Bill to hold bankruptcy petitions due to CORONA

The Cabinet has introduced a bill with a temporary ability for the court to stay the processing of bankruptcy petitions, suspend redress actions and grant payment deferrals in connection with CORONA.

Apprehension of bankruptcy petition

A business owner facing a bankruptcy petition filed against it is given the opportunity to ask the court to stay the proceedings of this bankruptcy petition. If this stay request is granted, it will also have the effect of granting the debtor a stay of payment vis-à-vis the creditor who filed the bankruptcy petition. The aim here is to ensure that business owners is given the opportunity to restart its business after the relaxation of restrictive measures. Furthermore, the moratorium does not affect the consequences of non-performance by the debtor: interest and penalties can continue to accrue and there remains the possibility of suspension by the creditor or dissolution of the agreement, if necessary. "Ordinary" law, therefore, continues to apply.

The court will grant an arrest petition if:

• the business owner is temporarily unable to meet its payment obligations due to a lack of cash;
• such liquidity distress has arisen primarily or exclusively because the business owner has been unable to (fully) continue its business operations due to the coronavirus outbreak or the restrictive measures declared by the government in connection therewith since March 15, 2020;
• before the coronavirus outbreak or the declaration of restrictive measures, there were no financial problems;
• the business of the business owner has earning capacity and future prospects; and
• the creditor who filed the bankruptcy petition is not materially and unreasonably prejudiced in his interests by the stay.

This thus gives the court the necessary discretion, but the debtor against whom the bankruptcy petition has been filed will thus have to meet a proper burden of proof and also make or prove the necessary plausible.

Partial deferral of payment

The debts for which bankruptcy has been filed are temporarily put "on hold," but if the debtor enters into new obligations or a new payment term expires on a current contract (for example, an employment, lease or rental agreement), he must be able to satisfy them. This prevents the debtor's debts from increasing further during the payment moratorium.

Directors' liability on the debtor's side

Other debts to other creditors must also be "simply" paid. But this will still be slippery ice for a debtor. Which creditor do you pay and which do you not pay if you know that bankruptcy has been filed and/or that bankruptcy is imminent? There are cabinets full of literature and case law on this issue of directors' liability. Good advice from an expert insolvency lawyer is indispensable because it strongly depends on a case-by-case basis whether there is sufficient and well-founded justification to "favor" one creditor over the others in times of liquidity distress.

Measures on the creditor's side

If the arrest petition is granted, the business owner debtor may also ask the court to order that the creditor or creditors who filed the bankruptcy petition may also not exercise their power of recourse against assets belonging to the debtor's estate or to claim assets under the debtor's control without the court's authorization. Any attachments requested can be reversed through summary proceedings. This is already possible under current law, but with this law the corona virus has become an additional argument for this. The judge in summary proceedings (preliminary relief judge) will check the same criteria as the bankruptcy judge. 

Source : Senate