The reform of the Insolvency Act seeks to safeguard both the interests of creditors and the rights of debtors. This means that, in principle, companies that are forced to file for insolvency proceedings in order to resolve their insolvency situation do not have to interrupt their activity for the duration of the insolvency proceedings.
Without prejudice to the precautionary measures that may be adopted by the judge when declaring the insolvency proceedings to guarantee the correct development of the insolvency proceedings and to protect the rights of the creditors, the insolvent party may carry out the acts that are essential for the continuation of its business activity. Even if the liquidation phase is reached, the law allows the continuation of the debtor’s professional or business activity if this is in the interests of the insolvency proceedings.
However, this decision is subject to the approval of the insolvency judge. The ultimate goal is always to reconcile the interests of the insolvent party and the creditors, ensuring the proper development of the insolvency process and the satisfaction of legal obligations.
Conditions
In order to be able to continue the business during the insolvency proceedings, a number of conditions must be met:
- The insolvent company must accept the insolvency administration. This will be responsible for supervising its actions to ensure compliance with legal obligations and to protect the interests of creditors.
- It may only continue with those acts which are indispensable for the continuation of its business.
- These acts must be in line with normal market conditions, must not harm the interests of creditors and must be subject to the supervision and control of the insolvency administration and the insolvency judge.
Voluntary vs. necessary insolvency proceedings
The conditions change depending on whether the insolvency proceedings are voluntary or necessary:
- In voluntary insolvency proceedings, the insolvent company retains the powers of administration and disposal of its assets, but always under the supervision of the insolvency administration.
- In an insolvency proceeding, the insolvent company’s powers of administration and disposal of its assets are suspended. These are taken over by the insolvency administration. It is the insolvency administrator who is responsible for the continuity of the company’s business activity.
What does the supervision of the insolvency administration and the insolvency judge consist of
The scope of intervention only extends to the assets and rights that are part of the insolvent party’s assets. However, at the request of the insolvency administrator, the judge may, at any time, issue a court order changing or even suspending the insolvent party’s powers over its assets. In this case, the insolvency administrator replaces the insolvent party in the exercise of his powers.
The general authorisation of the administrator
In order to speed up the acts, the Insolvency Act also provides for a general authorisation of the administrator for the acts or operations that are intervened. This avoids the administrator having to authorise each and every one of the specific acts that the insolvent party has to carry out.
However, the acts remain under the supervision and subsequent control of the insolvency administrator. He can annul acts that have not been authorised. Either on his own initiative or at the request of creditors who have been affected by them.
In a nutshell
The ultimate aim of the Insolvency Act is to safeguard both the rights of debtors and the interests of creditors. To this end, it creates a regulatory framework that allows the continuity of professional or business activity during insolvency proceedings. However, provided that the established requirements are met and the acts are subject to the supervision of the insolvency administrator.
If your company is close to filing for insolvency proceedings, Confianz’s specialist team can help you get through it in the best possible way.