Under the Insolvency Act, once a restructuring plan has been confirmed, the debtor is discharged from its debt and is subsequently prevented from paying its creditors their deficiency or repaying other granted benefits. Consequently, any claims that were not registered during the insolvency proceedings – even if they should have been – fall under this restriction and cannot be repaid. That said, exceptions to the rule exist.
The Insolvency Act provides insolvency administrators with an abundance of tools to challenge any actions committed by a debtor during a crucial period prior to the opening of insolvency proceedings. Two recent Supreme Court decisions summarise the existing judicature and further clarify the elements of avoidance due to preferential treatment.
Before the most recent update to the online FAQ section by the responsible authority, the question of whether Beneficial Ownership Register Act compliance is an insolvency administrator's duty was unclear. Due to the tight timeframes for complying with the act and the range of practical problems arising from it, the question has caused headaches for insolvency law practitioners in Austria.
If a managing director of a company makes payments after a substantive insolvency, they may be liable for damages under the Statute on Limited Liability Companies. Managing a company in a crisis situation requires special diligence and care. In order to avoid unpleasant surprises later on, where possible, the admissibility of envisaged future payments should be checked in advance.
The Insolvency Code was recently amended in response to the introduction of the EU Insolvency Regulation, creating – for the first time – specific rules for the insolvency of corporate groups in Austria. From a practical standpoint, this approach is welcome, as it may lead to faster and more efficient insolvency proceedings. It remains to be seen how the new rules will affect insolvency practice and whether coordination proceedings according to the EU regulation will be applied in practice.
The European Court of Justice recently confirmed that the Belgian reorganisation framework infringes the EU Transfer of Undertakings Directive with regard to the transfer of personnel. This judgment looks set to have a significant impact on reorganisation proceedings, with parties more likely to be reluctant to organise a transfer of assets leading to bankruptcies and redundancies.
In an insolvency situation, the fate of ongoing contracts is something to be discussed. Such contracts are often closely linked to the essence of a company's business. For example, for (commercial) leases, a lessor's bankruptcy or a tenant's judicial reorganisation will probably result in discussions about the agreement, its (forced) execution and rental payments. If a company's activities are based on patent or software licences, the effect on these agreements will also be of crucial importance.
The European Court of Justice appears likely to rule that the Belgian reorganisation framework infringes the EU Transfer of Undertakings Directive with regard to the transfer of personnel. If the option to transfer only a portion of staff is no longer available in Belgian reorganisation proceedings, companies will have no choice but to formally file for bankruptcy, which is exactly the issue that the legislature and the labour unions had hoped to avoid when introducing this mechanism into Belgian law.
The former Bankruptcy Statute of 1997 included a principle that a natural person could be discharged of their remaining and outstanding debts – a so-called 'waiver' – at the moment of a bankruptcy's closure. The discharge's beneficial effects were extended to the bankrupt person's spouse. However, for bankruptcies that have happened since 1 May 2018, and so fall under the new legal framework, this situation has changed.
The legislature recently took steps to improve the follow-up monitoring of companies in financial difficulty and strengthen the fight against inactive companies. To determine whether companies are in financial difficulty, the courts gather information from various (digital) sources. However, the focus remains on preventive mechanisms – namely, identifying companies in financial difficulty and following up with court action.
In a major development in BVI insolvency law and practice, the Commercial Court recently held that provisional liquidation is available to facilitate a restructuring. The objective of a restructuring provisional liquidation is to provide a better outcome for creditors than would be likely on a winding up. The Commercial Court's decision will certainly influence the current debate in the British Virgin Islands regarding insolvency legislation reforms.
The Court of Appeal recently considered the test for appointing liquidators to a company following an alleged loss of substratum. The case provides insight on the principles of loss of substratum, particularly in a case where a company's object is not prescribed by its memorandum and articles of association.
In separate but related proceedings, the BVI courts have permitted an applicant to inspect documentation relating to the liquidation of certain BVI companies. The decisions solidify the open justice policy and highlight the importance of allowing beneficiaries to oversee trustees' activities in order to ensure that the trust property is properly managed and that trustees can be held to account accordingly.
In the latest judgment regarding the DPH liquidation, the BVI Court of Appeal upheld the appointment of BVI provisional liquidators in respect of a Swiss company and clarified that evidence of dissipation of assets (in the Mareva sense) may not be a pre-condition to the appointment of provisional liquidators.
Claims of passing off are rare in the British Virgin Islands and a recent attempt to bring a BVI action in relation to goodwill held outside the jurisdiction has failed. The court examined the law and relevant English authorities on the tort of passing off. It opined that goodwill is governed by territoriality and that in order to succeed, the claimant must prove that it has goodwill in the form of customers in the jurisdiction in which the suit is undertaken.
The Cayman Islands Court of Appeal has held that a liquidator cannot use his or her statutory power pursuant to Section 112(2) of the Companies Law to rectify the register of members where the effect would be to override investors' proprietary rights. It held that the section does not aim to provide for substitution of incorrect net asset value if, despite its incorrectness, it has been calculated in accordance with a member's contractual rights.
As a result of the numerous cross-border structures involving Cyprus, the need to recognise foreign insolvency proceedings in Cyprus is becoming more common. While the framework for recognising cross-border insolvencies originating outside the European Union remains largely untested in Cyprus, case law shows the Cyprus courts' willingness to follow the principles of common law in line with current commercial realities.
The examinership framework – which was introduced to the Companies Law in 2015 – offers an effective mechanism for restructuring financially distressed companies. However, judging from relevant case law, it appears that an application for examinership must be pursued promptly when the financial distress arises and not when the need for a moratorium becomes apparent.
Schemes of arrangement have advantages over other insolvency procedures. For example, they offer a flexible, operational, creative and simple mechanism for restructuring debt and allow companies in financial distress to continue as going concerns. Recent statutory amendments have reduced the required statutory threshold for approving a scheme of arrangement and eliminated the requirement to secure a special majority of 75% in both value and the number of creditors present and voting.