Break-out-session 5

Break-out-session 5

The EIR: Risks, Strategies and Future Perspectives Professor Stefania Bariatti (University of Milan) Professor Georg Kodek (Vienna University of Economics and Business) Professor Alexandra Kastrinou (University of Westminster)

Update on case-law under EIR. • Views on continuing national implementation of EIR. • Opinion on role of soft-law in extending EIR (e.g. CoCo Guidelines). • Comments on proposed review of EIR. • Developments in the EC COMI in both domestic and European Union issues. • Recent EC decisions on recognition of judgements. • Austrian response to any amendment to EC Regulation.

European Insolvency Regulations – Developments and Trends Georg E. Kodek

„International bankruptcy law is one of the darkest areas of the law“ • (Dernburg)

Overview I. The early decisions of the ECJ: COMI II. Domestic decisions and forum shopping III. Recent decisions of the ECJ IV. Recent domestic decisions V. Future trends Folie 6

I. The early decisions of the ECJ: COMI Staubitz-Schreiber 2006 Eurofood 2006 „registered office“ = COMI possible exception: letter-box company

II. Domestic decisions and forum shopping Note: Although the Insolvency Regulation is aimed at preventing forum shopping, the recognition of foreign bankruptcy proceedings makes forum shopping possible to a certain extent Examples: Collins & Aikman Brochier Stojevic Schefenacker „insolvency tourism“

More recent decisions: Stanford, Court of Appeal Facts to rebut presumption based on location of registered office have to be ascertainable by third parties Secret fraudulent activity not ascertainable not ascertainable by third parties

Kaupthing Special purpose vehicle set up in Guernsey nonetheless COMI held to be in England Creditors could have been aware of facts which showed that „head office functions“ were being carried out in another jurisdiction (because invoices were sent to a London subsidiary)

III. More recent decisions by the ECJ Shift of focus: delineation between Insolvency Regulation and Brussels I Relevancy of this distinction: Jurisdiction of forum concursus or pursuant to Brussels I Forum is not forseeable, because debtor can relocate before opening of proceedings No forum selection under Insolvency Regulation No „cure“ of lack of jurisdiction (no equivalent to Art 24 Brussels I)

Deko Marty Belgium / Seagon 2009 Courts of country where insolvency proceeding is pending have jurisdiction for an action to set aside a detrimental transaction

SCT Industri / Alpenblume 2009 „bankruptcy exception“ in Art 1(2)(b) Brussels I applies to a judgment of a court in Member State A according to which the transfer of shares by an administrator was regarded as invalid on the ground that that state did not recognize the powers of the administrator of the state where the insolvency proceeding was pending

German Graphics / Alice van der Schee 2009 The „bankruptcy exception“ in Brussels I does not apply to an action brought by a seller based on a reservation of title against a purchaser who is insolvent where the asset covered by the reservation of title is situated in the Member State where the insolvency proceeding is opened

MG Probud Gdynia 2010 No enforcement measures in Germany after bankruptcy proceeding has been opened in Poland

IV. Domestic decisions Elektrim v Vivendi, Court of Appeal July 9, 2009 An arbitration is a pending lawsuit within the meaning of Art 15 The question whether pending lawsuits should be continued or discontinued in the light of insolvency is to be determined by the law of the State where these proceedings are pending

V. Future Trends SIA v Lietuvos anglijos UAB C-213/10 Issues raised: Jurisdiction for actio Pauliana Brought by sole creditor Application of Brussels I Art 47 of Charter of Fundamental Rights

Observation of methodology: continuity of case law (Seagon picks up on Gourdain v Nadler 1979) Tendency to interpret „proceedings closely connected“ to insolvency proceedings broadly, Thereby increasing powers of administrator and bankruptcy court ECJ favors recognition and disfavors national policies which tend to deny recognition

Thank you for your attention!!!

Corporate groups & the EC Insolvency Regulation Alexandra Kastrinou (University of Westminster)

Scope of the Regulation: • Article 1(1) The Regulation: “shall apply to collective insolvency proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator” • Note: The Regulation does not define the meaning of insolvency, but Article 2(a) defines ‘insolvency proceedings’ as collective proceedings referred to in Article 1(1) and listed in Annex A, which contains a list of proceedings that fall within the ambit of the Regulation. • Objectives: • To provide a framework for efficient and effective cross-border insolvency • To avoid incentives for parties to engage in forum shopping.

The definition of COMI • The COMI is presumed to be the place of the debtor’s registered office, unless proof to the contrary exists: • Article 3(1) of the Regulation states that: ‘The courts of a Member State within the territory of which the debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings. In the case of a company or a legal person, the place of the registered office shall be presumed to be the COMI in the absence of proof to the contrary’.

COMI (Cont.) • Recital 13: • “The ‘centre of main interests’ should correspond to the place where the debtor conducts the administration of his interests on a regular basis and therefore ascertainable by third parties.” • Recital 13 adds to the ambiguity caused by Article 3, as an array of factors may be taken into account by domestic courts while interpreting the meaning of COMI, such as the location of the registered office, the location of main creditors and employees and the location of the parent company

The effect of the Regulation on enterprise groups The courts could interpret the wording of the Regulation in relation to COMI influenced by their domestic interests, rather than attributing to it an autonomous meaning. (territorialism) • Daisytek ISA Limited [2004] B.P.I.R. 30. • MG Rover [2005] EWHC 874(Ch.) • Eurofood IFS Limited, Case C-341/04 ECJ (2 May 2006)

COMI& the Eurofood decision Eurofood’s COMI was where its registered office was. Emphasis was placed on the presumption stated in Art. 3. It was highlighted that this presumption would not be rebutted purely on the basis of parental control. It was acknowledged that the presumption could be rebutted, where the factors are objective and ascertainable by third parties, as stated in Recital 13.

Forum-shopping & the Regulation A controversial definition of COMI may give rise to forum-shopping, i.e. those responsible for the formation of a company engineer its finances so it becomes subject to the laws of a MS, whose regulatory regime is more indulgent towards those who control and manage it. -See Hellas Telecommunications (Luxemburg) II SCA [2009] EWHC 3199 (Wind Hellas)

Time of ‘opening’ The time of the opening of proceedings is crucial as far as asserting jurisdiction and recognition of proceedings are concerned. Art. 2(f) states: the time of the opening of proceedings shall mean the time at which the judgment opening becomes effective, whether it is a final judgment or not’. The approach in Eurofood: ECJ embraced a ‘relation back’ doctrine. i.e. The appointment of a provisional liquidator constituted an opening even though there was no judgment delivered by the Irish Court as to the location of COMI or the insolvency of the company. Held: ‘A decision to open insolvency proceedings for the purposes of the Regulation must be regarded as including not only a decision which is formal described as an opening decision by the legislation of the MS of the court that handed it down, but also a decision handed down following an application, based on the debtor’s insolvency, seeking the opening of proceedings referred to in Annex A to the Regulation’.

Time of ‘opening’ & the race to the court Procedural differences, such as the appointment of a provisional liquidator, may place certain jurisdictions in a more favorable position than others. Example: In the UK a winding up order does not have retrospective effect for the purposes of the Regulation, so in the event of a petition, a judgment becomes effective on the day it is made not on the day the petition was filed. The autonomous meaning of ‘opening’ under the Regulation v. The extended notion of ‘opening’

COMI migration & the Regulation A company may migrate to take advantage of a particular regime- to give effect to a corporate restructuring by making use of a favourable regime which is available in the new jurisdiction but not in the previous MS. • Re Staubitz-Schreiber [2006] ECR I-701, COMI migration possible, provided that it is done before a request for the opening of proceeding is filed • Hans Brochier Ltd v Exner [2006] EWHC 2594(Ch)- a virtual race to the court by directors to initiate administration proceedings in the UK. See Hellas Telecommunications (Luxemburg) II SCA [2009] EWHC 3199 (Wind Hellas)

COMI migration (Cont.) • The Wind Hellas case shows that there is a trend of COMI migration in the EU Facts: The COMI of Wind Hellas was moved to England from Luxemburg and then the company entered into the controversial pre-pack administration proceedings. • The court was satisfied that the COMI was in England at the time of the hearing and was ascertainable by third parties. • London has been described as the ‘restructuring capital’ of Europe whilst as ‘a bankruptcy brothel’ by a Wind Hellas pre-pack creditor. • Anglo-Saxons exporting jurisdiction in a rather imperialistic manner!!!

Conclusion: to harmonise or not to harmonise? Arguably, the phenomenon of forum-shopping can be treated by means of further harmonisation. But does one size fit all & where do we start from??? See INSOL Europe: “Harmonisation of Insolvency Law at EU Level”, available at: http://www.insol-europe.org/eu-research/ • In order to build an efficient crisis management framework for the internal market further harmonization of certain laws is required, it is submitted that it is necessary to build uniform rules regarding: (i) directors’ liability; (ii) the test to open insolvency proceedings (iii)eligibility of the debtor and (iv) avoidance actions.

Friday 15 October 2010 Breakout Groups – 12.15am Turnaround Session Part IIMain Conference Room Employment Law in Insolvency Across EuropeSchubert Salon State Subsidies Before & After InsolvencyLehar Salon Cross Border Protocol & Co-operationMozart Salon EIR: Risks, strategies & future perspectivesFischer Salon

Break-out-session 5

The EIR: Risks, Strategies and Future Perspectives Professor Stefania Bariatti (University of Milan) Professor Georg Kodek (Vienna University of Economics and Business) Professor Alexandra Kastrinou (University of Westminster)

Update on case-law under EIR. • Views on continuing national implementation of EIR. • Opinion on role of soft-law in extending EIR (e.g. CoCo Guidelines). • Comments on proposed review of EIR. • Developments in the EC COMI in both domestic and European Union issues. • Recent EC decisions on recognition of judgements. • Austrian response to any amendment to EC Regulation.

European Insolvency Regulations – Developments and Trends Georg E. Kodek

„International bankruptcy law is one of the darkest areas of the law“ • (Dernburg)

Overview I. The early decisions of the ECJ: COMI II. Domestic decisions and forum shopping III. Recent decisions of the ECJ IV. Recent domestic decisions V. Future trends Folie 38