The Reform of the European Insolvency Regulation

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The Reform of the European Insolvency
Regulation
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DisclaimerThis publication has been produced
with the financial support of the Civil Justice
Programme of the European Union. The contents of
this publication are the sole responsibility of
Leiden University and/or Nottingham Trent
University and can in no way be taken to reflect
the views of the European Commission.
Co-funded by theCivil Justice Programmeof the
European Union
Co-funded by theInternational Insolvency
Institute
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EIR Reform Project

• History
• Treaty of Rome 1957
• Brussels Regulation 1968 Art. 1 Exception
• 1970 Draft (?substantive and procedural)
• 1980 Draft (?substantive and procedural)
• CoE Istanbul Convention 1990 (procedural)
• European Insolvency Convention 1995 (proc.)
• European Insolvency Regulation 2000 (proc.)
• Amendments in 2004/06/13 (Acc), 2005 etc. (Am)

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EIR Reform Project

• Contents
• Preamble
• Scope/Application/Definitions
• Jurisdiction
• Choice of Law/Exceptions
• Recognition Rules/Powers of Liquidator
• Conduct of Secondary Proceedings
• Creditors Information and Claims
• Transitional Provisions

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EIR Reform Project

• Preamble
• Linked to Four Freedoms/Single Market issues
• Justification for legislation by EU
• Conflicts Problems acknowledged (widely
  differing substantive laws)
• Modified Universalism Theory (main/secondary)
• Co-ordination Principle paramount
• Benefit for Creditors stressed
• Status of Preamble? Content Issues?

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EIR Reform Project

• Scope/Application (Article 1)
• Four Conditions
• Collective (no individual action)
• Insolvent debtor (no pre-insolvency? CVA?)
• Partial/Total Divestment (DIP?)
• Liquidator appointed (DIP?)
• Application to all Debtors (Natural/Legal)
  except
• Insurance Bodies (Directive 2001/17/EC)
• Credit Institutions (Directive 2001/24/EC)
• Investment Bodies (Trust/Pension Funds)

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EIR Reform Project

• Scope/Application (Article 1) (cont.)
• Territorial Application
• 271 (Denmark opt-out in Maastricht Treaty)
• European-based Debtors
• International Corporate Groups (with a base
  in Europe) (ReBRAC, Daisytek, Enron)
• Application in Time (Arts. 43, 47)
• 31 May 2002 (14)/1 May 2004 (10)
• 1 Jan 2007 (2)
• Relationship with other Instruments (Art. 45)

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EIR Reform Project

• Definitions (Article 2)
• Insolvency Proceedings (rescue liquidation) in
  Annex A
• Winding Up Proceedings (liquidation) in Annex B
• Liquidator in Annex C
• Court/Judgment (wide reading)
• Time of Opening of Proceedings (effectiveness)
• Member state in which assets are situated
• Establishment (q.v. Brussels Convention 1968)

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EIR Reform Project

• Jurisdiction (Article 3)
• Main Proceedings centre of main interests
  full effect rescue and liquidation possible
• Secondary Proceedings establishment
  restricted (territorial) effect liquidation
  only
• Main usually opened before Secondary
• Secondary can be opened before Main if
• (i) impediment to Main exists
• (ii) creditors request/claim related to
  establishment

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EIR Reform Project

• Jurisdiction (Article 3) (cont.)
• Whats Missing?
• What does COMI mean? No independent definition
  in Article 2, so resort to domestic rules and
  possibility of double-jurisdiction and conflict
  (Eurofoods)
• Virgos-Schmit Report (persuasive interpretation)
• Relationship to establishment definition?
• Shifting COMI? (forum shopping)
• Corporate Groups? (Eurofoods/Daisytek)

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EIR Reform Project

• Choice of Law (Article 4)
• Lex concursus (for both Main and Secondary
  Proceedings) applicable to
• Debtors capacity
• Asset treatment generally
• Debtor-liquidator powers
• Effect on availability of set-off, current
  contracts, creditors execution/enforcement,
  treatment of claims, proof of debts

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EIR Reform Project

• Choice of Law (Article 4) (cont.)
• Also applicable to
• Priorities and distributions
• Closure and post-closure effects
• Costs and expenses
• Transaction avoidance (acts detrimental to
  creditors)
• Widest scope of application to procedural and
  substantive matters, subject to exceptions.

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EIR Reform Project

• Choice of Law Exceptions (carve-outs)
• Article 5 rights in rem (security)
• Article 6 set-off (quasi-security)
• Article 7 reservation of title (quasi-security)
• Article 8 immoveables
• Article 9 financial market contracts
• Article 10 employment contracts
• Article 11 registrable rights
  (land/aircraft/ships)
• Article 12 community patents

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EIR Reform Project

• Choice of Law Exceptions (carve-outs) (cont.)
• Article 13 protection of otherwise detrimental
  acts
• Article 14 protection of third party purchasers
  of Article 11-type assets
• Article 15 lis pendens
• Carve-outs may require main/secondary
  jurisdictions to determine foreign law if no
  proceedings can take place in the carve-out
  jurisdiction (i.e. no establishment), but will
  they be enforced?

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EIR Reform Project

• Recognition Principles
• Article 16 principle of recognition
  (comity/full faith and credit/Brussels
  Convention 1968)
• Article 16 does not prevent opening of
  secondary proceedings
• Article 17 full effect given to main
  proceedings elsewhere and to effect of
  secondary proceedings limited to territorial
  assets

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EIR Reform Project

• Recognition Principles (cont.)
• Article 18 full powers for main liquidator,
  limited extra- territorial powers for secondary
  liquidator (no coercive powers can be used)
• liquidator must comply with domestic law for
  realisation of assets
• Article 38 temporary liquidator may ask for
  interim/preservation measures elsewhere
• Article 19 no formality for recognition of
  liquidator other than proof of appointment

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EIR Reform Project

• Recognition Principles (cont.)
• Article 21 general publicity for proceedings
  and appointments
• Article 22 publicity through registration for
  particular assets
• Article 23 costs imputable to proceedings
• Article 24 pre-publication transactions with
  debtor protected constructive notice rule

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EIR Reform Project

• Recognition Principles (cont.)
• Article 25 recognition of further judgments
  and orders following Article 16 recognition
  (exception for postal secrecy and personal
  freedom)
• Article 26 public policy avoiding recognition
  altogether (pari passu rule and the problem of
  priority Re MG Rover España SA Re HIH
  Casualty and General Insurance Limited)

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EIR Reform Project

• Recognition Principles (cont.)
• Effect on creditors
• Article 20(1) creditors must return seized
  assets to liquidator, subject to security
  exception (Articles 5 and 7)
• Article 20(2) creditors can not claim in
  distributions unless acknowledging
  distributions from other proceedings

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EIR Reform Project

• Conduct of Secondary Proceedings
• Article 27 where main proceedings exist,
  secondary proceedings can be opened without
  insolvent requirement
• Article 28 applicable law is that of secondary
  jurisdiction (see Article 4 for list)
• Article 29 main liquidator and any party
  permitted in secondary jurisdiction may apply
  for opening
• Article 30 security for costs may be required

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EIR Reform Project

• Conduct of Secondary Proceedings (cont.)
• Article 31 liquidators duty to co-operate and
  communicate (CoCo Guidelines JudgeCo Project
  ALI- III Project)
• Article 32 liquidators will lodge known claims
  in other proceedings/participate on same footing
  as creditor
• Article 33 stays in secondary proceedings at
  request of main liquidator (subject to it being
  in the interest of creditors)
• Article 34 main liquidator may propose end to
  secondary proceedings

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EIR Reform Project

• Conduct of Secondary Proceedings (cont.)
• Effect on creditors
• Article 32 right to prove debts/claims in all
  proceedings
• Note also Article 20(2) creditors can not
  claim in distributions unless acknowledging
  distributions from other proceedings
• Article 35 surplus from secondary proceedings
  may be transferred to main proceedings (subject
  to Article 26?)

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EIR Reform Project

• Conduct of Secondary Proceedings (cont.)
• Where secondary opened before main
• Article 36 once main proceedings opened,
  secondary proceedings to comply with rules in
  Articles 31-35
• Article 37 secondary proceedings may be
  converted from rescue to liquidation

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EIR Reform Project

• Creditors
• Article 39 right to prove debts/claims in all
  proceedings (see also Article 32 for secondary
  proceedings)
• Article 40 duty to inform known creditors
• Article 41 content of proof of debt
• Article 42 notice to creditors in language of
  proceedings/headnote in all official EU
  languages
• creditors proof in any language of state of
  residence

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EIR Reform Project

• Reform Perspectives
• Review by 1 June 2012 and 5-yearly intervals
  thereafter (Art. 46)
• Pressure for early review (since in force!) to
  change
• COMI Definition seen as urgent (ECJ in
  Eurofoods)
• Race to the Court (pending petitions)
• Forum-shopping to be discouraged
• The Problematic of Corporate Groups
• Secondary proceedings liquidation?

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EIR Reform Project

• Reform Perspectives (cont.)
• Central Insolvency Register
• Communications Guidelines/Intl Best Practices
  to flesh out Art. 31
• Commentaries/Articles/Books

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EIR Reform Project

• 2012-2014 Cursus
• Assessment Vienna-Heidelberg Report
• Commission Draft 12.12.12
• Main Themes
• Scope/Jurisdiction/Art 25
• COMI-Shifts/Synthetic Secondaries
• Group Insolvencies and Coordination

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EIR Reform Project

• EP Responses
• Group of Experts
• National Responses
• Questions
• Content/Coverage
• Scope/Jurisdiction/Annexe A
• General Coordination/Cooperation
• Group Dynamic/UNCITRAL WG V Work

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EIR Reform Project

• Reform Process (cont.)
• More EP Amendments
• Final Council Text
• Enactment 2015? In force 2016/7?

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• The Future?
• A Wider European Legal Order
• Unifying texts in insolvency jurisdiction
• Fitting into corporate migration issues
  (Centros/Uberseering/Inspire-Art)
• Time to think about substantive change?
• Convergence process/Regulatory arbitrage
• Fresh Start/Wrongful Trading initiatives
• What substantive/procedural rules? INSOL Europe
  Rep
• Commission Recommendation of 2014

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