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2017-09-doc5 On Annex A of the Insolvency Regulation

Interview published in Global Restructuring Review ( published on its blog on 24 August 2017 on the theme: Who's in charge of Annex A? GRR editor Kyriaki Karadelis: Just a few weeks after the entry into force of the recast European Insolvency Regulation, the European Commission is inviting comments on a legislative proposal to change its Annex A - a list of all of the EU insolvency proceedings to which it applies - so that it includes newly-created Croatian legislation. The Republic of Croatia initated the legislative proposal that was published on 9 August 2017. It would see the European Commission amend Annex A to include new pre-insolvency proceedings and consumer insolvency proceedings introduced locally in the member states this January. Interested parties can submit feedback on the proposal. The comments period lasts for eight weeks, ending 4 October. Professor Wessels, can you tell us about the relationship between the recast European Insolvency Regulation (EIR 2015) and Annex A: what is the function of Annex A? Wessels: The EIR 2015 is more than twice as voluminous as the old regulation. It contains 89 recitals, 92 articles (in seven chapters) and four annexes. Annex A lists all the national terms for insolvency proceedings falling under the scope of EIR 2015. Annex B lists all the national terms for insolvency practitioners. Annex C lists all the repealed regulations, including regulations amending the annexes and the former Insolvency Regulation 1346/2000, and Annex D has a table showing the correlation between the articles in the old regulation of 2000 and the EIR 2015. The EIR 2015 applies to 27 EU member states (Denmark excluded), which together count roughly 100 different types of national insolvency proceedings (listed in Annex A) and around 110 names for national insolvency practitioners as they are now called (Annex B). As to the function of Annex A, the relationship between the definition of "insolvency proceeding" in the old regulation and Annex A was debated throughout the old regulation's life for some 15 years. Under the EIR 2015, the clear starting point is that "bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings and actions related to such proceedings" are excluded from the scope of the Brussels Judgments or Brussels I Regulation. There should be no gap between these proceedings and the proceedings covered by the Insolvency Regulation. The interpretation of this latter regulation, therefore, should as much as possible avoid regulatory loopholes between the two instruments. However, the mere fact that a national procedure is not listed in Annex A to the Insolvency Regulation should not imply that it is covered by the Brussels I Regulation. Annex A therefore has a defensive function: if a proceeding is not listed on it, this does not automatically mean that it falls under the scope of Brussels I. Annex A, in addition, has an affirmative function. The EIR 2015 says it should apply - at recital 9 - to insolvency proceedings that meet the conditions set out in it, irrespective of whether the debtor is a natural person or a legal person, a trader or an individual. "In respect of the national procedures contained in Annex A, this Regulation should apply without any further examination by the courts of another member state as to whether the conditions set out in this Regulation are met. National insolvency procedures not listed in Annex A should not be covered by this Regulation," the text states. The EIR 2015 does not allow room for mistakes: Annex A is exclusive and decisive and any proceeding mentioned on it must benefit from the regulation's system of automatic recognition in any other member states, without any checks by, for instance, the court of that other member state. GRR: So if any member state introduces new insolvency proceedings and notifies the change in domestic legislation, will the Commission list this proceeding on Annex A? Wessels: The method of operating with lists has been taken from the 1990 Istanbul Convention, which never went into force. In legal literature, the question had been raised as to whether using this method serves to guarantee the simple applicability of different types of national insolvency proceedings in practice, or whether it arises out of a lack of confidence in the generic, abstract definition of collective insolvency proceedings supplied in article 1 of the EIR. The former regulation contained a provision that the European Council, acting by qualified majority on the initiative of one of its members or on a proposal from the Commission, may amend the annexes. Since 2002, it has done so eight or nine times. The present EIR 2015 is rather inflexible, as it lacks such a provision. Any "new" national insolvency proceeding introduced in a member state after 26 June 2017 must lead to the formal amendment of the regulation itself, via the formal ordinary legislative procedure as laid down in article 294 of the Treaty on the Functioning of the European Union (TFEU), which is cumbersome and time-consuming. GRR: Why has this system been chosen and why has it been made harder to change Annex A? Wessels: In literature some seven alternatives were discussed, from deleting the Annex all together; to giving it a non-binding descriptive function to assist the interpretation of the definition of an insolvency proceeding in article 1; to having the annex list insolvency proceedings after adoption through a delegated act in accordance with article 290 TFEU; or to giving the Annex a decisive meaning, with the result that the annex in nature and form is an integral part of the regulation. The Commission's proposal of 2012 included a system empowering it to adopt delegated acts to amend the annexes in accordance with a procedure laid down in that proposal. Although these suggestions passed the European Parliament, the Council, which is the representative body of member states, was not inclined to handover any power in this regard to the Commission. Ultimately the last option mentioned was chosen. See the last line of article 1(1) of the EIR 2015, where it is explicitly said: "The proceedings referred to in this paragraph are listed in Annex A". GRR: What's the main drawback of this new system? Wessels: It's what I have called "uncontrolled self-promotion". Under the EIR 2015, a method of self-promotion has been introduced for member states with recently-enacted domestic insolvency proceedings, without a proper verification test. It means you can promote your national insolvency proceeding to the European league - so it must be recognised in other member states - without a meaningful check. Of course I am not saying that Croatia has done so, I am just not sure. GRR: Why do you have doubts? Wessels: Based on the Commission's document of 9 August, I understand that the Republic of Croatia notified the Commission of recent changes in its domestic insolvency law on 3 January, introducing new types of insolvency proceedings, as the Commission says, "such as a pre-insolvency proceeding and a consumer's insolvency proceeding". Until now Hrvatska (Croatia's name in its domestic language) had listed in Annex A only one proceeding "Stečajni postupak", and according to the proposal there will now be three proceedings: stečajni postupak, predstečajni postupak, and postupak stečaja potrošača. The Commission states that it has carefully analysed Croatia's request "in order to ensure compliance of the notification with the requirements of the Regulation", with the result that it found, "Those new insolvency proceedings are consistent with the definition of ‘insolvency proceedings' under Regulation (EU) 2015/848". The analysis itself, as far as I can see, has not been published. Again, I am not saying that the proceedings mentioned are not to be regarded as collective insolvency proceedings, it is just a mystery to me how "Brussels" has tested this. As automatic recognition abroad of a domestic insolvency proceeding can influence many creditor's rights and may influence the law applicable to legal relationships, any system should include a transparant method of checking whether a new domestic insolvency proceeding fits indeed the definition of article 1, which itself is not fully clear either. GRR: What checking mechanism would you suggest? Wessels: Well, as a matter of fact the recast EIR 2015 contains article 89 on Committee procedure, providing that the European Commission shall be assisted by a Committee within the meaning of EU Regulation No. 182/2011. The idea is to ensure uniform conditions for the implementation of the EIR 2015. In June, the European Commission adopted implementing acts for four new forms: (i) the standard notice form to be used to inform known foreign creditors of the opening of insolvency proceedings (article 54(3) EIR 2015), (ii) the standard claims form which may be used by foreign creditors for the lodgement of claims (article 55(1)), (iii) the standard form which may be used by insolvency practitioners appointed in respect of group members for the lodgement of objections in group coordination proceedings (article 64(2)), and (iv) the standard form to be used for the electronic submission of individual requests for information via the European e-Justice Portal (see article 27(4)). Those implementing acts have been adopted, as the respective documents say, after a consultation with the Committee established by article 89(1) of the EIR 2015. We remain in the dark as to whether there was any involvement of this Committee in Croatia's proposal of 9 August. As the procedure for amending the annexes under the old regulation was rather troublesome, in 2011 I suggested an advisory body to assist the Commission or the European Parliament at its own motion, or at the request of the Commission or the European Parliament respectively, on technical and policy issues relating to insolvency practice and regulation, as well as Commission proposals in that field. Such a committee could assist the Commission in scrutinising whether a national insolvency proceeding suggested for listing in Annex A is indeed such a proceeding. The advisory body I suggested never has been established - a fate not uncommon for ideas put forward by academics - but equally the article 89 Committee does not appear to have been involved, as it was, I understand, when establishing the forms mentioned. GRR: Isn't there a more efficient alternative? Wessels: In March, Italian professor Stefania Bariatti presented a more flexible and prompt method to add new national procedures. She suggests that member states should, where possible, without constituting a circumvention of the exhaustive nature of Annex A, qualify new proceedings that will be introduced in their national legislations as a sub-category of proceedings that are already listed in Annex A. In such a case, it is suggested, courts should apply the EIR 2015 without any examination. When it is not possible to update Annex A via this solution, the formal ordinary legislative procedure to amend the regulation should be adopted. I am not in favour of such an approach, which is hardly consistent with the principle of mutual trust between member states, and which leaves "self-promotion" by a member state to the state's uncontrolled discretion. The Italian proposal suggests that article 1 should be interpreted as a substantive provision, functioning as a blueprint to be taken into account when deciding on the proceedings to be included in Annex A. Where some of its terms will not be known in, or do not reflect appropriately terms in, national insolvency laws of member states (terms such as "interim proceedings", "rescue", "negotiations between the debtor and its creditors" of "likelihood of insolvency") the recommendation may trigger an unaligned interpretation of terms as they appear in the laws of a member state, with a lopsided result. Moreover, some of these terms have a specific meaning within the EIR 2015. The European Court's 2011 decision in Interedil has stressed that it follows from the need for uniform application of EU law and from the principle of equality, that the terms of a provision that makes no express reference to the law of the member states for the purpose of determining its meaning and scope, must be given an autonomous and uniform interpretation throughout the Union, having regard to the context of the provision and the objective pursued by the legislation in question. Concepts peculiar to the EIR 2015, such as "centre of main interest" (COMI) or "rescue", "adjustment of debt" or "reorganisation" have an autonomous meaning and must therefore be interpreted in a uniform way, independently of national legislation. GRR: Given the length of the commentary period, how long will it be before the Croatian legislation is actually added to the annex? Wessels: Under the old regulation Slovakia and Poland, on 28 October 2014 and 4 December 2015 respectively, notified the Commission seeking for Annex A (among others) to be amended. Annex A was renewed to include the Slovakian and Polish proceedings by a Council Implementation Regulation in mid-October 2016. This confirms my experience of some 15 years with the old regulation, in that it generally takes 12 to 18 months for a national amendment of insolvency proceedings to receive fully-fledged EU recognition. The proceeding can be speeded up at an earlier stage in the process under the condition that the final law will not be changed, if the European Commission (or the Committee I suggest) is notified. In Croatia's case, if by October no comments have been received or if they do not necessitate a change, one may expect the annex to be changed in October or November, and, as it is a regulation in itself, that it will enter into force on the 20th day following its publication in the Official Journal of the European Union (OJ). It then will be binding in its entirety and directly applicable in the member states. GRR: What happens if a Croatian pre-insolvency process begins today, on 21 August? Does that mean the EIR 2015 will not apply to the new Croatian legislation? Wessels: Say that the 20th day after publication in the OJ is 20 November: any of the two "new" insolvency proceedings, which are not listed until 20 November, will not receive automatic recogition under the rules of the EIR 2015. These two proceedings seem to have existed in Croatia since 1 January. Under the old regulation, any of these proceedings opened after that date would not be recognised. GRR: Given how much new legislation is due to come online in the coming years with the Harmonisation Directive, is this long-drawn out process for changing Annex A wise? Wessels: I think it is not, but I recognise the difficulty in inventing an alternative system. Remember, the member states themselves wish to be in charge, but where there are businesses in pre-insolvency with cross-border effects, one may seriously question what the justification is for the position member states have chosen to take. Further reading recommended by Wessels: Proposal for a Regulation of the European Parliament and of the Council replacing Annex A to the Regulation (EU) 2015/848 on insolvency proceedings, Brussels, 9.8.2017 COM(2017) 722 final. Court of Justice of the European Union 20 October 2011, C-396/09 (Interedil Srl v Fallimento Intredit Srl, Intesa Gestione Crediti Spa); ECLI:EU:C:2011:671. Bariatti, Stefania, et al, Part 1: Scope of Application, Pre-Insolvency / Hybrid Proceedings, in: The Implementation of the New Insolvency Regulation. Recommendations and Guidelines, JUST/2013/JCIV/AG/4679 (March 2017), 1ff.

2017-09-doc4 Wessels International Insolvency Law Part II European Insolvency Law

Wessels International Insolvency Law aims to be a first port of call on any question on international insolvency law for specialists (such as practitioners, judges and scholars), but also for those who are rather new to the subject, including legislators and students. The present book is International Insolvency Law: Part II European Insolvency Law, and was published by Wolters Kluwer, on the market first week September 2017. The first part of the book, International Insolvency Law - Part I Global Perspectives on Cross-Border Insolvency Law, was published late 2015. See Both parts form the fourth edition of its original version. The core of International Insolvency Law Part II contains an extensive treatment of the EU Insolvency Regulation (2015/848) which came into effect on 26 June 2017. This Regulation further builds on the Insolvency Regulation 1346/2000 and further clarifies or amends concepts known from this latter Regulation. It also introduces new rules, e.g. on group coordination proceedings. Account has been given to the enormous volume of literature (mainly from the Netherlands, Austria, Belgium, England, France and Germany). Also English and German literature regarding the new regulation has been considered. The other important source are court cases. Since the last edition some 200 cases have been included on many of the (detailed) questions that come up in practice. Special attention has been given to the main themes in recent debates, such as the definition of collective insolvency proceedings, the meaning of the term centre of main interest (COMI) and the more strict rules for courts to determine jurisdiction, the system of conflict of law rules in the new EU Insolvency Regulation, the rather complicated system of recognition and enforcement of other (insolvency related, ‘annex’) judgments, practical tools and recommendations for communication and cooperation in cross-border insolvency cases and the specifics of group coordination proceedings. The law is stated as per May 1, 2017. A comprehensive bibliography and consolidated tables (of Part I and II) on cases and a consolidated index have been included. The book (in English) also appears as Volume X in the (Dutch) series Wessels Insolventierecht. Further information and ordering details, see 201708_Wessels Part II Wolters Kluwer brochure

2017-09-doc2 Vienna - Business rescue report discussed

Last week, during the General Assembly and Annual Conference of the European Law Institute (ELI) professor Stepahn Madaus and I presented, discussed and defended our Business Rescue Report. For a special press release see this attachment: 2017-08-25 Business rescue Special Report. During our 90 minutes slot on the agenda Madaus and I discussed with 3 panel members (pictured below from left to right): Tuula Linna (Professor of procedural law at the University of Helsinki (Finland) and Expert counsel to the European Commission for matters of restructuring and insolvency), Jenny Clift (Senior Legal Officer with the International Trade Law Division, United Nations Office of Legal Affairs and principle drafter of all UNCITRAL documents related to insolvency for the past 18 years), and Elsbeth de Vos (Senior Judge of the District Court Amsterdam (The Netherlands)). Our Report was approved without any objections. Follow this blog for guidance in a few days to sources to download the full report. DSC00971

2017-09-doc3 ELI Business Rescue Report published

In the first week of September 2017, during the General Assembly and Annual Conference of the European Law Institute (ELI) the report ‘Rescue of Business in Insolvency Law’, written by prof. em. Bob Wessels (Leiden, Netherlands) and prof. Stephan Madaus (Halle-Wittenberg, Germany) was approved as an official ELI Instrument. The Report consists of 115 recommendations explained on more than 375 pages. The Report contains recommendations on a variety of themes affected by the rescue of financially distressed businesses. The Report’s ten chapters cover: (1) Actors and procedural design, (2) Financing a rescue, (3) Executory contracts, (4) Ranking of creditor claims; governance role of creditors, (5) Labour, benefit and pension issues, (6) Avoidance transactions in out-of-court workouts and pre-insolvency procedures and possible safe harbours, (7) Sales on a going-concern basis, (8) Rescue plan issues: procedure and structure; distributional issues, (9) Corporate group issues, and (10) Special arrangements for small and medium-sized enterprises (SMEs) including natural persons (but not consumers). The Report also includes a glossary of terms and expressions commonly used in restructuring and insolvency matters. On its background: since the global financial crisis, insolvency and restructuring law have been at the forefront of law reform initiatives in Europe and elsewhere. The specific topic of business rescue appears to rank top on the insolvency law related agenda of both the European Union (EU) and national legislators faced by a growth of insolvency related business problems, which clearly highlighted the importance of efficient mechanisms for dealing with distressed, but viable businesses. For the European Law Institute, this fuelled the momentum to launch an in-depth project on furthering the rescue of such businesses across Europe. The European Law Institute, established in 2011, is an independent non-profit organisation established to initiate, conduct and facilitate research, make recommendations and provide practical guidance in the field of European legal development. Building on the wealth of diverse legal traditions, ELI’s mission is the quest for better law-making in Europe and the enhancement of European legal integration. By its endeavours, ELI seeks to contribute to the formation of a more vigorous European legal community, integrating the achievements of the various legal cultures, endorsing the value of comparative knowledge, and taking a genuinely pan-European perspective. As such, its work covers all branches of the law: substantive and procedural; private and public (see In September 2013, the ELI Council approved the proposal for a project on the ‘Rescue of Business in Insolvency Law’ (‘Business Rescue Project’) and appointed professors Bob Wessels and Prof. Stephan Madaus as Project Reporters to lead this two-stage project. The first stage comprised the drafting of National Inventory and Normative reports by National Correspondents (NCs) from 13 EU countries. In addition, Gert-Jan Boon, University of Leiden, prepared an inventory report on international recommendations from standard-setting organisations, such as UNCITRAL, the World Bank, the American Bankruptcy Institute or the Nordic-Baltic Business Rescue Recommendations, under the supervision of the Reporters. Based primarily on these detailed reports, the second stage consisted of drafting the ELI Instrument on Business Rescue (‘ELI Business Rescue Report’) that elaborates recommendations for a legal framework enabling the further development of coherent and functional rules for business rescue in Europe. After the Project Team finalised the draft Instrument early 2017, ELI Fellows and Members of the ELI Council voted to approve the ‘ELI Business Rescue Report’ at the ELI General Assembly, representing ELI Members, and Annual Conference in Vienna (Austria) on 6 September 2017 with no objection. This occured after a 90 minutes lively debate, see We as Reporters feel that the Report is timely and may have a significant and positive impact on the harmonisation efforts of the European Commission as laid down in the November 2016 Proposal for a Directive on preventive restructuring frameworks. The topics addressed in the Report are intended to present a tool for better regulation in the EU, developed in the spirit of providing a coherent, dynamic, flexible and responsive European legislative framework for business rescue. Mindful of the European Commission’s commitment to better legal drafting, the Report’s proposals are formulated as comprehensibly, clearly, and as consistently as possible. Still, the recommendations are not designed to be overly prescriptive of specific outcomes, given the need for commercial flexibility and in recognition of the fact that parties will bargain in the ‘shadow of insolvency law’. The Report is addressed to the European Union, Member States of the EU, insolvency practitioners and judges, as well as scholars. The targeted group many times flows explicitly from the text of a recommendation or the context in which such a recommendation is developed and presented. The Reporters cherish the belief that the report will assist in taking a next, decisive step in the evolutionary process of the European side of business rescue and insolvency law. The suggested citation is: Wessels, Bob and Madaus, Stephan, Business Rescue in Insolvency Law - an Instrument of the European Law Institute (September 6, 2017). Available at SSRN:, or - alternatively - Wessels, Bob and Madaus, Stephan, Business Rescue in Insolvency Law - an Instrument of the European Law Institute (September 2017). Available at To contact the reporters use for Stephan Madaus the address:, and for me: Picture: Bob Wessels, Stephan Madaus and Gert-Jan Boon DSC00967

2017-09-doc1 ALI-III Global Principles and Guidelines 2012

With pleassure I report the re-posting of the ALI-III Global Principles and Guidelines 2012, reinforcing the importance of court-to-court cross-border cooperation in insolvency cases. In August 2017, the International Insolvency Instititute (III) re-posted the ALI-III Global Principles for Cooperation in International Insolvency Cases 2012. The publication contains: 37 Global Principles for Cooperation in International Insolvency Cases, and 18 Global Guidelines for Court-to-Court Communications in International Insolvency Cases. Together they are called the ALI-III Global Principles for Cooperation in International Insolvency Cases 2012 (in short: ALI-III Global Principles and Guidelines 2012). They are the result of a joint study commissioned by the American Law Institute (ALI) and III. See The study undertaken was conducted over a period of six years, ending in 2012, the Joint Reporters being Ian F. Fletcher and myself, professors at University College London (UK) and at the University of Leiden (The Netherlands) respectively. The 300-page supportive report demonstrates that, subject to certain necessary modifications, the essential provisions of the The American Law Institute’s Principles of Cooperation among the member states of the North American Free Trade Agreement (NAFTA, ie USA, Canada, Mexico), published in 2003, are fully capable of acceptance in jurisdictions across the world. The full text of the Final Report of the ALI-III Global Principles and Guidelines 2012 project can be found here The Report was produced in collaboration with expert consultants (Members of ALI or III and others) representing more than 30 different countries, reflecting a wide and representative cross section of the different legal traditions and styles around the globe. These ALI-III Global Principles and Guidelines 2012 constitute a nonbinding statement, drafted in a manner to be used both in civil-law as well as common-law jurisdictions, and aim to cover all jurisdictions in the world. In the publication posted in August 2017, the blackletter text of the ALI-III Global Principles and Guidelines 2012 is reproduced. In the Final Report (see above and also below) detailed Comments, Notes, and references pertaining to the individual Principles and Guidelines are provided. In June 2017 the Board of Directors of III decided to republish and redistribute the ALI-III Global Principles and Guidelines 2012, being aware that developments in the regulation of cross-border court-to-court cooperation in insolvency and restructuring cases between 2012 and 2017 might give rise to confusion about the official status of the various sets of tools available for use by courts in international cases. As a background: in May 2012 the Final Report of the Global Principles project was presented for discussion at the annual meeting of the ALI in Washington DC, and was thereafter submitted for adoption at the 12th Annual Conference of III in Paris. Following unanimous adoption of the Report by III, the text was published by ALI in its series “Principles of the Law”. See: and also on the website of III at the link given above. In furtherance of the global dissemination of the blackletter text, translations will be added to the III website as they become available. It is particularly gratifying to note that the ALI-III Global Principles and Guidelines 2012 subsequently formed a solid basis for a set of tailored principles, published in 2015, for use under the regime of the EU Insolvency Regulation (recast) (Regulation 848/2015), which apply to insolvency proceedings opened in the European Union from 26 June 2017. For these EU Cross-Border Insolvency Court-to-Court Cooperation Principles and Guidelines (also known as JudgeCo Principles and Guidelines) see Their development was co-funded by the European Commission and III. In Spring 2017 the JIN Guidelines were published (‘Judicial Insolvency Network Guidelines for Communication and Cooperation between Courts in Cross-Border Insolvency Matters.See The JIN Guidelines have been produced as a separate initiative by an international group of judges from ten jurisdictions, and have drawn upon the existing texts of the ALI-III Global Principles and Guidelines of 2012 and the JudgeCo Principles and Guidelines of 2015. All three texts are mentioned with approval in the Chancery Guide issued by the Chancery Division of the High Court of England and Wales in an amendment made in May 2017 relating to the conduct of cross-border insolvency cases: see Chapter 25 at paragraphs 25.30-25.32. See also the announcement dated 5 May 2017 at See for an introduction my blog at As per June 2017 the JIN Guidelines have been approved by seven ‘common law’ courts, including the US Bankruptcy Court for the District of Delaware, the Commercial Court of Bermuda, the US Bankruptcy Court for the Southern District of New York and the Chancery Division of the High Court of England and Wales. The territorial reach of the JIN Guidelines is currently limited to these 10 jurisdictions III recommends the ALI-III Global Principles and Guidelines 2012 for use in other regions or by other states as well, and III may provide technical assistance for those states or associations of judges. This booklet provides confirmation that the international involvement of III continues to grow and contributes to the global architecture of international insolvency. An edited version of this blog appeared on 6 September 2017 via