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Blog 2016

2016-12-doc2 EU Banking and Insurance Insolvency OUP, 2nd ed.

Looking forward to the publication of the 2nd edition of EU Banking and Insurance Insolvency, published by Oxford University press again, edited by Gabriel Moss QC, Bob Wessels, and Matthias Haentjens. This is what it covers: Table of Contents Part I. General Introduction 1: The EU Financial Institution Insolvency Law Framework, Gabriel Moss QC, Bob Wessels, and Matthias Haentjens 2: Principles for Cross-Border Financial Institution Insolvencies, Gabriel Moss QC, Bob Wessels, and Matthias Haentjens Part II: Commentary on Directive 2001/24/EC on the Reorganisation and Winding-Up of Credit Institutions 3: Commentary on Directive 2001/24/EC on the Reorganisation and Winding-Up of Credit Institutions, Bob Wessels Part III: Commentary on Title IV of Directive 2009/138/EC on the Taking-Up and Pursuit of the Business of Insurance and Reinsurance (Solvency II) 4: Commentary on Title IV of Directive 2009/138/EC on the Taking-Up and Pursuit of the Business of Insurance and Reinsurance (Solvency II), Gabriel Moss QC and Ryan Perkins Part IV: Bank Recovery and Resolution Directive and SMR 5: Title I: Scope, definitions and authorities, Matthias Haentjens 6: Titles II and III: Preparation and Early intervention, Matthias Haentjens 7: Title IV: Resolution, Matthias Haentjens 8: Titles V and VI: Cross-border group resolution and Third countries, Matthias Haentjens 9: Titles VII and VIII: Financing arrangements and Penalties, Matthias Haentjens Part V: National Implementation in the EU 10: France, Hubert de Vauplane, Gilles Kolifrath, and Alexa Brouillou 11: Germany, Jens-Hinrich Binder 12: Iceland, Eyvindur G. Gunnarsson 13: Ireland, Blanaid Clarke 14: Spain, Ignacio Tirado 15: United Kingdom, Ian Fletcher, Hannah Thornley, and Robert Amey The reader will find, compared to the first edition of 2006, a significantly extended general introduction to the modern European banking insolvency regime, detailed and updated commentary on the Bank Recovery and Resolution Directive (BRRD), the Single Resolution Mechanism Regulation (SRMR), the Winding-Up Directive (2001/24/EC) and the Insurance Insolvency Directive (2001/17/EC), the latter two both reflecting significant developments following the BRRD and the SRMR. High-profile cases based on interpretation of those statutes in the book include the Landsbanki and Kaupthing cases, and the Lehman Brothers, Isis Investments and Heritable Bank cases. Order via https://global.oup.com/academic/product/eu-banking-and-insurance-insolvency-9780198759393?q=Moss&lang=en&cc=nl

2016-12-doc1 Some Blogs

International students asked me: which blogs do you follow?, after having noticed that I am probably a blog veteran, see http://bobwessels.nl/2016/09/2016-10-doc6-my-blog-10-years/. Well ... it all depends on the circumstances. For me, I use my blog to assist as a tool to communicate with students and audiences in all those places where I lectured or had presentations. I am also an author of traditional law articles and books, which sometimes appear after a process of 3 to 6 months after I submitted my texts/manuscripts. This snail's pace is not the right track for certain types of information. I am also using blogs to stay current in my area of interest, to the benefit of my presentations as well as my research.  Now, the question. The last two months 2 blogs have been started that seem worthwile to follow for matters of comparative and international restructuring and insolvency law: 1) https://corporatefinancelab.org/ Corporate Finance Lab is administered by professor Joeri Vananroye (KU Leuven). Frequent author too is Arie van Hoe (Nauta Dutilh). The blog, in Dutch and English, aims to be a forum for discussion on legal aspects of corporate finance of entities in going concern and distress. Corporate Finance Lab works on companies and other organizational structures (such as partnerships, bankruptcy estates or non profits) at the intersection of economics, contract law, company law and insolvency law, and 2) http://international-litigation-blog.com/ The fresh blog is steered by Quentin Declève, an associate at Van Bael & Bellis (Brussels). The goal of the International Litigation Blog is to offer short but comprehensive posts and discussions on developments and hot topics in the field of international litigation and arbitration. The aim is to publish posts on a bi-monthly basis, on key and important topics in the field of multijurisdictional litigation and arbitration (covering the EU, the U.S., Africa and Asia). From the beginning, early 2016, I am following: 3) https://www.law.ox.ac.uk/business-law-blog The Oxford Business Law Blog covers topics such as commercial law, insolvency law, M&A, corporate finance and financial regulation, and finally. I also have a subscription to (again Belgian!): 4) https://gavclaw.com/ The author of this blog is Geert van Calster, an independent practising lawyer, professor in the Universities of Leuven and Monash (Melbourne) and Head of Leuven Law's department of EU and international law. The site has my interest for matters of private international law /conflict of laws, EU economic law; and EU Institutional Law. And of course, for a range of topics in English, University of Leiden's: 5) http://leidenlawblog.nl/ In addition, not always systematically, blogs from law firms and legal publishers (many regarding a blog as another way of advertising in stead of a means of autonomous information provider). American bankruptcy (and related topics) can be followed via www.creditslips.org. Gathering newsletters mainly from law firms all over the globe are avalable via editoreurope@internationallawoffice.com and editora@lexology.com. There will be many other blogs of interest, but I am leaving it here.

2016-11-doc14 District court Rotterdam opens secondary proceedings re Hanjin Europe

Hanjin’s rehabilitation and bankruptcy sweeps the world. Last Friday, 25 November 2016, the Rotterdam District Court (ECLI:NL:RBROT:2016:9090) had to decide on a request to open secondary insolvency proceedings regarding Hanjin Shipping Europe GmbH & Co. KG (‘Hanjin Europe’). So the Netherlands has become the latest in a growing list of jurisdictions to grant recognition or assist in coordination re Korean cargo shipper Hanjin Shipping’s rehabilitation proceedings, after Japan, the US, the UK, China and Singapore. Hanjin Europe has entered ‘vorläufiges Insolvenzverfahren’ (‘provisional insolvency proceedings’) in Germany (a proceeding not listed in Annex A to the EIR 2000), for which Dr. Dietmar Penzlin has been appointed as ‘vorläufiger Insolvenzverwalter’ (‘provisional liquidator’). The Rotterdam court presents the facts: Hanjin Europe has its registered office in Hamburg, Germany, and operates an establishment in Rotterdam, employing 59 persons for activities such as loading, unloading and transfer for seafaring, under the name of Hanjin Shipping Netherlands. Also located in the Netherlands is an ING bank account with a balance of € 78,804.53. Insolvency proceedings were opened in Hamburg on 26 October 2016, the court appointing Penzlin as provisional liquidator, with the Court’s instruction to him (amongst others) to find out where the debtor’s center of main interests (COMI) is and whether in another Member State main insolvency proceedings have been opened. By order of 21 November 2016 of the Hamburg court the provisional liquidator has been empowered to request for opening of secondary insolvency proceedings in the meaning of Article 29 EIR 2000 in the Netherlands, Belgium, France and the Czech Republic. Moreover, an e-mail has been shown of Moo Kyoon On, statutory director of Hanjin Europe expressing his confirmation with the request. The Rotterdam court decides the following (I added the numbers and the italics): 1 Proceeding not on Annex A, liquidator listed in Annex C Secondary proceedings may be requested by the liquidator in the main insolvency proceedings. ‘Insolvenzverfahren’ is listed in Annex A; the ‘vorläufiges Insolvenzverfahren’ is not. However applying ECJ’s 10 year old, but still important decision in Eurofood (C-341/04) (in short: proceeding not mentioned on Annex A, ‘liquidator’ listed on Annex C) the court decides that the conditions to be recognised as main insolvency proceedings are satisfied. 2 Liquidator instructed by the Hamburg court to file for secondary proceedings The German court decided that COMI of Hanjin Europe is in Germany based on the presumption that can be derived from the registered office. The provisional liquidator has also been given the task to examine whether COMI is located in Germany. The Rotterdam court observes, that the judgment of the German court on COMI does not seem definitive. Upon further review of this request, the court determines that it will have to follow this opinion, as there can not be established objective factors at this time showing that the COMIwould be located elsewhere. The provisional liquidator is listed on Annex C. The Rotterdam court continues to state that from the judgment of the Hamburg court it follows that the debtor has been divested of its assets (at least partially). This leads to the conclusion that the proceedings opened in Germany, are opened in a Member States where the debotor’s COMI is. The provisional liquidator therefore is entitled to apply for secondary proceedings, concludes the court. 3 Establishment The court says that Hanjin Europe has an establishment in Rotterdam, and that therefore the Dutch court can open secondary insolvency proceedings. Article 27 EIR provides that secondary proceedings may be permitted ‘… without the debtor’s insolvency being examined in that other State’, ie the Netherlands. The court determines that the wording of this provision leaves some room for scrutiny. In this case it is also in place, since the two decisions that are produced do not contain any definitive judgment as to the insolvency of Hanjin Europe. In the German provisional proceedings the provisional liquidator received an instruction from the court to investigate the condition of the estate. In the request for opening of secondary proceedings, the provisional liquidator states that Hanjin Europe has applied for insolvency proceedings, and that it is expected that it will be finally granted on or about 1 December 2016. The provisional liquidator estimates that there will be not sufficient assets in the estate to meet the salaries of the staff related to the notice period. Given the above, the Rotterdam court at this moment is satisfied regarding the status of insolvency of Hanjin Europe. 4 Interest The court continues by expressing that there is also an interest in the opening of secondary insolvency proceedings. The provisional liquidator has stated that the salaries of the employees from November 2016 onwards can not be paid. It is a monthly amount of about € 150000. The German Federal Employment Agency does not compensate Dutch employees in case of insolvency because of unpaid wages. The provisional liquidator needs a secondary procedure in order to settle the lease and employment contracts in the Netherlands and to monetize the Dutch assets, the court concludes. The opening of secondary proceedings then follows. A few remarks. 1 Proceeding not on Annex A, liquidator listed in Annex C In the Eurofood case the French Government did submit that, since the definition of ‘insolvency proceedings’ in Article 2(a) and Annex A of EIR 2000 does not include the appointment of a ‘provisional liquidator’ (in this case such an official from Ireland), such appointment cannot lead to an ‘insolvency proceeding’ within the meaning of the Regulation. Advocate General Jacobs (Opinion of 27 September 2005, case C-341/04 Eurofood IFSC Ltd.) rejected both submissions: ‘84. The effect of Article 2(a) is that ‘the collective proceedings referred to in Article 1(1)’ are ‘listed in Annex A’. There is consensus among commentators on the Regulation that ‘… once the proceedings have been included in the list, the Regulation applies without any further review by the courts of other Member States’. In Eurofood compulsory winding up by the court in Ireland is included in Annex A, Jacobs does not consider that the application of the Regulation to such proceedings may be put in doubt on the ground that certain aspects of the definition in Article 1(1) are not satisfied. Regarding the French Government’s submission, the Advocate General considers: ‘87. Again however that argument seems to me to betray a misunderstanding of the scheme of the Regulation. Compulsory winding up by the court in Ireland is listed in Annex A. The provisional liquidator, mentioned in the list in Annex C, was appointed in the context of such a proceeding. Those factors to my mind suffice.’ The Rotterdam court follows the same path. 2 Liquidator instructed by the Hamburg court to file for secondary proceedings Prior to the Eurofood-case, it was generally held that the insolvency practitioner who has been appointed according to national law, as a temporary or provisional liquidator – e.g. appointed after the request for the opening of main insolvency proceedings, but before the actual opening – is not permitted to request the opening of secondary proceedings (on the basis of Article 29(a) EIR 2000, see Virgós/Schmit Report (1996), nr. 212 and nr. 262. The ECJ in Eurofood, however, held with regard to the EIR 2000: ‘In that respect, it should be noted that Article 38 of the Regulation must be read in combination with Article 29, according to which the liquidator in the main proceedings is entitled to request the opening of secondary proceedings in another Member State. That Article 38 thus concerns the situation in which the competent court of a Member State has had main insolvency proceedings brought before it and has appointed a person or body to watch over the debtor’s assets on a provisional basis, but has not yet ordered that that debtor be divested or appointed a liquidator referred to in Annex C to the Regulation. In that case, the person or body in question, though not empowered to initiate secondary insolvency proceedings in another Member State, may request that preservation measures be taken over the assets of the debtor situated in that Member State. That is, however, not the case in the main proceedings here, where the High Court has appointed a provisional liquidator referred to in Annex C to the Regulation and ordered that the debtor be divested.’ As a result – although some German authors disagree – it has been concluded that a provisional liquidator is eligible to invoke Article 29(a) EIR 2000. In such a case the provisional liquidator has an autonomous power and it does not need an instruction from its court. It seems that the Rotterdam court is of the same view, based on its own building up of the facts that COMI is in Germany. The other view (the provisional liquidators acts based on a ‘power of attorney’ of the German court) would have as a consequence to decide whether it can be characterised as a ‘judgment deriving directly from the insolvency proceedings and is closely linked with them’, in the meaning of Article 25 EIR 2000. With its ‘autonomous’ power to file for secondary insolvency proceedings, the e-mail of the director of the GmbH is a nice piece of scenary, his agreement has no legal value. 3 Establishment Although the result of the Rotterdam’s court decision is justified, it is not correct as to the question of recognition. It should have drawn the logical and necessary consequence from its view (under 1) that the German proceedings are main insolvency proceedings. I haven’t seen a case in which the element of Article 27 EIR 2000 ‘… without the debtor’s insolvency being examined in that other State’ has played a role in a case with similar circumstances. The only reason is that the court is inconsequent. If the foreign proceeding is (to be regarded as) a main proceeding recognition should follow automatically (Article 16 EIR 2000). The principle of mutual trust does not allow a court to scrutinize the other court’s decision. For two reasons it is to be regretted that the court is so short on ‘establishment’. The court should ex officio assess whether indeed such an establisment in present in the Netherlands. Of course, that seems rather obvious, with 59 employees active. The court lost, however, its chance to give some guidance on which definition to use. Article 2(h) EIR 2000 says that an establisment is ‘any place of operations where the debtor carries out a non-transitory economic activity with human means and goods’. This vague notion has been made thicker and promoted to a more substantial one in the Interedil case (CJEU 20 October 2011 C-396/09), providing that the term ‘establishment’ within the meaning of Article 3(2) EIR 2000 must be interpreted as requiring the presence of a structure consisting of a minimum level of organisation and a degree of stability necessary for the purpose of pursuing an economic activity. The presence alone of goods in isolation or bank accounts does not, in principle, meet that definition. And in para 63: ‘…. in order to ensure legal certainty and foreseeability concerning the determination of the courts with jurisdiction, the existence of an establishment must be determined, in the same way as the location of the centre of main interests, on the basis of objective factors which are ascertainable by third parties.’ Without this explicite determination, the court seems to be a follower of the vague notion (which by the way also is represented in the EIR (recast) 2015, where the Interedil definition has not been included). 4 Reasons for request There is also an interest to open insolvency proceedings, the Rotterdam court determines. In literature it has been debated whether someone that files a request for opening secondary proceedings indeed has to demonstrate such an interest. The prevailing opinion is that such a requirement does not exist. For the persons mentioned in Article 29(b) EIR 2000 with a right to request the opening of secondary proceedings such a requirement does not exist either, e.g. the right of the creditors to bring about proceedings is not limited by the requirement of a specific interest, see Virgós/Schmit Report (1996), nr. 227. No doubt, however, that indeed ‘local interests’ (secondary proceedings serve to protect these, see recital 19) are at stake. Bob Wessels Professor em. International insolvency law University of Leiden

2016-11-doc13 Crisis management in the banking sector: act 2

This week was a productive one for insolvency lovers. In Strassbourg/Brussels, the European Commission launched new proposals. One for restructuring distressed but in principle viable businesses, see http://bobwessels.nl/2016/11/2016-11-11-restructuring-directive-published/. The other one is a rather voluminous proposal for a reform package intended to further strengthen the resilience of credit institutions in the EU. It is only a year ago that Matthias Haentjens and I (editors) published our Research Handbook on Crisis Management in the Banking Sector (Edward Elgar publishers), see http://bobwessels.nl/2015/11/2015-11-doc5/. The package published this week consists of proposed amendments to CRR, CRD IV, BRRD and the SRM. You understand that you have to be a specialist in financial law to understand the ramifications of these proposals (and I wish them an enjoyable weekend). See for press releases, Q&As and texts http://ec.europa.eu/finance/bank/regcapital/crr-crd-review/index_en.htm and http://ec.europa.eu/finance/bank/crisis_management/index_en.htm As an interested observer I noticed the proposal related to the MREL (Minimum Requirement for own funds and Eligible Liabilities) system to create a new category of senior class instruments that are eligible for MREL purposes (‘non-preferred senior’). The existing MREL rules of the BRRD, which apply to all credit institutions and not only large ones, do not generally require that a liability eligible for MREL is subordinated. It would therefore be possible that these liabilities rank in insolvency pari passu with non-eligible liabilities. A pillar under the BRRD is that creditors may not be treated in a manner which leaves them worse-off than would be the case in ‘normal insolvency proceedings’. As a consequence present MREL rules provide that creditors of MREL eligible liabilities potentially can have a compensation claim against the resolution fund, thereby circumventing the goal of bail-in. Now, in the waterfall, these non-preferred senior liabilities are suggested to rank between senior unsecured liabilities and capital instruments (CET1, AT1, Tier 2, Subordinated debt) of an institution. Consequently, they will be subject to bail-in after capital instruments but before senior unsecured liabilities. National laws (such as specific financial of banking acts or insolvency legislation) should be amended accordingly. The question whether a second edition of the book mentioned above is justified remains, for this moment, unanswered.

2016-11-doc12 SaveComp Project

Improving practical know how for insolvency judges and insolvency office holders in international restructuring and insolvency cases has been one of my core activities for over 10 years. With pleasure I notice a recent initiative which promises to enlarge this knowledge quite significantly. It is the SaveComp Project. It is funded by an Action grant from the Eupean Commission. The project's aim is to collect and exchange best practices in the field of (pre-)insolvency cross-border proceedings, to help office holders in insolvency proceedings to better coordinate and implement international cooperation, thus enhancing management of multiple proceedings, reorganization of companies and the protection of creditors and interests of stakeholders. The Project has started in February 2016 and will last 24 months. See for its structure, the partner-universities involved and a questionaire http://savecomp.eu/. It will collect best practices, rules of PIL (conflict of laws) and case law in insolvency and pre-insolvency cross-border proceedings at the domestic level, so to disseminate these first results. Moreover, the Project aims to compare the domestic best practices (either already followed in the MSs involved in the research, or suggested by the partners to the project) so as to possibly develop and exchange best practices which might be of use in cross-border proceedings. I am confident that its outcome may inspire to amend and augment the European Communication and Cooperation Guidelines For Cross-Border Insolvency (‘CoCo Guidelines’) which in 2007 were drafted by prof. Miguel Virgós (Madrid) and myself, assisted by many others, including judges and academics from North-America and Europe and members of INSOL Europe. Our aim was to provide some substantial and procedural guidance to those practitioners, struggling to communicate and coordinate main and secondary insolvency proceedings in the context of the EU Insolvency Regulation. See for the text of the full Guidelines this blog, 2016-08-doc2. These CoCo Guidelines anyway have to be redrafted in the context of the new rules (as of June 2017) in the Insolvency Regulation (EIR 2015), see Article 41 and 43. Article 42 EIR 2015 (mandatory cross-border cooperation between courts) is assisted by another set of non-binding rules, the EU Cross-Border Insolvency Court-to-Court Cooperation Principles (‘EU JudgeCo Principles’), a project realised in 2015 with a similar Action grant. See this blog at 2015-09-doc7.