Creditors and claims in insolvency proceedings

The court’s decision to open insolvency proceedings under Article 630 of the Commerce Act takes immediate effect against everyone. It initiates collective enforcement against the insolvency estate, that is, the debtor’s assets available for seizure, and excludes individual enforcement under the Code of Civil Procedure (Article 638 of the Commerce Act). Apart from the statutory exceptions for public claims within six months of the opening of insolvency proceedings (Article 193(4) of the Tax and Social Insurance Procedure Code) and claims secured under the Special Pledges Act (Article 719 of the Commerce Act), creditors can from that point obtain satisfaction only in the insolvency proceedings. Whether payment is obtained under a restructuring plan or through the realisation of assets, the claimant must first be recognised as a creditor in those proceedings. Recognition in turn depends on the creditor exercising the right to lodge the claim. Article 687 of the Commerce Act makes an exception for two categories that the insolvency administrator admits of their own motion: public claims established by a final act and employment claims. Even in those cases, if the administrator does not admit the claim of their own motion, the creditor protects its rights by lodging the claim. Creditors whose claims arose before the decision to open insolvency proceedings, sometimes called creditors with pre-existing claims, have only a short time to lodge them. Article 685(1) sets an initial period of one month from entry of the opening decision in the Commercial Register. Article 688(1) allows a further two months. Once those periods expire, the procedural right to lodge the claim is lost under the second sentence of Article 688(1). The creditor can then neither enforce the claim collectively under Part IV (‘Insolvency’) of the Commerce Act nor pursue individual enforcement under the Code of Civil Procedure, which the insolvency proceedings preclude.

Since creditors’ claims are established and satisfied within the insolvency proceedings, Article 637(6) of the Commerce Act prohibits new court or arbitration proceedings against the debtor concerning civil or commercial property claims once insolvency proceedings have opened. The exceptions discussed here concern employment claims, which are admitted without being lodged, and monetary claims secured on third-party property, given the persons against whom the writ of execution can operate. Pending proceedings are stayed by operation of law under Article 637(1), except where the debtor has asserted rights by counterclaim or by a plea of set-off. These provisions allow both the debtor and each insolvency creditor to challenge another creditor’s status through the process for lodging and admitting claims. Part of that process is the hearing of objections to the administrator’s lists under Article 692. The steps are: (1) creditors lodge claims with the insolvency court, except for claims entered automatically under Article 687; (2) the administrator includes them in the lists; (3) a creditor, the debtor or both may challenge a list by objection before the insolvency court under Article 692(2) and (3); and (4) the court makes an order under Article 692(1) and/or (4) approving the lists of admitted and automatically entered claims, with amendments where it upholds an objection under Article 690(1). Once proceedings under Article 692(2) and (3) on such an objection have concluded, a participating debtor or creditor adversely affected by the order under Article 692(4) may pursue the dispute over the claim, its security or its priority by bringing a declaratory action under Article 694. The action must be brought within the mandatory time limit running from publication of the Article 692(4) order in the Commercial Register.

In commercial case No. 3199/2013 the Supreme Court of Cassation considered whether the existence of security for an admitted claim could, by itself, be the subject of an Article 694 action where the creditor lodged the claim as secured but the insolvency court admitted it as unsecured. The Court explained that the special declaratory action depends on a dispute already raised under Article 692(2) and (3) over the basis, amount, security or priority of the claim. Its purpose is to settle that dispute conclusively for all participants for the purposes of the insolvency proceedings. The scope of the Article 694 action therefore matches that of the proceedings on objections under Article 692(2) and (3): whatever may be challenged under Article 690(1) may also be the subject of the declaratory action under Article 694.

If a company in insolvency owes you money, it is advisable to seek advice from a lawyer who practises commercial law.