Insolvency Law at Faroe Islands (Denmark)
In the Faroe Islands, insolvency law is aligned with Danish insolvency law to a significant degree, as the islands are an autonomous territory within the Kingdom of Denmark. The legal framework for insolvency in the Faroe Islands is influenced by Denmark’s national laws, particularly in relation to bankruptcy, liquidation, and debt restructuring.
Key Features of Insolvency Law in the Faroe Islands:
1. Corporate Insolvency (Bankruptcy and Liquidation)
The main law governing corporate insolvency in the Faroe Islands is the Bankruptcy Act (Konkursloven), which is largely based on the Danish version.
Bankruptcy proceedings are initiated when a company becomes insolvent, i.e., it is unable to meet its debts as they become due and its liabilities exceed its assets.
There are several forms of insolvency proceedings:
Voluntary liquidation: A company may opt for voluntary liquidation if it is solvent but wishes to wind up its business.
Involuntary bankruptcy: This can be initiated by the company, its creditors, or the court when the company is insolvent.
Reorganization: In certain circumstances, a company may seek a restructuring of its debts under a court-approved reorganization plan.
2. Insolvency Procedures
Bankruptcy Procedure: Once bankruptcy proceedings are initiated, an insolvency trustee (called a trustee in bankruptcy) is appointed to manage the debtor's assets, sell them off, and distribute the proceeds to creditors in accordance with their legal priority.
Priorities in Bankruptcy:
Secured creditors (those holding collateral for their claims) are paid first.
Unsecured creditors are paid after secured creditors, according to the available assets.
Reorganization/Restructuring: A company in financial distress may file for reorganization or restructuring under Danish law, which allows for the company to negotiate with creditors to continue its operations while making partial payments or agreeing on a reduced debt load.
3. Personal Insolvency
Personal Bankruptcy: For individuals, the Bankruptcy Act also governs personal insolvency. An individual can file for bankruptcy if they are unable to meet their debt obligations.
The process involves:
The appointment of a bankruptcy trustee to manage the individual’s assets.
The liquidation of assets to pay creditors.
In some cases, debt discharge may be possible after a certain period, though the individual may still be liable for certain debts, such as alimony or debts related to fraud.
4. Debt Repayment and Restructuring
The Debt Settlement Act allows for individuals and businesses in the Faroe Islands to enter into debt settlement arrangements to restructure their debts and repay creditors over time. This is commonly used as an alternative to bankruptcy.
A debt restructuring plan must be approved by the creditors and the court.
Once the plan is agreed upon, the debtor can avoid bankruptcy and continue operating or repaying debts in a manageable way.
5. Cross-Border Insolvency
Given that the Faroe Islands are part of Denmark, the EU Insolvency Regulation applies, allowing for coordination in cross-border insolvency cases, particularly where a company operates in multiple EU jurisdictions.
Insolvency proceedings in the Faroe Islands may also have an international dimension, especially for companies with operations in other parts of Europe.
6. Creditor Protection
In insolvency proceedings, creditors are treated according to their legal priority:
Secured creditors (such as banks with collateral) are paid first.
Unsecured creditors (such as suppliers and customers) are paid next, though they often receive a lower percentage of the debt.
There are protections for creditors, including the ability to challenge fraudulent transfers made by the debtor before the insolvency procedure began.
7. Insolvency Practitioners
Insolvency Trustees: In both corporate and personal bankruptcy, a trustee is appointed to oversee the administration of assets and the distribution of funds. These professionals are licensed and regulated.
Liquidators: In the case of voluntary liquidation, a liquidator is appointed to handle the dissolution of the business, ensuring that the process complies with legal requirements.
Challenges and Developments:
Limited Local Jurisdiction: The legal and financial systems in the Faroe Islands are somewhat more isolated due to the islands' geographical and political situation. This can sometimes make it difficult to enforce claims in international insolvency cases.
Debt Collection and Access to Credit: The economy of the Faroe Islands is relatively small and reliant on industries such as fisheries and tourism. As a result, debt collection and the availability of credit can be more limited compared to larger economies.
Future Outlook:
The Faroe Islands may continue to align its insolvency laws with developments in Danish and EU law, particularly as the territory seeks to modernize its financial and legal systems to keep pace with economic changes.
RELATED Blog
0 comments