This collaborative guide serves as a quick, practical reference for those with bankruptcy, insolvency, and rehabilitation needs in these jurisdictions.
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BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS: AN INTERNATIONAL GUIDE
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This guide offers an overview of legal aspects of bankruptcy, insolvency, and rehabilitation in the requisite jurisdictions. It is meant as an introduction to these marketplaces and does not offer specific legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney- client relationship, or its equivalent in the requisite jurisdiction. Neither the International Lawyers Network or its employees, nor any of the contributing law firms or their partners or employees accepts any liability for anything contained in this guide or to any reader who relies on its content. Before concrete actions or decisions are taken, the reader should seek specific legal advice. The contributing member firms of the International Lawyers Network can advise in relation to questions regarding this guide in their respective jurisdictions and look forward to assisting. Please do not, however, share any confidential information with a member firm without first contacting that firm. This guide describes the law in force in the requisite jurisdictions at the dates of preparation. This may be some time ago and the reader should bear in mind that statutes, regulations, and rules are subject to change. No duty to update information is assumed by the ILN, its member firms, or the authors of this guide.
The information in this guide may be considered legal advertising.
Each contributing law firm is the owner of the copyright in its contribution. All rights reserved.
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Table of Contents CHAPTER CONTRIBUTORS & FIRMS ..........................................................................................................4 Bankruptcy, Insolvency & Rehabilitation Proceedings in Australia ...........................................................6 Bankruptcy, Insolvency & Rehabilitation Proceedings in Brazil.................................................................9 Bankruptcy, Insolvency & Rehabilitation Proceedings in Canada ...........................................................13 Bankruptcy, Insolvency & Rehabilitation Proceedings in Chile ...............................................................22 Bankruptcy, Insolvency & Rehabilitation Proceedings in Finland............................................................29 Bankruptcy, Insolvency & Rehabilitation Proceedings in France.............................................................33 Bankruptcy, Insolvency & Rehabilitation Proceedings in Greece ............................................................39 Bankruptcy, Insolvency & Rehabilitation Proceedings in India ...............................................................48 Bankruptcy, Insolvency & Rehabilitation Proceedings in Italy ................................................................52 Bankruptcy, Insolvency & Rehabilitation Proceedings in Mexico............................................................57 Bankruptcy, Insolvency & Rehabilitation Proceedings in the Netherlands..............................................64 Bankruptcy, Insolvency & Rehabilitation Proceedings in Portugal ..........................................................69 Bankruptcy, Insolvency & Rehabilitation Proceedings in Romania .........................................................82 Bankruptcy, Insolvency & Rehabilitation Proceedings in Slovakia ..........................................................87 Bankruptcy, Insolvency & Rehabilitation Proceedings in Spain...............................................................96 Bankruptcy Proceedings in The United States ......................................................................................106
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CHAPTER CONTRIBUTORS & FIRMS
“Bankruptcy, Insolvency & Rehabilitation Proceedings in Australia” Lawyers at Kalus Kenny Intelex – Melbourne
“Bankruptcy, Insolvency & Rehabilitation Proceedings in Greece” Lawyers at A&K Metaxopoulos and Partners – Athens “Bankruptcy, Insolvency & Rehabilitation Proceedings in India” Lawyers at LexCounsel Law Offices – New Delhi “Bankruptcy, Insolvency & Rehabilitation Proceedings in Italy” Lawyers at EXPLegal – Italian & International Law Firm – Rome “Bankruptcy, Insolvency & Rehabilitation Proceedings in Mexico” Lawyers at Martinez, Algaba, de Haro y Curiel, S.C. – Mexico City “Bankruptcy, Insolvency & Rehabilitation Proceedings in the Netherlands” Lawyers at UdinkSchepel – The Hague
“Bankruptcy, Insolvency & Rehabilitation Proceedings in Brazil ” Lawyers at KLA Advogados – São Paulo “Bankruptcy, Insolvency & Rehabilitation Proceedings in Canada” Lawyers at Fogler Rubinoff LLP – Toronto
“ Bankruptcy, Insolvency & Rehabilitation Proceedings in Chile” Lawyers at PAGBAM |Schwencke – Santiago
“Bankruptcy, Insolvency & Rehabilitation Proceedings in Finland ” Lawyers at Fenno Attorneys at Law – Helsinki “Bankruptcy, Insolvency & Rehabilitation Proceedings in France ” Lawyers at Reinhart Marville Torre – Paris
“Bankruptcy, Insolvency & Rehabilitation Proceedings in Portugal” Lawyers at MGRA & Associados – Lisbon
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“Bankruptcy, Insolvency & Rehabilitation Proceedings in Romania” Lawyers at PETERKA & PARTNERS – Bucharest “Bankruptcy, Insolvency & Rehabilitation Proceedings in Slovakia” Lawyers at PETERKA & PARTNERS – Bratislava “Bankruptcy, Insolvency & Rehabilitation Proceedings in Spain” Lawyers at López-Ibor Abogados – Madrid “Bankruptcy, Insolvency & Rehabilitation Proceedings in the United States” Lawyers at Connolly Gallagher LLP – Wilmington, Delaware, USA
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KALUS KENNY INTELEX
Bankruptcy, Insolvency & Rehabilitation Proceedings in Australia
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KEY FACTS OF BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS UNDER AUSTRALIAN LAW Companies
an amount to creditors to avoid the company being placed in liquidation. There is a limited time for a scheme of arrangement to be proposed. For example, shareholders might advance funds equal to say 50% of amounts owing to creditors. A scheme of arrangement requires 75% of the value of the creditors, and a majority in number, to agree. Creditors need to be satisfied that the Scheme of arrangement would create a better return than if the company was placed in liquidation. The Administrator would usually recommend the scheme of arrangement to creditors if that was the case. Otherwise, the company will go into liquidation. The Administrator then becomes the Liquidator. Liquidators will then take such steps as they can to recover funds for creditors. Those steps often include: - Asking creditors (including the taxation office) who were paid in the 6 months prior to the liquidation to repay the funds to the liquidator; - Selling assets; - Collecting debts, including debts owing by directors or shareholders; - Recovering uncommercial transactions entered into to defeat the interests of the creditors. Traps for directors Liquidators can pursue bad corporate behaviour by directors. Directors of a company that goes into liquidation can then have a poor credit rating. Banks may then be reluctant to lend to the director or to
Corporate insolvency in Australia mostly involves a company being placed in liquidation or administration. Companies can be placed in liquidation by: 1. The directors, or 2. A creditor applying to the court, or 3. An oppressed minority shareholder applying to the Court, or 4. The shareholders, or 5. After an administration process, if a scheme of arrangement is not entered into by the company with its creditors. A liquidator is appointed to control the affairs of the company to recover funds for creditors. The liquidator will be a private practitioner who will charge fees for his and his firm’s work. Those fees are a priority payment before unsecured creditors are paid. The liquidator needs to be independent. Liquidators that have had a prior association with the company or its directors can be removed. The voluntary administration process requires the directors to appoint an Administrator to investigate if the company can be saved, most commonly by a sale of assets or a scheme of arrangement with creditors. When a company is in administration, there is a moratorium that prevents, among other things, the winding-up of the company, secured parties enforcing security interests, landlords taking possession of leased property, and court action cannot commence or proceed. A scheme of arrangement usually involves shareholders agreeing to provide funds to pay
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any new company, and creditors may be reluctant to extend credit. If a person is a director of two or more companies that have gone into liquidation, and if the return to creditors was less than 50%, the director can be banned from being a director of a company for 5 years. If the company was trading and incurring debts when the directors ought to have known the company was insolvent, the directors can be held personally liable for any such debts. Individuals Personal insolvency is called bankruptcy in Australia. A person who is unable to pay his or her debts, can declare themselves bankrupt, or a creditor can apply to the Court to bankrupt an individual, if they have a judgment against them for at least $5,000. Bankruptcy releases a person from unsecured debts and allows them to make a fresh start. Bankruptcy normally lasts for 3 years and 1 day. It can be extended for up to 8 years most commonly if a person’s bankruptcy Trustee has
reason to believe that the person has not been truthful about their affairs. When a person becomes bankrupt a Trustee is appointed. A Trustee is a person who manages your bankruptcy. A bankrupt person must provide details of their debts, income, and assets to their Trustee. Your Trustee notifies creditors that you are bankrupt - this prevents unsecured creditors from pursuing the debt. The trustee can sell certain assets to help pay debts. A bankrupt may need to make compulsory payments if their income exceeds a set amount. Bankruptcy is an option, but a person may also try to enter into a personal insolvency agreement, requiring 75% of creditors to agree. Bankruptcy may have serious consequences and prejudice a person’s ability to obtain credit, travel overseas or gain certain employment. Certain types of professions may be in jeopardy such as a lawyer or a builder.
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KLA – KOURY LOPES ADVOGADOS
Bankruptcy, Insolvency & Rehabilitation Proceedings in Brazil
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KEY FACTS OF BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS UNDER BRAZILIAN LAW 1. A brief presentation of the bankruptcy/ insolvency/ rehabilitation proceedings of the country and their main differences. supervise the right of creditors etc., without management powers.
An extrajudicial reorganization is an out-of- court process, similar to a pre-pack, that restructures a viable company's debt to avoid formal insolvency or judicial reorganization. It involves a contractual agreement between the debtor and creditors (or some of them) to reschedule or modify obligations. Once the agreement is signed, the debtor can request court ratification to extend the terms to all creditors in the same class, provided certain requirements are met. Liquidation/Bankruptcy is a court process that involves (i) declaring the debtor insolvent and (ii) dissolving the debtor by selling its assets and distributing the proceeds among creditors according to the payment hierarchy established by law. 2. (Depending on the type of the proceedings) The protection granted to the debtor against its creditors . The following questions should be addressed for each proceeding, provided by the law of the country: i) What kind of protection is granted? (e.g. the creditors may not enforce any court decision against the debtor’s assets etc.) Judicial Reorganization: After the petition for judicial reorganization is granted, a 180-day stay period begins. During this time, creditor actions against the debtor, such as executions and asset seizures, are suspended. This period is intended to provide the debtor with the necessary time to negotiate the Judicial Reorganization Plan.
The Brazilian Bankruptcy and Reorganization Law (Law No. 11,101/2005) provides companies with financial difficulties the necessary tools to restructure their obligations and operations, allowing the companies in crise to continue as going concerns. This is achieved through rehabilitation and reorganization procedures, which include (a) in-court judicial reorganization ( recuperação judicial ) or (b) out-of-court/prepackaged reorganization ( recuperação extrajudicial ) and liquidation/bankruptcy process ( falência ). Judicial reorganization is a court-supervised procedure analogous to Chapter 11 of the U.S. Bankruptcy Code. Judicial Reorganization is designed to facilitate the effective restructuring of viable companies in financial distress. During the stay period of 180 days (extensible once for the same period), the debtor is protected from enforcement actions and may submit, negotiate, and seek creditors approval for a Judicial Reorganization Plan. The Judicial Reorganization Plan shall be voted and approved by the majority of creditors (qualified quorum applies) and once approved and ratified by the Court, pre-petition claims subject to the proceeding shall be paid according to the conditions proposed in the Judicial Reorganization Plan. Typically, the debtor and its management continue to operate the business during the judicial reorganization, while a court- appointed trustee oversees the process, verify the fulfillment of the law, audit the numbers and balance sheets of the company,
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Note that the stay period does not affect post-petition claims, so new obligations hired by the debtor shall be paid normally by the debtor, under penalty of having new enforcement proceedings/collection claims filed by the creditors and new attachments/se izures over debtor’s assets. Also, tax claims are not affected by the stay period, but the Judge of the Judicial Reorganization shall have a kind of priority over the company’s assets, so the Judge of a tax claim cannot attach or block assets that could be essentials to the success of the Judicial Reorganization. The Brazilian Bankruptcy and Reorganization Law explicitly allows for a one-time extension of the 180-day stay period for an additional 180 days, provided the delay in voting on the reorganization plan is not due to the debtor in possession. The stay period may be extended a second time if creditors submit an alternative Judicial Reorganization Plan, as outlined in Article 6, Paragraphs 4 and 4-A, and Article 56, Paragraph 4. Extrajudicial Reorganization: the 180-day stay period is not a rule in the Extrajudicial Reorganization but can be (i) negotiated with the creditors subject to the Extrajudicial Reorganization and (ii) requested to the Judge in charge of the proceedings. Considering that the Extrajudicial Reorganization achieves only some classes of creditors, so the stay period also achieves only the same classes of creditors. Liquidation/Bankruptcy: there is no stay period in the Liquidation/Bankruptcy proceeding. Once the Liquidation is declared, all the debtors’ assets will be
gathered and sold to pay the creditors, according to the priority list. ii) What is the extent of the protection? (e.g. it includes all of the debtor’s assets; Is it limited to several assets for which the debtor may ask for protection? Is it at the court’s discretion to include any asset? etc.) Judicial Reorganization: The stay period protection extends to all assets of the company filing for Judicial Reorganization — cash, real estate, equity interests, etc. However, assets pledged as collateral in fiduciary alienation agreements are not protected by the stay period, as creditors with such collateral are not subject to the effects of the judicial reorganization. Extrajudicial Reorganization: The stay period protection extends to all assets of the company filing for Judicial Reorganization — cash, real estate, equity interests, etc., but only for the creditors that are subject to the effects of the Extrajudicial Reorganization. Liquidation/Bankruptcy : Not applicable. iii) By whom it is granted? (e.g. by a court decision or by injunctions or directly by the law etc.) The stay period is typically granted by the State Court or by the Court of Appeals if the lower instance has not authorized the processing of Judicial/Extrajudicial Reorganization. iv) Does the protection include only the debtor, or may it cover other persons as well (e.g. guarantors)? The stay period protection generally applies only to the debtor and the companies that have requested
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Judicial/Extrajudicial Reorganization. In Brazil, it is common for guarantors to seek Judicial Reorganization to avoid the enforcement of debts against them. However, if the guarantor does not request Judicial/Extrajudicial Reorganization, creditors retain all their rights against the guarantors. v) When is the protection granted? (e.g. in the rehabilitation proceeding in Greece, the debtor may apply before a court for protection of its assets before any agreement has been concluded with its creditors. After the agreement is concluded, different protection applies). Typically, the stay period protection is granted after the debtor files for Judicial Reorganization, following a decision that authorizes the commencement of proceedings. However, it is increasingly common for debtors to request an advance of the stay period’s effects (injunction), with the Court granting a deadline for the debtor to file for Judicial/Extrajudicial Reorganization and confirm the injunction. vi) For how long is the protection granted? 180 days, extendable once. vii) Which creditors are bound by the protection? All the creditors are subject to the Judicial/Extrajudicial effects. viii) Any other particularities of the procedures of each country (if any). Recently, Federal Law No. 14,112/2020 amended the Brazilian Bankruptcy and Reorganization Law and overhauled the 15-year-old legislation. Some of the most
relevant changes to the current legislation are the following: 1. Brazil has adopted the UNCITRAL Model Law on Cross-Border Insolvency, adding a specific chapter in the Brazilian Bankruptcy and Reorganization Law to regulate these proceedings. 2. Debtor-in-possession (DIP) financing is now easier, with provisions allowing asset encumbrance and shareholder loans after filing for judicial reorganization. 3. The process of selling assets in judicial reorganization and bankruptcy liquidation is now more efficient, flexible, and legally secure, creating a safer environment for investors. 4. Creditors can now submit competing reorganization plans if certain legal conditions are met. 5. While tax claims remain excluded from judicial reorganization, new provisions aim to resolve such debts and allow the Treasury to negotiate more favorable terms with the debtor. Bankruptcy liquidation proceedings are now significantly faster, enabling debtors to be discharged from obligations in a much shorter timeframe compared to the lengthy processes currently seen in Brazil.
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Bankruptcy, Insolvency & Rehabilitation Proceedings in Canada FOGLER RUBINOFF LLP
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KEY FACTS OF BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS UNDER CANADIAN LAW
1. Canada's Political and Legal System Canada has a federal system of government, subject to its Constitution, which was significantly overhauled in the early 1980's, including the creation and implementation of the 1982 Canadian Charter of Rights and Freedoms . Canada places a high value on 'rule of law' concepts in Anglo-American legal traditions. It has both federal and provincial political and legal systems and courts, subject to the common law in various jurisdictions, and civil law in Quebec. The Canadian Parliament is responsible for federal laws, and various provincial legislatures enact local legislation in their jurisdictions. The Province of Quebec implements its Civil Code, largely derived from the French Napoleonic Code, and amended over time, in its legislature, called Assemblée nationale du Québec. There are courts with both federal and provincial jurisdiction that make rulings within their jurisdiction, resulting in a general body of common law (with civil law in Quebec), in either official language: English or French, or sometimes in both. Where necessary, the legal principle of 'paramountcy' is applied, whereby federal statutes are intended to prevail over provincial statutes when their terms and application conflict. 2. Canadian Insolvency Regime Insolvency and bankruptcy laws in Canada are generally of the federal domain. Provincial and regional laws are used to implement and interpret issues falling within this domain. There is no single law or statute governing corporate, commercial, or institutional restructuring, bankruptcy or insolvency issues. Insolvency professionals with standing in insolvency proceedings in Canadian courts are usually either licensed lawyers or accounting professionals, with appropriate accreditation.
There are multiple applicable Canadian insolvency and restructuring statutes, listed below. The Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 (the " BIA ") and the Companies' Creditors Arrangement Act , R.S.C. 1985, c. C-36 (the " CCAA "), collectively called the " Acts ") comprise the "main" statutory framework for individual and corporate insolvencies, restructuring, and bankruptcies in Canada. Stays of proceedings are implemented to allow for re- organisations, restructurings, or liquidations to occur in the best interests of stakeholders and in an orderly fashion. Proceedings under the BIA and CCAA are monitored and regulated by the federally regulated Office of the Superintendent of Bankruptcy, to whom provincial Official
Receivers submit their reports. Applicable statutes in Canada :
i. The BIA : This is the main federal statute for personal or 'consumer' bankruptcies. It also has a broader section for both higher net-worth personal bankruptcies and larger corporate and commercial bankruptcy or restructuring opportunities. The BIA contains rules for both liquidations or debtor-driven restructurings and reorganisations (generally called 'proposals'), with both creditor remedies (including receiverships), and 'debtor in possession' (" DIP ") remedies. A statutory priority waterfall for claims against the estate of an insolvent person or entity exists for secured and preferred creditors, thereby implementing rules for dealing with those priority claims in multiple scenarios. DIP proceedings under the BIA generally occur in situations in which the debts of the debtor are below CAD5,000,000. The "bankruptcy" provisions of the BIA are analogous to
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Chapter 7 of the U.S.A. Bankruptcy Code (the " Code "), but have many differences beyond the scope covered here. The "proposal" provisions of the BIA are more analogous to Chapter 11 of the Code. ii. The CCAA : This is the principal federal restructuring and recovery insolvency statute for DIP debtors. In comparison with the analogous BIA framework, it is generally more flexible in scope and application. The CCAA evolved from a largely unused and very brief statute conceived in the 1930s, but has been extensively used and adapted since that time. In the present day, it is used mainly for the restructuring of large commercial enterprises with aggregate debt owing in excess of CAD5,000,000. While analogous to Chapter 11 of the Code, the CCAA differs in many material respects, not the least of which are the generally increased speed and lower costs in most scenarios. The CCAA remains a relatively brief statute, and not all aspects of the law applicable in connection with proceedings there under have been codified. It allows for wide powers of judicial discretion which is of utility in quickly changing fact scenarios. Many cases coming within its wide scope have received a considerable display of jurisprudential flexibility and expediency, due to the lack of codified rules and procedures. iii. The Personal Property Security Act/Civil Code in each Province (collectively, " PPSAs "): Each province outside Quebec has enacted statutes relating to property rights in assets and security to partially replace a pre-existing patchwork of common law that preceded them. They also allow for the appointment of
receivers both in and out of court. The PPSAs contain attachment, perfection, and priority rules in collateral that were initially modelled on the Uniform Commercial Code used in US States (collectively, " UCC "), but do nevertheless have significant differences. For instance, the PPSAs are mainly notice registry systems, and are not title based. There are also differences with UCC Article 9 procedures and accommodation for security interests in cash collateral, and other personal property. iv. Rules of Court/Rules of Practice (" Rules "): These apply in all provinces other than Quebec, and have direct and indirect influences on judgements and rulings regarding enforcement and interpretations under applicable statutes. For instance, where it is found to be 'just or convenient', courts may appoint receivers for interests including secured creditors. v. The Winding Up and Restructuring Act (" WURA "): This federal statute has been used infrequently, and is generally for the restructuring and reorganisation or liquidation of specific entities, mainly banks and insurance or trust companies. In the context of more recent financial upheaval in financial markets and financial institutions in Canada and abroad, this legislation may assume a more prominent role than has unfolded in its recent past. vi. Business Corporation Statutes: These include multiple statutes in both the federal and provincial domains, such as the Canada Business Corporations Act (" CBCA ") and its various provincial counterparts. These are significant because they allow courts to authorise
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fundamental changes in corporate structure in distressed scenarios. They contribute to balance sheet refreshments through such arrangements where debt can be converted to equity including through implementation of distress preferred share arrangements as may be approved in Canadian insolvency proceedings. These statutes may also be used to effect liquidations in certain circumstances.
'double majority' vote that occurs with approved creditors will be necessary, in which a majority of both creditors by number and total of outstanding debt thresholds must be met to pass the vote. If the creditors approve the plan, court approval is thereafter required. If timelines are not met, or a plan is neither presented nor approved by creditor vote and court approval, then there is an automatic deemed bankruptcy. At that point, the proposal trustee becomes the trustee in bankruptcy, and liquidation ensues. All asset bankruptcy estates are subject to a 5% levy, payable to the Superintendent in Bankruptcy. CCAA Qualified applicants under the CCAA are usually applicants being corporate entities who are insolvent, or who have committed an act of bankruptcy under the BIA . Total claims against that debtor must exceed CAD5,000,000 before that debtor may commence a CCAA filing. Proceedings are initiated by court applications. Filings for 'first day orders' are done by application of the debtor to the applicable court. There may be an initial order implementing a statutory stay of proceedings, but it is granted for a very short period of time and on restricted terms and conditions (colloquially sometimes referred to as the 'skinny order'), in effect for no more than 10 days. The applicants must return to court within that time period with another application for the full form of court orders giving broader protections to the Applicant. Monitors are appointed upon initial orders being granted and are deemed to be officers of the Court, and as such are the "eyes and ears" of the Court in the proceedings. The debtor's auditors are excluded from being appointed as Monitor. Monitors are ideally positioned to act in the 'best interests of the general body of creditors'. Their views and recommendations are
3. The Acts: Basics BIA
Applications for bankruptcy orders may be filed by the debtor, or by his/her/its creditors. When filed by creditors, there can be proceedings contesting the filing, to be heard by the bankruptcy courts. Otherwise, liquidations ensue once the trustee in bankruptcy is appointed under a bankruptcy order and that person is usually an accredited accounting professional. That trustee in bankruptcy acts in the estate, effectively on behalf of the general body of creditors. Secured creditors holding perfected security interests take outside of the bankruptcy estate to the extent of the value of their collateral held, and will file claims in the estate for unpaid residual amounts of debt not recovered from realization of their specific collateral held. To avoid bankruptcy, proposals may be filed by debtors under notices of intention (" NOI "). These are not initially bankruptcy filings. An accountant is engaged as "Proposal Trustee" to oversee and review the affairs of the debtor, and to report to the court in all proceedings. On filing the NOI, the time "starts ticking." Initially, a 30- day stay is granted, and can be extended up to a maximum of six months by the court, to enable the debtor to file a plan. Time is granted to compose a plan, which is distributed to creditors for a vote. For the proposal to be approved, a
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submitted to the courts in formal reports, which are generally given a high degree of factual and professional deference. Once appointed to oversee the CCAA estate in the first day orders, Monitors coordinate multiple roles. Those include the review of financial information, filing of statutory reports, review of debtor forecasts and plans, implementation of a sale process, and assisting in the drafting of a Plan of Compromise or Arrangement ( "Plans" ). Plans, once approved by creditors in a double majority vote, must also be sanctioned by a Canadian court. Plans can include sale processes, such as 'stalking horse' bidding procedures for all or part of the business, assets and operations of the debtor, or a broader group of companies and partnership entities connected to the debtor. They may also include full or partial liquidations of their assets, termination of contracts, key employee retention plans, settlement of debts and charges amounting to a balance sheet restructuring. Monitors interact with officers, directors, and management of the debtor and their counsel. They are also responsible for conducting all statutory proceedings, including any votes of creditors or other stakeholders, outside of the court proceedings. Assets disposed of in CCAA proceedings are not subject to any bankruptcy levies. Stays of Proceedings Under the BIA , statutory stays of proceedings are initiated on issuance and filing of an order for bankruptcy, or upon filing an NOI. Under the CCAA , statutory stays are initiated by the courts in first day orders, and continue under the directions of the court. Stays of proceedings can be implemented for groups of companies domestically, within the ambit of the Canadian courts. For cross border groups, the continuing cooperation of foreign courts is required, with varying results from case to case.
Cross Border Proceedings Coordination of cross-border proceedings with foreign courts is encouraged and implemented on a regular basis. Canada adopted the UNCITRAL model law on cross border insolvency in 1997, with changes specific to Canada at and after that time. This is incorporated into Canadian law under Part IV of the CCAA and Part XIII of the BIA , for both recognition of foreign proceedings in Canada and for recognition of the orders of Canadian courts in foreign proceedings. Canadian courts can exercise jurisdiction over non-Canadian entities and assets if the 'centre of main interest', known as "COMI" , is in Canada. These always involve questions of fact, and can be hotly contested at the outset of proceedings. In the Matter of Voyager Digital recently saw the Ontario Superior Court provide renewed guidance on the determination of COMI in the context of a public company. Cross border cooperation of foreign courts with Canadian courts has occurred in multiple cases, including under Chapter 15 proceedings under the Code. Officers and Directors Generally, directors and officers of corporations have statutory duties to act honestly and in good faith with a view to the best interests of the corporation (including under the CBCA ). Directors of an entity entering proceedings under the Acts must continue to generally act in the general best interests of that debtor. They must exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. Officers have similar duties including remittance obligations to government authorities. While there are duties to 'stakeholders', such as government entities, creditors and employees, there is no specific duty on directors or officers to look after the interests of shareholders. Unlike other jurisdictions, such as Australia, Germany, and France, there are no 'trading while insolvent'
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liabilities or exposures while the debtor is undergoing a formal restructuring while also operating its business. Remedies sought for breach of such duties, in the absence of fraud, are generally fact-based proceedings, within these general principles. Additionally, directors should take note that under certain statutory circumstances, directors may be found personally liable for unpaid employee wages and holiday pay, and source deductions for employee income taxes, employment insurance and government pension plan contributions. 4. The Acts: Changing Rules and Features and Updates In recent years, the Acts were amended to achieve better accountability and transparency
Pension Funding and Obligations To protect the interests of retirees and pensioners, the Acts were amended to require that funds earmarked for registered disability savings plans be added to funds in RRIF plans and RRSPs so that they are exempt from seizure under the BIA . The CBCA was simultaneously amended to require that directors take into account the financial interests of retirees and pensioners in board deliberations of CBCA companies on the eve of insolvency. Further, in 2023 legislation was passed expanding the super-priority positions afforded to defined benefit pension plans in the course of an employers' insolvency. Importantly, a transition timeframe has been built into this expansion of the super-priority (four years) for defined benefit plans. This will provide existing lenders and employers with some ability to pivot around the new reality but not much and new employers will not have the same transition period. Director and Officer Compensation Clawbacks The amendments expose directors to more scrutiny on the eve of insolvency. The courts may "look back" into payments (including termination pay, severance pay, incentive and other benefits) made to directors, officers, and other managing personnel in the year preceding the initial bankruptcy event. If the payments were made when the corporation was insolvent or rendered the corporation insolvent, exceeded the fair market value of the consideration received by the corporation, or were outside the ordinary course of business, the court may issue judgments against the directors personally, as
in Canadian insolvency proceedings. Disclosure of Economic Interests
The CCAA was amended to allow interested persons to apply for a court order requiring a person to disclose any "economic interest" in the debtor company. An "economic interest" includes a claim, eligible financial contract, an option, a mortgage, charge, lien, other security interest, the consideration paid for any right or interest, or any other prescribed right or interest. The court must consider whether the information sought would enhance the prospects of a compromise or arrangement for the debtor company and whether any interested person would be materially prejudiced by the disclosure. The purpose of this may be aimed at leveling the playing field in the administration of estates. Possible scenarios where disclosure might be particularly important are (i) where claims are traded at discount values to purchase blocking votes or (ii) where related parties or parties with undisclosed collateral interests bid on assets of the insolvent estate.
may be appropriate. Third Party Releases
Court ordered releases within CCAA Plans are common in the context of sanction orders. In many cases, it is management and board
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members who benefit. Directors and officers will usually insist on these in return for avoiding mass resignations during the reorganisation of
and due diligence are baseline considerations that a court should always bear in mind when exercising CCAA authority." A statutory duty of good faith is also consistent with British and American insolvency statutes and will therefore be useful in cross-border proceedings. No Equitable Subordination in Canada, So Far The doctrine of equitable subordination is an American legal doctrine that allows a court to subordinate a creditor's claim and ranking in an insolvency proceeding where that creditor has acted badly, in the determination of the court. Canadian courts have resisted its application over an extended period of time in numerous insolvency proceedings. However, it remains as an attractive equitable doctrine to be applied as a potential course of redress. Recent statutory implementation of the duty of good faith in Canada appears to have provided another reason to not apply this doctrine in Canadian proceedings to address the bad behavior of certain creditors. However, this doctrine has not yet been definitively shut off by the highest Canadian courts either, to date. Reverse Vesting Orders There have been recent developments in the case law regarding the use of reverse vesting orders ( "RVO" ) as a means of providing court approval to certain transactions to be effected in the context of an insolvency proceeding. Through the use of a reverse vesting order, the court may transfer liabilities or undesired assets "out of" the debtor company and "into" a new company or other available existing subsidiary entity. The impact is to "cleanse" the debtor of problematic assets or liabilities so as to effect a new state of affairs in assistance of the restructuring. This is a "reverse" to the approach of the traditional approval and vesting order wherein the valuable assets are transferred to the court approved buyer with secured interests being vested out.
the insolvent entity. Procedural Changes
Stays of proceedings will be granted in CCAA proceedings if "reasonably necessary" for the continued operations of the debtor companies. The initial stay period was reduced from 30 days to 10 days. As well, other initial relief in first day orders will only be granted if "reasonably necessary." These amendments will help ensure that orders granted at the commencement of insolvency do not over-reach and are fair to other creditor interests. Certain relief like new funding (DIP financing orders) and pre-baked solicitation proceedings for the sale of assets, which may prejudice stakeholders who had no notice of insolvency proceedings, may now be challenged earlier. Statutory Duty of Good Faith In Bhasin v. Hrynew , the Supreme Court recognized a general duty of honest performance in contractual dealings which has been broadly applied. Canadian courts must now consider good faith and disclosure of economic interests to enhance their jurisdiction in restructuring matters. Parliamentary debates preceding the amendments suggest that they were intended to protect the public from the effects of high-profile corporate bankruptcies like Nortel and Sears where many Canadian employees lost their pensions. A statutory duty to act in good faith will now apply to all participants in Canadian insolvency proceedings. Although debtors previously had a duty to act in good faith, the statutory duty now applies to all parties. This amendment is consistent with developments in the common law. In Century Services Inc v. Canada (Attorney General), the Supreme Court of Canada stated that "the requirements of appropriateness, good faith
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Of particular in note, in Harte Gold Corp. Re , the Ontario Superior Court provided some important new guidance on what questions the court should investigate when asked to approve an RVO: (1) Why is the RVO necessary in this case? (2) Does the RVO structure produce an economic result at least as favourable as any other viable alternative? (3) Is any stakeholder worse off under the RVO structure than they would have been under any other viable alternative? (4) Does the consideration being paid for the debtor's business reflect the importance and value of the licenses and permits (or other intangible assets) being preserved under the RVO structure? While still relatively new, Canadian courts have begun to deal with RVOs more frequently. In Forage Subordinated Debt LP v. Enterra Feed Corporation , the Alberta Court of King's Bench granted an RVO in the context of a receivership. The Court reaffirmed the use of an RVO as an extraordinary remedy and clarified the Court's authority in granting RVOs for receiverships, which is derived from the interplay of several provincial statutes. The first denial of an RVO came from the Ontario Superior Court In the Matter of the Companies’ Creditors Arrangement Act. In denying the RVO, the Ontario Superior Court addressed the unfairness to one of the creditors with a security interest in the equipment. It would have been unfair to accept a bid where the equipment would have been transferred to the residual corporation, especially when there was a less prejudicial bid available. Following this, the British Columbia Superior Court refused to grant an RVO in PaySlate Inc. (Re). The court provided guidance on the procedural and substantive requirements for RVO applications. The refusal to grant the RVO was the result of inadequate notice to affected creditors and an insufficient evidentiary record.
Environmental Obligations and Priorities In 2019, the Supreme Court of Canada released its decision in the case of Orphan Well Association v Grant Thornton Ltd. , which held that certain environmental remediation obligations of an insolvent entity can and should be prioritized over and above the rights of secured creditors in the context of a closed oil and gas operation. More recently, the Alberta Court of Appeal released their decision in Qualex-Landmark Towers Inc. v. 12-10 Capital Corp . which saw them reverse the lower court decision that held that private citizens could claim a super-priority of environmental remediation obligations over and above other creditors. The Court of Appeal noted that the lower court judge had acted outside of his authority by using the common law to expand the availability of super-priority claims in a way that was incompatible with the legislation. Subsequently, the Alberta Court of King's Bench released their decision in Re Mantle Materials Group Ltd. The court held that restructuring charges, which would satisfy end-of-life environmental remediation obligations, have priority over security interests in equipment. While "unrelated assets" should not be used to satisfy end-of-life environmental obligations, equipment is not an unrelated asset. The Court in Orphan Well Association v. Trident Exploration Corp. clarified that all assets related to the business of the company in question are "related assets" and can therefore be used to satisfy these obligations. In Eye Hill (Rural Municipality) v. Saskatchewan (Energy and Resources) , the Saskatchewan Court of King's Bench confirmed the application of Orphan Well Association v. Grant Thorton Ltd. in Saskatchewan and addressed the priority of unpaid municipal taxes and environmental remediation obligations. Municipalities rank
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after both the Crown in Right of Canada and the Crown in Right of Any Province, as well as after environmental remediation obligations. Any supposed lien created as a result of municipal taxes does not change the ordering of priorities. Further developments in the law have demonstrated both an expansion and narrowing of the availability of super-priority claims. Corporate Attribution Doctrine When proving misconduct, intention may be a necessary element to prove. However, Corporations lack the requisite mental element. The corporate attribution doctrine addresses this deficiency by attributing the intention of the corporation's "directing mind" to the corporation itself. In Ernst & Young Inc. v. Aquino , the Ontario Court of Appeal applied the corporate attribution doctrine in the bankruptcy context and provided important guidance on this doctrine. The corporate attribution doctrine should not be applied strictly, otherwise it would be incompatible with the remedial nature of the BIA . The flexibility associated with its application requires sensitivity to the area of law under which this issue arises, consideration of public policy concerns like corporate responsibility and the public interest, and a wide discretion for a court to choose whether to apply the test or not. Following Ernst & Young Inc. v. Aquino , the Ontario Court of Appeal decided not to apply the corporate attribution doctrine in Golden Oaks Enterprises v. Scott (Golden Oaks) . When determining whether to apply the corporate attribution doctrine or not, the Ontario Court of Appeal commented that courts should not only consider the public interest, but also whether application of this doctrine would uphold the principle of equitable distribution amongst victims of fraud.
At the time of this update, there are active appeals in this area. The Supreme Court of Canada recently heard the appeals of Ernst & Young Inc. v. Aquino and Golden Oaks Enterprises v. Scott (Golden Oaks). Further clarity on the law in this area may be expected in the near future.
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Bankruptcy, Insolvency & Rehabilitation Proceedings in Chile
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KEY FACTS OF BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS UNDER CHILEAN LAW I- Introduction
insolvency proceedings, controlling the role of trustees and liquidators. There is also a rehabilitation proceeding for individuals which is processed before the Agency. This Agency manages the Insolvency Gazette, where the most important insolvency orders are published. The next sections will describe the main features of insolvency proceedings in Chile, before analyzing other interesting matters, namely, Chilean rules on restitutionary remedies, insolvency criminal offences and ineligibility of directors, cross-border insolvency and tax aspects. II- Insolvency proceedings 1) Reorganization of Companies a) Judicial Reorganization
Law N° 20.720 on Reorganization and Liquidation (“The Law”) modernized insolvency proceedings in Chile, promoting the rehabilitation (reorganization) of companies and individuals, balancing the interests of both creditors and debtors to renegotiate debts. The Law entered into force in October 2014, and since its first decade of application some minor reforms have been implemented. Accordingly, one of its principal aims is to encourage the restructuring of debts, as debtors can obtain stays of proceedings and continue trading under the supervision of a trustee. Debtor´s essential suppliers are payable in their original terms and conditions, which facilitates the continuity of business. The exchange with essential suppliers will be considered a secure credit in case of liquidation. It is essential for the success of the reorganization that the debtor receives the creditors´ support. The creditors act and vote in creditors´ meetings and the Law protects the principle of equality of creditors ( par conditio creditorum ). However, main creditors have important rights as well, for instance, in appointing the trustee/liquidator and in renewing the period of protection for the debtor. If the creditors reject the reorganization plan, the debtor goes into liquidation. As a result, the Law considers liquidation as a last resource and an appropriate proceeding for inviable debtors. Although some exceptions, insolvency proceedings are submitted before Civil Courts (there are not full-time courts dedicated exclusively to bankruptcy in Chile). The Law also created the Insolvency and Reorganization Agency (“the Agency”), which inspects the adequate implementation of the
The debtor may file a reorganization request to restructure its debt. In doing so, the debtor should submit the following documents:
A list of all its assets, including a commercial assessment, disclosing their location and whether they are subject to any guarantee. A certificate subscribed by an independent auditor with a list of its debts, including the name, address, contact information, and the percentage of every creditor on the debt, expressing who the 3 main creditors are, excluding related creditors.
•
•
Accounting
books
and
•
accurate
financial
information. Likewise, the debtor has to request the Agency the appointment of a
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