An international guide to changes in insolvency law in response to COVID-19 - DLA Piper
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An international guide to changes in
insolvency law in response to COVID-19
COVID-19 ALERTSAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
Contents
Austria 3 Italy 19
Belgium 5 Luxembourg 22
Czech Republic 6 Netherlands 24
Denmark 8 Poland 26
Finland 9 Slovakia 28
France 10 Spain 29
Germany 12 Sweden 33
Hungary 14 UK 34
Ireland 16 Dictionary of insolvency terms
in EU Member States 37
Please note that owing to the dynamic nature of the COVID-19 crisis and its effects on the
economies of these jurisdictions, the governmental responses and measures that are being
introduced are subject to change and ongoing assessment. This document focusses on
changes to directors’ duties and insolvency laws, in response to the COVID-19 crisis.
This document is in summary form only and the information is accurate at the time of publish
on 1 December 2020. Should you require further information, please do not hesitate to get in
touch with the key DLA Piper contacts noted below.
2 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
COVID-19 response: Austria
Changes to insolvency laws
Filing duties Periods already interrupted by this provision begin to run a
new. The insolvency court can reasonably extend procedural
If a business is insolvent or over-indebted within the meaning
deadlines by official means or upon request by a maximum
of the Insolvency Code (Insolvenzordnung), the company’s
of 90 days. A decision to extend a time limit shall be published
management is generally required to file for insolvency without
in the insolvency record; it may not be contested.
undue delay and within 120 days at the latest (extended from
60 days). It should be noted that this extended maximum period
only applies to insolvency applications by the debtor where the
Directors’ liability
illiquidity or over-indebtedness is caused by a natural disaster
such as COVID-19. The natural disaster does not need to be Directors’ liability for payments made after the occurrence
the sole cause of insolvency, but it is a necessary condition. of over-indebtedness, under the Joint-Stock Corporation
Insolvency applications by creditors are not affected. Act (Aktiengesetz), will not apply between 1 March 2020 and
31 January 2021.
Under the insolvency law amendments set forth by the
Fourth COVID-19 Act and the Second judiciary law accompanying As the obligation to file for insolvency caused by
the multiple COVID-19 Acts passed (“COVID-19 Laws”), over-indebtedness occurring between 1 March 2020 and
companies no longer have to file for insolvency solely due 31 January 2021 has been suspended (please see above),
to over-indebtedness, provided that it occurred between there is also no management liability for payments made
1 March 2020 and 31 January 2021. Correspondingly, after the occurrence of over-indebtedness under the
insolvency proceedings are not to be opened during this period, Limited Liability Company Act (GmbH-Gesetz).
even at the request of a creditor. This exemption however does
not apply in case of illiquidity. If the debtor becomes illiquid,
the insolvency petition must still be filed without culpable delay Deferred payment period for
and there is no relief from any liability for the management credit agreements
In case of a loss of income that renders a consumer or a small
business (less than 10 employees and annual turnover or budget
Default under the Insolvency Act
not exceeding EUR 2 million) unable to make payments on a
A written dispatched reminder of an outstanding liability which credit agreement caused by COVID-19, claims for repayment,
has become due after the entry into force of the COVID-19 Act interest, and principal payments due between 1 April 2020
on 27 March 2020 until the end of 30 April 2020 does not lead and 31 January 2021 are deferred for three months from
to default under the Insolvency Act. the due date.
COVID-19 will be accepted as a reason for: (i) an extension of The lender cannot terminate the contract based on late
the deadline for a debtor to file for insolvency; and (ii) for the payment or significant deterioration of the borrower’s
postponement of the execution of an insolvency. financial circumstances, until the end of the deferred period.
The borrower may continue to make the contractual payments
during the deferred period, in which case the deferral will
Deadlines in insolvency proceedings not apply.
The general interruption of time limits in court proceedings
until 30 April 2020 under Section 1 of the first COVID-19 Judicial
Accompanying Act does not apply to insolvency proceedings.
3 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
Delay in fulfilling the restructuring plan KEY CONTACTS
The consequences of default in the restructuring plan Oskar Winkler
will not occur in relation to a debt falling due on or after Partner, Vienna
22 March 2020, if the creditor’s payment request was sent oskar.winkler@dlapiper.com
between 22 March 2020 and 30 April 2020. T: +43 1 531 78 1039
Avoidance law limitation
Jasna Zwitter-Tehovnik
Avoidance law shall be limited in the case of bridge loans Partner, Vienna
granted between 1 March 2020 and 31 January 2021 to jasna.zwitter-tehovnik@dlapiper.com
finance COVID-19 short term work assistance. This only applies T: +43 1 531 78 1042
if (i) no collateral from the borrower’s assets was provided
for the loan and (ii) the lender was not aware of a possible
illiquidity of the borrower at the time the loan was granted.
Shareholder loans
Short-term (up to 120 days) shareholder loans in the period until
31 January 2021 are not reclassified as equity, as may otherwise
be the case with shareholder loans during a crisis under the
Equity Replacement Act (Eigenkapitalersatz-Gesetz).
4 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
COVID-19 response: Belgium
Changes to insolvency laws
No COVID-19 measures in force Although there are currently no measures in force at the level of
insolvency law, the number of infections in Belgium is currently
On 11 April 2020, a proposal was submitted to the
still high. New measures have been adopted in various other
Federal Government for the establishment of a temporary
areas recently and additional measures to support businesses
moratorium on bankruptcy procedures and creditor
are likely to follow in the future. The possibility cannot therefore
enforcement during the COVID-19 crisis. Pursuant to
be ruled out that a new moratorium or other types of measures
Royal-Decree No 15 of 24 April 2020, the statutory
relating to insolvency law will soon be introduced but today
moratorium initially ran from 24 April 2020 until
ordinary insolvency law applies.
17 May 2020 and was later extended to 17 June 2020.
Businesses whose continuity was threatened by the
KEY CONTACTS
COVID-19 crisis benefited from this additional protection,
Ilse Van de Mierop
which mainly protected them against certain actions by
Partner, Brussels
their creditors provided they were not already virtually
ilse.vandemierop@dlapiper.com
bankrupt on 18 March 2020. In other words, it was intended
T: +32 2 500 1576
to protect only businesses affected by the COVID-19 crisis.
However, this moratorium was only in place for a limited period
of time as it ended on 17 June 2020.
Joris De Vos
Furthermore, as the COVID-19 crisis has evidently hit the Partner, Brussels
economy hard, many businesses have had to resort to joris.devos@dlapiper.com
insolvency proceedings and the demand for adequate measures T: +32 2 500 1561
has clearly significantly increased. Under one of the procedures
available under Belgian law, the so-called judicial reorganisation
proceedings, a business is granted protection against its
Jan De Beul
creditors to either conclude individual agreements with its
Lawyer, Brussels
creditors, prepare a reorganisation plan that is binding when
jan.debeul@dlapiper.com
approved by the majority of creditors or sell its activities.
T: +32 2 500 1615
Selling the activities to a financially more stable third party
is often seen as the last lifeline to prevent bankruptcy.
Many interested investors are, however, often deterred by
the consequences of the so-called Plessers judgment. In this
judgment of 16 May 2019, the Court of Justice of the European
Union ruled that the acquirer of the activities of a business in
the context of this so-called judicial reorganisation does not
have the right to choose which employees he wishes to take
over, making it a less attractive option to investors. A bill was
submitted in October 2020 to repair the law with a view to
making judicial reorganisation proceedings and the transfer
of activities in particular resistant to any challenges on the
basis of the Plessers judgment but it remains to be seen
whether an actual solution will follow.
5 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
COVID-19 response: Czech Republic
Changes to insolvency laws
Extraordinary moratorium Summary of further changes in new
Czech regulation
The Lex COVID-19 has introduced a protective measure called
the extraordinary moratorium. An insolvent debtor who had The regulation also brings in the following:
not been insolvent on or prior to 12 March 2020 and is facing
financial difficulties due to the emergency measures adopted 1. procedural terms adjustment and the possibility of their
in connection with the COVID-19 crisis, should have the waiver (ie. if a deadline is missed because of a reason relating
opportunity to file a petition for an extraordinary moratorium to the emergency measure, this may be overlooked);
(based on the extraordinary measures) until 30 June 20211.
2. temporary change in way of delivery to persons with the right
Unlike the ordinary moratorium in regular circumstances,
to appeal in insolvency proceedings (delivery of the decisions
the extraordinary moratorium does not require the approval
in insolvency proceedings concerns many subjects who all
by an absolute majority of creditors to become effective.
have right to appeal. The regulation narrows the group of
Also the amount of information required has been reduced
subjects to which the direct delivery should take place);
to a minimum. The petitioner does not have to attach lists
of assets, liabilities and employees or a financial statement. 3. mitigation of debt discharge conditions – debt discharge
The only requirement is to provide information on a number (oddlužení) will not be cancelled even in cases where the
of employees and the turnover of the last accounting period. debtor does not fulfil a payment schedule regarding
The petitioner also has to declare that during the two months the extraordinary measures;
prior to 12 March 2020 or after, he has not distributed any profit,
4. mitigation of the conditions for granting exemption from
own financial resources or other extraordinary payment to the
payment of debts at the end of debt discharge – the debtor does
listed group of persons. The extraordinary moratorium shall
not have to pay even 30% (or 50%) of the debts, but he may still
be declared by the competent court for up to three months
be granted an exemption from the payment of debts; and
and may be prolonged, however, an extension of up to six
months is subject to the consent of the majority of creditors. 5. performance of a reorganisation plan that was approved by the
In addition, the debtors can give priority to the repayment of court before 12 March 2020 may be temporarily suspended
liabilities according to their importance in terms of keeping their upon the debtors application for a period of 6 months following
business running. the cancellation or termination of the emergency measures.
Suspension of insolvency petitions Directors’ liability
Under Lex COVID-19, the statutory duty of the debtor to file a As it is the director who is responsible for filing the
debtor’s insolvency petition in the case of a debtor becoming insolvency petition, this liability has been suspended for
insolvent is suspended until the lapse of six months after the the above-mentioned period. Apart from this there have been
termination of the emergency measures, but with a hard stop no other changes relating to directors’ liability and we do not
date of 30 June 2021. The suspension, however, does not apply expect any such changes to be introduced.
where the debtors became insolvent before the emergency
measure was adopted, nor does it apply to debtors who went
insolvent after the emergency measures were taken, but where Service of documents
the insolvency was not mainly caused by COVID-19.
Rules concerning the service of documents in the course of
insolvency proceedings have been modified for a period of
A decision in insolvency proceedings would usually need to be
12 months following the cancellation or termination of the
delivered to anyone that has a right of appeal. The regulation
emergency measures. The list of recipients to whom the
temporarily narrows this group of people.
documents have to be served directly has been reduced and
for the given period does not include the creditors, who now
have to carefully monitor the information published in the
Please note that this date is not yet final. The date extension is currently going
1
through an accelerated formal process through the Chamber of deputies.
Insolvency Register.
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KEY CONTACTS
Petr Sabatka
Partner, Prague
petr.sabatka@dlapiper.com
T: +420222817670
Jan Metelka
Associate, Prague
jan.metelka@dlapiper.com
T: +420222817825
7 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
COVID-19 response: Denmark
Changes to insolvency laws
Proposed changes to rules on • fast-track business transfer procedure i.e. creditors
in-court restructuring will have to object within 5 days or the transfer will be
non-voidable; and
In the wake of the Covid-19 pandemic the Danish Justice
Department requested its advisory board, The Danish • the Danish Employee’s Guarantee Fund will cover employees
Bankruptcy Council (“Council”), to provide a statement on claims for salaries (previously this coverage was reserved to
the need for amendments of the current rules on in-court bankruptcy proceedings)
restructuring of businesses.
It is our assessment, that especially the proposals regarding
As a result, the Council published a number of proposed fast-track of business transfers combined with coverage from
changes to the rules on 3 July 2020. Some of the proposals the Danish Employee’s Fund will provide the room for maneuver
have been published previously by the Council and some of that practitioners are currently missing to help the distressed
the proposals are new as a result of the Covid-19 pandemic. business through a crisis.
The outbreak of the Covid-19 pandemic has rapidly sped up
the need for changes. Further, the introduction of the controlled time-out period in
combination with removal of automatic bankruptcy orders,
Most of the proposed changes from the Council have on if the restructuring attempt is unsuccessful, will hopefully
21 October 2020 been presented in a bill by the government and encourage more management teams to consider investigating
will now undergo the formal procedure in parliament and – if the restructuring possibilities of their businesses before it is
approved – will then be implemented into law. too late.
The current rules were implemented in the Danish Bankruptcy
Act in 2011. However, the rules have not had the intended effect. KEY CONTACTS
The rules are criticized as being far from flexible enough and too Henrik Sjørslev
costly to be relevant in the usual highly intense process of saving Partner, Copenhagen
distressed businesses short on liquidity. Due to this, the rules henrik.sjorslev@dlapiper.com
are rarely used (less than 70 cases in Denmark from July 2019 to T: +45 33 34 0304
July 2020).
The proposed amendments in the bill intend to make the rules
Henrik Lund-Koefoed
both more flexible and the process less costly.
Lawyer, Copenhagen
henrik.koefoed@dk.dlapiper.com
In short, the proposed changes in the bill consist of:
T: +45 33 34 0021
• controlled time-out period of 4-8 weeks to investigate
restructuring prospects;
• the business will not automatically be declared bankrupt if
the restructuring is unsuccessful;
• removal of requirement for security to fund subsequent
bankruptcy proceedings in case restructuring is unsuccessful;
• removal of requirement to appoint a restructuring accountant
(to limit the costs associated with the process);
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COVID-19 response: Finland
Changes to insolvency laws
Presumption of insolvency KEY CONTACT
temporarily removed
Nina Aganimov
On 30 April 2020, the President of the Republic of Finland Partner, Head of Restructuring
approved the proposal to amend the Finnish Bankruptcy Act nina.aganimov@dlapiper.com
regarding the creditor’s right to file for bankruptcy and the T: +358 9 4176 0434
amendment took effect on 1 May 2020. The purpose of the
amendment is to help companies overcome financial difficulties
caused by the COVID-19 situation.
The prerequisite for bankruptcy is insolvency. In the
Finnish Bankruptcy Act, the debtor company is presumed
to be insolvent if it has not paid its debt within one week of
receiving the request for payment. With the amendment to the
law, this presumption will be temporarily removed. Insolvency
must be long-term insolvency in order to file for bankruptcy by
creditor’s petition.
An extension of the amendment was granted on 29 October
2020 and the amendment took effect on 1 November 2020 and
will stay in force until 31 January 2021.
9 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
COVID-19 response: France
Changes to insolvency laws
Suspension of the duty to file Other changes to insolvency laws
for insolvency
Several other measures have been taken to amend the French
The state of insolvency occurs when the debtor is unable to insolvency law in the context of the current COVID-19 crisis.
pay its debts as they fall due with its available assets, even if These include:
the value of the whole of the company’s assets outweigh its
liabilities. As a result, a company which cannot pay all its debts 1. automatic extension of the duration of conciliation
as they fall due is insolvent. proceedings (pre-insolvency proceeding) pending between
24 March 2020 and 23 August 2020 by a maximum of 5
If the directors fail to file for insolvency within 45 days of the months. In addition, conciliation proceedings opened from
company’s state of insolvency, they can be found personally 24 August 2020 until 31 December 2021, may be extended,
liable for the company losses and/or they can be condemned without their duration exceeding 10 months, by a motivated
for personal bankruptcy and prohibited from managing a order of the President of the relevant Court at the request of
company (Cf. Supra.). the conciliator;
2. extension of 3 months of all deadlines provided by the French
However, French legislation has been amended in the context of
Commercial Code for ongoing insolvency proceedings;
the COVID-19 crisis and the insolvency filing duty was suspended
from 12 March to 24 August 2020. Thus, a director of a debtor 3. the possibility to extend safeguard and reorganization plans
who became insolvent after 12 March 2020 was not obliged currently being carried out for 2 years. In addition, in order
to file for insolvency proceedings (but could do so if it wished). to facilitate the adoption of safeguard and reorganization
This provision expired on 24 August 2020 and directors are plans, it will be possible to reduce the period for individual
now bound by the duty to file for insolvency if the company is consultation of creditors on the adoption of these plans
still insolvent. (15 days instead of 30);
4. expansion and acceleration of information which Statutory
This measure reduced the immediate threat of legal action being
Auditors can communicate to Commercial Courts;
taken against businesses which were viable “but for COVID-19”,
which would lead them to be wound up. In this context, please 5. for all conciliation proceedings pending between 21 May 2020
note that a judicial liquidation is subject to the company’s and 31 December 2021 should a creditor not respond or
state of insolvency (Cf. Supra.) associated with an inability to refuse the suspension of maturity of its claim within the period
turnaround the business. In other words, failure to pay in itself set by the conciliator, the debtor can file an application before
will not automatically lead to the company’s winding-up. the President of the competent court in order to:
i. suspend any action aimed at payment of monies or
In all cases, we would suggest that directors maintain a dialogue
termination of a contract for non-payment of monies; and
with all stakeholders, including creditors, to keep them apprised
of the company’s position and all decisions (even if made under ii. suspend any enforcement measure in relation to said claim.
pressure and taken quickly) should be documented. These suspensions will be imposed during the course of
the proceedings;
Applying for pre-insolvency proceedings could also be a suitable
6. facilitation of business transfers via (i) possibility of requesting
remedy in case of unavoidable difficulties (Cf. Supra.).
an exemption from incompatibilities in terms of assignment
by the debtor on simple request of the debtor or the trustee
(it is no longer the Public Prosecutor’s Office but the debtor/
trustee who participates in the debates) to the Court which
will give a specially motivated judgment (ii) the reduction of
the time limit for convening co-contractors and holders of
transferable securities from 8 to 15 days;
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7. the possibility of applying for the opening of an accelerated 3. requesting new financing, which is facilitated thanks
safeguard or accelerated financial safeguard procedure to the measures implemented by the French State
(specific insolvency proceedings) for any business which (guarantees of banks loans and credits) (please see here
so requests, notwithstanding the required thresholds for for more information);
recourse to such a procedure. This measure applies to all
4. requesting exceptional delays of payments to creditors;
proceedings opened between the ordinance of 20 May
2020 and the ordinance transposition of the Preventive 5. putting in place temporary lay-offs for employees (payment of
Restructuring European Directive, and no later than 70% of the wages are then covered by the Government); and
17 July 2021;
6. in case of unavoidable difficulties, applying for the opening of
8. the facilitation of sales plans via (i) the possibility of requesting Pre-insolvency proceedings (ad hoc mandate or conciliation)
a waiver of incompatibilities in the matter of assignment by which are confidential and consist of an attempt to reach a
the debtor upon simple request of the debtor or the trustee settlement with the creditors. Those proceedings are initiated
(it is no longer the Public Prosecutor but the debtor or on the sole initiative of the debtor who files a petition with the
trustee who participates in the debates) to the Court which will President of the court which appoints a mandataire ad hoc
render a specially motivated judgment and (ii) the reduction or a conciliator depending on the request (who is generally a
of the deadline for convening co-contractors and holders of professional trustee). Under these procedures, an agreement
transferable securities from 15 to 8 days; can be reached with the creditors. The opening of such kind of
proceedings is very effective in protecting directors’ liability
9. the creation of a post-money privilege for the contributors
(it should be noted that the opening of such proceedings is
of funds (excluding contributions made by the partners or
even been considered a mismanagement by certain courts).
shareholders within the framework of a capital increase)
in observation period or for the execution of a plan. This
privilege will allow preferential payment. This measure
KEY CONTACTS
applies to all proceedings opened between the ordinance
of 20 May 2020 and the ordinance transposition of the Caroline Texier
Preventive Restructuring European Directive, and no later than Partner, Paris
17 July 2021; caroline.texier@dlapiper.com
T: +33 1 40 15 25 24
10. extension of the scope of accelerated liquidation. This
measure applies to all proceedings opened between the
ordinance of 20 May 2020 and the ordinance transposition of
the Preventive Restructuring European Directive, and no later Mehdi Abdelouahab
than 17 July 2021; and Associate, Paris
mehdi.abdelouahab@dlapiper.com
11. accelerated clearance of debtors’ corporate records from
T: +33 1 70 75 77 18
past safeguard and recovery plans (the delay is reduced
to 1 year). This measure applies to all proceedings opened
between the ordinance of 20 May 2020 and the ordinance
transposition of the Preventive Restructuring European
Directive, and no later than 17 July 2021.
Directors’ liability in the current
COVID-19 crisis
The French regime revolves around directors acting “reasonably”
in the prevailing circumstances. In the current climate, directors
may ultimately be afforded more latitude. However, there are a
number of steps directors may take in order to try and protect
themselves from future challenge/scrutiny. These include:
1. considering whether there are any ways of minimizing losses;
2. seeking professional advice from financial advisors
and lawyers;
11 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
COVID-19 response: Germany
Changes to insolvency laws
Suspension of insolvency filing duties Limitation of right of creditors to apply
for insolvency proceedings
Suspension of insolvency filing duty for companies facing a cash
flow insolvency (Zahlungsunfähigkeit) ended on 30 September If creditor’s applications were brought between 28 March 2020
2020. Over-indebted companies are still exempt from the and 28 June 2020, there was an additional requirement that the
filing duty until 31 December 2020 (the suspension has been debtor’s insolvency occurred on or before 1 March 2020.
extended and can be extended once more until 31 March 2021).
When?
Suspension does not apply if (i) insolvency is not due to the Adopted on 27 March with retrospective effect from
COVID-19 crisis and (ii) there is no prospect of overcoming an 1 March 2020; supplemented on 25 September 2020 and
existing cash flow insolvency (Zahlungsunfähigkeit). effective as of 1 October 2020.
Presumption of eligibility for suspension (i.e. that insolvency is
due to COVID-19 and that there are prospects of overcoming an Limitation of lenders’ liability and
existing cash flow insolvency) if the company was not cash flow avoidance risks – loans, trade credits,
insolvent on 31 December 2019. deferred payments and services
Limitation of lenders’ liability and avoidance risks in relation
When?
to loans provided in the suspension period, i.e. until
Adopted on 27 March 2020 with retrospective effect from
30 September 2020 to cash flow insolvent companies and until
1 March 2020; supplemented on 25 September 2020 and
31 December 2020 to over-indebted companies (which may
effective as of 1 October 2020.
be extended).
This includes not only loans but also trade credits and other
Limitation of directors’ liability for
forms of deferred payments and services.
payments after insolvency occurred
No liability for payments after insolvency: The provision applies also to the repayment of shareholder
loans. However, it does not apply to security granted
1. to the extent insolvency filing duty is suspended per for shareholder loans; security for shareholder loans is
the above (until 30 September 2020 for cash flow not privileged.
insolvency (Zahlungsunfähigkeit); until 31 December 2020
for over-indebtedness (Überschuldung)); and AVOIDANCE RISKS
Until 30 September 2023 repayment of newly granted loans and
2. to the extent payments are made in the ordinary course the granting of security during the abovementioned suspension
of business, in particular payments serving for the period will not be regarded as a disadvantage for the creditors
continuity and resumption of the business as well as for and will therefore be privileged from avoidance risks.
reorganization measures.
LENDERS’ LIABILITY
When? The granting, extension and novation of loans as well as the
Adopted on 27 March 2020 with retrospective effect from granting of security during the suspension period is not to be
1 March 2020; supplemented on 25 September 2020 and regarded as contra bonos mores (sittenwidrig) and (at least
effective as of 1 October 2020. generally) privileged from lenders’ liability.
When?
Adopted on 27 March 2020 with retrospective effect from
1 March 2020; supplemented on 25 September 2020 and
effective as of 1 October 2020.
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Suspension of equitable subordination Deferral of payments/services for
micro enterprises
Suspension of equitable subordination regarding the
repayment of shareholder loans provided in the suspension The law provided for the possibility for micro enterprises
period, i.e. until 30 September 2020 to cash flow insolvent to temporarily refuse to provide payments/services until
companies and until 31 December 2020 to over-indebted 30 June 2020 in relation to significant contracts which were
companies (which may be extended). entered into before 8 March 2020 if (i) the inability to provide
payments/services is due to the consequences of the COVID-19
The repayment claim of a shareholder loan provided in the crisis and (ii) the performance would jeopardize a fair standard
suspension period is not subject to equitable subordination of living of the consumer, respectively the economic foundations
in insolvency proceedings which have been applied for on or of the business.
before 30 September 2023.
This was intended in particular to prevent those affected from
When? being cut off from basic services if they are no longer able to
Adopted on 27 March 2020 with retrospective effect from meet their payment obligations as a result of the crisis.
1 March 2020; supplemented on 25 September 2020 and
effective as of 1 October 2020. When?
Adopted on 27 March 2020, and entered into force on
1 April 2020.
Limitation of avoidance actions
Limitation of avoidance actions in relation to transactions
KEY CONTACTS
performed in the suspension period which (i) are granting or
facilitating satisfaction or security to third parties and (ii) which Mike Danielewsky
the third party was eligible to claim in that kind and at that time. Partner, Frankfurt
mike.danielewsky@dlapiper.com
Such transactions also include performance in lieu of or on T: +49 692 713 3245
account of performance (Leistung an Erfüllungs statt oder
erfüllungshalber), payments by a third party on the instruction of
the debtor, the provision of security other than the one originally
Florian Bruder
agreed if not of higher value, the shortening of payment terms
Counsel, Munich
and the relaxation of payment terms.
florian.bruder@dlapiper.com
T: +49 892 3237 2232
To the extent performed in the suspension period, such
transactions are not subject to avoidance in a later insolvency
proceedings of the debtor. However, this privilege does not
apply if the third party was aware that the debtor’s restructuring Dietmar Schulz
and financing efforts were not suitable to cure an existing cash Partner, Munich
flow insolvency. dietmar.schulz@dlapiper.com
T: +49 892 2327 2230
When?
Adopted on 27 March 2020, and entered into force on
1 April 2020.
Martin Kaltwasser
Senior Associate, Frankfurt
martin.kaltwasser@dlapiper.com
T: +49 627 133 248
13 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
COVID-19 response: Hungary
Changes to insolvency laws
Changes to judicial enforcement law In force: not in force anymore.
relevant to insolvency
Duration: According to the Act (as defined below), the relevant
Certain provisions of the Act 53 of 1994 on Judicial Enforcement
postponed shareholders’ meetings had to be convened within
were suspended or amended until the end of the state of
90 days after the end of the state of emergency.
emergency period. The provisions as set out below, expired
on 1 July 2020, following the introduction of the new Act
(as defined below):
Directors’ liability – no change
due to COVID-19 yet
1. tax related judicial enforcement proceedings are suspended
by law until the end of the state of emergency period Generally, directors’ liability includes the following:
for COVID-19;
1. liability vis-à-vis the creditors of the company: a special
2. courts may suspend judicial enforcement proceedings upon
provision states that liability for any damage caused by
request of the debtor in cases where the debtor claims that
the directors intentionally lies both with the directors and
the reason of non-performance is related to the consequences
the company jointly and severally;
of COVID-19;
2. liability for “wrongful trading”: the creditors may claim
3. residential premises owned by natural persons cannot be
damages vis-à-vis the directors (in the last three years) directly,
evacuated via judicial enforcement until the end of the state of
if the directors have failed to consider the interest of the
emergency period for COVID-19;
creditors during the period of imminent insolvency (this may
4. new bailiff orders may not be delivered during the state of be enforced if formal liquidation proceedings have been
emergency period for COVID-19; opened against the company);
5. in case the debtor requests payment in instalments, such 3. liability vis-à-vis the company: directors are liable for losses
claim shall be accepted even if the creditor does not consent; caused to the company itself; and
6. bailiffs cannot meet customers in person; and 4. criminal liability: on the basis of the Hungarian Criminal
Code, criminal liability of the directors may be established
7. enforcement proceedings on site are suspended.
for fraudulent insolvency, i.e. the intentional diminution of
the company’s assets (e.g. concealing, damaging, fictitious
transactions, etc.).
Calling shareholders meetings
There is no explicit duty for directors to file for insolvency in For the time being, no changes have been introduced to the
Hungary. However, as per the Hungarian Civil Code, directors are Hungarian insolvency law relating to the liability of directors.
obliged to call a shareholders’ meeting if the company’s equity
or liquidity decreases critically or it is threatened by insolvency.
In such cases the shareholders’ meeting has to address the Extended period to settle
situation or, as a last resort, resolve to dissolve the company creditors’ claims before certain
without succession. liquidation proceedings
Section 156 (3) of the Act (as defined below) extends the
Government Decree No. 102/2020. (IV. 10.) has somewhat
period open to settle creditors’ claims by the debtor before the
relaxed the above provisions and provided that in certain cases
creditor is able to initiate liquidation proceedings on the basis
the shareholders’ meeting may be postponed until no later than
of the non-payment of its undisputed or acknowledged claims
90 days after the expiry of the state of emergency.
(also called “liquidation proceedings aimed at debt collection”).
Accordingly, the debtor is entitled to an additional 75 day period
to settle its debts starting from the due date that is initially
specified by the creditor in a formal notification to settle the debts.
14 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
The recent amendments appear not to extend the period during
Payment moratorium in Hungary
which the creditor’s claim may be disputed but only grants an
additional 75 days for the debtor to settle the debts. A payment moratorium until 31 December 2020 will apply with
respect to all credit facilities, loans and financial leases provided
Furthermore, the statutory minimum to initiate liquidation in a business-like manner. Furthermore, this moratorium will be
proceedings aimed at debt collection increased from prolonged until 30 June 2021 with respect to certain debtors.
HUF 200,000 to HUF 400,000 (approx. EUR1,150).
During the moratorium the borrower (who may be a natural or
legal person with any exceptions specified by law) is not obliged
New law relating to the end of the to pay any principal, interest or fees. The moratorium also
state of emergency period and amends the accessory and non-accessory secondary obligations
transitional rules (e.g. security interest, guarantee). The interest and fees accrued
during the moratorium will not increase the principal but will be
On the basis of the decision of the Government, the state
repayable in equal instalments after the moratorium. After the
of emergency period ended on 18 June 2020 and – among
moratorium the term shall be extended so that the amount of
others – Act LVIII of 2020 on the transitional rules relating to
the repayment instalments and the amount of interest payable
the termination of the state of emergency has been adopted
in instalments accrued during the moratorium together shall
(the “Act”).
not exceed the amount of the original repayment instalments.
The payment moratorium applies to loans already drawn under
The Act – among other measures – provides for the prolongation
contracts existing at midnight on 18 March 2020. Any person
of certain measures that were adopted during the state of
who is subject to debt settlement procedures as well as persons
emergency and provides that certain rules are not applicable
who are liable for such person’s debt repayment obligations shall
from the termination of such state of emergency.
qualify as debtors.
Amendments to the Hungarian
KEY CONTACTS
Bankruptcy Act
Peter Gyorfi-Toth
From 1 August 2020, new amendments entered into force in
Partner, Budapest
relation to the Hungarian Bankruptcy Act. Such amendments
peter.gyorfi-toth@dlapiper.com
were introduced as amendments to modernize the bankruptcy
T: +36 15 101 120
proceedings in Hungary and not as a direct response to
COVID-19, although such amendments could be interpreted as
relevant with respect to COVID-19 as well (e.g. new rules on the
communication by electronic means, certain deadlines, etc.) Gábor Borbély
Partner, Budapest
The amendments – among others – include: gabor.borbely@dlapiper.com
T: +36 1 510 1100
1. amendments relating to settlements under liquidation
proceedings (less strict voting rules);
2. extension of the payment moratorium in bankruptcy
proceedings (initial automatic payment moratorium is
180 days); and
3. pre-emption right for the Hungarian state (with regards to the
assets of strategically important economic organizations).
15 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
COVID-19 response: Ireland
Changes to insolvency laws
Changes to Irish insolvency laws – the AMENDMENT OF THE STATUTORY DEBT THRESHOLD
impact on directors The Companies (Miscellaneous Provisions) (COVID-19)
Act 2020 (the “2020 Act”) was enacted into law on
The solvency of an Irish company under Irish law is determined
21 August 2020 to make temporary amendments to, inter alia,
by the ability of the company to pay its debts as they fall
the Companies Act in order to address certain operational
due. When considering the ability of the company to pay its
challenges that COVID-19 has presented to Irish companies.
debts, directors should consider any current, contingent and
Most of the changes made apply until 31 December 2020
prospective liabilities and whether the company will be able to
(the “Interim Period”).
meet these obligations. Unlike some other jurisdictions (e.g.
the UK), Irish law does not provide for an express balance sheet
The 2020 Act has amended Section 570 of the Companies
solvency test (i.e. whether assets exceed liabilities). Nevertheless,
Act and increased the statutory debt threshold for the
directors do need to carefully consider the balance sheet
commencement of a winding up during the Interim Period.
position of the company when making any judgment as to
A company shall be deemed to be unable to pay its debts
whether the company is able to pay its debts as they fall due.
where a creditor serves, on the company, a demand in writing,
requiring payment of a sum in excess of EUR50,000 (in respect
Questions arise for companies in financial difficulty and their
of both individual debts and those debts where two or more
directors as to whether State assistance and/or additional
creditors are acting together) and the company has not
borrowings can/ should be availed of or whether the company
discharged payment of the debt within 21 days following the
should cease to trade and be wound-up. Inevitably, the particular
service of the demand. This amendment under the 2020 Act
circumstances will dictate; however, an overriding principle
represents an increase of EUR40,000 on the current threshold
is that directors who have acted honestly and responsibly
under the Companies Act for individual debts and an increase of
throughout the financial difficulties of the company should be
EUR30,000 for cumulative debts.
protected from liability. The directors need to determine that
there are reasonable grounds to believe that any actions taken
This amendment will assist the many companies that are
will preserve the business and enable the company to trade
currently grappling with cash flow challenges as a result of
through its difficulties.
the COVID-19 crisis and should assist those businesses that
are capable of surviving after the pandemic by ensuring that
The eight statutory fiduciary duties of the director of an Irish
demands made for relatively small sums during the Interim
company (discussed further below) under the Companies Act,
Period will not result in a winding up of the company.
2014 (as amended) (the “Companies Act”) (section 228(1))
are owed to the company (i.e. its members as a whole).
EXAMINERSHIP – EXTENSION OF PERIOD OF PROTECTION
When such a director has to consider whether a company
Examinership is an Irish corporate rescue and restructuring
can trade through financial difficulties, such as those arising
procedure, whereby an insolvent company is afforded court
from the COVID-19 crisis, those fiduciary duties, while still
protection for a specified period to enable it to negotiate with
owed to the company, must also take into consideration the
its creditors, write down its debts and seek fresh investment.
interests of creditors of the company. Typically, this means
The process involves the court placing a company under its
considering the impact material decisions (such as on-going
protection to enable it to appoint an examiner to investigate
trading, incurring additional indebtedness, granting security
the affairs of the company and to report to the court on the
or discharging creditors) might have on creditors. When a
prospects of the company’s survival.
company is, or is on the verge of becoming, insolvent but not
yet in a formal insolvency process, the directors owe a duty to
Where a company is in examinership, the 2020 Act makes
the company’s creditors not to conduct business in such a way
provision for a longer period within which the examiner’s
as to prejudice their interests. The exact trigger point for any
report must be submitted to court during the Interim Period.
shift in focus will depend upon the particular facts, but assessing
The timeframe under Section 220 of the Companies Act was
the balance sheet, the cash flow forecasts and the risk of
70 days, with the possibility of a 30-day extension where the
running out of cash will be determinative factors.
16 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
court is satisfied that the examiner would be unable to provide 8. to have regard to the interest of the company’s employees
the report within the standard timeframe. The 2020 Act includes and its shareholders. Having “regard to the interest” is a
an additional extension of 50 days, allowing a total of 150 days relatively low threshold and only the company may enforce
within which the examiner can submit their report to the court, this duty, not the employees or shareholders.
where the court is satisfied that the examiner has demonstrated
that there are “exceptional circumstances” arising in respect of PRACTICAL MEASURES
the relevant company to justify the extension. Practical measures that should be taken by directors to assist in
discharging their duties in the current environment include:
The concept of exceptional circumstances as provided for by
the 2020 Act is quite broad and includes (but is not limited • continuously monitor the financial position of the company;
to) “the nature and potential or actual impact of COVID-19 on
• hold regular board meetings and ensure comprehensive
the company.”
minutes are produced and the reasoning behind the
decisions made;
This amendment is intended to provide companies in
examinership with a longer period of protection within which • financial information – ensure that up-to-date, robust financial
a suitable investor can be sourced and with additional time to information is prepared so that directors can make informed
negotiate with their creditors. It should also allow for a more decisions in real time. Consider availability of existing facilities
flexible timeframe to deal with issues arising on more complex and the possibility of making any amendments. Compliance
examinerships during the Interim Period. with financial covenants in any existing facilities should be
examined. Consider availing of any Government supports that
DIRECTORS’ FIDUCIARY DUTIES may assist;
In considering the effect of the COVID-19 crisis on the company,
• seek professional advice early and on a regular basis from
the directors should continue to adhere to their statutory
both financial advisors and lawyers;
fiduciary duties, which are as follows:
• consider whether there are any ways of minimising losses
1. the duty to act in good faith in what the director’s consider to (e.g. temporarily closing non-core operations);
be interests of the company;
• ensure that the company’s books and records are current
2. to act honestly and responsibly in relation to the conduct of and accurate – a director can be held personally liable
the affairs of the company; for the debts of the company where he/she failed to
maintain proper books of account and it contributed to the
3. to act in accordance with the company’s constitution and
company’s insolvency;
exercise his or her powers only for the purposes allowed
by law; • customers and suppliers – engage with trading partners and
keep lines of communication open; and
4. not to use the company’s property, information or
opportunities for their own or anyone else’s benefit unless • key creditors (e.g. banks, Revenue and landlords), engage
permitted by the company’s constitution or approved by a early and present a clear plan for the company to weather
resolution of the company in general meeting; the crisis.
5. subject to certain prescribed exceptions, not to agree to
Under the Companies Act, directors may be made personally
restrict the exercise of their independent judgment;
liable for the debts of an insolvent company if they have
6. to avoid any conflict between their duties to the company and knowingly carried on business in a reckless manner (known as
the director’s other (including personal) interests, unless the reckless trading) or if they have knowingly carried on business
director is released from his or her duty to the company in with intent to defraud creditors (known as fraudulent trading).
relation to the matter concerned;
The changes introduced by the 2020 Act in response to the
7. to exercise the care, skill and diligence – which would be
COVID-19 crisis has afforded directors and companies with some
exercised in the same circumstances by a reasonable person
solutions for the purpose of navigating out of temporary
having both (a) the knowledge and experience that may
cash-flow difficulties.
reasonably be expected of a person in the same position as
the director and (b) the knowledge and experience which the
director has; and
17 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
Again, the importance of the practical steps outlined above, and
the need to act honestly and responsibly throughout, is critical. KEY CONTACTS
There are various Government supports available to Irish Conor Houlihan
businesses at present to provide working capital. In addition to Partner, Dublin
the examinership process, businesses and their directors can conor.houlihan@dlapiper.com
consider a range of out-of-court debt restructuring options. T: +35 314 365 465
A scheme of arrangement or a formal restructuring process
similar to examinership might also be an option for certain types
of business. However, where it is clear that notwithstanding the
Eileen Johnston
temporary measures introduced by the 2020 Act with regard to
Legal Director, Dublin
the statutory debt threshold and the extension of the period of
eileen.johnston@dlapiper.com
protection under the examinership process – a company cannot
T: +35 314 365 458
trade out of its difficulties, and it does not have a prospect of
survival, the directors should take steps to put the company
into liquidation.
18 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
COVID-19 response: Italy
Changes to insolvency laws
Temporary changes to insolvency laws • where the petition is filed upon (i) declaration of
inadmissibility of the composition with creditors proposal
No specific amendments to the Italian Insolvency Law
pursuant to article 162, second paragraph, of the Italian
(i.e. Royal Decree no. 267 of 16 March 1942) have occurred so far.
Insolvency Law; (ii) revocation of the admission to the
composition with creditors procedure pursuant to
However, law decree no. 23 of 8 April 2020, as subsequently
article 173, second and third paragraph of the Italian
converted into law by law no. 40 of 5 June 2020, (“Law Decree”),
Insolvency Law; or (iii) rejection by the court of the
effective as from 9 April 2020, introduced:
composition plan with creditors pursuant to article 180,
seventh paragraph, of the Italian Insolvency Law.
1. provisions as to the timing and duration of certain pending
proceedings commenced pursuant to Italian insolvency 2. provisions aimed at mitigating certain general duties
laws. Namely: (and therefore relevant liabilities) of directors when facing
a financial distress situation. Namely:
a. Terms for the completion and fulfilment of composition with
creditors’ proposals (concordati preventivi), restructuring a. Starting from 8 April 2020 and until 31 December 2020,
agreements (accordi di ristrutturazione), crisis settlement provisions under articles 2446, 2447, 2482-bis, parr. 4, 5
agreements (accordi di composizione della crisi) and/or and 6, 2482-ter and 2484, par. 1, no. 4 of the Italian civil
repayment plans for consumers (piani del consumatore) are code do not apply in relation to the losses of capital
automatically extended by six-months. occurred during the financial year ending before
8 April 2020. The abovementioned provisions provide that
b. Debtors who have already applied to the court for a
in case the corporate capital falls below the minimum
composition with creditors may apply in order to be
amount required under Italian law as a consequence of
granted with (a) a term up to 90 days for the deposit of a
losses, directors shall as soon as possible call the
new composition with creditors’ proposal and (b) a term
shareholders’/quota-holders’ meeting in order to decide
up to 6 months in case they intend to amend only the
whether to cover the losses and adequately capitalize the
timing for the completion and fulfilment of the proposal
company or to put the company into liquidation.
already submitted.
b. In drafting the financial statements as at 31 December 2020,
c. Debtors who have been granted with a term in order to
the assessment of balance sheet items from a business
draft a composition with creditors proposal or a debt
continuity perspective pursuant to article 2423-bis,
restructuring agreement proposal before 31 December
no. 1 of the Italian civil code may be carried out provided
2021, are entitled, within the same term, to withdraw from
that the business continuity existed at the end of the
said procedures, declaring and providing evidence that they
previous financial year. In other words, the directors will be
have prepared and filed with the competent Companies’
entitled to draft the financial statements as at 31.12.2020
Register (registro delle imprese) a recovery plan (piano di
assuming the continuity of the company’s business,
risanamento) pursuant to article 67, third paragraph, letter
provided that such continuity existed as at 31.12.2019.
d) of the Italian Insolvency Law.
c. To loans made available by shareholders/quota-holders in
d. As to petitions for declaration of insolvency of companies
favour of companies after the entry into force of the Law
filed between 9 March 2020 and 30 June 2020,
Decree, articles 2467 and 2497-quinquies of the Italian
relevant court proceedings may not be brought,
civil code (providing that, under certain circumstances,
except in the following cases:
the repayment of shareholders’ loans are subordinated to
• where the petition is filed by a public prosecutor; the previous fulfilment of any other obligations towards the
other creditors) do not apply.
• where the petition is filed by the debtor itself,
provided that the insolvency was not caused by the
The provisions indicated above are temporary, as they apply only
COVID-19 crisis;
to the period expressly envisaged by the Law Decree.
19 WWW.DLAPIPER.COMAN INTERNATIONAL GUIDE TO CHANGES IN INSOLVENCY LAW IN RESPONSE TO COVID-19
Finally, it has to be outlined that pursuant to article 5 of the Law 2. monitor constantly the liquidity situation of the company,
Decree the entry into force of the new Insolvency Law which was as well as the situation of the corporate capital and, in general,
due to come into force in August 2020 has been postponed until the company’s net worth (patrimonio netto);
September 2021.
3. in making the payments, make sure that all creditors of the
company are treated equally (par condicio creditorum) and
should therefore adopt criteria that are not arbitrary;
Directors’ duties and liabilities
4. consider whether there are any ways of minimising losses
In relation to directors’ liabilities of a company facing a crisis,
(i.e. temporarily closing down non-core operations); and
given that no specific amendments to the Italian Bankruptcy Law
has been provided so far, general principles and rules apply. 5. seek professional advice from financial advisors and lawyers,
also with a view to preparing a revised business plan and a
Company directors have a primary duty to act in the best restructuring proposal.
interests of the company by carrying out all activities aimed at
pursuing the company’s corporate objective (oggetto sociale). Finally, Article 91 of the law decree no. 18 of 17 March 2020
When a company is, or is on the verge of becoming, added an article to the previous law decree 23 February 2020,
insolvent but not yet in a formal insolvency process, this duty no. 6, providing that the compliance with the containment
shifts so that the directors must act in the best interests of the measures provided thereunder (in a nutshell, lockdown and
creditors as a whole. The exact trigger point for this shift will restriction to activities) is always considered and evaluated in
depend upon the particular facts, but assessing the balance order to exclude the liabilities of the defaulting party pursuant
sheet, the cash flow forecasts and the risk of running out of cash to articles 1218 and 1223 of the Italian civil code, also in relation
will be determinative factors. to the application of certain forfeiture terms (decadenze) or
penalties relating to delays or non-fulfilments. In turn:
Under the Italian Insolvency Law, in certain circumstances,
a director can be found personally liable for company losses, a. Article 1218 of the Italian civil code provides that
where a court finds that at some time before the liquidation the party which does not exactly fulfil its obligation
commenced, the director knew or ought to have concluded that (prestazione dovuta) is held liable and shall compensate for
there was no reasonable prospect of the company avoiding damages incurred by the other party, unless the defaulting
bankruptcy proceedings and thereafter, the director failed to party proves that the non-fulfilment or the delay has
take every step with a view to minimising the potential loss to the been caused by an impossibility of the performance not
company’s creditors which he ought to have taken – wrongful attributable to it (non imputabile).
trading. However, the director will be excused if the court is
b. Article 1223 of the Italian civil code provides that the
satisfied that from the relevant time, that director took every step
compensation for damages for non-fulfilment or delay shall
with a view to minimising the potential loss to the company’s
include both the loss (perdita) and the loss of profit
creditors which he/she ought to have taken.
(mancato guadagno) of the non-defaulting party,
provided that these losses are immediate and are a direct
The Italian regime revolves around directors acting with due
consequence of the non-fulfilment or delay.
care and in an informed way in the prevailing circumstances.
However, it is strongly advisable for the directors to take certain
Having said the above, it has to be noted that according
practical steps, once they have detected a situation of financial
to the preliminary opinions of scholars who commented
distress and/or a crisis in order to try and protect themselves
on such provision, Article 91 of the Decree does not really
from future challenge/scrutiny. Among these, are:
add anything new to our law but only confirms a general
1. hold regular board meetings, especially given how fast principle of Italian contractual law and makes it clear that the
matters are moving/developing, and ensure decisions are compliance with the containment measures may represent an
accurately recorded, with reference to all factors “impossibility of the performance not attributable” to the party
considered/taken into account. It is also advisable that all under article 1218 of the Italian civil code.
the decisions relating to significant transactions carried out
in a situation of financial distress are approved or ratified,
to the extent possible, by the board of directors, regardless of
whether they fall within the powers of the executive directors;
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