Regulation No. 2015/848 is an update and an enhancement of European Union rules on cross-border insolvency procedures, with respect to Regulation No. 1346/2000 currently applicable. We start here a series of newsletters where we will address the new rules which will come into effect starting from 2017.
The new Regulation follows on the path of Regulation No. 1346/2000, representing the last step of a process which has been started years ago. European Union authorities resorted also to other means in this direction: aside to the Regulation, a Recommendation has been issued in 2014, inviting Member States to adopt internal procedures more favourable to restructuring (rather than liquidating) distressed businesses. It should be noted that Regulation No. 2015/848, entered into force on 26 June 2015, will be applicable only from 26 June 2017 and until then Regulation No. 1346/2000 will apply.
- The aims of the Regulation
The Regulation aims at updating and improving rules already in place, as well as at adding new rules in areas which were not previously regulated, with respect to effects of the procedures opened in each Member State. The Recommendation No. 2014/135 is instead aimed at starting a process in order for the substantive rules in force in the various Member States to be harmonized. Of course, while the Regulation will be directly applicable in all jurisdictions, the implementation of the objectives of a more uniform substantive legislation in the various Member States will be left to the initiative of the same, but the relevant principles will work as a reference in the interpretation of insolvency rules in each jurisdiction.
- Developments in certain key principles of the Regulation
An improvement which must be pointed out in the general principles of the Regulation is that relating to the restructuring and turnaround of the economic activities of distressed businesses: liquidation of the debtor’s assets is no longer representing, as it was still in the context of Regulation No. 1346/2000, the main aim of insolvency procedures. In this context, it should be noted that, accordingly, the notions of insolvency, limitation of the debtor’s management powers and participation by creditors have been adapted and, with respect to the previous Regulation, significantly widened. Indeed, the new Regulation is not only applicable to procedures based on full insolvency, but also to distressed situations still allowing for a turnaround and restructuring effort to be carried out.
Moreover, insolvency procedures are now defined to include pre-insolvency situations and arrangements, which could not have fallen within the traditional definition (involving necessarily the generality of creditors and assets of the debtor, as well as limiting the debtor’s management powers).
- Hints at other main changes brought about by the Regulation
The following additional new features of the Regulation – among many others on which we will come back in more detail in future newsletters – can be pointed out.
- fine-tuning of jurisdiction rules
The proposal would stick to the “centre of main interests” (so-called COMI) notion, which would be better specified as the “place where the debtor conducts its own activity steadily and in way which could be recognized by third parties”.
- improving secondary procedures
These will be procedures no longer limited to liquidation procedures and also the definition of “establishment” allowing the opening the same is widened. It will also be possible to avoid the opening of a secondary procedure, by an undertaking within the context of the main procedure, whereby affected creditors will be assured a treatment equal to that to which they would have been entitled in the secondary procedure.
- ensuring publicity to insolvency procedures
In order to create a wider access to information on insolvency procedures, the Regulation provides that the Commission put in place a system of “interconnected” insolvency registers, accessible to the public through the web at national level and also through a European portal of electronic justice (this will be effective only from 26 June 2018 and 2019, respectively).
- introducing rules for group insolvencies
Regulation No. 2015/848 provides for cooperation of receivers and judges involved in the various procedures regarding the companies belonging to a group, in order to improve efficiency in handling such procedures. Various ways of interaction are envisaged, including the duty for receivers to share pertinent information and to cooperate in setting up a rescue or reorganization plan. The proposal would give each receiver the right to participate to the procedure of another company of the same group, in particular the right to be heard, to apply for a stay of the procedure and to propose a restructuring plan.