CERIL highlights inconsistent EU Insolvency Regulation implementation across Europe
Independent European think tank CERIL calls for better coordination and application of the Insolvency Regulation in the EU member states.
The Conference of European Restructuring and Insolvency Law (CERIL) is an independent non-profit, non-partisan, self-supporting organisation. It consists of approx. 75 lawyers and other restructuring and insolvency practitioners, law professors and (insolvency) judges, committed to the improvement of restructuring and insolvency laws and practices in the European Union and in its Member States and their operation. It has been active since 2016.
In a recent study, CERIL has reviewed the way in which some member states apply the EU Insolvency Regulation (Recast) (2015/848). This came into force on 26 June 2017, is binding in its entirety and is directly applicable in the Member States in accordance with the EU Treaties. The rules of the Insolvency Regulation (Recast) (or EIR 2015) relate to (i) the international jurisdiction of a court in a member state to open insolvency proceedings and the choice of law (or: private international law) provisions; (ii) the (automatic) recognition of these proceedings in other member states; (iii) the powers of the insolvency practitioner to act in any other member states; (iv) the duties for insolvency practitioners and courts to cooperate and to communicate with each other in cross-border insolvency matters; and (v) the specific system for insolvency proceedings of members of a group of companies. As the theme is regulated in an EU Regulation, a member state cannot divert from the content of this type of Regulation.
Experience with the original Insolvency Regulation (EIR 2000), which entered into force on 31 May 2002, has, however, proved that it is useful for national legislators to safeguard a seamless and effective adoption of a Regulation, by arranging for legislation concerning the incorporation of the EIR 2000 (including compatibility with certain elements of domestic law) into national law. Initiated and chaired by Prof. Emeritus Bob Wessels, Leiden University, and Prof. Stephan Madaus, Martin Luther University, a CERIL working group has conducted a survey (between October 2017 and March 2018) investigating the way in which a number of member states (Finland, France, Germany, the Netherlands and draft legislation of Italy) have responded (or partly, or not) to the need for compatibility between the Insolvency Regulation (Recast) and these Member States’ domestic rules. In the light of past experiences, the application of the Insolvency Regulation (Recast) may lead to an abundance of (detailed) questions of a procedural or substantial nature being raised. The following are just a few examples of such questions:
- Should a request for the opening of insolvency proceedings specifically state to which type of proceeding the request refers, i.e. main or secondary insolvency proceedings (Article 3(1) or Article 3(2) EIR 2015)? Note that Article 4(1), second sentence, EIR 2015 provides: ‘The judgment opening insolvency proceedings shall specify the grounds on which the jurisdiction of the court is based, and, in particular, whether jurisdiction is based on Article 3(1) or (2)’.
- Does a foreign insolvency practitioner (IP) need mandatory administrative support (e.g., from a local clerk or court official) when submitting a request (to open secondary proceedings, to not open secondary proceedings when the foreign IP has given an undertaking, to challenge the opening of secondary proceedings, to open group proceedings or to be heard in already pending secondary proceedings) into the proceedings of another member state?
- Which rules apply if an insolvency practitioner, appointed in main insolvency proceedings, gives an undertaking in the meaning of Article 36 EIR 2015? Would these rules also concern the approval requirements and/or the rejection of such an undertaking?
- Which rules apply to a request to open group coordination proceedings? Which court in the territory of the Member State has jurisdiction? What rules apply to objections in the meaning of Article 64 EIR 2015 or a subsequent opt-in by an insolvency practitioner (Article 69 EIR 2015)? Which rules govern costs and remuneration of the group coordinator (Article 77(4) EIR 2015)?
From the survey, it follows that legislators in member states are rather reserved when drafting legislation to realise the recast Insolvency Regulation. Six topics were chosen for assessment, mainly related to those provisions in the Insolvency Regulation (Recast) that are new, or are expanding certain legal norms and concepts in comparison to the former Insolvency Regulation (1346/2000). They cover (i) international jurisdiction of the court; (ii) publication and registration in insolvency registers of other member states; (iii) the relation between main and secondary insolvency proceedings; (iv) provisions related to cooperation and communication between insolvency practitioners, between courts, and between courts and insolvency practitioners; (v) national provisions required in group coordination proceedings; and (vi) remedies in group coordination proceedings.
If member states provide for domestic legislation, significant variations can be seen. Some legislators assess that the provisions under the EIR 2015 are rather complete, leaving little or no room for supplemental national rules. Others, however, prefer to explain the decision-making processes and the venues of courts to hear and decide remedies found in the Regulation. As a consequence, CERIL calls on national legislators in EU member states to review their assessment, or to initiate assessment, and to better coordinate efforts in order to (i) prevent unnecessary confusing differences; (ii) save costs, precious court time (procedural battles in court) and effort (delay and costs of litigation) in finding these out; and (iii) encourage/strengthen effective and efficient national (procedural and substantive) rules to realise the Insolvency Regulation (Recast). The European Commission is invited to promote coordinated efforts in the realisation of the EU Insolvency Regulation in Member States, by taking appropriate initiatives, such as the creation of a body of knowledge to support Member States, the preparation of best practices in aligning these efforts, as well as ensuring coherence and efficiency by professional and dedicated staff support.
The full Report will be available soon as Report 2018-01 on CERIL’s website.