The intricacies of personal insolvency, or more accurately termed in the Liechtenstein Insolvency Ordinance as debt settlement procedures, represent a critical juncture for natural persons grappling with the challenges of financial solvency or liquidity. The ordinance delineates a structured pathway aimed at facilitating equitable resolutions between insolvent individuals and their creditors, thereby enabling a potential discharge from indebtedness.

The foundational premise of such proceedings rests on the concept of insolvency, which is predicated upon an individual's inability to settle due debts within a reasonable timeframe, given their overall economic situation. This state of financial distress is the precursor for attempting an extrajudicial settlement or formally initiating a debt regulation procedure.

An extrajudicial settlement serves as a preliminary step to the formal court-regulated debt regulation process. It endeavors to orchestrate a comprehensive agreement with creditors to regulate all claims, potentially averting the need for judicial intervention.

Types of Procedures & Applications in Debt Settlement Proceedings

Reorganization Plan

  • The debtor proposes to creditors the payment of a minimum of 20% of the debts over a period not exceeding five years.
  • A double majority of creditors (both in number and in the sum of claims) present at the voting meeting must approve.
  • The debtor's assets are not liquidated, preserving their economic substance.

Payment Plan:

  • The debtor presents a repayment offer to creditors without a minimum quota but reflective of their prospective income over the next five years.
  • The debtor's assets are liquidated in entirety.
  • Upon acceptance and court confirmation, the payment plan becomes binding, leading to debt relief after fulfillment of the agreed payments and procedural costs.
  • Prompt action is imperative in the event of income deterioration to propose amendments to the payment plan, failing which the plan may collapse.

Absorption Procedure

  • In the absence of creditor majority for a payment plan or when no payment plan is necessitated, the court may initiate an absorption procedure upon application.
  • The debtor assigns the seizable portion of their assets to a trustee for five years, who then disburses it among the creditors.
  • The debtor is obligated to engage in suitable employment, disclose any gifts, inheritances, or winnings, incur new debts only if repayable from non-seizable income, report changes of residence, and direct all payments for creditors to the trustee.

Eligible Applicants

The right to apply for the initiation of a debt settlement procedure is vested in both the debtor and the creditors. However, the debtor exclusively retains the right to propose a payment plan or to request the commencement of an absorption procedure.

Prior to submitting an application, debtors are strongly advised to seek debtor counselling from the Office for Social Services. Applications, accompanied by the requisite forms and a preliminary cost deposit, are to be submitted to the Princely Court of first instance.

The procedural commencement of a debt settlement procedure is contingent upon the satisfaction of all prerequisites, with the first hearing typically scheduled within two to three months. The debtor's presence is imperative; otherwise, the application is considered withdrawn. The initial hearing aims to resolve the registered creditors' claims, vote on the payment plan, and decide on the initiation of the absorption procedure, as applicable.

Source: Factsheet on private insolvency (debt settlement procedure)

Executive Summary:

  • Debt settlement procedures are designed to facilitate equitable resolutions between insolvent individuals and creditors.
  • Insolvency in general is defined by the inability to settle debts within a reasonable period based on the individual's economic situation.
  • The process offers different plans: a reorganization plan, a payment plan, and an absorption procedure, each with specific requirements and implications.
  • Creditors' approval is crucial for the reorganization and payment plans, whereas the absorption procedure does not require such consent.
  • Debtors are advised to seek professional guidance before initiating proceedings.
  • Applications must be meticulously prepared and submitted to the Princely Court of Liechtenstein with a preliminary cost deposit or a comprehensive documentation in cases of financial incapacity.

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.