COVID-19 impairs creditor’s rights

Triniti

Temporary suspension of rights to file for insolvency

As of 22 March 2020 the Law on the Prevention and Management of Posed Threats and Effects on the State due to the spread of Covid-19 has entered into effect. It implements certain measures to limit the threats posed by Covid-19 and lays down state aid mechanisms in the fight against the pandemic, as well as attempts to stabilize the business environment.

The Law suspends creditors’ rights to file for insolvency proceedings by 1 September 2020 in the following cases:

  • it has not been possible to enforce court award on debt recovery from a debtor;
  • the debtor, limited liability company or joint stock company, has not settled the principal debt exceeding EUR 4268 within three weeks following the creditor’s warning or has not objected the claim;
  • the debtor, a partnership, an individual merchant or another entity, has not settled the principal debt exceeding EUR 2134 within three weeks following the creditor’s warning or has not objected the claim;
  • the debtor has not fully paid employees’ salaries, covered damages due to an accident at work place or due to occupational disease, or has not made compulsory social security contributions within two months from the due date.

Evidently, the above restrictions are enforced with a prospect of protecting companies operating in the wake of the Covid-19 caused crisis and thus to avoid, at least temporarily, that creditors may push such companies towards insolvency. It is clear, however, that in any event there will be companies in the midst of this crisis that will actually become insolvent. In this regard, the Law of 22 March 2020 does not affect in any way the right of a company itself to file insolvency petition under the cases provided by the Law on Insolvency.

Encroachment of the right to exercise a commercial pledge

The Law of 22 March 2020 extends the time limits thus making it more time consuming for creditors to enforcement commercial pledge rights compared to the procedures laid down by the Commercial Pledge Law.

In the past, the Commercial Pledge Law provided for a 30-day deadline for the holder of the Commercial Pledge Register to take a decision on enforcement of commercial pledge. This period has now been extended to 60 days.

Besides, new statutory regulation has been introduced that pledgor and pledgee may challenge the enforcement of the commercial pledge in courts if extraordinary circumstances prevent the enforcement of commercial pledge. Given that the concept of “extraordinary circumstances” is not defined in more detail, it practically will allow for the widest interpretations, thus providing pledgors with a new tool for defense.

Extended procedural time limits

In accordance with the Law of 22 March 2020, courts now are entitled in civil proceedings to render a period of maximum 60 days for voluntary enforcement of judgment, except where the judgment is to be enforced immediately, in cases of debt recovery, the return of property, the eviction of persons and property. Earlier the period for the voluntary execution of the judgment provided for in the Civil Procedure Law could not exceed 10 days from the date of the entry into force of the judgment.

          There is now extended period within which the creditor or the provider of the debt recovery service notifies the debtor on commencement of the debt recovery and calls for the obligation to voluntarily discharge the outstanding debt. If previously, under the Out-of-court Recovery Law, this time limit was not less than 21 days, it now is extended to minimum 60 days from the date of receipt of the notification.

The statutory regulation contained in the Law on Public Notaries has now been amended. A creditor may submit an act issued by the Notary Public for enforcement within 1 year from the due date of the respective obligation to be enforced. Now a new condition is introduced that the aforementioned submission of an act issued by the Notary Public for enforcement may take place only after 60 days from the due date of the respective obligation to be enforced.

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