The exponential spread of CODIV-19 is seriously affecting the financial standing of businesses and individuals at a global scale, many of which have already expressed the likelihood of a potential insolvency in view of the significant reduction of their operations. In view of this situation, both corporations and individual businesspersons alike are evaluating their options and next steps to be taken both in the face of their possible insolvency as well as that of their debtors.
Restructuring Law No 141-15 regulates restructuring and judicial liquidations of both national or foreign corporations, as well as individual business persons, domiciled or with a permanent
presence in the Dominican Republic. The law offers a feasible process for the restructuring of insolvent companies to ensure their operational continuity while protecting the rights of its creditors, within a framework of transparency and equality.
An application for restructuring or liquidation may be made by either the insolvent debtor itself, or by any creditor whose claims represent at least 50 minimum wages when the requirements set out in article 29 of the law are met, under the following grounds:
- Failure to comply for more than ninety (90) days with at least one liquid and enforceable payment obligation in favor of any creditor or failure to pay Tax Debts to the Tax Administration for no less than six (6) tax periods;
- When current liabilities exceed its current assets during a period of more than six (6) months;
- When it has failed to pay at least two (2) consecutive salaries to its employees.
- Should there be an open restructuring, bankruptcy, insolvency or cessation of payments procedure in a foreign jurisdiction where the parent company or its main establishment or center of interest is located;
- Should there be active embargoes, judgments or execution proceedings that affect or could affect more than fifty percent (50%) of its total assets.
- In the event of a restructuring and for the duration of the conciliation and negotiation stage of the restructuring plan, all judicial, administrative or arbitral actions against the debtor's assets are suspended, thus safeguarding the assets and the continuity of the business along the course of the process.
- The law also provides for the possibility of authorizing the debtor to seek new financing, allowing the banking institution to register a special lien for its security.
Previous Plan Agreement
Another possibility for both corporations and individual businesspersons facing actual or imminently financial difficulties in the face of this health crisis and ensure the continuity of their operations is to submit a prior plan agreement to the restructuring court before the start of any restructuring process. This plan can be made with respect to all creditors or only with respect to a selected group of them, such as financial institutions, labor creditors and suppliers. In each case, the agreement requires the acceptance of creditors representing at least 60% of the total creditors or any creditors' class in order to be approved.
This plan may address any lawful restructuring plan for the debtor's liabilities and assets or reorganization of its business, as well as the negotiation of partial write-offs and deadline changes for the payment of the debtor's obligations.
Once the plan has been approved by the creditors and the court, it will have the same effects as those derived from a restructuring plan. In addition, the court may order, among other things, the suspension of any enforcement proceedings against the debtor's assets and rights. Similarly, from the time of its submission and until the application is granted or rejected, creditors cannot apply for the restructuring of the debtor.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.