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Blog 2017

2017-12-doc9 Three 'French' publications

Honoured to have contributed three times this year to 'French' (2 from France, one from Belgium) publications. These are the subjects:

We Can Work it Out: Cross-border Judicial Cooperation in Insolvency Cases in the EU,
in: Yves Brulard (ed.), L’insolvabilité nationale, européenne et internationale, Tome 1, Le règlement européen du 20 mai 2015, Limal: Anthemis, 2017, pp. 289-320.

Improving courts’ performance in restructuring and insolvency proceedings in the EU,
in: Mélanges en l’honneur de Jean-Luc Vallens. Liber Amicorum, Issy-les-Molineau: 2017, pp. 389-399.

European Law Institute’s project on Rescue of Business in Insolvency Law,
in: Andra Cotiga-Raccah et al. (ed.), Le nouveau droit européen des faillites internationales, Bruxelles: Larcier 2018, pp. 107-126.
 

2017-12-doc8 ELI Rescue report & UNCITRAL

Rescue of Business in Insolvency Law is a 400 pages report that was finalised Summer 2017. it has been approved by the European Law Institute (ELI) Council and the General Assembly of ELI last September. The report has been elaborated and by prof. Stephan Madaus and myself. I just saw that the Report has been downloaded (in 3,5 months) 182 times from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3032309. ELI has voted to have the report qualify as an ELI Instrument. The Instrument, which identifies a number of topics that are ripe for further approximation or harmonisation across Europe, includes 115 recommendations and is designed to assist those involved in a process of law reform and those setting standards for soft law in the business rescue context. On the occasion of the 52nd Session of the United Nations Commission on International Trade Law (UNCITRAL) Working Group V (Insolvency), the ELI (represented by its new president prof. Christiane Wendehorst) organised an event last week at the Austrian Ministry of Justice. My co-reporter Stephan Madaus presented the Instrument, elaborating on its aims, methodology and outcomes of the Project. In the recent ELI newsletter I read that Stephan thanked all the parties involved for their contributions, '... especially his fellow Co-Reporter Bob Wessels, who had conceived the Project.' See http://europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Newsletter/2017/N-D.pdf. I thank Stephan for presenting the report and for his kind words. In that context, to lift a corner of the veil, the idea itself was born in 2012, during a short discussion with Christiane at a reception in Philadelphia, at the annual meeting of  the American Law Institute, just after prof. Ian Fletcher and I had presented and discussed our report on ALI-III on Global Principles for Cooperation in International Insolvency Cases, I have reported about that project many times on this blog ... Anyway, the rest is history.

2017-12-doc7 Kan de professie het zich wijzigende insolventierecht volgen?

 

In die beschouwing concludeer ik: Het zijn niet alleen de insolventieprocedures van de lidstaten die zijn of worden hervormd door de toegenomen focus op de redding van bedrijven. Er zijn ook veranderingen gaande met betrekking tot de personen die betrokken zijn bij deze procedure. Traditioneel zijn deze personen of instanties in veel Europese landen in insolventieprocedures: de rechtbank, de insolventiebeoefenaars (vaak een jurist, soms een accountant) en in meerdere landen een toezichthoudende rechter of, in sommige landen, een crediteurencommissie. In anticipatie op dan wel in het kielzog van wetgevende veranderingen en vernieuwingen, zijn ook deze spelers in transitie. Zij moeten zich voorbereiden op toenemende bedrijfsherstructureringen, internationale contacten bij samenwerking in herstructureringen- en insolventiezaken en relatief nieuwe gebieden als fraude-detectie. In een onlangs gepubliceerde beschouwing: 'Het insolventierecht verandert stormachtig: kan de professie volgen?', in: ‘Waar niet is …’. Flarden uit de insolventie-onderzoekspraktijk, Grant Thornton Forensic & Investigation Services, december 2017, schreef ik, als slot, de tekst die hieronder is opgenomen.De bundel zelf bevat een 30-tal interviews met curatoren en artikelen over samen werken aan bestrijding van faillissementsfraude, het oorzaken-onderzoek en het veiligstellen van gegevens in faillissement.
De tekst luidt: Naast de genoemde personen en lichamen kunnen ook anderen een rol of functie hebben in voor-insolventieprocedures. De Europese Commissie geeft hen ook een eigen plaats als de ‘deskundige op het gebied van herstructurering’, die bijvoorbeeld de schuldenaar of de schuldeisers bijstaat bij het opstellen van of het onderhandelen over een herstructureringsplan of het houden van toezicht over de activiteiten van de schuldenaar tijdens de onderhandelingen over een herstructureringsplan en daarover verslag uitbrengen. Daaronder vallen een gerechtelijk aangestelde bemiddelaar of toezichthouder, een mediator die lastige onderhandelingen over een herstelplan begeleid  of – in een vroegere fase van algemene financiële bedrijfsproblemen – een turnaround adviseur.
Zijn de huidige insolventie-professionals voldoende toegerust om conform de toevloed aan vernieuwde regels te handelen? Zijn in Nederland relatief nieuwe partijen als accountants, toezichthouders, bedrijfsherstelspecialisten of turnaround adviseurs op hun nieuwe taken berekend? De inhoudelijke vernieuwingen tonen aan dat het in ieder geval noodzakelijk is brede expertise te hebben op het gebied van herstructurerings- en insolventierecht, vennootschapsrecht of algemeen contractrecht als ook om kennis te ontwikkelen over zaken als financiële herstructurering, zorgvuldige boekhouding en administratie, jaarrekeningen en belastingen, mediation, strategie, communicatie en bedrijfskunde om te slagen in de zoektocht naar synergie tussen onderdelen van een groep.
Een belangrijk punt in elk herstructurerings- en insolventiestelsel is dat een insolventiebeoefenaar voldoende competent (knowhow, vaardigheden en professionaliteit) is en het vertrouwen en respect van alle stakeholders heeft. Zonder dat, is een systeem gedoemd tot falen. Daarom zijn veranderingen in materiële regels, waaronder regels en praktijken in de pre-insolventiefase, evenzovele uitdagingen voor elke beoefenaar en beroepsorganisatie om tred te houden met deze ontwikkelingen. Turbulente tijden met rusteloze regels vereisen gekwalificeerde en stevige professionals.

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 http://globalrestructuringreview.com

2017-12-doc5 Extension of administration; what abour Brexit?

Many of my students have studied the Nortel Network case, including the one decided by the England and Wales High Court of Justice (Ch. Div.) [2009] EWHC 206 (Ch),  in which the joint administrators of Nortel Networks UK Limited and 18 other companies in the Nortel Group of companies sought directions from the court how to handle certain matters with creditors abroad. It was one of the cases that insprired the European law maker to introduce Article 36 EIR 2015 Recast, ending in a result that rather has drifted away from the original typical English undertaking. See my book International Insolvency Law Part II (2017), para. 10836f and onwards. Anyway, over 8 years later, on 14 December 2017, the joint administrators of Nortel Networks UK Limited and the other 18 companies approach the court once more, see England and Wales High Court (Chancery Division) 14 December 2017, [2017] EWHC 3299 (Ch). They wish to extend their terms of office by a period of 12 months, to 13 January 2019. Their terms of office had been extended on four previous occasions, most recently by that same Court on 2 December 2015, by 24 months to 13 January 2018: see High Court of Justice [2015] EWHC 3618 (Ch). The period of extension sought by the administrators is only one year, namely to 13 January 2019. Why an extension for one year only? The High Court continues:
'That is largely because of the uncertainty caused by the fact that on 29 March 2017 HM Government gave notice of the United Kingdom's intention to withdraw from the European Union. That withdrawal is expected to take effect on 29 March 2019. The uncertainty arises because the administrations (and where applicable the CVAs) of the Companies are main proceedings for the purposes of the Regulation (EC) on Insolvency Proceedings 2015 (No 2015/848) (the "Recast Insolvency Regulation"). Pending the completion of any withdrawal agreement between the UK and the European Council, it is uncertain whether and if so, how, the Recast Insolvency Regulation will apply to the administrations of the Companies or the CVAs and what, if any, recognition will be given to the Administrators or the CVA Supervisors by the courts of the EU Member States after 29 March 2019. Given this uncertainty, the Administrators consider, and I agree, that it is prudent not to extend the administrations beyond 29 March 2019 at this stage.'
Subject to reaching final agreement with the local tax authorities, the administrators consider that it should be possible to complete the administrations of the companies (other than three of them, one of which is the company responsible for making distributions) within a one year extension period. What about a new extension? The Court:
'The Administrators intend to seek further directions in late 2018 in respect of the administration of any of the Companies which is likely to continue beyond 13 January 2019. By that time, it is hoped that the position of the administrations and CVAs following the withdrawal of the United Kingdom from the European Union will be clearer.'
Snowden J, therefore, proposes to grant the one year extensions sought by the administrators.