An end to malicious insolvency petitions?

According to the explanatory report, only approximately one percent of all insolvency petitions filed are malicious – in the sense that their only aim is to cause reputational or economic damage to another entity. However, if such insolvency proceedings are initiated, the consequences for the affected entity may be destructive. Currently, insolvency proceedings are initiated once the insolvency petition is delivered to the respective court. The effects connected with initiating the proceedings take place as soon as the court publishes the notice on the initiation of proceedings in a publicly accessible insolvency register; this should take place within two hours from the delivery of the petition to the court. At this point, the court has not even examined the justification of the petition yet, only its formal essentials. Whether the alleged debtor is indeed insolvent is only examined at later stage.

This means that insolvency proceedings may be initiated even against a healthy firm. The court will eventually discontinue the proceedings, but only after several days. It either can refuse the petition as clearly groundless or decide that the company is not insolvent. The public, however, does not distinguish between these procedural nuances, and the victim of such a malicious petition is quickly labelled an insolvent entity. Under the new regulation, if maliciousness is suspected, the court may postpone the publication of the notice of initiating insolvency proceedings for up to seven days after receiving the petition. During this time, it may preliminarily assess the creditor’s petition and refuse it right out, without publishing any information on the insolvency proceedings. The negative effect of the publication would thus be fully eliminated.

Another novelty is the enhanced transparency of certain creditors who may have a decisive influence on the course of insolvency proceedings. This concerns creditors who did not acquire receivables in a standard manner, i.e. from trade relations with the debtor, but through a receivable transfer (assignment) or in any similar fashion. Such creditors may have acquired the receivables for dubious asset liquidation schemes. Moreover, they are often registered in jurisdictions where seeking any potential damages would be difficult. Thus, under the new law, creditors who acquired receivables by transfer (assignment) or in a similar manner within six months before the initiation of insolvency proceedings have to attach to their receivable an affirmation stating their beneficial owner, similarly as required under anti-money laundering legislation. This procedure aims to determine whether the creditor and the debtor are in fact related parties. If so, the creditor is then excluded from voting on certain crucial steps of the insolvency proceedings where a conflict of interest may arise, including the liquidation of the debtor’s assets.