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Blog 2014

2014-10-doc11 Towards A Next Step in Cross-border Judicial Cooperation

Last week I was in Durbuy, Belgium, speaking at an international conference on 'Cooperation between members of the judiciary and other actors dealing with cross-border insolvency proceedings. The conference was organized by the Judicial Training Institute (Belgium) in conjunction with the European Judicial Training Network (EJTN) and similar training centres in Luxembourg, France, England and Wales, Italy, Spain, Poland and Romania and with financial support from the European Commission’s Directorate-General for Justice (Specific Programme ‘Civil Justice’ 2007-2013). I could address some 80 judges from 15+ jursidictions, and introduce them to the next steps in Cross-border Judicial Cooperation. See my paper attached Wessels - Durbuy paper

2014-10-doc10 Opening secondary insolvency proceedings

On September 4, 2014, the CJEU published a judgment in a case in which the insolvent debtor company, incorporated in Belgium, was the subject of main insolvency proceedings, opened in France. An Italian creditor (Burgo Group SpA) sought to have opened secondary proceedings in Belgium. The case was refered to the CJEU. The Court delivered three rulings: 1. Article 3(2) of the EU Insilvency Regulation (InsReg) must be interpreted to the effect that, where winding-up proceedings are opened in respect of a company in a Member State other than that in which it has its registered office (as in this case: main proceedings opened in France regarding a Belgium incorporated debtor), secondary insolvency proceedings may also be opened in respect of that company in the other Member State in which its registered office is situated and in which it possesses legal personality. ‘Establishment’, as basis for jurisdiction to open secondary proceedings, is defined in Article 2(h) InsReg as ‘... any place of operations where the debtor carries out a non-transitory economic activity with human means and goods’. The CJEU held in an earlier judgement that the fact that this definition links the pursuit of an economic activity to the presence of human resources showed that a minimum level of organisation and a degree of stability are required. It follows - so the Court observes - that, conversely, the presence alone of goods in isolation or bank accounts does not, in principle, satisfy the requirements for classification as an ‘establishment’ (Interedil, C-396/09, EU:C:2011:671, paragraph 62). It is not disputed that there is no reference in the definition in Article 2(h) InsReg to the place of the registered office of a debtor company or to the legal status of the place in which the operations in question are carried out. The wording of that provision does not, the CJEU conclude, rule out the possibility that, for the purposes of that provision, an establishment may possess legal personality and be situated in the Member State where that company has its registered office, provided that it meets the criteria set out in that provision. 2. Article 29(b) InsReg must be interpreted to the effect that the question as to which person or authority is empowered to seek the opening of secondary proceedings must be determined on the basis of the national law of the Member State within the territory of which the opening of such proceedings is sought. The right to seek the opening of secondary proceedings cannot, however, be restricted to creditors who have their domicile or registered office within the Member State in whose territory the relevant establishment is situated, or to creditors whose claims arise from the operation of that establishment, and 3. The Insolvency Regulation must be interpreted to the effect that, where the main insolvency proceedings are winding-up proceedings, whether the court before which the action seeking the opening of secondary insolvency proceedings has been brought may take account of criteria as to appropriateness is governed by the national law of the Member State within the territory of which the opening of secondary proceedings is sought. However, when establishing the conditions for the opening of secondary proceedings, Member States must comply with EU law and, in particular, its general principles, as well as the provisions of the Insolvency Regulation. See http://www.bailii.org/eu/cases/EUECJ/2014/C32713.html

2014-10-doc09 Turnaround Rescue & Insolvency Newsletter October 2014

See attached the latest newsletter, reporting about ongoing reseach at the Leiden Law School on projects sponsored by e.g. World bank, European Commission, INSOL Europe and the European Law Institute. If you wish to receive the newsletters regularly, please contact www.tri-leiden.eu.   TRI Leiden Newsletter October 2014

2014-10-doc08 New EU rules on State aid for rescue and restructuring businesses

The European Commission has drasticly changed its State aid rules. In July 2014 it has revised its rules for assessing Member States' support measures to rescue and restructure companies in difficulty. The new guidelines aim to ensure that investors in failing businesses carry their fair share of the costs of restructuring, rather than leaving the burden to taxpayers.  This concept was developed during the financial crisis, when burden sharing became necessary to protect the interests of taxpayers and consumers where large amounts of public money were made available to banks. It is now extended to apply to non-financial businesses. The rules adopted apply only to non-financial businesses in difficulty, so excluding banks and other financial institutions. The new guidelines have entered into force on 1 August 2014 and replace the 2004 ones (the so-called 'Rescue and Restructuring' guidelines). From the press release the following is taken: - Aid to companies undergoing financial difficulties may be granted temporarily for a period of 6 months ('rescue aid'); - Beyond this period the aid must either be reimbursed or a restructuring plan must be notified to the Commission for the aid to be approved as 'restructuring aid'. The restructuring plan must ensure (i) that the long-term viability of a company is restored without further state support, (ii) that the distortions of competition induced by the state support are addressed by specific measures, and (iii) that the company contributes to the costs of restructuring; - Restructuring aid may be granted only once over a period of ten years (the so-called 'one time, last time' principle), to prevent companies that are not viable being kept artificially alive through public support. The main changes in the guidelines adopted in July are the following: - New rules allowing temporary restructuring support for Small and Mediumsided enterprises (SMEs), designed to simplify the granting of state funding for restructuring while reducing distortions of competition by favouring measures that are less distortive, such as loans and guarantees, over structural aid such as direct grants or capital injections. This type of support can now be granted for at most 18 months – i.e. three times as long as the period for receiving rescue aid – on the basis of a simplified restructuring plan. This will allow Member States to better help SMEs address liquidity problems, which is particularly important in the current economic context; - Introduction of mechanisms ('filters') ensuring that state aid is used where it is really needed and to avoid waste of taxpayers' money. Member States will have to demonstrate that the aid is needed to prevent hardship, for example in areas of high unemployment, and that the granting of restructuring aid will make a difference in that respect, for example by reducing the scale of job losses, and - New rules ensuring that investors pay a fair share of the costs of the firm's restructuring; therefore company investors will be primarily responsible for covering incurred losses before any state aid is granted, and the state will receive a fair return on its investment if the restructuring plan succeeds. See for the new rules  Communication July 2014

2014-10-doc7 Second Cumulative Supplement to Fletcher, The Law of Insolvency

Although formally an emeritus, professor Ian F. Fletcher does not only spend his time with walking or listening classical music. He continues to be active in both national as well as international insolvency law. His 2009 book The Law of Insolvency, then in its 4th edition and published by Sweet & Maxwell, has now led the author to write a Second Cumulative Supplement to this Fourth Edition (2014, xxxi + 186 pp). The First Supplement was issued in 2011 and its text is inserted in the Second Cumulative Supplement. With the main work it 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. It is evident that a larger part of the book brings national law up-to-date. From a ‘continental’ view I would like to stress however that some cases are known outside England, such as Re Belmont Park Investments, European Directories, Kaupthing Singer & Friedlander or Re The Nortel Companies and the Lehman Companies (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’). Some 40 pages in the Second Cumulative Supplement are international in nature. The Supplement adds to Chapter 28 of the main work (‘Introduction: General Problems, and Issues of Principle’) 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). I agree with Fletcher’s reading that this case only deals with recognition of in personam and in rem judgments and should not prevent assistance under common law principles. In Chapter 29 (‘Bankruptcies with an international element. The English Law and Practice’) again Rubin and New Cap have resulted in additional sentences, as well as in Chapter 30 (‘Liquidations with an international element’), e.g. regarding Rome II. The largest par of renewals relate to Chapter 31 (‘International Regulation of Cross-Border Insolvency. National and European Legislative Provisions. In this part all cases of the Court of Justice of the European Union are presented, such as F-Tex SIA (jurisdiction in cases where the liquidator has assigned a cause of action to another party), ERSTE Bank Hungary (application of the regime of the Insolvency Regulation to newly-joined Member States, important for the newest member Croatia), Rastelli Davide (concerning the exercise of jurisdiction over companies alleged to be closely connected with one another) and Interedil (with new interpretations to ‘COMI’ and ‘establishment’. Here I missed the Schmid v Hertel case (C-328/12) (on the scope of the Insolvency Regulation, see this blog 2014-01-doc11). The prospective revision of the European Insolvency Regulation since 2012 is also considered. Finally Chapter 32 (‘International Regulation of International Insolvency. Global Initiatives’) updates the activities surrounding the UNCITRAL Model Law, describes some UK and USA cases and highlights the ALI-III Global Principles, well known to readers of this blog. The Second supplement to the 4th edition of Fletcher’s The Law of Insolvency brings the main work up-to-date and deals with all the developments in the law relating to insolvency since the publication of the main work in 2009. In all an invaluable update and recommendable to academics, judges and practitioners. The law is stated as at the beginning of July 2014.