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Blog 2018

2018-06-doc8 Applying EU Insolvency Regualtion in Practice

During 2016 and 2017 researchers of universities or research-institutes of Genoa, Sofia, Prague, Mainz, Riga, Valencia, Amsterdam and Glasgow have developed best practices in cross border cases for the survival of distressed companies. The project was co-funded by the Action grants programme to support judicial cooperation in civil and criminal matters of the European Commission. Aligning with a practical comparative international methodology, the goal of the project was to collect and exchange best practices in the field of insolvency and pre-insolvency cross-border proceedings. The result of all efforts should assist insolvency practitioners to better coordinate and implement international cooperation; the envisaged end-goal to enhance the management of multiple proceedings, reorganisation of companies and the protection of creditors and interests of stakeholders. The final product is an e-book and a hardcopy version, in front of me, which collects the results of the project.

The book is divided in two parts, Part I ‘The EU Insolvency Regulation’ (EIR Recast), with seven contributions, and Part II ‘Cross-Border Insolvency Proceedings: A Comment on Selected National Practices’, with eight contributions. Part I contains selected themes from the EIR Recast itself; Part II contains national reports from Bulgaria, Czech Republic, Germany, Spain, Italy, Latvia, the Netherlands and Scotland, UK. These latter reports provide in general a commentary to the relevant applicable rules of private international law in light of possible best practices to overcome issues in the cross-border management of insolvency and pre-insolvency proceedings. Below some remarks on the book: Ilaria Queirolo and Stefano Dominelli (eds.), European and National Perspectives on the Application of the European Insolvency Regulation, Scritti de Diritto Privato Europeo e Internazionale, Volume 18, Aracne editrice 2017 (ISBN 978-88-255-0906-9).

In Part I the first chapter on ‘Scope of Application of the Regulation (EU) 2015/848 on Insolvency Proceedings’ (Castelló Pastor, Gómez Fonseca) is rather descriptive on the material, personal, temporal and territorial scope of the EIR Recast. In the contribution regarding the international jurisdiction for main proceedings one finds more discussion and practical difficulties identified (Gruber). The meaning of ‘central administration’ in recital 30 EIR Recast and the same terms in the Brussels I Regulation (Recast) and Rome I, arguments against the introduction of a group COMI and the uncertainties when relocation of COMI constitutes an ‘abuse of right’, these are all topics which will be welcome for further debate in academic literature. As to the theme of abuse, Gruber, rightfully, is cautious to apply a broad concept, such as: abusive are all COMI shifts that evidently do not contribute to maximizing the debtors’net assets for the benefit of the creditors (as Eidenmüller does). Gruber submits that with regard to detemining international jurisdiction for the opening of main insolvency proceedings, there is no room for operating with an abuse of rights concept. Gruber finds the solution within the framework of determining COMI itself: if the debtor simply aims at hiding assets from the creditors, these amount to the conclusion that the COMI is not sufficiently ascertainable by the creditors. The next topic on the jurisdiction in secondary and territorial proceedings (Carruthers) is rather descriptive, though careful. The chapter on the determination of applicable law in international insolvency proceedings (Brodec) provides a good overview, interestingly also referring the Austrian and Czech literature. In general, I would say, this also makes the whole book a must read in addition to other books on the EIR Recast especially those which limit themselves nearly only to UK literature. ‘Information to, and Rights of, Creditors’ (Rone) provides a solid overview. I could not detect whether ‘creditor’ also includes a creditor with its habitual residence, domicile or registered office outside of the EU.

A fine example of the project’s aim to collect and exchange best practices in the field of insolvency and pre-insolvency cross-border proceedings is ‘Cooperation between Authorities and Insolvency Office Holders’ (Queirolo, Dominelli). In a 70 pages piece with 282 (!) footnotes the authors address nearly all available literature and non-binding ‘soft law’ guidelines and best practices, developed e.g. by UNCITRAL, EBRD and the Turnaround Rescue and Insolvency research group, of which I was I was a member, of the University of Leiden. The latter group also has published sources of these guidelines (www.tri-leiden.eu). The authors try to define terms such as communication, cooperation and coordination. A reason to be more specific in this regard is clear, as these terms now have a basis in the EIR Recast, in which they play an eminent role. Presently this domain of non-binding rules include the Communication and Cooperation (CoCo) Guidelines, developed over 10 years ago, some of which are criticised by the authors. Since a few months the Conference of European Restructuring and Insolvency Law (CERIL) (see www.ceril.eu) and INSOL Europe established a Joint Working Group (‘CoCo2 Working Group’), to coordinate work to review the CoCoGuidelines in light of present practice and understanding of cross-border cooperation and communication in insolvency matters. This group will be led by Prof. Tomáš Richter (Charles University) and Dr. Paul Omar (INSOL Europe) together with a membership composed of representatives of academia, judiciary and practice belonging to both organisations, as well as other stakeholders. The group is well advised to study the in-depth article of Queirolo and Dominelli. Their suggestion that time is ripe to raise the awareness of existing soft law in cross-border insolvency and restructuring matters is certainly true, and I would follow their submission that the European Commission adopt an instrument to support a compilation of best practices, or to develop its own set of best practices and guiding principles, which might result in a set of guidances, that in practice more effectively would be followed. The final paper in Part I is ‘Recognition of Decisions (Including Question of Public Policy) and Powers of Liquidators’ (Natov, Musseva, Pandov, Dimitrova) and is a well-documented overview of the topics.

From the national reports it can be noted that the emphasis should lay on training and development of knowhow and skills of practitioners, courts and restructuring advisors. The Dutch report (by Van Hoek, Van der Plas, Salomons and De Weijs) reveals that mid 2017 a search for ‘1346/2000’ (the former Insolvency Regulation) resulted in 155 judgments and those with references made to the EIR Recast resulted in 17 cases. As in many other jurisdiction, cases related to trade and investment with neighbouring countries form the larger part: Germany, Belgium and the UK. Other EU jurisdictions in these cases include France, Austria, Spain and Poland. Cases with involvement outside of the EU include Russia (the famous Yukos case), USA, Dubai, India, Switzerland, Iceland and BVI. These cases mirror the open Dutch economy. The reporters best practice is that, where knowledge of these systems will not be readily available beforehand, the successful handling of cross-border insolvencies requires an international network which the an IP can fall back on as well experience with operating in an international and intercultural context. From the Dutch report it also follows that practitioners do not like questionnaires, but are open for interviews (in my experience this reflects a European appetite). It appears that Dutch practitioners are rather reserved towards the use of protocols. It could indeed assist practitioners when draft-clauses or model tools could be developed. Legislation (for instance the EU rules of group-insolvencies) can be mocked upon, but legal rules have their limits and a contractual solution by creative lawyers can provide tailored solutions. It is my belief that judges more and more are understanding that a good result in a cross-border restructuring can not delivered exclusively by legal rules and their interpretation. Business problems should be solved by business solutions, not governmental rules only.    

The 1986 Cork-report in the UK recognised it clearly, and it was echoed last year when prof. Madaus and I published our ELI Report on Rescue of Business in Insolvency Law: the EU as well as Member States should recognise that the success of any restructuring or insolvency system is very largely dependent upon those who administer it. Such a system can only function well when all stakeholders, including the general public, have confidence and respect in the courts and insolvency practitioners, and the way the roles of all parties involved are guaranteed and executed. I therefore think that the book should not only be studied by insolvency scholars. It should find its way to lawyers, economists, accountants and judges, entering into or involved in the cross-border insolvency and restructuring market. The multiple practical suggestions given by the authros make reading of the book beneficial for national legislators too. Where the market evolves into a level playing field, European oriented associations of insolvency and restructuring professionals and legislative staff of the European Commission institutional involved in developing restructuring and insolvency rules find in the book a good companion.

Note: this book I received free of charge from the publisher with the request to announce it or to review it on my blog at www.bobwessels.nl.

2018-06-doc7 Book on Transaction avoidance in insolvency

The book shortly announced here was published for the first time in 2002. The second edition appeared in 2011, and now, 7 years later, the third edition is published: Transaction Avoidance in Insolvencies, mainly authored by Rebecca Parry, James Ayliffe QC, and Sharif Shivji, published by Oxford University Press (ISBN 978 0 19 879340 3). Significant developments have found their way into this publication, e.g. the Small Business, Enterprise and Employment Act of 2015 and the recent revision in the UK of the Insolvency Rules. Evidently case law is discussed related to the concept of insolvency and a debtor’s property, the anti-deprivation rule, matters with family homes or insolvent estates of deceased persons. This third edition also considers possible ways in which a vulnerable transaction might be attacked, as well as practical issues that can arise in a typical transaction avoidance case, such as evidence gathering, other laws enabling transaction avoidance, limitation periods and (re corporate insolvency) the destination of proceeds. The in-depth analysis of the laws enabling the avoidance of transactions in insolvency includes references to Commonwealth cases including Australia, New Zealand and the USA as well as in offshore jurisdiction, namely Jersey, Guernsey, Bermuda, BVI, Cayman Island and, surprisingly, but welcome Dubai International Financial Centre (Chapter 22).

The chapter on cross-border transactions covers an issue of territorality, ie the jurisdictional reach of avoidance provisions of the Insolvency Act 1986, but also the revised EU Regulations on Insolvency Proceedings (EIR Recast) and the UNCITRAL Model based Cross-Border Insolvency Regulations 2006. The basic rule of the EIR Recast is that the law of the state of the opening of insolvency proceedings (lex concursus) governs the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to the general body of creditors (Article 7(2)(m) EIR Recast). It also determines the conditions to be met, the manner in which the nullity and voidability function (e.g. automatically, by allocating retrospective effects to the proceedings or pursuant to an action taken by the liquidator) and the legal consequences of nullity and voidability. The exception is Article 16 EIR Recast (which is similar as Article 13 of the 2000 Insolvency Regulation), which says that Article 7(2)(m) shall not apply where the person who benefited from an act detrimental to all the creditors provides proof that: (a) the act is subject to the law (lex causae) of a Member State other than that of the state of the opening of proceedings, and (b) the law of that Member State does not allow any means of challenging that act in the relevant case. The provision wishes to uphold legitimate expectations of creditors or third parties of the validity of the act in accordance to the normally applicable national law (lex causae), against the interference from a different and at times less predictable lex concursus. Transactions concluded after the opening of insolvency proceedings, in principle, do not merit the protection provided by Article 16. In Chapter 21 (by Rebecca Parry) the system is discussed (and criticised) and important CJEU cases, which can be quite complex, are explained. In Lutz v Bäuerle, the CJEU clarified that the defense established by Article 13 EIR 2000 (now Article 16 EIR Recast) also applies to limitation periods or other time-bars (whether procedural or substantive) relating to actions to set aside transactions under the law governing the act challenged by the liquidator. As to the burden of proof the defendant, first, must object to the application of lex concursus. It shall also provide sufficient evidence of non-voidability under lex causae in accordance with the rules generally applicable under the court’s national rules of procedure. If such a court is satisfied with the proof so furnished, it may rule that it is now for the applicant to establish the existence of a provision or principle of lex causae on the basis of which that act can be challenged, see Nike v Sportland. The result is that the burden of proof may shift from the defendant to the claimant, wishing to avoid the transaction. The second test is that the lex causae must not allow any means of challenging the act at issue. In this respect the CJEU held that the aim of protecting legitimate expectations and the need for all the circumstances of the case to be taken into account require Article 13 EIR 2000 (now Article 16 EIR Recast) to be interpreted as meaning that a person benefiting from a detrimental act must prove that the act at issue cannot be challenged both on the basis of the insolvency provisions of lex causae and on the  basis of the general provisions and principles of that law, taken as a whole (thus Nike v Sportland). The chapter also explain other cases, such as Vinyls, in which the CJEU confirmed its approach to the detrimental acts, however added that this exception against the applicability of lex concursus shall not apply when the parties’ choice of law is dictated by abusive or fraudulent ends. What constitutes abusive or fraudulent behavior needs to be determined on a case-by-case basis.

The chapter concludes with a sort of introdution to safe havens (in Chapter 22). It then warns that if more debtors choose to shelter assets by using safe havens, the prospects for effective realization of assets worldwide will be seriously undermined. Parry submits that a solution against this tendency a court could make an order in personam requiring the debtor to transfer the property, in the footnote making a reference a Dutch case of Court of Appeal ‘s-Hertogenbosch from 1993. In this case, however, the facts are a bit different: the court gave a power of attorney not to the debtor, rather its former husband: this former husband of the insolvent debtor (whose insolvency was adjudicated prior to the date of divorce) was required to cooperate with the liquidator and provide a power of attorney allowing the liquidator to include in the bank­ruptcy estate, Spanish real estate belonging to the marital estate. There are one or two other Dutch cases providing the same. The issue that such a coerced power of attorney leading to (partial) loss of ownership might be a violation of the ECHR has not been addressed by Dutch courts.

Note: this book I received free of charge from the publisher with the request to announce it or to review it on my blog at www.bobwessels.nl.

2018-06-doc6 Groepscoordinatieprocedure ook in de Fw

Zie mijn uitnodiging opgenomen in dit blog onder 2018-05-doc3 om reacties/commentaar op mijn conceptteksten voor Wessels Insolventierecht I, 5e druk, te sturen naar: info@bobwessels.nl. Nu het volgende onderwerp:

[1267c] Groepscoördinatieprocedure. Met ingang van 26 juni 2017 kent de Europese insolventieverordening (herijking) (EIR 2015) een groepscoördinatieprocedure. De wetgever heeft met ingang van 23 december 2017 in enige nationale procesregels voorzien om deze procedure soepel te laten verlopen, zie art. 5a, dat vijf leden telt. Art. 5a lid 1 bepaalt dat een verzoek tot opening van een groepscoördinatieprocedure als bedoeld in art. 61 EIR 2015 kan worden gedaan door een insolventiefunctionaris bij de rechtbank, aangewezen in art. 2. Tegen een beslissing van de rechtbank als bedoeld in art. 77(4) EIR 2015 kan een bij de groepscoördinatieprocedure betrokken insolventiefunctionaris gedurende acht dagen, na de dag waarop die beslissing is genomen, in hoger beroep komen (art. 5a lid 2). Dat hoger beroep wordt ingesteld bij verzoek, in te dienen ter griffie van het rechtscollege dat bevoegd is van de zaak kennis te nemen (art. 5a lid 3). De rechter beveelt in geval van een mondelinge behandeling de oproeping van (i) de verzoeker in hoger beroep, (ii) de bij de groepscoördinatieprocedure betrokken coördinator en (iii) de in eerste aanleg in de procedure verschenen belanghebbenden (art. 5 lid 4). De griffier zendt onverwijld een afschrift van de beslissing op het verzoek, bedoeld in art. 5 lid 3, aan de rechtbank.

[1267d] Indiening verzoek tot opening. Uitvoerig over bedoelde groepscoördinatieprocedure Wessels Insolventierecht X Part II 2017/10925 e.v. Aan de MvT bij Uitvoeringswet EU-insolventieverordening (Stb. 2017, 496; i.w.tr. 23 december 2017, Stb. 2017, 497), Kamerstukken II, vergaderjaar 2016/17, 34 729, nr. 3, p. 11, valt het volgende te ontlenen. Het verzoek (art. 61 lid 1 EIR 2015 gebruikt de term ‘aanvraag’) tot opening van een groepscoördinatieprocedure kan worden ingediend door een insolventiefunctionaris die is aangesteld in een insolventieprocedure betreffende een lid van de multinationale groep en wel bij de bij die insolventieprocedure betrokken rechter. Verder bepaalt art. 61 lid 2 EIR 2015 dat deze aanvraag dient te worden gedaan overeenkomstig de voorwaarden van het recht dat van toepassing is op die insolventieprocedure. Volgens de MvT, Kamerstukken II, vergaderjaar 2016/17, 34 729, nr. 3, p. 11, voorziet art. 5a lid 2 tot lid 5 in een uitwerking van art. 77(5) EIR 2015. Art. 77 EIR 2015 gaat over de kosten die de coördinator van een groepscoördinatieprocedure in rekening kan brengen en kan doorberekenen in de betrokken insolventieprocedures. De insolventiefunctionarissen die zijn aangesteld in de insolventieprocedures en die vallen binnen het toepassingsbereik van de groepscoördinatieprocedure, kunnen op grond van art. 77(4) EIR 2015 bezwaar maken tegen de eindafrekening die door de coördinator is opgesteld. Daarnaast bepaalt art. 77(5) EIR 2015 dat de beslissing van de rechter op dit bezwaar door deze insolventiefunctionarissen kan worden aangevochten. De daarbij te volgen procedure wordt, aldus de MvT, t.a.p., bepaald door het recht dat van toepassing is op de groepscoördinatieprocedure. Dit is het recht van de lidstaat waar deze procedure is geopend. Uit een in juni 2018 gepubliceerd rapport (Realisation of the EU Insolvency Regulation (EIR 2015) in national (procedural) law of the Member States, CERIL Report 2018-1) blijkt dat deze procedure bijvoorbeeld in Frankrijk anders is uitgewerkt. CERIL roept, ook ten aanzien van andere onderwerpen uit de EIR 2015 die in nationaal recht van aanvullende regels worden voorzien, tot een betere afstemming tussen lidstaten om nodeloze verschillen en mogelijk juridische conflicten hierover te vermijden.

Ontslag coördinator. De MvT bij Uitvoeringswet EU-insolventieverordening, Kamerstukken II, vergaderjaar 2016/17, 34 729, nr. 3, p. 10 e.v, licht toe dat in art. 5a het ex art. 75 EIR 2015 in te dienen verzoek tot ontslag van de coördinator niet is opgenomen. Daarvan is afgezien omdat in het geval het ontslag een Nederlandse curator zou aangaan, deze op dat moment niet wordt ontslagen als curator maar in zijn functie van coördinator op de voet van de verordening. Wanneer de coördinator dient te worden ontslagen volgt reeds uit de verordening zelf, aldus de Toelichting.

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2018-06-doc5 American Bankruptcy Institute publishes book on EU Insolvency Regulation (Recast)

In July 2018 the fourth edition will be published by the American Bankruptcy Institute (ABI) of the book European Union Regulation on Insolvency Proceedings. An Introductory Analysis. The first edition dates from 2003, the third from 2010, see http://www.bobwessels.nl/blog/2010-02-doc2-eu-insolvency-regulation-short-analysis-3rd-ed/. The new edition I have written with my Leiden colleague Ilya Kokorin, lecuturer company and insolvency law. The book describes the key points of the framework of the European Insolvency Regulation Recast (adopted in June 2017), reviews its major rules, highlights the differences from the old EIR 2000, and makes references to the most important and recent cases of the Court of Justice of the European Union. It is presented as an essential guide to non-European judges, practitioners and scholars who are confronted with this domain of law, as well as anyone dealing with Europe-related cross-border cases. This revised edition also features the full text of the EIR Recast, the European Communication and Cooperation Guidelines for Cross-Border Insolvency (2007) and the EU Cross-Border Insolvency Court-to-Court Communications Principles and Guidelines (2015), as well a short bibliography for further information.
ABI notes: the book is only available for pre-order. Printed copies will be mailed in July 2018, see
https://store.abi.org/european-union-regulation-on-insolvency-proceedings-an-introductory-analysis-fourth-edition.html

2018-06-doc4 Privacy protection in Asia and the EU

The Asian Business Law Institute (ABLI), which started in 2016, is an institute based in Singapore. It initiates, conducts and facilitates research and produces authoritative texts with a view to providing practical guidance in the field of Asian legal development and promoting the convergence of Asian business laws. Since last year I am involved in their work related to restructuring and insolvency, in which a close cooperation with the International Insolvency Institute (III, see www.iiiglob.org) is sought. See http://www.bobwessels.nl/blog/2017-09-doc10-launch-of-asian-principles-of-restructuring-project/. In May 2018, ABLI published a large study on Regulation of Cross-border Transfers of Personal Data in Asia. It contains a compendium of 14 detailed reports (in all over 400 pages) written by legal practitioners, scholars and researchers in their respective jurisdictions, on the regulation of cross-border data transfers in the wider Asian region, which includes Australia, China, Hong Kong SAR, India, Indonesia, Japan, South Korea, Macau SAR, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam. Under leadership of Dr Clarisse Girot, Research fellow at ABLI, the report brings together the regulation of data transfers in the jurisdictions mentioned and includes a study of data transfer provisions in Asian data privacy laws to address the wider spectrum of issues that have an impact on the legal framework of cross-border data flows. It will form the basis for a second phase in ABLI's research: an in-depth study of the differences and commonalities between Asian legal systems on these issues and – where feasible – the drafting of recommendations and/or policy options to achieve convergence in this area of law in Asia. It is interestng to note that the study apprears in the month in which in Europe tighter regulation on data sharing and international data transfers has been enacted via the General Data Protection Regulation (GDPR). In the introduction to the full report it is also noted that the reports demonstrate how the extraterritorial effects of the GDPR have had their influence. The EU standards guide or inspire reflections on national reforms in Thailand, India, Indonesia, and Hong Kong SAR, while I read that several European concepts have been imported ('data portability' in the Philippines, or the 'right to be forgotten' in Indonesia and South Korea). This makes the report an interesting read for European governments, data privacy regulators, law practitioners and the privacy industry as a whole as well. Where many Asian companies operate globally and in future certain Asean guidances will become available, it may be expected that a mutual exchange of ideas can take place and that 'global' convergance may be around the corner.