Reorganisation of companies prior to insolvency

At the end of February 2016, the Ministry of Justice introduced a draft amendment to the Commerce Act (the "Amendment").

Amongst the other proposed changes, the Amendment will introduce a procedure for the reorganization of companies prior their insolvency proceedings.

The new chapter, entitled "Corporate Rehabilitation Proceedings?", is similar to the arrangement schemes in the UK and Chapter 11 in the US. The main goal of the procedure is prevent insolvency, especially in case where there is a risk for the company to be unable to settle its obligations. The Amendment lists detailed scenarios when the reorganization procedure shall be commenced, and the type of entities that it applies to. It should be noted that companies having shareholder loans to unreasonable extent would not qualify for employing the procedure. Banks and insurance companies are also excluded from the provisions of the Amendment.

Further, the Amendment has detailed the proceedings that will take place and the respective competent courts. The rights and obligations of the interested parties are listed in depth, whereas the provisions of the Civil Procedure Code will apply in general. The Amendment has further provided the steps that need to be taken and the rules that need to be considered when preparing the reorganization scheme of a company.