A revised EU regulation applies to new insolvencies from 26 June 2017. Widely referred to as EIR Recast (EIR means European Insolvency Regulation), it replaces the regime that has been in place for over 15 years.
The official title of EIR Recast is Regulation 2015/848 of the European Parliament and of the Council of 20 May 2015. The commencement of EIR Recast is newsworthy for many reasons, not least because the United Kingdom (when it leaves the EU) will not have the benefit or the burden of the new regime.
What does EIR Recast mean for businesses?
EIR Recast promotes the rescue of economically viable but distressed businesses and facilitates pre-insolvency restructuring procedures being automatically recognised and enforced throughout the EU.
It also seeks to eliminate incentives for parties to abuse the ability to shop around for a more favourable legal jurisdiction (called forum shopping). Forum shopping was apparent in Ireland a few years ago by individuals exercising their rights to free movement by moving to the UK to file for bankruptcy. At the time, bankruptcy lasted for at least 12 years in Ireland, as opposed to as little as one in the UK.
While much of the EIR Recast amends and updates existing concepts, there are entirely new provisions introduced for group insolvencies and synthetic or ‘as if’ proceedings.
The aim of these new provisions is to afford a greater chance of rescuing the group as a whole and to ‘facilitate the effective administration of the insolvency proceedings of the group members, and to have a generally positive impact for the creditors’.
This will operate in practice by enabling the insolvency practitioner appointed to a member of a group of companies to request the appointment of an insolvency court as coordination court and an insolvency practitioner as group coordinator. A group coordination plan will be recommended by the group coordinator which will then be considered by the insolvency practitioners of all the legal entities involved.
It is recognised that multiple insolvency proceedings in respect of the same entity can be detrimental to creditors and to the efficient administration of the insolvent estate. EIR Recast provides that the insolvency practitioner can give an undertaking that local creditors will be treated ‘as if’ insolvency proceedings had been opened in their jurisdiction. That undertaking should adequately protect the general interests of local creditors and thereby avoid the necessity for multiple insolvency proceedings.
Member States are now also obliged to establish insolvency registers that contain certain information on the debtor, the insolvency practitioner and the insolvency proceedings. These national insolvency registers (already piloted for seven Member States) are to be interconnected and accessible via the European e-Justice portal.
While there is undoubtedly more to be done, especially in terms of cross-border groups of companies, the EIR Recast is a welcome improvement and the long lead in from 2015 merits making this a day to mark.