In July 2006, after a long and unsuccessful attempt to reach an out-of-court restructuring of the indebtedness of the Eurotunnel group of companies, the managers of the Eurotunnel group requested the opening of main insolvency proceedings for all the companies in France. More precisely, they requested the opening of safeguard proceedings, the newest of the insolvency proceedings “à la française.” Safeguard proceedings, created in July 2005, allow debtors to seek the protection of the court (in particular, through a stay of all pre-insolvency claims) at an early stage in their financial difficulties.
The Paris Commercial Court opened safeguard proceedings for all the companies as requested. The safeguard proceedings allowed the Eurotunnel group to develop, negotiate and obtain confirmation of a reorganization plan under the aegis of the Court, and with the assistance of two insolvency administrators, in fewer than 6 months.
One of the legal difficulties faced by the Eurotunnel group in its formal restructuring efforts arose from the fact that many of the legal entities included in the group are (and were) not French. Some of the group’s creditors challenged the jurisdiction of the Paris Commercial Court, arguing that only English courts had jurisdiction to open main insolvency proceedings for the English companies included in the group. These creditors argued that there was not sufficient evidence that the center of main interests (“COMI”) of these English companies was actually located in France, as is required by the European regulation on insolvency proceedings in order for main insolvency proceedings to be opened in France for such entities.
In its decree dated 15 January 2007, the Paris Commercial Court confirmed its former decision dated 2 August 2006 opening safeguard proceedings for the English entities of the group. The Court detailed, for each of the seven English companies, the specific elements supporting the Court’s conclusion that each such company’s COMI was in France although such company’s registered offices may have been in the UK. Among these various elements, the Court pointed out that:
- in practice, the strategic and operational management of the various entities was directed by a common council meeting in Paris (which recalls the concept of headquarter functions used by certain English courts)
- accordingly, the English subsidiaries had no autonomy in their management
- the negotiations for the reorganization of the debt (upon which negotiations the survival of all the companies in the group was dependent because all the members of the group were joint debtors) conducted prior to the opening of the insolvency proceedings had been conducted essentially in Paris under the direct guidance of one Mr. Gounon, the president of most of the entities
- the public was fully aware of the foregoing facts, since this centralization of the management of the group was clearly described in the common annual reports of the two parent companies, Eurotunnel SA and Eurotunnel PLC.1
The Paris Commercial Court’s criterion regarding the place of the negotiations for the out-of-court reorganization is particularly interesting. Although this point does not expressly appear in the decree of the Paris Commercial Court, prior to the commencement of the insolvency proceedings, the President of the Court had appointed an ad hoc mediator (mandataire ad hoc) to assist the Eurotunnnel group in its negotiations with its creditors. The appointment of the mediator played an important role in anchoring the location of the COMI of all the Eurotunnel group companies in France more firmly. In particular, as the Court’s appointment of the ad hoc mediator had been disclosed to the public, it could be argued that the Court was the “natural” jurisdiction to then, if necessary, “go to the next stage” by opening main insolvency proceedings for all the Eurotunnel group companies.
The centralization of the insolvency proceedings in one jurisdiction facilitated the speedy adoption of a recovery plan for the Eurotunnel group by avoiding a scattering of judicial decision centers. The preparation of a coherent recovery strategy for the group likely would have been much more difficult, or even impossible, if the creditors had found themselves forced to negotiate not only with French insolvency administrators, but also and in parallel with English, Belgian, German and Dutch administrators operating under exceedingly different local laws. The opening of insolvency proceedings in multiple jurisdictions would have been especially incongruous in the case of the Eurotunnel group, because all the Eurotunnel group companies were confronted with one and the same problem: the impossibility of paying the next instalment of the debt of which they were all either principal debtor or joint guarantor.
The Eurotunnel case demonstrates the efficiency of conducting all insolvency proceedings for a group of related companies facing financial difficulties in a single jurisdiction, as well as the apparent efficiency of the French safeguard proceedings themselves.