INSOL Europe's Proposals on Groups of Companies (in Cross‐Border Insolvency): A Critical Appraisal

Irit Mevorach

doi:10.1002/iir.1204

Abstract

AbstractInternational bodies have started addressing the problem of cross‐border insolvency of corporate groups fairly recently. The United Nations Commission on International Trade Law has adopted a set of recommendations and the European Commission may tackle the matter in the near future, in the process of revising the European Insolvency Regulation (the ‘Regulation’). It is, therefore, timely to evaluate major proposals for the Regulation's amendment regarding groups, suggested by INSOL Europe. The paper critically evaluates the proposals regarding coordination of group cases and the concept of substantive consolidation. This evaluation takes account of both the variety of possible group structures and the goals the insolvency regime would aim to achieve. Copyright © 2012 INSOL International and John Wiley & Sons, Ltd.

Highlights

The regulation of corporate groups is a challenging task
UNCITRAL Working Group V took on board to address both the domestic and international aspects pertaining to groups in 2006, a project that was finalised in 2010 and resulted in a set of recommendations added to the UNCITRAL Legislative Guide on Insolvency Law.[2]
No doubt the proposals of INSOL could contribute to reform considerations within Europe as well as in other regions or internationally

Summary

Introduction

The regulation of corporate groups is a challenging task. Groups come about in different permutations and they often present a tension between the economic reality whereby they operate as a single entity and the legal position which allows them to be split into separate legal persons.[1]. The avoidance of centralisation is at odds with the approach to substantive consolidation (which will be discussed below) where there is greater appreciation of the differences between groups’ functional structure There, it is allowed for certain types of groups to apply a stronger (enterprise based) solution under which assets and debts will be mixed together in the course of insolvency, and to ‘correct’ any ‘errors’ in specific cases by compensating the relevant creditors. It is proposed that whenever the functional/ownership structure allows it, proceedings should be opened in the Member State where the operational headquarters of the group are located which should be recognised automatically.[73] Yet, in other cases where subsidiaries were separately managed, a coordination regime of the sort envisaged by INSOL would be most adequate. The latter type of solution is absent from the INSOL’s proposals

Maximising fairness and efficiency in cases of intermingled groups

Concluding remarks