Stabilization Proceedings for Companies
In the last few years, the number of insolvency proceedings initiated against companies continuously increases. Thus, the question how could a bankruptcy proceeding be avoided arises. The adoption of the new voluntary stabilization proceeding for companies in the Commerce Act, effective as of 1 July 2017, will aim to provide a solution to this issue.
The new proceeding provides an option for an agreement between a company and its creditors to fulfil its obligations, resulting in the continuation of a company’s operations as a going concern by preventing bankruptcy proceedings. A prerequisite is the company to be in imminent danger of insolvency. The procedure is expected to last no more than five months, and it cannot be initiated by a creditor, but only by the company itself.
The activity of the company in the last three years prior to the stabilization’s application is an important factor for the successful admission to stabilization proceeding. The court will examine whether companies have regularly published their financial statements during the period, whether they have avoided onerous contracts with related parties, whether they have concluded gratuitous transactions or transactions affecting their property, etc.
Lastly, it should be pointed out that unlike insolvency proceedings, stabilization proceedings do not provide many opportunities for creditors to actively participate in the process and to protect their interests.