Regional Updates: Insolvency considerations, insolvency moratorium

With the on-going coronavirus situation continuing to escalate, some jurisdictions are already examining insolvency moratorium as an interim measure to prevent an epidemic of insolvencies. Below is a bullet point summary regarding the Czech Republic, Hungary, Poland, Romania and Slovakia. No further details have been released at the time this paper was prepared.

Czech Republic

• Companies´ directors have a legal obligation to file for insolvency if according to their professional opinion the respective company meets one of the statutory insolvency tests;
• The duty is not only a fiduciary one (with the directors being personally liable for breach thereof) but can, in extreme cases, give rise to criminal prosecution;
• The debtor´s directors also need to bear in mind that any conduct on their part which is without due consideration, unfairly prejudicial to other creditors or intentionally detrimental towards a creditor can be challenged (depending on the circumstances) up to five years before the commencement of insolvency proceedings – thus the debtor´s directors need to weigh the interest of creditors and ensure a non-prejudicial approach;
• Two insolvency tests exist: (i) the balance sheet test (general over-indebtedness when aggregate liabilities are greater than aggregate assets) or (ii) the “plurality of creditors” test (at least two creditors with claims more than 30 days past due which the debtor is incapable of satisfying);
• Although at present no mandatory insolvency moratoriums are being discussed on the legislative level, professional organizations and business platforms are already engaged in draft preparations (generally modelling the approach after Germany, i.e. a moratorium on the requirement for qualified debtors to file for insolvency and corresponding waivers vis-à-vis directors obligations), which however are still at a very early stage.

Hungary

• Companies’ directors do not have the explicit obligation to file for insolvency even if the company meets any of the insolvency tests;
• However debtor’s managers are obliged to consider creditors’ interest interests in a distressed, ‘pre-insolvency’ situation and make necessary steps;
• The two main insolvency tests are: (i) the cash flow test (a claim of a creditor more than 20 days past due is not paid), and (ii) the balance sheet test (general over-indebtedness when aggregate liabilities are greater than aggregate assets, this is applied only in case the debtor filed insolvency against itself);
• At present no mandatory insolvency moratorium is place.

Poland

• Companies´ directors and representatives have a legal obligation to file for insolvency if the company meets one of the insolvency tests;
• Failure to do so may lead to liability for damages, as well as, in extreme cases, criminal prosecution;
• Some actions of the company during financial distress, e.g. done without consideration or unfairly privileging a creditor may be challenged or found ineffective during a subsequent insolvency;
• Two insolvency tests exist: (i) the balance sheet test (general over-indebtedness when aggregate liabilities are greater than aggregate assets, and such a situation continues for over 24 months) or (ii) the cash flow test (when the debtor is no longer able to discharge its debts in a timely manner; this is deemed to be the case when there are at least two creditors with claims more than three months past due, which the debtor is incapable of satisfying);
• Debtors are strongly encouraged to consider instigation of formal restructuring proceedings, as a way to avoid insolvency, provided that their financial situation still makes them eligible for making use of those types of proceedings;
• At present no mandatory insolvency moratorium is place.

Romania

• Companies´ directors and representatives have a legal obligation to file for insolvency if the company meets one of the insolvency tests;
• Failure to do so may lead to liability for damages, as well as, in extreme cases, criminal prosecution;
• The law sets a minimum threshold value for the outstanding debts of lei 40,000 (approx. 9,000 eur) as a condition for filing the insolvency claim by both the debtor or the creditors;
• Two insolvency tests exist: (i) the cash flow test (a claim of a creditor of more than 60 days past due is not paid), and (ii) the balance sheet test (general over-indebtedness when aggregate liabilities are greater than aggregate assets, within maximum 30 days from the moment when the state of insolvency emerged, this is applied only in case the debtor filed insolvency);
• At present no mandatory insolvency moratorium is place.

Slovakia

• Companies´ directors have a legal obligation to file for insolvency if according to their professional opinion the respective company meets one of the statutory insolvency tests;
• The duty is not only a fiduciary one (with the directors being personally liable for breach thereof) but can, in extreme cases, give rise to criminal prosecution;
• Companies´ directors also need to bear in mind that any conduct on their part which is without due consideration, unfairly prejudicial to other creditors or intentionally detrimental towards a creditor can be challenged (depending on the circumstances) up to five years before the commencement of insolvency proceedings – thus the debtor´s directors need to weigh the interest of creditors and ensure a non-prejudicial approach;
• Two insolvency tests exist: (i) the balance sheet test (general over-indebtedness when aggregate liabilities are greater than aggregate assets) or (ii) the “plurality of creditors” test (at least two creditors with claims more than 30 days past due which the debtor is incapable of satisfying);
• Act on certain measures connected to coronavirus in the justice area prolonged statutory period for debtor´s insolvency application to 60 days for insolvencies occurred between 12 March and 30 April 2020.