A moratorium on bankruptcies
The measures taken under COVID-19 put many companies in financial difficulties. According to Graydon, 34 percent of all companies would not be able to handle the corona crisis if the lockdown were extended until May 3. For another 40 percent, the danger is less acute although they can barely survive.
The federal government is aware of the fact that the measures taken have for various companies greatly increased the risk of bankruptcy. Firms in difficulty could potentially rely on the protection afforded through the judicial reorganization procedure. However, due to the current measures, it is feared that they will not always be able to be obtained it in time as a result of a rush on the companies courts.
To deal with that, a moratorium on bankruptcy proceedings would be introduced. A pragmatic arrangement would be implemented whereby all companies subject to insolvency law would automatically and temporarily obtain a legal suspension. A company in difficulty would thus be protected against seizures, could not be declared bankrupt and would not be required to file for bankruptcy. Furthermore, the current agreements cannot be terminated unilaterally or in court due to default.
Payment terms would be extended for ongoing judicial reorganization procedures. The companies court will however, at the request of a creditor, be able to temporarily lift the suspension in case of abuse.
The exceptional measures are only intended for companies that were still in a good financial situation prior to the corona outbreak. It would only apply to companies that did not face any problems before 18 March, but that are now in difficulties due to the lockdown.
As soon as the new regulation has been issued, we will further inform you of the conditions and procedures to make use of these special measures in order to obtain protection against its creditors.
EY Law has extensive experience in guiding companies in difficulty. You can always contact us when you are facing payment difficulties to discuss the possible options for protecting your company. We can of course also assist you if one of your business partners ends up in a judicial reorganization procedure.
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