It’s near to a year that the Insolvency Regulation (Recast) (or EIR 2015) came into force, see http://www.bobwessels.nl/blog/2017-06-doc10-here-i-am-eu-insolvency-regulation-recast/. As the theme regulates cross-border insolvency in the EU and is laid down in a EU Regulation, a member state cannot divert from its content. Experience with the its predecessor, the original Insolvency Regulation (EIR 2000), which entered into force in May 2002, however, proved that it is useful for national legislators to safeguard a seamless and effective adoption of a Regulation, by arranging for legislation concerning the incorporation of the EIR 2000 (including compatibility with certain elements of domestic law) into national law.
Initiated and chaired by the authors, a group of European academics and practitioners has conducted a survey (between October 2017 and March 2018) investigating the way in which a number of member states (Finland, France, Germany, the Netherlands and draft legislation of Italy) have responded (or partly, or not) to the need for compatibility between the Insolvency Regulation (Recast) and these member states’ domestic rules. The members of this group were Giorgio Corno (Studio Corno Avvocati, Italy), prof. em. Ian Fletcher (University College London, UK), prof. Tuula Linna (University of Helsinki, Finland) and prof. Ignacio Tirado (University Autónoma of Madrid, Spain). Prof. Stephan Madaus (Martin Luther University, Germany) and myself acted as co-reporters.
Ten queries were formulated, especially related to the new norms and concepts in the Recast. Here I provide just one example of these, concerning the relation between main and secondary insolvency proceedings. Article 36 EIR 2015 provides for a European concept of an ‘undertaking’. The insolvency practitioner (IP) in the main insolvency proceedings can give to local creditors in another member state such an undertaking to prevent the opening of secondary proceedings in that other member state. Two subparagraphs in Article 36 (from a total of eleven (!)) have been analysed, Article 36(5) (‘Approval of an undertaking in order to avoid secondary insolvency proceedings’) and Article 36(8) (‘Local creditors may apply for suitable measures’).
It may seem surprising, therefore, that some legislators decided not to introduce specific legislation on how to proceed. In Finnish legislation, for instance, Article 36(5) is not particularly addressed, whilst in the Netherlands, the provision in the Regulation itself is regarded as containing a complete regulation. Other national legislators, however, specified the process of accepting an undertaking under national law. French law permits the IP who has been appointed in main proceedings opened within French territory to make an undertaking to local creditors of an establishment belonging to the debtor situated in the territory of another member state. The existence of a valid undertaking permits the court, however, to reject a request for the opening of insolvency proceedings, provided that the practitioner or debtor-in-possession can justify its compliance with the terms of new provision concerning agreement of the creditors and approval by the court. For the latter situation, the IP is required to file a petition with the President of the designated Commercial Court or High Court with jurisdiction over the territory where the debtor’s establishment is situated with view to having the undertaking approved. Without the approval, the undertaking does not come into force, although an application may still be made for the opening of secondary proceedings within 30 days of the approval being forthcoming. Germany has included rather detailed provisions about the procedure applicable for the approval of an undertaking by local German creditors. The IP in the main proceeding initiates the voting procedure, which can be done electronically. He informs all known creditors and asks them to file their claims for a determination of voting rights. Disputed claims would be allowed to vote. Only if the result of the vote depends on the admission of disputed claims, the court would need to decide about their admission. The IP would inform all local creditors about the outcome. Any court decision would be deferred to the moment specified in Article 38(2) EIR 2015, so no immediate court approval would be required to approve an undertaking. Any dissenting local creditor may file for secondary proceedings where the local court would have to decide about the approval and the binding force of an undertaking according to Article 38(2) EIR 2015.
Some legislators also included rules on the enforcement of an undertaking under Article 36(8) EIR 2015 (‘Local creditors may apply for suitable measures’).
German law addresses too the rules on jurisdiction in Article 36(7)-(9) EIR 2015 by assigning a competent German insolvency court or referring to the (foreign) court of main proceedings. There is no specific rule on a possible conflict in the content of decisions from the foreign and the local court. Following the general rules of procedural law, the former decision would prevail as far as it decides about a request (res judicata). French law allows local creditors of an establishment belonging to the debtor situated in the territory of another member state to object or to bring a request under the terms of Article 36(7)-(8) EIR 2015 the French courts in order to obtain adherence to the undertaking made by the insolvency practitioner, to ensure its compliance with the applicable law or to obtain any suitable measures/relief towards these ends. Any judgment of the court may be appealed by the IP, the debtor-in-possession, a petitioning creditor or the Public Prosecutor. Draft legislation in Italy allows that local creditors may apply to (i) the deputy judge of the main proceedings opened in Italy to require the insolvency practitioner in the main insolvency proceedings to take any suitable measures necessary to ensure compliance with the terms of the undertaking available under the law of the State of the opening of main insolvency proceedings under Article 36(8) EIR 2015, or (ii) the court which has jurisdiction considering the place where the establishment of the debtor is located to take provisional or protective measures to ensure compliance by the insolvency practitioner with the terms of the undertaking, in accordance with Article 36(9) EIR 2015. Orders issued upon requests of local creditors may be challenged in accordance to ordinary Italian rules applicable to insolvency proceedings. Both Finland and the Netherlands do not address the matter.
In the survey domestic responses from the countries mentioned have been assessed, relating to (i) the international jurisdiction of a court in a member state to open insolvency proceedings and the choice of law (or: private international law) provisions; (ii) the (automatic) recognition of these proceedings in other member states; (iii) the duties for insolvency practitioners and courts to cooperate and to communicate with each other in cross-border insolvency matters; and (iv) the specific system for insolvency proceedings of members of a group of companies. From the survey, it follows that legislators in member states are rather reserved when drafting legislation to realise the recast Insolvency Regulation. If member states provide for domestic legislation, significant variations can be seen. Some legislators assess that the provisions under the EIR 2015 are rather complete, leaving little or no room for supplemental national rules. Others, however, prefer to explain the decision-making processes and the venues of courts to hear and decide remedies found in the Regulation. As a consequence, the study calls on national legislators in EU member states to review their assessment, or to initiate assessment, and to better coordinate efforts in order to (i) prevent unnecessary confusing differences; (ii) save costs, precious court time (procedural battles in court) and effort (delay and costs of litigation) in finding these out; and (iii) encourage/strengthen effective and efficient national (procedural and substantive) rules to realise the Insolvency Regulation (Recast). The European Commission is invited to promote coordinated efforts in the realisation of the EU Insolvency Regulation in Member States, by taking appropriate initiatives, such as the creation of a body of knowledge to support Member States, the preparation of best practices in aligning these efforts, as well as ensuring coherence and efficiency by professional and dedicated staff support.
The full Report is available as the Conference of European Restructuring and Insolvency Law (CERIL)’s Report 2018-01 on CERIL’s website, see http://www.ceril.eu/uploads/files/20180604-ceril-report-2018-1-final-version.pdf. For CERIL, see also https://www.law.ox.ac.uk/business-law-blog/blog/2017/03/conference-european-restructuring-and-insolvency-law-founded.