The European Council Regulation No 1346/2000 on insolvency proceedings (the Regulation) was adopted in May 2000 and came into force on 31 May 2002 in order to establish a European framework for cross-border insolvency proceedings.
The Regulation regulates: the jurisdiction for opening insolvency proceedings; recognition and enforcement of judgments for the opening of insolvency proceedings; the laws applicable to insolvency proceedings and their scope of applicability; and cooperation in a cross-border insolvency context.
Following on from the Q3 2014 edition of Global Insight in which we discussed the proposed amendments to the EC Insolvency Regulation, we can now provide details of the ensuing Regulation (EU) 2015/848 - the New Regulation, enacted on 20 May 2015.
In 2012, ten years after the Regulation’s enactment, the European Commission reviewed and published a proposal for its amendment, aiming to provide more practical, rescueorientated solutions for financially distressed debtors.
The New Regulation addresses the following concerns:
- The narrow scope of the insolvency proceedings covered by the Regulation will be extended to cover (i) pre-insolvency proceedings which are aimed at the restructuring of a debtor in financial difficulties at a pre-insolvency stage and (ii) hybrid proceedings aimed at a collective restructuring of debts but where the existing management is left in place. Despite this extension in scope, however, only proceedings which are listed in Annex A to the New Regulation will be covered, which means that Member States will retain significant control over the category of proceedings to be encompassed by the New Regulation.
- According to Article 3 (1) of the Regulation, the courts of the Member States within the territory of which the centre of a debtor’s main interests (COMI) is situated shall have jurisdiction to open insolvency proceedings. In this context, the following concerns were raised: (i) absence of a general definition of COMI in the Regulation; (ii) cases of evident and abusive forum shopping; (iii) uncertainty surrounding the relevant time at which a debtor’s COMI should be determined; and (iv)the absence of assessment of jurisdiction by national courts.
- The New Regulation aims to resolve these issues with the following provisions: (i) a statutory definition of COMI is introduced which, in line with European case law, provides that COMI shall be the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties; (ii) there is a specification that a debtor’s COMI should be determined when the request for the opening of insolvency proceedings is made; and (iii) by the combination of certain presumptions as to relocation of registered office or principal place of business, the New Regulation seeks to establish safeguards against “bankruptcy tourism”. Further changes include (iv) a requirement for courts presented with a request to open insolvency proceedings to examine whether they have jurisdiction and not to take it for granted per se; and (v) a right for debtors and creditors to challenge the decision to open main insolvency proceedings on the grounds of international jurisdiction.
- The New Regulation seeks to establish a system for inter-connecting national registers and to provide access to it through the European E-Justice Portal. The system is already available to perform searches in respect of proceedings commenced in the Czech Republic, the Netherlands, Austria, Germany, Estonia and Slovenia. Significant amendments have been made by the New Regulation to the provision relating to secondary proceedings. Originally, the aim of secondary proceedings was to offer a tool for liquidators in main proceedings where the estate of the debtor was too difficult to administer as a unit or where differences in legal proceedings between jurisdictions were quite extensive. In practice, however, secondary proceedings were often used for other reasons, and the New Regulation seeks to surmount these issues by providing for the following new provisions: (i) it has removed the requirement which limited secondary proceedings to winding-up proceedings; and (ii) it requires notice of a request to open secondary proceedings to be given to practitioners or to the debtor in possession in the main proceedings, who will then be given an opportunity to be heard on the request. Finally, (iii) the duties of cooperation are expanded to include not only cooperation between insolvency practitioners but also between courts in different jurisdictions and between insolvency practitioners and the courts.
- The most note-worthy amendment included in the New Regulation, is a set of entirely new provisions aimed to facilitate the better coordination of cross-border group insolvency. Most significant enterprises now operate via a network of connected subsidiaries, often registered and with their COMIs in different jurisdictions. The New Regulation introduces the concept of “group coordination proceedings” where an independent practitioner can be appointed to develop a plan which will facilitate the better preservation of value of the insolvent debtors’ assets. Participation in the coordination and implementation of the plan (which may propose integrated steps to resolve intra-group disputes and to develop a group restructuring plan) is optional: group members are entitled to opt out at any time.
The modifications reflect a wide-held desire to ensure that insolvency legislation facilitates the early restructuring of viable companies in financial difficulty and provides entrepreneurs with a second chance. The majority of the provisions of the New Regulation (except for the establishment of integrated registers for which a further year has been allowed) will apply to insolvency proceedings commenced after 26 June 2017.