On 20 May 2015, after a three-year legislative process, a recast version of the European Insolvency Regulation (EIR) was adopted. For the most part, it will be applicable in approximately two years' time. The most important changes likely to affect the European restructuring landscape are a broader scope of application and new rules on COMI. The recast regulation also introduces a framework for group insolvency proceedings.
NautaDutilh partner Robert van Galen was a member of the group of experts that advised the European Commission on the recast. In his view, the new regulation constitutes an important step forward, even though it reflects substantial debate and compromise between the member states. For example, some member states were in favour of much stricter anti-COMI-tourism provisions than those which were ultimately adopted. Moreover, rather than a clear rule, the recast regulation contains a complicated mechanism to determine the member state in which group coordination proceedings should be opened, which is not an ideal solution.
Please find below a summary of the main changes introduced by the recast EIR.
A. BROADER SCOPE OF APPLICATION
The scope of application of the regulation did not extend to national proceedings providing for the restructuring of a company in the pre-insolvency phase (it focused on liquidation), despite the fact that many Member States had, over the years, integrated into their legislation such proceedings, aimed at increasing the chances of a successful business restructuring.
Amendment of the regulation was thus necessary. The recast regulation now covers hybrid and pre-insolvency proceedings which favour the recovery of economically viable but struggling businesses. Hybrid proceedings include those that leave the company or its management fully or partially in control of the company's assets and affairs (so-called debtor-in-possession proceedings).
An exhaustive list of proceedings covered by the regulation is set out in an annex thereto.
B. CENTRE OF MAIN INTERESTS
In the former version of the regulation, the Member State with jurisdiction to open insolvency proceedings was the one where the debtor's centre of main interests was located, which was presumed to be its registered office.
Based on this (rebuttable) presumption, certain companies sought more favourable jurisdiction by moving their centre of main interests.
The recast regulation contains a definition of the centre of main interests and provides that the abovementioned presumption will not apply if the company's registered office was transferred to another Member State within the three-month period prior to the request to open insolvency proceedings (Recital 31 and Article 3).
It should be noted that the recast regulation specifies that the court must examine of its own motion whether the debtor's centre of main interests or establishment (in the case of secondary proceedings) is actually situated within its territory (Recital 27 and Article 4).
C. NEW INSOLVENCY REGISTERS
The recast regulation introduces a European insolvency register and provides that the Member States shall be obliged to publish relevant information on cross-border insolvency proceedings in a publicly available electronic register (Recital 76 and Article 24).
The various national registers of the Member States shall be interconnected by means of the e-Justice Portal (Article 25).
D. NEW RULES ON SECONDARY PROCEEDINGS
The opening of secondary insolvency proceedings may sometimes hamper the efficient administration of the bankruptcy estate. Indeed, when secondary proceedings are opened in another Member State, the liquidator (the insolvency practitioner) in the main proceedings can no longer exercise control over the assets situated in that state.
Moreover, secondary proceedings must currently be liquidation proceedings, which may hinder the debtor's restructuring.
The recast regulation proposes two changes. Firstly, secondary insolvency proceedings need not be liquidation proceedings. Secondly, the recast regulation provides for two specific situations in which the court apprised of a request to open secondary insolvency proceedings should be able, at the request of the insolvency practitioner in the main proceedings (formerly the liquidator), to postpone or refuse the opening of such proceedings (Recital 41). The insolvency practitioner in the main proceedings may give an undertaking that local creditors will be treated as ifsecondary proceedings had been opened (virtual secondary proceedings) (Article 36).
E. A FRAMEWORK FOR GROUP INSOLVENCY PROCEEDINGS
The recast regulation introduces rules on the insolvency of multinational groups. New Chapter V ("Insolvency Proceedings of Members of a Group of Companies") focuses primarily on cooperation, communication and coordination.
In terms of coordination, the recast regulation introduces the concept of group coordination proceedings. The purpose of such proceedings is to facilitate the effective administration of members of a group in insolvency proceedings. Participation in group coordination proceedings is not compulsory: the insolvency practitioners of members of the group may opt not to take part in the proceedings. It remains to be seen whether this new tool will be frequently used in practice.