As from today, the Insolvency Regulation Recast (EU) 2015/848 will apply to insolvency proceedings commenced on or after this date.
In view of this, Stibbe lawyers Paul Van der Putten, Oliver Stevens, and Pieter Wouters set out and analyze the five key changes of this Regulation Recast: (i) the scope of the legislation is broadened to cover pre-insolvency proceedings, (ii) the concept of COMI is clarified, (iii) the system of main proceedings versus secondary proceedings is improved, (iv) a chapter on (pre-)insolvency proceedings regarding group of companies is introduced, and (v) the obligation to create insolvency registers is imposed on member states.
Scope of the Regulation Recast
One of the main shortcomings of the initial Insolvency Regulation (EU) 1346/2000 was its limited scope. This Regulation did not cover pre-insolvency proceedings or so-called hybrid proceedings, which aim to prevent insolvency and to rescue companies whose financial situation is distressed. Article 1 of the Regulation Recast now sets out a much broader scope and includes rescue and restructuring proceedings.
Moreover, the Regulation Recast makes an explicit reference to its Annex A, which lists the (pre-) insolvency proceedings in the different member states of the European Union that fall within the scope of the Regulation Recast. Recital 9 of the Regulation Recast now also clearly states that Annex A is exhaustive and that no further examination by the courts is needed.
Concept of COMI
In the past decade, case-law of the European Court of Justice has shown that under the initial Insolvency Regulation, difficulties could arise in applying the concept of COMI. These difficulties caused divergent interpretations, abuse, and forum shopping. The Regulation Recast aims to deal with these issues by defining in Art. 3.1 the concept of COMI as “the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties”.
The Regulation Recast also introduces some novelties regarding the COMI concept. It establishes, inter alia, a suspect period of three months: under the presumption that the COMI is the place of the registered office, this applies only if the registered office has not been moved to another member state within the 3-month period prior to the request for the opening of insolvency proceedings, thus preventing forum shopping.
The Regulation Recast kept the system of main proceedings versus secondary proceedings, but it has significantly improved it. The types of secondary proceedings were extended: these proceedings can now be any of the proceedings listed in Annex A, thus allowing a restructuring procedure to be used in secondary proceedings. The Recast also allows a proper administration of the estate by introducing the concept of “the right to give an undertaking” (Art. 36 Regulation Recast), allowing insolvency practitioners in the main proceedings to act “as if” there were secondary proceedings opened in other member states and to comply in such member states with local distribution and priority rights with regard to the proceeds of the local assets.
Furthermore, the Recast Regulation provides new provisions allowing for a better coordination between the main proceedings and secondary proceedings. Subject to certain conditions, the insolvency practitioner of the main proceedings will be able to intervene in secondary proceedings in order to request the court to open another type of insolvency proceedings than the type initially requested. The insolvency practitioner of the main proceedings can also seek suspension of the secondary proceedings for a maximum of 3 months if there is a temporary stay in the main proceedings, provided that suitable measures are in place to protect the interests of local creditors. This will allow the insolvency practitioner to conduct negotiations without having to look after the secondary proceedings that could be taking place all over the European Union.
Provisions regarding group of companies
While Regulation EU 1346/2000 lacked specific rules on the insolvency of a multi-national enterprise group, the Regulation Recast introduces a whole new chapter on group of companies. It introduces a voluntary group coordination and cooperation scheme between the different main proceedings that apply to the different companies of the same group.
The Regulation Recast stipulates that the insolvency practitioners of each one of the main proceedings must “cooperate and communicate”. For this, it added two new ways that the insolvency practitioner could use.
First of all, an insolvency practitioner of any group company may request a stay of the realization of assets with respect to another group company so that he or she can implement a restructuring plan.
Second, it will be possible to appoint a group coordinator who can make recommendations for the coordinated conduct of the different main insolvency proceedings and who can propose a group coordination plan. He or she can also request, if necessary, a stay of the proceedings that are opened in respect of any member of the group so that he or she can ensure the proper implementation of the plan.
Introducing the chapter on group of companies in the insolvency regulation constitutes a major step in meeting the changed needs of companies in the increasingly internationalized EU market. Despite these efforts, analysis of the new provisions regrettably show the failure of EU legislators to set up a substantive European group restructuring legislation, making the execution of the provisions depend greatly on goodwill. Insolvency practitioners will be able to, for example, opt out before the group coordinator is appointed or opt in at a later stage. Moreover, an insolvency practitioner should not be obliged to follow the coordinator’s recommendations or the group coordination plan. This is a missed opportunity for the EU legislators.
Insolvency registers and lodging of claims
In the past decade, problems have arisen relating to the rules on publicity of insolvency proceedings and the lodging of claims. Therefore, the Regulation Recast imposed additionally the obligation on the member states to create insolvency registers. The Commission will create a central public electronic access point to allow creditors to access easily the insolvency registers of other member states. On April 1, 2017, Belgium launched its online insolvency register: the “Centraal Register Solvabiliteit” (www.regsol.be).
Furthermore, the Commission will facilitate the lodging of claims by creating a standard claims form, and foreign creditors have at least 30 days to lodge their claims using this form.
The Regulation Recast updates and improves the existing European Union insolvency legislation, and it is probably the first of more legislative initiatives on business insolvency. This is evidenced from the Capital Markets Union Action Plan stating that the Commission will propose a legislative initiative on business insolvency, including early restructuring and second chance, drawing on the experience of the Commission Recommendation on a new approach to business failure and insolvency addressed to the member states (the "Insolvency Recommendation"), which was adopted on 12 March 2014.
Authors: Paul Van der Putten, Oliver Stevens, and Pieter Wouters