Turnaround, Rescue & Insolvency research group of the Leiden Law School published its next newsletter. It provides an overview of research output and recent developments in the field, including news on a book (The Routledge Companion to Turnaround Management and Bankruptcy), on the inaugural Lecture of Professor Jean-Pierre van der Rest, translations of EU JudgeCo Principles and Guidelines and an update on the ELI Business Rescue Project of professors Madaus and Wessels. See TRI Leiden Newsletter June 2017
BREXIT AND THE FUTURE OF EUROPEAN INSOLVENCY Discussion between Gabriel Moss Q.C. and prof. Bob Wessels European Law Academy, Trier, 8 June 2017 Short notes Wessels Approach can be idealistic (let’s keep as much of the Insolvency Regulation in place) versus realistic. The latter is mine: so, in the absence of any specific agreement, the UK will have the status of a ‘third country’: that is, the same status with regard to the EU as, for instance, for Bolivia, Malawi or Thailand. Solutions in 2 categories, Member State oriented or EU driven 1 - Revival of existing treaties? In the relations between Member States, the EIR Recast replaces, in respect of the matters referred to therein, the Conventions concluded between two or more Member States, see Article 85. The Netherlands, for instance, only has bi-lateral conventions with Belgium (1925) and Germany (1965). The UK has a convention with Belgium providing for the Reciprocal enforcement of civil and commercial judgements (1934) (see Article 85(i) EIR Recast). Will this 82 year-old convention be revisited? 2 - 27 ways to leave your lover Without a bilateral or multilateral framework for recognition and enforcement, UK judgments may be subject to stricter review. Overall, this means that the recognition and enforcement of UK judgments in EU Member states would become more costly, time-consuming and burdensome for commercial parties. The EIR Recast does not cover third countries’ judgments. All Member States have their own rules. Only 4 out of 27 EU member states have implemented the UNCITRAL Model Law. These are Greece, Poland, Romania and Slovenia. Generally, these countries would recognise UK insolvency proceedings, as the UK is recognising proceedings from all EU Member States based on its Cross Border Insolvency Regulations 2006 (which incorporate the UK version of the UNCITRAL Model Law on Cross Border Insolvency. In addition countries such as Belgium, Spain, Germany and – based on case law – have their own system of international insolvency law, which in their effects to a large part are comparable with the Model law. The approach via Member States individually, compared to the present situation, is clearly a mismatch. In all these other Member States, UK insolvency office holders seeking recognition would have to rely on obtaining recognition under the local laws of these Member States. This may be difficult, sometimes not possible, or conditioned, eg by reciprocity requirements. Alternatively, provided that local laws allow for this, a UK office-holder may file for the opening of territorial insolvency proceedings. Either way, it would be all rather cumbersome. 3 - revive the Istanbul Convention The EIR also replaces the European Convention on Certain International Aspects of Bankruptcy, signed in Istanbul on 5 June 1990 (see Article 85(k) EIR Recast). 27 years later, this convention has been signed by Belgium, Cyprus, France, Greece, Italy, Luxembourg and Turkey, but only Cyprus has ratified it. It is not a uniform model, but rather provides menus. Article 40 of that Convention offers the opportunity to make a reservation with regard to its Chapter II (exercise of certain powers by the liquidator) and Chapter III (secondary bankruptcy proceedings). For this reason it allows for different rules to apply in different States. Such differences could result in a substantial hindrance to the application of the Convention. 4 - Transitional law An EU oriented solution (which would include the competentece of the CJEU) could be a rule mirroring the transitional provision of Article 84(2) of the EIR Recast, i.e. that the EIR Recast shall continue to apply to insolvency proceedings which fall under its scope and which have been opened before the de facto Brexit reference date up to a certain date in future. 5 - Court-to-court paragraphs The global trend in cross-border court-to-court communication and coordination, based on non-binding recommendations such as the ALI-III Global Principles and Guidelines 2012, the EU JudgeCo Guidelines of 2015 and the recent JIN Guidelines designed for common law jurisdictions, see http://bobwessels.nl/2017/06/2017-06-doc1-advancing-cross-border-court-to-court-cooperation/. Using the EU JudgeCo rules in the meaning of recital 48/Articles 41-44 EIR 2015 leaves in place MSs domestic rules augmented with binding rules on cross-border communication and coordination by courts. Here it fits to refer to section 426 of the English Insolvency Act. Subsection 4, states: ‘The courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory’. Presently there are around 20 such relevant countries, amongst which are Australia, Bermuda, Canada, Hong Kong, Ireland, Malaysia, New Zealand and South Africa (UK’s former or remaining colonial possessions). The starting point for any request for assistance under Section 426 is ‘judicial comity’ (England v. Smith in Re Southern Equities Corp)  B.C.C. 123 (C.A.);  Ch 419, and – despite the word ‘shall’ – courts should grant a request for assistance unless there is some ‘extraordinary reason’. Extending section 426 Insolvency Act 1986 (‘related countries’) to all EU Member States would express the UK’s confirmation of ‘mutual trust’, in the understanding that the Member States apply reciprocity. 6 - New multi-party initiative? Polititians decide. Will Brexit be a cold and harsh divorce between the EU and the UK, or will parties understand not only each other’s needs, but the needs of businesses and investors for an efficient and effective cross border regime? In general, in view of the asymmetric recognition landscape and the inefficient, time-consuming, uncertain, and complex post-de-facto-Brexit situation, one would hope that the EU and the UK will enter into an open and constructive phase of negotiation and will come to a result that will generally reflect the current EU framework. Although the current system is certainly not perfect, it does generally deliver clarity and predictability, and thus reduces costs and maximises value for creditors, which is much better then the dismal situation prior to 2002. Academics and practitioners should support such an initiative. Below: Gabriel Moss and me, after the discussion.
Some legal academics have a prominent influence in their field of expertise for some decades. For English insolvency law such an academic is Ian Fletcher, an emeritus professor of International Commercial Law, University College London. Even though having a time-honoured status, Fletcher is not retired, rather he is still active. Last month he delivered – via his publisher Sweet & Maxwell – the fifth edition of a work that was published in its first edition in 1989. Now with over 1000 pages, Fletcher introduces in 32 chapter ‘all’ one needs to know about English (and Welsh) insolvency law and the book serves as a solid introduction for newcomers and as a useful reference guide for professionals. The last edition dated from 2009. Given the tremendous changes in the field of insolvency law, both in England and at international level, the author published two separate supplements (in 2011 and 2014) to keep track and inform his audience. Now these developments as well as those since settle in the fifth edition, the text of which presents the law as at January 2017, taking into account legislative changes that entered into force from 6 April 2017. The book therefore provides complete coverage of all aspects of insolvency law, both corporate and personal, national (England & Wales) as well as the international aspects of insolvency, all in one work. The engines producing insolvency law are national legislation, court cases, both domestic as well as international. A few words on these domains. The book incorporates major changes to primary and secondary legislation, e.g. the Enterprise and Regulatory Reform Act 2013; Deregulation Act 2015; Small Business, Enterprise and Employment Act 2015 and the Insolvency Rules (England and Wales) 2016. This all has led to significant changes to English insolvency procedures. These include the replacement of debtors’ bankruptcy petitions to the court by online applications to an adjudicator, the abolition in virtually all cases of physical meetings of creditors, and also of company members, during the course of insolvency proceedings, a variety of alternative procedures for an office holder to obtain creditors’ and members’ consent, which includes the deemed consent procedure. English insolvency law keeps on track and leads with modern and efficient ways of dealing with matters. Over 300 new cases have been included in the new edition, including judgments by the Supreme Court in Jetivia v. Bilta (extraterritorial application of section 213 and 238 of the Insolvency Act 1986), Olympic Airlines SA (jurisdiction under Art. 3(2) of the EU Insolvency Regulation), Belmont Park Investments (the anti-deprivation rule), Paycheck Services (meaning of ‘de facto director’), the Lehman Companies Pensions Cases (with the important decision that contribution notices issued by the Pensions Regulator are treated as ‘provable claims’ in administration, but do not constitute administration expenses) and BNY Corporate Trustee Services Ltd v. Eurosail (the statutory test of balance-sheet insolvency, and ‘inability to pay debts as they fall due’). Judgments by the Privy Council in cases relating to cross-border insolvency are discussed too, including Saad Investments and Stichting Shell Pensioenfonds v. Krys. With my ‘continental’ eye I looked specifically at Chapters 28-32 in Part III (‘International Insolvency’), with some 200 pages. In Chapter 28 (‘Introduction: General Problems, and Issues of Principle’) one finds fresh literature, the different judicial opinions among the members of the House of Lords in McGrath v Ridell and a carefull treatment of cases such as Cambridge Gas, HIH and the infamous Rubin v. Eurofinance (enforcement of foreign judgments issued by a court during the course of insolvency proceedings, or: the much criticised limits to common law assistance for foreign insolvency proceedings). Fletcher demonstrates with references to several recent cases that some members of the highest courts (some decisions read like a theatre play, e.g. Lord Collins in the Rubin case: ‘… in my judgment Cambridge Gas was wrongly decided’, re-stated in the Singularis case) fails to uphold the historically distinguished tradition of responding to the evolving challenges encountered in international insolvency which Fletcher (‘with respect’) commends. For instance, from Singularis it follows, subject to certain limitations, that ‘common law’ can be used to secure assets of a foreign debtor and to obtain information/discovery, but cannot be used to obtain discovery which, apart from personal jurisdiction issues, would not be available in the foreign insolvency proceeding. In Chapter 29 (‘Bankruptcies with an international element. The English Law and Practice’) the English legal system of a ‘good petitioning creditor’ (section 267) is considered in the light of the presence of foreign elements. Again Rubin and New Cap are treated as well as the old case of Gibbs & Sons v La Société Industrielle et Commercial des Métuax ((1890) 25 QBD 399). In this case the defendant, a French company, had agreed to buy copper to be delivered in England by the plaintiff. The defendant refused to accept the copper and so was liable in damages to the plaintiff. The defendant was placed in judicial liquidation in France and it was assumed that as a matter of French law, the defendant was discharged from its liability in damages. However, the court held that French law was irrelevant because it was ‘… not a law of the country to which the contract belongs, or one by which the contracting parties can be taken to have agreed to be bound; it is the law of another country by which they have not agreed to be bound.’ Fletcher grumbles as English private international law in this respect ‘… is insular and xenophobic in the extreme, and plainly guilty of maintaining dual standards with regard to the principle of universality of bankruptcy’. The case is mentioned here, as it may come to life post-Brexit. Fletcher mentions a September 2016 case of the Singapore High Court that indeed did not apply the Gibbs rule. Chapter 30 (‘Liquidations with an international element’) examines the circumstances in which foreign liquidations and other types of insolvency proceedings relating to companies may be recognised in England. Chapter 31 (‘International Regulation of Cross-Border Insolvency. (I) National and European Legislative Provisions’) and Chapter 32 (‘International Regulation of Cross-Border Insolvency (II): Global Initiatives’) add up to 100 pages for the volume of rules and cases concerning section 426 of the Insolvency Act, the English version of the UNCITRAL Model Law (Cross - Border Insolvency Regulations 2006) and a treatment of the Insolvency Regulation of 2000 and the Insolvency Regulation 2015 (recast). The latter regulation is described in some 12 pages and the author must have struggled here to present a fair picture of the new rules. In a post-Brexit area, after the 2 year Article 50 Notice period, certain parts of the English rules may become active in relation to (the remaining) 27 Member States. Section 426 provides – for cases beyond the Insolvency Regulation – recognition and enforcement of foreign insolvency proceedings on a quasi-mandatory basis for any part of the UK ‘… or any relevant country or territory’, presently mostly Commonwealth countries, including e.g. Australia, Canada and New Zealand. It requires a request from the relevant foreign court and may have the effect that either relevant English insolvency law or foreign insolvency law is applied. Section 426 cannot be used to recognise and enforce a foreign in personam judgement (unless usual non-insolvency law criteria for recognition met, e.g. avoidance of preference as per Rubin/ New Cap), but it can be used to obtain English non-insolvency law remedies such as injunctions (Hughes v Hannover Re). Interesting reading, especially when the UK would consider to add to the list of relevant countries the 27 EU Member States. The Cross - Border Insolvency Regulations 2006 are very closely based on the original Model Law, except that there are specially privileged provisions for secured creditors and that court are not obliged to cross-border cooperate, rather they ‘may’. Recognition and enforcement of foreign insolvency proceedings is available for all countries, withour a reciprocity requirement. This chapter also contains updates of the activities surrounding the UNCITRAL Model Law, describes some UK and USA cases and highlights the ALI-III Global Principles of 2012, well known to readers of this blog. In all the fifth edition provides an invaluable update about the English law of insolvency, whether corporate, personal, or cross-border in nature, presented in a careful and clearly written commentary. It is recommendable for university and academic institution libraries, courts, international students and scholars as well as practitioners, in or outside England. Bob Wessels, professor emeritus of International Insolvency Law, University of Leiden [June 2017] Below a picture of Ian Fletcher (right hand) and me, taken last week May 2017 in South West England, after a short walk, a good lunch and a pleasant talk. Ian F. Fletcher, The Law of Insolvency, 5th ed., London: Sweet & Maxwell 2017. ISBN 978-0-414-02842-5
Recently 2 volumes on insolvency law have been published in Belgium under the editorship of Yves Brulard. Apart from my own contribution, all articles are in French and focus on insolvency on a national, European and international level. Volume 1 deals with the Insolvency Regulation (Recast), which includes my article 'We Can Work it Out: Cross-border Judicial Cooperation in Insolvency Cases in the EU'. I presented this paper in Brussels in the first half of 2015 during a conference in Brussels. Volume II deals with national rules on international insolvency law, in a selected number of jurisdictions: Belgium, China, France, Luxambourg and the USA. This is the publisher's information: L’INSOLVABILITÉ NATIONALE, EUROPÉENNE ET INTERNATIONALE - TOMES 1 ET 2 Auteur(s) Bruno Berger-Perrin, Nicolas Bernardy, Yves Brulard, Jack Chen, Michèle Grégoire, Olivier Haenecour, Laurence-Caroline Henry, Gérard Leplat, Vanessa Marquette, Gérard Martin, Jérôme Materne, Michel Menjucq, Céline Pottier, David Robine, Vinciane Ruelle, Christof Schiller, Olivier Schmitz, Sophie Trinon, Jean-Luc Vallens, Ivan Verougstraete, Patrick Wautelet, Bob Wessels. Tome 1 Le règlement (UE) 2015/848 du Parlement européen et du Conseil du 20 mai 2015 relatif aux procédures d’insolvabilité, qui entre en application le 26 juin 2017, favorise la coordination entre des procédures nationales complexes et multiples et règle partiellement les problèmes de compétence. Le but du règlement est d’assurer que les procédures transfrontalières au sein de l’Union européenne fonctionnent effectivement et efficacement. Cette ambition a abouti à un régime provisoire d’une complexité certaine et d’une portée limitée, mais qui porte en lui les ferments d’une harmonisation ou unification future du droit de l’insolvabilité en Europe. Le premier tome de l'ouvrage est consacré à l’examen, thème par thème, du nouveau règlement et de ses différents apports. Les auteurs y commentent notamment : - l’état du processus d’adoption et les modifications apportées par le règlement; - les procédures auxquelles s’applique ce règlement conformément au texte de son article 1; - la notion de centre des intérêts principaux (COMI); - les actions dites « annexes » ; - le statu quo sur la compensation et les conventions de compensation; - les conséquences du nouveau règlement sur le droit des travailleurs; - les innovations en matière de procédures secondaires; - l’évolution du mécanisme de la coopération; - la coopération transfrontière; - les nouveaux droits des créanciers; - la coordination et coopération intragroupe. Tome 2 Après le premier tome dédié à l’examen du nouveau règlement, le deuxième tome de cet ouvrage se penche sur les procédures nationales auxquelles il s’applique en Europe et sur les procédures étrangères avec lesquelles ces procédures nationales devront coopérer. Un premier volet est consacré au droit belge. Les auteurs y examinent comment les mécanismes du nouveau règlement européen peuvent jouer dans les procédures belges actuelles et quelles réformes apporter au Code judiciaire ou aux lois spéciales sur l’insolvabilité (procédures de réorganisation judiciaire, liquidation-faillite) pour permettre la mise en œuvre de ces mécanismes. Faut-il codifier le droit international privé belge à l’égard des pays tiers ? Comment mieux aider les entreprises ou filiales nationales à se restructurer ? Sont notamment commentés : - les modalités de la coopération entre praticiens et entre tribunaux; - les procédures provisoires et préalables et les procédures de réorganisation judiciaire par accord amiable; - les procédures d’accord collectif au regard de la loi du 27 mai 2013 modifiant certaines législations en matière de continuité des entreprises - le rôle des pouvoirs publics en matière de financement des transferts ou refinancement des accords collectifs; - les procédures de réorganisation judiciaire par transfert sous autorité depuis l’adoption de la loi du 27 mai 2013; - les réformes en matière de solvabilité et de garanties; - la problématique de la sauvegarde des entreprises dans le cadre d’opérations de LBO (Leveraged buy-out). La coopération entre praticiens et juridictions supposant avant tout une bonne compréhension des procédures étrangères, le second volet de cet ouvrage examine quant à lui la situation dans des pays limitrophes – la France et le Grand-duché de Luxembourg – ou non – les États-Unis et la Chine. L’ouvrage propose enfin plusieurs pistes d’évolution possible du droit belge de l’insolvabilité au regard de ce nouveau règlement et des procédures étrangères. Ceci peut vous intéresser L’INSOLVABILITÉ NATIONALE, EUROPÉENNE ET INTERNATIONALE - TOME 1 92,00 € L’INSOLVABILITÉ NATIONALE, EUROPÉENNE ET INTERNATIONALE - TOME 2 89,00 €http://www.anthemis.be/index.php/l-insolvabilite-nationale-europeenne-et-internationale-1538.html