Reorganisation (restructuring) of a company helps the company to avoid bankruptcy proceedings and liquidation. Reorganisation is meant above all for companies whose activities could be made better through restructuring – new procurement opportunities, reducing number of staff, finding new markets etc.
Initiating reorganisation
Reorganisation proceedings take place in several stages. Reorganisation proceedings are conducted with regard to legal persons in private law.
To initiate reorganisation, a reorganisation application shall be submitted by the undertaking to a country court explaining the reasons for the economic difficulties and the need to reorganise the enterprise, and stating that the sustainable management of the enterprise is likely after the reorganisation.
The following shall be appended to the reorganisation application:
- a financial statement for the previous financial year;
- an overview of the financial situation, economic results, and cash flows of the undertaking;
- a list of debts as at the date of submission of the reorganisation application.
The list of debts shall set out the name and details of the obligee, the amount of the principal claim and the collateral claim, and information concerning the assets of the undertaking.
Reorganisation proceedings are not commenced in court if bankruptcy proceedings have been brought against the undertaking, a court ruling concerning the compulsory dissolution of the undertaking has been made or supplementary liquidation is carried out, or less than two years have passed from the termination of reorganisation proceedings regarding the undertaking.
If an application for the commencement of bankruptcy proceedings and reorganisation proceedings are submitted with a court at the same time, the applications are joined for one procedure and heard by the court with whom the first application is submitted.
On the initiation of reorganisation proceedings, the court shall appoint a practitioner in the field of restructuring after hearing the company’s view. The court is not bound by the company’s view when making its decision. If the court has appointed several practitioners in the field of restructuring, but has not determined the division of their duties, the practitioners in the field of restructuring shall perform their duties on the basis of a mutual agreement and cooperate fully in the re-structuring proceedings.
You can read about the duties of a person acting as a restructuring practitioner in section 15 of Reorganisation Act.
An undertaking is obliged to provide the court and the reorganisation adviser with information they need in connection with the reorganisation proceedings and help the reorganisation adviser in the performance of their duties. If an undertaking fails to perform the obligations, a court terminates reorganisation proceedings.
Reorganisation decision
After the petition is submitted, the court initiates the reorganisation decision, listing:
- data on the person appointed reorganisation adviser
- term for adoption of the reorganisation plan
- term for submission of the reorganisation plan to the court (within 60 days)
- amount payable by the undertaking for covering the remuneration for the reorganisation adviser and payment term
Consequences of the commencement of reorganisation proceedings
The consequences of the commencement of reorganisation proceedings are as follows:
- the court suspends enforcement proceedings conducted regarding the assets of the undertaking until the reorganisation plan is approved or reorganisation proceedings are terminated, except in the case of enforcement proceedings conducted to fulfil a claim arising on the basis of an employment relationship or a claim for support;
- calculation of a late payment interest or a contractual penalty which increases in time on claims against the undertaking is suspended until the approval of the reorganisation plan;
- a court hearing the matter may, on the basis of the application of an undertaking and the approval of the reorganisation adviser which is appended to the application, suspend court proceedings regarding a financial claim against the undertaking until the approval of the reorganisation plan or termination of the reorganisation proceedings, except in the case of a claim filed on the basis of an employment relationship or a claim for support, regarding which decisions have not yet been made;
- on the basis of a bankruptcy petition of an obligee, a court suspends deciding on the commencement of bankruptcy proceedings until the approval of the reorganisation plan or termination of the reorganisation proceedings.
A reorganisation adviser promptly notifies the obligees of the commencement of reorganisation proceedings and the amount of the claims that they have against the undertaking according to the list of debts.
Reorganisation plan
After the commencement of reorganisation proceedings, a reorganisation adviser prepares a reorganisation plan in the name of the undertaking. The reorganisation plan shall, inter alia, set out the following:
- the description of the economic situation of the enterprise as at the commencement of reorganisation proceedings and the analysis of the reasons which have brought about the need to reorganise the enterprise;
- the expected economic position of the enterprise after reorganisation;
- the term for compliance with the reorganisation plan;
- the description of the reorganisation measures to be implemented and the analysis of their purposefulness, including the description of and justification for the transformation of a claim of an obligee;
- the impact of the reorganisation plan on the employees of the enterprise.
At least two weeks before the expiry of the term for acceptance of the reorganisation plan and the term for submission of the plan to the court for approval, the draft reorganisation plan is delivered to the obligees for examination and for an opinion.
The obligees accept the reorganisation plan by way of voting at a meeting or without holding a meeting pursuant to the procedure set out in the Reorganisation Act.
A court approves or refuses to approve the reorganisation plan. It is possible for the court to approve a reorganisation plan accepted or not accepted by the obligees. A court can terminate reorganisation proceedings by refusing to approve the reorganisation plan.
Implementation of the reorganisation plan and termination of proceedings
Upon approval of the reorganisation plan, the legal consequences prescribed in the reorganisation plan apply to the undertaking and the person whose rights are affected by the reorganisation plan. The reorganisation plan does not apply to an obligee to whom a reorganisation notice or a draft reorganisation plan has not been delivered for examination and for an opinion or who, for any other reason, is not aware of the conduct of reorganisation proceedings.
A reorganisation adviser shall exercise supervision over implementation of the reorganisation plan. A reorganisation adviser shall, at the end of every six months, submit to the creditors and the court a report describing the economic position of the enterprise, implementation of the reorganisation plan, and other facts of relevance to the creditors.
After the approval of a reorganisation plan, fines for delay and contractual penalties on claims which are not transformed by a reorganisation plan shall be calculated according to the original legal relationship.
During the term of validity of a reorganisation plan, statements of claim cannot be filed on the basis of the claims to which the reorganisation plan applies. A bailiff continues judicial and enforcement proceedings of claims regarding which the reorganisation plan does not apply and which were suspended as a result of the commencement of reorganisation proceedings.
During company reorganisations, the debtor retains the right of disposal of their assets.
Reorganisation proceedings shall terminate on premature termination of the proceedings, revocation of the reorganisation plan, implementation of the reorganisation plan before the due date or on expiry of the term for implementation of the reorganisation plan which is set out in the reorganisation plan.
More detailed info about insolvency proceedings can be found at the European e-Justice Portal.