Recast European Insolvency Regulation Research Articles

Group concerns and communication and cooperation between practitioners under the European Insolvency Regulation (Part II)

AbstractIn this article, the author examines with a specific focus on the insolvency practitioner to what extent the Recast European Insolvency Regulation's provisions on communication, cooperation and coordination between the main actors in group companies' insolvency proceedings allow for efficient restructurings of those group companies. In doing so, the author will, at points, compare the provisions in Chapter V of the Recast European Insolvency Regulation to—and draw inspiration from—the German provisions on groups of companies that were adopted into the German Insolvency Act (Insolvenzordnung) and the United Nations Commission on International Trade Law's Model Law on Enterprise Group Insolvency. The author also aims to outline, among other things, the various forms of (cross‐border) communication, cooperation and coordination that the Recast European Insolvency Regulation obligates insolvency practitioners of groups of companies to engage in, how they should implement those forms of ‘CoCo’ and what would happen if they neglect to comply with those obligations. This article is Part II of a diptych on this topic; Part I was published in an earlier issue of this journal.

Group concerns and communication and cooperation between practitioners under the European Insolvency Regulation (Part I)

AbstractIn this article, the author examines with a specific focus on the Insolvency Practitioner to what extent the Recast European Insolvency Regulation's provisions on communication, cooperation and coordination between the main actors in group companies' insolvency proceedings allow for efficient restructurings of those group companies. In doing so, the author will, at points, compare the provisions in Chapter V of the Recast European Insolvency Regulation to—and draw inspiration from—the German provisions on groups of companies that were adopted into the German Insolvency Act (Insolvenzordnung) and the United Nations Commission on International Trade Law's Model Law on Enterprise Group Insolvency. The author also aims to outline, among other things, the various forms of (cross‐border) communication, cooperation and coordination that the Recast European Insolvency Regulation obligates insolvency practitioners of groups of companies to engage in, how they should implement those forms of ‘CoCo’ and what would happen if they fail to comply with those obligations. This article is Part I of a diptych on this topic, Part II of which will be published in a subsequent issue of this journal.

Groups of companies in the Recast European Insolvency Regulation: Around and about the “group”

AbstractRegulation (EU) 2015/848 (Recast European Insolvency Regulation/Recast EIR) contains a set of articles dedicated to the insolvency proceedings relative to members of groups of companies. No substantial consolidation or any procedural nature is envisaged. Article 2(13) of Regulation 2015/848 clarifies that, for the purposes of the same, a “group of companies” must be understood as “a parent undertaking and all its subsidiary undertakings.” However, many doubts arise when one goes deeper into that definition. The author deals with some of those problems and gives some suggestions to overcome them.

Parallel Reorganizations under the Recast European Insolvency Regulation – A Hypothetical Case Study

This article aims to explore the implications of the repeal, through the recast European Insolvency Regulation 2015/848, of the rules in Article 3(3) and Article 27 of the original EIR which required that secondary insolvency proceedings take the form of a liquidation (winding-up). The article's goal is to start to develop an understanding of what will – and what will not – be feasible within the new regulatory framework laid down for non-liquidation secondary proceedings under the Recast EIR. In doing so, the article analyses the new EU regime in the setting of a notional experiment – a hypothetical corporate debtor who wishes to reorganize in parallel proceedings in the Czech Republic, where it is incorporated and where its COMI is, and in the Slovak Republic, where it has its only establishment. The article therefore tests the key variables of parallel non-liquidations conducted under the Recast EIR not in the abstract but in the context of real-life rules on reorganizations contained in insolvency codes of Member State which have both adopted relatively modern provisions on reorganizations, broadly modelled on the U.S. Chapter 11 template. Based on the outcomes of the notional experiment, the article concludes that in principle, the Recast EIR provides EU debtors with a feasible cross-border platform to reorganize in more than one Member State, provided that the insolvency laws of the Member States involved show a reasonable degree of convergence.

The Never-Ending Challenge of Defining COMI (This Time Due to Groups of Companies)

Two years after the Recast European Insolvency Regulation (EIR) came into effect and just weeks after the Second Chance Directive was adopted by the European Council, I conclude that regulating cross-border insolvency legislation at the EU-level is an ungratifying task. Not only is European insolvency law one of the most trending and ever-changing fields of law nowadays, but it is also constantly challenged by the human creativity and evolution of business strategies. Just within the past two decades, EU cross-border insolvency law has, (i) witnessed the introduction of COMI (Centre of Main Interests) as the unique connecting factor determining both jurisdiction and governing law and (ii) gone through a major revision, taking into account EU case law and resulting in an adjustment of the definition of COMI. (iii), it substantially shifted the course of resolving insolvencies from mandatory liquidation to the preferred reorganizations (maintaining the debtor’s going concern value) and finally (iv), included groups of companies under the scope of the EIR. This article aims to analyze the latter - the long-anticipated inclusion of groups with emphasis on the current definition of COMI, as well as whether or not this works well together with the concept of group insolvencies.

The transaction avoidance regime in the recast European insolvency regulation: Limits and prospects

AbstractIn the last decade, transaction avoidance in insolvency law has been in the limelight of the academic discussions. In particular, the scholarship has highlighted how the European Insolvency Regulation gives rise to several private international law issues. Moreover, the scholarship has explored solutions to these issues and proposed to harmonise the regime of transaction avoidance at European Union level. However, the recent legislative developments on the cross‐border insolvency law seem resistant to the proposed harmonisation. This article focuses on the transaction avoidance regime in the Recast European Insolvency Regulation. In particular, it seeks to evaluate whether the Recast has solved the issues arising within the original European Insolvency Regulation in relation to transaction avoidance. Secondly, it questions the suitability of the private international law approach to transaction avoidance in cross‐border insolvency within the European Union framework. The research suggests that the efforts required to the private international law framework to deal efficiently with transaction avoidance make the harmonisation of the regime of transaction avoidance at the European Union level a more appealing option.

Recognition of UK Insolvency Proceedings Post‐Brexit: The Impact of a ‘No Deal’ Scenario

AbstractThis paper examines the impact of a ‘no deal’ or ‘hard’ Brexit on the recognition of insolvency proceedings commenced in the UK by the remaining Member States of the European Union (EU) post‐Brexit. The paper considers the framework currently implemented by the Recast European Insolvency Regulation and the possible approaches when it will cease to apply to proceedings commenced post‐Brexit. The paper identifies that there will be no overarching framework in the event that ‘no deal’ is reached between the UK and the EU for post‐Brexit arrangements, resulting in reliance on individual Member States' domestic laws to determine recognition of insolvency proceedings commenced in the UK. The paper sets out the contrasting approaches of five of the UK's key trading partners in the EU: France, Germany, Ireland, the Netherlands and Spain. The paper concludes that UK insolvency proceedings will not be recognised in a consistent manner in these Member States, which will be detrimental to stakeholders in, and ultimately the economies of, the UK and these Member States. In doing so, the paper underlines the importance of an agreement being reached between the UK and the EU on the recognition of cross‐border insolvency proceedings for the benefit of all parties. Copyright © 2018 The Authors International Insolvency Review published by INSOL International and John Wiley & Sons Ltd.

Parallel Reorganizations under the Recast European Insolvency Regulation – Selected EU Law Issues

AbstractThe Recast European Insolvency Regulation (EIR) (Regulation 2015/848) repealed the rules in Articles 3(3) and 27 of the original EIR (Regulation 1346/2000) that required that secondary insolvency proceedings take the form of a liquidation (winding‐up). As a result, European debtors may now attempt to resolve their cross‐border insolvencies via parallel reorganization proceedings conducted both in the Member State of the debtor's centre of main interest and in one or more Member States in which the debtor possesses an establishment. This article aims to take account of the principal rules of the Recast EIR which, in addition to the national laws of the Member States involved, will regulate such attempts. Upon the review of these selected rules, the article concludes that, in principle, the Recast EIR provides EU debtors with a feasible cross‐border platform to reorganize in more than one Member State in parallel. However, the article finds that a particular rule central to the system of cross‐border insolvency under the EIR, namely, Article 45, which allows the multiple filing of claims in all proceedings conducted in respect of the debtor, has the potential to frustrate attempts at parallel reorganizations. This is particularly so where the cross‐filing rule combines with Member State law that is rigid as regards plan approval by creditor classes or minimum payouts to certain classes. Copyright © 2018 INSOL International and John Wiley & Sons, Ltd.

The European Insolvency Regulation and the UNCITRAL Model Law on Cross‐Border Insolvency

AbstractThis article compares the Recast European Insolvency Regulation of 2015 with the UNCITRAL Model Law on Cross‐Border Insolvency of 1997, focussed on their scope of application, international jurisdiction and the coordination of main and secondary proceedings. The scopes of both catalogues of norms and their rules on coordination of main and secondary insolvency proceedings reflect one another. However, the Recast EIR makes a significantly greater contribution to the unification of law and is also more fully differentiated and more precise, even if this comes at a price, namely, limited flexibility. The UNCITRAL Model Law made an important contribution to the harmonisation of international insolvency law but requires now modernisation. Copyright © 2017 INSOL International and John Wiley & Sons, Ltd.

From ‘Prisoner's Dilemma’ to Reluctance to Use Judicial Discretion: The Enemies of Cooperation in European Cross‐Border Cases

AbstractThis article will focus on Articles 41–44 of the Recast European Insolvency Regulation (Regulation 2015/848) and the dynamic of cooperation and communication between courts and insolvency practitioners. Two main ideas will be maintained. The first is that cooperation requires a legal framework which is certain—otherwise, prescriptions imposing duties of cooperation and communication might produce ‘prisoner's dilemmas’ and, paradoxically, unwillingness to cooperate. The second idea is that prescriptions imposing duties of cooperation and communication have an intrinsic open texture—this characteristic ontologically requires courts and insolvency practitioners to make choices between different rulings and activities. These findings imply that while interventions, both at European level and at national level, aiming at making the legal framework more certain are always welcome, interventions aiming at better specifying contents and extension of duties of cooperation and communication could be to a certain extent useless and even counterproductive. Copyright © 2017 INSOL International and John Wiley & Sons, Ltd.

Reconsidering Procedural Consolidation for Multinational Corporate Groups in the Context of the Recast European Insolvency Regulation

AbstractProcedural consolidation, as a solution to the rescue of insolvent multinational corporate groups (‘MCGs’), is said to be able to preserve group value for creditors. This article explores the desirability of procedural consolidation in the EU in the light of theories of corporate rescue law, cross‐border insolvency law, multinational enterprises and relevant EU cases with reference to the European Insolvency Regulation. It argues that, based on current cross‐border insolvency rules in the EU, there is an inherent difficulty for procedural consolidation in balancing the goal of preservation of group value and the goal of certainty. The article also considers the new ‘group procedural coordination proceedings’ offered by the Recast European Insolvency Regulation and argues that it may help to supplement the gap left by the procedural consolidation in the EU. Copyright © 2017 INSOL International and John Wiley & Sons, Ltd.

Grounds for Refusal of Recognition of (Quasi‐) Annex Judgements in the Recast European Insolvency Regulation

AbstractInsolvency‐related (annex) actions and judgements fall within the scope of the Recast European Insolvency Regulation (‘Recast EIR’). That instrument both determines international jurisdiction regarding annex actions and sets up a simplified recognition system for annex judgements. However, tension between the Recast EIR's provisions on jurisdiction and recognition arises when a court of a state different from the state of insolvency erroneously assumes jurisdiction for annex actions. Such ‘quasi‐annex’ judgements rendered by foreign courts erroneously assuming jurisdiction threaten the integrity of the insolvency proceedings. Besides, the quasi‐annex judgements may violate the effectiveness and efficiency of the insolvency proceedings as well as the principle of legal certainty. In this article, it is argued that even the current legal framework may offer some ways to avoid the recognition of such quasi‐annex judgements. First, the scope of the public policy exception may be extended in order to protect the integrity of the insolvency proceedings from the quasi‐annex judgements rendered by foreign courts erroneously assuming jurisdiction. Second, it may be argued that quasi‐annex judgements do not equal real annex judgements and therefore do not enjoy the automatic recognition system provided by the Recast EIR. At the same time, their close connection to the insolvency proceedings – disregarded by the forum erroneously assuming jurisdiction – may exclude quasi‐annex judgements from the scope of the Brussels Ibis Regulation, as well. As a consequence, those quasi‐annex judgements may fall within the gap between the two regulations, meaning that no European instrument instructs the courts of the member state addressed to recognise quasi‐annex judgements. Copyright © 2017 INSOL International and John Wiley & Sons, Ltd.

Reconsidering procedural consolidation for multinational corporate groups in the context of the recast European insolvency regulation

Procedural consolidation, as a solution to the rescue of insolvent multinational corporate groups (‘MCGs’), is said to be able to preserve group value for creditors. This article explores the desirability of procedural consolidation in the EU in the light of theories of corporate rescue law, cross-border insolvency law, multinational enterprises and relevant EU cases with reference to the European Insolvency Regulation.1 It argues that, based on current cross-border insolvency rules in the EU, there is an inherent difficulty for procedural consolidation in balancing the goal of preservation of group value and the goal of certainty. The article also considers the new ‘group procedural coordination proceedings’ offered by the Recast European Insolvency Regulation and argues that it may help to supplement the gap left by the procedural consolidation in the EU. Copyright © 2017 INSOL International and John Wiley & Sons, Ltd.

The European World of Insolvency Tourism: Renewed, But Still Brave?

Insolvency tourism and COMI migration have become key features in modern European international insolvency law. Fostered, in particular, by the ingenuity of the English insolvency industry. Yet it has not gone unanswered. The Recast European Insolvency Regulation introduces a not insignificant number of counter-measures as well as an antidote in the shape of a look-back period. Furthermore, as a prospective aftermath of Brexit, the race is on once more in the field of pre-insolvency restructuring measures.

The Recast European Insolvency Regulation

The Recast European Insolvency Regulation

Restructuring the European Business Enterprise: the European Commission’s Recommendation on a New Approach to Business Failure and Insolvency

Two events are currently changing the landscape for business restructurings in the European Union: the ‘Restructuring Recommendation’ (RR) of the European Commission, issued in 2014, and the 2015 recast of the European Insolvency Regulation (EIR). In this paper, we critically review the RR and put it into the context of the reform of the EIR. We find that the recast EIR and the RR do not dovetail perfectly—a restructuring proceeding as proposed by the RR would not necessarily be within the scope of the recast EIR; we also suggest that, in any case, the EIR is not optimally designed to facilitate restructurings, given its treatment of secured creditors. Regarding the regulatory approach pursued in the RR, the Commission rightly pushes towards harmonisation with respect to Member States’ restructuring regimes—regulatory competition is not a sensible regulatory alternative in this area. However, we criticise both the methodology and scope of the harmonisation proposal of the RR: sketchy minimum harmonisation of restructuring rules leaves huge potential for residual diversity in Member States’ restructuring laws, and the Commission’s narrow focus on restructuring proceedings ignores several aspects of the complicated interaction between the Member States’ formal insolvency laws and the restructuring mechanism proposed. Further, we disagree with the substantive recommendations for Member States’ restructuring laws suggested by the RR: they wrongly require financial difficulties or a likelihood of insolvency as an entry test for the recommended restructuring proceeding, and the process appears susceptible to abuse by sophisticated financial investors—it does not provide for the mandatory appointment of a supervisor and allows significant curtailments of creditor rights without sufficient safeguards in place. Instead, we propose an efficient debtor-in-possession (DIP) regime as an alternative that could be initiated regardless of a firm’s solvency, provided that it is economically viable and that the filing is not abusive.

Restructuring the European Business Enterprise: The EU Commission Recommendation on a New Approach to Business Failure and Insolvency

Two events are currently changing the landscape for business restructurings in the European Union: the “Restructuring Recommendation” (RR) of the European Commission, issued in 2014, and the 2015 recast of the European Insolvency Regulation (EIR). In this paper, we critically review the RR and put it into the context of the reform of the EIR. We find that the recast EIR and the RR do not dovetail perfectly – a restructuring proceeding as proposed by the RR would not necessarily be within the scope of the recast EIR; we also suggest that in any case the EIR is not optimally designed to facilitate restructurings, given its treatment of secured creditors. Regarding the regulatory approach pursued in the RR, the Commission rightly pushes towards harmonisation with respect to Member States’ restructuring regimes – regulatory competition is not a sensible regulatory alternative in this area. However, we criticise both the methodology and scope of the harmonisation proposal of the RR: sketchy minimum harmonisation of restructuring rules leaves huge potential for residual diversity in Member States’ restructuring laws, and the Commission’s narrow focus on restructuring proceedings ignores several aspects of the complicated interaction between the Member States’ formal insolvency laws and the restructuring mechanism proposed. Further, we disagree with the substantive recommendations for Member States’ restructuring laws suggested by the RR: the proposed restructuring rules wrongly require financial difficulties or a likelihood of insolvency as an entry test for the recommended restructuring proceeding, and the process might be abused by sophisticated financial investors as a tool to enrich themselves at the expense of outside creditors and/or the debtor firm – it does not foresee the mandatory appointment of a supervisor, and it allows significant curtailments of creditor rights without sufficient safeguards in place. Instead, we propose an efficient debtor-in-possession (DIP) regime as an alternative that could be initiated regardless of a firm’s solvency provided that it is economically viable and that the filing is not abusive.