CFO Crisis Management Checklist – CEE edition

28 May 2020 | newsletters

You can download the crisis management checklist for Austria, Croatia, Czech Republic, HungaryPoland, Romania, SerbiaSlovenia 

Corporate management teams around the globe are working hard to find the best response to the unprecedented challenges posed by the COVID-19 pandemic. The precise impact on global and regional economies is far from certain, and forecasts range from a projected drop of up to 12 % for the Eurozone GDP in 2020 (ECB), to a mid-term rebound of the economy, possibly followed by an inflation wave triggered by massive monetary interventions. On the other hand, it appears that the negative economic effects of the pandemic will not be evenly distributed – some sectors will be hard-hit, while others will be less affected or may even benefit in the short run.

What all businesses have in common, however, is that we are in a period of extreme financial and planning uncertainty.

Against the background of the present – or any other – economic crisis, we aim to provide answers to two of the most pressing questions frequently asked by senior executives of CEE/SEE-based businesses in (near) financial distress (1) What are my legal duties in the context of general financial uncertainty? And (2) What are my options in terms of adjustment/restructuring of my organisation's financial liabilities?

The following "crisis management checklists" are designed to help CFOs and other corporate finance professionals to navigate through the plethora of legal rules (where complexity for multi-national corporations will increase even further) – in the form of short and concise overview charts.

You can download the crisis management checklist for Austria, Croatia, Czech Republic, HungaryPoland, Romania, SerbiaSlovenia.

 

Find below the crisis management checklists for

This collection of crisis management checklists is authored by:
Austria:

Martin EbnerWolfgang HöllerMiriam SimsaPhilipp Wetter
Croatia:
Krešimira Krušlin
Czech Republic:
  
Jitka Kadlčíková, Natálie RosováOndřej Havlíček 
Hungary: 

Gergely Szalóki
Poland:

Daniel RadwańskiMarcin AntczakPaula Weronika Kapica
Romania:

Matei FloreaAdina-Otilia DamaschinIustin Armașu
Serbia:

Petar KojdićDušan ObradovićJelena Arsić
Slovenia:

Vid KobeJurij LampičPeter Gorše

 

Austria  

Status as of 8 May 2020 | Authors: Martin EbnerWolfgang HöllerMiriam SimsaPhilipp Wetter

Directors' Duties – Crisis Management Checklist: Austria 

WHAT DUTY?

WHAT DOES IT MEAN?

WHEN DOES IT APPLY?

Maintenance of solvency
Management of business risks

  • best efforts to preserve company's liquidity and sound financial structure
  • duty to manage and continuously assess risks, incl. credit risk, market risk, operational risk and liquidity risk (business judgement rule)
  • specific duty to take known crises into account for liquidity management purposes
    • CAVEAT: liquidity support via shareholder loans (to be interpreted broadly, e.g. also including loans granted by other group companies) if a company is in "crisis" may entail equitable subordination resulting in (i) a ban on repayment of such loans during the company's crisis (or in case repayment would cause a crisis); and (ii) subordinated status of such loans in potential subsequent insolvency proceedings
    • COVID-19: unsecured shareholder loans granted and disbursed in the period from 5 April until 30 June 2020 for no more than 120 days are not subject to equity substitution rules/subordination

Pre-crisis and post-crisis

Enhanced scrutiny
in respect
of known crises

Convene shareholders' meeting

  • Obligation to immediately convene a shareholders' meeting if:
    • loss of at least half of the share capital (limited liability companies and stock corporations)
    • equity capital ratio is below 8% and the fictitious debt repayment period (broadly, period within which existing financial debt could be repaid from projected net operating income) exceeds 15 years (limited liability companies only)
  • ongoing (in-)solvency assessment upon indications of a crisis (e.g. negative equity)

Crisis on the horizon

Assessment of need
for reorganisation

  • assessment whether company is in need for reorganisation which is presumed if (i) equity capital ratio is below 8%; and (ii) fictitious debt repayment period exceeds 15 years
  • obligation to file for opening of reorganisation proceedings in case company is in need for reorganisation
  • in practice only very few reorganisation proceedings have been opened to date; however, in case of subsequent insolvency proceedings risk of civil liability of up to EUR 100,000

Crisis on the horizon

Suspension of
 non-essential payments

Prohibition of unequal treatment of existing creditors

  • non-essential payments are no longer permitted
  • permitted payments are limited and include:
    • employment-related expenses such as wages and related social contributions, severance payments etc.
    • regular operating expenses to maintain ordinary business (electricity, water, lease, insurance premium etc.)
    • payment against immediate delivery and
    • payments to secured creditors up to the amount of the secured claim
  • general prohibition of unequal treatment of creditors
  • COVID-19: no civil liability of management for payments made during suspension of filing obligation due to over-indebtedness (see below)
  • transactions resulting in preferential treatment of certain creditors and/or reduction of value of company's assets may be challenged/subject to claw-back in hypothetical subsequent insolvency proceedings

Onset of Insolvency * ("T")

Filing for insolvency

Prohibition of unequal treatment of all (unsecured) creditors

  • if company is illiquid or over-indebted, obligation of each director / board member to (severally) file for insolvency
  • filing period: without culpable delay upon insolvency, in any case within 60 days; the filing period may only be used for the purpose of eliminating insolvency by implementation of feasible (i.e. ex ante likely to be achieved) restructuring concepts
  • COVID-19:
    • if insolvency is (also) a result of the COVID-19 pandemic, filing period of 120 days instead of 60 days
    • suspension of filing obligation if company becomes over-indebted from 1 March until 30 June 2020; after 30 June 2020 filing obligation within 60 days after 30 June 2020, or 120 days after company became over-indebted, depending on which period ends later

T + 60 days OR 120 days

for over-indebtedness
occurring from 1 March
until 30 June 2020:

T (over-indebtedness) + 120 days OR 30 June 2020 + 60 days

 

*   ONSET OF INSOLVENCY: Deemed to have occurred when the debtor is insolvent within the meaning of Austrian law. Under Austrian law, a company is insolvent if it is either illiquid (cashflow insolvency) or over-indebted (balance-sheet insolvency and no positive going concern prognosis).
- Illiquidity – if a company is unable to pay its debts when due, and is not in a position to obtain the necessary funds to satisfy its due liabilities within a reasonable period of time. Illiquidity is presumed if company is unable to pay at least 95% of all its due debt. In that case, company is not presumed unable to pay its debt if it can prove that, from an ex ante-perspective, it will be in the position to pay all (100% of) its due debt within a period of three months (high likelihood) or – in exceptional cases – within five months (with almost certain likelihood).
- Over-indebtedness – presumed if (i) company's liabilities exceed its assets (based on liquidation values; no going-concern valuation); and (ii) there is no positive going concern prognosis (that must comply with the Austrian guidelines that reflect the market standard and Austrian case-law). In a nutshell, a going concern prognosis must show that (i) company will be able to pay its due liabilities within approx. twelve months (liquidity plan; primary prognosis); and (ii) positive results from the ordinary business activities are likely within the next two to three years (secondary prognosis).

 

Restructuring Toolbox – Crisis Management Checklist: Austria  

WHAT TOOL?

WHAT DOES IT DO?

WHAT IS REQUIRED?

Out-of-court
Restructuring

  • arrangement between company and its creditors (typically financial creditors) where:
    • creditors agree to postpone enforcement of payment claims for limited period of time such that terms of restructuring can be agreed ("stand-still") and
    • if negotiations are successful, creditors and company enter into restructuring agreement ("RA")
  • freedom of contract:
    • parties are free to shape contents of standstill/RA (e.g. contributions by shareholders / beneficial owners, certain restructuring measures, deferral of payments, etc) but
    • all affected parties (company, relevant creditors, shareholders/beneficial owners) must agree to stand-still and RA
  • no special legal framework (yet) available, but out-of-court restructurings typically consider the (non-binding) guidelines for restructurings in Austria reflecting the market standard

Consent by all
affected parties
 (agreement)

Reorganisation Proceedings

  • legal tool aimed at enabling distressed (but still solvent) Austrian companies to implement a reorganisation plan
  • management's filing for reorganisation proceedings if the company is in need of reorganisation which is presumed if the company's
    • equity ratio is below 8% and
    • fictitious debt repayment period is more than 15 years
  • reorganisation plan includes measures to improve the company's financial situation, must be presented to the court and will be assessed/approved by reorganisation auditor
  • reorganisation proceedings seldom opened in Austria as they do not offer useful restructuring tools; however, (only) in case of subsequent insolvency proceedings (e.g. because out-of-court restructuring was not successful), failure to file for reorganisation proceedings may trigger management's, supervisory board's, and shareholders' civil liability
  • Filing for reorganisation proceedings
  • Reorganisation plan to be assessed by reorganisation auditor

Restructuring proceedings

  • legal tool available during insolvency proceedings aimed at the continuation of a company's business; only available upon company's application
  • restructuring proceedings without self-administration (i.e. with appointment of insolvency administrator) if company presents restructuring plan offering a quota of 20% to unsecured creditors payable within two years; self-administration may be approved by court if quota of 30% is offered (but certain transactions are still subject to approval by insolvency court and restructuring administrator)
  • approval of restructuring plan requires majority of at least 50% of (i) unsecured creditors in number present at the respective hearing and (ii) the total sum of the claims of unsecured creditors present at the respective hearing
  • if restructuring plan is accepted, confirmed by insolvency court and fulfilled by debtor, the debtor is released from remaining debt ("hair-cut" of unsecured creditors' claims in excess of restructuring quota)
  • Formal declaration of insolvency
  • Filing of restructuring proceedings
  • Minimum quota (20%/30%)
  • Approval by majority of creditors

Upcoming: preventive restructuring framework

  • implementation of Restructuring Directive 2019/1023 ("RD") by 17 July 2021; yet no draft bill publicly available
  • key features of preventive restructuring frameworks according to RD:
    • suspension of enforcement and insolvency proceedings
    • (cross-class) cramdown and
    • protection of new and interim financing
  • Not yet available in Austria

COVID-19 support measures

  • various support measures available that aim at preventing companies from becoming insolvent due to the COVID-19 pandemic
  • financing support measures include state guarantees for bridge loans and subsidies relating to operating losses due to the COVID-19 pandemic
  • an ongoing updated overview of most relevant COVID-19 support measures at State level can be found here
  • Application
  • Company must fulfil certain requirements

 

Download the crisis management checklist for Austria here.
to the top

 

Croatia 

Status as of 11 May 2020 | Author: Krešimira Krušlin

Directors' Duties – Crisis Management Checklist: Croatia 

WHAT DUTY?

WHAT DOES IT MEAN?

WHEN DOES IT APPLY?

Maintenance of solvency

Management of business risks

  • best efforts to preserve company's liquidity and sound financial structure
  • duty to manage and continuously assess credit risk, market risk, operational risk and liquidity risk
  • specific duty to act in case of known crises – capital inadequacy
    • CAVEAT: liquidity support via shareholder loans if a company is in "crisis" may entail equitable subordination of such loans resulting in subordinated status and susceptibility to claw-back in potential subsequent insolvency

Pre-crisis and post-crisis

Enhanced scrutiny
in respect
of known crises

Suspension of
non-essential payments

Prohibition
of unequal treatment
of creditors

  • non-essential payments are no longer permitted
  • permitted payments limited and include:
    • employment-related expenses such as wages and related social contributions, severance payments etc.
    • regular operating expenses (electricity, water etc.)
    • regular/scheduled payments to suppliers
    • tax liabilities and
    • the cost of preparing the documentation required to initiate and implement the pre-bankruptcy settlement
  • general prohibition of unequal treatment of creditors
  • transactions resulting in preferential treatment of certain creditors and/or reduction of net value of company's assets may be challenged/subject to claw-back in hypothetical subsequent bankruptcy proceedings

Illiquidity*

Preparation of Restructuring plan

[not a strict obligation but needed for filing for pre-bankruptcy
(see below)]

  • preparation of restructuring plan ("Plan") containing among others:
    • reasons for threatening debtor's inability to pay
    • financial restructuring measures and calculation of their effects on liquidity shortfalls
    • operational restructuring measures and calculation of their effects on business operations
    • business plan for the period until the end of the current year and for the next two calendar years, with a detailed explanation of the underlying factors
    • analysis of creditors' claims together with an offer to the creditors for settlement of their claims under exact conditions and within specified deadlines and
    • announcement of new financing, if applicable

Threatening inability
to pay**

Filing for Pre-Bankruptcy 

[not a strict obligation,
but recommended depending
on circumstances]

  • proposal for initiation of pre-bankruptcy together with:
    • the Plan
    • financial statements not older than three months before the date of proposal's submission
    • statement on the number of employees on the last day of the month preceding the date of submission of the proposal and
    • true and complete list of assets and liabilities

Threatening inability
to pay**

Filing for Bankruptcy

  • if the company becomes insolvent within the meaning of Croatian law, i.e.:
    • the company is permanently unable to fulfil its payment obligations as they fall due (inability to pay), and especially if the Croatian Financial Agency (central organisation for payment collection/debt enforcement) has recorded one or more instances of unsuccessful enforcement via collection from the company's accounts, or the company did not pay three consecutive wages to employee(s) or
    • company's liabilities exceed the company's assets (over-indebtedness), unless: (i) under the circumstances it may be reasonably assumed that the company will continue to settle its liabilities as they fall due if it maintains its business operations; or (ii) shareholder of the company, who is a natural person uninvolved in bankruptcy, assumes joint liability for company's liabilities
  • management must file for bankruptcy within 21 days
  • COVID-19: if insolvency is a result of the COVID-19 pandemic, no obligation to file

Onset of inability to pay / over indebtedness + <21 days

 

*   ILLIQUIDITY (nelikvidnost): Debtor is unable to fulfil its payment obligations as they fall due in certain periods - presumed if (i) debtor is more than 60 days late with payment of one or more monetary obligations amounting to 20%+ of its short-term liabilities (as per financial statements for the preceding year); or (ii) debtor is more than 30 days late with payment of wages and related social contributions and taxes.
** THREATENING INABILITY TO PAY (prijeteća nesposobnost za plaćanje): It is plausible that the debtor will not be able to fulfil its payment obligations as they fall due – presumed to have occurred when: (i) the Croatian Financial Agency (central organisation for payment collection/enforcement) has recorded one or more instances of unsuccessful enforcement via collection from the company's accounts; or (ii) the debtor is more than 30 days late with payment of wages to employees; or (iii) the debtor is more than 30 days late with payment of social contributions and taxes on wages.

 

 Restructuring Toolbox – Crisis Management Checklist: Croatia 

WHAT TOOL?

WHAT DOES IT DO?

WHAT IS REQUIRED?

Out-of-court
Restructuring

  • arrangement between company and all or a number of its creditors where:
    • creditors may agree to enter into a restructuring agreement with the company ("RA")
    • creditors may agree to postpone enforcement of payment claims for limited period of time such that RA can be agreed ("stand-still")
  • freedom of contract:
    • parties are free to shape contents of RA and/or standstill but
    • all affected parties (company and relevant creditors) must agree to RA and/or stand-still

Consent by creditors

Pre-Bankruptcy  
Settlement

  • legal tool aimed at enabling eligible Croatian companies to enter into arrangement with creditors in context of a court-supervised restructuring proceeding with limited involvement of the Croatian Financial Agency
  • key features:  
    • debtor must demonstrate threatening inability to pay, the application may not be submitted before expiry of two years after fulfilment of debtor's obligations under the previous pre-bankruptcy settlement
    • filing for pre-bankruptcy proceedings will result in prohibition of non-essential payments and asset disposals without prior approval from the court/pre-bankruptcy trustee
    • opening of pre-bankruptcy proceedings will result in enforcement holiday (i.e. prohibition of new litigation, administrative proceedings and enforcement proceedings against the company and interruption–of pending proceedings) as of the day of the opening of the pre-bankruptcy proceedings
    • opening of pre-bankruptcy proceedings will not affect existing security for claims (rights to separate settlement), workers' claims, security measures in criminal proceedings and certain tax inspection proceedings and
    • if approved by requisite majority of affected creditors (separate voting in affected classes), terms of settlement will result in cram down
  • new financing will enjoy statutory super seniority in case of subsequent bankruptcy
  • stand-still and cram-down will apply to Croatian and non-Croatian creditors

Formal declaration
of threatening inability
to pay by the
debtor company

Application with court

COVID-19 Moratorium

  • no statutory moratoria on loan payments was introduced by the Croatian Government
  • Croatian National Bank relaxed its supervisory policies allowing Croatian commercial banks to re-negotiate terms of outstanding loans with clients (including deferral of payments and/or refinancing) and introduce moratoria on enforcements in cases of delays in payments of three consecutive loan instalments starting from April 2020:
    • commercial banks are allowed to use proposed measures solely for purposes of special purpose financings (continuity of business and employees' costs) caused by the coronavirus pandemic until 31 March 2021
    • specific options available to companies depend on each individual commercial bank – no standardised approach and
    • only available in respect of liabilities owed to Croatian bank lenders
  • separate legal tool for companies to file for moratoria on tax obligations:
    • companies with a decline in revenues of at least 20% compared to the same month of the preceding year, or companies that expect their revenues to likely decline by 20% in the next three month period compared to the same period of the preceding year, are eligible to file for suspension of due tax liabilities, provided they do not have outstanding tax debt of over HRK 200 (approx. EUR 25) and (in relation to VAT), are VAT taxpayers based on a so-called criteria of issued invoices

Filing of application
with bank and/or
tax authority

COVID-19 Support Measures

  • various support measures available that aim at preventing companies from becoming insolvent due to the COVID-19 pandemic
  • financing support measures include COVID-19 loans for working capital provided by the Croatian Bank for Reconstruction and Development ("HBOR") together with commercial banks

Filing of application with the commercial bank

 

Download the crisis management checklist for Croatia here.
to the top

 

Czech Republic 

Status as of 20 May 2020 | Authors: Jitka Kadlčíková, Natálie RosováOndřej Havlíček 

Directors' Duties – Crisis Management Checklist: Czech Republic 

WHAT DUTY?

WHAT DOES IT MEAN?

WHEN DOES IT APPLY?

Act with due care

Management of business risks

  • best efforts to preserve company's liquidity and sound financial structure
  • duty to manage and continuously assess credit risk, market risk, operational risk and liquidity risk
  • act carefully, based on reliable information, taking into account business risks
  • take all necessary and reasonably expected steps to avoid insolvency
    • NOTE: liquidity support via shareholder loans is not restricted under Czech law (no concept of compulsory (equitable) subordination)

Pre-crisis and post-crisis

 

Distributions to shareholders - solvency test

  • prior to any payment of the share in profit or other distributions to shareholders (including any advances / interim dividends) the director has to perform a solvency test' – the relevant payments may not result in insolvency of the company

Pre-crisis and post-crisis

 

Conflict of interests

  • report potential conflicts of interest of the management and the company to the supervisory body (if established) and/or general meeting of shareholders

Pre-crisis and post-crisis

 

Convening general meeting

Proposal of measures to shareholders

  • limited liability companies: if the company is in the vicinity of insolvency or for other serious reasons, company directors are obliged to convene a general meeting of shareholders and propose a dissolution of the company or other appropriate measures (these may include recapitalisation and/or shareholder loans)
  • joint stock companies: if the accumulated loss of the company (after application of profits/distributable reserves against such loss) exceeds half of the company's registered share capital or for other serious reasons, the board of directors is obliged to convene a general meeting and propose dissolution of the company or other appropriate measures

Crisis on the horizon

 

Prohibition of unequal treatment of creditors

Avoidance rules

  • general prohibition of unequal treatment of creditors – this rule applies regardless of whether or not the company is (near) insolvent (and no specific restrictions on trading apply in the vicinity of insolvency); preferential or fraudulent transactions and/or undervalue transactions may be challenged/subject to claw-back in hypothetical subsequent insolvency proceedings  

Anytime /

Crisis on the horizon

Duty to file for insolvency

  • directors are obliged to file an insolvency petition without undue delay upon discovering that the company is insolvent*

Without undue delay after the onset of insolvency

COVID-19: Suspension of duty

to file for insolvency

  • directors duty to file an insolvency petition** without undue delay upon discovering that the company is insolvent and associated risk of personal liability is suspended
  • suspension lasts from 24 April 2020 until expiration of six (6) months after the termination of the extraordinary anti-epidemic measure (in any case the suspension will end on 31 December 2020 at the latest)
  • suspension will not entirely shield directors from potential liability in connection with financial distress caused by the pandemic, in particular where directors knew or should have known about the likelihood of insolvency and failed to take all necessary steps to prevent it

From 24 April 2020 until end of extraordinary anti-epidemic measure + 6 months

(31 December 2020 latest)

COVID-19: Suspension of Claw-Back Periods in insolvency proceedings

  • on the other hand, claw-back periods (i.e. periods within which preferential or fraudulent transactions or undervalue transactions may be challenged in subsequent insolvency proceedings of the company – see above) will be suspended for the duration of suspension of the duty to file for insolvency

During suspension of duty to file for insolvency (see above)

 

*   Under Czech law, a company is considered insolvent if it is either illiquid (cashflow test) or over-indebted (balance sheet test). A company is over-indebted if (i) it has several creditors, and (ii) its obligations exceed the value of its assets. A company is illiquid if it (i) has several creditors, and (ii) has overdue financial obligations outstanding for more than 30 days, and (iii) is unable to fulfil such obligations. 
** Please note that also a creditor's right to file an insolvency petition has been suspended – until the end of August 2020. A petition filed by the creditor will not be published in the insolvency register and will not have any procedural consequences. In practical terms, it is only the debtor who can initiate insolvency proceedings before the end of August 2020. 

 

Restructuring Toolbox – Crisis Management Checklist: Czech Republic 

WHAT TOOL?

WHAT DOES IT DO?

WHAT IS REQUIRED?

Out-of Court Restructuring 

  • no general regulation or (official/unofficial) guidelines for out-of-court restructurings
  • arrangement between company, its creditors and shareholders usually in the form of a standstill agreement where, typically:
    • creditors may agree to postpone enforcement of payment claims for limited period of time
    • distressed company/debtor provides additional security, cuts non-essential costs, etc.
    • shareholder may provide contributions
  • freedom of contract:
    • parties are free to shape contents of the restructuring arrangement but
    • all affected parties must agree to the terms of restructuring
  • Consent by all
    affected parties

Extraordinary Moratorium 

(enforcement holiday due to covid-19)

  • legal tool allowing eligible distressed Czech companies to apply to the insolvency court for a three-month extraordinary moratorium ("EM") by 31 August 2020 if the company among others:
    • was not insolvent on 12 March 2020
    • has financial problems due to the COVID-19 epidemic
    • has not paid profit shares or other extraordinary benefits to shareholders or persons within the group in the last two months before 12 March 2020 (unless such payments are returned to the company before the filing for the EM)
  • key features:  
    • suspends the possibility of enforcing collateral and initiating execution against the applicant company
    • prevents the possibility of commencement of insolvency proceedings by creditors – even beyond 31 August 2020 (date when the suspension period of a creditor's right to file an insolvency petition ends – see first page/above)
    • allows the company to prioritise the payments immediately necessary for the operation of its business (which have arisen after the declaration of the EM) over financial obligations due earlier / allows the company to use the state aid provided in connection with COVID-19 epidemic
    • the maximum three-month period can be extended for a maximum of another three months if prior consent of the majority company's creditors is obtained (consent of the majority creditors is not required for the initial application for the EM, only for the extension)
  • Filing the application by 31 August 2020
  • Prior consent of the majority creditors for extension of EM  

Reorganisation

  • legal tool being one of the two main types of insolvency proceedings (alternative to a bankruptcy) aiming at the continuation of a company's business when creditors are satisfied gradually, based on a reorganisation plan approved by the creditors and the insolvency court
  • available not only as solution for insolvency but also for imminent insolvency
  • reorganisation available to the company provided that it has:
    • minimum annual turnover of at least CZK 50 million (approximately EUR 1,800,000) or
    • at least 50 employees

or alternatively it is pre-packaged reorganisation, i.e. is pre-approved by the majority of secured and unsecured creditors

  • pre-packaged reorganisation – the company shall submit to the insolvency court the pre-agreed reorganisation plan together with the insolvency petition / standard reorganisation – either the company or its creditors shall file for reorganisation during the insolvency proceedings
  • for the purposes of voting on the reorganisation plan the creditors are divided into classes – the plan is approved by the creditors if (in each class) the majority of the voting creditors having at least 50% of the total nominal value of the claims of the voting creditors, votes for its approval
  • under certain circumstances, the insolvency court may approve the plan even if it is not accepted by each class of the creditors (cross-class cram down)
  • Ongoing insolvency proceedings
  • Application with court
  • Approval by creditors and Insolvency court

Moratorium on loans

(suspension of Repayments due to covid-19)

  • opt-in moratorium which allows creditors to defer repayment of selected loans until 31 July 2020 or 31 October 2020 if the borrower is affected by COVID-19 epidemic
    • available for loan agreements concluded before 26 March 2020 (utilisation after this date is possible)
    • does not apply to credit cards, overdrafts, revolving loans, operating leases or loans related to capital market transactions
    • not available if the loan is overdue more than 30 days as at 26 March 2020
  • the borrower shall notify its creditor and testify to the negative economic impact of the COVID-19 epidemic (no proof required)
  • restrictions during the protection period - once the borrower (being a legal entity) opts in for moratorium, it shall
    • refrain from disposing of assets that could serve to satisfy the creditor (no significant changes to the composition, use or designation of these assets or a non-negligible reduction)
    • refrain from encumbering or disposing assets without proper consideration
    • refrain from distributing profit (or pay advances), providing any loans to shareholder, controlled or controlling entities or repaying such loans
    • refrain from providing special bonuses to members of statutory bodies or senior employees
    • refrain from any acts shortening the possibility of satisfaction of creditors or favoring some creditors at the expense of others

such restrictions shall not apply to actions necessary to fulfil the obligations set out in special legal regulations for the operation of a business enterprise within the ordinary management, to avert imminent damage or to fulfil procedural sanctions

  • Opt-in during the COVID-19 epidemic

 

 

Download the crisis management checklist for Czech Republic here.
to the top

 

Hungary 

Status as of 29 May 2020 | Author: Gergely Szalóki

Directors' Duties – Crisis Management Checklist: Hungary 

WHAT DUTY?

WHAT DOES IT MEAN?

WHEN DOES IT APPLY?

Maintenance of solvency

Management of business risks

  • best efforts to preserve company's liquidity and sound financial structure
  • duty to manage and continuously assess credit risk, market risk, operational risk and liquidity risk

Pre-crisis and post-crisis

Taking creditors’ interests into account

  • executive officers are required to perform their duties based on the interests of the company's creditors
  • prohibition of certain payments, notably:
    • non-essential payments (in terms of Hungarian legislation, 'payments without justifiable contracts') or
    • payments without corresponding performance certificates (i.e. certificate in which the receiver of the goods/services certifies that it has in fact received such goods/services)
  • executive officers might be held personally liable (i.e. civil and criminal liability)
  • transactions resulting in preferential treatment of certain creditors and/or reduction of value of company's assets may be challenged/subject to claw-back in hypothetical subsequent insolvency proceedings
    • CAVEAT: liquidity support via shareholder loans if a company is under imminent threat of insolvency may entail equitable subordination of such loans resulting in repayment ban and/or subordinated status in potential subsequent insolvency.

Imminent threat of insolvency*

 

Convocation of general meeting

  • management board must call a general meeting with simultaneous notice to the supervisory board upon occurrence of any of the below trigger events:
    • the company's equity has decreased to half (limited liability companies) or two-thirds (private limited companies and public companies) of the share capital due to losses
    • the company's equity has decreased below the amount limit of HUF 3 million (limited liability companies) or HUF 5 million (private limited companies) or HUF 20 million (public companies)
    • it is foreseeable that the company will not be able to perform payment obligations when they are due or has stopped making payments or
    • the company's assets do not cover its liabilities
  • shareholders shall pass a resolution to eliminate the above trigger events or decide on the company’s transformation, merger or division, or in the absence of these, on its dissolution
    • resolutions of the general meeting shall be carried out within 3 months from the management becoming aware of the relevant trigger event

Without any delay (limited liability companies) or within 8 days (private limited companies and public companies) of becoming aware of a trigger event

Filing for insolvency 

[Not a legal obligation but an option]

  • no express legal obligation of management to file for insolvency
  • insolvency proceedings may either entail insolvent reorganisation (in-court restructuring/bankruptcy – see below) or insolvent liquidation
  • only the company may apply for insolvent reorganisation – the company's creditors may not
  • only the creditors can apply for insolvent liquidation

Insolvency**

 

* imminent threat of insolvency: A situation which occurs on the day that the executives of the company were able to foresee or had reasonable grounds to foresee that the company would not be able to satisfy its liabilities when due.
** insolvency: The company is unable to pay its debts when they are due (i.e. (i) company is in 20 days delay with at least one payment obligation and (ii) did not contest the payment obligation and (iii) did not perform in accordance with the payment obligation after it has been notified of this by the lender).

 

Restructuring Toolbox – Crisis Management Checklist: Hungary 

WHAT TOOL?

WHAT DOES IT DO?

WHAT IS REQUIRED?

Out-of-court

Consensual
Restructuring

  • arrangement between company and its creditors (typically financial creditors) where:
    • creditors agree to postpone due date and enforcement of payment claims for limited period of time such that terms of restructuring can be agreed ("stand-still") and
    • if negotiations are successful, creditors and company enter into restructuring agreement
  • freedom of contract:
    • parties are free to shape contents of standstill/restructuring agreements but
    • all affected parties (company and relevant creditors) must agree to stand-still and restructuring agreement

Consent by all creditors

Covid-19 measures

  • payment moratorium applies automatically to all Hungarian debtors under loan, credit and financial leasing agreement with financial institutions until 31 December 2020
  • moratorium applies to both domestic and cross-border debts
  • debtors may opt-out from the payment moratorium (continuation of payments should suffice; in practice, notice to the bank is advisable for reasons of legal certainty)
  • equal treatment of banks is not expressly required; however, providing advantages to a creditor may be subject to claw-back and hardening period in an insolvency proceeding (i.e. selecting lenders/loans arrangements when opting out must be carefully considered)

N/A

Insolvent reorganisation

(bankruptcy)

  • aimed at enabling eligible insolvent Hungarian companies to regain solvency by entering into arrangement with creditors in context of court-supervised restructuring proceedings
  • filing is not mandatory; only the debtor company may file
  • key features:  
    • debtor must demonstrate potential for restoring solvency
    • commencement of proceedings will result in restriction of activities to ordinary course of business, supervision by insolvency administrator/court
    • opening of proceedings will result in enforcement holiday in respect of the company
    • if approved by requisite majority of affected creditors (separate voting in affected classes), terms of settlement will result in cram down
  • Formal declaration of insolvency of debtor company
  • Application with court
  • Consent of each creditors' class

 

Download the crisis management checklist for Hungary here.
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Poland 

Status as of 21 May 2020 | Authors: Daniel RadwańskiMarcin AntczakPaula Weronika Kapica

Directors' Duties – Crisis Management Checklist: Poland 

WHAT DUTY?

WHAT DOES IT MEAN?

WHEN DOES IT APPLY?

Maintenance of solvency

Management of business risks

  • best efforts to preserve company's liquidity and sound financial structure
  • duty to manage and continuously assess credit risk, market risk, operational risk and liquidity risk
  • specific duty to take known crises into account for liquidity management purposes
    • CAVEAT: liquidity support via shareholder loans if a company is in "crisis" may entail equitable subordination of such loans resulting in repayment ban during "crisis" and/or subordinated status in potential subsequent insolvency
  • if the balance sheet shows a loss in excess of the sum total of the supplementary (kapitał zapasowy) and reserve capital (kapitały rezerwowe) and half of the share capital, the management must call a shareholders' meeting to adopt a resolution on whether or not the company should continue to exist

Pre-crisis and post-crisis

Enhanced scrutiny in respect
of known crises

Capital increase and additional shareholder payments

  • management may consider requesting shareholders to perform a capital increase  (not an obligation strictly speaking)
  • management may consider requesting additional payments (dopłaty) by shareholders (not an obligation strictly speaking)

Pre-crisis

 

Suspension of non-essential payments

Prohibition of unequal treatment of creditors

  • payments should be limited (not an express obligation but advisable to avoid liability on the basis of unequal treatment of creditors and claw-back in bankruptcy) to include:  
    • employment-related expenses such as wages and related social contributions, severance payments etc.
    • regular operating expenses (electricity, water etc.)
    • regular/scheduled payments to suppliers
    • tax liabilities

provided that such continued payments aim at preserving the business operations (the value of the business)

  • general prohibition of unequal treatment of creditors
  • transactions resulting in preferential treatment of certain creditors and/or reduction of value of company's assets may be challenged/subject to claw-back in hypothetical subsequent insolvency proceedings

Onset of Insolvency * ("T")

Filing for Bankruptcy

  • if company becomes insolvent, management must file for bankruptcy
  • alternatively, management may arrange for the opening of restructuring proceedings

T + 30 days OR

C-19 END ** + 30 days

 

*   ONSET OF INSOLVENCY: Deemed to have occurred when the debtor becomes insolvent. Under Polish law, a company is insolvent if it is either (A) unable to pay its overdue debts – presumed if the delay in the relevant payments exceeds three months; or (B) over-indebted – meaning that the debtor company's monetary obligations (excluding future liabilities and liabilities towards affiliates) exceed the value of its assets and if this state of over-indebtedness continues for an uninterrupted period of at least 24 months + 1 day.
** C-19 END means end of the state of epidemic or the state of epidemiological emergency (the state of epidemic has been pending in Poland since 20 March 2020). IMPORTANT: prolonged deadline applies only to companies who became insolvent as a result of COVID-19 (Polish law provides for a (rebuttable) presumption that insolvency occurring during the state of epidemic or the state of epidemiological emergency, results from COVID-19).

 

Restructuring Toolbox – Crisis Management Checklist: Poland 

WHAT TOOL?

WHAT DOES IT DO?

WHAT IS REQUIRED?

Out-of-court  restructuring

  • arrangement between company and its creditors (typically financial creditors) where:
    • creditors agree to postpone due date and enforcement of payment claims for limited period of time such that terms of restructuring can be agreed ("stand-still") and
    • if negotiations are successful, creditors and company enter into a restructuring agreement
  • freedom of contract:
    • parties are free to shape contents of standstill/restructuring agreements but
    • all affected parties (company and relevant creditors) must agree to stand-still and restructuring agreement

Consent by all
affected creditors

Court-sponsored restructuring (GENERALITIES)

  • Polish law provides four types of court-sponsored restructuring proceedings, differing in scope of protection for the debtor and restructuring instruments
  • may be initiated by company being insolvent or threatened with insolvency
  • If approved by requisite % of affected creditors, the terms of the proposed arrangement (typically, extension of maturity and/or reduction of debt claims) will be compulsory for all affected creditors ('cram-down')
  • restructuring options cover maturity extension, haircut, instalments, conversion of receivables into shares, collateral release
  • arrangement approved by creditors needs to be approved by court
  • Motion by company (or creditor in rehabilitation proceedings) with competent court
  • Formal admission of (threatened) insolvency
  • arrangement approval proceedings
  • proceedings may be opened if the amount of disputed claims* against the company does not exceed 15% of the total amount of all claims
  • key features:
    • company remains in possession (=management remains in control) of business
    • very flexible and move quickly (company collects the votes from creditors on arrangement by itself, without court involvement)
    • no enforcement holiday/stand-still applies with respect to the company
  • Agreement with supervisor
  • Collection of votes from creditors on arrangement
  • Approval of arrangement by court
  • accelerated arrangement proceedings
  • proceedings may be opened if the amount of the disputed claims against the company does not exceed 15% of the total amount of all claims
  • key features:
    • company remains in possession of business, but approval for activities outside ordinary course of business is required
    • enforcement holiday/stand-still applies with respect to the affected claims
  • Filing of application
  • Formal opening of restructuring proceedings
  • Appointment of supervisor
  • arrangement proceedings
  • proceedings may be opened if the amount of the disputed claims against the company exceeds 15% of the total amount of all claims
  • key features:
    • company remains in possession of business, but approval for activities outside ordinary course of business is required
    • enforcement holiday/stand-still applies with respect to the affected claims
  • Filing of application
  • Formal opening of restructuring proceedings
  • Appointment of supervisor
  • rehabilitation proceedings
  • legal tool aimed at deep economic restructuring, proceedings may be opened irrespective of the amount of the disputed claims against the company
  • key features:
    • the company is deprived of right to manage its business and the administrator is appointed (but the debtor may apply to court to retain control with management – "debtor-in-possession mode")
    • wider variety of remedial options in comparison to proceedings 1-3 above (e.g. employee redundancies)
    • enforcement holiday/stand-still with respect to all claims (including secured claims, e.g. mortgage, pledges)
    • right to terminate disadvantageous agreements by administrator
  • Filing of application
  • Formal opening of restructuring proceedings
  • Appointment of administrator

 

*   Disputed claims: debt claims alleged to be owed by the company to (third party) creditors but which are disputed by the company either in amount or basis. A list of claims (setting out the quantum of disputed claims) is prepared as a prerequisite for opening of any of the restructuring proceedings.

Download the crisis management checklist for Poland here.
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Romania 

Status as of 20 May 2020 | Authors: Matei FloreaAdina-Otilia DamaschinIustin Armașu

Directors' Duties – Crisis Management Checklist: Romania 

WHAT DUTY?

WHAT DOES IT MEAN?

WHEN DOES IT APPLY?

Maintenance of solvency

Management of business risks

  • best efforts to preserve company's liquidity and sound financial structure
  • duty to manage and continuously assess credit risk, market risk, operational risk and liquidity risk
    • CAVEAT: liquidity support via shareholder loans will result in equitable subordination of such loans (NB: irrespective of whether or not the loan was granted in "crisis" of the recipient company) resulting in subordinated status in potential subsequent insolvency / possible claw-back of repayments prior to insolvency

Pre-crisis and post-crisis

Enhanced scrutiny in respect
of known crises

Suspension of non-essential payments

Prohibition of unequal treatment of creditors

  • payments should be limited (not an express obligation but advisable to avoid liability on the basis of unequal treatment of creditors and claw-back in bankruptcy) to include:
    • employment-related expenses such as wages and related social contributions, severance payments etc.)
    • regular operating expenses (electricity, water etc.)
    • regular/scheduled payments to suppliers
    • tax liabilities
  • general prohibition of unequal treatment of creditors
  • transactions resulting in preferential treatment of certain creditors and/or reduction of net value of company's assets may be challenged/subject to claw-back in hypothetical subsequent bankruptcy proceedings

Onset of Insolvency * ("T")

Preparation for restructuring

  • preparation of financial restructuring measures:
    • description of financial position/reasons for insolvency
    • assessment as to possible out-of-court (including capital increase) restructuring and preventive restructuring measures

Any time prior to filing
for insolvency proceedings

Capital increase

  • if a capital increase is required/feasible, management may call a shareholders' meeting in this respect

Any time prior to filing
for insolvency proceedings

Filing for insolvent reorganisation
(Compulsory Settlement)

  • if:
    • attempts of share capital increase/out-of-court restructuring fail but
    • management assessment (see above) establishes a chance of success of compulsory settlement
  • management must file for compulsory settlement
  • management is obliged to file the claim for compulsory settlement in 30 days after the onset of insolvency. Should the 30 day deadline be exceeded by more than 6 months, management may be subject to criminal liability 

T + 30 days

 

Filing for Bankruptcy

  • if management's assessment establishes low chances of success of insolvent reorganisation/compulsory settlement (and any of out-of-court restructuring/share capital increase attempts have failed) managers must file for bankruptcy
  • management is obliged to file for bankruptcy in 30 days after the onset of insolvency. Should the 30 day deadline be exceeded by more than 6 months, managers may be subject to criminal liability

T + 30 days

 

* ONSET OF INSOLVENCY: presumed when the debtor is unable to pay its due debts in the amount of more than RON 40,000 (or 6 average gross salaries) for more than 60 days.
   NOTE: the debtor may not file the opening of insolvency proceedings in case the quantum of affected debt owed to the Romanian State exceeds 50% of all affected debt owed by the debtor.  

 

Restructuring Toolbox – Crisis Management Checklist: Romania    

WHAT TOOL?

WHAT DOES IT DO?

WHAT IS REQUIRED?

Out-of-court
Restructuring

  • arrangement between company and its creditors (typically financial creditors) where:
    • creditors agree to postpone enforcement of payment claims for limited period of time such that terms of restructuring can be agreed ("stand-still") and
    • if negotiations are successful, creditors and company enter into master restructuring agreement ("MRA")
  • freedom of contract:
    • parties are free to shape contents of standstill/MRA but
    • all affected parties (company and relevant creditors) must agree to stand-still and MRA
  • In Romania it is not a common practice when dealing with a large number of creditors

Consent by all affected creditors

Preventive
Restructuring

  • legal tool aimed at enabling eligible distressed Romanian companies to avoid insolvency by entering into MRA with financial creditors under the supervision of an administrator outside compulsory settlement proceedings
    • based on a reasoned application by the distressed company, the competent insolvency court may impose a stay of enforcement proceedings in respect of the affected claims until the MRA is approved/rejected ("stand-still")
    • if creditors holding 75% of company's claims agree to MRA and the court confirms it (formal test of conditions only), terms of MRA are compulsory for all affected creditors ("cram-down")  
  • stand-still and cram-down will apply to Romanian and non-Romanian creditors
  • 75% of creditors agree to MRA
  • Limited involvement of court

COVID-19 Moratorium

  • legal tool (emergency COVID-19 measure) enabling COVID-19 affected companies (it also applies for natural persons and liberal professions) to apply for suspension of payment obligations under bank loan agreements for a period of 9 months but no later than until 31/12/2020
  • affected company must file application with bank setting out amongst others:
    • that they do not register overdue payments and their loan has not reached maturity and it has not been accelerated before 16 March 2020 (date of establishment of the state of emergency in Romania)
    • their activity is completely or partially shut down following authorities' decisions (demonstrated by presenting a government-issued 'Emergency Certificate')
    • that they are not insolvent at the date of the application for moratorium
  • only available in respect of debts owed to Romanian bank lenders
  • Filing of application
  • COVID-19 Emergency Certificate
  • Romanian bank lender

Compulsory Settlement

(Insolvent Reorganisation)

  • legal tool aimed at enabling eligible insolvent Romanian companies to regain solvency in context of court-supervised restructuring proceeding
  • key features:  
    • debtor must demonstrate insolvency, potential for restoring solvency and that creditor recovery terms will be more favorable than in hypothetical bankruptcy
    • commencement of proceedings will result in some restriction to activities in ordinary course of business, supervision by insolvency administrator/court
    • opening of proceedings will result in enforcement holiday / stand-still in respect of the company
    • if approved by requisite majority of creditors (separate voting in affected classes), terms of settlement will result in cram down
  • new financing in the observation period (prior to restructuring period) will enjoy statutory super seniority in case of subsequent bankruptcy
  • stand-still and cram-down will apply to Romanian and non-Romanian creditors
  • Formal declaration of insolvency of debtor company
  • Application with court

Other COVID-19 support measures 

  • Application
  • Company must fulfil certain
    requirements

 

Download the crisis management checklist for Romania here.
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Serbia 

Status as of 29 May 2020 | Authors: Petar KojdićDušan ObradovićJelena Arsić

Directors' Duties – Crisis Management Checklist: Serbia 

WHAT DUTY?

WHAT DOES IT MEAN?

WHEN DOES IT APPLY?

Maintenance of solvency

Management of business risks

 

  • directors need to manage and continuously assess credit risk, market risk, operational risk and liquidity risk
  • best efforts to preserve company's liquidity and sound financial structure
  • intentionally causing insolvency (e.g. through excessive borrowing, irrational use of company's funds etc) may constitute a criminal offence
  • intentional damaging of creditors via unequal treatment my constitute a criminal offence
    • CAVEAT: liquidity support via shareholder loans if a company is in "crisis" may entail equitable subordination of such loans and susceptibility to claw-back in potential subsequent insolvency

 

 

Pre-crisis and post-crisis

 

 

Filing for Insolvency

[Not a duty but an option]

  • insolvency proceedings can be initiated by a creditor, liquidator or debtor itself
  • no express obligation on the debtor's management to file for insolvency
  • a fraudulent insolvency petition with an aim to avoid the settlement of creditors' claims may constitute a criminal offence
  • a creditor applying for the opening of insolvency proceedings is required to prove the existence of its claim and the fact that the debtor is unable to settle it
  • after the court determines whether there are valid grounds for insolvency*, the court decides on the opening of insolvency proceedings (rešenje o otvaranju stečajnog postupka)
  • depending on the decision of the debtor's creditors, the insolvency proceedings may be carried out either in form of bankruptcy (bankrotstvo) or in form of reorganisation (reorganizacija)

Before opening of insolvency proceedings

Restricted transactions

avoidance rules

  • although there are no specific restrictions regarding the transaction in vicinity of insolvency (apart from the general rule of duty of care stated above), certain pre-insolvency actions may be challenged by the insolvency administrator or creditors (pobijanje pravnih radnji stečajnog dužnika)
  • congruent settlement - transactions providing security interest/settlement to a specific creditor, which the company undertook in the period of six (6) months before the insolvency petition is filed, may be challenged if the debtor was insolvent at the time and if the creditor was or ought to have been aware of debtor's insolvency
  • incongruent settlement - transactions providing security interest or settlement to a creditor who was not entitled to request them, or was entitled to request them but not in the manner and at the time they were provided, may be challenged if they were entered in a period of twelve (12) months before the insolvency petition is filed
  • directly detrimental transactions - transactions entered into within a period of six months before the filing of the insolvency, which directly damage the creditors, may be challenged, inter alia, if the debtor was insolvent at the time and the counterparty was aware of the debtor's insolvency
  • intentionally detrimental transactions - transactions entered into in bad faith, with the intent to damage one or more creditors, within a period of five years before the filing of the insolvency petition may be challenged if the debtor's counterparty was aware of the debtor's intent. Likewise, transactions concluded without compensation or against negligible compensation may be challenged if made in the same period of 5 years prior to the insolvency petition
  • automatic challenge - transactions or actions providing security interest to a creditor within 60 days before the opening of insolvency proceedings shall not be valid and such creditors shall not be considered secured creditors

Before/during insolvency proceedings

*   A corporate debtor is deemed insolvent in case of
- continuing illiquidity (trajnija nesposobnost plaćanja); this ground, which is set as an objective test, occurs if the debtor cannot repay its debts within 45 days of their maturity date, or completely suspends payments for at least 30 days. There is an assumption of continuing illiquidity if a creditor could not satisfy its claim in an enforcement procedure. Both the creditors and the debtor may initiate insolvency on the grounds of illiquidity
- threatening illiquidity (preteća nesposobnost plaćanja), defined as a forecast that the debtor will not be able to service its debt when due, as evidenced by the debtor itself. Therefore, this is a subjective test, given that it relies on the debtor's forecast. Consequently, only the debtor (and not the creditors) can initiate insolvency on this ground
over-indebtedness (prezaduženost), which means that a debtor's liabilities exceed its assets (balance sheet insolvency). There is no guidance in the law as to whether assets should be valued as a going concern or if liquidation value is relevant. Since only the debtor (and not the creditors) can initiate insolvency on this ground and the debtor's management is not obligated to file for insolvency, over-indebtedness is rarely used as an insolvency ground in practice. However, if in case of voluntary liquidation (voluntary dissolution) proceedings initiated by the counterparty's shareholders the liquidation administrator were to establish that the assets of the liquidated company cannot cover its liabilities, the liquidator would have to file for insolvency 
breach of the reorganisation plan or fraudulent/illegal adoption of such plan (nepostupanje po usvojenom planu reorganizacije i ako je plan reorganizacije izdejstvovan na nezakonit ili prevaran način).

Restructuring Toolbox – Crisis Management Checklist: Serbia 

Restructuring Toolbox – Crisis Management Checklist – SERBIA

WHAT TOOL?

WHAT DOES IT DO?

WHAT IS REQUIRED?

Out-of-court

(informal)

Consensual
Restructuring

  • arrangement between company and its creditors (typically financial creditors) where:
    • creditors agree to postpone due date and enforcement of payment claims for limited period of time such that terms of restructuring can be agreed ("stand-still"); and
    • if negotiations are successful, creditors and company enter into restructuring agreement
  • freedom of contract:
    • parties are free to shape contents of standstill/restructuring agreements
    • no cram-down of dissenting creditor (unless such mechanism is contractually agreed)
    • affected parties (company and relevant creditors) must agree to a stand-still and restructuring agreement

Consent by the relevant creditor

Out-of-court

(FORMAL)

Consensual
Restructuring

  • legal tool available under the Consensual Financial Restructuring Act, with the Serbian Chamber of Commerce (the "SCC") acting as institutional mediator
  • so far, the number of financial restructuring cases before the SCC was negligible
  • aimed at enabling distressed Serbian companies to avoid insolvency by entering into a formal financial restructuring agreement with creditors outside compulsory settlement proceedings
  • debtor companies are able to take advantage of an optional stand-still agreement (effective only against accepting creditors), which includes moratorium/suspension of enforcement and forced collections
  • (final) financial restructuring agreement is a formal and binding agreement between the company and participating creditors in which different restructuring/forbearance measures may be included (e.g. grace period/payment moratoriums, extension of maturity/term, rescheduled payments, interest rate amendments, debt-to-equity swap, claim/debt assignment, new credit facilities, additional security, etc.)
  • no cram-down of dissenting creditors, i.e. 100% consent of participating creditors is required
  • At least two creditors must be banks and be willing to negotiate
  • Request for financial restructuring to SCC may be submitted either by debtor or one or more creditors

Covid-19 measures

  • opt-out moratorium on financial debt (only in relation to resident debtors and Serbian banks/leasing entities):
    • the resident companies may (voluntary) suspend debt service for loan/leasing/factoring instalments due after 30 March 2020 for at least 90 calendar days, and/or for the duration of the state of emergency due to the pandemic
    • during this period, the creditor banks/leasing entities may not charge any default interest on due outstanding claims, shall not initiate enforcement or forced collection procedures or take any other legal action to collect receivables
  • additional legal tools introduced due to the COVID-19 pandemic include: direct financial assistance, tax policy, liquidity preservation
  • liquidity preservation measures for SMEs (large corporates excluded):
    • subsidised loans in RSD in the maximum amount of up to RSD 120 million (approx. EUR 1 million)
    • liquidity/working capital EUR or RSD bank loans backed by a government guarantee
  • Direct financial assistance: application to the Tax Authority, based on the number of employees
  • Postponement of tax: filling in the payment date in the tax return form for the relevant month as 4 January 2021 (via electronic services, by end of April/May/June)
  • Loans for liquidity preservation: application to the Development Fund/chosen bank

(pre-packed) Reorganisation plan

  • as an alternative to straightforward bankruptcy, a restructuring of the company's debts can be achieved through reorganisation, as a formal rescue procedure in insolvency
  • the debtor may file a reorganisation plan together with an insolvency petition (a pre-packaged reorganisation plan). If the company has worked out the pre-packaged plan together with the creditors, the debtor may avail itself of expedited reorganisation proceedings
  • a reorganisation plan however may also be proposed after an insolvency case has been opened — by the debtor, the insolvency administrator, or the creditors (subject to certain thresholds)
  • a reorganisation plan is approved if each creditor class votes in favour of its adoption; a creditor class approves the plan by a favourable vote of its members who hold more than 50% of the amount of claims in that class. If just one creditor class does not approve the reorganisation plan, the plan will not be adopted (no cross-class cram-down possible)
  • after the adoption of a reorganisation plan, all creditors' claims and rights are regulated solely by the reorganisation plan, which represents an enforceable document
  • if a reorganisation plan is adopted, management retains control, subject to provisions of the reorganisation plan (typically, company's management is overseen by independent expert and creditors committee)
  • Application with court
  • Consent of each creditors' class

 

Download the crisis management checklist for Serbia here.
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Slovenia 

Status as of 15 May 2020 | Authors: Vid KobeJurij LampičPeter Gorše

Directors' Duties – Crisis Management Checklist: Slovenia 

WHAT DUTY?

WHAT DOES IT MEAN?

WHEN DOES IT APPLY?

Maintenance of solvency

Management of business risks

  • best efforts to preserve company's liquidity and sound financial structure
  • duty to manage and continuously assess credit risk, market risk, operational risk and liquidity risk
  • specific duty to take known crises into account for liquidity management purposes
    • CAVEAT: liquidity support via shareholder loans if a company is in "crisis" may entail equitable subordination of such loans (resulting in a repayment ban during "crisis" and/or subordinated status) in potential subsequent insolvency

Pre-crisis and post-crisis

Enhanced scrutiny in respect
of known crises

Suspension of
non-essential payments

Prohibition of unequal treatment of creditors

  • non-essential payments are no longer permitted
  • permitted payments are limited and include:
    • employment-related expenses (such as wages and related social contributions, severance payments etc.)
    • regular operating expenses (electricity, water etc.)
    • regular/scheduled payments to suppliers and
    • tax liabilities
  • general prohibition of unequal treatment of creditors
  • transactions resulting in preferential treatment of certain creditors and/or reduction of value of company's assets may be challenged/subject to claw-back in hypothetical subsequent insolvency proceedings

Onset of Insolvency * ("T")

Preparation of Restructuring Report

  • preparation of financial restructuring measures report ("Report"):
    • description of financial position / reasons for insolvency and
    • assessment as to possible out-of-court (including capital increase) restructuring and court-sponsored restructuring measures
  • Report must be delivered to supervisory board / shareholders' meeting of company

T + 1 month ("T2")

Capital increase

  • if Report establishes that capital increase is required/feasible, management must call a shareholders' meeting (notice period can be shortened to 15 days)

T2 + 8 days OR

C-19 END ** + 1 month

Filing for compulsory settlement

  • if:
    • attempts of share capital increase / out-of-court restructuring fail but
    • Report nonetheless establishes >50% chance of success of compulsory settlement

management must file for compulsory settlement (prisilna poravnava)

T + 90 days OR

C-19 END + 3 months

Filing for bankruptcy

  • if Report establishes <50% chances of success of compulsory settlement and no prospect of out-of-court restructuring / share capital increase, management must file for bankruptcy (stečaj)

T2 + 3 days OR

C-19 END + 3 months

  • if (1) Report establishes <50% chances of compulsory settlement success (if share capital increase attempt fails) and (2) capital increase attempt fails, management must file for bankruptcy (stečaj)

3 days upon establishing failure
of share capital increase
OR

C-19 END + 3 months

 

*   ONSET OF INSOLVENCY: Deemed to have occurred when the debtor’s management should have, acting diligently, established that the debtor is insolvent within the meaning of Slovenian law. Under Slovenian law, a company is insolvent if it is either illiquid (cashflow insolvency) or over-indebted (balance-sheet insolvency).
- Illiquidity – presumed if (i) company is more than two months late with payment obligations amounting to 20%+ of its total liabilities (as per annual statements for preceding business year); (ii) balance on company bank accounts does not suffice for execution of court order for enforcement for 60 days+); or (iii)  company is more than two months late with payment of minimal wages (up to the amount of minimum wage) to employees or prepayment of employees' income taxes and social contributions; or (iv) [COVID-19 Measure] the company is more than one month late with payment of wages and social contributions if state support was received within the COVID-19 emergency framework to fund these payments [Presumption applies for four months following C-19 END].
Over-indebtedness – presumed if (i) company's liabilities exceed its assets; or (ii) current losses plus losses carried forward reach 50% of company registered share capital and cannot be covered by reduction of carry-forward profits or reserves (reduction of net assets to 50% of registered capital).
**       C-19 END means the end of duration of the COVID-19 epidemic emergency legislative package (currently envisaged to stay in force until 31 May 2020). IMPORTANT: prolonged deadline applies only to companies who became insolvent as a result of the COVID-19 pandemic (this is presumed in case a company was subject to compulsory / official closure order) and, in respect of capital increase, if the requisite corporate acts could not have been adopted due to objective circumstances resulting from the COVID-19 pandemic.

 

Restructuring Toolbox – Crisis Management Checklist: Slovenia 

WHAT MEASURE?

WHAT DOES IT DO?

WHAT IS REQUIRED?

Out-of-court
Restructuring

  • arrangement between company and its creditors (typically financial creditors) where:
    • creditors agree to postpone enforcement of payment claims for limited period of time such that terms of restructuring can be agreed ("stand-still") and
    • if negotiations are successful, creditors and company enter into master restructuring agreement ("MRA")
  • freedom of contract:
    • parties are free to shape contents of standstill/MRA but
    • all affected parties (company and relevant creditors) must agree to stand-still and MRA

Consent by all affected creditors

Preventive
Restructuring

  • legal tool aimed at enabling eligible distressed Slovenian companies to avoid insolvency by entering into MRA with financial creditors outside compulsory settlement proceedings:
    • if creditors holding 30% of company's financial claims agree to start proceedings, this will result in compulsory stand-still for entire class of financial creditors (3-8 months)
    • if creditors holding 75% of company's financial claims agree to MRA (separate voting in secured and unsecured creditor class), terms of MRA are compulsory for all ("cram-down")
  • new financing will have statutory super seniority status in case of subsequent compulsory settlement/bankruptcy
  • stand-still and cram-down will apply to Slovenian and non-Slovenian creditors
  • 30% of financial creditors agree to moratorium
  • 75% of financial creditors within affected class agree to MRA
  • limited involvement of court

COVID-19 Moratorium

  • legal tool (emergency COVID-19 measure) enabling COVID-19 affected Slovenian companies to apply for suspension of payment obligations under bank loan agreements maturing after 12 March 2020 (date official declaration of COVID-19 epidemic in Slovenia) for a period of 12 months
  • affected company must file application with bank setting out amongst others:
    • confirmation of inability to make scheduled loan payments and description/evidence of business deterioration due to COVID-19 crisis and plan for re-establishing liquidity
    • confirmation of no outstanding tax/social contributions
  • companies having received the benefit of the moratorium are subject to restrictions in relation to dividend pay-out, payment of reward for business performance to management/employees and settlement of financial liabilities to affiliated persons
  • dismissal of a complete/justified application will result in fine of up to EUR 250,000 for bank
  • moratorium only affects Slovenian banks and branches of EU banks in Slovenia
  • Filing of application
  • Self-certification of COVID-19 related inability to service loan
  • Slovenian bank lender

Compulsory
Settlement

  • legal tool aimed at enabling eligible insolvent Slovenian companies to regain solvency by entering into arrangement with creditors (all or only financial) in context of court-supervised restructuring proceeding
  • key features:  
    • debtor must demonstrate insolvency, potential for restoring solvency, and that creditor recovery terms will be more favourable than in bankruptcy (to be confirmed by external certified experts)
    • commencement of proceedings will result in restriction of activities to ordinary course of business, supervision by insolvency administrator / court
    • opening of proceedings will result in enforcement holiday in respect of the company and
    • if approved by requisite majority of affected creditors (separate voting in affected classes), terms of settlement will result in cram down
  • new financing will enjoy statutory super seniority in case of subsequent bankruptcy
  • stand-still and cram-down will apply to Slovenian and non-Slovenian creditors
  • Formal declaration of insolvency of debtor company
  • Application with court
  • Eligibility certification by external experts

 

Download the crisis management checklist for Slovenia here.
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Vid Kobe

Local Partner in cooperation with Schoenherr

T: +386 1 200 09 34
v.kobe@schoenherr.eu

Iustin Armașu

Managing Attorney at Law

T: +40 21319 67 90
i.armasu@schoenherr.eu

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Martin Ebner

Partner

T: +43 1 534 37 50193
m.ebner@schoenherr.eu

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Matei Florea

Partner

T: +40 21 319 67 90
m.florea@schoenherr.eu

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Peter Gorše

Attorney at Law Attorney at Law

T: +386 1 200 09 68
p.gorse@schoenherr.eu

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Ondřej Havlíček

Attorney at Law

T: +420 225 996 500
o.havlicek@schoenherr.eu

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Wolfgang Höller

Partner

T: +43 1 534 37 50281
w.hoeller@schoenherr.eu

Paula Weronika Kapica

Attorney at Law

T: +48 22 223 09 20
w.kapica@schoenherr.eu

Krešimira Krušlin*

Attorney at Law in cooperation with Schoenherr

T: +385 1 457 99 24

Jurij Lampič

Attorney at Law Attorney at Law

T: +386 1 200 09 74
j.lampic@schoenherr.eu

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Natálie Rosová

Attorney at Law

T: +420 225 996 500
n.rosova@schoenherr.eu

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Miriam Simsa

Partner

T: +43 1 53 437 50472
m.simsa@schoenherr.eu

Gergely Szalóki

Local Partner

T: +36 1 8700 690
g.szaloki@schoenherr.eu

Linkedin

Philipp Wetter

Attorney at Law

T: +43 1 534 37 50755
p.wetter@schoenherr.eu