new directors’ duties in the zone of insolvency and the … · 2020. 8. 21. · amount of the...

DIRECTORS’ DUTIES IN THE ZONE OF INSOLVENCY AND THE COVID-19 PANDEMIC: EUROPEJUNE 2020

CLIFFORD CHANCE |

EXECUTIVE SUMMARY

2

Many companies face challenges brought about by the sudden and wide-ranging economic impact of COVID-19. Governments around Europe are implementing measures to alleviate some of the financial consequences including the provision of emergency finance, government backed guarantees, and the deferment of tax. It is inevitable that many boards face unprecedented situations and challenges ahead.

Some jurisdictions have already announced measures to provide some comfort to directors in dealing with financial distress. These reforms are to be welcomed, but they only offer temporary relief and they do not absolve directors from all their responsibilities and duties. Of course, businesses may operate in more than one jurisdiction, where competing and potentially conflicting issues may arise.

To navigate the different rules that may apply we set out key considerations in 13 different jurisdictions in Europe. This is designed to assist directors in making prudent decisions focusing on key duties and responsibilities when their businesses face acute financial distress.

We set out a summary table of COVID-19 reforms to directors’ duties at slide 3 below, which is for quick reference only and should be read alongside the list of issues set out in the full summary for each jurisdiction. This publication is not designed to provide legal or other advice, so if you have a specific query, please do get in touch with your usual Clifford Chance contact or any of our specialist contacts listed in this publication.

DIRECTORS’ DUTIES IN THE ZONE OF INSOLVENCY AND THE COVID-19 PANDEMIC: EUROPE

CLIFFORD CHANCE |

Jurisdiction Suspension of Mandatory Filing Period Suspension of Insolvency Trigger

Belgium ✓ ✘

Czech Republic ✓ ✘

England N/A N/A

France ✓ ✘

Germany ✓ ✘

Italy ✓ ✓

Luxembourg ✓ ✘

Netherlands ✘ ✘

Poland ✓ ✘

Romania ✘ ✓

Russia ✓ ✘

Slovakia ✓ ✘

Spain ✓ ✘

SUMMARY OF COVID-19 SPECIFIC REFORMS TO DIRECTORS’ DUTIES

3DIRECTORS’ DUTIES IN THE ZONE OF INSOLVENCY AND THE COVID-19 PANDEMIC: EUROPE

CLIFFORD CHANCE |

DIRECTORS’ DUTIES COMPARISON – EUROPE


Click on the relevant countrybelow to be directed to the full summary

SPAIN

RUSSIA

FRANCE

ENGLAND & WALES

ROMANIA

CZECH REPUBLIC

POLAND

ITALY

LUXEMBOURG

BELGIUMNETHERLANDS

GERMANY

SLOVAKIA

BELGIUM

CLIFFORD CHANCE |

BELGIUM

Directors’ Duties

COVID-19 REFORMSA Royal Decree n° 15 has been adopted and published on 24 April 2020 which suspends enforcement, bankruptcy and, more generally, the termination of agreements because of payment default. Pursuant to this Royal Decree, a company may not be declared bankrupt nor be made subject to judicial dissolution upon the initiative of unpaid creditors, but it may still be declared bankrupt upon the initiative of the public prosecutor's office or if the company consents to it. If a company satisfies the conditions for bankruptcy, but only because of the Coronavirus outbreak, then its directors' obligation to file for insolvency is suspended (but the directors may still decide to do so on a voluntary basis). The moratorium applies automatically, but any interested party may request the Court to rule that a company or an enterprise does not fall within the scope of the standstill, or to lift the standstill in whole or in part. The Royal Decree no.15 does not affect a company's payment obligations. Payments thus remain due and default interest will accrue and can be claimed after the end of the moratorium.

The measures are in force from 24 April and will remain in force until 17 June 2020 (subject to extension).

GENERAL POSITIONPosition of Management. Management in principle retains its powers during the moratorium resulting from the Royal Decree n° 15 as well as during judicial reorganisation process, unless it is displaced by the court (e.g. in case of gross negligence or serious misconduct). Management can request the appointment of a mediator or court officer to assist it with the preparation/ implementation of a judicial reorganisation.

Personal Liability of Directors. For breaches of duty of care or statutory duties, in case of wrongful trading or if grossly negligent in a way that contributes to the bankruptcy. Directors are also liable for the costs required in order to rectify materially incorrect financial statements and may be liable for unpaid social security contributions if they have been involved in prior insolvency proceedings with unpaid social security contributions.

Time Limits for Filing for Insolvency. Directors must file within 1 month of the company (i) no longer having credit available to it and (ii) being unable to pay its debts. This obligation is suspended as a result of the COVID-19 reforms (see above).

6

Contacts


Dorothée VermeirenPartner

T +32 2 533 5063M +32 47441 2586E dorothee.vermeiren

@cliffordchance.com

Lounia CzupperPartner

T +32 2 533 5987 M +32496239987E lounia.czupper

@cliffordchance.com

CZECH REPUBLIC

CLIFFORD CHANCE |

CZECH REPUBLIC

Directors’ Duties

COVID-19 REFORMS (see our dedicated briefing)On 24 April 2020, an act on certain measures to mitigate the impact of the COVID-19 pandemic was enacted. The act was published in the Collection of Laws as Act No. 191/2020 Coll. The act provides for a suspension of the debtor’s duty to file for insolvency without undue delay after the onset of insolvency. At the same time, the associated risk of personal liability that may be incurred by directors under the Insolvency Act as the result of any delay in filing will also be suspended. The suspension shall last for the duration of the currently imposed anti-epidemic emergency measures and for six months thereafter. However, the suspension should not, in any case, extend beyond the end of 2020. Please also note that separate directors’ liability may arise under the Business Corporations Act which is not being amended by the act.

The act also introduces a new extraordinary moratorium, a new tool would allow debtors who were not insolvent on 12 March 2020, but who have run into financial difficulties due to the COVID-19 outbreak, to file for an extraordinary moratorium by the end of August 2020. The moratorium would not only prevent the commencement of insolvency proceedings, but would also (i) stay the enforcement of charges and other forms of unilateral debt collection, (ii) enable the debtor to prioritise the payment of liabilities directly related to the operations of the debtor’s business which have arisen since the extraordinary moratorium was declared over liabilities which were due and payable earlier and (iii) protect debtors from having certain long-term contracts terminated by their counterparties. Debtors who utilise the extraordinary moratorium will be under a duty to use their best efforts to provide the best possible outcome for creditors and to prioritise their creditors’ interests over their own interests or the interests of other parties. Directors of the debtor will be personally liable for any loss caused through breach of the debtor’s obligations during the moratorium, including any breach in connection with the petition thereon.

8

Contacts


Tomáš RichterCounsel

T +420 222 55 5214M +420 731 47 1444E tomas.richter

@cliffordchance.com

Pavel BoguskýPartner

T +420 222 55 5266 M +420 731 47 1426E pavel.bogusky

@cliffordchance.com

https://www.cliffordchance.com/briefings/2020/04/coronavirus--first-aid-measures-in-czech-insolvency-law.html

CLIFFORD CHANCE |

CZECH REPUBLIC

Directors’ Duties

GENERAL POSITIONPosition of Management. In all procedural phases other than liquidation, the debtor’s management remains in control, but is monitored by a court-appointed trustee and the creditors’ committee.

Personal Liability of Directors. For breaches of fiduciary duties owed to creditors while in office after commencement and for damages caused to creditors by delay in filing an insolvency petition. Rules on director conduct in the pre-insolvency period were introduced with an ensuing risk of new grounds of civil liability. It is not clear how these rules interact with the Insolvency Act’s rules – directors should be mindful of their duties. This obligation is suspended as a result of the COVID-19 reforms (see above).

Time Limits for Filing for Insolvency. No express time limit but must file without delay after they have determined the company is insolvent. Insolvency is defined objectively, including express time periods of default with payment. Debtors are able to mitigate apparent cash-flow insolvency by showing that a "cash mismatch" (i.e. the difference between the amount of the debtor’s overdue liabilities and amount of its liquid assets) which the debtor is suffering does not exceed 10% of the amount of its overdue liabilities (or that such "cash mismatch" will drop below this limit within the period which is being analysed). This obligation is suspended as a result of the COVID-19 reforms (see above).

9

Contacts

(CONTINUED)


ENGLAND & WALES

CLIFFORD CHANCE |

ENGLAND & WALES

Directors’ Duties

COVID-19 REFORMS On 20 May 2020 the Government published the Corporate Insolvency and Governance Bill (the "Bill") to introducereforms to the existing insolvency and companies legislation. The Bill aims to provide distressed business and directorswith some relief, whilst providing adequate safeguards to investors and creditors. These measures include asuspension of existing insolvency provisions that otherwise might impose personal liability on directors for continuing totrade when their business is in financial distress. This is to have retrospective effect applying from 1 March 2020 until30 June (unless extended), so will have an immediate impact on those facing the current crisis. However, please note:• Directors will not be absolved from compliance with other duties and the disqualification regime will remain in place.• Directors will need to continue to make decisions carefully taking into account the interests of their stakeholders, in

particular their creditors, and seek professional advice where necessary.• The suspension will not be applicable in respect of specified entities, primarily in the financial services sector.

The Bill also introduced the following temporary and permanent insolvency measures:

Temporary insolvency measures

• Statutory demands served from 1 March to 30 June and winding up petitions from 27 April to 30 June will beprohibited, unless it can be proved that the financial position of the company has not been impacted by Covid-19.

Permanent insolvency measures

• Company moratorium: Available to financially distressed companies which are ultimately viable. Such companieswill benefit from (i) payment holiday for certain debts and (ii) protection against claims (including securityenforcement) in relation to debts.

• Termination clauses in supply contracts: Prohibits suppliers from relying on any termination clauses in contractsfor supply of goods and services on the grounds that a party has entered into a formal insolvency procedure, thenew moratorium or the new compromise or arrangement.

• New compromise procedure: Modelled on the scheme of arrangement which includes the ability to binddissenting classes of creditors who vote against it (commonly referred to as a ‘cross class cram down). It is to becontained in a new Part 26A of the Companies Act 2006 and it is only available to companies encountering, or likelyto encounter, financial difficulties which impact their ability to carry on business as a going concern.


Contacts

Adrian CohenPartnerT +44 207006 1627M +44 7534905620E adrian.cohen

@cliffordchance.com

Philip HertzGlobal HeadT +44 207006 1666M +44 7881588723E philip.hertz

@cliffordchance.com

John MacLennanPartnerT +44 207006 1642M +44 7900167284E john.maclenna

@cliffordchance.com

David TowersPartnerT +44 207006 8036M +44 7949845357E david.towers

@cliffordchance.com

Iain WhitePartnerT +44 207006 2825M +44 7900167052E iain.white

@cliffordchance.com

Melissa CoakleyPartnerT +44 207006 1963M +44 7775928942E melissa.coakley

@cliffordchance.com

CLIFFORD CHANCE |

ENGLAND & WALES

Directors’ Duties

GENERAL POSITIONPosition of Management. In formal insolvency proceedings management is usually displaced by an insolvency officeholder. In administration, however, the administrator may consent to allow management to continue where the purpose of the business is to rescue the company. The administrator is usually selected by the company or secured creditor but must act in the interests of all creditors.

Personal Liability of Directors. For breaches of duties, wrongful trading and fraudulent trading. This obligation is suspended as a result of the COVID-19 reforms (see above).

Time Limits for Filing for Insolvency. No express time limit for filing for insolvency but failure to do so which results in a loss may give rise to action against directors personally.


Contacts

Adrian CohenPartnerT +44 207006 1627M +44 7534905620E adrian.cohen

@cliffordchance.com

Philip HertzGlobal HeadT +44 207006 1666M +44 7881588723E philip.hertz

@cliffordchance.com

John MacLennanPartnerT +44 207006 1642M +44 7900167284E john.maclenna

@cliffordchance.com

David TowersPartnerT +44 207006 8036M +44 7949845357E david.towers

@cliffordchance.com

Iain WhitePartnerT +44 207006 2825M +44 7900167052E iain.white

@cliffordchance.com

Melissa CoakleyPartnerT +44 207006 1963M +44 7775928942E melissa.coakley

@cliffordchance.com

FRANCE

CLIFFORD CHANCE |

FRANCE

14

Contacts


Directors’ Duties

COVID-19 REFORMSThe French government issued Ordinance 2020-341 on 27 March 2020 and Ordinance 2020-596 on 20 May 2020, whichprovide for, among other things:• a relaxation to the test for cash-flow insolvency, such that, until 23 August 2020, included, the state of the debtor's

cash-flow solvency must be assessed in light of its financial position on 12 March 2020;• ·where the debtor's cash situation gets worse after 12 March 2020, a suspension of the duty on directors to file for

insolvency until 23 August 2020, included, except in the case of the directors' fraud (and they can still file for pre-insolvency proceedings); and

• ·where the debtor's cash situation gets worse after 12 March 2020, a suspension on the rights of creditors and Publicprosecutor to petition for a distressed company's insolvency until 23 August 2020, included, unless they can show thedebtor was insolvent at 12 March 2020 or committed fraud following this period.

The Ordinances also provide for:• possibility for the debtor in conciliation proceedings (in principle consensual and confidential) to apply for a stay and/or

a rescheduling against a creditor who would not accept (by express refusal or lack of response) to grant a voluntarymoratorium requested by the conciliator;

• extensions of certain specific procedural deadlines and periods of preventive and insolvency proceedings; and• adaptations of procedural rules, especially in order to facilitate remote communication between the parties for opening

and pursuit of proceedings.

Delphine CaramalliPartner

T +33 1 4405 5240M +33 675007330E delphine.caramalli

@cliffordchance.com

CLIFFORD CHANCE |

FRANCE

15

Contacts

(CONTINUED)


Directors’ Duties

GENERAL POSITIONPosition of Management. • Mandat ad hoc and conciliation proceedings: management stays in possession, assisted by a court-appointed officer

in order to facilitate the restructuring of the liabilities.• Safeguard, accelerated financial safeguard and accelerated safeguard proceedings: management stays in possession

under the surveillance or assistance of a court-appointed officer.• Judicial rehabilitation proceedings: appointment of a judicial administrator who either assists or replaces management.• Judicial liquidation proceeding: management is replaced by the judicial liquidator.Personal Liability of Directors. Especially in case of mismanagement that has contributed to the deficiency of assets of the debtor or to the insolvency of the debtor (e.g. late filing for insolvency proceedings). This applies to de jure or de facto directors.Time Limits for Filing for Insolvency. Obligation to file for either a judicial rehabilitation or liquidation proceeding within 45 days following the date on which the company became cash-flow insolvent (except if the opening of a conciliationproceeding has been filed for). This obligation is suspended as a result of the COVID-19 reforms (see above).

GERMANY

CLIFFORD CHANCE |

GERMANY


Contacts

Stefan SaxPartner

T +49 69 7199 1549M +49 15111710160E stefan.sax

@cliffordchance.com

Directors’ Duties

COVID-19 REFORMS (see our dedicated briefing) Insolvency filing obligations for businesses affected by COVID-19 are suspended until 30 September 2020. The new law assumes that any insolvency which occurs after 1 March 2020 is based on the COVID-19 pandemic and a filing is only required if there is no prospect to eliminate the existing illiquidity. Directors are put in the position to continue trading as(the most obvious) liability triggers will be suspended with the insolvency filing obligation. Moreover, the right of third party creditors to file a petition for the initiation of insolvency proceedings will also be suspended for a period of three monthsuntil 30 June 2020, unless the insolvency materialized before 1 March 2020.

GENERAL POSITIONPosition of Management. • Usually management (i) continues to manage business during the preliminary proceedings subject to the consent of

the preliminary administrator and (ii) is displaced by court-appointed insolvency administrator after the opening of insolvency proceedings.

• However the court may, (i) during preliminary proceedings order the transfer of management to the preliminary administrator, or (ii) upon the debtor’s request, order the opening of debtor-in-possession proceedings with the management continuing to manage the business under supervision of a specific creditors’ trustee.

Personal Liability of Directors. For failure to file for insolvency, for any payments made to third parties after the company becomes insolvent and for any new agreements which the company is unable to fulfil. This obligation is suspended as a result of the COVID-19 reforms (see above).

Time Limits for Filing for Insolvency. Obligation to file immediately upon company being unable to pay its debts currently due (illiquidity) or over-indebtedness occurring; filing may be postponed for up to 21 days if reasonable expectations exist that insolvency can be overcome. Criminal sanctions may apply. This obligation is suspended as a result of the COVID-19 reforms (see above).

Cristina WeidnerCounsel

T +49 69 7199 3145M +49 1751891171E cristina.weidner

@cliffordchance.com

Diana Schulte-StiefermannAssociateT +49 69 7199 1504 M +49 1603302456E diana.schulte-

[email protected]

Joachim PonseckCounselT +49 69 7199 1547M +49 1757234135E joachim.ponseck

@cliffordchance.com

https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2020/03/coronavirus-government-support-measures-to-help-german-companies-in-need.pdf

CLIFFORD CHANCE |

ITALY


Contacts

Pasquale BifulcoSenior Associate

T +39 02 8063 4266M +39 3476038399E pasquale.bifulco

@cliffordchance.com

Giuseppe De Palma Managing Partner for Italy

T +39 02 8063 4507M +39 3487773805E giuseppe.depalma

@cliffordchance.com

Ferdinando PoscioPartner

T +39 02 8063 4511M +39 3478699855E ferdinando.poscio

@cliffordchance.com

Carolina PiovanoSenior Associate

T +39 02 8063 4277M +39 3601023339E carolina.piovano

@cliffordchance.com

Directors’ Duties

COVID-19 REFORMS (see our dedicated briefing) A new law decree (no. 23/2020) called the "Liquidity Decree" was approved 6 April by the Council of Ministers and was published in the Official Gazette on 9 April 2020. The Liquidity Decree provides, inter alia, for the following emergency measures with particular reference to insolvency:

• temporarily suspension of the effectiveness of art. 2446 and 2447 of the Italian Civil Code: from 9 April 2020 to 31 December 2020 the effectiveness of art. 2446 and art. 2447 of the Italian Civil Code (which require the Board of Directors of an Italian company to take certain actions in case of under-capitalization or where the share capital of the company falls below the minimum level required by law) is suspended;

• postponement of deadlines in relation to concordato and restructuring proceedings under art. 182 bis: in particular, the Liquidity Decree grants:– 6 months automatic postponement of terms and deadlines to comply with obligations arising out of concordato

proposal and restructuring agreements under art. 182 bis, which have been already validated by the Court;– up to 6 months postponement, upon debtor’s request, of terms and deadlines to comply with obligations arising out

of concordato proposal and restructuring agreements under art. 182 bis, which have not been validated by the Court yet;

– 90 days term, upon debtor’s request, to submit new concordato plans and proposals and new restructuring plans; and– further 90 days, upon debtor’s request, to submit the concordato proposal in concordato proceedings “in bianco”

and in restructuring agreement proceedings under art. 182 bis.

• temporarily suspension of requests for declaration of bankruptcy: more specifically, the Liquidity Decree provides that from 9 March 2020 to 30 June 2020 proceedings for the declaration of bankruptcy cannot proceed further, unless they are filed by the Public Minister and interim or precautionary measures against debtor’s acts are requested;

• suspension of Italian judicial activities until 11 May 2020: the Liquidity Decree provides the extension up to 11 May 2020 of the suspension period of hearings, terms and deadlines in relation to civil and criminal proceedings, originally adopted pursuant to Law Decree no. 18/2020.


CLIFFORD CHANCE |

ITALY

20

(CONTINUED)


ContactsDirectors’ Duties

COVID-19 REFORMS (see our dedicated briefing) (continued)Law Decree No. 18/2020 states that, from 9 March 2020 until 15 April 2020, and subject to some exceptions, proceedings before civil courts are suspended. This means that:• all hearings scheduled within this time frame shall be re-scheduled on a date after 15 April 2020; and• procedural terms and deadlines for the filing of any written submission, of any new civil claim, also in relation to

enforcement proceedings, expiring between 9 March and 15 April 2020 are ex officio suspended, and if a term or deadline is supposed to start running between 9 March and 15 April 2020, it will start running on 16 April 2020.

However, there is no suspension of the criminal sanctions for delaying the filing of the bankruptcy.

GENERAL POSITIONPosition of Management. During the "concordato proceedings" management continues to manage its business under the supervision of the appointed judicial commissioner for acts of ordinary administration; whereas authorisation of the court will be needed to act in extraordinary administration. After the opening of insolvency proceedings, management of the company is displaced by court-appointed receiver.

Personal Liability of Directors. For breaches of duty and failure to preserve the company’s value if that failure results in a loss to creditors.

More specifically, the directors may have criminal liability in the event the director(s):• distracted, disguised or voluntarily lost the company’s assets;• took imprudent actions to delay the declaration of bankruptcy; and

disguised the company’s financial distress or its insolvency state in order to obtain financing.

Time Limits for Filing for Insolvency. No express time limit for filing for insolvency but failure to do so which results in a loss may give rise to action against directors personally.


LUXEMBOURG

CLIFFORD CHANCE |

LUXEMBOURG


Steve JacobyManaging Partner

T +352 48 50 50 219M +352 621303470E steve.jacoby

@cliffordchance.com

Stefanie FerringCounsel

T +352 48 50 50 253M +352 691406882E stefanie.ferring

@cliffordchance.com


COVID-19 REFORMS (see our dedicated briefing) The Grand Ducal Regulation dated 25 March 2020 on the suspension of procedural delays suspends certain procedural deadlines applicable in civil and commercial matters. The Ministry of Justice has clarified that this suspension also appliesin insolvency matters and, in particular, to the 30 day period starting on the date of the cessation of payments and during which the managers of a company are obliged to file for insolvency. This suspension is effective 26 March, meaning that a company that has been in a cessation of payments since 17 March (10 days) will only be obliged to file for insolvency if it remains unable to pay 20 days after the end of the suspension period, which will be when the current state of emergency will have been lifted.

This does however also mean that directors are still allowed to file for insolvency, and may feel obliged to do so depending on the circumstances and that creditors can petition for insolvency. Any procedure for the insolvency of a debtor started by creditors will however take a certain time and if the company solves its liquidity issues prior to the judgement and is again able to pay its creditors, then it is no longer in cessation of payments and no judgement opening an insolvency should normally be rendered.

GENERAL POSITIONPosition of Management. Upon the opening of bankruptcy proceedings, the management is divested of all its powers and the bankruptcy receiver is the only person entitled to take any decision. In case of controlled management proceedings, the management remains in place but any decisions will have to be authorised by the relevant court officer.

Personal Liability of Directors. For any wrongdoing or negligence under general corporate law. Criminal liability in respect of certain actions which have led to the insolvency (including lack of or late declaration, wrongful or fraudulent trading). Other sanctions include extension of liability for some or all debts incurred and/or the opening of separate bankruptcy proceedings against the directors under certain circumstances.

Time Limits for Filing for Insolvency. Obligation to file within 1 month of cessation of payments. This obligation is suspended as a result of the COVID-19 reforms (see above). Marc Mehlen

Partner

T +352 48 50 50 305M +352 621150708E marc.mehlen

@cliffordchance.com

https://www.cliffordchance.com/briefings/2020/03/suspension-of-the-obligation-to-file-for-insolvency-.html

NETHERLANDS

CLIFFORD CHANCE |

NETHERLANDS


Ilse van GasterenPartner

T +31 20 711 9272M +31 655798952E ilse.vangasteren

@cliffordchance.com


COVID-19 REFORMSThere are no insolvency/restructuring specific reforms announced as of yet which alleviate directors’ duties as described below.

GENERAL POSITIONPosition of Management. During bankruptcy, management is displaced by a court-appointed trustee in bankruptcy who acts under the supervision of a supervisory judge.

During suspension of payments, management and administrator can only act jointly, although in practice the administrator has control.

Personal Liability of Directors. For mismanagement leading up to the bankruptcy (e.g. entering into transactions knowing that the company will not be able to perform/pay), fraudulent preference, selective payments, wrongful distribution, fraud or if the directors have contributed to provoke the company’s insolvency.

Time Limits for Filing for Insolvency. No express time limit for filing for insolvency but directors are obliged to take measures in the interest of the company and its joint creditors. This includes trying to find restructuring solutions but could in some cases also include the need for a filing of a suspension of payments (as a last resort). Failure to take proper measures may give rise to action against directors personally.

Jeroen KolthofAssociate

T +31 20 711 9490M +31 614850534E jeroen.kolthof

@cliffordchance.com

Evert VerweyCounsel

T +31 20 711 9681M +31 652327989E evert.verwey

@cliffordchance.com

POLAND

CLIFFORD CHANCE |

POLAND


Milosz GolabPartner

T +48 22429 9441E milosz.golab

@cliffordchance.com


COVID-19 REFORMSAccording to the Act published in the Journal of Laws on April 17, 2020, if the basis for declaring the debtor's bankruptcy arose in the period of the state of epidemiological threat or the state of the epidemic announced because of COVID-19, and the state of insolvency arose because of COVID-19, the deadline for submitting an application for the declaration of bankruptcy (30 days) does not start and the deadline which has started running is interrupted. After cancelling the state of epidemiological threat or the state of epidemic, the 30 days deadline runs anew. The Act also introduces a presumption that if insolvency occurs during the state of the epidemic threat or the state of epidemic, it is presumed that it occurred as a result of the Covid-19 pandemic. This provision came into force on 13 April 2020.

GENERAL POSITIONPosition of Management. In bankruptcy proceedings the management is displaced by a court-appointed trustee. In restructuring proceedings, as a rule, the management continues to manage the business subject to supervision by a court-appointed officer, except for remedial proceedings where the management is displaced by a court-appointed administrator (but exceptionally, the court may decide otherwise).

Personal Liability of Directors. For breaches of fiduciary duties, contractual duties or statutory duties (e.g. for a failure to file for bankruptcy). Wrongful or fraudulent trading triggers civil liabilities and may in certain circumstances lead to criminal liability. Directors are criminally liable for preferential treatment of creditors.

Time Limits for Filing for Insolvency. Directors must file within 30 days of the date that a reason for bankruptcy declaration occurred (i.e. either the liquidity test or the balance sheet test was not passed). This obligation is suspended as a result of the COVID-19 reforms (see above).

Paweł DługoborskiSenior Associate

T +48 22429 9597E pawel.dlugoborski

@cliffordchance.com

ROMANIA

CLIFFORD CHANCE |

ROMANIA



COVID-19 REFORMSOn 30 April, the General Magistrates Body adopted Decision 707 which clarifies that debtors can continue to petition for their own insolvency and related insolvency procedures where no other parties are required to be summoned to proceedings. As such, creditors will likely not be able to petition for a debtor's insolvency prior to 15 May (when the stateof emergency introduced in response to the COVID-19 pandemic is expected to be lifted) as that would require multiple parties to be summoned to judicial proceedings.

The National Bank of Romania also announced that a grace period granted on the basis of a general measure or as a result of negotiation with clients must not be associated with financial difficulties of the client.

GENERAL POSITIONPosition of Management. During the observation period (i.e. the period between the opening of the insolvency proceeding and the date of the confirmation of the reorganisation plan or of the entering into bankruptcy, as the case may be), the debtor may continue its current activities and make payments to the known creditors within the common terms of exercising the current activity, either under the supervision of the judicial administrator (if the debtor maintains the right of administration of its business) or under the management of the judicial administrator (if the debtor loses the right of administration of its business). The right of administration of the business consists of the right to manage the activity, the assets and to dispose of such assets – including those assets acquired subsequently to the opening of the proceeding. The right of administration terminates de jure on the date the bankruptcy proceeding is commenced.

Personal Liability of Directors. For breaches of fiduciary and statutory duties and where directors have contributed to the debtor’s insolvency. Criminal sanctions exist for certain acts.

Time Limits for Filing for Insolvency. Obligation to file within 30 days from the date of the occurrence of the state of insolvency.

Daniel BadeaManaging Partner

T +40 216666 101M +40 722205607E daniel.badea

@cliffordchance.com

Madalina Rachieru-PostolachePartner

T +40 216666 120M +40 756012240E madalina.rachieru

@cliffordchance.com

Sabina CrangasuSenior Associate

T +40 216666 274M +40 756012235E sabina.crangasu

@cliffordchance.com

Radu RopotaCounsel

T +40 216666 135M +40 756012242E radu.ropota

@cliffordchance.com

Cosmin AnghelCounsel

T +40 216666 124M +40 756012268E cosmin.anghel

@cliffordchance.com

RUSSIA

CLIFFORD CHANCE |

RUSSIA


Vladimir BarbolinPartner

T +7 495 258 5071M +7 9161435928E vladimir.barbolin

@cliffordchance.com

Victoria BortkevichaOffice Managing Partner

T +7 495 725 6406M +7 9859251227E victoria.bortkevicha

@cliffordchance.com


COVID-19 REFORMS (see our dedicated briefing)On 1 April 2020 the amendments to the Law on insolvency (Bankruptcy) setting out the rules for introducing a moratorium on the filing of bankruptcy petitions by creditors of Russian companies came into force. By these law amendments the Government was vested with a power to introduce such moratorium (including a power to determine the sectors of business and specific entities subject to the moratorium and a period for such moratorium) in extraordinary cases (including “nature or technology-related emergency events, significant fluctuations in the rouble exchange rate and similar circumstances”).Following the law amendments, on 3 April 2020 the Government adopted a resolution, in which it introduced the moratorium on the filing of creditors’ petitions for bankruptcy of the specified list of sectors of business and particular companies and determined that such moratorium is set for six months from the date of the official publication of the resolution (i.e. till 6 October 2020).During this moratorium in relation to companies subject to this moratorium: • penalties or other financial sanctions on overdue payments will not accrue;• enforcement of pledges and mortgages (whether through the courts or without recourse to the courts) is prohibited; • any debt recovery proceedings on claims which arose before the introduction of the moratorium are suspended (but

any attachment of the company’s assets and other restrictions on disposals of assets imposed in the execution proceedings are not lifted);

• set-off against the company’s claims will be prohibited if it would breach the statutory order of priority; and• payment of dividends to shareholders and distribution of profit to participants are prohibited.According to further amendments as of 24 April 2020 to the moratorium rules referred to above, a company which technically fell within the scope of the moratorium as a result of appearing in the lists of companies determined by the Government, was given the right to waive the benefits of the moratorium entirely by publishing its waver in the special federal register of information on bankruptcy which is accessible online. Following publication of the waiver, the above restrictions will not apply. In the absence of such waiver there is a risk that any company named in the lists determined by the Government will be subject to the moratorium restrictions irrespective of its real financial conditions (i.e. without needing to demonstrate any signs of bankruptcy).

Marina KizenkovaSenior Professional Support Lawyer

T +7 495 725 6401M +7 9856437080E marina.kizenkova

@cliffordchance.com

https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2020/03/2003_Client%20Briefing%20-%20Russian%20government%20proposes%20a%20moratorium%20on%20insolvency%20of%20Russian%20companies.pdf

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COVID-19 REFORMS (continued)According to the resolution, during the moratorium, bankruptcy may not be initiated by creditors (and there will be no obligation on directors to file for bankruptcy) in respect of:• the companies in business sectors which were mostly affected by COVID-19 and which, according to the resolution,

include such sectors as air transportation, airport activities, road transportation, culture, leisure and entertainment and hotel business. The list of business sectors is approved by the Government Commission on Sustainable Development of the Russian Economy (the "Commission"), published on the official website of the Russian Federal Tax Service (the "FTS") and can be further amended.

• particular strategic companies which are included in one of the following lists:– the list approved by the Decree of the President dated 4 August 2004 No. 1009;– the list approved by the Decree of the Government dated 20 August 2009 No. 1226 – р.– particular companies which are "systemically important" for the Russian economy (more than 600 as of today)

which include companies from oil & gas, metals & mining, energy, transportation (aviation, air, rail and water transportation, oil pipeline transportation and transportation of cargo), infrastructure (including certain airports), agricultural, retail (certain major retailers), machinery, telecommunication sectors and other sectors which are included in the list to be approved by the Commission. The list is subject to publication on the official website of the FTS and can be further amended.

GENERAL POSITIONPosition of Management. During the supervision stage, the company’s management stays in place (although with limited authorities) and an interim administrator is appointed by the court following its nomination by a petitioner filing for the company’s bankruptcy (i.e. the company itself or its creditor). For financial rehabilitation an administrator is chosen by the creditors’ committee and then approved by the court, but management again remains in place (although with limited authorities). If the company is subject to external administration or liquidation, then the management is replaced by an administrator proposed by the creditors’ committee and approved by the court.

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GENERAL POSITIONPersonal Liability of Directors. Depending on the type of action and the gravity of the situation a director and a shareholder (or any other controlling person) may be subject to civil, administrative or criminal liability. For civil liability, subsidiary liability in the lack of bankruptcy estate sufficient to discharge creditors’ claims in full when insolvency was caused by actions or failure to act by those who are in control of a company (including when entry into suspicious transactions caused harm to creditors) unless the controlling persons can show that they acted in good faith and reasonably, and in the interests of the company and without detriment to the interests of creditors. Directors are also liable for new debts arising as a result of a failure tocomply with their obligation to file for the company’s bankruptcy.Deliberate bankruptcy, fraudulent bankruptcy and specific unlawful actions during bankruptcy proceedings depending on the level of significance of the resulted damage may constitute criminal offences or administrative offences and will attractliabilities to pay fines, disqualification or impose criminal sanctions.Time Limits for Filing for Insolvency. A third-party creditor may petition for bankruptcy if the unpaid debt is not less than RUR 300,000 (approximately USD 4000), and is overdue by at least three months and is confirmed by the court decision entered into force (unless it is a claim from banks and credit institutions), provided that a preliminary notice of the creditor’s intention for filing is published within a set period of time. Banks and credit institutions may petition for bankruptcy without confirmation of its claim by the court, but this is subject to a preliminary notice to the company and anyknown creditors of the intention to file for bankruptcy. Relevant state authorities may file for a company’s bankruptcy on debts owed to state budgets and otherwise to the state upon expiry of 30 days after decisions of the relevant state authorities on recovery of such debts by seizing the company’s funds and assets were taken or court decisions on recovery of such debts has entered into force. The chief executive officer of the company must petition for bankruptcy within 1 month of it meeting the insolvency tests (i.e. (i) is unable to perform its payment obligations in full; or (ii) is subject to enforcement proceedings that make it impossible for the operations to continue; (iii) payments of wages are overdue for more than 3 months by virtue of insufficiency of funds; or (iv) the company ceases to pay its matured debts on account of insufficient funds or has insufficient assets to pay its monetary liabilities.) Filing by the CEO is subject to a prior notification to creditors of the intention to file for bankruptcy within a set period of time. This obligation is suspended as a result of the COVID-19 reforms (see above).

SLOVAKIA

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Andrej HavkoJunior Lawyer

T +420 222 55 5246M +420 730999635E andrej.havko

@cliffordchance.com

Stanislav HolecSenior Associate

T +420 222 55 5251M +420 731471443E stanislav.holec

@cliffordchance.com


COVID-19 REFORMSAn Act No. 62/2020 Coll. has been passed, which sets the deadline for debtor bankruptcy filing on account of balance sheet insolvency which occurred between 12 March and 30 April at 60 days.

GENERAL POSITIONPosition of Management. In a restructuring, the debtor’s management remains in control, but is monitored by a trustee and the court.

Personal Liability of Directors. For breaches of fiduciary duties, diminishing value of assets and circumventing the success of the restructuring process.

Time Limits for Filing for Insolvency. Obligation to file within 30 days after the directors have determined that the company is insolvent. This obligation is suspended as a result of the COVID-19 reforms (see above).

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COVID-19 REFORMS (see our dedicated briefing)

Initially, Royal Decree-Law 8/2020, of 17 March, on urgent extraordinary measures to address the economic and social impact of COVID-19 ("RDL 8/2020") allowed the debtor to defer its duty to apply for insolvency while the State of Emergency was in force and, as a consequence of this rule, provided protection for the debtor against an application for insolvency filed by the its creditors, until two months after the State of Emergency ends. RDL 16/2020 introduces a series of measures relating to insolvency, which on the one hand are designed to maintain economic activity, avoiding insolvencies, and on the other hand attempt to avoid liquidations and expedite the process of insolvency proceedings already underway. RDL 16/2020 entered into force on 30 April 2020.

RDL 16/2020 puts in place a series of measures designed to avoid insolvencies. To do so, it necessarily relaxes the obligatory duties of company directors when an insolvency situation occurs, extending the term available to them to apply for insolvency. Moreover, RDL 16/2020 facilitates access to financing granted by specially-related persons. Finally, RDL 16/2020 facilitates compliance with any refinancing agreements in force.

Suspension of the duty to apply for insolvency until 31 December 2020

Debtors facing insolvency will not be required to file for insolvency until 31 December 2020, regardless of whether or not they have filed the notification of pre-insolvency at court established under Article 5 bis of the Spanish Insolvency Act (Ley Concursal)) (the "5 bis Notification"). Consequently, applications for insolvency filed by creditors during the State of Emergency will not be given leave to proceed until that date either. In the meantime, those applications for insolvency filedby the debtor itself will be given preference, even if dated later. If the 5 bis Notification is filed prior to 30 September 2020, the general regime of the Insolvency Act will apply, meaning that the debtor must file for insolvency prior to 30 January 2021, if it has not succeeded in remedying its insolvency situation. If the ordinary term for applying for insolvency (two months) is counted as of 1 November 2020, the debtor will have two months in which to apply for insolvency, as it would make no sense for these measures recently approved to shorten the term available to debtors, forcing them to file for insolvency prior to 31 December.

Iñigo VilloriaPartner

T +34 91 590 9403M +34 649148377E inigo.villoria

@cliffordchance.com

Alexandra BorralloSenior Associate

T +34 91 590 9406M +34 649146074E alexandra.borrallo

@cliffordchance.com

https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2020/03/Covid-19%20-%20Suspensi%C3%B3n%20de%20plazos%20-%20ENG.pdf

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ContactsDirectors’ DutiesRDL 16/2020 also introduces a series of measures relating to insolvency proceedings which are already underway, aimed at avoiding liquidations and expediting the process.

Deferral of the duty to apply for the commencement of the liquidation stage

During the one-year period following the declaration of the State of Emergency, the debtor will not be required to apply for the commencement of the liquidation of assets stage when it is aware that it will be impossible to meet the payments under the terms of the insolvency arrangement initially approved, provided that it presents a proposal to amend such arrangement and this proposal is given leave to proceed.

The Judge will not order the commencement of the liquidation of assets stage during this one-year period, even if a creditor proves the existence of facts corroborating the declaration of the debtor's insolvency.

GENERAL POSITION

Position of Management. In cases of voluntary insolvency, the receivers supervise the directors’ decisions. In case of compulsory insolvency, the management is effectively displaced by receivers.

Personal Liability of Directors. When entry into insolvency has been considered to be negligent, and provided that the directors have contributed to provoke the insolvency.

Time Limits for Filing for Insolvency. Obligation to file within 2 months of when the debtor has or should have become aware of its insolvency. Failure to comply assumes that bankruptcy is carried out negligently. This obligation is suspended as a result of the COVID-19 reforms (see above).

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