BGI Law Maganize 2013

BALMS GROUP INTERNATIONAL LAW MAGAZINE

BANKRUPTCY LAW AND COMPANY BANKRUPTCY PROCEEDINGS

2www.bgi-law.com

3

BGI

Editorial

JUAN LUIS BALMASEDA DE AHUMADABGI PRESIDENT

Dear friends,I have the pleasure of writing to you again, with the presentation of this new edition, already number XVI, of BGI News.

BGI News, corporate publication of our dear family Balms Group International, which in its origins was a newsletter, has evolved to become a magazine with almost 100 pages, that each day enjoys more success and enthusiasm among you all.

Through your comments we have found with satisfaction that using this magazine format and model is generating more readers; therefore we are continuing with the familiar mix of BGI’s domestic corporate news and information regarding partners of our network and publishing other developments, as well as feature articles on different legislations with emphasis on their subject matter. We will also provide news articles intending to keep you informed of the present, and future developments of our Balms Foundation for Children and all our kids, our educational work, our national and international forums, conferences, and publications, among many other things.

Technology imposes and globalises itself at an alarming rate, therefore we will publish this edition digitally and, subsequent to this, we will publish it in hard copy in order to promote its immediacy, its relevance and a wider circulation; trusting and hoping to be of use to you and trying to keep you entertained with such a tedious activity, that surrounds us in our daily lives yet is often unappealing and so far away from our affections, as is the world of law.

Kind regards.

4www.bgi-law.com

5

CONTENTS

Argentina 7Austria 15

Colombia 25

France 37

Germany 47

Gibraltar 57

Italy 65

Mexico 73

Paraguay 85

Romania 93

Russia 105

Spain 113

United Kingdom 123

Uruguay 131

6www.bgi-law.com

77

Insolvency LawLaw 24.522 (Insolvency and bankruptcy law)

Part one1. Who appoints the Trustee in Bankruptcy?Th e insolvent party retains administrative rights over his estate, but his powers are restricted in that certain acts are prohibited to him and he must act under the supervision and control of the Trustee in Bankruptcy. Th e concept of administration shall be interpreted in a restricted manner, that is to say, as only the possibility to carry out normal acts and operations related to business turnover as long as they do not aff ect the interests of the creditors. Also, depending on the circumstances of the case, the Judge may limit this measure to the designation of a co-administrator with those powers decided by him. Th e Trustee in Bankruptcy is desig-nated by drawn lot in a public act which the Judge calls to that end.

2. Which professionals carry out the duties of the Trustee in Bankruptcy?Th e insolvent party retains the administration of his estate. Th e Trustee in Bankruptcy will carry out the functions of supervision and control but will not even be a co-administrator. In order to be a Trustee in Bankruptcy, it is necessary to have been a certifi ed public accountant (Art. 253), for at least 5 years.

3. What are the duties and prerogatives of the Trustee in Bankruptcy?We have said that the Trustee in Bankruptcy is the same as the Trustee in Pre-Bankruptcy.Th e Trustee in Bankruptcy or supervisor must: ■ Supervise the business of the debtor. ■ Inform the Judge of any anomalies noticed by him as regards activities which aff ect the estate.

■ Constitute the provisional creditors’ committee.

Part two1. when should you fi le for bankruptcy?When a situation of cessation of payments exists and bankruptcy has not been declared.

2. Is there a deadline for fi ling for bankruptcy?Yes. All debtors must declare themselves insolvent within two months of the date upon which he knew or should have known he was insolvent. Non-compliance with this might lead to the company directors of legal entities holding joint responsibility for company debts.

3. Can an individual person fi le for bankruptcy?Yes. Such a person is included in the Law as a possible subject.

4. In the case of a legal entity, who should fi le for bankruptcy?Since we are dealing here with public or private legal entities, it should be requested by the legal representative, following a reso-lution, should one be necessary, by the company’s administrative body. Within THIRTY (30) days of the date the request is made, they should produce a copy of the decision of the assembly, sha-reholders meeting or governing body showing confi rming their intention to continue with the proceedings with the necessary majorities for ruling on ordinary matters. Should this condition not be met, then the proceedings will be duly discontinued with whatever eff ects such withdrawals may produce.

5. What happens if you do not fi le for bankruptcy?Bankruptcy may be declared, since this may be done at the re-quest of any creditor, or in the cases foreseen under Articles 46,

ARGENTINA

8www.bgi-law.com

47, 48, sections 2) y 5), 51, 54, 61 and 63 of the Insolvency and Bankruptcy Law.

6. Can a creditor of my company request the bankruptcy proceedings?No. Preventive bankruptcy is requested by the debtor himself, whether a private individual, a private legal entity or a company in which the State, Province or Municipality has a holding, regar-dless of the percentage of that holding.

7. Does the declaration of bankruptcy mean the closure of the company?No. Its aim is precisely, in a situation of non-payment, to off er a solution to creditors other than the total and immediate payment of the debts, which would indeed mean bankruptcy.

8. Once the bankruptcy has been declared, do I lose the decision-making power over my company?No. Th e insolvent party retains the administration of his com-pany but these powers will be limited by way of the supervisory functions of the Trustee in Bankruptcy in order to avoid prejudice to the rights of the creditors.

9. How long do the bankruptcy proceedings last?Th is can vary. Th e Insolvency and Bankruptcy Law establishes time limits for each of its stages.

10. Can workers be dismissed from a company that has entered into bankruptcy?Yes. Th ere is a preventive procedure for emergencies which can be applied for from the State Labour Ministry both within and outside the bankruptcy.

11. Is it possible to negotiate the outstanding payments before fi ling for bankruptcy in an attempt to avoid the bankruptcy?Yes, but with grave risks for the debtor since an agreement rea-ched with one of the creditors will not be binding on the others who might initiate individual suits, claim responsibility from the company directors and fi le for compulsory bankruptcy.

12. If the director of a company and the partners do not wish to fi le for bankruptcy. What can I do?You are empowered to request it.

13. As a mere partner of the company, can I be responsible for the debts? Yes. Th ere may be joint liability in the event of fraud or manifest neglect.

14. Is it possible to sell company assets before fi ling for bankruptcy in order to prevent being liable for the debts?Yes, as long as this is not an overt manoeuvre for some to benefi t to the detriment of others.

9

15. If I have goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place?Yes, because they are eff ective before the proceedings were decla-red open.

16. When is the bankruptcy proceedings considered “liable”?Where there is wilful misconduct or gross negligence on the part of the debtor.

17. How do bankruptcy proceedings end?Within three days of the corresponding agreements being obtained, the Judge will make a ruling informing of the existence of a preven-tive agreement. Th e creditors with voting rights, and those who have stated an objection for not having claimed in time or because their unsecured credits have not been admitted, may contest the agree-ment within a period of fi ve days following the notifi cation of the article 49 ruling by operation of Law. Once the formal complaint has been processed, if the Judge deems it legitimate, the bankruptcy should be declared. If the judge considers it not to be legitimate then he should ratify the agreement. Once the agreement is ratifi ed, and the measures necessary for its fulfi lment have been taken and ca-rried out, the Judge must declare the proceedings closed and should consider the Trustee in Bankruptcy’s involvement fi nished. Prior to the declaration of the closure of proceedings, all necessary guaran-tees shall be set up and it will be ruled to maintain the general res-traint on the debtor’s assets for the period the agreement is in force, except in the event of express agreement by the creditors.

18. Is to possible to negotiate a reduction of the debts payable and pay in instalments?Yes. Th at is the very purpose of the proceedings: the possibility of a renegotiation of the amount or the time period which covers debtors with equal credit privileges.

19. Can the company who has entered into bankruptcy request its liquidation?Yes. In the bankruptcy phase, all the business estate (assets and rights) are converted to cash in order to pay the creditors. Our in-solvency legislation foresees two possible outcomes of the process: Th e Agreement or Liquidation (Bankruptcy). If an agreement cannot be reached or it is one which is considered impossible to fulfi l, then the next step is liquidation.

20. What eff ects result from the bankruptcy liquidation request? ■ It will mean the immediate suspension of the debtor’s powers of administration and disposal of his estate.

■ If it is a legal entity it will be declared dissolved. ■ Th e administrative or winding-up bodies of the legal entity will be dissolved immediately and will be substituted by the insolvency administration.

■ Th e qualifi cation stage will begin, wherein it will be deter-mined whether the bankruptcy is fortuitous or culpable and responsibilities will be sought.

■ All claims by creditors will be brought to an early end.21. Who is in charge of elaborating the bankruptcy liqui-dation plan?Th e law foresees that the Trustee in Bankruptcy should draw up a liquidation plan, against which the creditors may make their

9

10www.bgi-law.com

representations. Th ese will be heard by the Judge. Th e Insolven-cy Law permits that, insofar as is possible, the production units should be sold as a package. Preferably, this sale will be carried out by public auction and only when it is declared that there are no bids, will piece by piece sale start.

22. Can the debtor or the creditors propose any sugges-tions regarding the bankruptcy liquidation plan?Yes. Formal complaints and representations.

23. Who has the fi nal decision on whether this goes into eff ect or not?Th e judge.

24. What happens if the judge does not approve the bankruptcy liquidation plan?Th e Trustee in Bankruptcy, with the agreement of the Judge and that of the creditors, must draw up a new plan for cancelling the debt.

25. What should I do in the case that someone who owes me money fi les for bankruptcy?All creditors for causes or claims prior to the fi ling, and their gua-rantors must request that the Trustee in Bankruptcy verify their credits, notifying the amount, cause and privileges. Th e request must be made in writing and in duplicate and be accompanied with accrediting documentation with two signed copies and must include the business address for the purposes of the proceedings. Th e Trustee in Bankruptcy will return the original documents stamping them with confi rmation of the request for verifi cation and the date. He may request that the originals be presented when he deems it convenient. Not presenting the documents will pre-vent verifi cation.

26. Do I have a time limit in which to provide information with regards to the credit the bankrupt company owes me? Yes. From the moment the fi rst edict is published up to when two years have passed since proceedings were opened, which will im-ply “late verifi cation”.

27. What happens if I do not provide my claim informa-tion within that time limit?You will not be able to exercise your rights against the debtor in those proceedings.

28. Do I need a lawyer to do this?Yes. In order to make any type of presentation to the courts it is necessary to have a lawyer, since in this way you will be informed of everything which happens during the proceedings and you will be able to carry out all types of insolvency actions, for example oppose the Trustee in Bankruptcy’s report if this does not duly recognise your claim and make appeals etc.

29. Where do I have to go if I want to fi le a lawsuit against the company who has entered into bankruptcy?You must appear before the judge leading the proceedings.

30. Which are the criminal liabilities aft er bankruptcy proceedings? ■ In the bankruptcy itself, there are no criminal liabilities of any kind. If the matter fi nishes in bankruptcy there will be an assessment of conduct. Th e bankrupt debtor is disquali-fi ed for one year from the date of the ruling declaring the

11

bankruptcy and once the year concludes, the disqualifi ca-tion automatically ceases.

■ Th ose aff ected by the bankruptcy declaration will lose their rights as creditors or against the estate.

■ Th ose aff ected by the bankruptcy declaration will be ordered to reinstate the assets or rights which have been unduly obtained from the debtor or the estate, compensating any damages caused.

■ In the event that the qualifi cation stage is opened as a result of the opening of the liquidation period, the directors or liquida-tors, de jure or de facto, of the legal entity at the time the bank-ruptcy was declared, and also those who had held that position during the previous years, may be ordered to pay the creditors, in full or in part, the portion of their claims not received from the estate.

11

13

ELBERT VAGEDES ABOGADOSBALMS GROUP INTERNATIONAL

Elbert Vagedes Abogados Sociedad Civil (EVA) is a law fi rm providing comprehensive legal counsel to companies and businesses. We intend to supersede your expectations, off ering an agile, professional and creative service. Our three defi ning concepts: ■ International + Multicultural ■ Act local+ Th ink global ■ Specialists in You

INTERNATIONAL + MULTICULTURAL

Our professionals have worked and/or studied overseas. We believe that understanding diff erent cultures and languages is essential for meeting the needs of foreign individuals and companies. EVA has dedicated departments providing services in foreign languages, mainly German, English and Portuguese.

ACT LOCAL + THINK GLOBAL

As part of our professional commitment, we constantly update our transboundary legal and fi nancial information. Th rough our partner fi rms abroad we maintain a high-functioning international network. Working with bi-national chambers, embassies and professional associations we insure the progress of international projects, training and professional formation.

SPECIALISTS IN YOU

Personalized service is our defi ning trait. We seek to build long-term relationships and achieve a deep understanding of your business. Our clients see us not only as their trusted advisors, but also as strategic partners who tailor to their particular needs.

AREAS OF EXPERTISE

■ Business & Commercial ■ Civil ■ Corporate ■ Tax ■ Labor ■ Litigation ■ Foreign Investment ■ Telecommunications and Technology

■ Media ■ Intellectual Property ■ International Trade ■ Mergers and Acquisitions ■ New Energy ■ Agricultural and Financial Business

■ Banking ■ Administrative Law, Bids and Tenders, Antitrust

■ Sports and Sports Marketing ■ New Public Law

ELBERT VAGEDES ABOGADOS

Av. Olga Cossettini 1545, 4° PisoAla Sur (Puerto Madero)C1107CEK Ciudad Autónoma de Buenos AiresRepública Argentina

Tel: 00 54 11 5275 2500

[email protected]

PARTNERS

Cristian Ernesto Elbert Matías Alejandro Vagedes Santiago Viglierchio Juan Manuel Peire

14www.bgi-law.com

15

AUSTRIA

Insolvency LawPart one1. Who appoints the trustee in bankruptcy?Exclusive jurisdiction over bankruptcy matters is vested in the district court (Bezirksgericht) if the debtor is a natural person with no business activities. Otherwise the state court (Landesge-richt) is responsible for the bankruptcy proceeding.In any case where the state court (Landesgericht) is responsible for bankruptcy it is mandatory to appoint a trustee. Th en the bankruptcy court offi cially appoints the trustee under the deci-sion which opens the bankruptcy proceeding. Th e court has the duty to supervise and audit the performance of the trustee.In case of bankruptcy proceedings involving natural persons who do not operate a business (debt settlement proceedings) the

appointment of a trustee is not mandatory. It is possible for the debtor to obtain a restructuring plan including self administra-tion. Th en the court has the duty to supervise the debtor.

2. Which professionals carry out the duties of the trustee in bankruptcy?According to Austrian bankruptcy law it is not necessary that the trustee has a certain profession, but specifi c skills are essen-tial. Regarding Austrian bankruptcy law, only people who have the required knowledge of business management and law may be appointed as trustee. In particular: lawyers and business con-sultants. Th e trustee has to be a blameless and reliable person who is also experienced in business. A further prerequisite to be appointed as trustee is independence from the debtor and the creditors.In most instances the trustee is an attorney at law, although he does not necessarily need to be one.

NEUMAYER, WALTER & HASLINGERRechtsanwälte-Partnerschaft

15

16www.bgi-law.com

As a general rule the trustee has to carry out his tasks personally but he is allowed to engage personnel with special knowledge, for example in accounting, if needed.

3. What are the duties and prerogatives of the trustee in bankruptcy?A trustee in bankruptcy has many diff erent duties to perform. Although most people have heard of the trustee of a trust, they have not heard of the bankruptcy trustee. Bankruptcy trustees are essential to the operation and integrity of the bankruptcy system. Th e trustee in bankruptcy is responsible for the practical conduct of the bankruptcy proceedings. Th e skills of the trustee are essen-tial for the success of the case.Th e application for opening a bankruptcy proceeding must be fi -led either by the debtor himself or by a creditor. Aft er the petition for bankruptcy is fi led the fi rst task of the trustee is usually to fi nd out the true economic situation of the debtor´s business and whether there are any possibilities for carrying on its business. Th erefore the trustee has to examine the former administration of the debtor and the reasons for bankruptcy. For this examination the trustee uses the fi nancial documents and other independent sources of the debtor. Any claims against the debtor must be notifi ed to the court within a defi nite period of time set by the court in its decision at the ope-ning of bankruptcy proceedings. In a formal court hearing the trustee is then required to state whether each particular claim is recognized or not (in case the claim is inappropriate). Recogni-tion of a claim takes the place of a court judgement and entitles the creditor to attempt enforcement. If the trustee objects to a claim, the court will set a date by which the creditor must institute legal proceedings in order to have a court decide on the validity of the claim against the bankrupt´s estate, represented by the trustee. If the creditor is successful in litigation, the claim is then offi cially recognized and settled to the same extent as all other claims are settled, following the distribution of the debtor´s assets. If a cre-ditor does not fi le the court action by the set date, his claim will not be considered in the asset distribution. Th e consequence of not fi ling a claim in bankruptcy proceedings or, in case a claim is fi led but disputed, of not properly pursuing a lawsuit in order to have such a disputed claim recognized, is that the creditor will not participate in the distribution of the debtor´s assets. Th e trustee in bankruptcy has the duty to take possession of the non-exempt assets of the debtor. Th e debtor is allowed to keep certain assets. Th ese are protected assets that are exempt from the bankruptcy. Th e trustee determines the value of the debtor’s pro-perty and has to liquidate and sell the non-exempt assets in such a way that gives the maximum amount of return to the unsecured creditors. Th e trustee can also decide to dispose of assets, if they are not of value to the estate.Th e trustee reviews the fi nancial position of the debtor, assesses whether the undertaking can be continued or whether an un-dertaking which has already been closed down can be reopened, he reviews whether a compulsory composition is in the interests of creditors and whether this is likely to be achievable, he esta-blishes and disposes of the assets, administers and represents the bankrupt estate, exercises the right of challenge for the bankrupt estate, assists in establishing the debt position and distributes the

proceeds of the estate. He also has to make periodic reports to the court on the progress of the bankruptcy.One of the most important rules in bankruptcy law is the equal treatment of all unsecured creditors. Preference given to one credi-tor means discrimination of all the other creditors. Th e bankrupt-cy trustee has certain powers to avoid any preferential transfers or improperly executed security interests. If the debtor transfers pro-perty to someone else or pays back certain creditors before fi ling bankruptcy, he is showing preference to them over others. In that case the trustee is able to avoid the preference and to get the money or property back and to distribute it among all creditors. Because bankruptcy is an extremely complex process and it is easy to get confused, we advise you to have a counselling session with a lawyer.

17

Part two1. When should you fi le for bankruptcy?Th e circumstances for fi ling for bankruptcy are (not only short term) lack of liquidity or over-indebtedness. Lack of liquidity is short term if it lasts not longer than two months.

2. Is there a deadline for fi ling for bankruptcy?Bankruptcy has to be fi led within 60 days aft er the circumstances have been met, in cases of natural disaster within 120 days.

3. Can an individual person fi le for bankruptcy?Yes (except Minors, in this case their legal representative has to take action).

4. In the case of a legal entity, who should fi le for bankruptcy?Th is is depends on the structure of the legal entity. In cases of legal entities (i.e. general partnership, limited partnership) with personal liability, the personally liable partner or the liquidator; in other cases (i.e. limited, incorporated company) the manager or the board of Management should fi le for bankruptcy.

5. What happens if you do not fi le for bankruptcy?First the debtor or its representative become criminally liable in some cases when creditors are harmed. Second a civil liability is generated, giving rise to a personal liability of the manager or the board of Management.


17

18www.bgi-law.com

19

6. Can a creditor of my company request the bankruptcy proceedings?Yes.

7. Does the declaration of bankruptcy mean the closure of the company?No.

8. Once the bankruptcy has been declared, do I lose the decision-making power over my company?Yes.

9. How long do the bankruptcy proceedings last?Depending on the complexity of the case, the proceedings last at least 90 days.

10. Can workers be dismissed from a company that has entered into bankruptcy?Yes.

11. Is it possible to negotiate the outstanding payments before fi ling for bankruptcy in an attempt to avoid the bankruptcy?Yes.

12. I am the director of a company and the partners do not wish to fi le for bankruptcy. What can I do?Th e director of the company has the duty to fi le the bankruptcy otherwise he is personally liable for damages.

13. As a mere partner of the company, can I be held res-ponsible for the debts?Th is depends on the legal structure of the company and if there have been any illegal actions. If it is, for example, a limited liability company there is no liability for the debts.

14. Is it possible to sell company assets before fi ling for bankruptcy in order to avoid being liable for the debts?In most cases, yes, depending on the legal entity and the contract in this special case.

15. If I have goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place?In most cases, yes. However the circumstances have to be consi-dered for each specifi c case. It has to be particularly defi ned if this is a case of joint knowledge, what was the intention or purpose of the transfer of goods and when did the transfer happen.


19

20www.bgi-law.com

21

16. When are the bankruptcy proceedings considered “liable”?Aft er the opening resolution and issue of the announcement.

17. How do bankruptcy proceedings end?Aft er the fi nal distribution of the proceeds and fi nancial repor-ting.

18. Is it possible to negotiate a reduction of the debts paya-ble and pay in instalments?Yes, depending on the particular case.

19. Can the company who has entered into bankruptcy apply for liquidation?No.

20. 20) What eff ects result from the bankruptcy liquida-tion request?None.

21. Who is in charge of drawing up the bankruptcy liqui-dation plan?Th e trustee.

22. Can the debtor or the creditors propose any sugges-tions regarding the bankruptcy liquidation plan?Yes.

23. Who has the fi nal decision on whether this is put into eff ect or not?Th e bankruptcy court (and creditors).

24. What happens if the judge does not approve the bankruptcy liquidation plan?Th e trustee has to come up with a new plan.

25. What should I do in the case that someone who owes me money fi les for bankruptcy?You need to notify your claim to the bankruptcy court.

26. Do I have a time limit in which to provide information with regard to the credit the bankrupt company owes me?Th ere is no preclusion for delayed fi ling of claims.

27. What happens if I do not provide my claim informa-tion within that time limit?If the proceeds are distributed in the meantime, the late claim for debt is not considered.

28. Do I need a lawyer to do this?No.

29. Where do I have to go if I want to fi le a lawsuit against the company who has entered into bankruptcy?First the claim has to be fi led in the bankruptcy proceedings; if the claim is disputed (by the trustee) legal action at court has to be taken.

30. Which are the criminal liabilities aft er bankruptcy proceedings?Delayed fi ling for bankruptcy may lead to punishment for negli-gent impairment of creditors’ interests.


21

NEUMAYER, WALTER & HASLINGER LAW PARTNERSHIPBALMS GROUP INTERNATIONAL

Th e Neumayer, Walter & Haslinger Law Partnership was founded in 1997 by MMag. Dr. Johannes Neumayer (who has worked as a lawyer in Vienna since 1987) and by Mag. Ulrich Walter (who was a trainee lawyer in the same fi rm and qualifi ed in 1993). Mag. Dr. Wolfgang Haslinger, LL.M. has worked for the fi rm since 2004 and became a partner in 2007. Th ese three free-thinkers are united by their passion for handling challenging legal issues and their desire to off er the best solutions for their clients. Th is partnership of experts, specialising in diff erent areas of Commercial Law, enables Neumayer, Walter & Haslinger to off er professional legal services in a wide variety of specialised fi elds. Absolute dedication, along with personal commitment to their clients, has paved the way to success and allowed the team to grow, both in terms of legal expertise and as a successful enterprise. In this respect, this law fi rm constitutes a highly competent and dynamic team, one that is well prepared for rapid economic growth and the challenges that the future may bring.Neumayer, Walter & Haslinger is a co-founding member of Balms Group International, BGI. Th rough this association, the fi rm can off er the best possible legal support, even beyond the borders of Austria, granting clients access to the counsel of an almost worldwide network of law fi rms. Regular, personal contact among the associated law fi rms that make up the network ensures that clients are supported with the same level of commitment from other members of BGI as provided by Neumayer, Walter & Haslinger.Off ering high-quality legal support to clients is of prime importance to Neumayer, Walter & Haslinger. In order to achieve this goal, the fi rm has access to a comprehensive legal research library, augmented by modern computer resources and a carefully selected supporting network of external consultants and tax experts.Th e main aim of our actions is to develop our skills and expertise further, ensuring that clients receive the best support possible from associated fi rms, and always giving our clients the clearest picture of the way matters are being handled on their behalf, based on a strict policy of transparency. Th is is what Neumayer, Walter & Haslinger stands for.

AREAS OF EXPERTISE

■ Business Law/International Trade Law

■ Taxation/International double taxation

■ Company Law ■ Competition Law, copyrights,trademarks, etc.

■ Intellectual property ■ Media Law ■ Cross-border company direction and fi nance

■ Financial and banking matters ■ Company foundation ■ Construction Law ■ Agents Law ■ Joint ventures and take-overs in Eastern countries

■ Seminars in Media Law, Intellectual Protection Law, Label Laws and reputation

■ Protection for companies and managers

■ Real estate transactions ■ Public permissions ■ Labour Law and foreign employee matters

■ Corporate Law ■ Branch offi ces in foreign enterprises ■ Trade Law ■ Civil Law ■ Administrative Law/framework of economical regulations

■ Zoning Law ■ Criminal Law in economic off ences ■ Town and rural planning

NEUMAYER, WALTER & HASLINGER LAW

PARTNERSHIP

A-1030 Wien, Baumannstraße 9/11

Austria

Tel: 00 43 1 712 84 79 Fax: 00 43 1 714 52 47

[email protected]

PARTNERS

MMag. Dr. Johannes Neumayer Mag. Ulrich WalterMag. Dr. Wolfgang Haslinger, LL.M.

24www.bgi-law.com

25

Bankruptcy LawPart oneFirst of all it should be pointed out that under current Colom-bian legislation we cannot talk about bankruptcy proceedings as such. When Law 1116 of 2006 was passed together with other regulations which were added to it, the Legislator reformed the bankruptcy system which until then had established the legal treatment to be given to traders in a serious, abnormal and defi -cient fi nancial position as far as their contractual obligations were concerned. Under the new model now in place, in Colombia one speaks of an insolvency regime, of business re-structuring and winding up companies, a process which is, in general terms, the responsibility of the Superintendency of Corporations, the body which controls registered companies in Colombia.

1. Who appoints the trustee in bankruptcy?Th e trustee in Bankruptcy, under the terms of Law 1116 of 2006 is known as: Designated “promotor” or liquidator, depending on the stage of the proceedings, and is designated by the bankruptcy judge which will be either the Superintendency of Corporations or the Civil Circuit Judge corresponding to the debtor’s company’s business address.Nevertheless, according to article 19 of Law 1116 of 2006, the designated “promotor” or liquidating agent can be replaced, by mutual agreement between the debtors and creditors holding an

absolute majority of votes1, at any moment during the insolven-cy or bankruptcy proceedings as long as the replacement is on the list which the country’s Superintendency of Corporations has drawn up for this purpose.

2. Which professionals carry out the duties of the trustee in bankruptcy?When insolvency proceedings begin, the corresponding Bankrupt-cy Judge, as a legal offi cial, designates the “promotor” or Liquidator by way of a public drawing of lots, always from the list drawn up for that purpose by the Superintendency of Corporations2.

3. What are the duties and prerogatives of the trustee in bankruptcy?In the fi rst place, the trustee in bankruptcy carries out two main functions according to the stage of the proceedings and depen-ding on the direction in which the proceedings go as a result of the actions of the parties. In this way, the trustee may act as desig-nated “promotor” or liquidator.

1. Article 31 of Law 1116 of 2006 lays down the manner in which the number of votes held by each of the internal and external creditors of the debtor is established for the purposes of the decisions to be taken during the proceedings according to the type and amount of their claim(s).2. Informative paper. New business insolvency regime. Drawn up by the Ministry of Commerce, Industry and Tourism and the Superin-tendency of Corporations.

COLOMBIA

25

26www.bgi-law.com

At the start of the process, once designated initially as “promotor”, the trustee has the general function of accompanying and guiding the debtor through the drawing up of the agreement for reorgani-zing the company which must be put to vote by the creditors. To do this, the “promotor” is responsible for receiving and checking the plan for classifying and grading claims or debts and the vo-ting rights of the creditors, which the debtor should present to him. Once the “promotor” has checked the plan he must appear before the bankruptcy judge so that an offi cial of the Superinten-dency of Corporations may approve it.A second function, once the plan for rating claims mentioned above has been approved and the respective claims have been re-cognised by the bankruptcy judge for the proceedings, is that the “promotor” must, within a non-renewable period of four months, present the agreement for company reorganization, which must be approved with the absolute majority of the votes previously agreed on for the creditors according to the rules mentioned in the footnote of page 1. Once the agreement has been approved by the bankruptcy judge, if the debtor fails to fulfi l the agreed res-ponsibilities, the “promotor” must, once the breach hearing has taken place: 1. check and update the classifi cation and grading of claims and

voting rights; 2. manage the possible alternatives for a solution in the face of a

breach of the agreement for company reorganization; and 3. present his fi ndings to the bankruptcy judge at the Superinten-

dency of Corporations within one month. In the event that the debtor should fi nd a solution to his failure to meet his responsi-bilities, the judge will confi rm the agreed alternative and in this case the “promotor” must ensure that it is strictly adhered to.

However, there is a possibility that due to inactivity or negligence on the part of the debtor one of the following might happen:1. it might not be possible to present the agreement for company

reorganization; or 2. that the agreement might not be approved by the judge for any

one of various reasons, amongst others because it is not effi cient in guaranteeing the fulfi lment of the debtors obligations or be-cause it does not take into account all the claims and debts; or

3. the debtor does not comply with the previously agreed agree-ment for company reorganization. In such cases the judge will rule that the bankruptcy stage be opened, in which he will de-signate the person who until then was the “promotor” as liqui-dator. In this situation the liquidator will take on the duties of legal representative of the debtor and will, by express legal order, manage the company in an austere and effi cient manner.

At this stage in the proceedings, the newly appointed liquidator must take inventories. Th is consists of fi rstly updating the gra-ding and classifi cation of the claims against the debtor and may include creditors who for several reasons were not included in the original agreement for company reorganization. Th e liquidator at this stage will also be responsible for checking and updating the goods and other assets owned by the debtor at that date. Finally, the liquidator will, according to the classifi ed claims, determine the quota and the number of votes of the internal and external creditors. Th is updated report must be sent by the liquidator to the bankruptcy judge within three months so that the judge may make a ruling in which they are recognized and approved.Following this, the liquidator will be responsible for handing over to their owners, any items which form part of the debtor’s assets

27

and which have been excluded from the proceedings3. Th is must be carried out within six months from the date the liquidation pe-riod is opened. Th e liquidator must also sell all assets which have been recognized by the judge within two months and for a value which may in no case be less than the amount at which they have been valued. Th en, taking into account the assets which he has not been able to sell, the liquidator, working with the creditors and at all times respecting the claim preferences laid down in the Law, will draw up an adjudication agreement which must be approved by the bankruptcy judge. So, within the fi ve days following the court’s adjudicating order, the liquidator must inform the bankruptcy judge of which credi-tors did not agree to receive the debtor’s goods according to the agreement so that those creditors can be excluded, it being un-derstood that they reject payment of their claims within the judi-cial liquidation process. Th ose assets will be used by the liquidator as appropriate to: 1. carry out payment of debts to the other creditors or 2. hand them back to the debtor in the event that his payment obli-

gations have been met in full.Finally, once the above mentioned duties have been carried out, the liquidator will hand the judge a fi nal summary of accounts under his management including payments and the correspon-ding investigations carried out as to the debtor’s creditors. Ne-vertheless, with the bankruptcy judge’s authorization and respec-ting the priorities and privileges laid down under the Law, the liquidator may request from the judge authorization for the early

3. Assets defi ned in article 55 of law 1116

cancellation of those obligations held by the debtor in favour of creditors whose claims have been ratifi ed.It should be pointed out that the liquidator has the power, at any time during the judicial liquidation process, to put forward a pro-posal for reorganizing the debtor’s company. In such situations, the bankruptcy judge will call a hearing so that it may be discussed and decided upon by the creditors and the other parties involved.

Part two1. When should you fi le for bankruptcy?Th e Colombian legal system lays down two possible cases where one can apply for bankruptcy proceedings to be started and defi -nes them as when the debtor is: 1. is in a situation in which he has stopped meeting his payment

obligations or 2. is in a situation in which not meeting his payment obligations

is imminent.Th e debtor will be considered as in a situation of non-payment, “when he fails to meet payment of two or more payments which are due in favour of two or more creditors as a result of his business for more than ninety days or he has at least two enforcement actions presented by two or more creditors for meeting payment obligations. In any of these cases, the accumulated value of these obligations must represent no less than ten percent (10%) of the debtor’s total liabilities on the balance sheet at the date of the application in com-pliance with what is laid down in this law”. (Article 9 of Law 1116 of 2006).

27

28www.bgi-law.com

On the other hand, the debtor will be considered to be in non-payment when “he can demonstrate that circumstances exist in his respective market or within his organization or structure which se-riously aff ect or may be reasonably expected to seriously aff ect the normal meeting of obligations with a due date of one year or less”. (Article 9 of Law 1116 of 2006). It should be pointed out that this second cause is not applicable to private individual traders by ex-press legal provision.As well as being in one of the aforementioned cases, a debtor who wishes to enter into bankruptcy proceedings must, necessarily under Colombian law, meet the following requirements: 1. Th e time limit set down under the law in order to limit the cau-

ses for winding up the company must not have been exceeded without having taken measures to resolve the situation.

2. Regularly keep the accounts of his business in compliance with legal regulations.

3. If the debtor holds a pension fund, he must have the actua-rial calculation approved and be up to date with monthly payments for pensions, bonuses and enforceable pension entitlements.

Any payment obligations which arise during proceedings for that reason, as well as payment facilities agreed before the start of pro-ceedings, will be paid preferentially, even before other adminis-tration costs.

2. Is there a deadline for fi ling for bankruptcy?No.

3. Can an individual person fi le for bankruptcy? Yes, but there is a special provision, that of law 1564 of 2012 setting down the insolvency regime for non-trading private in-dividuals, which allows for some people in fi nancial diffi culties for paying their debts to renegotiate or restructure those debts in order to avoid them being placed under seizure. Th e following people may fi le:1. Private individuals who are behind with two or more payments

in favour of two or more creditors for more than 90 days.2. Th ose who have two or more enforcement actions pending.

4. In the case of a legal entity, who should fi le for bankruptcy?It must be fi led for by the Legal Representative of the legal entity.

29

5. What happens if you do not fi le for bankruptcy?It is not obligatory to fi le: However, if it is not fi led for, then it is possible for one of the persons mentioned in question 3 to fi le for it with the respective bankruptcy judge if the conditions mentio-ned are met.


7. Does the declaration of bankruptcy mean the closure of the company?No.

8. Once the bankruptcy has been declared, do I lose the decision-making power over my company?No, but decision-making capacity is limited in certain aspects. For example, in article 17 of of Law 1116, from the date of fi -ling, the administrators are prohibited from making changes to the Statutes; creation and enforcement of guarantees which fall upon the debtor’s own assets including mercantile trusts or trust mandates which serve that purpose; pay compensation, make payments, payment arrangements, withdrawals, acquiescences,

termination whether unilateral or by mutual agreement of cu-rrent contracts; reconciliations or transactions of any kind of debts held by them; nor may they sell assets or carry out ope-rations which are not part of the debtors normal business acti-vity or which are carried out without complying with applicable statutory limits, including mercantile trusts and trust manda-tes which serve that purpose or recommend or empower them in that sense; all of the above unless there exists prior, express authorization by the bankruptcy judge; amongst other restric-tions provided for under the Law.Carrying out any of these acts is specifi cally penalized under the law with immediate non-eff ectiveness. Of course such acts may be carried out validly when they are authorized by the bankruptcy judge as long as there is a written prior request from the debtor.

9. How long do the bankruptcy proceedings last?Under current national legislation, proceedings will fi nish de-pending on the mechanism agreed on by the bankruptcy judge according to the actions of the parties involved. It is important to mention that independently of the procedural course chosen, the Law does not establish any fi xed time limit for bankruptcy proceedings to be fi nished.

29

30www.bgi-law.com


11. Is it possible to negotiate the outstanding payments before fi ling for bankruptcy in an attempt to avoid the bankruptcy?Yes. Th is is s possibility for the contracting parties by virtue of the principle of autonomy of the individual’s will and the possibili-ty of claiming rights. Th is possibility is also defended even when bankruptcy proceedings are under way at the same time, as set out in article 84 of Law 1116.

12. I am the administrator of a company and the partners do not wish to fi le for bankruptcy. What can I do?Since there is a legal void in applicable regulations, article 402 of the Commercial Code, states that the decision to fi le for bankruptcy falls solely on the maximum governing body of the company; for that reason, this decision is out of the hands of the

administrator, so in the case described the administrator may not fi le for bankruptcy on behalf of the company.

13. As a mere partner of the company, can I be responsible for the debts?Initially, in the case of a shareholder company, a company partner will not be directly responsible for the debts which make up the company’s liabilities. However, in the case of Limited Company or Limited Partnership there may be joint liability for certain labour and tax payments. Nevertheless, the partners, in the same way as the administrators, fi scal reviewers, creditors and employees, may be liable for claims when the creditors’ common security is prejudiced due to their negligent or wrongful acts. Th e above will not be applicable to those partners who had no knowledge of the acts or omissions which caused that prejudice or in those situations where they had voted against them as long as they do not later put the decision into eff ect.

31

In this respect, it is important to mention that cases of non-ful-fi lment of, or overstepping, their duties, breaking the law or the articles of association, gross negligence will be presumed. Also, clauses and stipulations whose intention is to release partners from those liabilities will be considered null and void. Finally, it must be taken into account that the partners’ liabilities in those cases may be enforced without prejudice to other penalties con-templated in civil and penal regulations no matter what the type of the company. Now, if we look at article 60 of Law 1116, within the framework of the legal bankruptcy stage, “if the assets are insuffi cient to pay the debtor company’ creditors, the liquidator must demand that the partners pay the value of non-paid up instalments or shares and that of any additional liability agreed under the articles of associa-tion. Nevertheless, the partners may, as an exception, propose that company assets are suffi cient or that they may not be used for pay-ment of external creditors”.

14. Is it possible to sell company assets before fi ling for bankruptcy in order to prevent being liable for the debts?In principle it is possible to sell off such assets. However, the bankruptcy judge has the power to “recover assets which form part of the debtor’s estate, including the power to revoke any actions or contracts carried out to the detriment of the creditors”. For that rea-son, if those assets are sold with the intention of defrauding the company’s creditors, the bankruptcy judge may justifi ably revoke such sales as part of the proceedings.Having said that, the above is specifi cally not applicable, under the law, to transactions with shares or other negotiable rights which have received a transfer order accepted by the clearing and sett-lements system.

15. If I have goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place?No.

16. When are the bankruptcy proceedings considered “liable”?Th is type of bankruptcy is not contemplated under Colombian legislation.

17. How do bankruptcy proceedings end?Th e bankruptcy process will conclude depending on the mecha-nism which has been agreed upon by the bankruptcy judge within the framework of actions carried out during the proceedings. Th us, if the proceedings are carried out on the basis of a reorgani-zation agreement duly validated by the bankruptcy judge, procee-dings will fi nish when: 1. Th e obligations agreed upon therein are fulfi lled.2. If they are not fulfi lled and this is not solved with the judge.3. Th e debtor does not meet monthly pension payments, social se-

curity contributions or other administrative costs.If, on the other hand, there is no consensus on a reorganization agreement and it is necessary to continue the process through le-gal bankruptcy channels, it will end when: 1. When a ruling for adjudication of assets is executed.2. A reorganization agreement is arrived at.

18. Is it possible to negotiate a reduction of the debts paya-ble and pay in instalments?Yes. Th is is precisely one of the main purposes of the proceedings.

19. Can the company who has entered into bankruptcy request the liquidation of the same?Yes. Th is is an option open to the debtor from the very start of proceedings.

20. What eff ects result from the bankruptcy liquidation request?As a general eff ect of the request, the Law supposes that the initia-tion of the bankruptcy process signifi es the existence of a situation on non-payment.When bankruptcy liquidation is declared, the following specifi c eff ects are produced:1. Th e legal entity is dissolved. As a consequence, to all legal

eff ects, the company must announce itself as “in bankruptcy liquidation”.

2. Th e company board and tax reviewers, should they exist, cease functioning.

31

32www.bgi-law.com

3. All administrators are removed from their positions.4. Th e termination of ongoing, deferred or one-time contracts

which are not necessary for retaining the assets and those con-tracts from trusts or trust mandates signed by the debtor as the person who set them up against assets in his name and to cover his own obligations or those of others, with the exception of tho-se contracts for which he has obtained authorization from the bankruptcy judge to continue.

5. Th e termination of labour contracts, with their corresponding compensation payments to the workers in accordance with the Labour Code, with no administrative or legal authorization whatsoever being necessary and subject to the bankruptcy rules, the obligations which derived from such terminations without prejudice to the corresponding preferences and priorities.

6. A copy of the declaration of bankruptcy will be placed at the disposal of the Ministry of Social Protection so that it can ensure that labour obligations are met.

7. Th e legal termination of trust mandates and mercantile trust contracts signed by the debtor to guarantee its own obligations or those of others using its own assets. Th e judge will order the cancellation of guarantee certifi cates and the recovery of assets which form part of the autonomous equity. Th ose obligations acquired using the autonomous equity shall be considered as obligations of the founder of the trust.

8. Th e closing of the limitation period and the expiry of opera-tions relating to obligations, against the debtor or his co-debtors, guarantors, issuers of letters of credit or any other person who must fulfi l the obligation, which are acquired prior to the start of bankruptcy liquidation proceedings.

9. Th e calling in of all the debtor’s term liabilities will not imply the calling in of obligations in respect of other joint debtors.

10. Th e bankrupt party’s debtors may only make payments to the liquidator and are warned that payments made to any other persons will be considered null and void.

11. Administrators, associates and controlling parties will be pro-hibited from selling any asset which forms part of the saleable capital of the debtor and from making payments or payment arrangements in respect of liabilities acquired prior to the bankruptcy liquidation as from the date it is declared.

12. All enforcement processes against the debtor up until the hea-ring to decide on formal complaints, will be forwarded to the judge so that they can be taken into account when qualifying and grading claims and voting rights.

21. Who is in charge of elaborating the bankruptcy liqui-dation plan?Th e liquidating agent appointed by the bankruptcy judge.


23. Who has the fi nal decision on whether this goes into eff ect or not?Th e bankruptcy judge

24. What happens if the judge does not approve the bankruptcy liquidation plan?Th e liquidation plan may only be contested if the creditors make offi cial objections to it during the period the bankruptcy judge grants for this. Th en, depending on the allegations made by the creditors and evidence presented, the liquidation plan will be adapted while complying with the regulations governing the prio-rity of claims.

25. What should I do in the case that someone who owes me money fi les for bankruptcy?In these situations the creditor should wait until the “promotor” or the liquidator, depending on the course the proceedings take, presents the judge with the respective plan for classifi cation and grading of claims and voting rights for approval in order to check whether the claim has actually been listed and has been taken into account in the bankruptcy. In the event that it is not the case, the creditor must make his formal complaint so that his claim may be included in the fi nal plan and this be taken into account for eff ective payment.

26. Do I have a time limit in which to provide information with regards to the credit the bankrupt company owes me?Th ose creditors whose claims have not been listed in the creditor inventory and the corresponding plan for recognition and grading of claims presented by the debtor and by the designated “promo-tor” must make their offi cial complaint to the judge within 3 days4.

27. What happens if I do not provide my credit informa-tion within that time limit?If a claim is not duly notifi ed and no formal complaint has been made against it not being included in the plan for recognition and grading of claims, Law 1116 lays down that the creditor may only claim against those debtor’s assets which remain once the plan has been carried out or if it has not been fulfi lled; except, of course, it is expressly allowed by the other creditors in the reorganization agreement.

28. Do I need a lawyer to do this?It is not necessary.

29. Where do I have to go if I want to fi le a lawsuit against the company who has entered into bankruptcy?As a general rule the request must be made to the Companies Su-perintendancy which will act as part of its jurisdictional duties. However the bankruptcy proceedings must be fi led before the Ci-vil Circuit Judge corresponding to the business address of the de-btor in those cases which are not mentioned in the same article as being the responsibility of the Superintendency of Corporations.

30. Which are the criminal liabilities aft er bankruptcy proceedings?Criminal law has special types of crime for fraud, concealment of assets and others, though it does not relate them to bankruptcy proceedings.

4. This period, taking into account that Law 1116 of 2006 or any other which modifi es it, does not lay down any special period and so the period established under general and supplementary civil proce-dural law should be applied.

33

Commercial law sets down a penalty system of disqualifi cation from trading for up to ten years, applicable to any administrators and partners who either before or during the proceedings do any of the following: 1. 1. Set up or use the company in order to defraud creditors.2. Fraudulently take the company into a situation of fi nancial crisis.3. Partially or completely destroy assets which make up the capital.4. Waste or dilapidate assets which lead to the opening of bankrupt-

cy liquidation.5. Fail to comply, without due cause, with the reorganization agree-

ment subscribed to with the creditors.6. Speculating, before or during the bankruptcy proceedings, with

their obligations and purchasing them at a lower price.

7. Cause the loss, undervaluing or total or partial concealment of assets.

8. Carrying out simulated acts or simulating expenses, debts and losses.

9. Withdrawing from, renouncing or waiving a valid claim without just cause and to the detriment of creditors.

10. Knowingly excluding creditors from the list of creditors or in-cluding non-existent claims.

Also, if the bankruptcy judge deems it necessary, he may order that the penalty imposed be included in the Registry of Companies and, if he has knowledge of a criminal act, inform the country’s Public Prosecutor’s offi ce.

33

35

ESPINOSA ABOGADOS ASOCIADOS BALMS GROUP INTERNATIONAL

Since 2000, Espinosa Asociados has brought together lawyers with over 20 years of consultancy experience, young partners and highly-qualifi ed associates. Its fundamental business philosophy is to provide professional advice, personally directed and executed by its partners, prioritising the obtainment of practical results, previously defi ned accor-ding to the specifi c needs of each client, through the participation of an interdisciplinary team of professionals. Th is is what allows us to provide a truly comprehensive advice service to individuals, family groups, national and international companies, investors and fi nancial groups, to carry out their business negotiations in Columbia in areas of corporate and fi nancial commercial law, taxation, exchanges, administrative and insurance law.Th e above is also refl ected in the fact that we off er consultancy in company and family protocol, in equity organisation over several generations and in estate planning, considering the relations with family law.We compliment these areas with the experience of some of our partners in the fi nancial structuring of businesses and projects and their knowledge of the functioning of the State and its entities. Th is enables us to off er commercial counterparts who have been subject to due diligence.We make our clients’ aims and objectives our own, aligning ourselves with them in order to form a united team, focused on following a strategy and achieving previously identifi ed goals. We also provide continuous guidance in decisions that require legal support, which makes us a fi rm capable of adding value to business management.

AREAS OF EXPERTISE

■ Commercial and Corporate Law ■ Financial Law ■ Taxation Law. Import and Foreign-exchange Regime

■ Extrajuditial Conciliation Law ■ Insurance Law ■ Administrative Law ■ Family Business ■ Litigations and Arbitration Tribunals ■ Strategic advice for fi nantial groups

ESPINOSA & ASOCIADOS

Carrera 10 Nº 97-A-13Ofi cina 701

Bogotá, Colombia

Tel: +57 1 6428577Fax: +57 1 6428578

Mov: + 57 310 300 1904

[email protected]@espinosaasociados.com

[email protected]@espinosaasociados.com

www.espinosaasociados.com

PARTNERS

Carlos Antonio Espinosa PérezBeatriz Espinosa PérezAlejandro Bustos RubioJuan Miguel Calderón Gallón

36www.bgi-law.com

3737

FRANCEBankruptcy LawIntroductionIn France, when a company is experiencing diffi culties that pre-vent it from paying its creditors, it can request the opening of ‘safeguard proceedings’ (procédure de sauvegarde). If it is impos-sible for it to pay its debts, it must request the opening of recei-vership (redressement judiciaire) or court-supervised liquidation (liquidation judiciaire) proceedings. Th e purpose of safeguard or receivership proceedings is to reor-ganise the company so as to allow it to continue to operate. Th e court appoints an administrator and court-appointed trustee (mandataire judiciaire) who take responsibility for resolving the diffi culties alongside the CEO. If it proves impossible to continue operations, the court decides to open court-supervised liquidation proceedings by appointing a liquidator (liquidateur judiciaire).

Part one1. Who appoints the trustee in bankruptcy?When handing down its ruling to open safeguard or court-super-vised liquidation proceedings, the Commercial Court (tribunal de commerce) or District Court (tribunal de grande instance) appoints two court-appointed trustees, the court-appointed trustee and the court-appointed administrator (administrateur judiciaire). Th e appointment of a court-appointed administrator is optional if the company has fewer than 20 employees and a turnover of under 3 million Euro and compulsory if one of these thresholds is met.If reorganisation proves impossible, in ruling to open court-su-pervised liquidation proceedings, the court appoints a liquidator.Court-supervised liquidation can also be announced during the period when safeguard or court-supervised reorganisation pro-ceedings are being observed, with a view to producing an econo-mic and labour assessment and proposals for continuing or clo-sing down the company. In this case, the court appoints a trustee as a liquidator.

2. Which professionals carry out the duties of the trustee in bankruptcy?In France the professions of administrator and court-appointed trustee are two distinct regulated professions. Th e process of ente-ring them has several stages. Applicants with at least four years of higher education (law, eco-nomic sciences or management), a DESCF (higher studies in

accountancy and fi nance), or DEC (chartered accountancy diplo-ma) may sit the exam to access a professional placement which includes written papers in law and accountancy. Th e following stage is the requirement to carry out a professional placement of between three and six years with a placement supervisor in the profession. At the end of this placement there is a fi nal profes-sional exam which tests aptitude in the duties of court-appointed administrator or trustee. Th is can only be sat once.Finally, for court-appointed administrators and court-appointed trustees, access to the profession is subject to being entered on a list drawn up by the Commission nationale d’inscription et de discipline the composition of which is determined by law for each of the professions. Th e professional body, the Conseil national des administrateurs et des mandataires judiciaires is called to give its opinion on any new addition to the list.Th e court-appointed administrator may combine their position with being a lawyer as long as they do not represent the same company.

3. What are the duties and prerogatives of the trustee in bankruptcy?Under law the administrator has their own specifi c powers. Th e-se relate both to running the company and imposing sanctions on managers. Moreover, the court determines the administrator’s duties.In the safeguard proceedings they are responsible for overseeing management operations. In this case the role of the administra-tor is to closely monitor the way in which the CEO manages the matter in order to record any shortcomings or actions that may damage the interests at stake in the collective proceedings. Th ey report them to the offi cial receiver which may lead to a change in

38www.bgi-law.com

39

their duties or a cessation of the activity or court-appointed liqui-dation being announced.In the case of receivership, the administrator’s duties involve as-sisting the debtor in all or some management activities. In this case, the administrator works alongside the CEO ensuring that all legal requirements incumbent on that person are observed. Stra-tegic and general decisions are taken together by the CEO and administrator who jointly signs cheques and transfers. Continued company operations are under their joint responsibility.In exceptional cases the court-appointed administrator may be tasked with taking over administration of the company in part or in full. Th e operations covered by this measure are those relating to every day management with the exception of acts of disposal. In these circumstances, the CEO is only involved in day to day management at the express request of the administrator.As regards the court-appointed trustee, their role involves repre-senting creditors. Th ey ask creditors to fi le an unpaid claim, check the amount is correct and consult them about payment propo-sals made by the administrator and the CEO. Th ey are required to return any amounts received that are not paid into the debtor’s bank or postal account to the Bank for Offi cial Deposits (Caisse des dépôts et consignations) for the continuation of operations.Moreover, the court-appointed trustee may at any time ask the court to order the total or partial cessation of operation or

court-supervised liquidation. When this is announced, the period of observation and the administrator’s duties come to an end. Th e court-appointed trustee is then appointed liquidator.Th e liquidator proceeds with operations to liquidate and check the liabilities and issues the order in which creditors should be paid. Th ey also have the capacity and authority to proceed with the redundancies that are an integral part of most court-supervi-sed liquidations. Th ey may also take the measures devolved to the administrator and court-appointed trustee. In particular they may void certain contracts entered into during the period in question.

Part two1. When should you fi le for bankruptcy?In the event of insolvency, i.e. once it is impossible to meet exis-ting liabilities with available assets.

2. Is there a deadline for fi ling for bankruptcy?Within 45 days of the date of suspension of payments.

3. Can an individual person fi le for bankruptcy?Yes, bankruptcy proceedings also apply to anyone with a business or trade, any farmer or other individual exercising an indepen-dent business including self-employed professionals under to le-gal or regulated status or whose professional title is regulated.

39

40www.bgi-law.com

41

4. In the case of a legal entity, who should fi le for bankruptcy?Only the company’s legal representative is authorised to fi le for insolvency. Th ey can be replaced by a person of their choice who must have special authority for the purpose.

5. What happens if the you do not fi le for bankruptcy?Failure to fi le for bankruptcy or receivership may result in the di-rector of a company being held liable in any proceedings brought to order a contribution to the company’s assets.Moreover, personal sanctions, applicable both to company direc-tors and individuals running a business in their own name, may be imposed: personal bankruptcy or barred from acting as com-pany director.


7. Does the declaration of bankruptcy mean the closure of the company?No, except in the case of receiverships.

8. Once the bankruptcy has been declared, do I lose the decision-making power over my company?Yes in the case of receiverships.Not systematically in the case of bankruptcies. Everything de-pends on the type of duties given to the court-appointed admi-nistrator.

9. How long do the bankruptcy proceedings last?Bankruptcy proceedings begin with a period of observation las-ting no more than six months which may be extended but must

not exceed 18 months. Th e period of observation ends with one of the following actions: ■ the implementation of a recovery plan, restricted to ten years, if the company is viable;

■ the partial or total cessation of operations; ■ the opening of court-supervised liquidation if the company has no prospects for improvement;

■ the closing of the proceedings if it emerges that the debtor has suffi cient funds to pay off creditors and pay costs.

10. Can workers be dismissed from a company that has entered into bankruptcy?Yes, within legal guidelines.

11. Is it possible to negotiate the outstanding payments before fi ling for bankruptcy in an attempt to avoid the bankruptcy?Yes, but it is essential to be prudent as items that have gone through during the suspect period, i.e. the period prior to the ru-ling to open bankruptcy or court-supervised liquidation procee-dings starting on the insolvency date, are liable to be called into question.

12. I am the administrator of a company and the partners do not wish to fi le for bankruptcy. What can I do?As the declaration of insolvency is deemed to be a management act that falls solely within the CEO’s remit, partners have no input.

13. As a mere partner of the company, can I be responsible for the debts?No in the case of limited companies where the fi nancial liability of partners is, in principle, limited to the capital they have paid in, subject to their personal guarantees.

41

42www.bgi-law.com

Yes in the case of companies where partners are liable without limit, jointly and severally, for company debts.

14. Is it possible to sell company assets before fi ling for bankruptcy in order to prevent being liable for the debts?Such acts are likely to be called into question by the annulment mechanism for the suspect period.

15. If I have goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place?Aft er opening collective insolvency proceedings, all implementa-tion measures are discontinued. Th e creditor may no longer pe-tition the enforcement of any seizures in implementation of any court rulings that they have obtained prior to the opening judge-ment, or continue with any seizures already started.If seizures become fi nal on the day of the opening judgement (for example in the case of a seizure for sale if the debtor’s goods have already been sold), they are not called into question.

17. How do bankruptcy proceedings end?Safeguard proceedings conclude with one of the following actions: ■ either a recovery plan if there is a serious likelihood of the company being safeguarded;

■ or the opening of receivership or court-supervised liquidation proceedings if economic and fi nancial circumstances do not allow a recovery plan to be considered.

■ Receivership proceedings end with one of the following actions:

■ the implementation of a recovery plan, restricted to ten years, if the company is viable;

■ the partial or total cessation of operations; ■ the opening of court-supervised liquidation if the company has no prospects for improvement;

■ the conclusion of proceedings if it emerges that the debtor has suffi cient funds to pay off creditors and pay costs.

18. Is it possible to negotiate a reduction of the debts paya-ble and pay in instalments?Yes.

19. Can the company who has entered into bankruptcy request the liquidation of the same?Yes.

20. What eff ects result from the bankruptcy liquidation request?Court-supervised liquidation leads to the director being disqua-lifi ed in favour of the court-appointed liquidator. Th e liquidator

43

can exercise their rights and actions on their assets in the debtor’s place for the duration of the liquidation.

21. Who is in charge of elaborating the bankruptcy liqui-dation plan?Th e court-appointed liquidator.


23. Who has the fi nal decision on whether this goes into eff ect or not?Th e court.

24. What happens if the judge does not approve the bankruptcy liquidation plan?Another plan will be submitted.

25. What should I do in the case that someone who owes me money fi les for bankruptcy?Oppose it if the company is not insolvent or reach a settlement.

26. Do I have a time limit in which to provide information with regards to the credit the bankrupt company owes me?2 months aft er the publication of the judgment to open procee-dings in the Bulletin Offi ciel des Annonces Civiles et Commerciales (Offi cial Journal for Civil and Commercial Announcements),

27. What happens if I do not provide my credit informa-tion within that time limit?Any creditor who has not made their declaration within the re-quired times can no longer exercise their rights for the duration of proceedings: they are excluded.Th ey can ask the court to overturn the decision to exclude them if they can prove that the delay is beyond their control or attri-butable to the debtor. In this case they must make a claim to the offi cial receiver.

28. Do I need a lawyer to do this?It is highly recommended that they go through a lawyer.

29. Where do I have to go if I want to fi le a lawsuit against the company who has entered into bankruptcy?In France, the essential result of opening insolvency proceedings is to prevent any legal proceedings being brought against the de-btor to secure the payment of an amount of money as well as any measure for seizing assets.

30. Which are the criminal liabilities aft er bankruptcy proceedings?Company directors and individuals running a business in their own name, can be convicted of bankruptcy fraud. Any perpetrators of bankruptcy fraud or their accomplices are lia-ble to a maximum fi ve year prison sentence and a fi ne of €75,000. Additional penalties can be handed down by the judge. Th ese sanctions include, in particular, the loss of civic, civil and family rights or a ban on practising a commercial or industrial profes-sion or managing a commercial business.

43

44www.bgi-law.com

454545

AVENS LEHMAN & ASSOCIÉS BALMS GROUP INTERNATIONAL

YOUR BUSINESS IS UNIQUE

Since 1989, our lawyers have been assisting our clients on the basis of this shared viewpoint: What makes a company unique is its history, its managers, its know-how and its ambitions. Knowing the assets, the strengths and the originality of the company help our lawyers to clarify their analysis and the legal solutions they off er.

OUR COMMITMENT

Avens is a law-fi rm on a human scale, acknowledged by the clients as being concerned about off ering effi cient and high quality services, in all areas of business law. Our commitment can be stated as follows:Understanding: Structural operations, legal proceedings and consultations always take place within a context. Our lawyers endeavour to understand the company: its market, its history, its economic environment as well as the manager’s targets and expectations. Deciding: Law is a strategic tool. We always put our clients’ requests in the context of their strategy perspective, of their ambitions and of their means. With them, we defi ne the legal or judicial strategy and giving further thought to the problems, we polish up arguments and demonstrations. Advice or litigations: our lawyers’ recommendations help the managers to make enlightened decisions. Doing: Guided by the quality requirements we have set ourselves, we put our teams to work on the cases we are entrusted with as effi ciently as possible: with regard to relevancy, presentation, deadline and costs. Our partnerships in France and abroad help us to support the company in its development.

AVENS LEHMAN & ASSOCIÉS

67 Bd Haussmann75008 Paris

France

Tel: 00 33 1 40 67 87 67Fax: 00 33 1 40 67 97 16

[email protected]

PARTNERS

Hervé LehmanChristine Sarazin Hortense de Saint Remy Fabrice de Korodi Katona

MANAGEMENT

Yves Repussard

LAWYERS

Claudia MassaSabine Alix Matthieu Mazo Aurélie Boulet

Delphine Cuenot Alexis Sobol Morgane Brunaud Florian Saguez

AREAS OF EXPERTISE

■ Economic Law: Distribution / marketing, competition, economic violation (national, community) public law, public procurement, criminal business law.

■ Corporate and Tax Law: Setting-up and legal follow up, operations on capital, mergers and acquisitions, transfers, executives’ status, franchise network, managers’ taxation, VAT litigation, relations with the administration.

■ Commercial Law: Agreements (drawing-up, negotiation support, audits), actions of contract, actions relating to liability, debt collection, emergency measures, ailing fi rms, insolvency proceedings.

■ Intellectual property and Communications: Trademarks, press law, publishing law, adverti¬sing law, audio-visual law, computer law, internet law, e-business law.

■ Human Resources: Individual and collective employment law. Drawing up of agreements, specifi c status, representative and control systems, employment litigations.

■ Real Estate and Construction: Property management. Selling, rental. Construction. Building sites. Civil engineering. Subcontracting.

■ Bank and Insurance: Relations between banks and fi nancial companies, insurance companies and provident societies with their environment: clients, consumer organisations, administrative regulation and competition authorities.

46www.bgi-law.com

47

Bankruptcy LawPart one1. Who appoints the trustee in bankruptcy?On 1 January 1991 the new insolvency law entered into force. It replaced the bankruptcy act (Konkursordnung) and the compo-sition code (Vergleichsordnung). Now in Germany the new in-solvency Act (Insolvenzordnung) applies.Th e insolvency proceeding regarding the asset of a debtor is only followed, when a request is fi led. A debtor can be any natural per-son or legal entity.In case the debtor is a legal entity or a natural person, who is or was a self-employed defendant and the fi nancial circumstances are not clear, the standard insolvency proceeding (Regelinsol-venz) will take place. In case of a natural person the consumer insolvency proceeding (Verbraucherinsolvenz) will take place.Th e request is to be fi led at the local court, insolvency department. Th e court (the judge for insolvency is responsible) checks the re-quest if it is admissible and justifi ed. Th e request is justifi ed if one of the three reasons for initiation is present. Th e three reasons are insolvency (§ 17 InsO.), impending insolvency (§ 18 InsO.) and over-indebtness (§ 19 InsO.). It is also necessary that the insolvent assets cover the procedural costs.As far as the court is able to decide on a request for insolvency on the basis of the documents that were handed in, the court will not appoint an expert. According to experience this only happens in consumer insolvency proceedings. In case the conditions for such a proceeding are met, the court will appoint a trustee (Treuhänder).In case of standard insolvency proceedings the court will appoint an expert, who has to check if there are any reasons that make the initiation of the procedure necessary. Th e expert’s report should contain an overview regarding the general course of business up to now, a presentation of the assets of the debtor as well as the current liquidity. Th e report should also answer the question if the costs for the fi rst part of the proceeding are covered. If the costs are covered the court has to start the proceeding.In the time until the court decides on the initiation of the procee-ding, the insolvency court has the obligation to secure the assets of the debtor by appointing a temporary insolvency administrator (vorläufi ger Insolvenzverwalter), to fi le a general prohibition of transfers for the debtor and to prohibit or stop any execution against the debtor. It is common that the expert is the temporary insolvency administrator at the same time.

If the expert comes to the opinion that the conditions for the ini-tiation of the proceeding are present, the court decides to start the proceeding. In the decision for initiation of the procedure, the court makes the debtor and the insolvency administrator public. It is common that the temporary insolvency administrator beco-mes the insolvency administrator (Insolvenzverwalter).Exceptionally it is possible to conduct the standard insolvency proceeding by self-administration and not by an appointed insol-vency administrator (§ 270 InsO. and following InsO.). In self-administration the debtor retains his right of disposition of his as-sets. Th e debtor is supervised by a trustee (Sachwalter) appointed by the court (§ 274 InsO.).

GERMANY

47

48www.bgi-law.com

2. Which of the professionals carry out the duties of the trustee in bankruptcy?According to § 56 InsO the insolvency administrator has to be a natural person, experienced in business and independent from debtors and creditors. Th ere is no training for insolvency admi-nistrators. But the professionals who work as insolvency admi-nistrators are lawyers, business economists, tax consultants and auditors. Th ere is no fi xed regulation in law as to how one can become an insolvency administrator. It is the duty of the judge to select the insolvency administrator.

3. What are the duties and prerogatives of the trustee in bankruptcy?1. In general:

Th e basic idea of the insolvency proceeding is to satisfy all the cre-ditors of a debtor at the same time. Th erefore in the most cases the assets of the debtor are utilized and the proceeds are distributed to the creditors. It is the prerogative of the insolvency administrator to take the insolvent assets into his possession, to select the parts which do not belong to the insolvent assets, to agree on reciprocal contracts that have not yet been fully executed, to utilize the insolvent assets and to distribute the proceeds to the creditors. If there are any prospects of maintaining the debtor‘s business, the insolvency administrator shall reach an insolvency plan in order to maintain the business (Insolvenzplan). (§ 1 InsO). Th e further actions depend on the decision of the creditors’ meeting.

49

It is possible that they agree on the liquidation, the reorganization or the transferring reorganization of the company.Th e insolvency administrator is subject to the supervision of the in-solvency court and has to render account to the creditors´ meeting.2. In detail: Th e insolvency administrator is obliged to show the court the re-cords aft er the initiation of the procedure as well as he is obliged to hand in an inventory sheet where every object is named with the exact declaration of value. Th e declaration of value can be carried out by an expert. (§ 151 InsO). When it comes to the utilization of the insolvent assets, the insolvency administrator can mainly do as he pleases, only in some cases he needs the agreement of the committee of creditors, the agreement of the creditors’ meeting or

in some rare cases the agreement of the court (direct sale of land, conducting all forms of litigation § 160 InsO).Th e creditors have to lodge their claims with the insolvency ad-ministrator, who decides whether he accepts the claim. In case he denies the claim, the creditor can fi le action for detection of the claim against the insolvency administrator (§ 179 InsO). Th e insolvency administrator conducts all the forms of litigation for the insolvent assets as party ex offi cio.In cases of reciprocal contracts (e. g. delivery under reservation) which were not fulfi lled by any party, the insolvency administra-tor has the right to choose (§ 103 InsO).When a procedure is complete the insolvency administrator has the duty to render account to the creditors’ meeting. If there are no objections, the insolvency administrator is relieved. He is res-ponsible for the fulfi llment of his duties to all the parties concer-ned (§ 60 InsO).

Part two1. When should you fi le for bankruptcyIn case a natural person or a legal entity is not able to pay his/her debts out of his/her income or assets, the person or entity is consi-dered insolvent or over-indebted. According to §§ 17 ff . InsO, insol-vency or over-indebtness are conditions for the initiation of insol-vency procedures. In this case it is advisable to fi ling for insolvency.

2. Is there a deadline for fi ling for bankruptcy?Th ere is no deadline for natural persons, they can decide if they fi le for insolvency. If a legal entity is insolvent, for example a GmbH or AG, the repre-sentative body of the company has to fi le for insolvency without undue delay within 3 weeks at the latest. If they do not fi le for insolvency when the company is insolvent, they are liable for cri-minal sanctions.Th e insolvency court informs the responsible public prosecutors about the application for insolvency. Th e public prosecutors have the obligation to check if there are any suspicions regarding cri-mes, especially so-called insolvency crimes as fraud, withholding social security contributions, delay in fi ling for insolvency, tax evasion or bankruptcy.

3. Can an individual person fi le for bankruptcy?Th e debtor has the right to fi le for insolvency. If the debtor is a natural person and not a self-employed defendant, it is his right to fi le for a consumer insolvency proceeding (Verbraucherinsol-venzverfahren).

4. In case of a legal entity, who should fi le for bankruptcy?In case of a partnership or a legal entity the legal representative has the right and the duty to fi le for insolvency. If there is more than just one representative, all of them have the right to fi le for insolvency.

5. What happens if you do not fi le for bankruptcy?In common the representative body is personally liable, if they fail to fi le for insolvency. It is possible that they are not only liable for damages according to civil law, but also in criminal law if they committed one of the crimes mentioned in no. 2).

49

50www.bgi-law.com

6. Can a creditor of my company request bankruptcy proceedings?Yes.

7. Does the declaration of bankruptcy mean the closure of the company?Not necessarily. It is the obligation of the insolvency administrator who was appointed by the insolvency court to ascertain whether it makes sense to continue business.

8. Once the bankruptcy has been declared do I lose the decision-making power over my company?It is the prerogative of the insolvency administrator to take the insolvent assets into his possession, which means the insolvency administrator is the only one who has the power to run the com-pany and the right of disposition over the insolvent asset.

9. How long do the bankruptcy proceedings last?In the case of consumer insolvency proceedings, the procedure is divided into two diff erent sections. Th e insolvency procedure and the probationary period during which he must set aside part of his income to pay off the outstanding debt. From the initiation of the insolvency proceedings until the debtors discharge (Restschul-dbefreiung) a period of six years can pass (§ 287 section 2 InsO.).In case of standard insolvency proceedings, it can last for several years, between 10 to 20 years. Th e duration depends on whether it is a small or a large company, how complex the business is and on the structure of the company.

10. Can workers be dismissed from a company that has entered into bankruptcy?Th e regulations fi xed in the German labor law are also valid in the insolvency proceedings. Th e insolvency administrator has to observe the regulations established in the German Protection

Against Dismissal Act (Kündigungsschutzgesetz). He has no spe-cial right to dismiss workers.But in the case where the insolvency administrator is going to dismiss a worker, he only has to observe a three months deadline for dismissal.

11. Is it possible to negotiate the outstanding payments before fi ling for bankruptcy in an attempt to avoid the bankruptcy?In case of consumer insolvency proceedings it is necessary to make an out of court suggestion for all the creditors how to re-cover the debts (§ 305 a InsO.) Only if this plan fails to work, it is possible to fi le for insolvency.Of course it is also possible for companies to make an out of court suggestion to the creditors how to recover the debts, to avoid the insolvency. But this makes only sense when a liquidity squeeze is expected or the company has been insolvent for no longer than three weeks.

12. I am the director of a company and the partners do not wish to fi le for bankruptcy. What can I do?In case of a legal entity or a company without a legal personality, every member of the representative body is entitled to fi le for in-solvency. According to § 15a InsO it is suffi cient for one member of the representative body to fi le the application for insolvency.

13. As a mere partner of the company, can I be responsible for the debts?Normally the partners are only liable with the sum that they in-vested in the company or with the assets of the company. In case of piercing the corporate veil, the partners are not only liable with the sum that they invested in the company but also with their pri-vate assets. Th is is the case if the partner fails to fi le for insolvency,

5151

52www.bgi-law.com

or if there is suspicion for delay in fi ling for insolvency. Crimes justify the entitlement for compensation of damage.

14. Is it possible to sell company assets before fi ling for bankruptcy in order to prevent being liable for the debts?If one of the partners sells company assets even though he knew about the menacing insolvency, he could be liable for criminal sanctions. Furthermore it is the obligation of the insolvency ad-ministrator to check all the purchases and sales of the last three months before fi ling for insolvency. Th is deadline can be extended to 10 years for transactions which were carried out with the inten-tion of defrauding the creditors.

15. If I have goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place?If a creditor is the legal owner of an item or a liability he has a right of selection (§ 47 InsO). Th at means that the creditor has the right to ask the insolvency administrator to retain the item or the liability, because it does not belong to the assets of the debtor, but instead is an asset of the creditor.

16. When is the bankruptcy proceeding considered “liable”?Th at depends on diff erent factors of each individual case.

17. How do bankruptcy proceedings end?When the assets of the debtor are utilized and distributed to the cre-ditors, and the court decides to annul the procedure (§ 200 InsO).

18. Is it possible to negotiate a reduction of the debts paya-ble and pay in instalments?Th e insolvency proceeding is a possibility given by the govern-ment to reorganize a company. It is possible for the insolvency administrator and for the debtor to present an insolvency plan. Th e insolvency plan contains fi xed regulations how to utilize the assets and how to distribute them between the creditors.Th e insolvency plan is handed in at the insolvency court and aft er the creditors have agreed on it, the court adjusts the insolvency plan. Th en the insolvency proceedings are annulled. In general, the reorganization of a company with an insolvency plan is very rare (1 %).

19. Can the company which has entered into bankruptcy request its liquidation?It is common that in the insolvency proceedings the end of the proceeding is the liquidation of the company.

20. What eff ects result from the bankruptcy liquidation request?In case of a legal entity (for example GmbH or AG), the conse-quences of an insolvency procedure are that the company will be deleted from the register and the legal form of this company cea-ses to exist.

21. Who is in charge of elaborating the bankruptcy liqui-dation plan?In general, the sense of an insolvency plan is the reorganization of the company and can be established by the debtor or the insol-vency administrator.Th e liquidation of the company is to be carried out by the insol-vency administrator and there is no need for a separate plan. In a

53

meeting for reporting, the insolvency administrator is obliged to inform the creditors’ meeting about the status of the process and how the insolvent assets are to be distributed.

22. Can the debtor or the creditor propose any suggestions regarding the bankruptcy liquidation plan?It is the obligation of the insolvency court to fi x a date for a credi-tors´ meeting where the insolvency administrator has to inform the creditors about the proceeding, especially when it comes to special measures like selling the whole company, the whole inven-tory or the sale of a property.

23. Who has the fi nal decision on whether this goes into eff ect or not?If the creditors’ meeting has not given its consent, at the request of the debtor or of a majority of creditors and aft er hearing the administrator, the insolvency court may provisionally prohibit the transaction and convene a creditors’ meeting for a decision to be taken on the transaction.

24. What happens if the judge does not approve the bankruptcy liquidation plan?Th e insolvency administrator is not obliged to take any measu-res, in the event that the creditors’ meeting does not agree. If the administrator takes any measures without the agreement of the creditors’ meeting he could be liable for damages.

25. What should I do in the case that someone who owes me money fi les for bankruptcy?If the liability is secured (delivery under reservation) you have to assert your claim and inform the insolvency administrator. If you do not have a secured liability, you have to assert your claim to the insolvency table.

26. Do I have a time limit in which to provide information with regards to the credit the Th e insolvency administrator has to inform all the creditors by post and encloses the decision for initiation of the insolvency pro-cedure. According to § 28 InsO, the deadline for notifi cation of the claim is fi xed in the decision for the initiation of the insolven-cy procedure.

27. What happens if I do not provide my claim informa-tion with regards to the amount the bankrupt company owes me?If you fi le your claim aft er the deadline has expired, another pro-cedure for checking the claim is maybe necessary. In this case the creditor who fails to fi le his claim in time has to bear the costs of the procedure for checking his claim.


29. Where do I have to go if I want to fi le a lawsuit against the company who has entered into bankruptcy?According to § 87 InsO, creditors can only fi le their claims ac-cording to the regulations of the insolvency procedure. It is not allowed for creditors to fi le their claim out of the insolvency pro-cedure.

30. Which are the criminal liabilities aft er bankruptcy proceedings?Please see question 2). If the debtor or the representative has not committed any insolvency crime, he does not need to expect any criminal sanctions.

53

54www.bgi-law.com

55

DR. PRYMUSALAATTORNEYS-AT-LAWMUNICH

Nymphenburger Straße 148,80634 MunichGermany

AU I.D. HALLERTAU

Mainburger Straße 1, 84072 Au i.d. HallertauGermany

Tel: 00 49 89 13 27 23 Fax: 00 49 89 13 27 43

[email protected]

PARTNERS

Dr. Manfred PrymusalaJoachim Leitl

MANAGEMENT

Yvonne Dörre

DR. PRYMUSALA ATTORNEYS-AT-LAWBALMS GROUP INTERNATIONAL

We became a member of Balms Group International, BGI, in August 2000. Th e terms “merger” and “globalisation” nowadays infl uence all business life in Germany, as well as the practice of German law. Th us, the keywords of the German legal world are, nowadays, manpower, specialization, know-how management, extension of cross-border activities, international offi ces and extension of fi elds of work and of legal services. A growing demand for national and international legal assistance exists because of considerable competition in the areas of industry and services. A number of businesses, including small companies, have established offi ces worldwide and cooperate with international partners in order to increase sales. Furthermore, a considerable number of Germans invest in real estate for private reasons. In Spain alone about 500,000 properties are owned by Germans, because they long for sun and the Mediterranean countryside. Th e demand is growing and an internationally active network is important in order to cater for the fi nancial and private needs of many clients. Germany is also still an industrial country which welcomes foreign investment. In this respect, we are glad to be a member of Balms Group International, which enables us to provide our German and international clients with German and international legal advice.

MUNICH (MAIN OFFICE)

Th e fi rm, Dr. Prymusala & Colleagues, was founded in Munich in 1989. Our modern offi ce is situated in the center of Munich in the district of Neuhausen-Nymphenburg, near the U 1 subway. Th us, we can off er easy access to our clients. Furthermore, all the important courts are located close to the offi ce. Our clients include members of medium-sized industry, service providers, associations and individuals.

OFFICE IN AU I.D. HALLERTAU

In July 2003 the law fi rm Dr. Prymusala & Colleagues of Munich open a new offi ce in the town of Au i.d. Hallertau to meet the request of a number of people, including local tradesmen, who wanted to be able to obtain legal advice without having to travel long distances. In Au i.d. Hallertau and the surrounding area, industry is growing fast, especially medium-sized and family-run companies. Th ere are still tracts of undeveloped land available (perhaps an opportunity for a foreign investor) only a short distance from Munich Airport.

AREAS OF EXPERTISE

Th e areas of work in which we are specialized are among other things: ■ Civil Law (national andinternational)

■ Compensation for damage ■ Contract Law ■ Employment Law ■ Inheritance Law ■ Law of Associations, including Sports Law

■ Compensation claims

In the area of taxation we have been working, for a number of years, alongside tax consultants in Munich. In cooperation with two experienced notaries in Munich, we draft and implement all types of deeds and documents that require notarization, for example: real estate transactions and matters relating to Corporate Law.

56www.bgi-law.com

57

Bankruptcy LawPart one1. Who appoints the trustee in bankruptcy?Th e process where an individual is no longer able to pay his debts is called bankruptcy. Th e trustee in bankruptcy is appointed by the Supreme Court once the petition for bankruptcy has been heard.When a company is no longer trading in a solvent manner then the process is called winding up (liquidation) and the person appointed to wind up the company is called the liquidator.Who appoints the liquidator depends on what mode of winding up is being used. Th ere are three types:a. by the Court b. by the company itself or c. subject to the supervision of the Court.

When a company is being wound up by the court then the court will appoint the liquidator and when the company commences the process itself then it will appoint a liquidator itself.

2. Which professionals carry out the duties of the trustee in bankruptcy?Th ere are no specifi c trustee in bankruptcy or insolvency practi-tioners, but in practice these roles are undertaken by lawyers or accountants in Gibraltar.

3. What are the duties and prerogatives of the trustee in bankruptcy?Th e trustee in bankruptcy has a duty to administer and oversee the bankruptcy process. He has the power to gather and then sell the property of the bankrupt (if any) and these funds will go towards paying off the debts of the bankrupt.A liquidator will perform a similar function to that of the offi cial trustee, in that he will assess the assets and liabilities of the com-pany and will then realise the assets and distribute the same to any creditors.

GIBRALTAR

57

58www.bgi-law.com

59

Part two1. When should you fi le for bankruptcy?Filing for bankruptcy and when that should be done is up to the individual.

2. Is there a deadline for fi ling for bankruptcy?Th ere is no deadline, but the decision to proceed will probably be made once the individual is no longer able to pay his debts.

3. Can an individual person fi le for bankruptcy?Yes

4. In the case of a legal entity, who should fi le for bankruptcy?Th e winding up of a company can be commenced by either the members or creditors of the company.

5. What happens if you do not fi le for bankruptcy?A creditor is entitled to present a petition for your bankruptcy. Th is can happen if you owe at least £500.

6. Can a creditor of my company request the bankruptcy proceedings?A creditor can commence winding up proceedings against a com-pany if the company owes over £ 500.

7. Does the declaration of bankruptcy mean the closure of the company?Once the company has been wound up it ceases to exist.

8. Once the bankruptcy has been declared, do I lose the decision-making power over my company?As soon as a liquidator has been appointed, all of the decision ma-king powers of the directors are removed and the liquidator takes full control of the company from that point onwards.

9. How long do the bankruptcy proceedings last?Th e bankruptcy process (depending on complexity) will take ap-proximately four to six months.Th e liquidation of a company takes six months from start to fi nish.

10. Can workers be dismissed from a company that has entered into bankruptcy?Once a company is being wound up then it ceases to operate as a business and the employees will in eff ect be made redundant.

11. Is it possible to negotiate the outstanding payments before fi ling for bankruptcy in an attempt to avoid the bankruptcy?Bankruptcy might be avoided if it is possible to enter into a repa-yment arrangement with the creditors.

12. I am the administrator of a company and the partners do not wish to fi le for bankruptcy. What can I do?Th is depends on the current fi nancial position of the company. If the directors do not wish to voluntarily wind up the company then a creditor may commence the winding up instead.

13. As a mere partner of the company, can I be responsible for the debts?Unless a director has been fraudulent, they are only personally responsible for PAYE tax.

59

60www.bgi-law.com

14. Is it possible to sell company assets before fi ling for bankruptcy in order to prevent being liable for the debts?Yes.

15. If I have goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place?Yes.

16. When is the bankruptcy proceedings considered “lia-ble”?N/A

17. How do bankruptcy proceedings end?Bankruptcy proceedings end with an Order of the Court, which confi rms the bankruptcy.

18. Is it possible to negotiate a reduction of the debts paya-ble and pay in instalments?Payment in installments is potentially only available prior to the bankruptcy.

19. Can the company who has entered into bankruptcy request the liquidation of the same?A company that can no longer pay its debts will probably be liqui-dated by either its directors or creditors.

20. What eff ects result from the bankruptcy liquidation request?Once the company has been liquidated it ceases to exist.

21. Who is in charge of elaborating the bankruptcy liqui-dation plan?Th e liquidator is in charge of the liquidation. In some instances he will seek instruction from the Court.

22. Can the debtor or the creditors propose any sugges-tions regarding the bankruptcy liquidation plan?Th e creditors may request a committee of inspection represen-ting creditors interests to be appointed, both to exercise a general

oversight of a liquidator, and avoid the need for a liquidator to convene regular meetings of all the creditors.

23. Who has the fi nal decision on whether this goes into eff ect or not?Th e members of the creditors committee will vote on any propo-sed decision or course of action.

24. What happens if the judge does not approve the bankruptcy liquidation plan?In some cases the liquidator will require Court sanctioning before taking a particular course of action. Without this approval he will not be able to proceed.

61

25. What should I do in the case that someone who owes me money fi les for bankruptcy?Th e person will have to fi le his claim with the trustee in bankruptcy.

26. Do I have a time limit in which to provide information with regards to the credit the bankrupt company owes me?Th e trustee in bankruptcy will offi cially announce a deadline by which all claims are to be fi led.

27. What happens if I do not provide my credit informa-tion within that time limit?You may not be able to proceed with you claim.


29. Where do I have to go if I want to fi le a lawsuit against the company who has entered into bankruptcy?Th e Supreme Court.

30. Which are the criminal liabilities aft er bankruptcy proceedings?In the ordinary course of bankruptcy there are no criminal lia-bilities.

61

62www.bgi-law.com

63

ASSOCIATES

Kerrin M. Drago LLB (Hons)Moira T. Bossino LLB (Hons)Christina Borrel LLB (Hons)

ACQUARIUS TRUST COMPANY LTD

Nicholas P Cruz LLB (Hons) T.E.P.Paul L Borge BA (Hons)Joseph E A Vaughan MBE, MCIPRPaul Crudgington DIP DM MIDM

PARTNERS

Nicholas P. Cruz LLB (Hons) T.E.P.Paul L. Borge BA (Hons)

AREAS OF EXPERTISE

■ Private client ■ Commercial Law ■ Company Law ■ Insolvency Law ■ Employment Law ■ Personal injury ■ Civil Litigation

Cruz & Co and Acquarius Trust Company Limited were founded in 1996 and 1998, respectively. Cruz & Co is a general legal practice with specifi c expertise in Property Law, Commercial Law and Company Law, Civil Litigation, fi nancial services and private client work. Th e fi rm is known for its commercial approach and progressive problem solving. Acquarius Trust Company Limited is made up of trust and company managers licenced by the Financial Services Commission. Th e company manages substantial International Trusts for both corporate and private clients alike.

CRUZ & COBALMS GROUP INTERNATIONAL

CRUZ & CO

Suite 2, 1st fl oor. Icom House 1/5 Irish Town. PO Box 883 Gibraltar Tel: + 350 200 76552 Fax: + 350 200 76553 [email protected]

ACQUARIUS TRUSTCOMPANY LTD

Suíte 3, 2nd Floor. Icom House1/5 Irish Town. PO Box 883GibraltarTel: + 350 200 50418 Fax: + 350 200 44989

64www.bgi-law.com

65

Bankruptcy LawPart one1. Who appoints the trustee in bankruptcy?Th e Court. When the Court issues the bankruptcy order, it simul-taneously appoints the trustee in bankruptcy (art. 16, fi rst para-graph, n.1, L. 16.03.1942 n. 267). When the trustee must be subs-tituted or removed from his offi ce, it is always duty of the Court to appoint a new one (art. 27 L. 16.03.1942 n. 267).

2. Which professionals carry out the duties of the trustee in bankruptcy?a. Lawyers (“avvocati”), chartered accountants and accountants

(“commercialisti”); b. Firms and partnerships can also be designated if the partners

are lawyers or chartered accountants or accountants. In this case the natural person who will be in charge of the proce-dure must be appointed;

c. Persons who held the offi ce of director in a S.p.A. (company limited by shares) and demonstrate that they possess mana-ging skills and have never been in a situation of bankruptcy.

1. What are the duties and prerogatives of the trustee in bankruptcy?Th e trustee is responsible for the administration of the debtor’s assets. His functions are to secure that the debtor’s assets are brought together, realised and distributed to the enterprise’s cre-ditors. He carries on his duties under the supervision of the judge and the Creditors’ Committee. For acts of extraordinary adminis-tration he needs the approval of the Creditors’ Committee, whe-reas he has autonomy in choosing his collaborators and the bank in which to deposit the money of the procedure. His main duties are the following:a. draft ing the list of creditors and the list of whoever may have

claims on real estate;b. communications to creditors and who are interested in the

procedure;c. draft ing the debt statement and participating in the hearing

for the admission of the claims;d. communications to creditors about the claims rating;e. draft ing the liquidation plan;f. draft ing periodical reports;g. depositing the realised money with the bank;h. keeping the register in which he updates the activities rela-

ting to the administration.

ITALY

65

66www.bgi-law.com

Part two1. When should you fi le for bankruptcy?Pursuant to art. 5 of L. 16.03.1942 n. 267 a debtor should fi le for bankruptcy when he is unable to fulfi l his obligations regu-larly.

2. Is there a deadline for fi ling for bankruptcy?No.

3. Can an individual person fi le for bankruptcy?Yes.

4. In the case of a legal entity, who should fi le for bankruptcy?Its legal representative.

5. What happens if you do not fi le for bankruptcy?Th e company will increase its fi nancial diffi culties and, if later it were declared bankrupt, the directors would be considered liable, under art. 2934-bis of the Italian Civil Code, for having omitted to carry out their duties imposed by law and would be also pro-secuted pursuant to art. 217, fi rst paragraph, n. 4 of L. 16.03.1942 n. 267.


7. Does the declaration of bankruptcy mean the closure of the company?Yes, unless the Court, with the declaration of bankruptcy, or later the Judge, on the trustee’s application, authorizes the provisional prosecution of the company’s activities (art. 104 of L. 16.03.1942 n. 267).

8. Once the bankruptcy has been declared, do I lose the decision-making power over my company?Yes.

9. How long do the bankruptcy proceedings last?Th ey last fi ve to fi ft een years generally.

10. Can workers be dismissed from a company that has entered into bankruptcy?Aft er the declaration of bankruptcy the company ceases its activi-ties and consequently any employment relationship comes to an end automatically.

11. Is it possible to negotiate the outstanding payments before fi ling for bankruptcy in an attempt to avoid the bankruptcy?Yes, the enterprise can propose a debt restructuring plan accor-ding to art. 182-bis of L. 16.03.1942 n. 267.

12. I am the administrator of a company and the partners do not wish to fi le for bankruptcy. What can I do?In order to avoid to being held liable, the director needs to have his dissent registered in the company’s books and has to resign from his offi ce.

6767

68www.bgi-law.com

13. As a mere partner of the company, can I be responsible for the debts?It depends on which corporation you are part of. If you are a part-ner in a partnership (società in nome collettivo) you are liable. If you are a partner in a limited liability partnership (società in ac-comandita semplice and società in accomandita per azioni) you are liable if you are one of the directors (socio accomandatario), you are not if you are a simple partner (socio accomandante). If you are an interest holder or a shareholder in a limited liability company

(società responsabilità limitata and società per azioni) you are not liable for the company’s debts.

14. Is it possible to sell company assets before fi ling for bankruptcy in order to prevent being liable for the debts? No. Any act of disposition of the company’s property made within a certain period of time is ineff ective and the company’s directors will be considered liable under arts. 2392 and 2394 of the Italian Civil Code and could be prosecuted, pursuant to art. 216 of L. 16.03.1942 n. 267.

69

15. If I have goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place?No. Art. 51 of L. 16.03.1942 n. 267 provides an “automatic stay” for any enforcement proceeding or interim injunction. Moreover, once the enterprise has been declared bankrupt, the assets beco-me part of the pot of all the creditors.

16. When is the bankruptcy proceedings considered “liable”?Pursuant to art. 2394-bis of the Italian Civil Code the trustee in bankruptcy is empowered to start proceedings against the direc-tors who failed to comply with the law.

17. How do bankruptcy proceedings end?Th ey generally end up with: (a) the distribution among the credi-tors of the money realised by the trustee through the sale of the debtor’s assets and (b) the cancellation of the company from the register of the enterprises.

18. Is it possible to negotiate a reduction of the debts paya-ble and pay in instalments?Not once the company has entered into bankruptcy.

19. Can the company who has entered into bankruptcy request the liquidation of the same?No.

20. What eff ects result from the bankruptcy liquidation request?In Italy, once an enterprise enters into bankruptcy, the “judicial” liquidation automatically starts.

21. Who is in charge of elaborating the bankruptcy liqui-dation plan?Th e trustee.

22. Can the debtor or the creditors propose any sugges-tions regarding the bankruptcy liquidation plan?According to art. 104-ter, paragraph 5, of L. 16.03.1942 n. 267, the Creditors’ Committee can suggest changes in the plan prepared by the trustee.

23. Who has the fi nal decision on whether this goes into eff ect or not?Th e Creditors’ Committee.

24. What happens if the judge does not approve the bankruptcy liquidation plan?Since 2007, the judge can only authorize the enforcement acts consistent with the plan.

25. What should I do in the case that someone who owes me money fi les for bankruptcy?I have to fi le the petition for the admission of my credit in the procedure.

26. Do I have a time limit in which to provide information with regards to the credit the bankrupt company owes me?Yes I do. Art. 93, fi rst paragraph, of L. 16.03.1942 n. 267 states that creditors must fi le the petition for the admission of their credit within 30 days before the hearing set for the examination of the debt statement.

27. What happens if I do not provide my credit informa-tion within that time limit?Art. 101 of L. 16.03.1942 n. 267 provides that, if the petition is fi -led aft er the time limit set in art. 93 but within one year the decree that approves the debt statement has been issued, you are still in time to fi le the petition for the admission of your claim.


29. Where do I have to go if I want to fi le a lawsuit against the company who has entered into bankruptcy?According to Italian law, it is not possible to fi le any lawsuit against the company.

30. Which are the criminal liabilities aft er bankruptcy proceedings?Directors and partners can be prosecuted for fraudulent trading (arta. 216 and 217 of L. 16.03.1942 n. 267) and for abuse of credit request (art. 218 of L. 16.03.1942 n. 267).

69

70

717171

CERUTTI & PARTNERSBALMS GROUP INTERNATIONAL

Cerutti & Partners, with headquarters in Milan and offi ces in Madrid, is a law fi rm specialised in advising and consulting companies, in judicial and non judicial fi elds.Th e fi rm, founded by Mr. Massimo Cerutti, features, among its staff , highly skilled professionals who exploit their experience in order to achieve a major competence within Commercial, Company, International, Bankruptcy and Labour Laws. Such professionals, who are carefully selected and addressed towards specifi c professional profi les, operate so that client companies fi nd in the fi rm an adequate consultancy and a constant and valid reference point concerning the transactions underway.Cerutti & Partners, collaborating regularly with native speaking professionals, is able to carry out the dossiers in Italian, English and Spanish.

AREAS OF EXPERTISE

■ Commercial Law ■ Company Law ■ Bankruptcy Law ■ EU Law-Antitrust ■ Employment and Labour Law

CERUTTI & PARTNERS

Via Andrea Verga 520144 – MilanItaly

Tel: + 39 02 76009493Fax: + 39 02 76008374

[email protected]

PROFESSIONALS

Massimo G. CeruttiFederica CinnanteArturo BattistaEleonora RuggieriFederica FormentinSara Perez Casado

73

Bankruptcy LawPart one1. Who appoints the Trustee in Bankruptcy?In Mexico, under the Mercantile Bankruptcy Law, the Bankrupt-cy process is made up of two successive stages: Conciliation and Bankruptcy. Th e aim of the former is to preserve the Trader’s company1 by way of an agreement signed with its recognised creditors2; the aim of the second phase is the sale of the Trader’s company, its production units or the assets which form part of it in order to pay the said creditors.During the Conciliatory stage, as a general rule, the Trader conti-nues to be the administrator of his company unless the Concilia-tor, having deemed it convenient for the protection of the estate of the bankrupt3, should request that the Judge revoke that adminis-trative role. In that case it is he, the Conciliator, who takes on the administration of the company. If not, in the Bankruptcy stage, it is the Trustee of Bankruptcy, (who may be the same person who acted as Conciliator) who will be responsible for administering the assets and rights which make up the Bankrupt’s estate.Th e designation of the Bankruptcy Conciliator- Conciliator or Trustee of Bankruptcy – is the responsibility of the Federal Insti-tute of Mercantile Bankruptcy Specialists (IFECOM), an auxiliary organ of the Council of the Federal Judiciary, who will act upon the request of the competent District Judge governing the pro-ceedings. In principle, the designation will be made from among those professionals registered with the corresponding Institute of Mercantile Bankruptcy Specialists using the random designation mechanism.Th at designation may be rejected by the Judge or impugned by the Trader or any of his creditors as long as one of the following conditions have been met: that the Trustee in Bankruptcy, i. is the Spouse, common Law husband or wife or relative up

to the fourth degree by blood or relationship of the Trader

1. Th e individual or legal entity of that type according to the Com-mercial Code. Th e concept includes trust assets when the carrying out of business activities is aff ected. It also includes controlling or controlled mercantile companies as referred to in article 15 of the Mercantile Bankruptcy Law.2. Th ose which are qualifi ed as such in the ruling on claim recogni-tion, grading and preference.3. Th at portion of the estate of the Trader in Bankruptcy proceedings made up of his assets and rights, with the exception of those speci-fi cally excluded under the Mercantile Bankruptcy Law, from which the recognised creditors, and any others with a right to claim, may recover the claimed amounts

subject to the Bankruptcy process, any of his creditors or the Judge governing the proceedings;

ii. is in the same situation mentioned in iii. above in respect of the members of the board or of partners

holding unlimited responsibility, when the Trader is a legal entity;

iv. is the Lawyer, legal representative or authorised person of the Trader or any of his creditors in any pending legal pro-ceedings;

v. has, or has had during the six months immediately prior to the designation, an employment relationship with the Trader or any of his creditors or provides or has provided during the same period any independent professional services, provided that such services imply subordination;

vi. is a partner, landlord or tenant of the Trader or any of his cre-ditors in the procedure for which he is being designated, or

vii. has any direct or indirect interest in the bankruptcy process or is a close friend or a clear adversary of the Trader or any of his creditors.

In the event that the Judge should reject the nomination of the trustee in Bankruptcy or the challenge made by any of the parties should be declared legally sound, the Institute must make a new designation.In addition to the rejection or challenging of the designation, the administrator may be replaced when: i. Th e Trader together with recognised creditors representing

at least half of the total recognised assets request to the Institute, via the Judge, the substitution of the Conciliator or Trustee by one proposed by them in a reasoned manner from among those registered with the Institute; or

ii. Th e Trader and a group of creditors representing at least 75% of the total recognised assets designate by mutual agreement a natural or legal person who does not appear on the register and who they wish to act as Conciliator or trustee, in which case they should agree fees with that person.

Th is last case is an exception to the general rule that it will be IFE-COM which designates the Trustee in bankruptcy from among those who appear on its register.

2. Which professionals carry out the duties of the Trustee in BankruptcyTh e Conciliators and Trustees are those charged with adminis-trating the assets and rights which make up the insolvent party’s Estate.Th e Conciliator will do this during the Conciliatory stage provi-ded that the Judge so orders (if not it will be the Trader who will continue in his role as director in the company), and the Trustee in Bankruptcy will do so during the bankruptcy stage.

MEXICO

73

74www.bgi-law.com

As a general rule it is required that the specialists be registered in the Federal Institute of Mercantile Bankruptcy Specialists register (IFECOM), are not in a position of incompatibility as mentioned earlier and in order to act as such must demonstrate that:i. they have relevant experience of at least fi ve years in a

business administration, fi nancial, legal or accounting advisory role;

ii. they hold no employment, position or commission in the Public Administration nor form part of the Legislative or Judicial system in any of the three areas of government;

iii. they are reputable; iv. they comply with the selection procedure of the Institute

and its updating procedures; and v. they have not received a fi rm judicial ruling for an inten-

tional crime meriting a prison ruling and they have not been disqualifi ed from employment, holding a position or commission in the public service, the fi nancial system or from trading.

Th ose Conciliators or Trustees named by mutual agreement by a group of recognised creditors representing at least 75% of the total recognised Estate are exempt from the obligation to be inscribed on the Institute’s Registry.

In accordance with the agreement of the Board of the Federal Institute of Mercantile Bankruptcy Specialist, in order to act as Conciliator, it must be accredited that one has experience in the majority of the following activities: accounting, balance sheet analysis and interpretation, involvement in Bankruptcy procee-dings, fi nancial and corporative engineering, rescuing and admi-nistering companies, mediation, mergers and acquisitions; and to be a Trustee, in the majority of the following activities: accoun-ting, involvement in Bankruptcy proceedings, administration, disposal of assets, rescue and valuation of companies, mergers, acquisitions and conversions.

1. What are the duties and prerogatives of the Trustee in Bankruptcy?1) Conciliator: Th e main function of the Conciliator is to make it possible for the Trader and his recognised creditors to come to an agreement.Th e Conciliator will begin working from the moment the com-pany is declared to be in Bankruptcy, that is to say, as soon as the circumstances for Bankruptcy as laid down under the Law have been accredited, and his work will be complete when any of the following cases concurs: i. A ruling approving an agreement (between Trader and

creditors) is given, which will put an end to the Bankrupt-cy process;

ii. No agreement is reached, which will mean entering the bankruptcy stage or;

iii. Th e Conciliator himself requests that the Judge brings an early end to the Conciliatory stage due to a lack of willing-ness or the impossibility of coming to such an agreement, and therefore they will continue to the bankruptcy stage.

While the Conciliator is exercising his functions, as well as being obliged to: i. carry out his work with integrity and diligence, ii. supervise and oversee the correct work of his assistants; iii. carry out the procedural acts imposed upon him by the

Law; iv. report on his actions to the Judge; v. maintain confi dentiality; vi. provide IFECOM with all manner of facilities for inspec-

tion and supervision of how he carries out his functions; and

vii. comply with the general rulings made by IFECOM. He will also have the following obligations/functions:

A. PUBLIC NOTICE: He must register the Bankruptcy with the Public Registry of Commerce which corresponds to the business address of the Trader and wherever he may have an agency, branch or hold assets subject to any public registry and he will publish an extract of the ruling on the Bankruptcy proceedings in the Federation’s Daily Bulletin and in one of the major circula-tion newspapers in the town or city where the proceedings are taking place.

B. RECOGNTION OF CREDITORS: Independently of whether the Conciliatory stage has or has

75

not ended, he will be responsible for initiating the procedure of recognising creditors, during which, on the basis of the Trader’s accounts, other information provided by the Trader and requests for recognition on the part of creditors, he will draw up a provisional list of the Trader’s creditors in which he must include tax and labour creditors, and present it to the Judge. Following this, and having heard the parties, he will present the Judge with his defi nitive list.

C. ADMINISTRATION OF THE COMPANY:In the event that it is the Trader who takes on the adminis-tration of the company, the Conciliator must present a report to the Judge every two months of the company’s work and will present a similar report when his management ends. He must also identify the Trader’s assets which are in the hands of third parties. Furthermore, he will act as depository for assets placed under embargo by the labour authorities to assure claims in favour of workers for salaries and wages earned in the two years immediately prior or for compensa-tion payments. He may, upon the advice of the auditors, request from the Judge the closure of the company, if this avoids an increase in debts or deterioration of the Estate.

D. SUPERVISION: If he has not taken on the company’s administration, he will oversee the accounting and all operations carried out by the Trader. He will decide on the cancellation of pending contracts and upon the advice of the auditors, will approve the signing of new credits, the setting up or substitution of

guarantees (with the consent, in writing, of the correspon-ding creditor) and the disposal of assets when these are not associated with the normal operation of the company.

E. OTHER LEGAL CASES: He will oversee legal action taken and judicial cases followed by the Trader and those taken and followed against him which are in process when the Bankruptcy is declared and which are related to assets.

F. THE TRADER’S FULFILMENT OF OBLIGATIONS: Th e Conciliator may object to the Trader fulfi lling a contract if this is in the interests of the Estate. He may also rescind contracts which would not normally have been rescinded by the Bankruptcy process of one of the parties.

In every case the Conciliator will have the right to collect his fees.

2) Trustee of Bankruptcy:

Th e Trustee of Bankruptcy will begin work once the bankruptcy stage has been declared open. His main function is to dispose of the Trader’s company, its production units or the assets of which it is made up in order to pay the recognised creditors.In addition to the general obligations which are also applicable to the Conciliator, the Trustee of Bankruptcy will have the following obligations/functions:

A. PUBLIC NOTICE: He must register the bankruptcy with the Public Registry of Commerce which corresponds to the business address of the

75

76www.bgi-law.com

Trader and wherever he may have an agency, branch or hold assets subject to any public registry and he will publish an extract of the ruling of the Bankruptcy proceedings in the Federation’s Daily Bulletin and in one of the major circula-tion newspapers in the town or city where the proceedings are taking place.

B. RECOGNITION OF CREDITORS: In the event that the Bankruptcy proceedings enter the bankruptcy stage, he will be responsible initiating the pro-cess of recognising creditors.

C. COMPANY ADMINISTRATION:A declaration of bankruptcy will imply the immediate removal of the Trader from the administration of his company and he will be replaced by the Trustee of Bankruptcy who will have the broadest controlling powers allowed under the Law.He will decide upon the cancellation of pending contracts and, upon the advice of the auditors, approve the signing of new credit, the setting up or substitution of guarantees (with the prior written consent of the creditor in question).

D. PROCEDURE FOR TAKING POSSESSION: Th e Trustee of Bankruptcy will take possession of assets and premises which are in the Trader’s possession and will begin to administer them. He will immediately take possession of books, papers, documents, electronic data storage and processing media and all goods which are in the Trader’s possession and will immediately take all necessary measures for their safety and conservation. He will hold the status of legal depository.

E. ACCOUNTING, INVENTORY AND TRUSTEE OF BANKRUPTCY’S OPINION:

Th e Trustee of Bankruptcy must draw up and hand to the Judge:

i. An opinion on the state of the Trader’s accounts;ii. An inventory of the Trader’s, and iii. A balance sheet as at the day he takes on the Receivership

of the company.

F. DISPOSAL OF ASSETS, CREDIT GRADING AND PAY-MENTS TO RECOGNISED CREDITORS:

Bankruptcy having been declared, even if the creditor recognition process has not yet concluded, the Trustee of Bankruptcy will pro-ceed to dispose of the assets and rights which make up the estate, while attempting to obtain the greatest income possible from their sale4 through a process of public auction unless he requests that the Judge allow any asset to be sold using a diff erent process and that this would result in obtaining greater income and, as an ex-ception, he may proceed to dispose of the bankrupt’s estate assets in a manner diff erent from the above whenever the assets need to be sold immediately due to the fact that they cannot be kept without them deteriorating or becoming spoiled, are liable to a serious reduction in their price or the cost of their conservation would be too high in relation to their value.It is important to point out that the Trustee of Bankruptcy will not be held responsible for any senior rights or hidden defects in the goods being sold unless otherwise agreed with the buyer.

G. REPORTS:

4. When the disposal of all the assets and rights of the estate as one unit allows for maximum income from the sale, the Receiver must consider the desirability of keeping the company operating

77

At least every two months, the Trustee of Bankruptcy will present the Judge with a report on disposals carried out and the situation of the remaining assets together with a list of creditors who will be paid and the percentage of the estate corresponding to them.

As with the Conciliator, his fees will be guaranteed.

Part two1. When should you fi le for bankruptcy?No obligation exists to request that Bankruptcy be declared. It is a right of the Trader, his creditors and the Public Prosecutor. Never-theless, if, during a mercantile court case, a Judge informs that the Trader is in a situation of possible Bankruptcy, he will inform the competent fi scal authorities and the Public Prosecutor so that, if necessary, the latter might request Bankruptcy proceedings.A Trader who systematically breaches his payment obligations will be declared to be in Bankruptcy proceedings, meaning: a) in the case that the Trader requests Bankruptcy proceedings to be opened, non-payment to two or more diff erent creditors and that those pay-ments have been unpaid for at least thirty days and represent thirty fi ve percent or more of the total payment obligations of the Trader on the date the request is made or that the Trader holds no assets5

5. Th e assets to be considered are: a) Cash and demand deposits; b) Term deposits and investments whose due date is of no more than 90 calendar days following the date bankruptcy is fi led for; c) Clients

to cover at least 80% of his overdue payments on the day the suit or request is made; and b) if Bankruptcy proceedings are requested by a creditor or the Public Prosecutor, the non-payment of two or more diff erent creditors and the two conditions mentioned above also being met.

2. Is there a deadline for fi ling for bankruptcy?No

3. Can an individual person fi le for bankruptcy?Yes, on the condition that he is the Trader or one of his creditors and the conditions in question 1 are met.

4. In the case of a legal entity, who should fi le for bankruptcy?Th e legal representative. As long as he holds powers to do so.

5. What happens if you do not fi le for bankruptcy?Th en the opportunity is lost to agree with the creditors on a res-tructuring of debt or a remission and there is a risk of the Trader becoming incapable of fulfi lling his payment obligations and so put in danger the viability of other Traders with whom he has a business relationship.

and accounts for collection whose due date is of no more than 90 calendar days following the date bankruptcy is fi led for, and d) Share certifi cates for which sale and purchase operations are regularly made in the relevant markets, which could be sold within a maximum of thirty bank business days and the value of which is known at the date bankruptcy is fi led for.

77

78www.bgi-law.com

6. Can a creditor of my company request the bankruptcy proceedings?Yes

7. Does the declaration of bankruptcy mean the closure of the company?No

8. Once the bankruptcy has been declared, do I lose the decision-making power over my company?Not necessarily. Th at power is lost either if, during the Concilia-tory stage, it is applied for by the Conciliator to the Judge, or du-ring the bankruptcy stage.

9. How long do the bankruptcy proceedings last?By Law, the Conciliatory stage should not last more than 365 days (although in practice it is common that this period is extended), and the Law lays down no maximum time limit for the bankrupt-cy stage, which depends to a great extent on the process of dispo-sal of the Trader’s assets.

10. Can workers be dismissed from a company that has entered into bankruptcy?Yes, while complying with what is laid down under the Federal Employment Law. Th at is to say, if the dismissal is unjustifi ed, the corresponding compensation should nevertheless be paid. Mercantile Bankruptcy proceedings give no exemption from an employer’s labour responsibilities.

11. Is it possible to negotiate the outstanding payments before fi ling for bankruptcy in an attempt to avoid the bankruptcy?It can be done but one must be very careful in doing so because if the proceedings are not avoided there is a risk that those actions might be considered null and void since they were carried out in fraud of creditors6.Such actions cannot be declared null and void when the estate is benefi tted by the payments made to the Trader.

12. I am the director of a company and the partners do not wish to fi le for bankruptcy. What can I do?Th e Bankruptcy proceedings Law does not allow for the admi-nistrative body of a company to request Bankruptcy proceedings and if we consider that it is a body that is subordinate to the shareholder’s assembly, then it must have specifi c authorisation to request it.

13. As a mere partner of the company, can I be responsible for the debts?Th e limit of liability for each partner, even in the case of Bankrupt-cy proceedings, will be determined by the type of company invol-ved since it depends on the type of responsibility acquired: joint, subsidiary or unlimited, or in contrast, limited to the amounts of the partners’ participation.

14. Is it possible to sell company assets before fi ling for bankruptcy in order to prevent being liable for the debts?It is possible but depending on i. the date the assets were sold and the date proceedings were

opened and the retroactive date,ii. whether there was good or bad faith on the part of the

acquiring party; and also iii. the conditions under which the action was taken, the sale

being considered a fraud to creditors and thus null and void as regards the estate.

15. If I have goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place?One of the eff ects of mercantile Bankruptcy is that until the conci-liation stage is completed, no assets may be placed under embargo

6. Actions in fraud of creditors are considered to be: i) those which the Trader has carried out before Bankruptcy proceedings are decla-red, while knowingly defrauding the creditors if the third party who participated in the action had knowledge of such fraud (unless no payment was involved); ii) those mentioned in Law which have been carried out prior to the retroactive date (generally 270 days prior to proceedings being opened, unless the person concerned can prove good faith).

79

nor can existing embargoes be executed against the Trader’s assets and rights unless they are embargoes or executions thereof rela-ting to labour matters.

16. When are the bankruptcy proceedings considered “liable”?Culpable Bankruptcy is not foreseen under the Mercantile Bankruptcy Law in force since the year 2000.

17. How do bankruptcy proceedings end?Th ey will conclude by judicial declaration as long as any of the following conditions are met:i. An agreement is approved between the Trader and his

recognised creditors (in the Conciliatory stage);

ii. Full payment has been made to the recognised creditors; iii. Payment has been made to the recognised creditors by

way of proportions of the Trader’s obligations and no more assets remain for disposal;

iv. It is demonstrated that the estate is insuffi cient, even to co-ver the expenses against the estate before any other credits (labour, estate administration, normal costs for the safety of the estate, actions for the benefi t of the estate);

v. During the bankruptcy stage an agreement is reached bet-ween the Trader and all of the recognised creditors; or

vi. At any time the Trader and all of the recognised creditors request it.

79

80www.bgi-law.com

18. Is it possible to negotiate a reduction of the debts paya-ble and pay in instalments?Yes

19. Can the company who has entered into bankruptcy request its liquidation?Adhering to the terminology used in the Mercantile Bankruptcy Law and taking liquidation to mean bankruptcy: yes, the com-pany may request that the bankruptcy stage be entered into or that it be declared early.

20. What eff ects result from the bankruptcy liquidation request?If a request is made to be declared bankrupt, the Conciliatory sta-ge is completely omitted and the opportunity is lost to reach an agreement with the recognised creditors.Once bankruptcy has been declared by the court: i. the Trader’s capacity to use the assets and rights making up

the estate is suspended; ii. possession of the assets and rights making up the estate

will be handed over to the Receiver; iii. the company’s debtors are prohibited from paying the

Trader or handing over goods without the authorization of the Trustee of Bankruptcy.

21. Who is in charge of elaborating the bankruptcy liqui-dation plan?Th e Conciliator will draw up the recognition of creditors and the Trustee of Bankruptcy will deal with the disposal of assets and present the Judge with the report on asset sales carried out and the situation of the remainder of the assets together with a list of cre-ditors who will be paid with the proportional part corresponding to them. Finally the Judge, having listened to the parties, will de-cide upon the manner and conditions governing the distribution of the available cash amounts.

22. Can the debtor or the creditors propose any sugges-tions regarding the bankruptcy liquidation plan?Both the Trader and his recognised creditors may make their ob-jections known to the provisional list of creditors which the Con-ciliator presents to the Judge and they may later appeal against the ruling on credit recognition, grading and ranking dictated by the Judge.Both the Trader and the recognised creditors can oppose the asset sales plan presented by the Trustee of Bankruptcy if it diff ers from an auction sale. In this case it must be one fi ft h of the recognised creditors or creditors representing at least 20 percent of the total of recognised credits who do so.Finally, they may make objections to the report on asset sales ca-rried out and the situation of the remaining assets and to the list of creditors to be paid and the proportional part corresponding to each.

23. Who has the fi nal decision on whether this goes into eff ect or not?Th e Judge conducting the procedure, having verifi ed that the Tra-der has actually failed in a generalized fashion to meet his pay-ment obligations.

81

24. What happens if the judge does not approve the bankruptcy liquidation plan?It is the Judge who will decide on the manner and terms under which the available cash is distributed, basing his decision on the asset sales reports and the list of creditors presented by the Trustee of Bankruptcy and also on the objections made by both the Trader and the recognised creditors.

25. What should I do in the case that someone who owes me money fi les for bankruptcy?Go to the judicial body hearing the case and request to be recog-nised as a creditor.

26. Do I have a time limit in which to provide information with regards to the credit the bankrupt company owes me?Creditors may ask for recognition of their claims: i. within 20 calendar days aft er public notice was given of the

ruling opening the mercantile Bankruptcy proceedings; ii. within the time limit for making objections to the provisio-

nal list presented by the Conciliator to the Judge; or iii. within the time limit for making an appeal against the ru-

ling on credit recognition, grading and ranking. Once this period has expired, no recognition may be requested.

27. What happens if I do not provide my claim informa-tion within that time limit?You will be given the status of recognised creditor and so will lose the benefi ts granted to them under the Law itself.


29. Where do I have to go if I want to fi le a lawsuit against the company who has entered into bankruptcy?To the District Court corresponding to the business address of the company in question.

30. Which are the criminal liabilities aft er bankruptcy proceedings?A Trader who has been declared in Bankruptcy by a fi rm court ru-ling will be penalized with a prison sentence of between one and nine years for any act of wilful misconduct which causes or wor-sens the generalized situation of non-fulfi lment of his payment obligations; he will also be penalized with one to three years of prison when, having been requested to do so by the Judge, he fails to present his accounts to the person so designated by the Judge within the period which the Judge has allowed.When the Trader is a legal entity, criminal liability will fall upon the members of the board, the directors, executives, managers or liquidators in the same way as if they had themselves carried out or participated in the crime.

Any person who either himself or through another person, should request recognition of a non-existent or simulated credit in Bankruptcy proceedings will be penalized with between one and nine years of prison.

83

BGI VILLARREAL S.C. BALMS GROUP INTERNATIONAL

BGI Villarreal, S.C. was founded in 1985, originally as Cuevas y Villarreal. Th e professional practice of our fi rm includes the following areas: corporate, real estate, civil, commercial, tax, labor and administrative (including litigation), mergers and acquisitions, debt restructuring, foreign investment, testamentary planning, international trade areas, as well as Commercial Notary Public’s services, providing our professional services mainly to clients from México, the United States of America, Canada, Argentina and Spain, that includes individual entrepreneurs as well as corporate groups.Our professional team has accomplished postgraduate studies, which allow us to advise our clients in several law areas required by companies.

AREAS OF EXPERTISE

■ General Corporate ■ Due Diligence ■ Civil and Commercial Law ■ Litigation ■ Tax Law ■ Real Estate ■ Labor Law ■ Foreign investment and foreign trade ■ Administrative Law ■ Mergers and Acquisitions ■ Commercial Notary Public’s Offi ce ■ Debt restructurating

BGI VILLARREAL S.C.

Prol. Paseo de la Reforma #115Despacho 1001.

Col. Paseo de las Lomas. Santa FeC.P. 01330, México D.F.

México

Tel: + 52 55 5258 1150Fax: + 52 55 5292 6330

[email protected]

PARTNERS

Guillermo Villarreal TorresRosalba Muñoz CamposLuis A. de la Torre SánchezMelissa Barriga Castañeda

ASSOCIATES AND LAWYERS

Marcela Ríos TorresRoberto F. Gutiérrez HernándezAndrea de Uriarte Villarreal

84www.bgi-law.com

8585

Bankruptcy LawPart one1. Who appoints the trustee in bankruptcy?Under our legal system, we must diff erentiate between cases of creditors’ meetings and those of bankruptcy. - In cases of credi-tors’ meetings, the debtor calling the creditors together retains administrative rights over his assets and in cases of bankruptcy, administration of assets passes to the Trustee in Bankruptcy.-

2. Which professionals carry out the duties of the trustee in bankruptcy?Administration of bankruptcy under our legal system is in the hands of the General Bankruptcy Commission and is carried out by the Trustee General and agents known as trustees in bankrupt-cy. Regulations set down the requirements to be met by all those who wish to carry out duties corresponding to the Commission and it is specifi ed that those interested in doing so must have techni-cal knowledge backed by the corresponding Law degree or one in Economic, accounting or administrative sciences.

3. What are the duties and prerogatives of the trustee in bankruptcy?According to article 210 of Law 154/69 the main function of the General Bankruptcy Commission is to administrate the assets of persons who are declared bankrupt, liquidate and pay their debts and carry out the duties it is given under the law.Th e Trustee in Bankruptcy is an essential part of the proceedings for creditor’s meetings and bankruptcy and he acts to defend the general interest of the creditors as well as protecting the rights of the defendant in legally recognized cases.

Part two1. When should you fi le for bankruptcy? Bankruptcy should be fi led for whenever the debtor, whether a trader or otherwise, has entered into a situation of insolvency as defi ned under article 9 of Law 154/69.-

2. Is there a deadline for fi ling for bankruptcy?

Under Law 154/69 no time limit is stipulated limiting the request for bankruptcy proceedings. It only specifi es the situation of in-solvency in which the debtor must fi nd himself for a request to be viable.

3. Can an individual person fi le for bankruptcy?Yes. Legitimacy for requesting bankruptcy is broad and includes private individuals, traders or otherwise and legal entities which have gone into a state of insolvency.

4. In the case of a legal entity, who should fi le for bankruptcy?Under article 15 of law 154/69, the petition for creditors’ meetings or a declaration of bankruptcy of companies and associations must be made through their legal representatives, authorized, in the case of associations, public companies, cooperatives and li-mited companies, by the assembly of members, shareholders or partners.

5. What happens if you do not fi le for bankruptcy? Insolvency proceedings are an opportunity, mediated by the law, to avoid bankruptcy. However, it may be that the debtor decides not to make use of this mechanism and so it is necessary to distin-guish between two possible cases: a. if the insolvent debtor acts as a trader, his creditor/s may fi le

for his bankruptcy by producing proof of the non-payment of one or more obligations payable and due, or of another fact which shows his insolvency; or

b. if the debtor is not a trader, then the creditor may fi le for his bankruptcy to claim the liquid claimable debt. In order to do this he must prove the existence of two or more enfor-cements brought against the debtor by diff erent unsecured debtors based on several obligations and in which the debtor has not made the arranged payment.

6. Can a creditor of my company request the bankruptcy proceedings? No. Only the debtor who has become insolvent has legal standing to request bankruptcy proceedings. Creditors can only request the debtor’s actual bankruptcy.

7. Does the declaration of bankruptcy mean the closure of the company? No, according to article 21 of Law 154/69, the debtor for whom a ruling has been given for calling a meeting of creditors, reserves administration rights over his assets and, up until the ruling has been ratifi ed, will continue with his normal activities although under the supervision of the designated trustee in bankruptcy unless the latter has grounds to oppose it.

8. Once the bankruptcy has been declared, do I lose the decision-making power over my company?In principle, no. Once bankruptcy has been declared the deb-tor does not lose the right to administer his assets; however, his administrative role is carried out under the supervision of the

PARAGUAY

86www.bgi-law.com

designated trustee in bankruptcy. Th e trustee in bankruptcy, who plays a controlling role, can and must oppose any acts which are attempted by the debtor to the detriment of his capital, which is the common pledge of his creditors.

9. How long do the bankruptcy proceedings last? Taking into account the various stages which make up bankruptcy proceedings from the beginning, and the subsequent period for implementing the arrangements, bankruptcy proceedings may last more than four years.

10. Can workers be dismissed from a company that has entered into bankruptcy? No. Th e Labour Code recognises as a cause for termination of contract, the bankruptcy of the employer or the bankruptcy li-quidation of the company except when the trustee in bankruptcy, in compliance with applicable legal procedures, decides that the business should continue to be run. If the debtor is discharged then he must contract the same workers or through the same tra-de unions. On the other hand, under article 71 of the Labour Code, the lack of means of payment and the impossibility of obtaining them in

order for normal work to be continued, could, if they are duly justifi ed, constitute a cause for suspension of a labour contract.

11. Is it possible to negotiate the outstanding payments before fi ling for bankruptcy in an attempt to avoid the bankruptcy?Yes, although not exactly as a means of avoiding bankruptcy. In-solvency proceedings are a way of avoiding bankruptcy through the mediation of the law, which is viable only if the debtor re-quests it and fulfi ls the legal requirements. In this way, if the deb-tor, legally capacitated to fi le, does not do so then he is obstructing any negotiations which might be appropriate in relation to the pending payments. Nevertheless, the creditors may, or not, accept the debtor’s proposals and go on to request bankruptcy.

12. I am the administrator of a company and the partners do not wish to fi le for bankruptcy. What can I do? You can do absolutely nothing. Given the importance and the consequences of proceedings to call creditors’ meetings and, even more so of bankruptcy proceedings themselves, our legislation establishes as a requirement of fi ling that authorization must be given by the shareholders’, members’ or partners’ assembly,

87

depending on whether a public company, a limited company, a cooperative or an association.

13. As a mere partner of the company, can I be responsible for the debts? Yes. A bankruptcy declaration of a company DOES NOT IMPLY the bankruptcy of its partners with the exception of a limited company. In the same way, the bankruptcy of one of the partners does not imply that of the company he is part of. Th e share of the assets belonging to the debtor corresponds to the company creditors while giving precedence to the personal creditors of that partner. Th e same provision is applicable if a person is a partner in two or more companies of which one is declared bankrupt.

14. Is it possible to sell company assets before fi ling for bankruptcy in order to prevent being liable for the debts? Factually it is possible although such acts could, eventually, be de-clared null and void by action to set aside under article 311 and subsequent of the Civil Code. Moreover, Law 154/69 sets down a period of twelve months prior to the declaration or presentation of bankruptcy, during which any acts carried out by the debtor may be considered suspicious and as such revocable.

15. If I have goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place? No, once the creditors meeting has been called, creditors by prior entitlement or cause may neither initiate nor continue recovery actions against the debtor’s capital.

16. When are bankruptcy proceedings considered “liable”? Th is is a reference to a defi nition given to the way the debtor han-dles his assets including acts by the defendant directly related with a worsening of his situation of insolvency. Liable bankruptcy is determined according to the circumstances described under arti-cle 166 of Law 154/69.

17. How do bankruptcy proceedings end?When there is proper fulfi lment of the offi cially recognised agree-ment.

18. Is it possible to negotiate a reduction of the debts paya-ble and pay in instalments? Yes. Article 46 of Law 154/69 provides for the possibility to ne-gotiate debt reductions of up to 50% as long as the time limit for fulfi lling the agreement is no more than two years. On the other hand, if that time limit were to be greater than two years and less than four, the reduction may not exceed 30%. Finally, and taking into consideration the situation of trader de-btors who have had a regular turnover for 20 years, have not had to call creditors meetings and have not been declared bankrupt, the Law allows for their creditors to agree to a reduction of up to 75% but as far as the time limit is concerned, this cannot exceed 4 years.

19. Can the company who has entered into bankruptcy request the liquidation of the same? No, According to Law 154/69, once bankruptcy has been declared and claims have been verifi ed, it is the trustee of bankruptcy who must liquidate the estate in the shortest time possible.

87

88www.bgi-law.com

20. What eff ects result from the bankruptcy liquidation request? Bankruptcy liquidation results in the assets which make up the debtor’s capital being used to fulfi l the aims of collective execu-tion, that is to say, to convert the debtor’s assets into cash so that the product may be distributed according to the Law.

21. Who is in charge of elaborating the bankruptcy liqui-dation plan? Our legislation does not include such a thing as a liquidation plan within the bankruptcy proceedings although it does es-tablish measures for disposing of assets. Th e bankruptcy law places the liquidation in the hands of the designated trustee of bankruptcy.

22. Can the debtor or the creditors propose any sugges-tions regarding the bankruptcy liquidation plan? As we said in the previous point, our legislation does not con-template any liquidation plan. However, the law does regulate on a monthly report which the trustee of bankruptcy must present to the court regarding the result of the liquidation and this can be seen collaterally by the creditors.

23. Who has the fi nal decision on whether this goes into eff ect or not?It is the court. All decisions must be taken by a judge according to the Law.

24. What happens if the judge does not approve the bankruptcy liquidation plan?Under Law 154/69 there is no regulation for a liquidation plan.

25. What should I do in the case that someone who owes me money fi les for bankruptcy? You should verify your claim, take part in the creditor’s meeting in order to vote to approve or reject the payment agreement off ered and then wait for it to be fulfi lled.-

26. Do I have a time limit in which to provide information with regard to the credit the bankrupt company owes me?Yes. Under article 32 of Law 154/69, once the order for a creditors’ meeting has been made, all creditors, except those with claims fo-reseen under the labour laws, are obliged to present documents

justifying their claims or a signed declaration expressing the amount, the origin or cause of their claims and the preferen-ce which they wish to claim. Th is must be handed to the court secretary’s offi ce within the time limit set out in the correspon-ding ruling. Th e time limit given in that court ruling may not be of less than 20 days nor may it be greater than 40 days.

27. What happens if I do not provide my credit informa-tion within that time limit?You may inform of your claim later but then the conditions in article 58 of Law 154/69 will apply. Creditors who do not enforce their rights at the right time may in no case claim from the other creditors the dividends which they might have received under the agreement. Th ey can only claim from dividends which are still to be distributed without this aff ecting their right to claim the unpaid amount from the debtor once the agreement has paid the other creditors.

28. Do I need a lawyer to do this?Yes. Th e Judicial Organizational Code stipulates that the services of a lawyer are compulsory. If documents are presented without complying with this requirement then the just must not process claims made under such conditions.

29. Where do I have to go if I want to fi le a lawsuit against the company who has entered into bankruptcy? Article 26 of Law 154/69 restricts the possibilities of initiating or continuing executive actions against the debtor’s assets. Claims guaranteed with real guarantees and those which have special pri-vileges such as labour claims and those relating to food are exone-rated from the laws provision. Under that legal provision and jurisprudence on the matter, the law does not go as far as denying the possibility of initiating or continuing ordinary proceedings.

30. Which are the criminal liabilities aft er bankruptcy proceedings?Th e Criminal Code defi nes conduct which may lead to bankrupt-cy and punishes such conduct with prison terms of up to fi ve years. Th e manner in which the debtor has handled his assets may be taken into account by the criminal judge when evaluating the elements constituting the off ence.

89

90www.bgi-law.com

91

JIMÉNEZ BALBIANI & ASOCIADOSESTUDIO JURÍDICO ATTORNEYS AT LAW

Jejuí Nº 690 esq. Juan E. O’leary

C.P. Nº 1255, AsunciónParaguay

Tel/fax: (00 595 21) 449084 (00 595 21) 495468(00 595981) 998008

[email protected]

AREAS OF EXPERTISE

■ Banking & fi nance ■ Corporate Law ■ Civil, Commercial and LaborLaw ■ Mergers & acquisitions (M&A) ■ Capital markets ■ Investments ■ Litigation ■ Mediation and arbitration ■ Distribution and franchises ■ Consumer protection ■ Tax and customs ■ Administrative Law ■ Sport Law ■ Environmental Law ■ Anti-trust & Competition Law ■ Intellectual property, trademarks & patents

■ Internet and data protection ■ Bankruptcy Law ■ Customs Law ■ Maritime Law ■ Aeronautic Law ■ Insurance Law ■ Civil liability ■ Real estate & construction ■ Family Law ■ Agricultural & livestock business ■ Telecommunications & IT ■ International Law ■ Natural resources and Energy Law ■ MERCOSUR ■ BiotechnologyPARTNERS

Julio Ernesto Jiménez Balbiani Julio Ernesto Jiménez Granda Monserrat Jiménez Granda

Th e law fi rm Jiménez Balbiani & Asociados was established in Asunción, Paraguay, in 1973, thus in its more than three decades of existence, it has accumulated a vast experience serving Justice in favor of its national and international clients. During this period of time we have represented, advised, and integrally defended numerous and distinguished clients, obtaining extraordinary results, in diff erent areas of the law. Th is has allowed us to win the trust of the local and international market, establishing us amongst the most competitive law fi rms in the country. Aware of the contemporary needs and the actual market, Jiménez Balbiani & Asociados relies on a comfortable and appropriate infrastructure in accordance to the new technological tendencies and innovations, creating a favorable environment for team work and dialogue with its clients.

JIMÉNEZ BALBIANI & ASOCIADOSESTUDIO JURÍDICO/ATTORNEYS AT LAW

BALMS GROUP INTERNATIONAL

92www.bgi-law.com

9393

Bankruptcy LawPart one1. Who appoints the trustee in bankruptcy?

Short introduction

Bankruptcy in Romania is governed by Law no. 85/2006 – regar-ding the insolvency procedure and is completed by the provisions of the Romanian Civil code, the Romanian Civil procedure code, and by the provisions of Regulation no. 1346/2000 CE – regarding the insolvency procedures.Th e state of Insolvency represents the debtor’s fi nancial situation, a si-tuation in which it cannot pay its undisputable, liquid and due debts. Th e Observation Period represents the period of time between the opening of the procedures and the confi rmation of the Reor-ganization Plan or the entering into Bankruptcy.

Th e Judicial Reorganization represents the procedure applied to the debtor, a legal entity debtor, with the purpose of repaying its debts. Th is procedure implies the compilation, approval, imple-mentation and the following of a Reorganization Plan.Th e Bankruptcy Procedure represents the multilateral and im-partial insolvency procedure applied to the debtor with the pur-pose of liquidation of its assets in order to cover the liabilities, which is followed by the deletion from the offi cial registry.

Th e trustee

Depending on the type of procedure the debtor is subject to, the trustee’s task has diff erent characteristics and can be assumed by diff erent persons.Th e Judicial Administrator is the compatible natural or legal per-son, authorized Insolvency Practitioner, appointed by the Syndic Judge, who carries out the general trustee duties during the Ob-servation Period or the Reorganization Period.

ROMANIA

94www.bgi-law.com

Th e Judicial Administrator can be appointed by the Syndic Judge temporarily until the confi rmation of the creditors is given or by the creditor/creditors whose debt represents at least 50% of the total value of the debts.Th e Liquidator is the compatible natural or legal person, authori-zed Insolvency Practitioner, appointed by the Syndic Judge, who carries out the liquidation duties when the debtor is in the situa-tion of Bankruptcy.Th e procedure of appointing a Liquidator is the same procedure as the one appointing the Judicial Administrator. Th e prior Judicial Ad-ministrator can be designated as Liquidator in the same procedure.Th e Special Administrator is the representative appointed by the debtor’s shareholders. Th e Special Administrator is empowered by the debtor i. to execute administrative acts during the procedure, when

the debtor is allowed to manage its activity and ii. to represent the interests of the shareholders during the pro-

cedure when the debtor is not allowed to manage its activity.

2. Which professionals carry out the duties of the trustee in bankruptcy?Th e Government Emergency Ordinance no. 86/2006 – regarding the organization of the activity of the Insolvency Practitioners

represents the legal basis which establishes the profession to fulfi ll the role of trustee in bankruptcy cases.By the provisions of the law, Insolvency Practitioners can have the capacity of Judicial Administrator and Liquidator in Bankruptcy procedures.Th e Insolvency Practitioners can be either sole practitioners, or associations of such practitioners belonging to Limited Liability Professional Associations.

3. What are the duties and prerogatives of the trustee in bankruptcy?Th e main prerogatives of the trustee are divided into two cate-gories, depending on the status of the procedure and the role of Judicial Administrator or Liquidator.I. Th e Judicial Administrator’s main attributes According to the provisions of Law no. 85/2006, the general pre-rogatives of the Judicial Administrator are the following:1. Examining the economic situation of the debtor and its docu-

ments, compiling a report and proposing the commencement of the simplifi ed bankruptcy procedure or the continuing of the observation period.

2. Examining the debtor’s activity and compiling a detailed report mentioning the motives which caused the state of insolvency, with the determination of the possible persons responsible and

95

of the existence of the premise of personal liability, and also the real possibility of reorganization or the motives that do not allow the reorganization.

3. Compiling and correcting the fi nancial documents.4. Elaboration of the reorganization plan of the debtor’s activity.5. Supervision of the activities concerning the management of the

debtor’s assets.6. Total or partial management of the debtor’s activity.7. Notifi cation, guidance and documentation of the creditors and/

or shareholders meetings.8. Filing claims with the judicial courts for the annulment of frau-

dulent deeds executed by the debtor to the detriment, or any possible detriment, of the creditors.

9. Notifying the Syndic Judge when the debtor has no assets or the assets are insuffi cient to cover the administrative expenses.

10. Maintaining or notifying of the termination of contracts ente-red into by the debtor.

11. Verifying the creditor’s debts and submitting objections to the debts and the compilation of the Table of Debts.

12. Collection of debts, supervision over the collection of debts referring to goods or amounts of money transferred by the de-btor before the opening of the procedure, submitting claims for

the collection of the debtor’s debts from third parties.13. Under the condition of the confi rmation by the Syndic Judge,

the execution of transactions, debt waiving, warranty waiving.14. Notifying the Syndic Judge regarding any type of problem that

may involve a solution given by the Syndic Judge.15. Any other powers attributed by the Syndic Judge.

II. Th e Liquidator’s main attributes According to the provisions of the same law, the general preroga-tives of the Liquidator are the following:1. Examining the debtor’s activity when in the simplifi ed proce-

dure, as related to the circumstances of the debtor and com-piling of a detailed report on the motives that have led to the insolvency standing with the mentioning of the persons res-ponsible and of the existence of the premise of personal lia-bility.

2. Management of the debtor’s activity.3. Filing claims with the judicial courts for the annulment of frau-

dulent acts executed by the debtor to the detriment or suscepti-ble of such detriment for the creditors.

4. Application of seals, compiling the inventory of goods and ta-king appropriate measures of conserving such goods.

95

96www.bgi-law.com

5. Maintaining or notifying of the termination of contracts entered into by the debtor.

6. Verifying the creditor’s debts and submitting objections to the debts and the compilation of the Table of Debts.

7. Supervision over the collection of debts referring to goods or amounts of money transferred by the debtor before the opening of the procedure, submitting claims for the collection of the debtor’s debts from third parties.

8. Collection of payments on behalf of the debtor and registering such payments in the debtor’s assets.

9. Selling the goods belonging to the debtor.10. Under the condition of the confi rmation by the Syndic Judge,

the execution of transactions, debt waiving, warranty waiving.11. Notifying the Syndic Judge regarding any type of problem that

may involve a solution given by the Syndic Judge.12. Any other powers attributed by the Syndic Judge.Both the attributes of the Judicial Administrator and the Liquida-tor are provisioned by the law and have been presented broadly. Certain actions of such professionals are subject to terms, can be contested and the details are dependent on many facts and cir-cumstances of each case.

Part two1. When should you fi le for bankruptcy?Th e insolvency state of the debtor is the essential aspect of fi ling such a claim in court. When the state of insolvency occurs, the moment when the undisputed, liquid and due debts cannot be paid from the debtor’s assets, or when this state is imminent, the request can be submitted to the court.

2. Is there a deadline for fi ling for bankruptcy?Th e provisions of the law mention that the debtor is obligated to fi le such a request within 30 days from the occurrence of the insolvency state or when the insolvency state appears imminent. Th e 30 days term can be extended in certain conditions, mainly regarding negotiations with the purpose of debt restructuring.

3. Can an individual person fi le for bankruptcy?Th e provisions of the law state that a natural person, acting in-dividually, as a trader, can be subject of bankruptcy procedures. Family associations can also be subject to the procedures, as pro-visioned by the law.

4. In the case of a legal entity, who should fi le for bankruptcy?Th e claim must be submitted by the legal representatives of legal en-tities. Th e legal representatives are determined by the bylaws or the articles of incorporation of the legal entities and are usually known as general managers, administrators, board of directors, etc.

5. What happens if you do not fi le for bankruptcy?Not fi ling for bankruptcy within the legal term provided by the law is a criminal off ense punishable by imprisonment between 3 (three) months and 1(one) year or by fi ne. Th e provisions of the law refer to the situation when the 30 day term is disregarded by over 6 months.

97

6. Can a creditor of my company request the bankruptcy proceedings?Creditors can fi le for the bankruptcy of their debtors in certain conditions. Besides the undisputed, liquid and due nature of their debts, there are other conditions that have to be met in order for creditors to submit such a bankruptcy request. Th e minimum amount of the debt must be at least 45,000 RON.

7. Does the declaration of bankruptcy mean the closure of the company?As said above, there are several steps between the fi ling of the request and the bankruptcy procedure. Such steps are the exa-mining of the debtor’s assets and possibility of reorganization if requested. In the event that the claim is submitted by a creditor, the claim is subject to being evaluated by the Syndic Judge and it may be rejected.

8. Once the bankruptcy has been declared, do I lose the decision-making power over my company?Th e provisions of the law state the prerogatives of the Judicial Ad-ministrator and of the Liquidator. It also may be the case where the Syndic Judge, depending on the circumstances, appoints di-ff erent powers to the professionals having such a quality. Unless a judicial reorganization request is submitted, all the administrative prerogatives of the company’s legal representatives are passed to the trustee. Th e shareholders’ interests are being cared for through the appointing of a Special Administrator.

9. How long do the bankruptcy proceedings last?Th ere are many aspects that infl uence the duration of such a pro-cedure that range from the debtor’s participation and intentions within the procedure to the economic realities at certain moments in time. Th e size of the debtor, the number of creditors, the size and amount of the debtor’s assets also infl uence the duration of the procedures. Th e average duration can last from a few years to even more than fi ve years.

97

98www.bgi-law.com

10. Can workers be dismissed from a company that has entered into bankruptcy?Th e applicable law regarding employees is the Labour Code, which states that even in exceptional cases, such as maternity leave, the termination of labour contracts can be decided on the condition that it is ulterior to a judicial reorganization or bankruptcy pro-cedure. Th e Labour Code also provides that the termination of an employment contract is possible, in the case of job displacement, for diff erent reasons or motives that have no relation to the emplo-yee, judicial reorganization and bankruptcy being such reasons.

11. Is it possible to negotiate the outstanding payments before fi ling for bankruptcy in an attempt to avoid the bankruptcy?Th e law provides the possibility of entering into negotiations with the purpose of restructuring the debts to persons that are actively

engaged in negotiation procedures in good faith. Th e law also sta-tes that in the event of the failure of the negotiations being under-taken with the purpose of restructuring the debts, the bankruptcy claim must be submitted within a term of 5 days from this event. Th ese conditions are circumstantial and applicable even if there is an ad-hoc mandate procedure or an arrangement with creditors.

12. I am the administrator of a company and the partners do not wish to fi le for bankruptcy. What can I do?By the provisions of the law it is the obligation of the legal re-presentative (i.e. the administrator of the company with the prior approval of the company’s shareholders/partners’ resolution) to fi le for bankruptcy in the event of insolvency. Failure to claim or the late introduction of the claim may result in criminal off en-se proceedings, if the 6 month period mentioned by the law is disregarded. Law no. 85/2006 does not state with regard to such

99

confl icts between administrators and shareholders/partners, and, depending on the nature of the confl ict, amiable or even media-tion solutions can be employed.

13. As a mere partner of the company, can I be responsible for the debts?According to the provisions of article 126, only partners/sharehol-ders with unlimited liability or members of an economic interest group, collective name company and general or limited partners-hip company can be held responsible for the debts if the assets of their company are insuffi cient to cover creditors’ claims.

14. Is it possible to sell company assets before fi ling for bankruptcy in order to prevent being liable for the debts?In order to help a company in distress to continue its business activity, the debtor can start a concordat procedure that aims to cover the existing receivables by a conciliation or agreement

concluded with the creditors. However, according to the provi-sions of the law, the Judicial Administrator or the Liquidator has the ability to notify of the termination of contracts that are de-trimental to creditors and have been concluded 3 years prior to the commencement of the procedure. Th is situation is very much related to the circumstances of each debtor.

15. If I have goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place?By the provisions of the law, all enforcement procedures are sus-pended at the opening of the bankruptcy procedure. As a result of the bankruptcy procedure, the creditors have to submit their debts to this procedure, and the seized goods become a part of the debtor’s assets. Depending on the circumstances of the case, with regard to the possibility of the Judicial Administrator and of the Liquidator to conclude transactions, in certain conditions, certain seized goods may be transferred to the creditors.

99

100www.bgi-law.com

16. When is the bankruptcy proceedings considered “liable”?According to the provisions of the law, the liability of the debtor’s management may be involved in the event that the debtor’s di-rectors or auditors or other persons fraudulently determined the debtor’s insolvency.

17. How do bankruptcy proceedings end?Th e fi nal step of the bankruptcy procedure represents the liquida-tion of the debtor’s assets in order for the creditors to collect their outstanding debts, in part or in full, in a predetermined order set forth by law. Th e procedure is closed when the Syndic Judge appro-ves the fi nal report compiled by the liquidator. Th e removal from the trade registry is another and conclusive step in this procedure.

18. Is it possible to negotiate a reduction of the debts paya-ble and pay in installments?Th e possibility of a reduction of the debts and the payment in installments represent Judicial Reorganization measures. Again, these options are circumstantial to every debtor and its creditors, as such a reorganization plan is subject to the creditors’ approval.

19. Can the company who has entered into bankruptcy request the liquidation of the same?If the conditions are met, the debtor can be subject to the simpli-fi ed bankruptcy procedure and the Syndic Judge will proceed to the liquidation procedure. Entering into the simplifi ed procedure is possible when the bankruptcy request is submitted by the debtor.

20. What eff ects result from the bankruptcy liquidation request?Th e creditors can submit an opposition to such a request which the Syndic Judge will conduct a hearing where all the oppositions will be ruled upon. If an opposition is admitted, the judge will revoke the opening of the procedure.

21. Who is in charge of elaborating the bankruptcy liqui-dation plan?Th e Liquidator is the professional who, according to the provi-sions of the law, will compile a report which will present the credi-tors with the methods of evaluation and sale of the debtors’ goods. Th e distribution plan represents the order in which the amounts of money collected from the sale of the debtors’ goods, is to be allocated between the creditors.

22. Can the debtor or the creditors propose any sugges-tions regarding the bankruptcy liquidation plan?

Th e bankruptcy law does not institute a liquidation plan but refers to certain aspects of the liquidation procedure that are subject to the approval of the creditors’ general assembly. Aft er the inven-tory of the assets and the evaluation, the Liquidator proposes a method of sale for the debtor’s goods that is subject to the credi-tors’ approval. At this time, the Liquidator also presents the sale procedure depending on the sale method that is voted.Th e law also has a report drawn up concerning the funds raised from the sale of the debtor’s goods and a plan for distribution of

101

these amounts called a distribution plan. Th e creditors’ committee or any creditor can contest the report or the distribution plan.

23. Who has the fi nal decision on whether this goes into eff ect or not?Th e creditors’ general assembly votes on the evaluation report and the methods of sale. Th e creditors have the power to vote on the approval of the evaluation and sale method, and if either is rejec-ted, the sale will not proceed. During this period, the Liquidator submits a periodic report every three months regarding the sold assets and the amounts collected.Regarding the fi nal report of the Liquidator, the creditors can make objections and the Syndic Judge will rule upon all the ob-jections in one hearing, rejecting them or admitting them, and ordering the necessary modifi cations.

24. What happens if the judge does not approve the bankruptcy liquidation plan?With regard to the fi nal report of the Liquidator, the creditors can make objections and the Syndic Judge will rule upon all the ob-jections in one hearing, rejecting them or admitting them, and ordering the necessary modifi cations.

25. What should I do in the case that someone who owes me money fi les for bankruptcy?In this case a claim must be fi led in the bankruptcy procedure, claim that will be analyzed by the trustee and if admitted will re-sult in its addition to the table of creditors.

26. Do I have a time limit in which to provide information with regards to the credit the bankrupt company owes me?Th e deadline for providing information with regards to the credi-tors’ claims will not exceed 45 days from the date of initiation the bankruptcy procedure, as stipulated by the law.

27. What happens if I do not provide my credit informa-tion within that time limit?Th e failure to register the debt within the time limit provided by the law will result in the loss of the right of the creditor to partici-pate in the bankruptcy procedures.

28. Do I need a lawyer to do this?Generally such a claim is not considered very complicated from a legal point of view but legal counsel is always a diligent measure and a professional approach that may save time and expenses.

29. Where do I have to go if I want to fi le a lawsuit against the company who has entered into bankruptcy?Th e competent court to rule in bankruptcy procedures is the Tri-bunal where the headquarters of the debtor is located.

30. Which are the criminal liabilities aft er bankruptcy proceedings?1. Failure to fi le for insolvency proceedings or a delay in fi ling

exceeding 6 (six) months (punishable by imprisonment of bet-ween 3-three months and 1-one year, or by fi ne).

2. Forging, concealing, and/or destroying business records or con-cealing assets (punishable by imprisonment of between 6-six months and 5-fi ve years).

3. Giving the false appearance of non-existent debts (punishable by imprisonment of between 6-six months and 5-fi ve years).

4. Fraudulently disposing of assets to the creditors’ detriment (pu-nishable by imprisonment of between six months and fi ve years).

5. Fraudulently managing the debtor’s assets (punishable by impri-sonment of between 3-three and 8-eight years, or between 5-fi ve and 12-twelve years, depending on the gravity of the off ence).

6. Using, taking possession or traffi cking the debtor’s assets, by the Judicial Administrator or the Liquidator (punishable by impri-sonment of between 1-one and 15 fi ft een years, and the loss of certain rights).

7. Registering or requiring the registration of a non-existent claim (punishable by imprisonment of between 3-three months and 1-one year, or by a fi ne).

8. Refusing to make available to the court or to the Judicial Ad-ministrator or Liquidator the documentation required by law, or hindering the use of this documentation (punishable by impris-onment of between 1-one and 3-three years, or by a fi ne).

101

102www.bgi-law.com

102

104www.bgi-law.com

105

Bankruptcy LawPart one1. Who appoints the trustee in bankruptcy?In accordance with the Federal Law of the Russian Federation on Insolvency (bankruptcy), a trustee in bankruptcy should be appointed shortly aft er the declaration of bankruptcy of a debtor by the court. Th e procedure of the appointment is governed by the provi-sions of Art. 42, 45 and 127 of the RF Federal Law on Insolvency (bankruptcy).Th e candidacy of a trustee in bankruptcy can be pointed out in the bankruptcy petition or in the minutes of the creditor’s meeting. However the trustee is to be appointed by the court ruling. All trustees should be members of self-regulated organizations of trustees in bankruptcy. Th at is why the court, aft er receiving the name of the candidate, fi les a request for information with the rele-vant self-regulating organization about the candidate in question.Th e pertinent documents should be passed to the self-regulating organization regarding the member who is being designated by the creditors and then the arbitration court confi rms a qualifi ed trustee. Th e trustee should not be an interested party or a person affi liated with the creditors.Th e nominee is confi rmed as interim receiver by the court while a decision on the nomination of a qualifi ed receiver shall be taken by the mentioned self-regulating organization on a collective basis. Prior to this the self-regulating organization within nine days must provide all necessary information on the nominee to the applicant and creditors including availability of the qualifi ed receiver’s state secret clearance if it is necessary.

2. Which professionals carry out the duties of the trustee in bankruptcy?

To become a trustee in bankruptcy a natural person must meet certain requirements: ■ he must be a citizen of the Russian Federation and be registe-red as an individual entrepreneur;

■ he must pass the theory test training program for court-appointed trustees;

■ he must come through probation for a period not less than six months as an assistant to the liquidator (trustee in bankruptcy) and

■ he must have an experience of administrative work for at least two years;

■ Th ere should be no criminal records in economic crimes. ■ Th e most important part of these requirements is the theory test that is organized and conducted by special commission created under the equal representation of the federal executive body authorized by the Russian government - Federal Service Agency of the Russian Federation for Financial Recovery and Bankruptcy, - and educational institutions.

■ Once all the necessary knowledge has been received, a new trus-tee obtains a certifi cate of expertise in the fi eld of insolvency.

Creditors and debtor may issue additional requirements, but only the following: ■ an advanced level education in legal or economic and management,

or education in the professional fi eld where the debtor is involved; ■ a certain number of bankruptcy procedures, which previously a candidate for trustee held;

■ a long-term period of work experience as a head of the rele-vant industries.

3. What are the duties and prerogatives of the trustee in bankruptcy? Rights of a trustee in bankruptcy vary depending on a specifi c stage of bankruptcy. However there are rights common for all stages of bankruptcy.A trustee may convene a meeting or a committee of creditors; fi le statements and motions in the cases stipulated by the Federal Law on insolvency (bankruptcy); obtain reward for his services; invol-ve other specialists in the bankruptcy proceedings on the basis of the contract; address an arbitration court for termination of his powers. Th e duties of a trustee also depend on the bankruptcy proceedings stage. But still the main responsibilities of a trustee are: ■ to take measures to protect the property of the debtor (po-tential bankruptcy);

■ to analyze the fi nancial condition of the debtor; ■ to maintain a register of creditors’ claims; ■ to provide the register of creditors to persons requesting the general meeting of creditors;

■ to act bona fi de in the interests of the debtor and the credi-tors;

■ to compensate for the losses caused by the performance of their duties;

■ to identify signs of assumed or fi ctitious bankruptcy.

RUSSIA

105

106www.bgi-law.com

Second partQuestions for the template:

1. When should you fi le for bankruptcy? When you are incapable of meeting monetary claims of creditors and/or complying with the obligation of making mandatory pay-ments within three months aft er their due date and if the sum of the obligations exceeds the value of the property you own (for private persons) or 10,000 roubles (for entrepreneurs). When you are incapable of meeting monetary claims of and/or to complying with the obligation of making mandatory payments within three months aft er their due date (for legal entities).

2. Is there a deadline for fi ling for bankruptcy? Yes, the general term constitutes one month aft er the date of the emergence of the relevant signs of bankruptcy. If a legal entity is in the process of liquidation - 10 days from the time when any signs of bankruptcy are detected.

3. Can an individual person fi le for bankruptcy? Yes, an involuntary petition can be fi led by a creditor – natural person. Th ere is also an established procedure for fi ling voluntary petitions by debtor-natural persons, but this however has not yet come into force.

4. In the case of a legal entity, who should fi le for bank-ruptcy?Th e legal entity itself (its general director or its founder (mem-ber, shareholder), also an involuntary petition can be fi led by a debtor’s creditors, and authorised bodies.

5. What happens if you do not fi le for bankruptcy?If a general director or other senior manager of a debtor-company does not fi le for bankruptcy, he/she will have to make good any losses caused by such failure. Moreover, individuals who are in charge of fi ling for bankruptcy will have to be submitted to vica-rious liability.

6. Can a creditor of my company request the bankruptcy proceedings? Yes, he can, but in practice only aft er he has received a court de-cision against you, obliging you to pay him more than 100,000 roubles. However aft er such decision which proves the debt is is-sued, a certain period of time must pass before the creditor can fi le a petition for your bankruptcy based on such court decision. First and foremost the court decision must become enforceable and it takes at least one month. Aft er the creditor fi nally receives an order of enforcement, three months should elapse.

107

7. Does the declaration of bankruptcy mean the closure of the company?No, the declaration of bankruptcy by court initiates bankruptcy proceedings (starting from observation which is entitled to ensu-re the preservation of the assets of a debtor-company during its normal functioning).

8. Once the bankruptcy has been declared, do I lose the decision-making power over my company?No, you don’t. You can run the company until the implementation of an external management procedure.

9. How long do the bankruptcy proceedings last? Th e legislation does not impose fi xed terms, but in practice it can reach about 6 years at maximum. However, there are simplifi ed proceedings which can take about one year.

10. Can workers be dismissed from a company that has entered into bankruptcy? Employment contracts can be terminated by the employer in the event of the liquidation of a company. However, liquidation is a result of the last bankruptcy procedure – winding-up.

11. Is it possible to negotiate the outstanding payments before fi ling for bankruptcy in an attempt to avoid the bankruptcy? Yes, it is possible to conclude an amicable agreement with all cre-ditors or authorized bodies.

12. I am the administrator of a company and the partners do not wish to fi le for bankruptcy. What can I do?Th e responsibility of a director of a company to fi le for bankrupt-cy is established by law. Besides, there are no obligatory rules for partners’ approval. Taking into consideration the subsidiary liabi-lity of a director in the case of not complying with this obligation, we think a director should fi le for bankruptcy independently.

13. As a mere partner of the company, can I be responsible for the debts? If company`s insolvency is the fault of a person entitled to is-sue instructions that are binding upon the company or who is otherwise in a position to determine the company`s course of action, such person may be held subsidiary liable for the debts of the company.

14. Is it possible to sell the company’s assets before fi ling for bankruptcy in order to prevent being liable for the debts?It is possible but a court may invalidate such transactions if they were made during a 3 year period before fi ling for bankruptcy and their main goal was to dispose of assets in order to escape paying debts. Creditors or the trustee in bankruptcy can fi le a suit to cha-llenge such transactions.

15. If I have goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place?Aft er the declaration of bankruptcy the seizure imposed earlier on the debtor’s property and other injunctions concerning the dis-posal of the debtor’s property are lift ed.

107

108www.bgi-law.com

16. When are the bankruptcy proceedings considered “liable”?The proceedings are obligatory whenever the subject fails to discharge mandatory payments to the creditors. But not all bankrupt procedures are ‘liable’. Unlike other bankruptcy pro-cedures such as external administration, competition manage-ment and amicable agreement, which are not always applied in bankruptcy cases, receivership is mandatory for this category of cases.

17. How do bankruptcy proceedings end? Th e bankruptcy proceedings result in either the recognition of the legal entity to be bankrupt, which entails its liquidation or restora-tion of the debtor’s solvency. Also an amicable agreement can be entered into at all stages of bankruptcy proceedings.

18. Is it possible to negotiate a reduction of the debts pay-able and pay in instalments? It is possible to make such negotiation within the framework of an amicable agreement.

19. Can the company who has entered into bankruptcy request its liquidation? Russian legislation does not state this provision.

20. What eff ects result from the bankruptcy liquidation request?No eff ects

21. Who is in charge of drawing up the bankruptcy liqui-dation plan?Th e Company’s trustee in bankruptcy (named winding-up recei-ver at this stage) together with the liquidation committee while the power to affi rm the plan belongs to creditors committee.

22. Can the debtor or the creditors propose any sugges-tions regarding the bankruptcy liquidation plan? Creditors who are included in a special committee have the right to do this. Besides, within a framework of a fi nancial rehabilita-tion procedure, a debtor proposes a fi nancial rehabilitation plan.

23. Who has the fi nal decision on whether this is put into eff ect or not?An arbitration court

24. What happens if the judge does not approve the bankruptcy liquidation plan?It should be brought into compliance with legal requirements, otherwise it will not be approved.

25. What should I do in the case that someone who owes me money fi les for bankruptcy?Firstly, you should also send a bankruptcy petition to the court proposing the candidacy of a trustee in bankruptcy. Th en it is nec-essary to fi le a claim about incorporation of your debtor indebted-ness in the register of creditors’ claims. Aft er that you should take

109

part in the meetings of the debtor’s creditors to represent your interests.

26. Do I have a time limit in which to provide information with regard to the credit the bankrupt company owes me?For the purposes of participation in the fi rst creditors’ meeting creditors may fi le their claims against the debtor within thirty ca-lendar days starting from the date of publication stating the initia-tion of obligation proceedings.

27. What happens if I do not provide my claim informa-tion within that time limit?If you did not manage to fi le your claim within such period your claim still can be settled by the arbitration court during the course of the next procedure (following the procedure of observation).

28. Do I need a lawyer to do this?No such requirement is provided by law, however it is better to have a lawyer as bankruptcy proceedings are complicated.

29. Where do I have to go if I want to fi le a lawsuit against the company who has entered into bankruptcy?You should go to the Arbitration Court where such bankruptcy proceedings were implemented – the court is chosen based on

the legal address of a debtor-company (e.g., if debtor-company is registered in Moscow – you should go to the Arbitration Court of Moscow). However you usually cannot fi le a lawsuit against a debtor-company by common rules, you can only do it in the cour-se of bankruptcy (e.g., to challenge a transaction).

30. Which are the criminal liabilities aft er bankruptcy proceedings?Th ere are criminal liabilities, provided by the Criminal Code of the RF for: ■ Fictitious (fraudulent) bankruptcy – a penalty of 100,000 RUR to 300,000 RUR or custodial restraint for a term of 6 years plus a penalty of 80,000 RUR;

■ Deliberate bankruptcy - a penalty of 200,000 RUR up to 500,000 RUR or custodial restraint for a term of up to 6 years plus a penalty of 200,000 RUR;

■ Illegal acts during the course of bankruptcy proceedings - a penalty of 100,000 RUR to 500,000 RUR or custodial restraint for a term of 1-2 years (depending on the act) is provided.

109

110www.bgi-law.com

110

111

YURBUREAU LLC

Offi ce # 67, 21/6Tsvetnoy BulvarMoscow, 127051

Russia

Tel: + 7 495 625 95 24Mobile: + 7 926 219 7308

[email protected]@yurbureau.ru

www.yurbureau.ru

AREAS OF EXPERTISE

■ Investment analysis, due diligenceSupport in M&A (mergers &acquisitions), transactions, advice on business restructuring

■ Legal support on real-estatetransactions

■ Civil and commercial proceedings ■ Debt enforcement ■ Overall support on business ■ Representation of clients in Court ■ Analysis of documents ■ Attendance at negotiations and advice

■ Legal Research and analytics ■ Support of international transactions

■ Private International Law ■ International Arbitration ■ Draft ing documents (in English and Russian)

■ Written and oral advice on Russian legislation

■ Preparation of memoranda ■ Prenuptial Agreements ■ Resolution of succession disputes ■ Separation agreements and child custody

■ Representation of clients in civil and commercial proceedings

PARTNERS

Elena Kazankova

In October 2006 the law fi rm YurBureau was founded. It brought together lawyers with experience in various areas of law. Th e company provides the full legal support of all economic activities of the enterprises and represents its clients in litigation proceedings, arbitral proceedings and commercial disputes.Small and medium-sized enterprises as well as private entrepreneurs are the main partners of our fi rm. We have all necessary experience and resources to provide legal support to projects in the following fi elds: M&A transactions, real estate transactions, working-out of holding structures, representing clients in arbitration courts and courts of general jurisdiction at diff erent stages, as well as full support of client’s business operations. We believe, that our expertise and in-depth experience in corporate law, including investment, will allow us to provide legal services of the highest quality.We also have experience in supporting projects, aimed at reduction of greenhouse gas emissions under the Kyoto Protocol. We believe, that our expertise and in-depth experience in corporate law, including investment, will allow us to provide legal services of the highest quality.We can provide our individual clients with such services as representation in labor, administrative and civil disputes as well as in probate disputes.In 2009, aft er the meeting held by the Executive Committee, in accordance with Article 19 (H) of the Charter of BGI, the law fi rm YurBureau was accepted as a full member of Balms Group International, an association that brings together independent law fi rms of international profi le, located in 40 countries (www.bgi-law.com).

YURBUREAU LLCBALMS GROUP INTERNATIONAL

112www.bgi-law.com

113

Bankruptcy LawPart one1. Who appoints the trustee in bankruptcy?Here, we should refer to article 27 of the bankruptcy law. Once bankruptcy proceedings have been declared by the Judge, a trus-tee in bankruptcy must be designated immediately. Th e trustee is designated directly by the Judge, who will take into account the following:At mercantile courts (which are competent to hear bankruptcy proceedings) there is available a list of professionals and com-panies to carry out this function including their training in bankruptcy matters and in all cases a commitment to continue their training in this respect.Similarly, the offi cial Registry of Auditors of Accounts and their respective professional associations will present their lists of avai-lable persons in December each year for their use from the fi rst day of the following year.

In any case, the Judge will attempt to name trustees in bankruptcy evenly among those included in the available lists. Th at is to say he must avoid always calling in the same people, etc. However, the Judge:1. May name specifi c trustees in bankruptcy when the foreseea-

ble development of proceedings demands certain special expe-rience, knowledge or training, relating to ensuring the conti-nuity of business activities or which can be deduced from the complexity of the proceedings.

2. For ordinary proceedings he must designate those who can de-monstrate that they have participated in ordinary proceedings or at least 3 shortened proceedings unless the judge consi-ders, giving reasons, that the training and experience of those he designates is ideal due to the specifi c characteristics of the bankruptcy proceedings.

In the case of inter-related proceedings, the judge may name a sin-gle trustee of bankruptcy for all and designate delegate auxiliaries.

SPAIN

113

114www.bgi-law.com

In the case of an accumulation of proceedings already opened, the designation may fall on one of the trustees in bankruptcy already in place.Finally we would point out that any of those persons involved may make their complaints known to the court, prior to the designa-tion, as regards the way the offi cial list works or its requirements or other questions and irregularities regarding the listed persons.

2. Which professionals carry out the duties of the trustee in bankruptcy?In general, to be a trustee in bankruptcy, one of the following re-quirements must be met: 1. Be a serving lawyer with professional experience of at least

fi ve years and also demonstrate having specialist training in Bankruptcy Law.

2. Hold an economics or commercial Law degree or be an accounts auditor with at least fi ve years professional experience and also be able to demonstrate having specialized training in Bankrupt-cy.

3. Also, a legal entity including at least one lawyer and one holder of an economics or commercial law degree or an accounts audi-tor. Th at legal entity must guarantee its independence and that it indeed carries out such activities.

Notwithstanding the above, due to the particularities and the spe-cial relevance of the markets of certain companies, bankruptcy law provides for a series of exceptions to the above requirements:a. In the case of the bankruptcy of an entity which trades sha-

res or derivative instruments on an offi cial secondary mar-ket, an entity regulating the negotiation, compensation or selling of such shares or of an investment services company, the trustee will be a member of the technical staff of the National Securities and Exchange Commission or any other person designated by the Commission on the understanding that he or she holds an economics or commercial law degree or is an accounts auditor with at least fi ve years experience and who can demonstrate having specialized training in Bankruptcy.

b. In the case of a credit institution or an insurance company, the trustee in bankruptcy must be proposed by the Deposits Guarantee fund or the Insurance Compensation Consor-tium.

c. In the case of ordinary bankruptcies of special importance (due to the sector to which the bankrupt company belongs), apart from a lawyer who meets the requirements set out in point 1, a bankruptcy creditors’ representative who is a creditor of the bankrupt company will be appointed. Th at

115

creditor must demonstrate that he has an ordinary claim or a general, unsecured preference which is among the fi rst largest third of the claims. Th erefore, when the total of debts to employees for claims mentioned in the previous paragraph is among the fi rst largest third, the judge may designate the employees legal representative, if one exists, as bankruptcy creditors’ repre-sentative and the representative will be obliged to designate a professional who holds an economics or commercial law degree, is an accounts auditor or a lawyer.

In any event, when the designated creditor is a public adminis-tration body or an authority established under public law which is linked to, or answers to, such a body, the professional may be designated by any public employee with a graduate or master’s degree in the Law or Economics fi elds and their responsibilities will be those specifi ed under administration legislation.It is also important to underline that neither those who are not eligible to be administrators of public companies or public limi-ted companies nor those who, in the previous three years, have provided any type of professional services to the debtor, nor per-sons specially linked to the debtor may be designated as trustee in bankruptcy.

3. What are the duties and prerogatives of the trustee in bankruptcy?Among the duties of the trustee in bankruptcy is, fi rst of all, that of personally informing all the debtor’s creditors of the existence of the proceedings and to inform them that they must notify their claims.To facilitate the arrangements, the trustee should provide an offi ce address, telephone number and e-mail address so that the credi-tors can contact him. His duty is to analyse the bankrupt’s situation in all areas – fi -nancial and legal – in an attempt to look for solutions to save the company from bankruptcy. Th e debtor should therefore give detailed information to the trustee in bankruptcy on everything which goes on within his company so that in turn the trustee may inform the judge whenever he so requires. So the trustee in bankruptcy will take part in all administrative activities and those relating to use of assets, rights and liabilities which may be relevant to the bankruptcy. Also, in the event that the bankruptcy is compulsory (declared at the request of a creditor), the debtor will be suspended from his functions in all acts of administration and disposal of assets in the company and will be substituted by the trustee in bankruptcy.

115

116www.bgi-law.com

117

Th e trustee in bankruptcy will be able to sell or encumber assets and rights which form part of the capital if doing so is necessary to guarantee the viability of the company (in some cases he will need the judge’s authorization for this). Similarly, he may initiate any legal action necessary to return an asset to the bankruptcy capital (assets which have been removed fraudulently from the defendant’s equity).He must also present a report which should include a list of credi-tors, both those included and those excluded. Th e list must classi-fy the claims and in general show the situation of the company as regards accounts and fi nance and whether in his view it is a viable concern or should be liquidated. Trustees in bankruptcy will be answerable to the debtor and the creditors for damages caused to the estate due to acts and omis-sions which are either against the Law or negligently carried out.Th ey will also be jointly liable, together with their delegated au-xiliaries for all the latter’s damaging acts or omissions unless they can prove that they used all due diligence to prevent or avoid such damage.Th is liability of the trustees in bankruptcy will expire aft er four years from when the person carrying out the acts being claimed

against or in any event from the time the trustee of his auxiliaries were removed from their position.

Part two1. When should you fi le for bankruptcy?When you fi nd yourself in a situation of insolvency, that is to say, you cannot meet your payments on a regular basis.

2. Is there a deadline for fi ling for bankruptcy?Yes. Two months from when you became aware of your insolvency.


4. In the case of a legal entity, who should fi le for bankruptcy?Th e company’s administrator must do so.

5. What happens if you do not fi le for bankruptcy?Th e company’s administrator could be disqualifi ed from the du-ties of administrator for a period of time. He may also be liable to respond for liabilities with his own personal assets.

117

118www.bgi-law.com

119


7. Does the declaration of bankruptcy mean the closure of the company?No. In fact, the aim is to fi nd alternatives which allow the com-pany to stay in business.

8. Once the bankruptcy has been declared, do I lose the decision-making power over my company?It depends. If it is the company owner who fi les for bankrupt-cy, no you don’t. But if it is a creditor who fi les, then a trustee of bankruptcy substitutes the company administrator and suspends the owner’s decisions.

9. How long do the bankruptcy proceedings last?Th is depends on many factors : delays in the courts, the existence of a large number of creditors and that they fi le claims etc. It may last from a year and a half to several years.


11. Is it possible to negotiate the outstanding payments before fi ling for bankruptcy in an attempt to avoid the bankruptcy?Yes. If an agreement is reached and is held to, then there is no need for bankruptcy to be fi led for.

12. I am the administrator of a company and the partners do not wish to fi le for bankruptcy. What can I do?Th e administrator is legally obliged to fi le for it. If not he may be held personally responsible for the company’s debts.

13. As a mere partner of the company, can I be responsible for the debts?Only if the partner is in fact, acting as administrator in practice.

14. Is it possible to sell company assets before fi ling for bankruptcy in order to prevent being liable for the debts?No. If this is done, the trustee in bankruptcy may request that those assets be returned to the estate.

15. If I have goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place?No, enforcements are provisionally halted.

16. When is the bankruptcy proceedings considered “lia-ble”?Th e judge will consider the administrator is liable if he has not fi led for bankruptcy within the time limit or has failed to fulfi l the agreement with the creditors.

17. How do bankruptcy proceedings end?Th ey end with the signing of an agreement with the creditors or, if such an agreement is not possible, the company should be put into liquidation.

18. Is it possible to negotiate a reduction of the debts paya-ble and pay in instalments?Yes, through “releases” which are reductions of the credits and “moratoria” which is a time period for making payments.

19. Can the company who has entered into bankruptcy request the liquidation of the same?Yes, it can request this at any time.

20. What eff ects result from the bankruptcy liquidation request?From that moment, the company is wound up. Also the judge will order the administrators or liquidators and their substitution by the Trustee of Bankruptcy.

21. Who is in charge of elaborating the bankruptcy liqui-dation plan?Th e trustee in bankruptcy.


23. Who has the fi nal decision on whether this goes into eff ect or not?Th e Judge.

24. What happens if the judge does not approve the bankruptcy liquidation plan?Th en, certain liquidation operations, set down in the law will be put into practice: Sale of the business as a single lot, etc.

25. What should I do in the case that someone who owes me money fi les for bankruptcy?You must inform of your claim to the trustee in bankruptcy so that he may include it in the list of creditors.

26. Do I have a time limit in which to provide information with regards to the credit the bankrupt company owes me?Yes, one month aft er the declaration of bankruptcy is published in the BOE (offi cial state bulletin) in the case of normal proceedings and 15 days in the case of summary proceedings.

27. What happens if I do not provide my credit informa-tion within that time limit?If you do not notify in time and if it does not appear in the company’s accounts, then it becomes a subsidiary claim and will be among the last to be paid.

28. Do I need a lawyer to do this?No. Th is is not necessary but it is recommended since during the proceedings matters may arise about which it is useful to be infor-med in order to be able to play an active part.

29. Where do I have to go if I want to fi le a lawsuit against the company who has entered into bankruptcy?All lawsuits against the company must be heard by the same judge as hears the bankruptcy proceedings.

30. Which are the criminal liabilities aft er bankruptcy proceedings?Regardless of the type of proceedings (fortuitous or liable) the de-btor may be prosecuted if his actions constitute a criminal off ence.

119

120www.bgi-law.com

121121121

BALMS ABOGADOS ESPAÑABALMS GROUP INTERNATIONAL

Established in 1989, Balms Abogados is a multi-disciplinary law fi rm specialized in Public and Private Law. Balms Abogados has offi ces in Marbella, Madrid, Vigo and Barcelona. Also, Balms Abogados through its international network, Balms Group International (BGI), has offi ces in over 20 countries providing worldwide leal services to meet each client specifi c needs.Our philosophy is to promote professional training and teamwork with one goal: to achieve the highest level of excellence. We create a professional connection with the client, based on mutual trust and quality service Our nature, thoroughness and dedication marks the diff erence. Balms Abogados was created to ensure a comprehensive service to our customers and it is formed by a number of departments specialized in Private and Public Law, tax consultancy, accounting, human resources and document management for businesses and individuals. All these departments are certifi ed with the System of Quality and Environmental ISO Management 9001 and ISO 1400.In addition to our eff ort, we are also devoted to charity actions through our foundation “Fundación Balms para la Infancia”, a non profi t organization dedicated to provide fi nancial aid, assistance and protection to children in Peru and Colombia.

BALMS ABOGADOS MARBELLA

C/ Generalife 9 – Aloha Pueblo 29660, Nueva Andalucía Marbella, EspañaTel: 00 34 952 81 21 00 Fax: 00 34 952 81 27 [email protected]@balms.com

BALMS ABOGADOS MADRID

Pº General Martinez Campos 49, 6º28010 Madrid, EspañaTel: 00 34 91 702 01 56 Fax: 00 34 91 702 01 [email protected]@balms.com

BALMS ABOGADOS GALICIA

C/ Reconquista 9, entresuelo36201 Vigo, Pontevedra, EspañaTel: 00 34 986 44 31 43 Fax: 00 34 986 44 60 [email protected]@balmsgalicia.com

BALMS ABOGADOS CATALUNYA

Paseo de Gracia 116 Bis, 4ª Planta08008 Barcelona, EspañaTel: 00 34 93 311 3999Fax: 00 34 93 311 [email protected]

PARTNERS

Juan Luis Balmaseda de Ahumada y DíezJulio Aguado Arrabé Katja BlackmerÓscar Gómez Monasterio

Jorge Martín LosaAntonio Heredero González-Posada Javier Pascual GarófanoJuan Camacho Vázquez

AREAS OF EXPERTISE

■ Civil Law ■ Family Law ■ Criminal Law ■ Labour Law ■ Bankrupcy and Commercial Litigation

■ Administrative Law ■ Zoning, City Planing and Real Estate Law

■ International Private Law ■ Insurance and personal injuries ■ Debt collection ■ Copyright Law ■ Corporate Law ■ Industrial and Intellectual Property Law

■ Private placement ■ Landlord and tenant ■ Transfer and Acquisition of Businesses and Assets

■ Building contracts and construction litigation and arbitration

■ Contractual claims ■ Protection data ■ Projects development and fi nance ■ Shareholders/Company disputes ■ Agency and Distribution Agreements

■ Shipping and Maritime Law ■ Tax Law ■ New Technologies Law ■ EC & Competition Law ■ Contract Law ■ Corporate fi nancing, disposals, parthership formation

■ Environmental Law ■ Telecommunications & Media Law ■ Banking Law ■ Litigation and arbitration

122www.bgi-law.com

123

Bankruptcy LawPart one1. Who appoints the trustee in bankruptcy?A trustee in bankruptcy is appointed in the case of the bankruptcy of an individual person.A liquidator is appointed where a company is placed into liquidation.A Court makes a bankruptcy order only aft er a bankruptcy peti-tion has been presented. It is usually presented either by the in-dividual (known as a debtor’s petition) or by one or more of the individual’s unsecured creditors who are owed £750 or more.Th ere are three types of liquidation: ■ Compulsory liquidation – where the Court makes an order for the company to be wound up on the petition of an appropriate person such as a creditor. It can also be presented by the direc-tors of the company.

■ Members voluntary liquidation – where the shareholders of a company decide to put it into liquidation and there are enough assets to pay all the creditors ie the company is solvent.

■ Creditors voluntary liquidation – where the shareholders of a com-pany decide to put the company into liquidation but there are not enough assets to pay all the creditors ie the company is insolvent.

2. Which professionals carry out the duties of the trustee in bankruptcy or liquidator?Th ere are essentially two possibilities:a. Th e Offi cial Receiver (oft en referred to by the initials ‘O.R.’)

is appointed by the Secretary of State and is an offi cer of the Court.

b. An Insolvency Practitioner (oft en referred to by the initials ‘I.P’) is an individual who specialises in insolvency work and in most cases is an accountant or solicitor.

3. What are the duties and prerogatives of the trustee in bankruptcy or liquidator?A trustee in bankruptcy has a duty to collect in the bankrupt’s as-sets and distribute them to the bankrupt’s creditors in accordance with priorities specifi ed in the Insolvency Act 1986.Th e trustee’s powers are wide and include powers to sell the bankrupt’s assets, to carry on the bankrupt’s business, to bring and defend legal proceedings, and to pay dividends to the bankrupt’s creditors.Th e trustee also has wide investigatory powers.Similar provisions and duties apply to the liquidator of a company.A creditors’ or liquidation committee can be appointed at a mee-ting of creditors, and consists of at least three and not more than

123

UNITED KINGDOM

124www.bgi-law.com

fi ve elected creditors or their representatives. Th e committee’s purpose is to protect and promote the interests of the creditors and, where appropriate, the shareholders. Th e trustee or liquida-tor must write a report for the committee at least once every six months.Th e trustee or liquidator must keep separate fi nancial records for each bankruptcy or liquidation, and these are open to inspection by the committee.In many cases the powers of a trustee or liquidator can only be exercised with the permission of the committee or the Court.

Part two1. When should you fi le for bankruptcy? Aft er very careful consideration of all other options. Usually you will be insolvent ie unable to pay your debts as and when they fall due for payment.

2. Is there a deadline for fi ling for bankruptcy?No, you can do so at any time.If a company is in administration it cannot be wound up without the permission of the Court?


4. In the case of a legal entity, who should fi le for bankruptcy (liquidation)?A company can be wound up by its creditors, directors or share-holders.

5. What happens if you do not fi le for bankruptcy?Someone else might step in instead, such as a creditor.Th e directors of a company should be careful not to trade whilst insolvent.

6. Can a creditor of my company request the bankruptcy proceedings?Yes, provided they are owed more than £750.

7. Does the declaration of bankruptcy (winding up order) mean the closure of the company?Yes, once the company is placed into liquidation it will shortly cease to trade.

8. Once the bankruptcy has been declared, do I lose the decision-making power over my company?When a company is placed into liquidation the directors no longer have any control over their company. Th e liquidator takes over.

9. How long do the bankruptcy proceedings last?A bankruptcy order lasts for 12 months, save in exceptional cir-cumstances.Th e length of a company liquidation depends on the individual company. Once the process has been completed the company will be dissolved and cease to exist.

10. Can workers be dismissed from a company that has entered into bankruptcy (liquidation)?Yes, most probably on the grounds of redundancy.

125

11. Is it possible to negotiate the outstanding payments before fi ling for bankruptcy in an attempt to avoid the bankruptcy?Yes, by entering into a company voluntary arrangement (‘CVA’). Individuals can enter into a similar arrangement with their credi-tors (an individual voluntary arrangement or IVA). 75% of unse-cured creditors by value must approve a voluntary arrangement.

12. I am the administrator of a company and the partners do not wish to fi le for bankruptcy. What can I do?Very little, except to advise the directors of your concerns that they may be trading whilst insolvent.

13. As a mere partner of the company, can I be responsible for the debts?Yes, directors can be made personally liable for their company’s debts under wrongful trading laws, in the event of an insolvent liquidation.

14. Is it possible to sell company assets before fi ling for bankruptcy in order to prevent being liable for the debts?It is possible but a transaction designed to put assets beyond the reach of potential creditors can be set aside in certain circumstances.

15. If I have my goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place?In a situation where a supplier has provided goods to an indi-vidual or company prior to their bankruptcy or liquidation, the

goods can be sold by the trustee or liquidator if title in the goods has passed (look out for a retention of title clause).

17. How do bankruptcy proceedings end?Usually aft er 12 months in the case of an individual. Th ere is no similar deadline in the case of a liquidation which ends when the process is complete.

18. Is it possible to negotiate a reduction of the debts paya-ble and pay in instalments?Not aft er the declaration of bankruptcy or the making of a win-ding up order. Th ere is potential for a CVA or an IVA before the bankruptcy or winding-up order is made.

19. Can the company who has entered into bankruptcy request the liquidation of the same?Companies in the UK are placed into liquidation not bankruptcy. Th ere are other forms of corporate insolvency such as administra-tion which can be converted into a liquidation when the adminis-tration process is complete.

20. What eff ects result from the bankruptcy liquidation request?A liquidation signals the winding up of the company. At the end of the process the company will be dissolved and cease to exist.

21. Who is in charge of elaborating the bankruptcy liqui-dation plan?Th e phrase ‘bankruptcy liquidation plan’ is not used in the UK. Th e liquidator controls the progress of the liquidation (but see be-low on the role of the creditors committee).

125

126www.bgi-law.com

127

22. Can the debtor or the creditors propose any sugges-tions regarding the bankruptcy liquidation plan?Yes, through the creditors committee. Th e committee’s principal functions are to sanction the exercise of certain of the trustee’s or liquidator’s powers and to fi x his remuneration.

23. Who has the fi nal decision on whether this goes into eff ect or not?Th e chairman of the creditors committee is usually the trustee or liquidator. At committee meetings each member has one vote and a resolution is passed when a majority of the members present or represented have voted in favour of it.

24. What happens if the judge does not approve the bankruptcy liquidation plan?Th ere are certain actions for which a trustee or liquidator requires the permission of the Court (a Judge). Without permission the action in question cannot proceed.

25. What should I do in the case that someone who owes me money fi les for bankruptcy?You should fi le what is known as a ‘proof of debt’ with the trustee or liquidator.

26. Do I have a time limit in which to provide information with regards to the credit the bankrupt company owes me?Not usually, but the trustee or liquidator might impose a deadline.

27. What happens if I do not provide my credit informa-tion within that time limit?You are likely to lose certain voting rights.


29. Where do I have to go if I want to fi le a lawsuit against the company who has entered into bankruptcy?Th e High Court or the County Court, but there is rarely any point in suing a bankrupt or a company that is in liquidation.

30. Which are the criminal liabilities aft er bankruptcy proceedings?It is unlikely that a bankrupt or the directors of a company placed into liquidation will face any criminal charges unless the trustee or liquidator uncovers evidence of wrongdoing during the course of their work.

Th e Insolvency Laws in the United Kingdom are complex. Th is note is intended as a general guide to a number of specifi c questions. De-tailed advice should be sought where necessary. Please contact Mark Summerfi eld +44 20 7317 8681 or [email protected].

127

128www.bgi-law.com

129

PARTNERS

Scott AtkinsonAri BloomJeremy HarrisNick MillsDeclan O’BrienKaren O’Brien

Gary PhillipsBarry ShawMark Summerfi eldRaymond TaylorMelissa Vangeen

AREAS OF EXPERTISE

■ Commercial Property ■ Corporate Services ■ Dispute Resolution ■ Private Client ■ Employment ■ Immigration ■ Residential Property ■ Insolvency

Solomon Taylor & Shaw brings all the experience and capability of a City of London law fi rm, with the responsiveness and personal attention of a smaller practice.Th e reputation of the practice extends well beyond its North London base and clients include listed and international companies, as well as smaller businesses and individuals. Th e fi rm off ers a truly personal service to all of its clients. It prides itself on being highly commercial and forward-thinking.Th e commercial property team deals on a regular basis with high-value and complex transactions. Th e team’s work includes investment, development and dealing with commercial leases for both landlords and tenants. Th e team has particular expertise in dealing with portfolio sales and purchases and secured lending and advises regularly on landlord and tenant legislation, joint ventures and housing association matters.Th e corporate team advises on all aspects of company and commercial law, from the acquisition or start-up of a company right through to disposal. Litigation services include handling the full range of commercial disputes in a wide variety of tribunals. Th e fi rm has particular expertise in property and/or construction-related litigation, contractual disputes, privacy and media work, and insolvency-related disputes. Th e fi rm off ers mediation services and one of the partners is a CEDR Chambers mediator.

SOLOMON TAYLOR & SHAWBALMS GROUP INTERNATIONAL

SOLOMON TAYLOR & SHAW

3 Coach House YardHampstead High StreetNW3 1QF London, United Kingdom

Tel: +44 020 7431 1912Fax: +44 020 7794 7485

[email protected]

131

URUGUAY

131

Bankruptcy LawPart oneI. Under Uruguayan statutory law, on the 23rd of October 2008, Law 18.387, known as “Legal Declaration of Bankruptcy and company reorganization”, was passed.It is law with dual content: regulations concerning bankruptcy and regulations aimed at business reorganization.II. In synthesis, the law creates a single system for individuals ca-rrying out business activities and for legal entities and it repeals numerous regulations such as those in the Commercial Code re-ferring to bankruptcy, agreement and moratoria, Civil Code re-gulations on subrogation of preferential claims , creditor grading and distribution of assets in bankruptcy (with two exceptions) amongst others which would be complicated to list and explain and for which it would be necessary to prepare another article on the subject.Regulations contained in the General Procedural Code are main-tained but were restricted to individuals who do not meet the re-quirements for the law to be applicable. III. Law 18.387 is divided into Headings, which are in turn divi-ded into Chapters.Heading I (“Legal Declaration of Bankruptcy”) contains various regulations concerning requirements for bankruptcy, fi ling for bankruptcy, regulations regarding the judge competent to hear proceedings, how to process fi ling, the content of the ruling which declares bankruptcy and provisions covering preventive measures which may be taken. Heading II covers the fi gure of trustee in bankruptcy and the au-ditor. Heading III contains regulations on the eff ects of bankruptcy pro-ceedings on the debtor, creditors, claims and contracts. Heading IV contains regulations on what makes up the company’s assets and Heading V, what constitutes the company’s liabilities with regula-tions on verifying and classifying claims. Heading VI regulates the creditors’ meeting and the creditors’ commission. Heading VII provides for the possibility of pre-emptory agree-ments between the debtor and his creditors. Heading VIII regulates the fi nal stage of the bankruptcy process which begins with a ruling by the Judge to liquidate assets and pay creditors.

Heading IX regulates objections to the classifi cation of the pro-ceedings. Heading X contains regulations on suspending and fi nalizing the proceedings. Heading XI provides for the possibility of private reorganizing agreements being signed between the debtor and his creditors. Heading XII has special regulations for small bankruptcies and leaving the company in the hands of the employees. Heading XIII establishes regulations in international private law. Heading XIV defi nes the crime of “bankruptcy fraud”. Heading XV contains various complementary procedural and tax regulations. Heading XVI contains temporary and special provisions.IV. Under current legislation, the trustee in bankruptcy (known in other legal systems as the bankruptcy administrator), is desig-nated by the Judge and even the bankruptcy declaration should contain the designations.

132www.bgi-law.com

Th e trustee in bankruptcy is designated on compulsory bankrupt-cy proceedings. Th e auditor is designated in voluntary bankruptcy. In the event of joint fi ling for bankruptcy, the judge will designate the same auditor as trustee in bankruptcy for all the proceedings.V. Th e prerequisites for being a trustee in bankruptcy or an audi-tor can be found in articles 26 and 27 of the law.According to these articles, the Supreme Court of Justice shall keep a register of Trustees in Bankruptcy and bankruptcy audi-tors. Th e register will have 30 incumbents and 30 deputies. To form part of this register, it is necessary to be a university edu-cated professional and have a minimum of fi ve years professio-nal working experience. When being registered, the work record and experience will be taken into account, while giving priority to graduates from specialized courses for trustees in bankruptcy and auditors. Th e regulations lay down that if graduates of such courses do not exist in suffi cient numbers, priority will be given to lawyers, public accountants or graduates in business studies.Firms of professionals may also be registered, legal entities or otherwise, as long as the majority of their partners meet the above requirements. Professional institutions of businessmen which are legal entities may also register themselves. Th e registry will be renovated every four years, for which purpose the Supreme Court of Justice will call those concerned.VI. As regards the duties of the trustee in bankruptcy and the au-ditor, for the purposes of convenience, we classify them into du-ties relating to the administration of the debtor’s assets, reporting functions and others.

As far as functions relating to the administration of the debtor’s assets are concerned, in compulsory bankruptcy, the debtor’s powers to sell or pledge the bankruptcy estate are suspended, for which reason he is replaced in these functions by the trustee in bankruptcy.In voluntary bankruptcy, if the assets are not suffi cient to cover the liabilities, the above solution is also applied.If the debtor’s powers are suspended, the trustee in bankruptcy must conserve the assets and rights which make up the bankrupt-cy estate. In the case of assets which easily deteriorate or are costly to preserve, the possibility exists to sell them off immediately but in the way which the judge decides at the suggestion of the trustee in bankruptcy. Th e trustee in bankruptcy is required to take all necessary action to take possession of the offi cial books and all documentation relating to the estate and the professional or bu-siness activity of the debtor. Th e trustee in bankruptcy takes the place of the debtor in jurisdictional and administrative procee-dings involving the debtor (except those based on family relation-ships which do not concern the estate). When it is a case of the bankruptcy of a legal entity, the trustee in bankruptcy carries out those duties conferred under the law and the company statutes to administrators and liquidators. Th e obligation to call meetings or shareholder assemblies is suspended. It they were to be held, their decisions must be ratifi ed by the trustee in bankruptcy. Th e company board’s functions are also suspended.In voluntary bankruptcies, it the assets are suffi cient to cover the liabilities, the debtor’s powers are not suspended but they are limi-ted and the auditor is called in to administrate the assets together

133

with the debtor. Th is limitation includes certain operations which require the auditor’s authorization. Normal turnover operations may be carried out without prior authorization but under the con-trol of the auditor.Th e above is the system, in principle, since it may undergo chan-ges depending on the circumstances and the way the company develops.If the power of legal entities is curtailed, the executive bodies of the company are maintained but with restrictions. A regime is applied to administrators or directors under which they will need authorization for certain specifi c actions. In order to call a mee-ting or shareholders’ assembly, authorization from the trustee in bankruptcy is required. It is also laid down that the auditor may request of the Judge, giving reasons, that the internal control body of the company may be suspended from duties and that he should take over those duties.Employment contracts signed with the debtor will not be termi-nated for the reason of bankruptcy proceedings being declared.Th e law contains regulations for upper management, giving powers to the trustee in bankruptcy or the auditor so that he may ask the Judge to delay payment of this debt in bankruptcy.If a worker should be dismissed, since there are no special provi-sions, the normal system for dismissal is applicable. Th e law itself simply gives special treatment to labour claims.As far as reporting duties are concerned, the law requires that the trustee in bankruptcy and the auditor should make reports for consideration in the creditors’ meeting and which must contain: an explanatory memorandum on the fi nancial and legal history of the debtor, the business/es carried out, offi ces, establishments and operations owned by him and the causes which led to the current situation; the debtor’s accounts situation including vio-lations of laws and regulations carried out by him; a memoran-dum on the bankruptcy process including the main decisions and action taken by the trustee in bankruptcy or the auditor; in the event that, at the moment bankruptcy proceedings are declared, assets were less than liabilities, the report will contain the list of goods and rights which should be returned to the estate; it will also propose the most convenient way to liquidate the estate if no agreement is reached between the debtor and the creditors or it is not possible to sell the company as a running concern; the liqui-dation valuation of the company if sold in parts (with the advice of an expert).Th e trustee in bankruptcy and auditor will take part in defi ning what are the assets and the liabilities.Th e provisional verifi cation of claims must be carried out by the trustee in bankruptcy or the auditor, who must draw up the list of creditors, check their claims and carry out an inventory and a list of creditors in a short period of time.Th ey should also take an inventory of the estate with a valuation of the assets and rights of which it is composed on the date of the declaration of bankruptcy proceedings and the date the inventory is presented indicating any variations between the two dates (with the advice of valuation experts).On another point, the creditors are represented by the trustee in bankruptcy or the auditor. In this respect there are provisions for action to be taken against partners who are personally responsible

133

134www.bgi-law.com

for the bankrupt companies exclusively by the trustee in bankrupt-cy or auditor, action to obtain the full payment of contributions promised by partners or shareholders and the fulfi lment of au-xiliary obligations. Even in the event of the assets belonging to the company being insuffi cient, the trustee in bankruptcy may demand full payment by the partners or shareholders of contri-butions promised but not made even when the time limit for ful-fi lling such obligations has expired. Th ere are also provisions for liability action to be taken against administrators, members of the company board and liquidators.Th e fi nal trustee in bankruptcy is the person who liquidates all assets and distributes the product between the creditors.Th ey are, as a general rule, required to act with the due diligence of an organized administrator, show loyalty and be answerable for their actions.VII. Under our laws, two conditions (legal elements which must necessarily exist) are required to be met in order that proceedings may be resolved by the Judge: One subjective and the other objec-tive. Th e subjective one refers to the individual or legal entity who meets certain conditions. Th e objective one is insolvency.1

As far as the subjective condition is concerned, the legal decla-ration of bankruptcy is applicable to any debtor, whether an in-dividual carrying out a business activity or a civil or commercial company; business activity is understood to mean an organized, fi nancial, professional activity intended for is the production or dealing in goods or services.As regards the objective condition, a declaration of bankruptcy may be made against any debtor who is in a position of insol-vency, this being considered, regardless of the number of credi-tors, to be a debtor who is unable to meet his obligations. And to

1. Some authors add to these two conditions laid down in the law: the existence of numerous creditors. Most of the learned thinking agrees in classifying the conditions for bankruptcy in the following manner: 1) an active subject, the creditor or creditors; 2) a passive subject, the debtor and ; 3) a fact, a certain state of the estate.

complement this, articles 4 and 5 of the law lays down or distin-guishes various situations or facts which are considered absolu-te presumptions and others considered simple presumptions of insolvency. While the absolute presumptions are in themselves cause for bankruptcy to be declared, the relative presumptions are decided upon by the Judge.VIII. Once conditions are fulfi lled, according to article 6, a decla-ration of bankruptcy may be fi led for by:1. Th e debtor himself.

Th ere are contradictory regulations in the law itself as regards who may fi le for bankruptcy in the case of legal entities.Although on the one hand (art. 6 section 1) the law sets down that in the case of legal entities fi ling must be made by the company’s representative bodies with power of representation or by a legal representative with specifi c powers to do so, on the other hand, it also empowers the administrators to fi le (art 6 section 3).Th is has led to controversy over this point and most learned thinking considers it convenient that such a fundamental de-cision for the company should not be left in the hands of an administrator or a board of directors. Th is decision should be made by the associates or shareholders assembled as is requi-red for all types of company. Th e components of the body of internal control of the company are empowered to do so.

2. Any creditor, regardless of whether his claim has expired.3. Liquidators of a legal entity (meaning the liquidator of the insol-

vent company).4. Partners who are personally responsible for the debts of civil and

commercial companies.5. Joint debtors, guarantors or endorsers of the debtor.6. Stock exchanges and business associations set up as legal entities.7. In the event of an inheritance, any heir, legatee or executor may fi le. Th ere is no time limit to fi le for bankruptcy except in the event that the debtor himself is to fi le, in which case he is required to

135

do so in the thirty days aft er he becomes aware or should have be-come aware of his state of insolvency. In the case of legal entities, the obligation falls upon each of their administrators, liquidators or members of the internal governing board. In the case of both individuals and legal entities who must keep offi cial accounts, it is absolutely presumed that they became aware on the date that they prepared or should have prepared, their balance sheets.XIX. Irrespective of any diff erences over the initial causes for fi -ling, whether it is fi led for by the debtor other persons legitimated to do so, the legal declaration of bankruptcy will, amongst other things, suspend or limit the debtor’s capacity to dispose of or, as the case may be, pledge the bankruptcy assets. Th e distinction between suspending or limiting the debtor’s power to dispose of or pledge assets has already been dealt with when we described the duties and prerogatives of the trustees in bankruptcy and au-ditors.Th e legal declaration of bankruptcy does not imply the closing down of the debtor company’s business unless the judge decides otherwise, something which he has the power to do at any time during the proceedings at the request of the debtor, the creditors, the trustee in bankruptcy, the auditor or he may do so on his own initiative.Th e priority under bankruptcy regulations is not to wind up, but rather to reorganize the company. Under the law, the continuation of the debtor’s business activity is prioritized, so agreements with the creditors are facilitated.X. Nor does law 18387 extend the bankruptcy to jointly liable partners.To do so would mean diverging from regulations set down under the Commercial Companies Law of our country, since the company would continue to be subject to all the regulations for the type of company concerned and so the partners or shareholders would continue as they are, maintaining their corresponding status.Th e directors’ liability for all types of company, except public com-panies, is established under article 83 of law 16060, which only

regulates their liability as to the company and to the shareholders (where they fail to act with due loyalty and diligence). Th e direc-tors’ liability in the case of public companies is regulated under articles 391 to 396 of that law, stating that the directors are jointly responsible towards the company, third parties and the sharehol-ders for damages caused directly or indirectly by violations of the law, the statutes or regulations through their actions (according to art. 83) and for damages produced through abuse of their position or through wilful deceit or negligence.On this point, referring to the liability of debtors and their repre-sentatives, in the case of legal entities we must make mention of how bankruptcy fraud is typifi ed under article 248 of law when the debtor exaggerates or conceals his assets or liabilities, claims or simulates non-existent privileges or removes or hides the com-pany account books. In the case of legal entities, it is the partners, directors and legal or eff ective administrators who approved the committing of the crime or actually committed it, who will be considered guilty of that crime.XI. Up until bankruptcy is fi led for, the possibility always exists of negotiating the debtor’s outstanding payments and the debtor will be subject to the general regulations governing individual settle-ment where each creditor may claim payment of his claim indivi-dually and not in competition with other creditors.Nor does anything prevent the sale of assets held by the debtor before the bankruptcy is fi led for, since this is not prohibited. However the debtor will be subject to regulations provided for by law to protect individual debtors in the face of his insolvency. Among others, in this country fraudulent acts or acts of simula-tion will make such disposals of assets unenforceable with regard to creditors, In addition to the fact that they will have an eff ect the qualifi cation of the bankruptcy.XII. But once bankruptcy is fi led for and declared, although the possibility of negotiating payments, reductions or payment sche-mes with creditors continues to exist, these are subject to the ap-proval of the creditors, and this places us now beyond the scope of the individual.

135

136www.bgi-law.com

Also, all assets will become part of the bankruptcy estate and all actions carried out aff ecting them are suspended, regardless of any attachments which might exist against them, except privile-ged credits such as mortgages and pledge-backed loans, in which case the creditor is given the opportunity to foreclose on the asset given in guarantee (this, in practice implies that the asset will not be included in the estate). For this reason, privileged creditors do not generally take an active part in drawing up the proceedings as far as making agreements is concerned (since if they do so they lose their privileged status).XIII. Th e law regulates preventive and preclusive agreements which the debtor might make with his creditors.Debt reductions and/or payment schemes, assigning assets to cre-ditors, the setting up of a company with the unsecured creditors, capitalization of liabilities, setting up of trusts, reorganization of the company, administration of all or part of the assets in the interest of the creditors, other legally correct agreements or any combination of the above, may be freely arranged.As a general principle, a majority of creditors is required, repre-senting at least the majority of the debtor’s unsecured liabilities. Th e amount represented by the claims of the voters (who must be unsecured creditors) is taken into account, and this is related to the total amount of unsecured liabilities.Special majorities, more or less strict, are demanded when the proposed agreement has certain content: a. A proposal which presupposes debt reductions of more than

50% of the amount of unsecured liabilities and/or payment schemes of more than 10 years, would require the favourable vote from creditors representing two thirds of the unsecured liabilities with voting rights.

b. In the case of proposals for agreement consisting of full payment of unsecured claims in a period no greater than two years or immediate payment of unsecured claims with a reduction of less than 25%, it will be suffi cient to have a

favourable vote from creditors with voting rights representing a larger portion of the debtor’s liabilities than those of the smaller portion voting against as long as the favourable votes represent at least one quarter of the debtor’s unsecured liabilities once the liabilities without voting rights have been deducted.

Greater demands are made when the agreement proposal con-tains advantages for one or several creditors or types of creditor.XIV. Another important part of the order or declaration of bankrupt-cy is the call to all creditors to verify their claims. Doing so is a voluntary, though necessary act and is one of the duties of the creditor.Th e time limit to present claims is 60 days counted from the de-claration of bankruptcy. It is not a strict time limit since there is a possibility of claims being presented outside the time limit set out in the Law. But for these cases, known as late creditors, the law imposes penalties for late presentation of claims, such as that their claim will be verifi ed by the court and at the cost of the creditor (by way of incidental proceedings) and if it is presented when li-quidation has already begun then it will not be possible to claim for previously distributed dividends and they may only have the right to dividends payable following its presentation.Claims are made by way of a written document to the court (sig-ned by a lawyer) for the attention of the trustee in bankruptcy or auditor, with certain requirements, among which are the date, the cause, the amount, the due date and the classifi cation requested together with original documents or means of proof for accredi-ting the existence of the claim. XV. Th e law sets down a system for determining the type of bankruptcy, as an incident, which will be carried out aft er the cre-ditors meeting when the Judge approves the agreement between the debtor and the creditors or when the liquidation of assets has been resolved upon. Th e bankruptcy may be classifi ed as liable or unforeseeable (article 192).

137

It will be classifi ed as liable when, at the time the insolvency situa-tion was produced or worsened, there has been wilful misconduct or negligence by the debtor or, in the case of legal entities, by its legal or ipso facto administrators or liquidators. In other cases it will be classifi ed as unforeseeable.In article 193 the law lays down cases for absolute presumption of liability, and lists various specially defi ned acts or situations such as the complete or partial draining or concealing of the debtor’s assets, acts aimed at delaying proceedings or when, before the bankruptcy is declared, assets or rights have been removed from the estate, amongst others.Article 194 legislates on relative presumptions to classify the bankruptcy as liable.If the bankruptcy is declared liable it will result in the debtor, ad-ministrators or liquidators being disqualifi ed, or creditors who are accomplices to the fact losing their rights as creditors and even being sentenced to return the assets or rights to the bankruptcy estate and to pay damages.XVI. Bankruptcy proceedings end in two ways: when an unders-tanding is arrived at between the debtor and his creditors, when an agreement is signed and when the assets are liquidated.Liquidation, under the law is general in that it aff ects all the assets. It is coercive since it happens regardless of the debtor’s will and it is judicial because it is carried out as part of bankruptcy procee-dings under the control of a Judge.Liquidation takes place upon the order of the Judge.It is appropriate to rule it, if the debtor requests it when he fi les for bankruptcy and creditors representing a majority of the unse-cured debts may also request it. Th is may be decided on in their assembly or outside it.It is also acceptable in the event that the debtor has not made any proposal for an agreement, if the creditors’ meeting does not ac-cept a proposed agreement, if the agreement is not approved by the Judge or if the agreement is not fulfi lled.Th e ruling should fi rst of all suspend the debtor’s right to dispose of or pledge the estate and designate the auditor as trustee in bankrupt-cy (remember that in voluntary bankruptcy the debtor may dispo-se of the assets and in compulsory bankruptcy he may not). If the bankrupt debtor is a legal entity, the ruling will declare the entity dis-solved and remove the administrators from their positions.Th e Judge’s ruling must be notifi ed to the members of the credi-tors committee, if one has been set up.It should be registered and publicized in the same way as the sen-tence declaring bankruptcy.It is permitted to appeal against it since the Law rules that it should be carried out immediately although it is not fi nal. So, if it is appealed against, this does not stop the process.XVII. Th ere are various ways of liquidating but the Law priori-tizes the sale of the company as a unit and as a running concern.It therefore lays down very short time limits in which the com-pany must be sold at auction but by way of a bidding process. It will be carried out on the basis of tenders, regulations for the ca-lling for bids, presentation and acceptance of off ers and the trans-fer of the company.

Regulations are even established for workers’ loans, giving them benefi ts when they are the company’s own workers and when they meet certain requirements.If the company cannot be sold as a unit, then the estate will be li-quidated in parts: the liquidation of production units, liquidation of the elements of the company – real estate properties, furniture, rights, public shares, amongst others.Th e trustee in bankruptcy must issue a report of the state of the li-quidation process every six months, counting from the date of the court’s liquidation ruling, which will be handed to the Judge and to the creditors’ committee. He should also inform the committee whenever they request it.Th ere is no legal regulation governing when liquidation should be completed. It must fi nish when the trustee in bankruptcy has sold all the assets and has distributed the product from the sale.XVIII. If the estate has been liquidated or used up without the creditors having been paid in full, the proceedings are suspended. Th is situation means that the proceedings continue but with the trustee in bankruptcy in a position of passive supervision.XIX. Th e proceedings will be ended when one of the following conditions is met:1. Th e agreement signed is totally fulfi lled.2. Full satisfaction is given to the creditors during the liquida-

tion stage.3. Ten years has passed since proceedings were suspended.Articles 212 and 213 lay down the conditions and procedures for each cause.

137

138

139

MM&A CORPORATE LAW AGUADA PARK

Paraguay 2141Of. 1005MontevideoUruguayTel: 00 598 2927 2727

CENTRO

Plaza Cagancha 1356 P.7MontevideoUruguayinfo@mmaconsultants.comwww.mmaconsultants.com

PARTNERS

Diego Martínez BernieAgustin López CarriquiryHoracio González Mullin

LAWYERS

Agustin López CarriquiryHoracio González MullinFelipe VásquezIgnacio Jiménez de Aréchaga

Carlos Peña RachettiClaudia AmoedoMaría Gabriela Bove Britos

AREAS OF EXPERTISE

■ Labour Law ■ Commercial Law ■ Tax Law and Tax Planning ■ Intellectual property ■ Civil Law ■ Administrative Law ■ Environmental Law ■ Notary services ■ Private aff airs ■ Image rights ■ Criminal Law ■ Family Law ■ Company Law ■ Corporate Law ■ Sports Law

Constant development of markets and technology, regional integration and changes to the global economy pose a major challenge for the business world today. Legal frameworks that go with these changes are essential to seize new opportunities and avoid potential obstacles. MM&A Corporate Law is a fi rm that focuses its practice on meeting the most demanding requirements of the modern world. MM&A Corporate Law emerged naturally from the main company, MM&A Consultants, founded nearly two decades ago.MM&A Corporate Law business philosophy has the same basis as Balms Group International, helping BGI to expand to new frontiers in Latin America.MM&A Corporate Law specialises in Private and Public Law and its development is based on the diversity and excellence of services, based on the talent and experience of their lawyers, whose eff orts are focused on providing an appropriate service to the situation and the needs of each client.Th e fi rm’s main offi ce is in Montevideo (Uruguay), and the international offi ce is located in Aguada Park, a free trade zone in Uruguay. Also, MM&A Corporate Law have local support offi ces in several South American countries like Brazil, Argentina, Chile or Paraguay.

MM&A CORPORATE LAWBALMS GROUP INTERNATIONAL

THEYGROWWITH US

-

education

-

pursuit for a better horizon in their lives and in their environment.

20122007

Name and Surname:

City:

Telephone: E-mail:

€ Monthly Quarterly Yearly

Entered the House in Colombia Graduated form the House in Colombia

Thank you for making the dreams of Carolina come true!Now she has an opportunity for a better future.

Keep making the dreams of more children come true!Join us calling to 986 443 143 or in our web:

www.fundacionbalms.org

THANK YOU!

142www.bgi-law.com

Documents

BGI Law Maganize 2013