New Act on Temporary Measures on Financial Restructuring of Businesses

New Act on Temporary Measures on Financial Restructuring of Businesses

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

New Act on Temporary Measures on Financial Restructuring of Businesses

The Bill on Temporary Measures on Financial Restructuring of Businesses, submitted to the Icelandic Parliament by the Minister of Justice, has been passed through parliament. The Bill was submitted on May 15th and LOGOS subsequently reported on its key factors in a newsletter on May 18th. This newsletter will focus on the subsequent amendments made to the Bill during the parliamentary process, in addition to summarising the substantive rules of the Act.

According to the Act, businesses that have experienced financial difficulties due to the COVID-19 pandemic and meet certain additional criteria, will be provided shelter from creditors’ enforcement measures. If a district judge considers the relevant criteria to be met, a ruling shall be made, authorising financial restructuring under the Act, initially for a period of up to three months. The Act provides for possible extensions of the authorisation, allowing the shelter to remain effective for up to 12 months.

Chapter IV of the Act deals with the measures available to the debtor in order to complete its financial restructuring. The chapter stipulates that if the debtor fails to reach voluntary agreements with its creditors, it may make certain changes to the terms of outstanding claims, subject only to the approval of a court-appointed supervisor but without the consent of creditors, or seek formal composition agreements with creditors pursuant to the Act no. 21/1991 on Bankruptcy etc. The Act provides for the novelty of allowing the debtor to make certain amendments to payment terms of secured claims without the consent of secured creditors. If, however, the debtor’s business requires nothing further than effectively generating income during this shelter period, the debtor may refrain from taking further financial restructuring measures and enjoy only the shelter provided by the Act.

The Bill initially provided for permanent amendments to the provisions of the Bankruptcy Act, allowing debtors seeking composition to also amend payment terms of secured claims, without the approval or other involvement of secured creditors. During the parliamentary process, these provisions were substantially removed and the newly approved Act does not include general changes to the provisions of the Bankruptcy Act, except those directly related to the temporary financial restructuring measures referred to above. The Act will therefore not affect traditional composition agreements under the Bankruptcy Act.

The Bill was approved by the Icelandic Parliament on June 16th and will take effect upon publication in the Official Gazette.

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