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KPMG partner and INSOL board member Richard Heis considers Europe and UK insolvency developments and looks closely at global bank resolution

Bankruptcy proceedings are governed by the Bankruptcy Act, while reorganisation proceedings are governed by the Pre-bankruptcy Settlement Agreement Act. In both cases, bankruptcy and reorganisation, a company must be insolvent to seek relief from creditors. In principle, Croatian legislation is familiar with three insolvency tests: (i) illiquidity; (ii) incapacity to pay; and (iii) over-indebtedness.

The Austrian Insolvency Code provides for bankruptcy proceedings, which lead to the winding-up and liquidation of a debtor company and restructuring proceedings, which seek to rescue a debtor company. Restructuring proceedings may be initiated with self-administration or without self-administration. Only restructuring proceedings under the Insolvency Code may lead to the relief from creditors.

The Cyprus Companies Law is based on the UK Companies Act 1948. It provides four main procedures for dealing with financially troubled companies. In increasing order of formality and finality they are:

A haircut without the explicit consent of a creditor is only possible during insolvency proceedings.

Companies may seek relief from creditors in cases of insolvency due to illiquidity or over-indebtedness, and in cases of apparent threatening insolvency. Debtors may also petition the court to order a protection moratorium, during which insolvency cannot be declared. Stay effects of the impending insolvency are retained in such cases.

A company may seek relief from its creditors, either by filing for bankruptcy (and for the grant of protective measures until the issuance of the decision declaring bankruptcy), in case of either current or threatened cessation of payments, or by pursuing one of the two pre-bankruptcy procedures provided for by the Greek Insolvency Code (GIC): rehabilitation or special liquidation. In order to file for rehabilitation, a company must be in a situation of current or threatened general inability to perform its due monetary obligations, while to file for special liquidation, current or threatened cessation of payments is a prerequisite.

A company may seek relief from its creditors whether it is solvent or insolvent. The solvency test in France is a cash-flow test. A company is insolvent (cessation de paiements) if it cannot make payment of a debt which is due and payable with its available cash and liquid reserves within the grace period granted by the relevant creditor.

The form of relief a company may seek from its creditors that may allow for the company's continued survival is relief through the examinership process. One of the five preconditions to the appointment of an examiner is that the company be insolvent or likely to be insolvent.