On 20 May 2015 the European Parliament adopted a recast of the European Insolvency Regulation. The Recast Regulation is in line with the EU’s current political priorities of promoting economic recovery and boosting growth and employment. The key objectives of the Recast Regulation are to move away from the traditional liquidation approach towards more of a “second chance approach” for businesses and entrepreneurs in financial difficulties, and to enhance cooperation and coordination in cross-border insolvency proceedings.
The Recast Regulation is broader than the existing Regulation as it will extend to hybrid and pre-insolvency proceedings in addition to debt discharge proceedings and other insolvency proceedings for natural persons.
Jurisdiction for Opening Insolvency Proceedings
The procedural framework for determining jurisdiction for opening insolvency proceedings has been improved. The concepts of centre of main interest (“COMI”) and “establishment” have been further clarified to provide greater certainty. The updated provisions on international jurisdiction and COMI implement the existing case law of the European Court of Justice in an attempt to prevent abusive form shopping.
Prior to opening insolvency proceedings, courts must actively examine whether the debtor’s COMI is actually located within the jurisdiction. In so doing, special consideration should be afforded to creditors and to their perception as to where the debtor conducts the administration of his business. There is no look back period but the presumption that the COMI is at the registered office of the legal entity does not apply if the debtor has relocated its corporate seat within the three month period prior to the insolvency petition. The court or officeholder is tasked with examining jurisdiction ex officio. In respect of individuals, a new distinction is drawn between individuals who carry on a business and those who do not. In respect of the former COMI shall be presumed to be the place where the individual carries on his/her business (unless COMI was moved in the preceding three months when the rebuttable presumption will no longer apply). For individuals who do not carry on any business a longer look back period is introduced of six months prior to the request for opening insolvency proceedings.
It is worth noting that the Recast Regulation also grants jurisdiction to the courts of Member States to deal with related actions which derive directly from the insolvency proceedings and are closely linked with them (e.g. avoidance actions).
Secondary proceedings are no longer limited to winding up proceedings. However, undertakings given by the insolvency practitioner in main proceedings as to the treatment of creditors in other Member States will be formally recognised as a way of avoiding secondary proceedings in those jurisdictions. Additionally, greater cooperation obligations have been introduced between the insolvency practitioner in the main insolvency proceedings and the insolvency practitioner in any secondary insolvency proceedings, between the relevant courts and between the insolvency practitioners and the courts. How such cooperation will work in practice remains to be seen. Schemes of arrangements shall continue to remain outside the scope of the Recast Regulation
In order to improve the provision of relevant and timely information to creditors and courts and to prevent the opening of parallel insolvency proceedings, Member States are obliged to establish insolvency registers that contain certain information on the debtor, the insolvency practitioner and the insolvency proceedings. These national insolvency registers (already piloted for seven Member States) are to be interconnected and accessible via the European e-Justice portal, in full conformity with the European legislation on data protection.
Entirely new is the chapter on group insolvency proceedings which has provisions on the cross-border cooperation of insolvency courts and insolvency practitioners from various insolvent group companies and on the new coordination procedure to afford a greater chance of rescuing the group as a whole, where possible. Insolvency practitioners will be able to coordinate a joint restructuring plan and seek a stay of asset realisation measures. The duty to coordinate only exists to the extent that it is not incompatible with local procedural rules and does not give rise to any conflict of interest.
The formal framework for cooperation will operate in practice by the appointment of an insolvency court involved as coordination court and an insolvency practitioner as group coordinator. A group coordination plan will be recommended by the group coordinator which will then be considered by the insolvency practitioners of the legal entities involved. If a practitioner does not wish to follow the coordination plan, it must provide reasons for doing so to the local participants of the insolvency proceedings and to the coordinator.
Entry into force
The Recast Regulation enters into force on the 20th day after its publication in the Official Journal of the European Union and will apply (except for certain provisions) with effect from the second anniversary of its entry into force (i.e. approximately June 2017) for all insolvency proceedings opened thereafter. In the interim the provisions of the existing Regulation shall continue to apply.