European Union: European Commission Submits Proposal To Modernise EU Insolvency Law

On 12 December 2012, the European Commission (the "Commission") submitted a proposal for a Regulation (the "Proposal") to amend Regulation (EC) No 1346/2000 on insolvency proceedings (the "Regulation"). The overall objective of the revision is to improve the efficiency of the EU framework for the handling of cross-border insolvency proceedings. Therefore, the Commission seeks to shift the focus away from liquidation and develop a new approach of "rescue and recovering" in order to support the restructuring of businesses facing difficulties and create a business-friendly environment.

While the current regulatory framework is generally considered to operate successfully in facilitating cross-border insolvency proceedings, a public consultation and legal and empirical studies commissioned by the Commission have revealed a range of problems with respect to its practical application. Moreover, the Regulation does not sufficiently reflect current EU priorities and national practices in insolvency law, in particular as regards promoting the rescue of enterprises. The evaluation identified five main problems, in response to which the Commission has outlined the following solutions:

(i) Scope of application: the Proposal extends the Regulation's scope by revising the definition of "insolvency proceedings" to include pre-insolvency (i.e. restructuring of a company at a pre-insolvency stage) and hybrid proceedings (i.e., proceedings which leave the existing management in place) as well as debt discharge and other insolvency proceedings for natural persons;

(ii) Competent Jurisdiction for opening insolvency proceedings: the Proposal retains the concept of the centre of main interest ("COMI"). However, in order to give further guidance in applying the COMI, the Proposal complements the definition of COMI, determines the COMI of private individuals and clarifies the circumstances under which the presumption that the COMI is located at the registered office can be rebutted. In addition, the Proposal also improves the procedural framework for determining jurisdiction for the opening of proceedings and clarifies that the courts opening insolvency proceedings also have jurisdiction for actions which derive directly from, or are closely linked to, insolvency proceedings (i.e., avoidance actions);

(iii) Secondary insolvency proceedings: the Proposal also seeks to improve the efficient administration of insolvency proceedings by enabling the court to refuse or postpone the opening of secondary proceedings if this is not necessary to protect the interests of local creditors; by abolishing the requirement that secondary proceedings be winding-up proceedings; and by improving the cooperation between main and secondary proceedings, in particular by extending the obligation to cooperate to the courts involved in both the main and secondary proceedings;

(iv) Publicity of insolvency proceedings and lodging of claims: the Proposal requires Member States to publish minimum information relating to insolvency proceedings in a public electronic register and provides for the interconnection of national insolvency registers. In addition, the Proposal also facilitates the lodging of claims by providing two standard forms; giving foreign creditors 45 days to lodge their claims; and providing that legal representation will not be mandatory for lodging a claim in a foreign jurisdiction;

(v) Insolvency of members of a group of companies: the Proposal introduces an obligation to coordinate the insolvency proceedings concerning different members of the same group of companies by obliging the liquidators and courts involved to communicate and cooperate with each other. Moreover, the Proposal gives each liquidator standing in the proceedings concerning another member of the same group (i.e., a right to be heard, to request a stay or to propose a reorganisation plan).

If the Proposal is adopted, it will enter into force on the 20th day following its publication in the Official Journal of the European Union. The amended Regulation will be binding in its entirety and directly applicable in the Member States. The Proposal can be found at: http://ec.europa.eu/justice/civil/files/insolvency-regulation_en.pdf.

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.

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