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Welcome /  Blog /  2017-12-doc6 Opting out of group proceedings

2017-12-doc6 Opting out of group proceedings

So, you’re in the EU and since a few days you act as an insolvency practitioner, appointed in insolvency proceedings of a company, that is a subsidiary of a parent company, incorporated in another member state. You receive a request to be a part of group coordination proceedings. How do you react?

First of all, you will be aware of the phenomenon of group coordination proceedings as introduced in the EU Insolvency Regulation (recast) (‘EIR 2015’) and in force since 26 June 2017. The EIR 2015 contains a novelty, in that groups of companies are addressed in a Chapter V: ‘Insolvency proceedings of members of a group of companies’, with over 20 articles (Articles 56 to 78 EIR 2015). The drafters of the EIR 2015 did not have the purpose to introduce an exclusive regime for the insolvency of members of a group in the EU. Recital 53 expresses particularly that the introduction of rules on the insolvency proceedings of groups of companies ‘… should not limit the possibility for a court to open insolvency proceedings for several companies belonging to the same group in a single jurisdiction if the court finds that the centre of main interests of those companies is located in a single Member State. In such cases, the court should also be able to appoint, if appropriate, the same insolvency practitioner in all proceedings concerned, provided that this is not incompatible with the rules applicable to them.’ This reads like an invitation to continue with the proven method that have been used in many cases, e.g. Daisytek or Nortel Networks. The EIR 2015 merely strives to improve the coordination of the insolvency proceedings of members of a group of companies, and to allow for a coordinated restructuring of the group. Such coordination should aim to ensure the efficiency of the coordination, whilst at the same time respecting each group member’s separate legal personality (see recital 54 EIR 2015).

Therefore, nothing structural for groups themselves, merely coordination of insolvency proceedings of its members. It is important to note that group coordination proceedings only have a voluntary nature (for the member of the group to be included in group coordinating proceedings). In addition, these proceedings just lead to rather non-binding actions of a group coordinator. Consequently, it is no surprise that the whole system has been criticised as missing effectiveness and practical value.

Nonetheless, via a foreign court you as IP received a notice with the invitation to join. What is your position? The IP appointed in respect of any group member has the right to object to be included within the group coordination proceedings. Recital 56 provides that in order ‘… to ensure the voluntary nature of group coordination proceedings, the insolvency practitioners involved should be able to object to their participation in the proceedings within a specified time period’. The IP’s decision is based, mainly, on received information in the notice received in conjunction with his obligations by fulfilling his role as IP, based on national law.

So, an IP appointed in respect of any group member has the right to opt-out (ie the right to object to be included within the group coordination proceedings) (Article 64(1) EIR 2015). It should be noted that any insolvency practitioner who initially objects to the inclusion in the group coordination proceedings has the right to subsequently request to participate in them (to ‘opt-in’). See Article 69 EIR 2015. The IP in the meaning of Article 64(1) also can be a debtor in possession (Article 76), but no right to object exists for creditors, directors (in case a national law allocates ‘left over’ powers to the statutory management), shareholders or public authorities.

The right to object is limited to two situations, see Article 64(1)(a) and (b), ie the inclusion of the insolvency proceeding against the member in group coordination proceedings themselves and to object against the person of the group coordinator. The consequences of an objection are laid down in Article 65 (see below). It is noticeable that Article 64 does not explicitly require to give reasons for the objection. However, it is my point of view that the (objecting) IP is well-advised to provide a substantiated statement of the reasons for his objection. Anyway, regardless the objection, the opening decision regarding group coordination proceedings for the other members of the group can be taken. The objection can also be made against the person proposed as a coordinator. Also here, the (objecting) IP is well-advised to provide a substantiated statement of the reasons for his objection to the proposed coordinator, as the objection will not automatically lead to the appointment of another one. An IP, considering to object, should not only make a legal calculation (complexities, costs, loss of time), but also take account of an external perspective: what will the general group of creditors or the market think when I, as the only one, do not want to joint what will be presented as a coordinated effort to get the maximum value for the whole group. Some PR advise may be helpful here.

The appointment is to the discretion of the court which may request the objecting IP to present a new request in the meaning of Article 63(1). In its decision, the court has to weight the strength of the objection to the person of the coordinator against the fact that other IPs, by not objecting, seem comfortable with the person. Article 64(1) EIR 2015 seems to limit the subject of the objections to the two given examples. What if the IP wishes to protest against the outline of the estimated costs and the share of the cost to be paid by each group member. I would like to limit legal fights to the minimum in this early stage of the proceedings. In the light of the efficiency strived for I support the view to limit the objections to the two mentioned in Article 64(1)(a) and (b).

Objections referred to in Article 64(1)(a) and (b) shall be lodged with the court which gave the notice, within 30 days of receipt of notice of the request for the opening of group coordination proceedings pursuant by the insolvency practitioner who objects. The lodgement period runs separately and independently for each of the IPs. The time of receipt of the notice is evidenced by the acknowledgment of receipt as required by Article 63(3) EIR 2015.

The consequences of the objection by the IP are threefold: (i) the proceedings in which he is appointed shall not be included in the group coordination proceedings, so the group member in question will neither be subject to any duties arising from the group coordination proceedings not have any rights, (ii) the opening decision pursuant to Article 68 shall have no effect as regards that member (in the insolvency proceedings the IP is appointed), and (iii) and no costs for that member shall be entailed. See Article 65 EIR 2015. These consequences even apply if the group coordination proceedings have any indirect positive effects for the group member in question. The legal consequences mentioned leave untouched national rules, e.g. the liability of the IP towards the creditors of the proceedings in which he is appointed.


If the objecting IP agrees with being included in the group coordination proceedings, however objects to the person proposed to these coordination proceedings, Article 67 EIR 2015 provides that the court may do two things: (i) refrain from appointing that person, and (ii) invite the objecting insolvency practitioner to submit a new request in accordance with Article 61(3). As indicated before, the (objecting) IP should provide a substantiated statement of the reasons for his objection to the proposed coordinator. A simple ‘njet’ should not be enough.

It is to the discretion of the court (‘may refrain’) whether or not to appoint the proposed person as coordinator despite the objection made. The court will also take into account the criteria and requirements pursuant to Article 71: (i) eligibility to act as an insolvency practitioner, and (ii) no conflict of interest in respect of the group members, their creditors and the IPs appointed in respect of any of the group members. Even in case these requirements are met, the court can refrain from appointment. The court may come to the conclusion that the proposed coordinator is not suitable, for example because he or she lacks experience in large and/or international cases, lacks the required language proficiency, or simply because he or she lacks the necessary trust by the other parties involved to fulfil its tasks in an efficient mannor. If the court decides to refrain from appointing the proposed person against whom the objection was made, it shall invite the objecting insolvency practitioner to submit a new request. It seems to follow from the text that the whole process of coming to group coordination proceedings starts all over again. Or is it the alternative: only the decision of opening of group coordination proceedings will be postponed and a request should be made with a proposal for another person as coordinator. Where there is no objection to the inclusion in group coordination proceedings as such and other courts do not have international jurisdiction it is sufficient that the objector should submit a new request at the same court. The court is not allowed to appoint a person as coordinator that has not been proposed, either by the initial request or based on the new request.

An opt-in remains possible. The initial objector is able to subsequently request to participate in group coordination proceedings. In such a case the coordinator decides. Such a subsequent opt-in of another group member may have significant repercussions for the entire coordination concept. For this reason, the subsequent opt-in requires the coordinator to accede to the opt-in request, which is subject to certain conditions being met (see Article 69(2)). In line with the contractual nature of group coordination procedures and to guarantee a fair procedure, Article 69(3) requires all insolvency practitioners to be informed of the coordinator’s decision and Article 69(4) gives them the possibility to contest it before the court which has opened the coordination proceedings.

This is a slightly adapted version of a regular column Bob Wessels is writing for Global Restructuring Review (GRR) on the topic of cross-border restructuring and insolvency in a European context. GRR is a subscription-only publication, but here is a link to the full piece, which appeared in September 2017, on GRR’s website at