The Evolution of European Insolvency Law Part 2: The EU Commission’s Proposal for the Amendment of the European Insolvency Regulation

Author: Dr. Björn Laukemann, Maître en droit (Aix-en-Provence), Senior Research Fellow at the Max Plack Institute Luxembourg for International, European and Regulatory Procedural Law

Laukemann PicFollowing the external evaluation (Part 1), the EU Commission released a proposal for the amendment of the European Insolvency Regulation in December 2012, aimed at enhancing the efficiency of cross border insolvency proceedings and thus ensuring a proper “functioning of the internal market and its resilience in economic crises”. The following main changes were proposed:

  1. The Regulation’s scope of application now includes hybrid proceedings (“debtor in possession”), pre-insolvency proceedings and debt discharge proceedings for natural persons. The Commission will scrutinize whether specific national proceedings fall within the revised scope.
  2. Retaining the jurisdictional criterion of the debtor’s centre of main interests, the proposal clarifies the criteria and improves the procedural framework for determining the competent court (examination ex officio, information of foreign creditors and creditors’ right to judicial review).
  3. The proposal empowers the court to refuse to open secondary proceedings (i.e. parallel territorial proceedings opened in the Member State of the debtor’s establishment) if they are unnecessary to protect the interests of local creditors, and thus to reduce detrimental effects on rescue efforts (abolishment of the winding-up-requirement; improved cooperation and communication between main and secondary proceedings, also on a court-to-court basis).
  4. Member States are required to establish publicly accessible and interconnected electronic registers in which the relevant court decisions are published.
  5. The implementation of standard forms will facilitate the lodging of claims for foreign creditors.
  6. A framework for the coordination of insolvency proceedings within groups of companies is set up (obligation of courts and liquidators to cooperate and communicate with each other; extending certain rights of administrators to proceedings of other group members, e.g. the right to be heard, to participate, to request a stay of proceedings and to propose a rescue plan).

Part 3 will address the reactions of the European Parliament and the Council and comment on ongoing and future developments.

 

The Evolution of European Insolvency Law: Part 1: The Heidelberg/Luxembourg/Vienna Report

Authors: Prof. Burkhard Hess (Luxembourg/Heidelberg), Univ.-Prof. Paul Oberhammer (Vienna/London/St. Gallen) and Prof. Thomas Pfeiffer (Heidelberg), summarized by team member Robert Arts

The first step towards the upcoming amendment of the European Insolvency Regulation was an evaluation of its application since its adoption in 2002. The Regulation itself required the evaluation to make sure that European Insolvency Law keeps up with the constant changes to the multitude of national insolvency regimes. A team from the Max Planck Institute Luxembourg (Hess), Heidelberg University (Pfeiffer), and the University of Vienna (Oberhammer) conducted the research and collected empirical data in all 26 concerned Member States.

The evaluation shows that the defining principle of the Regulation, that of universality (single proceeding and single insolvency statute with universal effect and recognition) has proven to be a great boon for the procedural handling of cross-border insolvencies in Europe. The report consequently proposes to further strengthen universality by reducing the possibility of separate, territorial proceedings.

Moreover, the report finds that widening the scope of application (by inclusion of pre-, hybrid and annex proceedings and by providing – for the first time ever – a framework for collaboration within group of company insolvencies), is necessary to keep the Regulation in line with the ongoing shift from liquidation towards the reorganization of companies.

The report also addresses technical difficulties arising from cross border insolvencies – e.g., the lodging of claims, the need for communication amongst judges and administrators and the information deficit of foreign creditors.

The entire report can be found here. Part 2 will cover the proposal for the amendment of the Regulation by the European Commission, which adopted many of the report’s suggestions.

Second Circuit Limits Availability of Chapter 15

Authors: Jasmine Ball, Richard F. Hahn, M. Natasha Labovitz, George E.B. Maguire, Shannon Rose Selden, My Chi To, Michael E. Wiles, Debevoise & Plimpton LLP

In a recent opinion on an issue of first impression in Drawbridge Special Opportunities Fund LP v Barnet (In re Barnet), 2013 WL 6482499 (2d Cir. Dec 11, 2013), the United States Court of Appeals for the Second Circuit held that foreign entities seeking recognition under Chapter 15 of the Bankruptcy Code must, in addition to satisfying the requirements for recognition set forth in that chapter, have a residence, domicile, place of business or assets in the United States.  The Second Circuit’s decision reversed an earlier Bankruptcy Court ruling that granted recognition under Chapter 15 to an Australian company that had not introduced evidence of any assets or operations in the U.S. and conflicts with a recent ruling of the Bankruptcy Court for the District of Delaware in In re Bemarmara Consulting a.s., Case No. 13-13037 (KG) (Bankr. D. Del. Dec. 17, 2013), holding that a Chapter 15 debtor is not required to have assets in the U.S.  In so doing, the Second Circuit has added an additional barrier to Chapter 15 recognition, which could be problematic for foreign companies looking to benefit from the advantages of the U.S. bankruptcy system.  For additional detail on the Second Circuit’s decision, see Second Circuit Limits Availability of Chapter 15.

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