Many companies will likely be forced to deal with debts and liquidity issues – one must act smart and promptly to keep the problems from snowballing,
Advice to creditors
Stop the snowballing effect!
- Set the credit limit and ask for advance payments
First, take a good look at the credit limits you have set for your clients. In order to keep liquidity, it would be wise to set a credit limit for each client. Once the client reaches the limit, no longer provide goods or services to the client, unless advance payment is made. This will avoid larger debts and sets an alarm system in place.
- Setting up guarantees and collateral
If credit limits and advance payments are not an option, a guarantee given by a shareholder or board member on behalf of the buyer may help. Or, you could require collateral from the parent company. That way you will be more likely to receive payment and the guarantor will also be more interested in resolving any problems that may arise, as guaranteed obligations will be prioritised.
- Fast invoicing
Consider sending invoices more often than once a month, allowing you to notice any payment problems sooner.
- Notarially attested payment schedules
Once debts have occurred, it is advisable to communicate with the debtor in order to get a better understanding of their behaviour. If the debtor is actively dealing with payment difficulties and searching for solutions to overcome payment difficulties, the creditor could propose a long-term notarially attested agreement with a payment schedule in the form of a notarial deed, which includes a clause that the deed would be subject to compulsory enforcement.
If the debtor fails to pay on schedule, the creditor will be able to apply to the notary for compulsory enforcement of the agreement and the payment schedule and, as a result, obtain a notarial deed of enforcement, to be handed over to a bailiff for enforcement without court proceedings. Although it takes longer for the creditor to receive payments, it also provides increased security and in the long run the debt will be paid. If the debtor wishes to save his company, it will give him a chance to do so.
- Using a pledge to extend payment deadlines
Another way to guarantee debts is to use a pledge. For example, extending payment deadlines can be tied to a mortgage on the debtor’s property or a commercial pledge on the debtor’s enterprise or movable assets. If the debtor’s shareholder owns shares in another company, these shares can be pledged as collateral, as well.
Advice to debtors
When facing insolvency proceedings, react promptly!
Currently, creditors are prohibited from filing for insolvency of debtors until 1 September 2020. However, this term is not far away and the debtor should be prepared to act.
Creditors seldom start insolvency proceedings after serving an insolvency warning, since it does not serve their interests, but it may indeed happen. Once the creditor does, you should present your substantiated arguments opposing the claim that the insolvency petition is based on, and do it within three weeks from the date the warning was issued to you or handed over to the post office for delivery.
If you miss this deadline, the creditor may apply to the court for insolvency. If the creditor files for insolvency and the court initiates insolvency proceedings, you may still present grounded objections to the court or, if the claim is justified, pay it prior to the court hearing, to avoid insolvency.
Management’s obligations to file for insolvency
A company’s management must file for insolvency promptly if the company has not honoured its obligations which are more than two months overdue.
If the management board fails to file for insolvency on time, this may lead to administrative liability for the management board members, including a monetary fine and a prohibition on holding certain positions in companies. If, eventually, insolvency is declared (e.g. upon a creditor’s insolvency petition), the insolvency administrator can file an action for damages against the board members.
Advice to creditors in insolvency proceedings
File your claim on time and pursue the case!
To use the opportunities provided by insolvency and legal protection proceedings, you must act promptly and pursue your interests actively.
In insolvency proceedings, it is important to follow the deadline for filing your claim (a month after an entry has been made in the Insolvency Register regarding commencement of insolvency proceedings). If this deadline has been missed, the claim can be filed later, within six months, but not later than the day when the plan for settling creditors’ claims has been drawn up. However, you will then not be granted voting rights at the creditors’ meeting.
A creditor should be active during insolvency proceedings, examine and, if necessary, object to the documents sent by the insolvency administrator to the creditors (a plan for sale of the debtor’s property and others) and cooperate with the insolvency administrator in order to get the best outcome from the insolvency proceedings.
If you feel that the process is a waste of time, don’t rush to conclusions. Each case is different, and so are the options to improve your chances.
Sometimes, an insolvent company has conducted transactions shortly before filing for insolvency, harming creditors’ interests. In these cases the insolvency administrator has legal tools to revoke those transactions. Also, if the company’s assets have been transferred, the insolvency administrator may turn the claims against the company which received the assets, or it may be possible to file a claim against a member of the management. Use of such tools might help to increase the insolvency estate and satisfy creditors’ claims to a larger extent.
When can legal protection proceedings be used?
If payment difficulties are not permanent, legal protection proceedings would be the right option to choose. The key for success is the management’s faith in restructuring and their ability to cooperate with creditors, since this will determine the outcome of any restructuring plan.
To restructure claims, payment schedules can be put into place, deadlines can be changed, or claims can be reduced. Tax receivables can also be restructured and reduced, as the tax authority will also participate as a creditor in the restructuring proceedings.
Creditors can greatly influence the process of drafting a restructuring plan (a plan of measures of legal protection proceedings). This requires the consent of unsecured creditors whose principal claims comprise more than half of the total amount of principal unsecured creditors’ claims and secured creditors whose principal claims comprise at least 2/3 of the total amount of principal secured creditors’ claims.
As a creditor, always find out if your claim is included in the restructuring plan, since this will determine your rights in the legal protection proceedings.