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How to avoid bankruptcy – key moments in the new business stabilization proceedings

Since the beginning of July 2017, the amendment of the Commerce Act adopted with State Gazette issue № 105/2016 is in force. It created entirely new proceedings – the business stabilization proceedings.

 

By its nature, the so-called Stabilization is a legal opportunity for traders to avoid opening insolvency proceedings by reaching an agreement with their creditors on how to perform their obligations and enabling them to continue their business. The aim is to create an effective procedure to negotiate restructuring of the obligations, to create conditions for recovery and stabilization of the enterprise.

In order for the stabilization proceedings to be opened, it is necessary for the trader to lodge a written application to the Regional Court at his registered office. The ground for initiating proceedings is an imminent threat of insolvency. This will be the case if, in view of the forthcoming date of payment of his financial obligations within the next 6 months of the deposition of the application, the trader would be unable to fulfill his executable cash commitments on commercial transactions, public or private government liabilities, or is likely to suspend payments.

 

In the application for the opening of proceedings, the trader shall provide a complete list of his creditors, the amount and date of payment of the obligations, the provided collateral or the imposed precautionary measures, data for the assets of the company, etc. A mandatory annex to the application is a stabilization plan prepared by the trader containing the terms, conditions and methods of payment to the creditors, as well as the extent of their satisfaction, the offered guarantees and collateral. The plan may provide various forms of restructuring of the obligations such as deferral and rescheduling, partial remitall of obligations, sale of the company or separate parts of it or of separate property rights, conversion of a claim into part of the capital, etc. Subsequently, the plan is subject to discussion and voting by the trader’s creditors and approval by the court.

 

The court shall examine the application for opening and, if it ascertains the imminent threat of insolvency, shall enact a decision, which shall be published in the Trade Register to the Registry Agency. The list of creditors attached to the application for the opening of proceedings is also published. A”trustee”, an adjoining body that supervises the trader’s activities and assists the parties in the course of the proceedings will be appointed in the decision. Such trustee may be a person with a legal education that meets the requirements set out in art. 655, para. 2 of CA for syndic. Upon initiation of the stabilization proceedings or at a later stage in their development, the court may also appoint another body – an ‘examiner’ whose task is to draw up a report on the compliance of the forecasts and manner of satisfaction of the creditors set out in the stabilization plan with the financial and property status of the trader. Where the transformation of the trader or the conversion of claims into a part of the capital is contemplated, the appointment of an examiner shall be compulsory.

The law specifies certain categories of traders for which stabilization is unenforceable. These are traders – public enterprises that exercise a state monopoly or are created by a special law, as well as banks and insurers. According to Art. 762 para. 3 of CA stabilization proceedings can not be opened even if for the same trader such proceedings have been opened in the last three years and in the other cases included in the same provision.
The consequences of the opening of proceedings are arranged in details and affect various aspects of the trader’s business, with explicitly providing the suspension of enforcement actions against the trader and suspension of the limitation period for claims against him during the stabilization procedure. The trader is forbidden to make payments of obligations  incurred prior to the date of the application for the opening of the proceedings and unpaid at the date of payment, except for certain public obligations such as excise duties, taxes, insurance contributions and others.

The hypotheses in which the court may terminate the proceedings are mentioned at the end of the newly adopted Part Five of the Commerce Act. These include: withdrawal  of the proposal for a stabilization plan from the trader before being voted by the creditors; when the plan is not approved by the court within 4 months of the opening of the proceedings; in violation of the restrictions imposed by the court on the actions performed by the trader.

 

author: Kristina Vezenkova

Posted in Uncategorized