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2017-09-doc9 2016 book of Look Chan Ho

With the date of this publication cited as at Buddha’s Birthday 2016, in the book ‘Cross-Border Insolvency: Principles and Practice' (Sweet & Maxwell, 2016, xlv + 351 pages), its author Look Chan Ho, discusses English cross-border insolvency law. The author is dissatisfied that this area of law lacks a solid taxonomic order and that practices relies too much on improvisation. These observations are serious as the author is a well-experienced practitioner and over the years has demonstrated to be a clever analyst of many topics of cross-border insolvency law. Improvisation, however, does not have to be a bad thing in this complex legal area. It may assist in looking for the most pragmatic solution and a fair outcome; it may rather be the arbitrariness and unpredictability that causes discontent. The author presents a unique approach in his treatment of English’ framework of rules and regimes from the perspective of conflict of laws with a view to strengthening the understanding and practice of cross-border insolvency. He analyses the whole corpus of cross-border insolvency regimes from three conflicts perspectives, namely: (i) jurisdiction to commence insolvency proceedings, (ii) recognition and enforcement of foreign insolvency proceedings, and (iii) choice of law. In such a treatment, he argues, the principles of cross border insolvency can be compared and contrasted across the whole body of cross-border insolvency law. The focus of the book is mainly English law, which offers, as the author points out, ‘… the widest and most complex range of cross-border insolvency regimes in the world’, which includes the EU Insolvency Regulation, Brussels I, UNCITRAL Model Law on Cross- Border Insolvency, European rules re the reorganisation and winding up of banks and insurers, several domestic English acts and the sheer enigma of common law, leading to the inclusion of court cases from Bermuda, Hong Kong, Singapore and South Africa. All these applicable cross-border regimes have been considered in two ways: (1) what is the law?, and (2) how best to evaluate these different rules. Under the flag of jurisdiction, a comparison is made of the jurisdiction of the English court to commence insolvency proceedings, more particularly liquidation, administration, company voluntary arrangement and scheme of arrangement. The theme of recognition and enforcement deals with the recognition and enforcement by the English court of a foreign liquidation or reorganisation proceeding and for instance foreign insolvency judgments, e.g. a foreign judgment ordering the defendant to return property on the basis of violation of foreign fraudulent conveyance law Enforcement and choice of law deal with forms of relief that may be obtained from the English court following the recognition of foreign insolvency proceedings. Choice of law issues, the author notes, have been considered fully. As this area of the law is most undeveloped, this part is organised according to the typical relief sought in cross-border cases, including such topics as discharge of debt, set-off, and avoidance of antecedent transactions. All the cross-border regimes have been compared and contrasted in order to state the current position and to offer recommendations going forward. Under the readers of the book one would expect practitioners. They will find a helpful and practical treatment of queries that often occur in practice, including a systematic clarification, e.g. nine points of view to take into account when deciding about a debtor’s COMI (although the 9th (‘the standard of proof is the standard of balance of probability’) is not easy to understand for non-English readers) and that the Chancellor’s incorrect view regarding COMI in the Stanford case had already been signalled by me in 2010 on this blog as well as in my book regarding International Insolvency Law. Another example for support in practice is Ho’s analysis of case law leading to nine propositions regarding the demarcation between the Insolvency Regulation and Brussels I. This should suffice to conclude that, given the depth and detail of the treatment and the sharp analysis presented, the readers also will be scholars. The reader should be prepared to cope with strong or pedantic views, such as that the pari passu principle is ‘often misunderstood’, that English’ state of law regarding cross-border insolvency is ‘chaotic’, that the English courts’ current approach to the extra-territorial application of insolvency provisions is ‘deeply unsatisfactory’, that the UNCITRAL Model Law is ‘a profoundly misguided document’ and that the Guide to Enactment and Interpretation of the Model Law seems misconceived and may hinder the Model Law’s cause. Nearly all chapters contain extensive footnoting with references to cases and literature, however, rather in common with all literature provided by English authors, it suffers from their unmistakable disease of mastering only one language and even within these sources limiting research to English authors. Look Chan Ho, Cross-Border Insolvency: Principles and Practice, Sweet & Maxwell, 2016, xlv + 351 pages. For ordering information, see http://www.sweetandmaxwell.co.uk/Catalogue/ProductDetails.aspx?productid=645498&recordid=6453

2017-09-doc8 Rechtsmacht rechter in faillissementszaken

De algemene benadering in zaken van burgerlijk procesrecht voor woonplaatskwesties, waarmee wordt aangesloten bij het woonplaatsbegrip in het personen- en familierecht dient ook voor het insolventieprocesrecht te gelden. Dat is de eerste van de vier conclusies die ik trek uit een korte analyse van de regeling van de rechtsmacht van de rechter in faillissementszaken. Faillietverklaring geschiedt door de rechtbank van de woonplaats van de schuldenaar, aldus de tekst van art. 2 lid 1 Fw. Art. 2 kent voor drie gevallen bijzonderheden ten aanzien van de rechtsmacht van de rechter. In Nederlands Tijdschrift voor Handelsrecht, Augustus 2017, pp. 178-182, is deze analyse opgenomen. De andere conclusies: - ten aanzien van de schuldenaar die zich buiten het Rijk in Europa heeft begeven is de rechtbank van zijn laatste woonplaats bevoegd (art. 2 lid 2). Voor de rechtsmacht van de Nederlandse rechter is het voldoende dat een schuld van deze schuldenaar voortspruit uit een ten tijde van het vertrek van de schuldenaar reeds bestaande rechtsverhouding of -betrekking, waaruit na dat vertrek de schuld is ontstaan; - de wetgever dient een consistent systeem te ontwikkelen van het materiële en processuele insolventierecht ten aanzien van (momenteel nog) drie procedures (faillissement, surseance van betaling en schuldsanering natuurlijke personen) ten aanzien van personenassociaties (vennootschap onder firma, maar ook de maatschap en de commanditaire vennootschap); - onder ‘kantoor’ in art. 2 lid 4 Fw is te verstaan elke plaats van handeling waar een schuldenaar met behulp van mensen en goederen een economische activiteit uitoefent die niet van tijdelijke aard is. Voor de drukproef van het artikel zie Proef_NTHR_2017_4_Wessels

2017-09-doc7 Next step towards a Dutch procedure to bind non-consenting creditors to a restructuring plan

Until 1 December 2017 input can be given to a public consultation in the Netherlands for an amendment of the Dutch Bankruptcy Act. The government intends to introduce the possibility of getting court confirmation for an extrajudicial restructuring plan to prevent bankruptcy (Wet homologatie onderhands akkoord ter voorkoming van faillissement; Act on confirmation of private restructuring plans to prevent bankruptcy). A draft bill was published for public consultation on 5 September 2017. The draft bill is a revision of an earlier draft bill, known as Continuity of Companies Act II. Obviously, there is also a Continuity of Companies Act I. This bill tries to lay a legislative basis under a practice developed during the last 3 or 4 years, known as the Dutch pre-pack. The Act will allow a debtor in financial distress to prepare and attempt a non-public restructuring of its businesses through a pre-pack alike procedure, allowing the debtor – who continues to have the power to dispose of its assets – and a court-appointed insolvency practitioner to jointly investigate and prepare an asset sale to be implemented immediately following the opening of formal insolvency proceedings. The labour law consequences following the CJEU's decision in the Estro or Smellsteps case are presently discussed in the Dutch Senate. The revised draft of the Continuity of Companies Act II - I am citing the site of the Dutch law firm De Brauw Blackstone Westbroek - still contains several substantial elements of a legislative proposal that De Brauw partners Ruud Hermans and Reinout Vriesendorp drew up and submitted in 2013. They were inspired by the UK scheme of arrangement and the US Chapter 11 proceedings. The revised draft introduces a brief statutory procedure to bind creditors (including preferential and secured creditors) and shareholders to a restructuring plan. This plan amends or restricts their rights - including the possibility of a cross-class cram-down - with the approval of a Dutch court. The process stays out of the formal proceedings of the Bankruptcy Act (i.e. bankruptcy liquidation and suspension of payments). Formal proceedings are not opened and no insolvency praxtitioner needs to be appointed. The debtor stays in full control during the entire process. As indicated, last week the De Brauw law firm published an article (https://www.debrauw.com/newsletter/dutch-procedure-bind-non-consenting-creditors-restructuring-plans-one-step-closer/) with the aim of giving more detailed information about the revised draft bill (see also its dedicated page with unofficial English translations of the draft bill and its explanatory memorandum). The firm still sees room for further enhancement and will therefore prepare consultation feedback once more. They invite readers to share any thoughts, so these can be incorporated in this in their submission. I am certain that the firm will also welcome comments from non-Dutch insolvency law specialists.

2017-09-doc6 Book presentation in Brussels

Yesterday, in Brussels, I was able to present the first copy of one of my new books (4th edition of International Insolvency Law: Part II European Insolvency Law, published by Wolters Kluwer) to Andreas Stein, Head of Unit Civil Justice of the Directorate-General for Justice and Consumers of the European Commission. The staff of the Unit Civil Justice are the main drafters of e.g. the EU Insolvency Regulation (recast) and the November 2016 proposal for a Preventive Restructuring Directive. The core of my book contains an extensive treatment of the EU Insolvency Regulation (2015/848) which came into effect on 26 June 2017. So one may say a meeting of minds in legislature and academy. The book will form an addition to the library of the Unit. Futher information and ordering details, see http://bobwessels.nl/2017/09/2017-09-doc4-wessels-international-insolvency-law-part-ii-european-insolvency-law/ DSC00993

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

Interview published in Global Restructuring Review (globalrestructuringreview.com) 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.