European Union: Recast Of The EU Regulation On Insolvency Law Applicable As Of Today

The EU Regulation on Insolvency Law 1346/2000 (EIR) was considered a milestone in the cross-border coordination of national insolvency proceedings. The recast of the EU Regulation on Insolvency Law 2015/848, applicable to insolvency proceedings opened after 26 June 2017, considers substantial developments in national insolvency laws.

Background

The amended EIR includes wide-ranging clarifications as well as extensive new coordination rules, such as the establishment of insolvency registers, the lodging of claims and group insolvency proceedings. The revised EIR is still applicable to any insolvency or insolvency-related proceeding listed in Annex A of the regulation. Insolvency proceedings opened after 26 June 2017 will be ruled by the revised EIR. Any insolvency proceedings opened before that date will continue to be governed by the old EIR.

Extended scope of application

The amended EIR provides a more comprehensive definition of the material scope of application. In addition to public collective proceedings, it is also applicable to interim proceedings for rescue, adjustment of debt, reorganisation or liquidation in which (i) a debtor is totally or partially divested of its assets, (ii) the debtor is controlled or supervised by a court, or (iii) only a temporary stay of individual enforcement proceedings is granted.

Whereas the old EIR presupposed the insolvency of the debtor, the new EIR also refers to public pre-insolvency proceedings based on insolvency-related laws concerning (the prevention of) a debtor's insolvency or severe financial crisis. The mere likelihood of insolvency is sufficient, provided that the proceedings aim to avoid the debtor's insolvency.

Mysterious COMI clarified?

Legal practitioners and courts have been faced with the challenge of determining the centre of main interests (COMI), which is the essential reference point for establishing international jurisdiction. The amended EIR tries to meet the need for clarification: the COMI shall be the place where the debtor regularly administers its interests and which can be ascertained by third parties. The decisive factor is thus clarified as not merely the debtor's intention but also the creditors' perception of where the debtor administers its interests.

In addition to the already existing presumption that a legal person may have its COMI at the place of its registered office, the amended EIR sets forth presumption rules for individuals running an independent business or engaged in a professional activity (COMI at the principal place of business) and for any other individual (COMI at the place of habitual residence). These presumption rules are restricted if a person has moved to another EU Member State within three to six months prior to the opening of insolvency proceedings. This shall restrict the possibility of abusive forum shopping.

The seized insolvency court is obliged to examine its jurisdiction on its own motion and the debtor as well as any creditor now have the right to challenge the court's decision.

Group insolvency: coordination and cooperation

There is a completely new detailed legal framework on the cooperation and coordination of cross-border insolvency proceedings over the estate of members of a group of companies. Among other things, insolvency practitioners are granted the right to be heard in foreign insolvency proceedings, to request a stay of any measures under certain conditions and to apply for the opening of group coordination proceedings.

Any court competent for the insolvency proceedings of a group member may open group coordination proceedings upon the request of an insolvency practitioner. The court appoints an independent group coordinator who may propose a group coordination plan and request a stay of national insolvency proceedings for up to six months. If national insolvency practitioners do not comply with the coordinator's recommendations, they must explain their reasons to the coordinator and the persons/bodies according to the respective national insolvency law.

Secondary insolvency proceedings

Secondary insolvency proceedings may be opened in other EU Member States where the debtor has an establishment with the effect of such secondary proceedings being limited to the debtor's assets located in that country. Whereas secondary insolvency proceedings are no longer limited to liquidation proceedings, the amended EIR aims to restrict the opening of insolvency proceedings by introducing the complex concept of "synthetic secondary proceedings", ie the insolvency practitioner in the main insolvency proceeding is entitled to assure the creditors that he will comply with the distribution and priority rights under the law of the Member State where the assets are located and where a secondary insolvency proceeding could be opened. Local creditors may approve such an undertaking applying the voting procedure for the adoption of restructuring plans pursuant to the respective national insolvency law. If a secondary insolvency proceeding is opened, at the request of the insolvency practitioner or the debtor, the opening of secondary insolvency proceedings may be suspended for up to three months under certain conditions. In addition, the amended EIR provides enhanced cooperation duties between courts and practitioners.

Insolvency registers and standard claims form

EU Member States are obliged to establish insolvency registers that list mandatory information, including details on the insolvency court, the type of insolvency proceeding, the international jurisdiction, the debtor, the insolvency practitioner and the deadline for lodging claims. The national insolvency registers will be interconnected in a European online system which will be open to the public.

Creditors may lodge their claims by using the newly established standards claims form. This form will include information on whether any preferential creditor status is claimed, the alleged security rights (security in rem, reservation of title) and any claimed set-off rights. Foreign creditors shall have the right to file their claim at least within 30 days after the publication of the opening of insolvency proceedings.

Comment

The revised EIR largely contains only clarifications and adaptations to the developments in the European national insolvency laws while doubling the number of provisions of the old EIR. The chapters addressing group insolvencies provide a completely new framework for coordination and cooperation between a number of national insolvency proceedings. However, it remains to be seen in practice whether this concept is indeed capable of making cross-border group insolvency proceedings more efficient.

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.