Lex COVID – crisis measures in insolvency law
The government has approved a draft bill introducing, among other things, special measures to mitigate the insolvency law-related effects of the coronavirus pandemic. The objective of these measures is to avert the risks of mass insolvencies and to prevent the backlog of insolvency petitions in courts.
The government expects that many still functioning companies will run into unexpected and temporary insolvency due to the current pandemic and related crisis measures. At the same time, it assumes that if these companies are given time and leniency to weather the current crisis that has come about through no fault of theirs, they will possibly get back on their feet and resume their business activity after the end of all restrictions. It is precisely this possibility that the proposed special measures in insolvency law should bring them:
- Temporary abolition of the obligation to file a debtor's insolvency petition. However, this measure does not apply to debtors whose bankruptcy occurred before the adoption of emergency measures, or whose bankruptcy was mainly caused by reasons other than the pandemic. The measure has been proposed for a period of up to six months after the end of the emergency measures, but no later than 31 December 2020.
- Temporary prohibition to file creditors’ insolvency petitions. The bill should cease to be effective on 31 August 2020. During this broad measure’s effectiveness, creditors will not be able to open insolvency proceedings at all, even concerning claims not related to the pandemic. Creditors' insolvency petitions will not even be published in the insolvency register. However, the bill does not prevent creditors from exercising their rights in other ways, such as by offsetting claims, enforcing collateral rights, bringing suits in classic court proceedings, or initiating enforcement.
- Introduction of an extraordinary claims moratorium. Debtors whose economic difficulties have been caused by emergency measures may file an application for an extraordinary moratorium with the insolvency court prior to 31 August 2020. The main difference from an ordinary moratorium is that it is not necessary to prove the creditors' consent to most of the claims. If the formal conditions, including an affidavit stating that the moratorium is needed due to emergency measures, are met, the court should allow it. Debtor will thus be able to focus on saving their company for a period of three to six months, paying only those payments that are immediately necessary for its operation.
The bill should be discussed by the chamber of deputies on 7 April 2020 and is expected to be approved without substantial changes. It can be assumed that the proposed measures will enable companies to better cope with the current crisis and will contribute to a relaunch of the economy.