Bond-/Noteholder

Bond-/Noteholder Information Rights

To the extent a company does not already publish its accounts as a result of being publicly listed, bond or noteholders that can show a justifiable interest can also request to review the annual report of a company.

Once bankruptcy proceedings have been initiated, creditors also have the right to inspect the bankruptcy files (which include the debtor’s files seized by the bankruptcy office).

Finally, the insolvency administrator has reporting obligations to the creditors, which inter alia include providing a comprehensive report on the financial situation of the debtor on the occasion of the creditors’ meeting and a report to the court as to the approval of the proposed composition agreement. Generally, there will also be interim update reports.

Bond-/Noteholder in Composition Proceedings

In composition proceedings the creditors' meeting decides on the approval of the composition agreement. The composition agreement is approved if either (i) at least 50% of the admitted creditors agree and the agreeing creditors represent more than two third of the total amount of the claims or (ii) if one quarter of the admitted creditors representing at least three quarters of the total amount of the claims agree. Creditors with privileged claims (mainly unpaid claims of employees and contributions to social security insurances) are not included and are not entitled to vote. The same applies to creditors that have a claim against the estate and to creditors whose claims are secured by collateral, as far as the collateral covers their claim according to the administrator’s estimate. Any amount which is not covered by the collateral, however, will be taken into account and gives the respective creditors a corresponding voting right.

It is within the court’s discretion to reject or admit contingent and disputed claims for purposes of voting on the composition agreement. In case the composition agreement is confirmed the court will set a deadline (20 days) for the creditor of a disputed claim to bring legal action, failing which such creditor will lose its right to obtain security for its claim. 

Role of Secured Creditors

In Bankruptcy Proceedings

Assets encumbered with collateral fall into the bankrupt's estate. A pledgee can no longer sell the pledged assets by private sale after bankruptcy proceedings have been initiated, even if it is contractually entitled to do so. Underlying secured claims are satisfied directly out of the proceeds from the realisation of the collateral by the liquidator. Should the proceeds not be sufficient to satisfy the claim of a secured creditor, such creditor will rank as an unsecured and non-privileged creditor for the outstanding amount of its claim.

 

In Composition Proceedings

The composition agreement under the DCBA is designed to affect non-secured claims (including the portion of secured claims that remains uncovered). Secured claims are satisfied directly out of the proceeds from the realisation of the collateral. Should the proceeds not be sufficient to satisfy the claim of a secured creditor, such creditor will rank as an unsecured and non-privileged creditor for the outstanding amount of its claim. The administrator will assess the value of the collateral and determine the participating claim with respect to the creditors’ meeting accordingly. Such value assessment is subject to legal review, if requested. 

Once a composition agreement with assignment of assets has been approved and confirmed by the creditors and the court, private realisation of collateral for secured claims is available for movable assets, provided that the composition agreement includes a stay for realisation of secured claims for a certain time period after confirmation of the composition agreement by the court. If it is necessary in the interest of the estate that collateral be realised, the administrators may set the respective creditors a deadline of at least six months to realise the collateral.