The legislative process regarding the proposal of the Parliament and of the Council to amend the Regulation (which would introduce various changes as proposed by the Commission in order to address issues arisen in the enforcement of the Regulation) is approaching its conclusion

Introduction

EC Regulation No. 1346 of 29 May 2000 introduced an European set of rules for handling cross-border insolvency procedures. The Regulation provides inter alia for rules on jurisdiction to open an insolvency procedure and on the effects of such a procedure within the entire European Union, while a secondary procedure can be started where the debtor has an establishment and has effects limited to assets located in such a Member State.

The issues

Issues which arose regard mainly the need to (i) extend the Regulation to pre-insolvency procedures and, in general, to procedures allowing existing management to remain in place, (ii) clearly define jurisdiction rules for the opening of the procedure (considering difficulties to apply the “centre of main interests” rule), (iii) coordinate the main procedure with secondary procedures, ensuring to the receiver full control on debtor’s assets located in another Member State, (iv) set up a European register providing publicity to insolvency procedures, and (v) create a set of rules for group insolvency.

The main changes proposed:

a)  extending the scope of application of the Regulation

A new definition of “insolvency procedure” would be provided. Art. 1, par. 1, would indeed include also procedures which do not involve the appointment of a receiver and limitation to management powers of the debtor, but only for supervision on the conduct of the debtor and on its assets by a Judge.

Such an extension would allow to recognize within the entire European Union procedures and extend the scope of the Regulation to a wider number of insolvency procedures, also of individuals. The proposal would also allow the Commission to check whether the national insolvency procedures meet the conditions of the new Art. 1.

b)  fine-tuning of jurisdiction rules

The proposal would stick to the “centre of main interests” test, which would be better specified as the “place where the debtor conducts its own activity steadily and in way which could be recognized by third parties”. Art. 3, par. 1, recalls then, as to individuals carrying on an independent business or professional activity, the place where the main place of the activity is located as well as, in other cases, the place where the individual has his residence. The proposal enhances also the procedure for determining jurisdiction, by requiring the Judge to always address the issue of his own jurisdiction and to indicate, in his decision, on what grounds it is established.

c)  improving secondary procedures

New rules are provided aimed at making more efficient the management of the debtor’s assets in case the debtor has an establishment in another Member State.

In particular, the judge requested to start a secondary insolvency procedure shall, on a petition by the receiver of the main procedure, refuse or delay the opening of a secondary procedure when this is not necessary in order to protect the interests of the local creditors.

The proposal would also require the judge to hear the receiver of the main proceeding before the secondary proceeding is opened, in order to allow the receiver to assess its incidence on any reorganizations being carried on. A right would also be introduced for the receiver to appeal the decision to open the secondary procedure. Finally, the proposal (Art. 29 bis) would repeal the limitation by which a secondary procedure can be only a liquidation procedure and instead would introduce a duty for the receiver to choose the procedure more convenient in the interest of creditors.

d)  ensuring publicity to insolvency procedures

In order to create an “interconnected” system of insolvency procedures, a duty for the judge who opened the procedure to order that some essential information be published on an electronic register accessible to the public, including: the date of opening and that of closing of the procedure, the kind of procedure, the debtor, the receiver appointed and the term for filing a proof of debt. The proposal provides a connection among national registers which should become accessible through a European portal of electronic justice and it would so be allowed to the judge requested to open an insolvency procedure and to creditors to know if another procedure for the same debtor has already been started in another Member State.

e)  introducing rules for group insolvencies

The proposal provides for cooperation of receiver and judges involved in the various procedures regarding the companies belonging to a group, along the lines of the existing rules regarding main and secondary procedures. Various forms of cooperation are envisaged, including the duty for receivers to share pertinent information and to cooperate in setting up a rescue or reorganization plan. The proposal would give each receiver the right to participate to the procedure of another company of the same group, in particular the right to be heard, to apply for a stay of the procedure and to propose a restructuring plan.