties, who may also take ownership of the debtor's assets or assume a security for its liabilities.

If no agreement is reached during the moratorium, or the implementation of the agreement is un-successful, the court will officially order liquidation proceedings.

Responsible bodies Bankruptcy proceedings fall under the jurisdiction of the competent court for the debtor's regis-tered seat as it was registered on the date when the application for bankruptcy proceedings was submitted. In the case of transfer of the debtor's seat from the competency area of the previous registry court to another one, bankruptcy or liquidation proceedings may be initiated before the court competent in accordance with the previously registered seat for 180 days after the registra-tion of the new seat.

If, according to the rules on cross-border insolvency, the main proceedings or local proceedings against a company not registered in Hungary are instigated in Hungary, the Budapest Metropolitan Court shall have exclusive competence.

An economic organisation that appears in the list of liquidators may act as liquidator. The list of liquidators is kept by the Public Administration and Justice Office. The list of liquidators is pub-lished by the registering body at its website, as well as in the Companies' Gazette and the Official Announcement when the new list is made.

Ireland The legislation governing liquidation and winding up proceedings is outlined in Companies Acts:

Company Law Enforcement Act 2001,

Companies Act 1990;

Companies Act 1963;

Company Law Legislation.

"Insolvency" is defined as "the failure to pay one's debts as they fall due". The forms of corporate insolvency are:

Examinership (rescue of insolvent companies):

Receivership (sale of charged property of the company by an agent of the charge holder).

Liquidation (the winding up of the company).

Individual insolvency is called bankruptcy. The vast majority of insolvencies are corporate insolvencies. This is because the corporate entity for reasons of tax and limited liability is the preferred mode of enterprise in Ireland.

Insolvency procedures Reorganisation out of court Both corporate entities and individuals are entitled to reorganise their affairs out of court. Out-of-court reorganisation is an arrangement primarily under private law between debtor and creditors without court involvement. In general, the creditors voluntarily waive part of the debt and the rate can be freely arranged with the creditors.


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Ireland (cont.)

In corporate insolvencies, such reorganisations require an approval by 75% of each class of creditor in order to bind all creditors.

In individual bankruptcies, the method used is a Deed of Arrangement where the property of the person is transferred to an assignee who realises the property and discharges the creditors. This is sanctioned by the individual consent of each of the creditors.

In both corporate and individual insolvencies, the person retains full control over the assets until they are transferred. If the agreed sum is paid in due time, the debtor will be discharged from the residual debt. Failing this, the debts will be reinstated and this failure normally constitutes sufficient grounds upon which insolvency or bankruptcy proceedings may be commenced.

Responsible bodies The High Court deals with matters related to corporate insolvencies and individual bankruptcies.

Italy Italian regulations regarding bankruptcy are subject to constant changes by the legislature.

Bankruptcy proceedings Bankruptcy is a legal procedure that aims to liquidate the insolvent assets of the entrepreneur and to distribute the proceeds among the creditors, according to the principle of equal treatment. Bank-ruptcy occurs when the entrepreneur is no longer able to regularly meet his obligations (Article 5 l. Bankruptcy).

Competent Authorities The bankruptcy procedure is implemented by the court of the place in which the entrepeneur has his business based. For the purpose of jurisdiction, the transfer of office which occurred in the pre-vious year is not relevant. The court can not declare bankruptcy ex ufficio.

Court decision Bankruptcy is declared by a judgment which contains some necessary procedures for the course of procedure: the liquidator's appointment, order for the entrepreneur to deposit the balance sheets for the last 3 financial years, the economic, capital and financial position, the terms relating to the ascertainment of the liabilities.

The court has inquisitorial powers and can perform all the necessary investigations, without being bound by the initiative of the parties concerned. The court in its judgment may order the temporary operation of the company, even if this is limited to specific branches of the company, when discon-tinuation may result in a serious damage. It is then up to the committee of creditors to take the decision regarding whether to continue the operation of the company and to set its duration. During the temporary operation all contracts will remain valid, unless the liquidator does not intend to sus-pend their execution or dissolve them.

The preferred solution in practice is that of the rental of the company, so that the tenant will have to take on the bonds and pay the agreed rent.

Latvia The provisions of the Insolvency Law are applicable to legal persons, partnerships, sole traders and foreign-registered individuals carrying on standard business in Latvia, agricultural producers and natural persons.

Responsible bodies The court of general jurisdiction of the Republic of Latvia and the Insolvency Administration, which is a state agency, are directly involved in the insolvency process.

Coping with bankruptcy The legal protection process is a method of restoring a business's full solvency. It applies to companies only and lasts no longer than 2 years from the date on which the relevant court order comes into force.

The extra-judicial legal protection process is a procedure where the legal protection process is initiated and declared immediately.

As regards legal persons there are three ways to resolve insolvency: corporate rescue, settle-ment or bankruptcy, the final decision on which is taken at a creditors' meeting.

Natural persons may be declared insolvent, if the person in question is unable to settle his or her debts and liabilities exceeding LVL 5,000 in total if the settlement date has passed, or LVL 10,000 if the settlement date falls within a year.

Lithuania In accordance with Enterprise Bankruptcy Law, bankruptcy is a state of an insolvent business when bankruptcy proceedings have been initiated in court against the business or when creditors are implementing extrajudicial bankruptcy procedures within the business.

There are no special preferential terms for those starting a business again after bankruptcy.


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Lithuania (cont.)

There are no constraints on starting a business again after bankruptcy, except the following:

A court can limit the right for 3 to 5 years to perform the functions of the head of a legal entity, if the individual concerned failed to file a petition for the initiation of bankruptcy proceedings when the Enterprise Bankruptcy Law mandated that they do, after the order of a bankruptcy petition has become final have not transferred assets and/or the documents, have not provided the nec-essary information to the bankruptcy proceedings or interfered with the procedures in any other ways.

Article 10(14) of the Enterprise Bankruptcy Law.

Insolvency procedures A bankruptcy process can be either:

Judicial. Creditor (creditors), owner (owners), the head of the company have the right to file with a court for the initiation of bankruptcy proceedings. The liquidator of the company under liquidation must file with a court a petition to initiate bankruptcy proceedings, if in the process of company liquidation becomes clear that the company will not be able to meet its obligations. A court, having initiated bankruptcy proceedings against a business, appoints a bankruptcy administrator.

Extrajudicial bankruptcy proceedings are governed by the Enterprise Bankruptcy Law. The issues within the competence of the court shall be considered and decided by the creditors' meet-ing. Creditors can be offered to implement extrajudicial bankruptcy procedures by the head or an owner (owners) of the business.

An extrajudicial bankruptcy process cannot take place if action has been brought in court in which claims have been entered against the business, or execution is levied on the business under writs of execution issued by the courts or other institutions.

Responsible bodies Bankruptcy proceedings shall be instituted by the county court of the locality where the registered office of the enterprise is situated:

Vilnius County Court;

Kaunas County Court;

Klaipėda County Court;

Šiauliai County Court,

Panevėžys County Court.

Institutions participating in bankruptcy proceedings:

State Tax Inspectorate;

State Social Insurance Fund Board.

An extrajudicial bankruptcy process is more effective and cheaper than a court process. When a company possesses no assets or its assets are insufficient to cover legal and administra-tion costs, the simplified bankruptcy proceedings are applied.

In the course of application of simplified bankruptcy process, the meeting of creditors shall not be convened. The issues relating to the sale of assets to the competence of the creditors' meeting, shall be resolved by court. The process may not last longer than 1 year from the effective date of the order to apply the simplified bankruptcy proceedings.

The Enterprise Bankruptcy Law provides the business with the opportunity to conclude an ar-rangement with the creditors, which specifies the following:

concessions made to the enterprise and the creditors‟ claims;

liabilities of the enterprise;

ways and schedule of satisfaction of claims;

liability of the enterprise in case of failure to carry out the arrangement with the creditors.

Payouts from the Guarantee Fund are made to the employees of businesses that are in bank-ruptcy or bankrupt.

The procedure of sale of assets and rights of claim under debtors' obligations of a business in bankruptcy or a bankrupt business is provided in the Enterprise Bankruptcy Law.

Immovable property and pledged assets of the business are sold by auction in accordance with the procedure established by the Government. The meeting of creditors shall decide on the use of other property and the property unsold in the second (or repeated second) auction.

Luxembourg Bankruptcy results from a persistent state of credit weakness and insolvency of a trader.

Responsible bodies The Luxembourg and Diekirch district courts are the competent bodies in bankruptcy cases.

Coping with bankruptcy A business owner has various means of safeguarding jobs and business activity.


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Malta Bankruptcy of a trader other than a company or commercial partnership other than a company is regulated by Malta's Commercial Code (Chapter 13 of the Laws of Malta).

Insolvency of commercial entities is regulated by the Companies Act 1995.

Title VI of the Criminal Code (Chapter 9 of the Laws of Malta) refers to bankrupt traders, and if a person is "declared guilty of fraudulent bankruptcy" he/she can be punished with imprisonment for a term from 18 months to 3 years (Article 191) in specific circumstances namely:

if this person conceals or falsifies trade books;

if this person misapplies, conceals or dissembles any part of his/her assets;

if this person simulates fictitious debts;

if in the trade books or in any public or private writing he/she fraudulently acknowledges him-self/herself debtor of any sum which is not due.

The Criminal Code also provides for circumstances which give rise to simple bankruptcy - if a trader is found guilty, the punishment inflicted is imprisonment for a term from 7 months to 1 year. Finally, complicity in bankruptcy is restricted solely to those persons who collude with the bank-rupt to defraud his/her creditors (Article 195).

The Set-off and Netting on Insolvency Act 2003 makes provision for the enforceability of set-off and netting on bankruptcy or insolvency.

Insolvency procedures The Companies Act provides for the filing of insolvency and winding up proceedings whether members' winding up or creditors' winding up. The provisions relating thereto can be found in the Companies Act.

Responsible bodies The bodies involved in the handling of these proceedings are the following:

First Hall Civil Court A request is made to the court for winding up of the company. This request is made either by the company itself following a decision of the general meeting or of the board of directors or by any debenture holder, creditor/s or by any contributory. The court will either dismiss the application or make an order acceding thereto.

Provisional administrator The court may by order appoint a provisional administrator at any time after the presentation of a winding up application and before the making of a winding up order.

The provisional administrator shall carry out such functions and powers in relation to the adminis-trator of the estate or business of the company as the court may specify in the order appointing him/her.

The provisional administrator holds office until such time as the winding up order is made or the winding up application is dismissed unless he/she resigns or is removed before such time.

Official receiver Where the court has made a winding up order or appointed a provisional administrator, the official receiver must receive a statement of the affairs of the company in the prescribed form, verified by affidavit, and showing the particulars of its assets, debts and liabilities, the names, residences and occupations of its creditors, the securities held by them respectively, the dates when the securities were issued and such further information which the official receiver may require.

Liquidator The official receiver, by virtue of his/her office, becomes the liquidator of the company and contin-ues in office until another person is appointed to fulfil this role.

Registry of Companies The Registry of Companies registers any documents relating to the scheme of distribution of the company and strikes the name of the company off the register.

Coping with bankruptcy Bankruptcy is regulated by the Commercial Code (Chapter 13 of the Laws of Malta). You are con-sidered to be bankrupt when you suspend payment of your debts.

You can make a voluntary declaration of bankruptcy to the First Hall of the Civil Court. Bank-ruptcy proceedings may also be commenced by creditors.

The provisions relating to insolvency and winding up of partnerships and companies is available in the Companies Act.

Insolvency proceedings may be started when the company is unable to pay its debts.


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Netherlands The Bankruptcy Act contains rules on bankruptcy, suspension of payment and the refinancing of debts.

Insolvency procedures If you are in debt and no longer able to keep up repayments, you may ask the court for permission to go into liquidation. Bankruptcy is generally considered a last resort. The courts can put a com-pany into liquidation on behalf of at least two creditors and two outstanding debts (at least one of which will have fallen due). The company must have ceased payments.

Poland The Act on Bankruptcy and Rehabilitation lays down the rules for procedure with respect to debtors who are business entities and natural persons not conducting business activity, as well as the rehabilitation procedure for business entities facing the prospect of bankruptcy.

Insolvency procedures A bankrupt entity is a debtor that has had a ruling declaring bankruptcy issued against it. Bank-ruptcy is declared in case of debtors who have become insolvent (i.e. when they do not settle their due liabilities, or - in case when a debtor is a legal person or an organisational entity which was granted legal capacity under another act - their liabilities exceed the value of their assets).

As of the day of declaration of bankruptcy the assets of the bankrupt entity are classed as the bankrupt estate, and this is used to satisfy the claims of the bankrupt entity‟s creditors. The bankrupt estate comprises the assets belonging to the bankrupt entity on the day bankruptcy is declared and also assets acquired by the bankrupt entity during the bankruptcy proceedings, ex-cept property that is excluded from the bankrupt estate.

If there is substantial evidence that by arrangement with creditors, creditors‟ claims will be satisfied to a greater extent than would be the case in bankruptcy proceedings comprising liquidation of the debtor‟s assets, a declaration of bankruptcy is made with the option of an arrangement with creditors.

If there are no grounds for declaring bankruptcy with the option of an arrangement with creditors, bankruptcy is declared comprising liquidation of the debtor’s assets.

The objective of the rehabilitation proceedings is recovery of the company‟s capacity to compete on the market in accordance with an agreement reached by creditors. The rehabilitation proceed-ings include also restructuring of staff and assets. In cases in which the insolvency procedures also include liquidation of a company‟s assets the court announces that the insolvency procedures have been completed once the amounts obtained by way of the bankrupt estate liquidation have been divided up and distributed and the creditors‟ claims have been met. Cases relating to declaration of bankruptcy and relating to proceedings to secure claims are heard by a bankruptcy court. A bankruptcy court is a district court – a commercial court.

The responsible authorities With regard to his/her duties the Official Receiver has the powers and obligations of a court and of a presiding judge:

it is responsible for managing the proceedings;

it supervises the activities of the bankruptcy trustee, the court-appointed curator and the adminis-trator;

it designates the activities that the bankruptcy trustee, curator or administrator are not permitted to perform without permission of the official receiver or the consent of the creditors‟ committee;

it points out any oversights or omissions they make;

it reviews complaints regarding the activities of the court enforcement officer.

A bankruptcy trustee is a person that manages the estate of a commercial entity that has been declared bankrupt, and distributes funds among creditors in accordance with rules laid down in the Act on Bankruptcy and Rehabilitation. A bankruptcy trustee is appointed when the declaration of bankruptcy comprises liquidation of the bankrupt entity‟s assets. A court-appointed curator is a person that holds a bankruptcy trustee license and is appointed by a court to supervise the activi-ties of a debtor that has been declared bankrupt with an option of an arrangement with creditors.

A bankruptcy court hears cases relating to declaration of bankruptcy and relating to proceedings to secure claims. A bankruptcy court is a district court – a commercial court. The court competent to hear cases relating to declaration of bankruptcy is the bankruptcy court with jurisdiction over the main establishment in which the debtor has its business enterprise.

If the debtor has establishments falling under the geographical jurisdictions of various courts and it is difficult to determine which is the main establishment, each of those courts is competent to hear relevant cases. If the debtor does not have a business enterprise within the Republic of Poland the competent court shall be the court with jurisdiction over the place of residence or seat of the debt-or, and if the debtor does not have its place of residence or seat within the Republic of Poland, the competent court shall be the court within whose area of jurisdiction the debtor‟s assets are located.


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Portugal The new Insolvency and Business Recovery Code (CIRE) was introduced to speed up the bankruptcy process and enable businesses to recover. As a result of speeding up the bankruptcy process, by having specialist courts and simplifying the winding-up and sale of businesses, settle-ments with creditors are now faster and more effective.

The dichotomy between recovery and bankruptcy has been eliminated, with the situation of insolvency being the only objective pre-condition for the process („insolvency process‟). However, insolvency should not be confused with „bankruptcy‟, given that being unable to meet overdue obligations (insolvency) does not imply that a business is not economically viable or cannot recover financially (bankruptcy).

It is the wishes of the creditors that govern the whole process. As a result, it is for the creditors to decide whether payment will be made by complete liquidation of the debtor‟s assets, as laid down in the Code or in an insolvency plan approved by the creditors, or by keeping the business going, in the ownership of the debtor or third parties, and restructuring it along the lines also set out in a plan.

Insolvency procedures The declaration of bankruptcy must be preceded by a comprehensive assessment of the finan-cial situation of the business, as this can simply involve a situation of insolvency – preventing the business from meeting its obligations – or financial difficulties.

The Out-of-Court Conciliation Procedure (PEC) is aimed at businesses that are in a position to apply to the courts for their insolvency. Its purpose is to reach an agreement, negotiated by pro-fessionals from the Institute for Support to Small and Medium-Sized Enterprises and Innova-tion (IAPMEI), between the struggling business and its creditors, in order to enable its recovery. The process can be started by either the business or its creditors, and involves submitting an ap-plication accompanied by a 5-year business plan.

In accordance with the Insolvency and Business Recovery Code, when a court decides to end the insolvency proceedings due to the debtor‟s lack of funds, and once this decision has been notified to the competent registration service, the administrative procedure of liquidation is officially start-ed by the registrar, with the appointment of one or more liquidators.

In this case, the registrar will immediately declare that the liquidation of the business has been completed, except where the insolvency proceedings result in assets allowing the costs of the administrative liquidation procedure to be met.

Responsible bodies The bankruptcy process is the responsibility of the court closest to where the head office of the business is located.

Court-Appointed Liquidators and Insolvency Administrators are responsible for liquidating the bankrupt‟s assets.

Handling bankruptcy The establishment of a single special process – the insolvency process, which is intended to speed up the court decision (by making the opening and closing of the process quicker and more flexible) and ensure a fairer balance between the respective interests at stake – should be particu-larly noted in the new Insolvency and Business Recovery Code.

Romania Insolvency proceedings Insolvency proceedings are applied to companies that can no longer pay their commercial debts. Insolvency is considered evident if the company, also known as the debtor, has not paid its debts to its creditors within 30 days after the payment deadline.

The types of proceedings that can be used are:

general proceedings through which, after a period of observation, a debtor enters judicial reor-ganisation proceedings and then bankruptcy proceedings

simplified proceedings through which the debtor enters bankruptcy proceedings directly.

The legal provisions relating to judicial reorganisation and bankruptcy proceedings are stipulated in the Law on insolvency proceedings.

Responsible bodies In accordance with the legal provisions, the bodies responsible for implementing insolvency pro-ceedings are the following:

courts of justice;

bankruptcy judges;

judicial administrators;

liquidators;

Participants in insolvency proceedings - Law on insolvency proceedings;

National Union of Insolvency Practitioners of Romania.


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Slovak Republic

Bankruptcy is the commercial failure of a company. Bankruptcy proceedings are defined in the Act on Bankruptcy and Restructuring of 2006. The objective of the Act is the fair distribution of the limited resources of the debtor between the creditors by selling off the assets of the debtor or by gradually satisfying the creditors of the debtor.

The Act on Bankruptcy and Restructuring preceded the Act on Bankruptcy and Settlement. The objective of the Act was to achieve relative satisfaction of the creditors from the assets of the debt-or.

Insolvency procedures If the debtor files a proposal for a restructuring permit or a bankruptcy petition, it is understood that the company has failed.

The Act on Bankruptcy and Restructuring defines failure as when a business becomes insolvent and cannot pay creditors, namely where:

a debtor is more than 30 days late in paying what is owed to more than one creditor;

a business which is obliged to keep accounts as per Act No 431/2002 on accounting, has more than one creditor, and the value of the amount due exceeds its asset value.

Responsible bodies Administration of the bankruptcy and restructuring process is carried out by the Ministry of Jus-tice of the Slovak Republic.

A bankruptcy petition may be filed by a debtor, creditor, the liquidator of a debtor, or another legally appointed person. Petitions are submitted to the relevant court.

The court provides the supervision stipulated by the law throughout bankruptcy proceedings, and supervises the activities of receivers.

Coping with bankruptcy A debtor is in a state of failure if he has a number of creditors and he is unable to discharge his liabilities to them within 30 days. In the event a debtor becoming insolvent, the procedures for the administration or liquidation of the company are as follows:

bankruptcy;

restructuring;

withdrawal procedures.

Liquidation Liquidation is generally governed by the Civil Code, which at the same time makes reference to Commercial Code provisions on liquidating companies.

In this approach the assets of the company are liquidated and its liabilities are discharged. The process takes place out of court. The result is the winding-up of a company and its subse-quent dissolution through removal from the Commercial Register.

The liquidator may be an individual or a legal entity registered in the Commercial Register.

The liquidator has an obligation to notify in respect of the following:

Commercial Register;

all known creditors;

the relevant tax administrator;

Trade Licensing Office.

Restructuring Restructuring means that suppliers write off part of their claims, but allow the company to remain in business in the hope it will recover, since they have an interest in this. This process takes place under court supervision, in accordance with the Act on Bankruptcy and Restructuring.

The principles of the restructuring process are similar to those of bankruptcy. A debtor or creditor may file a petition. The debtor may appoint a receiver to assess whether restructuring is possible. The assessment must not be more than 30 days old. If the receiver recommends restructuring, the debtor may apply for a restructuring permit.

The restructuring procedure begins with publication in the Trade Journal.

Only those creditors who have registered their claims on time through a declaration are entitled to make claims during restructuring. The declaration, together with attachments, is submitted in two identical copies to the office of the receiver, and one copy is submitted to the Court. The declara-tion must be received by both the receiver and the court within 30 days of the restructuring permit being issued.

A list of registered claims is drawn up by the receiver under Court supervision in four copies.

The restructuring procedure ends with the publication of a court resolution on the completion of restructuring in the Trade Journal.


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Slovenia The Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act covers all types of insolvency proceedings (compulsory settlement and bankruptcy proceedings) as well as procedures for the compulsory winding-up of corporations which are legal entities (cancellation of the Court Registration without liquidation and compulsory liquidation).

Insolvency proceedings A company is in difficulties, when it is not capable of halting the negative trends shown in its finan-cial results, although it attempts to do so by its own resources or by resources it can obtain from its members, shareholders or creditors. It will be deemed that a company is in difficulties:

in the case of a company with share capital – if a current loss plus any loss brought forward (from previous years) reaches an amount equal to half the authorised capital and if in the last 12 months it reaches an amount equal to 1/4 of the authorised capital.

in the case of partnerships – if a current loss plus any loss brought forward (from previous years) in the last 12 months reaches an amount equal to 1/4 of the capital shown in the accounting rec-ords.

Since, in accordance with the EU policy, the EU prefers to prevent the collapse of companies, the Act Governing Rescue and Restructuring Aid for Companies in Difficulty introduces settle-ment proceedings to prevent bankruptcy by abolishing the insolvency of a company through finan-cial restructuring measures and allowing the company to increase its authorised capital by new contributions paid in (conversion of receivables, subscription of new shares etc.). State aid may be granted to help in the preparation and execution of a restructuring programme and to help in the settlement of due payments regarding severance pay for workers made redundant.

To prevent bankruptcy, a company may introduce compulsory settlement proceedings which enable the company to create better conditions for paying off the debt claims of creditors by the introduction of financial restructuring measures. If these measures are unsuccessful, bankruptcy proceedings will be instituted. The final goal of bankruptcy is the liquidation of the assets of the debtor, the distribution of such funds to creditors and winding up the legal entity.

In accordance with the Alternative Dispute Resolution Act (ADR Act), disputes may be settled by mediation. If the parties in a dispute agree, the Court will adjourn a trial for a period which must not exceed 3 months. When it is appropriate, the Court may, after consulting with the parties in a preliminary hearing, instruct the parties to settle the dispute by an alternative dispute resolution.

The mediator's fees and travel expenses in commercial disputes will be shared equally by both parties in the dispute.

Jurisdiction The authorised bodies for settling commercial disputes are local, district, labour and higher courts, as well as the Higher Labour and Social Court. The authorised bodies for the compulsory bank-ruptcy and liquidation of companies are district courts, and the local courts decide on the civil bank-ruptcy of entrepreneurs and personal bankruptcies.

Courts may adopt and execute the Alternative Dispute Resolution Programme as an additional activity, which may be organised directly at a Court (Court Associated Programme) or they may carry out the alternative settlement of disputes awarding this task to a contractor with whom they conclude a contract (Linked to the Court Programme). Within the Chamber of Commerce and In-dustry of Slovenia (GZS) there is the Standing Arbitration within the GZS, which enables the set-tlement of commercial disputes by arbitration and intervention.

Bankruptcy Management Within 1 month from the date when the company became insolvent, the management of a compa-ny must submit a report to the supervisory board on the financial restructuring measures neces-sary to rectify the insolvency of a company. If the management assesses that there is at least a 50% possibility that the company will succeed in paying off its debts within a reasonable short-term or long-term period, it must include in the report its proposal for financial restructuring measures and the deadlines for their execution (such measures, for example, are allowing the company to increase its authorised capital by new contributions paid in, the sale of assets which are not con-nected with its business activity, etc.).

If the management board does not believe in the possibility of financial restructuring it may file a Bankruptcy Petition (for the initiation of bankruptcy proceedings) with the appropriate Court. The Court will determine whether to make a bankruptcy order or not. Once a Bankruptcy Order has been issued, the notice of bankruptcy will be entered in the register: "gone bankrupt" will be rec-orded in the debtor's register entry. Within 1 month from the date when all the money realised from sale of the bankrupt's assets has been liquidated or distributed, the trustee must file his final report with the Court, and on the basis of this document the Court will issue an Order on the Discharge of the Bankrupt, which means that the bankruptcy comes to an end and the bankrupt is released from most of his previous debts.


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Slovenia (cont.)

When this order becomes final, the notice of bankruptcy in the debtor's register entry will be ex-punged ex-officio from the register.

In accordance with the Guarantee Fund Act a proposal for the initiation of bankruptcy proceed-ings may also be filed by the Guarantee and Maintenance Fund, which provides for settling the debt claims of workers against an insolvent debtor (employer).

Spain If an enterprise cannot pay its debts as agreed, then it will enter a situation known as a "creditor arrangement". This situation is governed by the Insolvency Act, with the following aims in mind:

If the enterprise is economically viable, its continuance is facilitated, along with the payment of debts owed to the creditors.

If the enterprise is not economically viable, it is wound up in an orderly manner, allowing the cred-itors to repay their debts. As far as possible.

The Insolvency Act governs every aspect of this situation. In other words, it covers: individuals, enterprises (small, large), natural and legal persons. The regulations are flexible, and can be adapted to the circumstances of each case. Procedures are simplified, and processing time is shortened to facilitate collection by the creditors.

A business owner who cannot in a proper, "regular" manner meet his or her debts is obliged to follow the process laid down in the Insolvency Act.

Process for an enterprise creditor arrangement This is a single, simplified, flexible process. There is a simplified procedure for the smallest-scale cases. The necessary measures are set out to publish the circumstances in order to inform those with an interest that an enterprise has entered the creditor arrangement process.

The process of "creditor arrangement" at an enterprise involves the following individuals:

The debtor. This could be an individual or enterprise, a natural or legal person. The assets from an inheritance. Public organisations belonging to the state cannot be subject to this situation. The Creditors: the persons owed money.

The Companies Judge: oversees the process, instigating, pursuing and closing the case. The judge enjoys extensive powers and flexibility to adapt the process and the measures decided to the circumstances of each case. With regard to the debtor, creditors and insolvency administration. The judge appoints, supervises and dismisses the insolvency administrators. He settles any dis-putes which may arise among the parties. The Insolvency Administrators: answer to the companies judge. They perform the procedures

required in order to handle the creditor arrangement and draw up the solution, for example in order to establish the assets of the debtor available for the payment of debts. Supervise or replace this figure in administrating the enterprise, among other activities. Where necessary, the company is liquidated.

The insolvency administrators may be various natural or legal persons. They have the appropriate legal and economic training and experience in this field. Normally one single individual will be ap-pointed. In some cases there may be a representative of the creditors, or a number of assistants may be appointed. They are responsible for their administrative actions. They have civil liability insurance to cover their actions.

Phases of the creditor arrangement

I. Actions prior to the declaration of a creditor arrangement. An enterprise may be declared subject to a creditor arrangement if it cannot meet its debts in a proper or regular manner.

The debtor is obliged to request the creditor arrangement process within 2 months after he learns or should duly have learned of the situation, or otherwise when the situation is imminent. This cir-cumstance must be proven.

The creditors may apply for the process if the enterprise cannot pay its debts in a regular manner and the circumstances laid down in law apply. For example, if the debtor has ceased to make nor-mal payment of credits in general. This situation must be proven.

Following the application, the Companies Judge analyses the application and the documents sub-mitted. He holds a hearing with the persons concerned. The debtor may object to the declaration application or deposit the funds required in order to pay the debts.

This phase ends with the creditor arrangement process either being declared or not.

II. Common Procedural Phase. Following declaration of the fact that the enterprise is subject to a creditor arrangement. This is published by various means: electronic, notices served on the interested parties, Companies Reg-ister, other public registers and an excerpt in the Official State Gazette.


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Spain (cont.)

The Companies Judge adopts the relevant measures in each case. He appoints the insolvency administrators. He adapts the consequences for the debtor, creditors, enterprise, credits, contracts, etc. A creditor arrangement results in the following key consequences:

The ability of the debtor to act may differ in each case: he continues his operations; he requires authorisation from the insolvency administrators for certain actions; he is dismissed from admin-istration of the enterprise and replaced by the insolvency administrators. The debtor may have his communications intercepted, have his ability to travel to other cities restricted, or even be subject to house arrest.

Creditors see their credits and their means of collecting them affected. Most credits are incorpo-rated on an equal basis within the body of assets which will be taken into consideration for the payment of debts. Some credits enjoy preferential rights, while others are subordinate.

During this phase as a general rule management of the enterprise continues. On an exceptional basis it may continue operating, or it may be ruled that some part of the enterprise is to cease op-eration.

The insolvency administrators decide: the assets of the debtor available to meet the debts. Es-tablish the list of credits to be paid. The creditors are listed. A report on the administrative proce-dures performed is drawn up.

During this part of the process any objections to the decisions adopted are settled, together with any appeals and incidents connected with them.

III. Agreement or Liquidation In the following phase there are two possibilities: 1. an agreement between the creditors and the debtors, or otherwise 2. the liquidation of the enterprise.

The agreement is the preferred solution. The agreement lays down measures to guarantee that the debts will be collected by the creditors, for example an extended repayment term, a partial waiver of credit entitlements. These measures are set out in a payments plan. If the enterprise is economically viable, then its economic viability plan is also included. The agreement must be approved by the creditors representing a specific proportion of the credits to be collected. The insolvency administrators draw up a report on the agreement. Following this, the judge has the last word in issuing approval or otherwise. Following approval, a further stage begins for implementation of the agreement. This is normally implemented by the business owner. On an exceptional basis, it may be ruled that the insolvency administrators are to implement the agreement. In order to speed up the procedure, the debtor may propose an agreement to the creditors at the very start of proceedings. Creditors representing a given proportion of the credits may likewise propose an agreement from the outset.

Liquidation of the company: this is considered as a subsidiary solution to the above. In those cases where the enterprise is not economically viable. The debtor or creditors may apply for liqui-dation at the outset of the proceedings or at any subsequent point. In some cases the judge may rule liquidation ex officio. The judge approves the liquidation. Liquidation plan is drawn up, and a report on the equity situa-tion of the enterprise. In general, its assets are sold. The money raised is divided among the credi-tors. In the sale, preference is given to the transfer of parts of the enterprise, or otherwise the entire business en masse, in order to allow its economic activity to continue. During the liquidation the debtor temporarily resigns from administration of the enterprise, and is replaced by the insolvency administrators. Following the liquidation, the enterprise is normally wound up. The regulations for the liquidation of enterprises subject to credit arrangement procedures are dif-ferent from the general rules for corporate liquidation.

IV. Classification of Insolvency. This is a separate procedure to the above. The purpose is to establish whether the debtor has acted with good intent, in bad faith, or in a negligent manner. In those cases in which actions were taken in bad faith or negligently, with a detrimental effect on others, they may claim compensation or liability for the damages suffered. The judge may, meanwhile, disqualify the business owner from business activities for a number of years. In the event that offences have been committed, the public prosecutor will be informed.


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Spain (cont.)

V. Conclusion and Re-opening. The creditor arrangement process concludes in the legally established cases, for example imple-mentation of the agreement through payment of the creditors. Continuance is not possible. These actions are supplemented by the aforementioned classification of insolvency.

The creditor arrangement will subsequently be reopened if the natural person debtor acquires or earns new assets, or others are discovered within 5 years of conclusion.

The Insolvency Act governs the international implications of insolvency, in particular in the case of enterprises with operations in different countries.

Sweden There are several ways to resolve the problems which arise when a company cannot pay its debts. The type of company and the seriousness of the situation determine which method should be used.

The most important laws on how to handle financial problems are the:

Bankruptcy Act;

Debt Rescheduling Act;

Company Reconstruction Act;

Trading Prohibition Act.

Coping with bankruptcy Seizure If a company cannot pay its debts on time, its suppliers and creditors may demand a seizure order at the Swedish Enforcement Authority. The company's assets will be seized and sold in order to pay its debts.

Composition Composition is not usual in the case of bankruptcy. If a bankrupted company can, on the other hand, show that it has reached with its creditors a composition agreement, it may be possible to avoid bankruptcy. The company's debts are then written down so that it can continue to exist. More details can be found in the Company Reconstruction Act.

Bankruptcy If a company cannot pay its debts, the company or its creditors can file for bankruptcy as a last resort. An administrator sells the company's assets, and after the costs of the bankruptcy have been paid it distributes the remaining funds to the creditors. The official receiver's duty includes finding out who is owed money by the company. More detailed regulations about bankruptcy can be found in the Bankruptcy Act.

Liquidation Liquidation is the winding up of a company, where assets are converted into cash, debts are paid and any surplus is distributed. A company in liquidation is represented by its board and its managing director (MD) until one or more liquidators have been appointed. Liquidator carries out the liquidation, and winds up the company until it is dissolved.

Trading prohibition A trading prohibition means you cannot run a business activity or act as a member of the board or as a partner of a company. An entrepreneur can receive a trading ban if they have been judged guilty of a crime linked to their business activities, or of gross negligence, such as having disregarded their business obliga-tions and at the same time neglected to pay certain taxes, customs duties and fees on a large scale. More details can be found in the Trading Prohibition Act.

United Kingdom

There is no single UK law on bankruptcy. Rules and procedures differ slightly between national regions. The term 'bankruptcy', which is used in England and Wales, is sometimes known as „se-questration’ in Scotland.

Companies Act 2006;

Insolvency Act 2000;

Bankruptcy and Diligence etc. (Scotland) Act 2007;

Insolvency (Northern Ireland) Order 2005 (Minor and Consequential Amendments) Order (North-ern Ireland) 2006.

Responsible bodies The Insolvency Service helps with the administration and investigation of bankrupt businesses and partnerships in England and Wales, and establishes the reasons for insolvency. Scotland's Accountant in Bankruptcy (AIB) service administers personal bankruptcy proceed-ings and registers corporate insolvencies. The Insolvency Service Northern Ireland, in the Department of Enterprise, Trade and Investment


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(DETI) performs similar functions.

Norway There is a difference between bankruptcy in limited companies and bankruptcy in partnerships.

Bankruptcy is dealt with in the following Acts, among others:

Bankruptcy Act;

Satisfaction of Claims Act ;

Limited Companies Act;

Partnerships Act.

Procedure in case of insolvency An enterprise can avoid going bankrupt if it has good financial management and contacts its creditors at an early stage to assess the situation. By way of negotiations between the enterprise and its creditors, an agreement may be concluded to resolve the debt situation.

Deferral of payment An enterprise that is unable to meet its commitments can enter into an agreement with its credi-tors to defer payments or agree upon a new payment schedule. This can help to improve liquidity in the enterprise in the short term, which may be sufficient if the enterprise has a temporary liquidi-ty problem.

Composition A composition is a percentage reduction of the debt where the creditors grant a remission of part of the debt. A composition means that the business gets into a better financial situation.

Financial restructuring of the balance sheet This is a measure that involves an analysis of the balance sheet to improve the financial situation in the enterprise by e.g.:

selling surplus assets,

reducing the lock-in period for current assets;

extending repayment periods for debts;

options for generating new equity.

Bankruptcy If the enterprise cannot settle its liabilities and other measures have been considered without a solution being found, bankruptcy is the last resort. The assets of the enterprise are converted into cash and distributed pro rata among the creditors.

A condition for initiating bankruptcy proceedings is that the enterprise (the debtor) must be insol-vent. When someone has decided to file for bankruptcy, a request to open bankruptcy proceedings is sent to the local court.

Responsible institutions To open bankruptcy proceedings, the district court is the authority the enterprise needs to apply to. The district court mainly handles civil disputes and criminal cases.

How to handle bankruptcy In the event of insolvency/bankruptcy, the Bankruptcy Act and the Satisfaction of Claims Act provide guidance on settling claims from creditors.

Source: European Union, Your Europe, Business, Exit Strategy − Bankruptcy,

http://europa.eu/youreurope/business/index_en.htm, accessed 18 November 2014.

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http://europa.eu/youreurope/business/index_en.htm

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