BGI LAW (ENG) BANKRUPTCY LAW AROUND THE WORLD by jesus navarro

BALMS GROUP INTERNATIONAL LAW MAGAZINE

BANKRUPTCY LAW AND COMPANY BANKRUPTCY PROCEEDINGS

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CONTENTS Argentina

Austria

Colombia

France

Germany

Gibraltar

Italy

Mexico

Paraguay

Romania

Russia

103

Spain

111

United Kingdom 121 Uruguay

129

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ARGENTINA Insolvency Law

2. Which professionals carry out the duties of the Trustee in Bankruptcy?

Law 24.522 (Insolvency and bankruptcy law)

The insolvent party retains the administration of his estate. The 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 certified public accountant (Art. 253), for at least 5 years.

Part one 1. Who appoints the Trustee in Bankruptcy? The 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.

3. What are the duties and prerogatives of the Trustee in Bankruptcy?

The 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 affect the interests of the creditors.

The Trustee in Bankruptcy or supervisor must:

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. The Trustee in Bankruptcy is designated by drawn lot in a public act which the Judge calls to that end.

We have said that the Trustee in Bankruptcy is the same as the Trustee in Pre-Bankruptcy. ■ Supervise the business of the debtor. ■ Inform the Judge of any anomalies noticed by him as regards activities which affect the estate. ■ Constitute the provisional creditors’ committee.

Part two 1. when should you file for bankruptcy? When a situation of cessation of payments exists and bankruptcy has not been declared.

2. Is there a deadline for filing 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 file 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 file for bankruptcy? Since we are dealing here with public or private legal entities, it should be requested by the legal representative, following a resolution, 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, shareholders meeting or governing body showing confirming 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 effects such withdrawals may produce.

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

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

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

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

Yes. There is a preventive procedure for emergencies which can be applied for from the State Labour Ministry both within and outside the bankruptcy.

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, regardless 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 offer 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?

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

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

No. The insolvent party retains the administration of his company 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.

13. As a mere partner of the company, can I be responsible for the debts?

9. How long do the bankruptcy proceedings last?

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

This can vary. The Insolvency and Bankruptcy Law establishes time limits for each of its stages.

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Yes. There may be joint liability in the event of fraud or manifest neglect.

Yes, as long as this is not an overt manoeuvre for some to benefit to the detriment of others.

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 effective before the proceedings were declared 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 preventive agreement. The 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 agreement within a period of five days following the notification 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 ratified, and the measures necessary for its fulfilment have been taken and carried out, the Judge must declare the proceedings closed and should consider the Trustee in Bankruptcy’s involvement finished. Prior to the declaration of the closure of proceedings, all necessary guarantees shall be set up and it will be ruled to maintain the general restraint 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. That 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 insolvency legislation foresees two possible outcomes of the process: The Agreement or Liquidation (Bankruptcy). If an agreement cannot be reached or it is one which is considered impossible to fulfil, then the next step is liquidation.

20. What effects 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. ■ The administrative or winding-up bodies of the legal entity will be dissolved immediately and will be substituted by the insolvency administration. ■ The qualification stage will begin, wherein it will be determined 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 liquidation plan? The law foresees that the Trustee in Bankruptcy should draw up a liquidation plan, against which the creditors may make their

representations. These will be heard by the Judge. The Insolvency 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 suggestions regarding the bankruptcy liquidation plan? Yes. Formal complaints and representations.

23. Who has the final decision on whether this goes into effect or not? The judge.

24. What happens if the judge does not approve the bankruptcy liquidation plan? The 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 files for bankruptcy? All creditors for causes or claims prior to the filing, and their guarantors must request that the Trustee in Bankruptcy verify their credits, notifying the amount, cause and privileges. The 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. The Trustee in Bankruptcy will return the original documents stamping them with confirmation of the request for verification and the date. He may request that the originals be presented when he deems it convenient. Not presenting the documents will prevent verification.

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 first edict is published up to when two years have passed since proceedings were opened, which will imply “late verification”.

27. What happens if I do not provide my claim information 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 file 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 after bankruptcy proceedings? ■ In the bankruptcy itself, there are no criminal liabilities of any kind. If the matter finishes in bankruptcy there will be an assessment of conduct. The bankrupt debtor is disqualified for one year from the date of the ruling declaring the

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bankruptcy and once the year concludes, the disqualification automatically ceases. â&#x2013; Those affected by the bankruptcy declaration will lose their rights as creditors or against the estate. â&#x2013; Those affected 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.

â&#x2013; In the event that the qualification stage is opened as a result of the opening of the liquidation period, the directors or liquidators, de jure or de facto, of the legal entity at the time the bankruptcy 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.

ELBERT VAGEDES ABOGADOS BALMS GROUP INTERNATIONAL

Elbert Vagedes Abogados Sociedad Civil (EVA) is a law firm providing comprehensive legal counsel to companies and businesses. We intend to supersede your expectations, offering an agile, professional and creative service. Our three defining concepts: ■ International + Multicultural ■ Act local+ Think global ■ Specialists in You

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Tel: 00 54 11 5275 2500

Santiago Viglierchio

info@eva.com.ar www.eva.com.ar

Juan Manuel Peire

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AUSTRIA

Insolvency Law Part one 1. 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 (Landesgericht) is responsible for the bankruptcy proceeding.

appointment of a trustee is not mandatory. It is possible for the debtor to obtain a restructuring plan including self administration. Then the court has the duty to supervise the debtor.

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

In any case where the state court (Landesgericht) is responsible for bankruptcy it is mandatory to appoint a trustee. Then the bankruptcy court officially appoints the trustee under the decision which opens the bankruptcy proceeding. The court has the duty to supervise and audit the performance of the trustee.

According to Austrian bankruptcy law it is not necessary that the trustee has a certain profession, but specific skills are essential. 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 consultants. The 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 case of bankruptcy proceedings involving natural persons who do not operate a business (debt settlement proceedings) the

In most instances the trustee is an attorney at law, although he does not necessarily need to be one.

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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 different 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. The trustee in bankruptcy is responsible for the practical conduct of the bankruptcy proceedings. The skills of the trustee are essential for the success of the case. The application for opening a bankruptcy proceeding must be filed either by the debtor himself or by a creditor. After the petition for bankruptcy is filed the first task of the trustee is usually to find out the true economic situation of the debtor´s business and whether there are any possibilities for carrying on its business. Therefore the trustee has to examine the former administration of the debtor and the reasons for bankruptcy. For this examination the trustee uses the financial documents and other independent sources of the debtor. Any claims against the debtor must be notified to the court within a definite period of time set by the court in its decision at the opening 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). Recognition 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 officially recognized and settled to the same extent as all other claims are settled, following the distribution of the debtor´s assets. If a creditor does not file the court action by the set date, his claim will not be considered in the asset distribution. The consequence of not filing a claim in bankruptcy proceedings or, in case a claim is filed 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. The trustee in bankruptcy has the duty to take possession of the non-exempt assets of the debtor. The debtor is allowed to keep certain assets. These are protected assets that are exempt from the bankruptcy. The trustee determines the value of the debtor’s property 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. The trustee can also decide to dispose of assets, if they are not of value to the estate. The trustee reviews the financial position of the debtor, assesses whether the undertaking can be continued or whether an undertaking 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 establishes 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

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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 creditor means discrimination of all the other creditors. The bankruptcy trustee has certain powers to avoid any preferential transfers or improperly executed security interests. If the debtor transfers property to someone else or pays back certain creditors before filing 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.

Part two

4. In the case of a legal entity, who should file for bankruptcy?

1. When should you file for bankruptcy?

This 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 file for bankruptcy.

The circumstances for filing 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 filing for bankruptcy? Bankruptcy has to be filed within 60 days after the circumstances have been met, in cases of natural disaster within 120 days.

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

5. What happens if you do not file 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.

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

12. I am the director of a company and the partners do not wish to file for bankruptcy. What can I do?

Yes.

The director of the company has the duty to file the bankruptcy otherwise he is personally liable for damages.

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 filing for bankruptcy in an attempt to avoid the bankruptcy? Yes.

13. As a mere partner of the company, can I be held responsible for the debts? This 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 filing 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 considered for each specific case. It has to be particularly defined 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.

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

17. How do bankruptcy proceedings end? After the final distribution of the proceeds and financial reporting.

18. Is it possible to negotiate a reduction of the debts payable 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 effects result from the bankruptcy liquidation request? None.

21. Who is in charge of drawing up the bankruptcy liquidation plan? The trustee.

22. Can the debtor or the creditors propose any suggestions regarding the bankruptcy liquidation plan? Yes.

23. Who has the final decision on whether this is put into effect or not? The bankruptcy court (and creditors).

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

25. What should I do in the case that someone who owes me money files 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? There is no preclusion for delayed filing of claims.

27. What happens if I do not provide my claim information 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 file a lawsuit against the company who has entered into bankruptcy? First the claim has to be filed 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 after bankruptcy proceedings? Delayed filing for bankruptcy may lead to punishment for negligent impairment of creditors’ interests.

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NEUMAYER, WALTER & HASLINGER LAW PARTNERSHIP BALMS GROUP INTERNATIONAL

The 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 firm and qualified in 1993). Mag. Dr. Wolfgang Haslinger, LL.M. has worked for the firm since 2004 and became a partner in 2007. These three free-thinkers are united by their passion for handling challenging legal issues and their desire to offer the best solutions for their clients. This partnership of experts, specialising in different areas of Commercial Law, enables Neumayer, Walter & Haslinger to offer professional legal services in a wide variety of specialised fields. 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 firm 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. Through this association, the firm can offer the best possible legal support, even beyond the borders of Austria, granting clients access to the counsel of an almost worldwide network of law firms. Regular, personal contact among the associated law firms 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. Offering high-quality legal support to clients is of prime importance to Neumayer, Walter & Haslinger. In order to achieve this goal, the firm 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. The main aim of our actions is to develop our skills and expertise further, ensuring that clients receive the best support possible from associated firms, 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. This is what Neumayer, Walter & Haslinger stands for.

NEUMAYER, WALTER & HASLINGER LAW PARTNERSHIP A-1030 Wien, Baumannstraße 9/11 Austria

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

Tel: 00 43 1 712 84 79 Fax: 00 43 1 714 52 47 rechtsanwalt@neumayer-walter.at www.nwhp.at

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 finance ■ 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 offices in foreign enterprises ■ Trade Law ■ Civil Law ■ Administrative Law/framework of economical regulations ■ Zoning Law ■ Criminal Law in economic offences ■ Town and rural planning

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COLOMBIA Bankruptcy Law Part one First of all it should be pointed out that under current Colombian 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 deficient financial 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? The 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 insolvency 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 Bankruptcy Judge, as a legal official, 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 first place, the trustee in bankruptcy carries out two main functions according to the stage of the proceedings and depending 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 designated “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 Superintendency of Corporations.

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 reorganizing 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 voting 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 official of the Superintendency 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 recognised 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 fulfil the agreed responsibilities, the “promotor” must, once the breach hearing has taken place: 1. check and update the classification 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 findings to the bankruptcy judge at the Superintendency of Corporations within one month. In the event that the debtor should find a solution to his failure to meet his responsibilities, the judge will confirm the agreed alternative and in this case the “promotor” must ensure that it is strictly adhered to.

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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 efficient in guaranteeing the fulfilment of the debtors obligations or because it does not take into account all the claims and debts; or 3. the debtor does not comply with the previously agreed agreement for company reorganization. In such cases the judge will rule that the bankruptcy stage be opened, in which he will designate the person who until then was the “promotor” as liquidator. 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 efficient manner. At this stage in the proceedings, the newly appointed liquidator must take inventories. This consists of firstly updating the grading and classification of the claims against the debtor and may include creditors who for several reasons were not included in the original agreement for company reorganization. The 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 classified claims, determine the quota and the number of votes of the internal and external creditors. This 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

and which have been excluded from the proceedings3. This must be carried out within six months from the date the liquidation period is opened. The 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. Then, 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.

cancellation of those obligations held by the debtor in favour of creditors whose claims have been ratified.

So, within the five days following the court’s adjudicating order, the liquidator must inform the bankruptcy judge of which creditors did not agree to receive the debtor’s goods according to the agreement so that those creditors can be excluded, it being understood that they reject payment of their claims within the judicial liquidation process. Those assets will be used by the liquidator as appropriate to:

1. When should you file for bankruptcy?

1. carry out payment of debts to the other creditors or

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

2. hand them back to the debtor in the event that his payment obligations have been met in full. Finally, once the above mentioned duties have been carried out, the liquidator will hand the judge a final summary of accounts under his management including payments and the corresponding investigations carried out as to the debtor’s creditors. Nevertheless, with the bankruptcy judge’s authorization and respecting the priorities and privileges laid down under the Law, the liquidator may request from the judge authorization for the early

It should be pointed out that the liquidator has the power, at any time during the judicial liquidation process, to put forward a proposal 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 two The Colombian legal system lays down two possible cases where one can apply for bankruptcy proceedings to be started and defines them as when the debtor is: 1. is in a situation in which he has stopped meeting his payment obligations or

The 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 compliance with what is laid down in this law”. (Article 9 of Law 1116 of 2006).

3. Assets defined in article 55 of law 1116

On the other hand, the debtor will be considered to be in nonpayment when â&#x20AC;&#x153;he can demonstrate that circumstances exist in his respective market or within his organization or structure which seriously affect or may be reasonably expected to seriously affect the normal meeting of obligations with a due date of one year or lessâ&#x20AC;?. (Article 9 of Law 1116 of 2006). It should be pointed out that this second cause is not applicable to private individual traders by express legal provision.

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

2. Is there a deadline for filing for bankruptcy? No.

3. Can an individual person file for bankruptcy?

1. The time limit set down under the law in order to limit the causes for winding up the company must not have been exceeded without having taken measures to resolve the situation.

Yes, but there is a special provision, that of law 1564 of 2012 setting down the insolvency regime for non-trading private individuals, which allows for some people in financial difficulties for paying their debts to renegotiate or restructure those debts in order to avoid them being placed under seizure. The following people may file:

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

1. Private individuals who are behind with two or more payments in favour of two or more creditors for more than 90 days.

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

2. Those who have two or more enforcement actions pending.

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:

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

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

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? No, but decision-making capacity is limited in certain aspects. For example, in article 17 of of Law 1116, from the date of filing, the administrators are prohibited from making changes to the Statutes; creation and enforcement of guarantees which fall upon the debtorâ&#x20AC;&#x2122;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 current contracts; reconciliations or transactions of any kind of debts held by them; nor may they sell assets or carry out operations which are not part of the debtors normal business activity or which are carried out without complying with applicable statutory limits, including mercantile trusts and trust mandates 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 restrictions provided for under the Law. Carrying out any of these acts is specifically penalized under the law with immediate non-effectiveness. 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 finish depending 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 fixed time limit for bankruptcy proceedings to be finished.

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

11. Is it possible to negotiate the outstanding payments before filing for bankruptcy in an attempt to avoid the bankruptcy? Yes. This is s possibility for the contracting parties by virtue of the principle of autonomy of the individualâ&#x20AC;&#x2122;s will and the possibility of claiming rights. This 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 file 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 file for bankruptcy falls solely on the maximum governing body of the company; for that reason, this decision is out of the hands of the

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administrator, so in the case described the administrator may not file 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 companyâ&#x20AC;&#x2122;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, fiscal reviewers, creditors and employees, may be liable for claims when the creditorsâ&#x20AC;&#x2122; common security is prejudiced due to their negligent or wrongful acts. The 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 effect.

In this respect, it is important to mention that cases of non-fulfilment 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 contemplated 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 insufficient 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 association. Nevertheless, the partners may, as an exception, propose that company assets are sufficient or that they may not be used for payment of external creditors”.

14. Is it possible to sell company assets before filing 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 reason, if those assets are sold with the intention of defrauding the company’s creditors, the bankruptcy judge may justifiably revoke such sales as part of the proceedings. Having said that, the above is specifically not applicable, under the law, to transactions with shares or other negotiable rights which have received a transfer order accepted by the clearing and settlements 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”? This type of bankruptcy is not contemplated under Colombian legislation.

17. How do bankruptcy proceedings end? The bankruptcy process will conclude depending on the mechanism which has been agreed upon by the bankruptcy judge within the framework of actions carried out during the proceedings. Thus, if the proceedings are carried out on the basis of a reorganization agreement duly validated by the bankruptcy judge, proceedings will finish when: 1. The obligations agreed upon therein are fulfilled. 2. If they are not fulfilled and this is not solved with the judge. 3. The debtor does not meet monthly pension payments, social security 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 legal 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 payable and pay in instalments? Yes. This 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. This is an option open to the debtor from the very start of proceedings.

20. What effects result from the bankruptcy liquidation request? As a general effect of the request, the Law supposes that the initiation of the bankruptcy process signifies the existence of a situation on non-payment. When bankruptcy liquidation is declared, the following specific effects are produced: 1. The legal entity is dissolved. As a consequence, to all legal effects, the company must announce itself as “in bankruptcy liquidation”. 2. The company board and tax reviewers, should they exist, cease functioning.

3. All administrators are removed from their positions. 4. The termination of ongoing, deferred or one-time contracts which are not necessary for retaining the assets and those contracts 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 those contracts for which he has obtained authorization from the bankruptcy judge to continue. 5. The 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. The 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. The judge will order the cancellation of guarantee certificates and the recovery of assets which form part of the autonomous equity. Those obligations acquired using the autonomous equity shall be considered as obligations of the founder of the trust. 8. The closing of the limitation period and the expiry of operations relating to obligations, against the debtor or his co-debtors, guarantors, issuers of letters of credit or any other person who must fulfil the obligation, which are acquired prior to the start of bankruptcy liquidation proceedings. 9. The calling in of all the debtor’s term liabilities will not imply the calling in of obligations in respect of other joint debtors. 10. The 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 prohibited 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 hearing 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 liquidation plan?

24. What happens if the judge does not approve the bankruptcy liquidation plan? The liquidation plan may only be contested if the creditors make official objections to it during the period the bankruptcy judge grants for this. Then, depending on the allegations made by the creditors and evidence presented, the liquidation plan will be adapted while complying with the regulations governing the priority of claims.

25. What should I do in the case that someone who owes me money files 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 classification 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 final plan and this be taken into account for effective payment.

26. Do I have a time limit in which to provide information with regards to the credit the bankrupt company owes me? Those 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 “promotor” must make their official complaint to the judge within 3 days4.

27. What happens if I do not provide my credit information within that time limit? If a claim is not duly notified 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 fulfilled; 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 file a lawsuit against the company who has entered into bankruptcy? As a general rule the request must be made to the Companies Superintendancy which will act as part of its jurisdictional duties. However the bankruptcy proceedings must be filed before the Civil Circuit Judge corresponding to the business address of the debtor in those cases which are not mentioned in the same article as being the responsibility of the Superintendency of Corporations.

The liquidating agent appointed by the bankruptcy judge.

30. Which are the criminal liabilities after bankruptcy proceedings?

22. Can the debtor or the creditors propose any suggestions regarding the bankruptcy liquidation plan?

Criminal law has special types of crime for fraud, concealment of assets and others, though it does not relate them to bankruptcy proceedings.

Yes.

23. Who has the final decision on whether this goes into effect or not? The bankruptcy judge

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

Commercial law sets down a penalty system of disqualification 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:

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

1. 1. Set up or use the company in order to defraud creditors.

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

2. Fraudulently take the company into a situation of financial crisis. 3. Partially or completely destroy assets which make up the capital. 4. Waste or dilapidate assets which lead to the opening of bankruptcy liquidation. 5. Fail to comply, without due cause, with the reorganization agreement subscribed to with the creditors. 6. Speculating, before or during the bankruptcy proceedings, with their obligations and purchasing them at a lower price.

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

10. Knowingly excluding creditors from the list of creditors or including 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 countryâ&#x20AC;&#x2122;s Public Prosecutorâ&#x20AC;&#x2122;s office.

ESPINOSA ABOGADOS ASOCIADOS BALMS GROUP INTERNATIONAL Since 2005, Espinosa Asociados has brought together lawyers with over 20 years of consultancy experience, young partners and highly-qualified associates. Its fundamental business philosophy is to provide professional advice, personally directed and executed by its partners, prioritising the obtainment of practical results, previously defined accor-ding to the specific needs of each client, through the participation of an interdisciplinary team of professionals. This is what allows us to provide a truly comprehensive advice service to individuals, family groups, national and international companies, investors and financial groups, to carry out their business negotiations in Columbia in areas of corporate and financial commercial law, taxation, exchanges, administrative and insurance law. The above is also reflected in the fact that we offer consultancy in company and family protocol, in equity organisation over several generations and in estate planning, considering the relations with family law.

AREAS OF EXPERTISE ■ Commercial and Corporate Law ■ Financial Law ■ Taxation Law. Import and Foreignexchange Regime ■ Extrajuditial Conciliation Law ■ Insurance Law ■ Administrative Law ■ Family Law. Sucession and minors ■ Family Business and Protocols ■ Litigations and Arbitration Tribunals ■ Strategic advice for finantial groups

We compliment these areas with the experience of some of our partners in the financial structuring of businesses and projects and their knowledge of the functioning of the State and its entities. This enables us to offer 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 identified goals. We also provide continuous guidance in decisions that require legal support, which makes us a firm capable of adding value to business management.

ESPINOSA & ASOCIADOS

PARTNERS Carlos Antonio Espinosa Pérez Beatriz Espinosa Pérez Alejandro Bustos Rubio Juam Miguel Calderón Gallón

Carrera 10 Nº 97-A-13 Oficina 701 Bogotá, Colombia Tel: +57 1 64285772 Fax: +57 1 6428578 beatrizespinosa@ espinosaasociados.com www.espinosaasociados.com

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FRANCE Bankruptcy Law Introduction In France, when a company is experiencing difficulties that prevent it from paying its creditors, it can request the opening of ‘safeguard proceedings’ (procédure de sauvegarde). If it is impossible for it to pay its debts, it must request the opening of receivership (redressement judiciaire) or court-supervised liquidation (liquidation judiciaire) proceedings.

accountancy and finance), or DEC (chartered accountancy diploma) may sit the exam to access a professional placement which includes written papers in law and accountancy. The 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 final professional exam which tests aptitude in the duties of court-appointed administrator or trustee. This can only be sat once.

The purpose of safeguard or receivership proceedings is to reorganise the company so as to allow it to continue to operate. The court appoints an administrator and court-appointed trustee (mandataire judiciaire) who take responsibility for resolving the difficulties alongside the CEO.

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. The professional body, the Conseil national des administrateurs et des mandataires judiciaires is called to give its opinion on any new addition to the list.

If it proves impossible to continue operations, the court decides to open court-supervised liquidation proceedings by appointing a liquidator (liquidateur judiciaire).

The court-appointed administrator may combine their position with being a lawyer as long as they do not represent the same company.

Part one

3. What are the duties and prerogatives of the trustee in bankruptcy?

1. Who appoints the trustee in bankruptcy? When handing down its ruling to open safeguard or court-supervised 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). The 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.

Under law the administrator has their own specific powers. These 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 administrator 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. They report them to the official receiver which may lead to a change in

If reorganisation proves impossible, in ruling to open court-supervised liquidation proceedings, the court appoints a liquidator. Court-supervised liquidation can also be announced during the period when safeguard or court-supervised reorganisation proceedings are being observed, with a view to producing an economic and labour assessment and proposals for continuing or closing 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. The process of entering them has several stages. Applicants with at least four years of higher education (law, economic sciences or management), a DESCF (higher studies in

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their duties or a cessation of the activity or court-appointed liquidation being announced. In the case of receivership, the administrator’s duties involve assisting 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. Strategic 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. The 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 representing creditors. They ask creditors to file an unpaid claim, check the amount is correct and consult them about payment proposals made by the administrator and the CEO. They are required to return any amounts received that are not paid into the debtor’s bank or postal account to the Bank for Official 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. The court-appointed trustee is then appointed liquidator. The liquidator proceeds with operations to liquidate and check the liabilities and issues the order in which creditors should be paid. They also have the capacity and authority to proceed with the redundancies that are an integral part of most court-supervised liquidations. They 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 two 1. When should you file for bankruptcy? In the event of insolvency, i.e. once it is impossible to meet existing liabilities with available assets.

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

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

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4. In the case of a legal entity, who should file for bankruptcy?

not exceed 18 months. The period of observation ends with one of the following actions:

Only the company’s legal representative is authorised to file for insolvency. They can be replaced by a person of their choice who must have special authority for the purpose.

■ 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 sufficient funds to pay off creditors and pay costs.

5. What happens if the you do not file for bankruptcy? Failure to file for bankruptcy or receivership may result in the director 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 directors and individuals running a business in their own name, may be imposed: personal bankruptcy or barred from acting as company director.

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

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 filing for bankruptcy in an attempt to avoid the bankruptcy?

No, except in the case of receiverships.

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 ruling to open bankruptcy or court-supervised liquidation proceedings starting on the insolvency date, are liable to be called into question.

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

12. I am the administrator of a company and the partners do not wish to file for bankruptcy. What can I do?

Yes in the case of receiverships.

As the declaration of insolvency is deemed to be a management act that falls solely within the CEO’s remit, partners have no input.

Yes.

7. Does the declaration of bankruptcy mean the closure of the company?

Not systematically in the case of bankruptcies. Everything depends on the type of duties given to the court-appointed administrator.

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

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

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 filing 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? After opening collective insolvency proceedings, all implementation measures are discontinued. The creditor may no longer petition the enforcement of any seizures in implementation of any court rulings that they have obtained prior to the opening judgement, or continue with any seizures already started.

■ or the opening of receivership or court-supervised liquidation proceedings if economic and financial 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 sufficient funds to pay off creditors and pay costs.

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

If seizures become final 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.

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

17. How do bankruptcy proceedings end? Safeguard proceedings conclude with one of the following actions:

20. What effects result from the bankruptcy liquidation request?

■ either a recovery plan if there is a serious likelihood of the company being safeguarded;

Court-supervised liquidation leads to the director being disqualified in favour of the court-appointed liquidator. The liquidator

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Yes.

can exercise their rights and actions on their assets in the debtorâ&#x20AC;&#x2122;s place for the duration of the liquidation.

21. Who is in charge of elaborating the bankruptcy liquidation plan? The court-appointed liquidator.

22. Can the debtor or the creditors propose any suggestions regarding the bankruptcy liquidation plan? Yes.

23. Who has the final decision on whether this goes into effect or not? The 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 files 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 after the publication of the judgment to open proceedings in the Bulletin Officiel des Annonces Civiles et Commerciales (Official Journal for Civil and Commercial Announcements),

27. What happens if I do not provide my credit information within that time limit? Any creditor who has not made their declaration within the required times can no longer exercise their rights for the duration of proceedings: they are excluded. They can ask the court to overturn the decision to exclude them if they can prove that the delay is beyond their control or attributable to the debtor. In this case they must make a claim to the official 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 file 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 debtor to secure the payment of an amount of money as well as any measure for seizing assets.

30. Which are the criminal liabilities after 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 liable to a maximum five year prison sentence and a fine of â&#x201A;Ź75,000. Additional penalties can be handed down by the judge. These sanctions include, in particular, the loss of civic, civil and family rights or a ban on practising a commercial or industrial profession or managing a commercial business.Â

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AVENS LEHMAN & ASSOCIÉS BALMS GROUP INTERNATIONAL YOUR BUSINESS IS UNIQUE

AREAS OF EXPERTISE

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 offer.

■ 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 firms, 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, specific 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 financial companies, insurance companies and provident societies with their environment: clients, consumer organisations, administrative regulation and competition authorities.

OUR COMMITMENT Avens is a law-firm on a human scale, acknowledged by the clients as being concerned about offering efficient 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 define 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 efficiently 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.

PARTNERS Hervé Lehman Christine Sarazin Hortense de Saint Remy Fabrice de Korodi Katona

AVENS LEHMAN & ASSOCIÉS

MANAGEMENT

67 Bd Haussmann 75008 Paris France

Yves Repussard

LAWYERS Claudia Massa

Delphine Cuenot

Sabine Alix

Alexis Sobol

Matthieu Mazo

Morgane Brunaud

Aurélie Boulet

Florian Saguez

Tel: 00 33 1 40 67 87 67 Fax: 00 33 1 40 67 97 16 contact@avens.fr www.avens.fr

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GERMANY Bankruptcy Law Part one 1. 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 composition code (Vergleichsordnung). Now in Germany the new insolvency Act (Insolvenzordnung) applies. The insolvency proceeding regarding the asset of a debtor is only followed, when a request is filed. A debtor can be any natural person or legal entity.

If the expert comes to the opinion that the conditions for the initiation 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 becomes the insolvency administrator (Insolvenzverwalter). Exceptionally it is possible to conduct the standard insolvency proceeding by self-administration and not by an appointed insolvency administrator (§ 270 InsO. and following InsO.). In selfadministration the debtor retains his right of disposition of his assets. The debtor is supervised by a trustee (Sachwalter) appointed by the court (§ 274 InsO.).

In case the debtor is a legal entity or a natural person, who is or was a self-employed defendant and the financial circumstances are not clear, the standard insolvency proceeding (Regelinsolvenz) will take place. In case of a natural person the consumer insolvency proceeding (Verbraucherinsolvenz) will take place. The request is to be filed at the local court, insolvency department. The court (the judge for insolvency is responsible) checks the request if it is admissible and justified. The request is justified if one of the three reasons for initiation is present. The 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. The 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. The report should also answer the question if the costs for the first 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 proceeding, the insolvency court has the obligation to secure the assets of the debtor by appointing a temporary insolvency administrator (vorläufiger Insolvenzverwalter), to file 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.

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. There is no training for insolvency administrators. But the professionals who work as insolvency administrators are lawyers, business economists, tax consultants and auditors. There is no fixed 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:

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The basic idea of the insolvency proceeding is to satisfy all the creditors of a debtor at the same time. Therefore 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). The further actions depend on the decision of the creditors’ meeting.

in some rare cases the agreement of the court (direct sale of land, conducting all forms of litigation § 160 InsO). The creditors have to lodge their claims with the insolvency administrator, who decides whether he accepts the claim. In case he denies the claim, the creditor can file action for detection of the claim against the insolvency administrator (§ 179 InsO). The insolvency administrator conducts all the forms of litigation for the insolvent assets as party ex officio. In cases of reciprocal contracts (e. g. delivery under reservation) which were not fulfilled by any party, the insolvency administrator 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 responsible for the fulfillment of his duties to all the parties concerned (§ 60 InsO).

Part two 1. When should you file for bankruptcy In 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 considered insolvent or over-indebted. According to §§ 17 ff. InsO, insolvency or over-indebtness are conditions for the initiation of insolvency procedures. In this case it is advisable to filing for insolvency.

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

3. Can an individual person file for bankruptcy? It is possible that they agree on the liquidation, the reorganization or the transferring reorganization of the company. The insolvency administrator is subject to the supervision of the insolvency court and has to render account to the creditors´ meeting. 2. In detail: The insolvency administrator is obliged to show the court the records after 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. The 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

The debtor has the right to file for insolvency. If the debtor is a natural person and not a self-employed defendant, it is his right to file for a consumer insolvency proceeding (Verbraucherinsolvenzverfahren).

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

5. What happens if you do not file for bankruptcy? In common the representative body is personally liable, if they fail to file 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).

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

Against Dismissal Act (Kündigungsschutzgesetz). He has no special right to dismiss workers.

Yes.

7. Does the declaration of bankruptcy mean the closure of the company?

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.

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.

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

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

In case of consumer insolvency proceedings it is necessary to make an out of court suggestion for all the creditors how to recover the debts (§ 305 a InsO.) Only if this plan fails to work, it is possible to file for insolvency.

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 company 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 different sections. The 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 (Restschuldbefreiung) 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. The 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? The regulations fixed in the German labor law are also valid in the insolvency proceedings. The insolvency administrator has to observe the regulations established in the German Protection

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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 file 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 file for insolvency. According to § 15a InsO it is sufficient for one member of the representative body to file 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 invested 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 private assets. This is the case if the partner fails to file for insolvency,

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

14. Is it possible to sell company assets before filing 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 administrator to check all the purchases and sales of the last three months before filing for insolvency. This deadline can be extended to 10 years for transactions which were carried out with the intention 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). That 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”? That depends on different factors of each individual case.

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

18. Is it possible to negotiate a reduction of the debts payable and pay in instalments? The insolvency proceeding is a possibility given by the government to reorganize a company. It is possible for the insolvency administrator and for the debtor to present an insolvency plan. The insolvency plan contains fixed regulations how to utilize the assets and how to distribute them between the creditors. The insolvency plan is handed in at the insolvency court and after the creditors have agreed on it, the court adjusts the insolvency plan. Then 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 effects result from the bankruptcy liquidation request? In case of a legal entity (for example GmbH or AG), the consequences of an insolvency procedure are that the company will be deleted from the register and the legal form of this company ceases to exist.

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

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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 fix a date for a creditors´ 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 inventory or the sale of a property.

23. Who has the final decision on whether this goes into effect or not? If the creditors’ meeting has not given its consent, at the request of the debtor or of a majority of creditors and after 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? The insolvency administrator is not obliged to take any measures, 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 files 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 The insolvency administrator has to inform all the creditors by post and encloses the decision for initiation of the insolvency procedure. According to § 28 InsO, the deadline for notification of the claim is fixed in the decision for the initiation of the insolvency procedure.

27. What happens if I do not provide my claim information with regards to the amount the bankrupt company owes me? If you file your claim after the deadline has expired, another procedure for checking the claim is maybe necessary. In this case the creditor who fails to file his claim in time has to bear the costs of the procedure for checking his claim.

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

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

30. Which are the criminal liabilities after 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.

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DR. PRYMUSALA ATTORNEYS-AT-LAW BALMS GROUP INTERNATIONAL

We became a member of Balms Group International, BGI, in August 2000. The terms “merger” and “globalisation” nowadays influence all business life in Germany, as well as the practice of German law. Thus, the keywords of the German legal world are, nowadays, manpower, specialization, know-how management, extension of cross-border activities, international offices and extension of fields 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 offices 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. The demand is growing and an internationally active network is important in order to cater for the financial 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) The firm, Dr. Prymusala & Colleagues, was founded in Munich in 1989. Our modern office is situated in the center of Munich in the district of Neuhausen-Nymphenburg, near the U 1 subway. Thus, we can offer easy access to our clients. Furthermore, all the important courts are located close to the office. Our clients include members of medium-sized industry, service providers, associations and individuals.

OFFICE IN AU I.D. HALLERTAU

AREAS OF EXPERTISE The areas of work in which we are specialized are among other things: ■ Civil Law (national and international) ■ 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.

DR. PRYMUSALA ATTORNEYS-AT-LAW MUNICH

In July 2003 the law firm Dr. Prymusala & Colleagues of Munich open a new office 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. There are still tracts of undeveloped land available (perhaps an opportunity for a foreign investor) only a short distance from Munich Airport.

Nymphenburger Straße 148, 80634 Munich Germany

PARTNERS

Mainburger Straße 1, 84072 Au i.d. Hallertau Germany

AU I.D. HALLERTAU

Dr. Manfred Prymusala Joachim Leitl

MANAGEMENT Yvonne Dörre

Tel: 00 49 89 13 27 23 Fax: 00 49 89 13 27 43 kanzlei@prymusala.de www.prymusala.de

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GIBRALTAR Bankruptcy Law Part one

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.

1. Who appoints the trustee in bankruptcy?

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

The process where an individual is no longer able to pay his debts is called bankruptcy. The trustee in bankruptcy is appointed by the Supreme Court once the petition for bankruptcy has been heard.

There are no specific trustee in bankruptcy or insolvency practitioners, but in practice these roles are undertaken by lawyers or accountants in Gibraltar.

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.

3. What are the duties and prerogatives of the trustee in bankruptcy?

Who appoints the liquidator depends on what mode of winding up is being used. There are three types: a. by the Court b. by the company itself or c. subject to the supervision of the Court.

The 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 official trustee, in that he will assess the assets and liabilities of the company and will then realise the assets and distribute the same to any creditors.

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Part two

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

1. When should you file for bankruptcy?

Once a company is being wound up then it ceases to operate as a business and the employees will in effect be made redundant.

Filing for bankruptcy and when that should be done is up to the individual.

2. Is there a deadline for filing for bankruptcy? There 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 file for bankruptcy?

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

Yes

12. I am the administrator of a company and the partners do not wish to file for bankruptcy. What can I do?

4. In the case of a legal entity, who should file for bankruptcy?

This depends on the current financial 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.

The winding up of a company can be commenced by either the members or creditors of the company.

5. What happens if you do not file for bankruptcy? A creditor is entitled to present a petition for your bankruptcy. This can happen if you owe at least ÂŁ500.

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.

6. Can a creditor of my company request the bankruptcy proceedings? A creditor can commence winding up proceedings against a company if the company owes over ÂŁ 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 making 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? The bankruptcy process (depending on complexity) will take approximately four to six months. The liquidation of a company takes six months from start to finish.

14. Is it possible to sell company assets before filing 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 â&#x20AC;&#x153;liableâ&#x20AC;?? N/A

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

18. Is it possible to negotiate a reduction of the debts payable 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 liquidated by either its directors or creditors.

20. What effects result from the bankruptcy liquidation request?

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

Once the company has been liquidated it ceases to exist.

23. Who has the final decision on whether this goes into effect or not?

21. Who is in charge of elaborating the bankruptcy liquidation plan? The 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 suggestions regarding the bankruptcy liquidation plan? The creditors may request a committee of inspection representing creditors interests to be appointed, both to exercise a general

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The members of the creditors committee will vote on any proposed 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.

25. What should I do in the case that someone who owes me money files for bankruptcy? The person will have to file 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? The trustee in bankruptcy will officially announce a deadline by which all claims are to be filed.

27. What happens if I do not provide my credit information within that time limit?

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

29. Where do I have to go if I want to file a lawsuit against the company who has entered into bankruptcy? The Supreme Court.

30. Which are the criminal liabilities after bankruptcy proceedings? In the ordinary course of bankruptcy there are no criminal liabilities.

You may not be able to proceed with you claim.

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CRUZ & CO BALMS GROUP INTERNATIONAL

Cruz & Co and Acquarius Trust Company Limited were founded in 1996 and 1998, respectively. Cruz & Co is a general legal practice with specific expertise in Property Law, Commercial Law and Company Law, Civil Litigation, financial services and private client work. The firm 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. The company manages substantial International Trusts for both corporate and private clients alike.

AREAS OF EXPERTISE ■ ■ ■ ■ ■ ■ ■

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

CRUZ & CO PARTNERS Nicholas P. Cruz LLB (Hons) T.E.P. Paul L. Borge BA (Hons)

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, MCIPR Paul Crudgington DIP DM MIDM

Suite 2, 1st floor. Icom House 1/5 Irish Town. PO Box 883 Gibraltar Tel: + 350 200 76552 Fax: + 350 200 76553 info@cruzlaw.gi www.cruzlaw.gi

ACQUARIUS TRUST COMPANY LTD Suíte 3, 2nd Floor. Icom House 1/5 Irish Town. PO Box 883 Gibraltar Tel: + 350 200 50418 Fax: + 350 200 44989

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ITALY Bankruptcy Law Part one 1. Who appoints the trustee in bankruptcy? The Court. When the Court issues the bankruptcy order, it simultaneously appoints the trustee in bankruptcy (art. 16, first paragraph, n.1, L. 16.03.1942 n. 267). When the trustee must be substituted or removed from his office, 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 procedure must be appointed; c. Persons who held the office of director in a S.p.A. (company limited by shares) and demonstrate that they possess managing skills and have never been in a situation of bankruptcy.

1. What are the duties and prerogatives of the trustee in bankruptcy? The 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 creditors. He carries on his duties under the supervision of the judge and the Creditors’ Committee. For acts of extraordinary administration he needs the approval of the Creditors’ Committee, whereas 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. drafting 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. drafting the debt statement and participating in the hearing for the admission of the claims; d. communications to creditors about the claims rating; e. drafting the liquidation plan; f. drafting periodical reports; g. depositing the realised money with the bank; h. keeping the register in which he updates the activities relating to the administration.

Part two 1. When should you file for bankruptcy? Pursuant to art. 5 of L. 16.03.1942 n. 267 a debtor should file for bankruptcy when he is unable to fulfil his obligations regularly.

2. Is there a deadline for filing for bankruptcy? No.

3. Can an individual person file for bankruptcy? Yes.

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

5. What happens if you do not file for bankruptcy? The company will increase its financial difficulties 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 prosecuted pursuant to art. 217, first paragraph, n. 4 of L. 16.03.1942 n. 267.

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

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? They last five to fifteen years generally.

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

11. Is it possible to negotiate the outstanding payments before filing for bankruptcy in an attempt to avoid the bankruptcy? Yes, the enterprise can propose a debt restructuring plan according 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 file 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 office.

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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 partner in a partnership (società in nome collettivo) you are liable. If you are a partner in a limited liability partnership (società in accomandita 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

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(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 filing 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 ineffective 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.

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 become part of the pot of all the creditors.

27. What happens if I do not provide my credit information within that time limit? Art. 101 of L. 16.03.1942 n. 267 provides that, if the petition is filed after 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 file the petition for the admission of your claim.

28. Do I need a lawyer to do this?

16. When is the bankruptcy proceedings considered “liable”?

No.

Pursuant to art. 2394-bis of the Italian Civil Code the trustee in bankruptcy is empowered to start proceedings against the directors who failed to comply with the law.

29. Where do I have to go if I want to file a lawsuit against the company who has entered into bankruptcy?

17. How do bankruptcy proceedings end? They generally end up with: (a) the distribution among the creditors 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 payable and pay in instalments?

According to Italian law, it is not possible to file any lawsuit against the company.

30. Which are the criminal liabilities after 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).

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 effects 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 liquidation plan? The trustee.

22. Can the debtor or the creditors propose any suggestions 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 final decision on whether this goes into effect or not? The 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 files for bankruptcy? I have to file 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, first paragraph, of L. 16.03.1942 n. 267 states that creditors must file the petition for the admission of their credit within 30 days before the hearing set for the examination of the debt statement.

CERUTTI & PARTNERS BALMS GROUP INTERNATIONAL

Cerutti & Partners, with headquarters in Milan and offices in Madrid, is a law firm specialised in advising and consulting companies, in judicial and non judicial fields. The firm, 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 specific professional profiles, operate so that client companies find in the firm an adequate consultancy and a constant and valid reference point concerning the transactions underway.

AREAS OF EXPERTISE ■ ■ ■ ■ ■

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

Cerutti & Partners, collaborating regularly with native speaking professionals, is able to carry out the dossiers in Italian, English and Spanish.

CERUTTI & PARTNERS PROFESSIONALS Avv. Massimo Giorgio Cerutti Avv. Gloria Bulanti Avv. Federica Cinnante Avv. Cinzia Parodi Dr.ssa Eleonora Ruggieri Ab. Carmen García Pérez

Via Durini 2 20122 – Milan Italy Tel: 00 39 02 76009493 Fax: 00 39 02 76008374 info@ceruttilex.it www.ceruttilex.it

MEXICO Bankruptcy Law Part one 1. Who appoints the Trustee in Bankruptcy? In Mexico, under the Mercantile Bankruptcy Law, the Bankruptcy process is made up of two successive stages: Conciliation and Bankruptcy. The 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 continues to be the administrator of his company unless the Conciliator, having deemed it convenient for the protection of the estate of the bankrupt3, should request that the Judge revoke that administrative 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. The designation of the Bankruptcy Conciliator- Conciliator or Trustee of Bankruptcy – is the responsibility of the Federal Institute 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 proceedings. 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. That 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. The individual or legal entity of that type according to the Commercial Code. The concept includes trust assets when the carrying out of business activities is affected. It also includes controlling or controlled mercantile companies as referred to in article 15 of the Mercantile Bankruptcy Law. 2. Those which are qualified as such in the ruling on claim recognition, grading and preference. 3. That portion of the estate of the Trader in Bankruptcy proceedings made up of his assets and rights, with the exception of those specifically 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 proceedings; 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 creditors 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. The 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. The 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. This last case is an exception to the general rule that it will be IFECOM 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 Bankruptcy The Conciliators and Trustees are those charged with administrating the assets and rights which make up the insolvent party’s Estate. The Conciliator will do this during the Conciliatory stage provided 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.

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 proceedings, financial and corporative engineering, rescuing and administering companies, mediation, mergers and acquisitions; and to be a Trustee, in the majority of the following activities: accounting, 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: The main function of the Conciliator is to make it possible for the Trader and his recognised creditors to come to an agreement. The Conciliator will begin working from the moment the company 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 Bankruptcy process;

ii. No agreement is reached, which will mean entering the bankruptcy stage or; iii. The Conciliator himself requests that the Judge brings an early end to the Conciliatory stage due to a lack of willingness 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: 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 five years in a business administration, financial, legal or accounting advisory role;

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 confidentiality;

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;

vi. provide IFECOM with all manner of facilities for inspection and supervision of how he carries out his functions; and

iii. they are reputable;

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

iv. they comply with the selection procedure of the Institute and its updating procedures; and v.

they have not received a firm judicial ruling for an intentional crime meriting a prison ruling and they have not been disqualified from employment, holding a position or commission in the public service, the financial system or from trading.

Those 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 Instituteâ&#x20AC;&#x2122;s Registry.

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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 Federationâ&#x20AC;&#x2122;s Daily Bulletin and in one of the major circulation 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

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 definitive list. C. ADMINISTRATION OF THE COMPANY: In the event that it is the Trader who takes on the administration 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 compensation 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 corresponding 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: The Conciliator may object to the Trader fulfilling 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: The 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

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 circulation 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 process 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: The 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:

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The 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 PAYMENTS TO RECOGNISED CREDITORS: Bankruptcy having been declared, even if the creditor recognition process has not yet concluded, the Trustee of Bankruptcy will proceed 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 different process and that this would result in obtaining greater income and, as an exception, he may proceed to dispose of the bankrupt’s estate assets in a manner different 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

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.

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 different creditors and the two conditions mentioned above also being met.

2. Is there a deadline for filing for bankruptcy? No

Part two

3. Can an individual person file for bankruptcy?

1. When should you file for bankruptcy?

Yes, on the condition that he is the Trader or one of his creditors and the conditions in question 1 are met.

No obligation exists to request that Bankruptcy be declared. It is a right of the Trader, his creditors and the Public Prosecutor. Nevertheless, if, during a mercantile court case, a Judge informs that the Trader is in a situation of possible Bankruptcy, he will inform the competent fiscal 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 different creditors and that those payments have been unpaid for at least thirty days and represent thirty five 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. The 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 filed for; c) Clients

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

5. What happens if you do not file for bankruptcy? Then the opportunity is lost to agree with the creditors on a restructuring of debt or a remission and there is a risk of the Trader becoming incapable of fulfilling 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 filed for, and d) Share certificates 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 filed for.

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. That is to say, if the dismissal is unjustified, 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 filing 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 benefitted by the payments made to the Trader.

12. I am the director of a company and the partners do not wish to file for bankruptcy. What can I do? The Bankruptcy proceedings Law does not allow for the administrative 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 specific authorisation to request it.

13. As a mere partner of the company, can I be responsible for the debts? The limit of liability for each partner, even in the case of Bankruptcy proceedings, will be determined by the type of company involved 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 filing for bankruptcy in order to prevent being liable for the debts? It is possible but depending on i.

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. That power is lost either if, during the Conciliatory stage, it is applied for by the Conciliator to the Judge, or during 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 bankruptcy stage, which depends to a great extent on the process of disposal of the Trader’s assets.

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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 effects of mercantile Bankruptcy is that until the conciliation 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 declared, 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).

nor can existing embargoes be executed against the Trader’s assets and rights unless they are embargoes or executions thereof relating 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?

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 insufficient, even to cover the expenses against the estate before any other credits (labour, estate administration, normal costs for the safety of the estate, actions for the benefit of the estate);

They will conclude by judicial declaration as long as any of the following conditions are met:

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

An agreement is approved between the Trader and his recognised creditors (in the Conciliatory stage);

During the bankruptcy stage an agreement is reached between the Trader and all of the recognised creditors; or

18. Is it possible to negotiate a reduction of the debts payable 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 company may request that the bankruptcy stage be entered into or that it be declared early.

20. What effects result from the bankruptcy liquidation request? If a request is made to be declared bankrupt, the Conciliatory stage 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 Traderâ&#x20AC;&#x2122;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 companyâ&#x20AC;&#x2122;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 liquidation plan? The 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 creditors who will be paid with the proportional part corresponding to them. Finally the Judge, having listened to the parties, will decide upon the manner and conditions governing the distribution of the available cash amounts.

22. Can the debtor or the creditors propose any suggestions regarding the bankruptcy liquidation plan? Both the Trader and his recognised creditors may make their objections known to the provisional list of creditors which the Conciliator 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 differs from an auction sale. In this case it must be one fifth 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 carried 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 final decision on whether this goes into effect or not? The Judge conducting the procedure, having verified that the Trader has actually failed in a generalized fashion to meet his payment obligations.

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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 files for bankruptcy? Go to the judicial body hearing the case and request to be recognised 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 after public notice was given of the ruling opening the mercantile Bankruptcy proceedings;

ii. within the time limit for making objections to the provisional list presented by the Conciliator to the Judge; or iii. within the time limit for making an appeal against the ruling 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 information within that time limit? You will be given the status of recognised creditor and so will lose the benefits granted to them under the Law itself.

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

29. Where do I have to go if I want to file 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 after bankruptcy proceedings? A Trader who has been declared in Bankruptcy by a firm court ruling will be penalized with a prison sentence of between one and nine years for any act of wilful misconduct which causes or worsens the generalized situation of non-fulfilment 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.

BGI VILLARREAL S.C. BALMS GROUP INTERNATIONAL Cuevas y Villarreal was founded in 1985 in Mexico City by Pedro Cuevas Garza and Guillermo Villarreal Torres. Our law firm has over twenty five years of experience providing legal services in the areas of corporate, real estate, civil, commercial, tax, labor and administrative (including litigation), securities and insurance law, mergers and acquisitions, debt restructuring, foreign investments, testamentary planning, social security and international trade areas, as well as Commercial Notary Public’s services and other regulated areas, both domestic and international, providing our professional services mainly to clients from Mexico, the United States of America, Canada, Argentina and Spain. Our lawyers and supporting professionals have accomplished postgraduate studies in the best educational institutions both in Mexico and in the United State of America, therefore they have the knowledge and resources to advise and represent a broad range of clients, including individual entrepreneurs and corporate international clients of great relevance.

AREAS OF EXPERTISE ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

General Corporate Due Diligence Civil and Commercial Law - litigation Tax Law Real Estate Foreign investment and foreign trade Labor Law Financial Services Administrative Law Mergers and Acquisitions Debt restructuring and insolvency Security Law Commercial Notary Public’s Office Social Security Official translations

PARTNERS Guillermo Villarreal Torres Rosalba Muñoz Campos Luis A. de la Torre Sánchez

ASSOCIATES AND LAWYERS Arturo Pueblita Fernández Diego Cuevas Estandía Ileana Melissa Barriga Castañeda Marcela Ríos Torres Roberto F. Gutiérrez Hernández Cecilia M. Peraza Zazueta

BGI VILLARREAL S.C. Prol. Paseo de la Reforma #115 Despacho 1001. Col. Paseo de las Lomas. Santa Fe C.P. 01330, México D.F. México Tel: + 52 55 5258 1150 Fax: + 52 55 5292 6330 mail@cuvi.com.mx www.cuvi.com.mx

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PARAGUAY Bankruptcy Law Part one 1. Who appoints the trustee in bankruptcy? Under our legal system, we must differentiate between cases of creditors’ meetings and those of bankruptcy. - In cases of creditors’ 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 bankruptcy. Regulations set down the requirements to be met by all those who wish to carry out duties corresponding to the Commission and it is specified that those interested in doing so must have technical 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. The 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 two 1. When should you file for bankruptcy? Bankruptcy should be filed for whenever the debtor, whether a trader or otherwise, has entered into a situation of insolvency as defined under article 9 of Law 154/69.-

2. Is there a deadline for filing for bankruptcy? Under Law 154/69 no time limit is stipulated limiting the request for bankruptcy proceedings. It only specifies the situation of insolvency in which the debtor must find himself for a request to be viable.

3. Can an individual person file 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 file 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 limited companies, by the assembly of members, shareholders or partners.

5. What happens if you do not file 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 distinguish between two possible cases: a. if the insolvent debtor acts as a trader, his creditor/s may file 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 file for his bankruptcy to claim the liquid claimable debt. In order to do this he must prove the existence of two or more enforcements brought against the debtor by different 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 ratified, 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 debtor does not lose the right to administer his assets; however, his administrative role is carried out under the supervision of the

designated trustee in bankruptcy. The 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. The Labour Code recognises as a cause for termination of contract, the bankruptcy of the employer or the bankruptcy liquidation 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 trade 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

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

11. Is it possible to negotiate the outstanding payments before filing for bankruptcy in an attempt to avoid the bankruptcy? Yes, although not exactly as a means of avoiding bankruptcy. Insolvency proceedings are a way of avoiding bankruptcy through the mediation of the law, which is viable only if the debtor requests it and fulfils the legal requirements. In this way, if the debtor, legally capacitated to file, 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 file 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 filing that authorization must be given by the shareholders’, members’ or partners’ assembly,

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. The share of the assets belonging to the debtor corresponds to the company creditors while giving precedence to the personal creditors of that partner. The 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 filing for bankruptcy in order to prevent being liable for the debts? Factually it is possible although such acts could, eventually, be declared 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”? This is a reference to a definition given to the way the debtor handles 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 article 166 of Law 154/69.

17. How do bankruptcy proceedings end? When there is proper fulfilment of the officially recognised agreement.

18. Is it possible to negotiate a reduction of the debts payable and pay in instalments? Yes. Article 46 of Law 154/69 provides for the possibility to negotiate debt reductions of up to 50% as long as the time limit for fulfilling 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 debtors 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 verified, it is the trustee of bankruptcy who must liquidate the estate in the shortest time possible.

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

justifying their claims or a signed declaration expressing the amount, the origin or cause of their claims and the preference which they wish to claim. This must be handed to the court secretary’s office within the time limit set out in the corresponding ruling. The time limit given in that court ruling may not be of less than 20 days nor may it be greater than 40 days.

21. Who is in charge of elaborating the bankruptcy liquidation plan?

27. What happens if I do not provide my credit information within that time limit?

Our legislation does not include such a thing as a liquidation plan within the bankruptcy proceedings although it does establish measures for disposing of assets. The bankruptcy law places the liquidation in the hands of the designated trustee of bankruptcy.

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. They can only claim from dividends which are still to be distributed without this affecting their right to claim the unpaid amount from the debtor once the agreement has paid the other creditors.

22. Can the debtor or the creditors propose any suggestions regarding the bankruptcy liquidation plan? As we said in the previous point, our legislation does not contemplate 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 final decision on whether this goes into effect 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 files 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 offered and then wait for it to be fulfilled.-

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 foreseen under the labour laws, are obliged to present documents

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28. Do I need a lawyer to do this? Yes. The 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 file 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 privileges such as labour claims and those relating to food are exonerated 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 after bankruptcy proceedings? The Criminal Code defines conduct which may lead to bankruptcy and punishes such conduct with prison terms of up to five years. The manner in which the debtor has handled his assets may be taken into account by the criminal judge when evaluating the elements constituting the offence.

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JIMÉNEZ BALBIANI & ASOCIADOS ESTUDIO JURÍDICO/ATTORNEYS AT LAW BALMS GROUP INTERNATIONAL

The law firm 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 different areas of the law. This has allowed us to win the trust of the local and international market, establishing us amongst the most competitive law firms 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 & ASOCIADOS ESTUDIO JURÍDICO ATTORNEYS AT LAW

PARTNERS Julio Ernesto Jiménez Balbiani Julio Ernesto Jiménez Granda Monserrat Jiménez Granda

Jejuí Nº 690 esq. Juan E. O’leary C.P. Nº 1255, Asunción Paraguay Tel/fax: (00 595 21) 449084 (00 595 21) 495468 (00 595981) 998008 info@jimenezbalbiani.com www.jimenezbalbiani.com

AREAS OF EXPERTISE ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Banking & finance 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 Biotechnology

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ROMANIA

Bankruptcy Law Part one 1. Who appoints the trustee in bankruptcy? Short introduction Bankruptcy in Romania is governed by Law no. 85/2006 – regarding 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. The state of Insolvency represents the debtor’s financial situation, a situation in which it cannot pay its undisputable, liquid and due debts. The Observation Period represents the period of time between the opening of the procedures and the confirmation of the Reorganization Plan or the entering into Bankruptcy.

The Judicial Reorganization represents the procedure applied to the debtor, a legal entity debtor, with the purpose of repaying its debts. This procedure implies the compilation, approval, implementation and the following of a Reorganization Plan. The Bankruptcy Procedure represents the multilateral and impartial insolvency procedure applied to the debtor with the purpose of liquidation of its assets in order to cover the liabilities, which is followed by the deletion from the official registry.

The trustee Depending on the type of procedure the debtor is subject to, the trustee’s task has different characteristics and can be assumed by different persons. The Judicial Administrator is the compatible natural or legal person, authorized Insolvency Practitioner, appointed by the Syndic Judge, who carries out the general trustee duties during the Observation Period or the Reorganization Period.

The Judicial Administrator can be appointed by the Syndic Judge temporarily until the confirmation of the creditors is given or by the creditor/creditors whose debt represents at least 50% of the total value of the debts. The Liquidator is the compatible natural or legal person, authorized Insolvency Practitioner, appointed by the Syndic Judge, who carries out the liquidation duties when the debtor is in the situation of Bankruptcy. The procedure of appointing a Liquidator is the same procedure as the one appointing the Judicial Administrator. The prior Judicial Administrator can be designated as Liquidator in the same procedure. The Special Administrator is the representative appointed by the debtor’s shareholders. The 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 procedure when the debtor is not allowed to manage its activity.

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

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represents the legal basis which establishes the profession to fulfill 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. The 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? The main prerogatives of the trustee are divided into two categories, depending on the status of the procedure and the role of Judicial Administrator or Liquidator. I. The Judicial Administrator’s main attributes According to the provisions of Law no. 85/2006, the general prerogatives of the Judicial Administrator are the following: 1. Examining the economic situation of the debtor and its documents, compiling a report and proposing the commencement of the simplified 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

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 financial 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. Notification, guidance and documentation of the creditors and/ or shareholders meetings. 8. Filing claims with the judicial courts for the annulment of fraudulent 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 insufficient to cover the administrative expenses. 10. Maintaining or notifying of the termination of contracts entered 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 debtor 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 confirmation 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.The Liquidator’s main attributes According to the provisions of the same law, the general prerogatives of the Liquidator are the following: 1. Examining the debtor’s activity when in the simplified procedure, as related to the circumstances of the debtor and compiling of a detailed report on the motives that have led to the insolvency standing with the mentioning of the persons responsible and of the existence of the premise of personal liability. 2. Management of the debtor’s activity. 3. Filing claims with the judicial courts for the annulment of fraudulent acts executed by the debtor to the detriment or susceptible of such detriment for the creditors. 4. Application of seals, compiling the inventory of goods and taking appropriate measures of conserving such goods.

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 confirmation 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 Liquidator 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 circumstances of each case.

Part two 1. When should you file for bankruptcy? The insolvency state of the debtor is the essential aspect of filing 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 filing for bankruptcy? The provisions of the law mention that the debtor is obligated to file such a request within 30 days from the occurrence of the insolvency state or when the insolvency state appears imminent. The 30 days term can be extended in certain conditions, mainly regarding negotiations with the purpose of debt restructuring.

3. Can an individual person file for bankruptcy? The provisions of the law state that a natural person, acting individually, as a trader, can be subject of bankruptcy procedures. Family associations can also be subject to the procedures, as provisioned by the law.

4. In the case of a legal entity, who should file for bankruptcy? The claim must be submitted by the legal representatives of legal entities. The 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 file for bankruptcy? Not filing for bankruptcy within the legal term provided by the law is a criminal offense punishable by imprisonment between 3 (three) months and 1(one) year or by fine. The provisions of the law refer to the situation when the 30 day term is disregarded by over 6 months.

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

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

Creditors can file 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. The minimum amount of the debt must be at least 45,000 RON.

The provisions of the law state the prerogatives of the Judicial Administrator and of the Liquidator. It also may be the case where the Syndic Judge, depending on the circumstances, appoints different 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. The shareholders’ interests are being cared for through the appointing of a Special Administrator.

7. Does the declaration of bankruptcy mean the closure of the company? As said above, there are several steps between the filing of the request and the bankruptcy procedure. Such steps are the examining 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.

9. How long do the bankruptcy proceedings last? There are many aspects that influence the duration of such a procedure that range from the debtor’s participation and intentions within the procedure to the economic realities at certain moments in time. The size of the debtor, the number of creditors, the size and amount of the debtor’s assets also influence the duration of the procedures. The average duration can last from a few years to even more than five years.

10. Can workers be dismissed from a company that has entered into bankruptcy? The 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 procedure. The Labour Code also provides that the termination of an employment contract is possible, in the case of job displacement, for different reasons or motives that have no relation to the employee, judicial reorganization and bankruptcy being such reasons.

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

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engaged in negotiation procedures in good faith. The law also states that in the event of the failure of the negotiations being undertaken with the purpose of restructuring the debts, the bankruptcy claim must be submitted within a term of 5 days from this event. These 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 file for bankruptcy. What can I do? By the provisions of the law it is the obligation of the legal representative (i.e. the administrator of the company with the prior approval of the companyâ&#x20AC;&#x2122;s shareholders/partnersâ&#x20AC;&#x2122; resolution) to file for bankruptcy in the event of insolvency. Failure to claim or the late introduction of the claim may result in criminal offense proceedings, if the 6 month period mentioned by the law is disregarded. Law no. 85/2006 does not state with regard to such

conflicts between administrators and shareholders/partners, and, depending on the nature of the conflict, amiable or even mediation 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/shareholders with unlimited liability or members of an economic interest group, collective name company and general or limited partnership company can be held responsible for the debts if the assets of their company are insufficient to cover creditorsâ&#x20AC;&#x2122; claims.

14. Is it possible to sell company assets before filing 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 provisions of the law, the Judicial Administrator or the Liquidator has the ability to notify of the termination of contracts that are detrimental to creditors and have been concluded 3 years prior to the commencement of the procedure. This 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 suspended 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 debtorâ&#x20AC;&#x2122;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.

16. When is the bankruptcy proceedings considered “liable”?

20. What effects result from the bankruptcy liquidation request?

According to the provisions of the law, the liability of the debtor’s management may be involved in the event that the debtor’s directors or auditors or other persons fraudulently determined the debtor’s insolvency.

The 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.

17. How do bankruptcy proceedings end?

21. Who is in charge of elaborating the bankruptcy liquidation plan?

The final step of the bankruptcy procedure represents the liquidation 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. The procedure is closed when the Syndic Judge approves the final report compiled by the liquidator. The removal from the trade registry is another and conclusive step in this procedure.

18. Is it possible to negotiate a reduction of the debts payable and pay in installments? The 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 simplified bankruptcy procedure and the Syndic Judge will proceed to the liquidation procedure. Entering into the simplified procedure is possible when the bankruptcy request is submitted by the debtor.

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The Liquidator is the professional who, according to the provisions of the law, will compile a report which will present the creditors with the methods of evaluation and sale of the debtors’ goods. The 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 suggestions regarding the bankruptcy liquidation plan? The 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. After the inventory of the assets and the evaluation, the Liquidator proposes a method of sale for the debtor’s goods that is subject to the creditors’ approval. At this time, the Liquidator also presents the sale procedure depending on the sale method that is voted. The 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

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

23. Who has the final decision on whether this goes into effect or not? The creditors’ general assembly votes on the evaluation report and the methods of sale. The creditors have the power to vote on the approval of the evaluation and sale method, and if either is rejected, 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 final report of the Liquidator, the creditors can make objections and the Syndic Judge will rule upon all the objections in one hearing, rejecting them or admitting them, and ordering the necessary modifications.

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

25. What should I do in the case that someone who owes me money files for bankruptcy? In this case a claim must be filed in the bankruptcy procedure, claim that will be analyzed by the trustee and if admitted will result 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? The deadline for providing information with regards to the creditors’ 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 information within that time limit? The 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 participate in the bankruptcy procedures.

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

28. Do I need a lawyer to do this?

4. Fraudulently disposing of assets to the creditors’ detriment (punishable by imprisonment of between six months and five years).

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 file a lawsuit against the company who has entered into bankruptcy? The competent court to rule in bankruptcy procedures is the Tribunal where the headquarters of the debtor is located.

30. Which are the criminal liabilities after bankruptcy proceedings? 1. Failure to file for insolvency proceedings or a delay in filing exceeding 6 (six) months (punishable by imprisonment of between 3-three months and 1-one year, or by fine). 2. Forging, concealing, and/or destroying business records or concealing assets (punishable by imprisonment of between 6-six months and 5-five years).

5. Fraudulently managing the debtor’s assets (punishable by imprisonment of between 3-three and 8-eight years, or between 5-five and 12-twelve years, depending on the gravity of the offence). 6. Using, taking possession or trafficking the debtor’s assets, by the Judicial Administrator or the Liquidator (punishable by imprisonment of between 1-one and 15 fifteen 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 fine). 8. Refusing to make available to the court or to the Judicial Administrator or Liquidator the documentation required by law, or hindering the use of this documentation (punishable by imprisonment of between 1-one and 3-three years, or by a fine).

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BALMS & ASOCIATII BALMS GROUP INTERNATIONAL

Balms & Asociatii is a full service Romanian law firm and one of the international offices of the Spanish Group Balms Abogados. It is also part and founding member of Balms Group International, BGI, a network of independent law firms present in more than 20 countries throughout Europe, North and South America, Africa and Asia. We offer a comprehensive, tailor-made service of the highest quality that distinguishes our firm. With over 20 years of experience in the law field, comprehensive service, personalized treatment, thorough analysis of all matters and the specialization and continuous training of our partners and professionals are the pillars on which the work of Balms & Asociatii is based, striving for excellence and the absolute satisfaction of our clients. Balms & Asociatii offers a wide-range of quality legal services, custom-made to fulfil the expectations and needs of each of our clients in all spheres of Private and Public Law. Our advantage over other law firms in Romania is the possession of know-how and our links between the local reality and the international community. The members of our staff have deep roots into Romanian culture, its traditions and people. They always consider the best juridical solution according to the plans and objectives of the client. Our law firm received ISO 9001 and ISO 14001 certificates which proves the high quality services that we offer to our clientele. The collaboration among international and Romanian lawyers enables us to efficiently combine knowledge of the local reality with the know-how of professionals throughout the offices that make up the network of Balms Group.

AREAS OF EXPERTISE ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Litigation Foreign investments Banking and finance Energy Real Estate General Corporate and Company Law Mergers and acquisitions Commercial Law Competition law Copyright and Intellectual Property Law Environmental Law Employment Law and immigration Financial services Mediation and arbitration Public procurement Taxation Administrative Law

PARTNERS Juan Luis Balmaseda de Ahumada y Díez Julio Aguado Arrabé Katja Blackmer Óscar Gómez Monasterio Jorge Martín Losa Dragos Visan

ASSOCIATES Professor PhD. Florin Ciutacu Ramona Matei Maria-Cristina Mihai Camelia Ochiana Milena Barroso George Trandafir Andreea Tanase

BALMS & ASOCIATII 8-10 Anton Pann Street 3rd District 030796 Bucharest Romania Tel: 00 40 21 232 10 18 Fax: 00 40 21 233 10 18 office@balms.ro www.balmsabogados.com

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RUSSIA Bankruptcy Law Part one 1. 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 after the declaration of bankruptcy of a debtor by the court. The procedure of the appointment is governed by the provisions of Art. 42, 45 and 127 of the RF Federal Law on Insolvency (bankruptcy). The 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. That is why the court, after receiving the name of the candidate, files a request for information with the relevant self-regulating organization about the candidate in question. The 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 confirms a qualified trustee. The trustee should not be an interested party or a person affiliated with the creditors. The nominee is confirmed as interim receiver by the court while a decision on the nomination of a qualified 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 qualified 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 registered as an individual entrepreneur; ■ he must pass the theory test training program for courtappointed 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; ■ There should be no criminal records in economic crimes. ■ The 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 trustee obtains a certificate of expertise in the field 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 field 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 relevant industries.

3. What are the duties and prerogatives of the trustee in bankruptcy? Rights of a trustee in bankruptcy vary depending on a specific stage of bankruptcy. However there are rights common for all stages of bankruptcy. A trustee may convene a meeting or a committee of creditors; file statements and motions in the cases stipulated by the Federal Law on insolvency (bankruptcy); obtain reward for his services; involve other specialists in the bankruptcy proceedings on the basis of the contract; address an arbitration court for termination of his powers. The 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 (potential bankruptcy); ■ to analyze the financial 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 fide in the interests of the debtor and the creditors; ■ to compensate for the losses caused by the performance of their duties; ■ to identify signs of assumed or fictitious bankruptcy.

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Second part Questions for the template:

1. When should you file for bankruptcy? When you are incapable of meeting monetary claims of creditors and/or complying with the obligation of making mandatory payments within three months after 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 after their due date (for legal entities).

2. Is there a deadline for filing for bankruptcy? Yes, the general term constitutes one month after 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 file for bankruptcy? Yes, an involuntary petition can be filed by a creditor â&#x20AC;&#x201C; natural person. There is also an established procedure for filing voluntary petitions by debtor-natural persons, but this however has not yet come into force.

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4. In the case of a legal entity, who should file for bankruptcy? The legal entity itself (its general director or its founder (member, shareholder), also an involuntary petition can be filed by a debtorâ&#x20AC;&#x2122;s creditors, and authorised bodies.

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

6. Can a creditor of my company request the bankruptcy proceedings? Yes, he can, but in practice only after he has received a court decision against you, obliging you to pay him more than 100,000 roubles. However after such decision which proves the debt is issued, a certain period of time must pass before the creditor can file 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. After the creditor finally receives an order of enforcement, three months should elapse.

7. Does the declaration of bankruptcy mean the closure of the company?

12. I am the administrator of a company and the partners do not wish to file for bankruptcy. What can I do?

No, the declaration of bankruptcy by court initiates bankruptcy proceedings (starting from observation which is entitled to ensure the preservation of the assets of a debtor-company during its normal functioning).

The responsibility of a director of a company to file for bankruptcy is established by law. Besides, there are no obligatory rules for partners’ approval. Taking into consideration the subsidiary liability of a director in the case of not complying with this obligation, we think a director should file for bankruptcy independently.

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? The legislation does not impose fixed terms, but in practice it can reach about 6 years at maximum. However, there are simplified 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 filing for bankruptcy in an attempt to avoid the bankruptcy? Yes, it is possible to conclude an amicable agreement with all creditors or authorized bodies.

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 issue 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 filing 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 filing for bankruptcy and their main goal was to dispose of assets in order to escape paying debts. Creditors or the trustee in bankruptcy can file a suit to challenge such transactions.

15. If I have goods seized before the declaration of the bankruptcy, can they auction my goods while the bankruptcy takes place? After the declaration of bankruptcy the seizure imposed earlier on the debtor’s property and other injunctions concerning the disposal of the debtor’s property are lifted.

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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 procedures such as external administration, competition management 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? The bankruptcy proceedings result in either the recognition of the legal entity to be bankrupt, which entails its liquidation or restoration 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 payable 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 effects result from the bankruptcy liquidation request? No effects

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21. Who is in charge of drawing up the bankruptcy liquidation plan? The Company’s trustee in bankruptcy (named winding-up receiver at this stage) together with the liquidation committee while the power to affirm the plan belongs to creditors committee.

22. Can the debtor or the creditors propose any suggestions 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 financial rehabilitation procedure, a debtor proposes a financial rehabilitation plan.

23. Who has the final decision on whether this is put into effect 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 files for bankruptcy? Firstly, you should also send a bankruptcy petition to the court proposing the candidacy of a trustee in bankruptcy. Then it is necessary to file a claim about incorporation of your debtor indebtedness in the register of creditors’ claims. After that you should take

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 first creditors’ meeting creditors may file their claims against the debtor within thirty calendar days starting from the date of publication stating the initiation of obligation proceedings.

27. What happens if I do not provide my claim information within that time limit? If you did not manage to file 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 file a lawsuit against the company who has entered into bankruptcy?

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 file a lawsuit against a debtor-company by common rules, you can only do it in the course of bankruptcy (e.g., to challenge a transaction).

30. Which are the criminal liabilities after bankruptcy proceedings? There 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.

You should go to the Arbitration Court where such bankruptcy proceedings were implemented – the court is chosen based on

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ELENA KAZANKOVA YURBUREAU LLC BALMS GROUP INTERNATIONAL

Yurbureau LLC was founded in 2006 as an independent legal entity and combined lawyers with experience in different fields of law. The law firm has the prerequisite experience and resources to provide legal support in M&A and real estate transactions, holding structure schemes, representation of client’s interests in arbitration and court proceedings at all levels of jurisdiction, as well as legal support for companies’ business activities. Yurbureau LLC’s expertise includes legal support for projects related to the reduction of greenhouse gases, within the framework of the Kyoto Protocol. The firm’s professionalism and experience in the corporate law field, including investments, enables it to provide legal services of the finest quality.

AREAS OF EXPERTISE ■ Real estate and construction ■ Holding Structures and Antitrust Law ■ Mergers & acquisitions ■ Arbitration court litigation ■ Environment and climate change ■ Securities ■ Employment ■ International sales ■ Maritime and Admiralty Law

ELENA KAZANKOVA YURBUREAU LLC Office # 67, 21/6 Tsvetnoy Bulvar Moscow, 127051 Russia

PARTNERS

Tel: 00 7 495 625 95 24 Móvil: 00 7 926 219 7308

Elena Kazankova Roman Makarov

e.kazankova@yurbureau.ru www.yurbureau.ru

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SPAIN Bankruptcy Law Part one 1. 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 trustee in bankruptcy must be designated immediately. The 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 companies 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 official Registry of Auditors of Accounts and their respective professional associations will present their lists of available persons in December each year for their use from the first 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. That is to say he must avoid always calling in the same people, etc. However, the Judge: 1. May name specific trustees in bankruptcy when the foreseeable development of proceedings demands certain special experience, knowledge or training, relating to ensuring the continuity of business activities or which can be deduced from the complexity of the proceedings. 2. For ordinary proceedings he must designate those who can demonstrate that they have participated in ordinary proceedings or at least 3 shortened proceedings unless the judge considers, giving reasons, that the training and experience of those he designates is ideal due to the specific characteristics of the bankruptcy proceedings. In the case of inter-related proceedings, the judge may name a single trustee of bankruptcy for all and designate delegate auxiliaries.

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In the case of an accumulation of proceedings already opened, the designation may fall on one of the trustees in bankruptcy already in place.

Notwithstanding the above, due to the particularities and the special relevance of the markets of certain companies, bankruptcy law provides for a series of exceptions to the above requirements:

Finally we would point out that any of those persons involved may make their complaints known to the court, prior to the designation, as regards the way the official list works or its requirements or other questions and irregularities regarding the listed persons.

a. In the case of the bankruptcy of an entity which trades shares or derivative instruments on an official secondary market, 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 five 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 Consortium. 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 creditorsâ&#x20AC;&#x2122; representative who is a creditor of the bankrupt company will be appointed. That

2. Which professionals carry out the duties of the trustee in bankruptcy? In general, to be a trustee in bankruptcy, one of the following requirements must be met: 1. Be a serving lawyer with professional experience of at least five 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 five years professional experience and also be able to demonstrate having specialized training in Bankruptcy. 3. Also, a legal entity including at least one lawyer and one holder of an economics or commercial law degree or an accounts auditor. That legal entity must guarantee its independence and that it indeed carries out such activities.

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creditor must demonstrate that he has an ordinary claim or a general, unsecured preference which is among the first largest third of the claims. Therefore, when the total of debts to employees for claims mentioned in the previous paragraph is among the first largest third, the judge may designate the employees legal representative, if one exists, as bankruptcy creditors’ representative 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 administration 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 fields and their responsibilities will be those specified under administration legislation. It is also important to underline that neither those who are not eligible to be administrators of public companies or public limited companies nor those who, in the previous three years, have provided any type of professional services to the debtor, nor persons 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, first 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 office address, telephone number and e-mail address so that the creditors can contact him. His duty is to analyse the bankrupt’s situation in all areas – financial and legal – in an attempt to look for solutions to save the company from bankruptcy. The 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.

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The 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 creditors, both those included and those excluded. The list must classify the claims and in general show the situation of the company as regards accounts and finance and whether in his view it is a viable concern or should be liquidated.

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

Part two 1. When should you file for bankruptcy? When you find 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 filing for bankruptcy? Yes. Two months from when you became aware of your insolvency.

3. Can an individual person file for bankruptcy?

Trustees in bankruptcy will be answerable to the debtor and the creditors for damages caused to the estate due to acts and omissions which are either against the Law or negligently carried out.

Yes.

They will also be jointly liable, together with their delegated auxiliaries 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.

The company’s administrator must do so.

This liability of the trustees in bankruptcy will expire after four years from when the person carrying out the acts being claimed

4. In the case of a legal entity, who should file for bankruptcy? 5. What happens if you do not file for bankruptcy? The company’s administrator could be disqualified from the duties of administrator for a period of time. He may also be liable to respond for liabilities with his own personal assets.

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

18. Is it possible to negotiate a reduction of the debts payable and pay in instalments?

Yes.

Yes, through “releases” which are reductions of the credits and “moratoria” which is a time period for making payments.

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

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

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

20. What effects result from the bankruptcy liquidation request?

It depends. If it is the company owner who files for bankruptcy, no you don’t. But if it is a creditor who files, then a trustee of bankruptcy substitutes the company administrator and suspends the owner’s decisions.

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.

9. How long do the bankruptcy proceedings last?

21. Who is in charge of elaborating the bankruptcy liquidation plan?

This depends on many factors: delays in the courts, the existence of a large number of creditors and that they file claims etc. It may last from a year and a half to several years.

The trustee in bankruptcy.

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

Yes.

22. Can the debtor or the creditors propose any suggestions regarding the bankruptcy liquidation plan?

Yes.

23. Who has the final decision on whether this goes into effect or not?

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

The Judge.

Yes. If an agreement is reached and is held to, then there is no need for bankruptcy to be filed for.

12. I am the administrator of a company and the partners do not wish to file for bankruptcy. What can I do? The administrator is legally obliged to file 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 filing 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 “liable”? The judge will consider the administrator is liable if he has not filed for bankruptcy within the time limit or has failed to fulfil the agreement with the creditors.

17. How do bankruptcy proceedings end? They 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.

24. What happens if the judge does not approve the bankruptcy liquidation plan? Then, 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 files 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 after the declaration of bankruptcy is published in the BOE (official 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 information 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. This is not necessary but it is recommended since during the proceedings matters may arise about which it is useful to be informed in order to be able to play an active part.

29. Where do I have to go if I want to file 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 after bankruptcy proceedings? Regardless of the type of proceedings (fortuitous or liable) the debtor may be prosecuted if his actions constitute a criminal offence.

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BALMS ABOGADOS ESPAÑA BALMS GROUP INTERNATIONAL

Established in 1989, Balms Abogados is a multi-disciplinary law firm specialized in Public and Private Law. Balms Abogados has offices in Marbella, Madrid, Vigo and Barcelona. Also, Balms Abogados through its international network, Balms Group International (BGI), has offices in over 20 countries providing worldwide leal services to meet each client specific 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 difference. 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 certified with the System of Quality and Environmental ISO Management 9001 and ISO 1400. In addition to our effort, we are also devoted to charity actions through our foundation “Fundación Balms para la Infancia”, a non profit organization dedicated to provide financial aid, assistance and protection to children in Peru and Colombia.

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PARTNERS Juan Luis Balmaseda de Ahumada y Díez Julio Aguado Arrabé Katja Blackmer Óscar Gómez Monasterio

AREAS OF EXPERTISE

Jorge Martín Losa Antonio Heredero González-Posada Javier Pascual Garófano Juan Camacho Vázquez

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BALMS ABOGADOS MARBELLA

BALMS ABOGADOS GALICIA

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C/ Generalife 9 – Aloha Pueblo 29660, Nueva Andalucía Marbella, España Tel: 00 34 952 81 21 00 Fax: 00 34 952 81 27 67 balms.marbella@balms.com jlbalms@balms.com

C/ Reconquista 9, entresuelo 36201 Vigo, Pontevedra, España Tel: 00 34 986 44 31 43 Fax: 00 34 986 44 60 23 balms.vigo@balmsgalicia.com aheredero@balmsgalicia.com

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BALMS ABOGADOS MADRID

BALMS ABOGADOS CATALUNYA

Pº General Martinez Campos 49, 6º 28010 Madrid, España Tel: 00 34 91 702 01 56 Fax: 00 34 91 702 01 57 balms.madrid@balms.com jorgeml@balms.com

Paseo de Gracia 116 Bis, 4ª Planta 08008 Barcelona, España Tel: 00 34 93 311 3999 Fax: 00 34 93 311 3862 balmsabogados@balms.com www.balmsabogados.com

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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 finance Shareholders/Company disputes Agency and Distribution Agreements Shipping and Maritime Law Tax Law New Technologies Law EC & Competition Law Contract Law Corporate financing, disposals, parthership formation Environmental Law Telecommunications & Media Law Banking Law Litigation and arbitration

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UNITED KINGDOM Bankruptcy Law

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

Part one

There are essentially two possibilities:

1. 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 after a bankruptcy petition has been presented. It is usually presented either by the individual (known as a debtor’s petition) or by one or more of the individual’s unsecured creditors who are owed £750 or more. There 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 directors 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 company decide to put the company into liquidation but there are not enough assets to pay all the creditors ie the company is insolvent.

a. The Official Receiver (often referred to by the initials ‘O.R.’) is appointed by the Secretary of State and is an officer of the Court. b. An Insolvency Practitioner (often 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 assets and distribute them to the bankrupt’s creditors in accordance with priorities specified in the Insolvency Act 1986. The 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. The 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 meeting of creditors, and consists of at least three and not more than

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five elected creditors or their representatives. The committeeâ&#x20AC;&#x2122;s purpose is to protect and promote the interests of the creditors and, where appropriate, the shareholders. The trustee or liquidator must write a report for the committee at least once every six months. The trustee or liquidator must keep separate financial 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 two 1. When should you file for bankruptcy? After 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 filing 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?

3. Can an individual person file for bankruptcy? Yes.

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

5. What happens if you do not file for bankruptcy? Someone else might step in instead, such as a creditor. The 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 ÂŁ750.

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. The liquidator takes over.

9. How long do the bankruptcy proceedings last? A bankruptcy order lasts for 12 months, save in exceptional circumstances. The 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.

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11. Is it possible to negotiate the outstanding payments before filing 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 creditors (an individual voluntary arrangement or IVA). 75% of unsecured creditors by value must approve a voluntary arrangement.

12. I am the administrator of a company and the partners do not wish to file for bankruptcy. What can I do?

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 after 12 months in the case of an individual. There 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 payable and pay in instalments?

Very little, except to advise the directors of your concerns that they may be trading whilst insolvent.

Not after the declaration of bankruptcy or the making of a winding up order. There is potential for a CVA or an IVA before the bankruptcy or winding-up order is made.

13. As a mere partner of the company, can I be responsible for the debts?

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

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 filing 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 individual or company prior to their bankruptcy or liquidation, the

Companies in the UK are placed into liquidation not bankruptcy. There are other forms of corporate insolvency such as administration which can be converted into a liquidation when the administration process is complete.

20. What effects 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 liquidation plan? The phrase ‘bankruptcy liquidation plan’ is not used in the UK. The liquidator controls the progress of the liquidation (but see below on the role of the creditors committee).

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22. Can the debtor or the creditors propose any suggestions regarding the bankruptcy liquidation plan?

27. What happens if I do not provide my credit information within that time limit?

Yes, through the creditors committee. The committee’s principal functions are to sanction the exercise of certain of the trustee’s or liquidator’s powers and to fix his remuneration.

You are likely to lose certain voting rights.

23. Who has the final decision on whether this goes into effect or not? The 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? There 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.

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

29. Where do I have to go if I want to file a lawsuit against the company who has entered into bankruptcy? The 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 after 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.

25. What should I do in the case that someone who owes me money files for bankruptcy? You should file 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.

The Insolvency Laws in the United Kingdom are complex. This note is intended as a general guide to a number of specific questions. Detailed advice should be sought where necessary. Please contact Mark Summerfield +44 20 7317 8681 or mark@solts.co.uk.

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SOLOMON TAYLOR & SHAW BALMS GROUP INTERNATIONAL

Solomon Taylor & Shaw brings all the experience and capability of a City of London law firm, with the responsiveness and personal attention of a smaller practice. The 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. The firm offers a truly personal service to all of its clients. It prides itself on being highly commercial and forward-thinking. The commercial property team deals on a regular basis with high-value and complex transactions. The team’s work includes investment, development and dealing with commercial leases for both landlords and tenants. The 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.

AREAS OF EXPERTISE ■ ■ ■ ■ ■ ■ ■ ■

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

The 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. The firm has particular expertise in property and/or construction-related litigation, contractual disputes, privacy and media work, and insolvency-related disputes. The firm offers mediation services and one of the partners is a CEDR Chambers mediator.

SOLOMON TAYLOR & SHAW PARTNERS Scott Atkinson Ari Bloom Jeremy Harris Nick Mills Declan O’Brien Karen O’Brien

Gary Phillips Barry Shaw Mark Summerfield Raymond Taylor Melissa Vangeen

3 Coach House Yard Hampstead High Street NW3 1QF London, United Kingdom Tel: +44 020 7431 1912 Fax: +44 020 7794 7485 mail@solts.co.uk www.solts.co.uk

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URUGUAY Bankruptcy Law Part one I. 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 carrying out business activities and for legal entities and it repeals numerous regulations such as those in the Commercial Code referring to bankruptcy, agreement and moratoria, Civil Code regulations 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 maintained but were restricted to individuals who do not meet the requirements for the law to be applicable. III. Law 18.387 is divided into Headings, which are in turn divided into Chapters. Heading I (“Legal Declaration of Bankruptcy”) contains various regulations concerning requirements for bankruptcy, filing for bankruptcy, regulations regarding the judge competent to hear proceedings, how to process filing, the content of the ruling which declares bankruptcy and provisions covering preventive measures which may be taken.

Heading IX regulates objections to the classification of the proceedings.

Heading II covers the figure of trustee in bankruptcy and the auditor.

Heading X contains regulations on suspending and finalizing the proceedings.

Heading III contains regulations on the effects of bankruptcy proceedings on the debtor, creditors, claims and contracts.

Heading XI provides for the possibility of private reorganizing agreements being signed between the debtor and his creditors.

Heading IV contains regulations on what makes up the company’s assets and

Heading XII has special regulations for small bankruptcies and leaving the company in the hands of the employees.

Heading V, what constitutes the company’s liabilities with regulations on verifying and classifying claims.

Heading XIII establishes regulations in international private law.

Heading VI regulates the creditors’ meeting and the creditors’ commission.

Heading XV contains various complementary procedural and tax regulations.

Heading VII provides for the possibility of pre-emptory agreements between the debtor and his creditors.

Heading XVI contains temporary and special provisions.

Heading VIII regulates the final stage of the bankruptcy process which begins with a ruling by the Judge to liquidate assets and pay creditors.

Heading XIV defines the crime of “bankruptcy fraud”.

IV. Under current legislation, the trustee in bankruptcy (known in other legal systems as the bankruptcy administrator), is designated by the Judge and even the bankruptcy declaration should contain the designations.

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The trustee in bankruptcy is designated on compulsory bankruptcy proceedings. The auditor is designated in voluntary bankruptcy. In the event of joint filing for bankruptcy, the judge will designate the same auditor as trustee in bankruptcy for all the proceedings. V. The prerequisites for being a trustee in bankruptcy or an auditor 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 auditors. The register will have 30 incumbents and 30 deputies. To form part of this register, it is necessary to be a university educated professional and have a minimum of five years professional 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. The regulations lay down that if graduates of such courses do not exist in sufficient 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. The 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 auditor, for the purposes of convenience, we classify them into duties relating to the administration of the debtor’s assets, reporting functions and others.

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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 sufficient 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 bankruptcy 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. The trustee in bankruptcy is required to take all necessary action to take possession of the official books and all documentation relating to the estate and the professional or business activity of the debtor. The trustee in bankruptcy takes the place of the debtor in jurisdictional and administrative proceedings involving the debtor (except those based on family relationships 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. The obligation to call meetings or shareholder assemblies is suspended. It they were to be held, their decisions must be ratified by the trustee in bankruptcy. The company board’s functions are also suspended. In voluntary bankruptcies, it the assets are sufficient to cover the liabilities, the debtor’s powers are not suspended but they are limited and the auditor is called in to administrate the assets together

with the debtor. This limitation includes certain operations which require the auditor’s authorization. Normal turnover operations may be carried out without prior authorization but under the control of the auditor. The above is the system, in principle, since it may undergo changes 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 specific actions. In order to call a meeting 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 terminated for the reason of bankruptcy proceedings being declared. The 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 provisions, the normal system for dismissal is applicable. The 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 financial and legal history of the debtor, the business/es carried out, offices, establishments and operations owned by him and the causes which led to the current situation; the debtor’s accounts situation including violations of laws and regulations carried out by him; a memorandum 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 liquidation valuation of the company if sold in parts (with the advice of an expert). The trustee in bankruptcy and auditor will take part in defining what are the assets and the liabilities. The provisional verification 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. They 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

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for the bankrupt companies exclusively by the trustee in bankruptcy or auditor, action to obtain the full payment of contributions promised by partners or shareholders and the fulfilment of auxiliary obligations. Even in the event of the assets belonging to the company being insufficient, the trustee in bankruptcy may demand full payment by the partners or shareholders of contributions promised but not made even when the time limit for fulfilling such obligations has expired. There are also provisions for liability action to be taken against administrators, members of the company board and liquidators.

complement this, articles 4 and 5 of the law lays down or distinguishes various situations or facts which are considered absolute 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.

The final trustee in bankruptcy is the person who liquidates all assets and distributes the product between the creditors.

There are contradictory regulations in the law itself as regards who may file for bankruptcy in the case of legal entities.

They are, as a general rule, required to act with the due diligence of an organized administrator, show loyalty and be answerable for their actions.

Although on the one hand (art. 6 section 1) the law sets down that in the case of legal entities filing must be made by the companyâ&#x20AC;&#x2122;s representative bodies with power of representation or by a legal representative with specific powers to do so, on the other hand, it also empowers the administrators to file (art 6 section 3).

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 objective. The subjective one refers to the individual or legal entity who meets certain conditions. The objective one is insolvency.1 As far as the subjective condition is concerned, the legal declaration of bankruptcy is applicable to any debtor, whether an individual carrying out a business activity or a civil or commercial company; business activity is understood to mean an organized, financial, 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 insolvency, this being considered, regardless of the number of creditors, to be a debtor who is unable to meet his obligations. And to

VIII. Once conditions are fulfilled, according to article 6, a declaration of bankruptcy may be filed for by: 1. The debtor himself.

This has led to controversy over this point and most learned thinking considers it convenient that such a fundamental decision for the company should not be left in the hands of an administrator or a board of directors. This decision should be made by the associates or shareholders assembled as is required for all types of company. The 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 insolvent company). 4. Partners who are personally responsible for the debts of civil and commercial companies. 5. Joint debtors, guarantors or endorsers of the debtor.

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.

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6. Stock exchanges and business associations set up as legal entities. 7. In the event of an inheritance, any heir, legatee or executor may file. There is no time limit to file for bankruptcy except in the event that the debtor himself is to file, in which case he is required to

do so in the thirty days after he becomes aware or should have become 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 official 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 differences over the initial causes for filing, whether it is filed 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. The 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 auditors. The 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. The 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. The directors’ liability for all types of company, except public companies, 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). The directors’ 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 shareholders 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 representatives, in the case of legal entities we must make mention of how bankruptcy fraud is typified 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 company account books. In the case of legal entities, it is the partners, directors and legal or effective 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 filed for, the possibility always exists of negotiating the debtor’s outstanding payments and the debtor will be subject to the general regulations governing individual settlement where each creditor may claim payment of his claim individually and not in competition with other creditors. Nor does anything prevent the sale of assets held by the debtor before the bankruptcy is filed 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 simulation will make such disposals of assets unenforceable with regard to creditors, In addition to the fact that they will have an effect the qualification of the bankruptcy. XII. But once bankruptcy is filed for and declared, although the possibility of negotiating payments, reductions or payment schemes with creditors continues to exist, these are subject to the approval of the creditors, and this places us now beyond the scope of the individual.

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Also, all assets will become part of the bankruptcy estate and all actions carried out affecting them are suspended, regardless of any attachments which might exist against them, except privileged 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).

favourable vote from creditors with voting rights representing a larger portion of the debtorâ&#x20AC;&#x2122;s liabilities than those of the smaller portion voting against as long as the favourable votes represent at least one quarter of the debtorâ&#x20AC;&#x2122;s unsecured liabilities once the liabilities without voting rights have been deducted. Greater demands are made when the agreement proposal contains advantages for one or several creditors or types of creditor. XIV. Another important part of the order or declaration of bankruptcy is the call to all creditors to verify their claims.

XIII. The law regulates preventive and preclusive agreements which the debtor might make with his creditors.

Doing so is a voluntary, though necessary act and is one of the duties of the creditor.

Debt reductions and/or payment schemes, assigning assets to creditors, 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.

The time limit to present claims is 60 days counted from the declaration 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 verified by the court and at the cost of the creditor (by way of incidental proceedings) and if it is presented when liquidation 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.

As a general principle, a majority of creditors is required, representing at least the majority of the debtorâ&#x20AC;&#x2122;s unsecured liabilities. The 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 sufficient to have a

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Claims are made by way of a written document to the court (signed 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 classification requested together with original documents or means of proof for accrediting the existence of the claim. XV. The law sets down a system for determining the type of bankruptcy, as an incident, which will be carried out after the creditors meeting when the Judge approves the agreement between the debtor and the creditors or when the liquidation of assets has been resolved upon. The bankruptcy may be classified as liable or unforeseeable (article 192).

It will be classified as liable when, at the time the insolvency situation 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 classified as unforeseeable. In article 193 the law lays down cases for absolute presumption of liability, and lists various specially defined 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, administrators or liquidators being disqualified, 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 understanding 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 affects 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 proceedings 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 files for bankruptcy and creditors representing a majority of the unsecured debts may also request it. This may be decided on in their assembly or outside it.

Regulations are even established for workers’ loans, giving them benefits when they are the company’s own workers and when they meet certain requirements.

It is also acceptable in the event that the debtor has not made any proposal for an agreement, if the creditors’ meeting does not accept a proposed agreement, if the agreement is not approved by the Judge or if the agreement is not fulfilled.

If the company cannot be sold as a unit, then the estate will be liquidated in parts: the liquidation of production units, liquidation of the elements of the company – real estate properties, furniture, rights, public shares, amongst others.

The ruling should first of all suspend the debtor’s right to dispose of or pledge the estate and designate the auditor as trustee in bankruptcy (remember that in voluntary bankruptcy the debtor may dispose of the assets and in compulsory bankruptcy he may not). If the bankrupt debtor is a legal entity, the ruling will declare the entity dissolved and remove the administrators from their positions.

The trustee in bankruptcy must issue a report of the state of the liquidation 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.

The Judge’s ruling must be notified to the members of the creditors committee, if one has been set up. It should be registered and publicized in the same way as the sentence declaring bankruptcy. It is permitted to appeal against it since the Law rules that it should be carried out immediately although it is not final. So, if it is appealed against, this does not stop the process. XVII. There are various ways of liquidating but the Law prioritizes the sale of the company as a unit and as a running concern. It therefore lays down very short time limits in which the company 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 calling for bids, presentation and acceptance of offers and the transfer of the company.

There is no legal regulation governing when liquidation should be completed. It must finish 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. This situation means that the proceedings continue but with the trustee in bankruptcy in a position of passive supervision. XIX. The proceedings will be ended when one of the following conditions is met: 1. The agreement signed is totally fulfilled. 2. Full satisfaction is given to the creditors during the liquidation stage. 3. Ten years has passed since proceedings were suspended. Articles 212 and 213 lay down the conditions and procedures for each cause.

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