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The Reform of the European Insolvency Regulation

The Reform of the European Insolvency Regulation. EIR Reform Project. History: Treaty of Rome 1957 Brussels Regulation 1968 Art. 1 Exception 1970 Draft ( ↑ substantive and procedural) 1980 Draft ( ↓substantive and procedural) CoE Istanbul Convention 1990 (procedural)

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The Reform of the European Insolvency Regulation

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  1. The Reform of the European Insolvency Regulation

  2. EIR Reform Project History: • Treaty of Rome 1957 • Brussels Regulation 1968 Art. 1 Exception • 1970 Draft (↑substantive and procedural) • 1980 Draft (↓substantive and procedural) • CoE Istanbul Convention 1990 (procedural) • European Insolvency Convention 1995 (proc.) • European Insolvency Regulation 2000 (proc.) • Amendments in 2004/06/13 (Acc), 2005 etc. (Am)

  3. EIR Reform Project Contents: • Preamble • Scope/Application/Definitions • Jurisdiction • Choice of Law/Exceptions • Recognition Rules/Powers of Liquidator • Conduct of Secondary Proceedings • Creditors’ Information and Claims • Transitional Provisions

  4. EIR Reform Project Preamble: • Linked to Four Freedoms/Single Market issues • Justification for legislation by EU • Conflicts Problems acknowledged (‘widely differing substantive laws’) • Modified Universalism Theory (main/secondary) • Co-ordination Principle paramount • Benefit for Creditors stressed • Status of Preamble? Content Issues?

  5. EIR Reform Project Scope/Application (Article 1): • Four Conditions: • Collective (no individual action) • Insolvent debtor (no pre-insolvency? CVA?) • Partial/Total Divestment (DIP?) • Liquidator appointed (DIP?) • Application to all Debtors (Natural/Legal) except: • Insurance Bodies (Directive 2001/17/EC) • Credit Institutions (Directive 2001/24/EC) • Investment Bodies (Trust/Pension Funds)

  6. EIR Reform Project Scope/Application (Article 1) (cont.): • Territorial Application: • 27+1 (Denmark opt-out in Maastricht Treaty) • European-based Debtors • International Corporate Groups (with a base in Europe) (Re:BRAC, Daisytek, Enron) • Application in Time (Arts. 43, 47): • 31 May 2002 (14)/1 May 2004 (10) • 1 Jan 2007 (2) • Relationship with other Instruments (Art. 45)

  7. EIR Reform Project Definitions (Article 2): • Insolvency Proceedings (rescue + liquidation) in Annex A • Winding Up Proceedings (liquidation) in Annex B • Liquidator in Annex C • Court/Judgment (wide reading) • Time of Opening of Proceedings (effectiveness) • Member state in which assets are situated • Establishment (q.v. Brussels Convention 1968)

  8. EIR Reform Project Jurisdiction (Article 3): • Main Proceedings – ‘centre of main interests’ – full effect – rescue and liquidation possible • Secondary Proceedings – ‘establishment’ – restricted (territorial) effect – liquidation only • Main usually opened before Secondary • Secondary can be opened before Main if • (i) impediment to Main exists • (ii) creditor’s request/claim related to ‘establishment’

  9. EIR Reform Project Jurisdiction (Article 3) (cont.): • What’s Missing? • What does COMI mean? No independent definition in Article 2, so resort to domestic rules and possibility of double-jurisdiction and conflict (Eurofoods) • Virgos-Schmit Report (persuasive interpretation) • Relationship to establishment definition? • Shifting COMI? (forum shopping) • Corporate Groups? (Eurofoods/Daisytek)

  10. EIR Reform Project Choice of Law (Article 4): • Lex concursus (for both Main and Secondary Proceedings) applicable to: • Debtor’s capacity • Asset treatment generally • Debtor-liquidator powers • Effect on availability of set-off, current contracts, creditors’ execution/enforcement, treatment of claims, proof of debts

  11. EIR Reform Project Choice of Law (Article 4) (cont.): • Also applicable to: • Priorities and distributions • Closure and post-closure effects • Costs and expenses • Transaction avoidance (acts detrimental to creditors) • Widest scope of application to procedural and substantive matters, subject to exceptions.

  12. EIR Reform Project Choice of Law Exceptions (‘carve-outs’): • Article 5: rights in rem (security) • Article 6: set-off (quasi-security) • Article 7: reservation of title (quasi-security) • Article 8: immoveables • Article 9: financial market contracts • Article 10: employment contracts • Article 11: registrable rights (land/aircraft/ships) • Article 12: community patents

  13. EIR Reform Project Choice of Law Exceptions (‘carve-outs’) (cont.): • Article 13: protection of otherwise detrimental acts • Article 14: protection of third party purchasers of Article 11-type assets • Article 15: lispendens • Carve-outs may require main/secondary jurisdictions to determine foreign law if no proceedings can take place in the carve-out jurisdiction (i.e. no establishment), but will they be enforced?

  14. EIR Reform Project Recognition Principles: • Article 16: principle of recognition (comity/full faith and credit/Brussels Convention 1968) • Article 16 does not prevent opening of secondary proceedings • Article 17: full effect given to main proceedings elsewhere and to effect of secondary proceedings limited to territorial assets

  15. EIR Reform Project Recognition Principles (cont.): • Article 18: full powers for main liquidator, limited extra- territorial powers for secondary liquidator (no coercive powers can be used); • liquidator must comply with domestic law for realisation of assets • Article 38: temporary liquidator may ask for interim/preservation measures elsewhere • Article 19: no formality for recognition of liquidator other than proof of appointment

  16. EIR Reform Project Recognition Principles (cont.): • Article 21: general publicity for proceedings and appointments • Article 22: publicity through registration for particular assets • Article 23: costs imputable to proceedings • Article 24: pre-publication transactions with debtor protected; constructive notice rule

  17. EIR Reform Project Recognition Principles (cont.): • Article 25: recognition of further judgments and orders following Article 16 recognition (exception for postal secrecy and personal freedom) • Article 26: public policy avoiding recognition altogether (paripassu rule and the problem of priority: Re: MG Rover España SA; Re: HIH Casualty and General Insurance Limited)

  18. EIR Reform Project Recognition Principles (cont.): • Effect on creditors: • Article 20(1): creditors must return seized assets to liquidator, subject to security exception (Articles 5 and 7) • Article 20(2): creditors can not claim in distributions unless acknowledging distributions from other proceedings

  19. EIR Reform Project Conduct of Secondary Proceedings: • Article 27: where main proceedings exist, secondary proceedings can be opened without ‘insolvent’ requirement • Article 28: applicable law is that of secondary jurisdiction (see Article 4 for list) • Article 29: main liquidator and any party permitted in secondary jurisdiction may apply for opening • Article 30: security for costs may be required

  20. EIR Reform Project Conduct of Secondary Proceedings (cont.): • Article 31: liquidators’ duty to co-operate and communicate (CoCo Guidelines; JudgeCo Project; ALI- III Project) • Article 32: liquidators will lodge known claims in other proceedings/participate on same footing as creditor • Article 33: stays in secondary proceedings at request of main liquidator (subject to it being in the interest of creditors) • Article 34: main liquidator may propose end to secondary proceedings

  21. EIR Reform Project Conduct of Secondary Proceedings (cont.): • Effect on creditors: • Article 32: right to prove debts/claims in all proceedings • Note also Article 20(2): creditors can not claim in distributions unless acknowledging distributions from other proceedings • Article 35: surplus from secondary proceedings may be transferred to main proceedings (subject to Article 26?)

  22. EIR Reform Project Conduct of Secondary Proceedings (cont.): • Where secondary opened before main: • Article 36: once main proceedings opened, secondary proceedings to comply with rules in Articles 31-35 • Article 37: secondary proceedings may be converted from rescue to liquidation

  23. EIR Reform Project Creditors: • Article 39: right to prove debts/claims in all proceedings (see also Article 32 for secondary proceedings) • Article 40: duty to inform known creditors • Article 41: content of proof of debt • Article 42: notice to creditors in language of proceedings/headnote in all official EU languages; • creditors’ proof in any language of state of residence

  24. EIR Reform Project Reform Perspectives: • Review by 1 June 2012 and 5-yearly intervals thereafter (Art. 46) • Pressure for early review (since in force!) to change: • COMI Definition seen as urgent (ECJ in Eurofoods) • Race to the Court (pending petitions) • Forum-shopping to be discouraged • The Problematic of Corporate Groups • Secondary proceedings = liquidation?

  25. EIR Reform Project Reform Perspectives (cont.): • Central Insolvency Register • Communications Guidelines/Int’l Best Practices to flesh out Art. 31 • Commentaries/Articles/Books

  26. EIR Reform Project • 2012-2014 Cursus • Assessment: Vienna-Heidelberg Report • Commission Draft 12.12.12 • Main Themes: Scope/Jurisdiction/Art 25 COMI-Shifts/Synthetic Secondaries Group Insolvencies and Coordination

  27. EIR Reform Project • EP Responses • Group of Experts • National Responses • Questions: Content/Coverage Scope/Jurisdiction/Annexe A General Coordination/Cooperation Group Dynamic/UNCITRAL WG V Work

  28. EIR Reform Project • Reform Process (cont.): • More EP Amendments • Final Council Text • Enactment 2015? In force 2016/7?

  29. EIR Reform Project The Future? • A Wider European Legal Order: • Unifying texts in insolvency jurisdiction • Fitting into corporate migration issues (Centros/Uberseering/Inspire-Art) • Time to think about substantive change? • Convergence process/Regulatory arbitrage • Fresh Start/Wrongful Trading initiatives • What substantive/procedural rules? INSOL Europe Rep • Commission Recommendation of 2014

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