Working with distressed assets in the context of coronavirus restrictions: work of courts, moratoriums and other restrictions

The spread of the pandemic and the adoption in this regard by state authorities of several restrictive and stimulating measures has left its mark on almost all spheres of public life. Relationships that arise when dealing with distressed assets are no exception.

How did the life associated with work with and the actual recovery of distressed assets change in the era of the spread of the pandemic?

• A distressed asset is a belonging that does not generate income. A prime example of a problem asset is a receivable that is not paid on time.

Among the tools available to a bona fide person in case of violation of his legal rights and interests regarding working with a problem asset, the following can be distinguished:

• debt restructuring;
• transfer of debt;
• cession;
• judicial collection;
• bankruptcy procedure;
• criminal prosecution.

Asset restructuring

• the main criterion for is the borrower’s ability to generate a cash flow to repay the asset;
• usually, restructuring is carried out if the counterparty has minimal problems, as well as when the parties mutually wish for further cooperation.

Judicial recovery of troubled asset

• carried out in case of impossibility of its repayment in a voluntary pre-judicial procedure;
• when choosing this method of working with a problem asset, it is also necessary to consider several innovations adopted to optimize the work of the judiciary during the period of restrictive measures.

The most resonant innovation over the entire period of action of measures aimed at preventing the spread of coronavirus infection was the introduction and consolidation at the legislative level of such a concept as a moratorium on bankruptcy proceedings.

For the duration of the moratorium in respect of the debtors to whom it applies:

• it is not allowed to satisfy the claims of the debtor’s participant on the allocation of a share in the debtor’s property, redemption or acquisition by the debtor of placed shares, or payment of the actual value of the share;

• it is not allowed to terminate the debtor’s monetary obligations by offsetting a similar counter claim;

• payment of dividends, income by shares, as well as distribution of profits between the participants of the debtor is not allowed;

• no penalties and other financial sanctions are charged for non-fulfillment or improper fulfillment of monetary obligations;

• foreclosure on pledged property is not allowed, including out-of-court;

• the enforcement proceedings on property penalties for claims, arising before the introduction of the moratorium, are suspended.

In addition, certain measures of compulsory execution of a court decision on debt collection cannot be applied in relation to these debtors.

In total

An unconscientious debtor can take advantage of this situation and take early steps to withdraw the company’s assets, as a result of which the claims of a bona fide creditor cannot be satisfied after the end of the moratorium.

However, during the period of the moratorium, at the request of the creditor, a bankruptcy case of the debtor in liquidation may be initiated, which is subject to the moratorium.

VALEN Group specialists are qualified experts with many years of experience in the field of bankruptcy and distressed assets, ready to help you to solve problems with unconscientious debtors.