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.
In some cases of insolvency, it may be necessary to take special measures which affect the debtor or third parties in order to prevent the insolvent assets from diminishing. These cases are governed by Section 78 of the Insolvency Code, which offers the possibility of ordering individual protective measures with regard to the debtor and third parties. In particular, recent case law has extended the scope of application of these protective measures.
One of the Bankruptcy Code's aims is to allow trustworthy debtors the right to be discharged from debts that remain unpaid after insolvency proceedings. However, in practice, low-income debtors cannot always avail of residual debt relief. As such, the government recently introduced an amendment to the personal bankruptcy process in its 2017/2018 Modern Insolvency Law Culture of Failure working programme.
Recent changes to the Insolvency Code have considerably expanded the obligations of shareholders in insolvency situations. For example, a new obligation has been introduced which requires majority shareholders in so-called 'companies without management' to file for insolvency. The language of these new provisions remains vague and provides significant flexibility in interpretation, which inevitably results in a number of legal uncertainties.
Recent case law from the Supreme Court demonstrates once again that lenders can be held liable by creditors of an insolvent borrower under certain conditions. In particular, a lender may be held liable where it has significant influence over the borrower's management. However, only a few cases have met the necessary level of influence. The case at hand shows that total disregard of this risk can have severe consequences for lenders.
The Supreme Court of the Commonwealth of the Bahamas has acceded to the petition for Caledonian Bank Limited to be wound up as a foreign company pursuant to the Companies Winding-up Amendment Act, thereby exercising its jurisdiction for ancillary winding-up proceedings to be entered into. A petition was filed to wind up the insolvent company in the Bahamas so that the company's liquidators could access property in this jurisdiction.
If reorganisation proceedings are unsuccessful and lead to bankruptcy proceedings, creditors with new claims resulting from services performed during the reorganisation proceedings often find it difficult to receive payment of their privileged claims when they are in competition with a general pledge on the debtor's estate that is held by a bank. The Supreme Court's recent judgment in this regard will help such privileged creditors to receive payment from the bankrupt estate.
The legislature recently took steps to improve the follow-up monitoring of companies in financial difficulty and strengthen the fight against inactive companies. Companies that fail to pay their social security or value added tax debts, file their annual accounts or fulfil other administrative obligations on time will now appear on the radar of the Commercial Court's Investigative Services much earlier. The services' recently extended powers of action could lead to unfortunate surprises for some companies.
Parliament recently voted into law the federal government's proposal to introduce a new chapter on insolvency into the Code of Economic Law. Among other things, the new chapter concerns the potential liability of former directors of a bankrupt company. Some of the new principles already partially existed in Belgian law, but have been amended by the new chapter, which also broadens certain concepts which will thus apply to a wider range of entities.
The Business Continuity Act aims to enable debtors in difficulty to continue their activities by restructuring their debts. One of the proceedings that the act introduced is the reorganisation of debt pursuant to a restructuring plan. The restructuring plan may consist of several measures, including the waiver of certain debts. However, none of these measures (with the exception of a temporary stay on the enforcement of claims) may be imposed on secured creditors, unless they expressly agree to it.
The government recently undertook steps to modernise and broaden its insolvency legal framework and submitted a proposal to Parliament intended to introduce a new chapter to the Code of Economic Law. The proposal will update the Bankruptcy Act and the Business Continuity Act. The government proposal will be discussed in Parliament in the coming weeks and could be accepted before the summer recess.
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.
'Forum shopping' is the practice of choosing the most favourable jurisdiction in which to bring a claim. In principle, there is nothing wrong in seeking to have a case heard in the forum which is most favourable to the client. However, it can lead to some fierce jurisdictional battles, particularly in insolvency, where the choice between debtor and creditor-friendly procedures can be stark. The Commercial Court has been wrestling with this situation over the past 10 months.
The BVI Commercial Court recently clarified whether the BVI Insolvency Act 2003 provides a basis for liquidators to draw fees on account before having formal approval from either a creditors' committee or the court. The court also specifically provided that newly appointed liquidators can draw payments of up to 80% on account of their reasonable remuneration and expenses on an interim basis without the need to obtain prior approval from the creditors' committee or the court.
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.
The Cayman Islands Court of Appeal recently provided some clarity on the ranking of priority in the liquidation of amounts owing to shareholders and former shareholders of a company operating as an open-ended investment fund. The decision has confirmed that Section 37(7)(a) of the Cayman Islands Companies Law applies where a shareholder has merely accrued the right to redeem his or her shares, but has not yet completed the redemption process prescribed by the company's articles.
A recent decision by the Supreme Court of New York Appellate Division has affirmed that the law of the Cayman Islands applied on the question of the law applicable to derivative claims brought by a shareholder of a Cayman Islands company in the New York jurisdiction. Any shareholder of a Cayman Islands company that wishes to bring a derivative action must commence the action in the Cayman Islands.