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Welcome /  Blog /  2019-10-doc10 Improving the role of courts in quality and effectiveness

2019-10-doc10 Improving the role of courts in quality and effectiveness

Below, conclusion and recommendations, to be published as contribution to the ACURIA project, which aims to identify legal and procedural strategies, blockages and best practices in the field of undertakings' insolvency and restructuring law that can be replicated or prevented in different legal and judicial systems, therefore enabling courts to provide a more accurate and fair response. The project is a joint effort between universities in Coimbra (Portugal), Firenze (Italy), Maastricht (Netherlands) and Gdansk (Poland) and funded by the European Commission. See https://acuria.eu/

Energizing courts to continue to break new ground in insolvency and restructuring cases
By Bob Wessels

[…]

7 Conclusion and recommendations

38 For cross-border cases within the EU, Article 42(1) EIR 2015 clearly establishes a duty for courts to cooperate and communicate in relevant cases with each other. Cross-border communication between judges in the EU is, in insolvency matters, rather a new phenomenon for quite some EU Member States. Drafted (with the input of some thirty judges from the EU) and published in 2015, the EU Cross-Border Insolvency Court-to-Court Cooperation Principles (‘EU JudgeCo Principles’) may serve as a supportive tool, offering a set of non-binding recommendations on cross-border communications and cooperation between courts in insolvency cases within the European Union.
[footnote] Recently, in the area of international family law, the explicit cross-border duty to cooperate and to communicate has been duly noted. In Germany national soft law instuments for court-to-court cooperation in family matters in national cases are being used, however the avalability of international guidelines as an aid for cross-border cooperation has been strongly recommended, see Martin Menne, Die Arbeit der deutschen Verbindungsrichter im internationalen Familienrecht; eine Darstellung anhand von Beispielen, in: Zeitschrift für Europeäisches Privatrecht 2019, 473ff., and by the same author, Öl im Räderwerk des internationalen Familienrechts, in: Interdisciplinäre Zeitschrift für Familienrecht (iFamZ), August 2919, 280ff.

39 In cross-border insolvency cases and, in increasingly in the future, in national restructuring and insolvency cases, courts encounter new challenges and the judges’ quality and professionality will be of uppermost importance.
In our 2017 report for the European Law Institute, prof. Madaus and I submit that the greater number of the aspects of the deontology displayed for a ‘liquidator’ by the European Parliament (being (i) competency; appointment; good repute; educational background needed for the performance of his/her duties, (ii) must be competent and qualified to assess the situation of the debtor’s entity, (iii) independent, (iv) in the event of a conflict of interest, he/she must resign from his/her office) will for a judge or a court be regulated in any way or form in the Member States’ constitution and/or its procedural legislation. In any EU Member State, the function of judges is the prerogative of the sovereign state. Still, EU Member States should use their regulatory powers to secure a degree of specialisation within the court system and ensure that judges are appropriately qualified to handle every-day liquidation cases as well as complex rescue procedures or cross-border cases.
Member States should evaluate their court systems against certain key factors which can indicate which alternative seems the best, given the circumstances of the case, respectively introduce a framework that allows these factors to be balanced in a particular case. Key indicators include:
(i) the avoidance of heavy costs for courts,
(ii) the general need to decide in insolvency matters with urgency and speed,
(iii) the general preference of disputants for confidentiality and to limit court involvement,
(iv) the wish to save resources for the insolvent estate, and
(v) ensuring easier implementation (e.g. of a cross-border rescue plan) or (vi) streamlining notices to creditors, as well as general business considerations, such as gaining time and efficiency and tapping on available expertise.
[footnote] We leave aside another method for achieving speed, namely technology or a per case digital forum, see Chaz Rainy, ‘Finding a Forum for Insolvency: Using Digital Forums to Improve Due Process in Insolvency Proceedings While Preserving Speed, Certainty, Discretion, and Cost Considerations’, 10 July 2015, available at https://ssrn.com/abstract=2657473.
Considering the great diversity of restructuring and insolvency cases, Member States should not only provide for specialised insolvency courts or chambers. They should also introduce a further specialised subsection or jurisdiction for (bigger) rescue and/or cross-border-cases because such cases require a specific set of qualification and experience that should be concentrated with specific judges in much more specialised courts. The design of the reforms in England, France and the plans in the Netherlands provide excellent examples of a possible structure.

40 Judges appointed to hear insolvency cases should have a special set of qualification while judges in specific restructuring or cross-border chambers should receive additional training. Every judge at an insolvency court should:
1.    be impartial and independent in any case, and
2.    in general have an understanding of business management issues,
3.    understand what it needs to effectively enforce the rights of both secured and unsecured creditors outside of insolvency proceedings,
4.    have specialised in commercial law matters, and
5.    have acquired insolvency expertise.

41 Member States should reflect these preconditions when appointing judges to insolvency courts or chambers. People appointed can have a legal, but also a business education – depending on the judicial tasks in the respective jurisdiction for an insolvency judge. Experiences with lay judges handling cases at the local level in France have proven that such appointments are an option. If suitable candidates are not available, Member States must provide for respective training. In addition, Member States should ensure the required level of experience and expertise by requiring and guarantying a judge’s term for a minimum number of years in the field of insolvency and restructuring. When appointing judges for further specialised chambers for restructuring or cross-border cases, Member States must safeguard the expertise necessary for the task by choosing from judges with experience in commercial and insolvency law that receive additional training in restructuring and international insolvency law. The establishment of national and international organisations of insolvency judges (e.g. BAKInsO in Germany, Judicial Wing at INSOL Europe or at the International Insolvency Institute (III), or the network of judges (and other experts) at the IEEI (International Exchange of Experience in Insolvency) has proven the potential of educating judges on a non-mandatory level while also organising their influence in the political process in EU Member States or at the EU level.

42 Courts themselves may wish to improve their level of quality and effectiveness. They could commit themselves to the development of a professional standard, a benchmark to continuously test the level of the key components of being a ‘good’ judge. The initiative on a national level could be taken by a national conference of judges or by certain courts themselves. In addition to a national standard a professional standard in matters of restructuring and insolvency could be developed. Elements of this standard would focus on the substance of a judicial decision, that such decisions would be on time, the flexibility of the organisation of persons involved (judges as well as supporting staff) and their expertise. The EU Preventive Restructuring Directive serve as a basis for implementing these improvements. Where such qualification requirements cannot be met, Member States should not give the court a central or an active role in the management of liquidation or reorganisation proceedings. It seems appropriate, to conclude this contribution with four of the recommendations prof. Madaus and I have formulated and which are commended for discussion:

Recommendation 1.03: Member States should provide for specialised courts or chambers to handle restructuring and insolvency cases. In addition, Member States should introduce a further specialised subsection for hearing rescue and cross-border-cases which require a specific set of qualifications and experience that should be concentrated with specific judges specialised in these matters.

Recommendation 1.04: Member States and courts should recognise that the performance of restructuring and insolvency tasks by courts and its judges requires the continuous strengthening of judicial independence, and the appearance of such independence.

Recommendation 1.05: Member States should ensure the proper qualification of judges at such specialised courts when making appointment decisions. Member States should also ensure the further education of appointed judges by supporting further training and by setting mandatory minimum terms of judges within these courts to incentivise the acquisition of the requisite expertise and experience. They should also encourage and support judges to actively participate in national and international networks of insolvency judges.

Recommendation 1.06: The EU, Member States and courts should actively develop methods to effectively improve judges’ performances by either
(i)    concentration of courts with jurisdiction to decide in matters of restructuring and insolvency
(ii)    selecting certain matters in which courts can be addressed to provide their view in certain matters of market uncertainties,
(iii)    developing specific education beyond the boundaries of general legal competence,
(iv)    developing and applying professional insolvency standards to assess performance,
or by a combination of these.