In the Q1 2014 edition of Global Insight, we discussed the progress already made in respect of the Proposed Amendments to the EC Insolvency Regulation as of April 2014. The European Parliament and the Council of the European Union have now considered the Commission’s proposed amendments.
In this article we will continue to focus on the progress made regarding:
- Centre of Main Interests (COMI);
- Coordination of the insolvencies of members of a group of companies; and
- Recognition of pre-insolvency and hybrid arrangements (and in particular English law schemes of arrangement).
The European Parliament has proposed the inclusion of a three-month look-back period so that a company would need to have had its COMI within a member state for three months before main proceedings could be opened there.
The Council took a different approach and drew a distinction between the COMI of a company and an individual. For companies it decided not to include any look-back period. For individuals (where it is considered that there is a greater risk of abusive forum shopping) the Council has recommended separate tests for those engaged in business activities and those who are not. For sole traders and partnerships, an individual’s COMI will, in the absence of proof to the contrary, be presumed to be his place of business. However, the COMI of all other individuals will, in the absence of proof to the contrary, continue to be his habitual residence but only if it has not been moved to the member state in the last six months.
COORDINATION OF THE INSOLVENCIES OF MEMBERS OF A GROUP OF COMPANIES
In addition to the proposals for greater communication and cooperation between insolvency office holders, both the Parliament and the Council have put forward suggestions to assist in the better coordination of group insolvencies. The Council’s approach involves the appointment of an independent party to act as coordinator of the proceedings affecting each company within the group. However individual office holders would be able to object to their company being included in the group proceedings.
RECOGNITION OF PRE-INSOLVENCY AND HYBRID ARRANGEMENTS
The Council’s general approach also indicates that it supports member states being able to decide which of their insolvency and rescue regimes should appear in the Annex to the Regulation and thus which will fall within or outside the scope of the Regulation. Consequently, if this approach is adopted, the UK will be assured of its ability to keep debt relief orders and the now very popular, UK Scheme of Arrangement regime (which is used expansively for solvent takeovers as well as to help restructure distressed businesses) out of the scope of the Regulation.
The Council has continued to work on the detail behind its general approach during the summer months and all parties are now waiting for a date to be fixed for Commission, Parliament and Council to discuss their proposals, in trialogue this autumn.