As Europe is facing a severe economic and social crisis, the European Union is taking action to promote economic recovery, boost investment and safeguard employment. The economic crisis has a direct effect on people, jobs and businesses. It has led to an increase in the number of failing businesses. In the period between 2009 and 2011, an average of 200,000 firms went bankrupt per year in the European Union. About 25% of these bankruptcies have a cross-border element. About 50 % of all new businesses do not survive the first five years of their life. 1.7 million jobs are estimated to be lost due to insolvencies every year.
Modernising the European Union’s insolvency rules to facilitate the survival of businesses and present a second chance for entrepreneurs has been identified as a key action to improve the functioning of the internal market.
On 20 May 2015, the European Parliament adopted a proposal by the European Commission to modernise and amend the current European rules on insolvency, incorporated in Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings (the “Insolvency Regulation”).
The new Insolvency Regulation came into force on 25 June 2015, but will only be applicable to insolvency procedures filed after 26 June 2017. Insolvency procedures filed before this date will remain to be covered by the 2000 Regulation.
The Insolvency Regulation establishes a European framework for cross-border insolvency proceedings. The Insolvency Regulation applies whenever the debtor has assets or creditors in more than one Member State, irrespective of whether he is a natural or legal person.
The Insolvency Regulation determines which court has jurisdiction for opening insolvency proceedings: Main proceedings have to be opened in the Member State where the debtor has its centre of main interests (COMI) and the effects of these proceedings are recognised EU-wide. Secondary proceedings can be opened where the debtor has an establishment; the effects of these proceedings are limited to the assets located in that State.
The Insolvency Regulation also contains rules on applicable law and certain rules on the coordination of main and secondary insolvency proceedings. The Insolvency Regulation applies to all Member States with the exception of Denmark which does not participate in judicial cooperation under the Treaty on the Functioning of the European Union.
The overall objective of the revision of the Insolvency Regulation is to improve the efficiency of the European framework for resolving cross-border insolvency cases in view of ensuring a smooth functioning of the internal market and its resilience in economic crises. This objective links in with the EU’s current political priorities to promote economic recovery and sustainable growth, a higher investment rate and the preservation of employment, as set out in the Europe 2020 strategy.
The recasted Insolvency Regulation will contribute to the creation of a business-friendly environment in Europe, which will help economic recovery. The modernised rules will make it easier for businesses to restructure and for creditors to get their money back, while ensuring that procedures for cross-border insolvencies are effective and efficient.
The main revisions of the modernised Insolvency Regulation can be summarised as follows:
- a broadened scope of the Insolvency Regulation. The rules will cover a broader range of commercial and personal insolvency proceedings, including: the so-called Spanish scheme of arrangement, the Italian reorganisation plan procedure and the Finnish consumer insolvency procedures. The definition of insolvency procedures has been revised to include hybrid and pre-insolvency proceedings as well as debt discharge proceedings and other insolvency proceedings for natural persons which previously did not fit the definition.
- jurisdiction for opening insolvency proceedings. The recasted Insolvency Regulation complements the definition of COMI; it also introduces a provision determining the COMI of natural persons. In addition, a new recital clarifies the circumstances in which the presumption that the COMI of a legal person is located at the place of its registered office can be rebutted.
The recasted Insolvency Regulation also improves the procedural framework for determining jurisdiction for the opening of proceedings. It requires the court to examine its jurisdiction ex officio prior to opening insolvency proceedings and to specify in its decision on which grounds it based its jurisdiction. Thirdly, the modernised Insolvency Regulation clarifies that the courts opening insolvency proceedings also have jurisdiction for actions which derive directly from insolvency proceedings or are closely linked with them such as avoidance actions.
- secondary insolvency proceedings. The recasted Insolvency Regulation provides for a more efficient administration of insolvency proceedings by enabling the court to refuse the opening of secondary proceedings if this is not necessary to protect the interests of local creditors, by abolishing the requirement that secondary proceedings must be winding-up proceedings and by improving the cooperation between main and secondary proceedings, in particular by extending the cooperation requirements to the courts involved.
- publicity of insolvency proceedings and lodging of claims. The recasted Insolvency Regulation provides that certain minimum information relating to the insolvency proceedings have to be published in an electronic register available to the public free of charge via the internet. It furthermore provides for the establishment of a system for the interconnection of national registers which will be accessible via the European e-justice portal.
The recasted Insolvency Regulation facilitates the lodging of claims for foreign creditors, by introducing two standard forms, one for the notice to be sent to creditors and the other for the lodging of claims. Foreign creditors will have at least 45 days following publication of the notice of opening of proceedings in the insolvency register to lodge their claims. Finally, legal representation will not be mandatory for lodging a claim in a foreign jurisdiction, thereby reducing costs for creditors.
- insolvency of members of a group of companies. The recasted Insolvency Regulation creates a specific legal framework to deal with the insolvency of members of a group of companies while maintaining the entity-by-entity approach which underlies the previous Insolvency Regulation. It introduces an obligation to coordinate insolvency proceedings relating to different members of the same group of companies by obliging the liquidators and the courts involved to cooperate with each other in a similar way as this is proposed in the context of main and secondary proceedings. In providing for the coordination of different proceedings relating to members of the same group, the recasted Insolvency Regulation does not intend to prevent the existing practice in relation to highly integrated groups of companies to determine that the COMI of all members of the group is located in one and the same place and, consequently, to open proceedings only in a single jurisdiction.