In respect of Argentina, Japan, Italy


An Insolvency Proceeding is a process taken when an organization or individual are no longer able to meet their financial obligations and pay their creditors when debts are due.

RELEVANT Definition

(1) “debtor in possession” means debtor except when a person that has qualified under section 322 of this title is serving as trustee in the case;

(2) “substantial consummation” means—

(A) transfer of all or substantially all of the property proposed by the plan to be transferred;

(B) assumption by the debtor or by the successor to the debtor under the plan of the business or of the management of all or substantially all of the property dealt with by the plan; and

(C) commencement of distribution under the plan.


The main effects of bankruptcy are as follows:

• The debtor loses possession of its assets, which must be given to the bankruptcy trustee (some exceptions apply);

• The debtor may not receive payments of any kind;

• The bankruptcy trustee assumes the administration of the debtor company’s assets and the complete control of the business. However, the trustee might recommend the court to continue the debtor’s business if it would be deemed beneficial for the debtor, or if two-thirds of the debtor’s employees so request. The National Government should provide technical guidance to the debtor’s employees (if requested), should they continue to run the business with the court’s authorization;

• The debtor company’s directors are disqualified from performing commercial activities within the territory of the Argentine Republic for one year from the date of suspension of payments. The beginning and ending dates of this one-year period will be determined at the ruling declaring the debtor’s bankruptcy. (This restriction may be reduced or removed by the court if the representatives have not committed fraud or any other act in violation of the criminal law);

• The court orders the immediate liquidation and auction of the company’s assets;

• The creditors should file a proof of claim for the purpose of being registered with court;

• All pending claims become due as of the bankruptcy award date;

Liquidation of the Debtor’s Assets

Under the Bankruptcy law, the bankruptcy trustee must carry out the auction of the company’s assets within four months from the date of the bankruptcy award. In exceptional cases, the court may authorize an extra 30 days. However, in practice, the liquidation of assets takes much longer, depending on the complexity of each proceeding, the amount involved, and the characteristics and location of the assets.

The debtor company’s assets may be auctioned in three different ways

• Auction of the company’s complete assets (“bulk transfer”) while its business is still ongoing. In this case, the auction mechanism is a public bid or public auction (to be determined by the court) and the base price cannot be less than the valuation suggested by the auctioneer (based on its market price);

•In cases when there is no continuation of the company’s business, the assets are auctioned in bulk and may be sold in separate groups if the company is engaged in different activities or based in various locations. The Bankruptcy law does not establish a specific mechanism; therefore the request of base prices is left to the court’s discretion;

• Auction on an asset-by-asset basis. No base prices are required; however, the court may fix a valuation and set base prices.

Distribution of Proceeds

Upon auction of all the debtor company’s assets, the bankruptcy trustee must file a report detailing the auction proceeds and a plan for final distribution among the registered creditors, considering the preferences set forth by the Bankruptcy law (see “Legal Preferences” below). The debtor company and/or the creditors may file objections to the report within 10 days of its filing. The final distribution of funds should be approved by the court and the creditors should be paid in accordance with the court’s decision.

Legal Preferences

The Bankruptcy law sets the order of preferences according to which the creditors are to be paid. However, legal preferences may be waived by any creditor in favor of other creditors.

Special Preferences

Creditors accepted by the court with a special preference are entitled to collect their claims from the proceeds obtained in the auction of any asset over which the creditor had a special security, according to the following order of preference:

• Creditors for expenses originated in the conservation, administration and liquidation of assets (e.g. legal fees of the trustee and its attorneys; payment of taxes over the company’s assets, etc.). The legal preference is set on such assets. The creditor may ask the court to order payment of these expenses at any time from the moment at which the expenses are due;

• Creditors who have the right to withhold certain assets of the debtor company (provided that no other creditor had a previous right on such asset);

• Creditors for expenses regarding the construction and development of some of the debtor company’s assets;

• labor creditors for salaries due from the company to employees for six months, and for severance or labor accidents (this preference only applies on the debtor company’s assets located at the site where the employee performed his duties);

• Creditors for taxes and contributions on certain assets;

• Creditors secured with a mortgage, pledge or guarantee on certain assets, and creditors with bonds secured with special or floating guarantee.

General Preferences

Once all secured creditors with special preference have been paid out, the following creditors are entitled to collect their claims from the proceeds of the debtor company’s assets liquidation:

• labor creditors for salaries due from the company to employees for six months, severance and labor accidents, vacations and any other amount due from the company as a result of a labor relationship (this only applies when it was not possible to collect from the proceeds of the liquidation of the debtor company’s assets located at the site where the employee performed his activities). Labor creditors for salaries are entitled to collect out of 100% of the proceeds of the liquidation and exclude any other secured creditor with a general preference. The rest of the labor creditors with a general preference (except labor creditors for salaries) are entitled to collect their claims out of 50% of the proceeds remaining once all of the debtor company’s assets are liquidated and all creditors with special preference and with a general labor preference have been paid out. Should their claims exceed 50%, the creditors must collect the unpaid portions of their claims on a pro-rata basis with the unsecured creditors;

• Social security and unemployment funds entities;

• Tax authorities.

Unsecured Creditors

Once all creditors with special preference and with general preference have been paid, those creditors who do not have any preferences are entitled to collect their claims on a pro-rata basis.

Legal Fees

The legal fees due to the bankruptcy trustee and the intervening attorneys are fixed at the court’s discretion between 4% and 12% of the proceeds obtained from the sale of the company’s assets.

Directors’ Liability in a Bankruptcy Scenario

Under sections 234 and 235 of the Bankruptcy law, the bankruptcy award leads to the automatic disqualification of the bankrupt entity, as well as its directors. This disqualification is based on objective (as opposed to subjective − fraudulent or negligent behavior) parameters, i.e. it is focused on the bankruptcy condition per se, regardless of the originating causes thereof. This is an exception to the legal regime of director liability set forth in Argentine corporations law.

The discharge (discontinuance of the disqualification) of the disqualified party is ordered within a period of one year unless there is a criminal action filed against the director, in which case the disqualification period is extended until the termination of the criminal action. At the time of the bankruptcy award, the situation of the following two groups must be established:

• Those persons who are members of the board of directors at that time;

• Those persons who are no longer members of the board of directors at that time. In the first case, the disqualification of the directors is effective from the date of the bankruptcy award. For directors who have held office since the cessation of payments (the insolvency date: see above), but on the date of the bankruptcy award are no longer directors, the one-year term of disqualification becomes effective from the insolvency date.

 A disqualified director may not engage in commerce, either on his own account or through third parties. He may not be a manager, administrator, statutory auditor or founder of companies, associations, mutual companies and foundations. He may not hold an interest in companies, nor discharge duties as attorney-in-fact.

Directors must appear before the judge whenever they are summoned to provide explanations about the financial condition of the debtor company. They are under the obligation to furnish the court with any information that may be requested. If a director fails to appear, the judge may seek the aid of public force to have directors appear in court.

As mentioned above, directors must request an authorization to leave Argentina’s national territory from the judge having jurisdiction over the bankruptcy proceedings. Such authorization is granted upon reviewing each particular case unless their attendance is essential to clarify the financial condition of the debtor company. After the submission of the general report by the bankruptcy trustee (normally not less than 10 months to one year after the bankruptcy award date), directors must only apply for an express permission if they were to leave the territory for a period of more than 40 calendar days.

The judge may decide to extend such term for a further maximum six-month period by issuing a relevant judgment. In this event, the judge shall provide detailed support for such decision.

Bankruptcy Proceedings

If bankruptcy proceedings have been initiated, the insolvency court in any event appoints an insolvency administrator. As of this appointment, every legal action concerning the insolvency estate must be executed only by the insolvency administrator, and the debtor is prohibited from disposing of its assets. The responsibilities of the insolvency administrator are as follows:

• To clarify the financial situation of the debtor as well any guarantees given by third persons in favor of the debtor;

• To assess immediately after his appointment whether the business of the debtor can be continued or reopened (if already closed);

• To assess whether reorganization is in the interest of the creditors and if a reorganization plan is likely to be implemented; and • To appraise the insolvency estate and administrate any outstanding legal actions.

Who CAN File PETITION for Bankruptcy?

  • Board of Directors

It is the sole authority of the board of directors of the company (or, in certain cases, its liquidator) to file for bankruptcy. The board of directors must take the decision to file for bankruptcy and can give a proxy to one of the directors or a third party to make the actual filing. The shareholders’ meeting does not have to approve the decision to file for bankruptcy. As a matter of law, the shareholders’ meeting cannot instruct the board of directors or another agent to file for bankruptcy.

  • Third Parties

Even in the absence of a bankruptcy filing by the company, a court can declare a company bankrupt at the request of its creditors or the public prosecutor, or on the basis of information provided by the Commercial Investigations Division (which is a special branch of the Commercial Court charged with monitoring the financial performance of distressed entities) or by the company’s employees.

  • Employee Information

It is worth noting that, at the time of filing for bankruptcy (at the latest), a copy of the petition for bankruptcy and the data supporting the state of bankruptcy must be communicated to, and discussed with, the representatives of the company’s employees.

Where to file Petition for Bankruptcy?

The petition for bankruptcy must be filed with the registrar of the Commercial Court that has jurisdiction over the registered office of the company at the time of the payment stoppage, and must be drafted in the official language of that court.

PROCESS OF Filing Petition of Bankruptcy

As a bankruptcy procedure is not a reorganization, it is not required (or even customary or useful) to include a plan of reorganization with the file submitted to the court. As bankruptcy is essentially a liquidation procedure, the file that has to be submitted is a straightforward inventory of the assets and liabilities of the company. The file should allow the court to assess whether the company is in a state of bankruptcy and the receiver to immediately seize control of the company.

  • The Bankruptcy Act provides a list of items to be included in the file. Often the registrars of local courts supplement this list with their own informal lists, but, as a rule, a file is complete if the following items are included:
    • The account books of the company;
  • Detailed information with respect to employees and social matters: the register of employees; the individual accounts of employees of the current and the preceding calendar year; information with respect to the social administration office and the social fund of the company; the identity of the members of the committee for prevention and protection at work and the members with trade union representation; and the access code provided by the Federal Social Security Service to the company (for the electronic register of employees);
  • A list of the names and addresses of the customers and suppliers of the company; and
  • A list with the names and addresses of any natural persons who gave a guarantee without consideration to the company.
  • The creditors must file a declaration of their claim on the company with the receiver. Any disputes regarding these claims will be decided by the Commercial Court.
  • The involvement of the creditors in the administration of the bankruptcy estate is limited.
  • At the end of the proceedings, the receiver uses the proceeds of the liquidation to pay the creditors in the order of their priority, and the bankruptcy proceedings will be closed. The company will then cease to exist.
  • Bankruptcy proceedings, especially in the case of important companies, can take several years, particularly if the receiver decides to continue the company’s activities or if he files civil or criminal suits against third parties, such as former directors or shareholders.


Preparation of Reports

The board of directors prepares a special report in which it justifies its proposal to dissolve the company. The board of directors must attach to its report a balance sheet of the company that is less than three months old at the date of the shareholders’ meeting referred to below. This balance sheet must be established in accordance with generally accepted accounting principles in Belgium (“Belgian GAAP”) taking into account that the company will be liquidated (and will no longer operate as a going concern). The statutory auditor of the company must review the aforementioned balance sheet and indicate in a special report whether the balance sheet gives a complete, true and fair view of the company’s financial situation.

Extraordinary Shareholders’ Meeting

Subsequently, the board of directors convenes, at a time and date decided at the discretion of the board, an extraordinary general shareholders’ meeting of the company which is to be held before a Belgian Notary Public. At this meeting, the shareholders will consider a resolution to dissolve the company (i.e. put it into liquidation) and appoint the liquidator(s).

Confirmation by the Court of the Appointment of the Liquidator(s)

The appointment of the liquidator(s) must be confirmed by the court of the district where the company has its registered office on the date of the dissolution. For this purpose, a unilateral request must be filed with the Commercial Court. The practice of the courts depends on the district, but generally this request must include:

  • A balance sheet of the company (the same balance sheet as attached to the special board report referred to above can be used), to be signed by the liquidator;
  • A copy (certified by the Notary) of the notaries deed recording the minutes of the shareholders’ meeting referred to above.
  • A declaration on honor by the liquidator that he has never been declared bankrupt. The court will confirm the appointment only after verifying the integrity of the liquidator(s). If the court refuses to confirm the appointment of the liquidator(s), it will appoint another liquidator, possibly upon proposal of the general shareholders’ meeting. The liquidator can take actions between his appointment by the shareholders’ meeting and the confirmation of his appointment by the court, but such actions subsequently need to be confirmed by the court. The court can refuse such confirmation and declare all or some of these actions null and void if it finds that they constitute a manifest breach of the rights of third parties. In practice, the court’s judgment is normally passed within a period of two to three business days followed by the submission on the basis of the unilateral request.
Filing and Publication

The notaries deed recording the shareholders’ resolutions to dissolve the company and to appoint the liquidator(s) must be filed as soon as possible with the office of the clerk of the court. This can be validly done only if a copy of the court’s decision to confirm the appointment of the liquidator(s) is attached to such notaries deed. An excerpt from the notaries deed will subsequently be published in the annexes to the Belgian Official Gazette.

Liquidation Process

During the liquidation process, the liquidator(s) must sell the assets and pay the debts of the company. Any net liquidation proceeds are paid to the shareholders of the company. To the extent that the liquidation is not yet closed at that time, the liquidator must submit, in the sixth and twelfth month of the first year of the liquidation process, a detailed statement of the company’s liquidation status to the office of the clerk of the Commercial Court. This statement must include the income and expenses, the distribution to creditors, an overview of the outstanding debt, etc. As of the second year of the liquidation process, this statement must be submitted only once a year.

Shareholders’ Meeting/Resolutions

Subsequently, the liquidation accounts and the underlying justification documents must be submitted to a shareholders’ meeting. This meeting does not need to be held before a notary public (and can be organized by means of unanimous and written resolutions), unless the assets to be distributed would include real estate. At least one month prior to the meeting, the liquidator(s) must deposit the liquidation accounts and justification documents at the registered office of the company. (In practice, most legal doctrine agrees that this period of one month can be waived by the shareholders, provided that all shareholders agree to such waiver.)

Costs and Expenses of the Procedures

In the case of bankruptcy, the proceeds of the sale of the assets of the bankrupt estate are first used to pay the costs and expenses related to the management of the bankruptcy estate. Costs of the estate include any liabilities incurred by the bankruptcy trustee in the continuance of the activities of the company. In the case of the voluntary dissolution of an insolvent company, the same rule applies to the costs and expenses incurred by the liquidator. No similar rules apply in case of a judicial administration, but costs made with the authorization of the court commissioner during the period of payment suspension can receive the same priority as the costs of the bankruptcy estate in cases where the judicial administration ends in bankruptcy.

Consequences of Bankruptcy

  • As a rule, bankruptcy results in the cessation of all the company’s activities. At the request of the receiver or any interested party complying with certain conditions, the court may authorize the temporary continuation of (all or part of) the company’s activities under the supervision of the receiver. The court will grant that authorization only if there is a reasonable chance that the business can be sold as a going concern at a higher price than the expected proceeds of the sale of the individual assets.
  • In principle, the bankruptcy does not trigger the termination of the contractual rights and obligations of the bankrupt company that are still in force on the date of bankruptcy, unless these contracts are contracts intuit personae (i.e. contracts in which the identity of the performing party is a substantial element for the other party) or contracts with an explicit cancellation clause. The receiver rules on the continuation of the contracts.


Insolvency regimes around the world have evolved in very different ways, with laws focusing on different strategies for dealing with the insolvent. The outcome of an insolvent restructuring can be very different depending on laws of the state in which the insolvency proceedings taking place. In several cases different stakeholders in a company may hold the advantage in different jurisdictions.


This Article is Written by Mr. Keval Tachak, Final Year Student of KES College of Law, Mumbai University.

DISCLAIMER: The above information is for educational and knowledge purpose. Proper care has been taken while drafting this article. Neither the Author nor the web publisher holds any responsibility for any mistake that may have inadvertently crept in. The Author has taken all care and effort to ensure that the legislative provisions reproduced here are accurate and upto date. However, the Author and website takes no responsibility for any inaccuracy or omission contained herein for advice, action or inaction based here upon. Reference must be made to the Official Gazette issued by the Government of India for the authoritative text of any Act, Rule, Regulation, Notification or Orders. The Author or web publisher shall not be liable for any direct, consequential, or incidental damages arising out of the use of this article.

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