Temporary provisions on financial restructuring of businesses – permanent changes to the status of secured creditors in composition proceedings

Temporary provisions on financial restructuring of businesses – permanent changes to the status of secured creditors in composition proceedings

Here you can read a newsletter sent out today by LOGOS' financial team.

Temporary provisions on financial restructuring of businesses – permanent changes to the status of secured creditors in composition proceedings

Please be advised that the Minister of Justice has submitted to the Icelandic Parliament a Bill on Temporary Measures on Financial Restructuring of Businesses.

The Bill provides for important novelties in favour of businesses facing financial difficulties, firstly by allowing certain businesses to seek financial restructuring pursuant to a specific set of rules and secondly, by enabling debtors to make changes to secured claims through composition which to date have not been subject to composition under Icelandic law.

The Bill will, if enacted, allow businesses that have suffered an immense financial setback due to the COVID-19 pandemic, and meet certain additional criteria, to seek shelter initially for 2 months, with possible extensions for up to 12 months, from creditors’ enforcement measures, thus allowing them to initiate financial restructuring, whether by means of voluntary negotiations with creditors or compulsory composition. The Bill includes provisions allowing debtors to make changes to payment terms of secured claims for up to 3 years, without acquiring prior approvals from secured creditors. These measures are viewed as temporary and the debtor’s request for financial restructuring needs to have been filed with the competent district court prior to 1 January 2021.

The Bill further provides for general changes to Act No. 21/1991 on Bankruptcy etc. that may have a material impact for secured creditors dealing with an Icelandic debtor. Under the current regime, composition does not affect secured claims. If the Bill will be enacted, debtors seeking composition with its unsecured creditors may also amend payment terms of secured claims, without the approval or other involvement of secured creditors.

The Bill will now be discussed in Parliament and may be amended during the parliamentary process.

LOGOS has a vast experience in advising on corporate financial restructurings, whether in terms of assisting distressed debtors in exploring and making use of the statutory options available or assisting creditors in safeguarding their interests, as well as advising on any potential tax impact deriving from the restructuring.    

Please contact Gudbjorg Hjartardottir or Olafur Arinbjorn Sigurdsson should you need any further information or assistance. 

Guðbjörg Helga Hjartardóttir

Guðbjorg Hjartardottir

Ólafur Arinbjörn Sigurðsson

Olafur Arinbjorn Sigurdsson