Defining groups of companies under the European Insolvency Regulation (recast): On the scope of EU group insolvency law

• Published date: 01 March 2021
• Author: Sid Pepels
• Date: 01 March 2021
• DOI: http://doi.org/10.1002/iir.1402

RESEARCH ARTICLE

Defining groups of companies under the

European Insolvency Regulation (recast):

On the scope of EU group insolvency law

Sid Pepels

1,2

1

Radboud Business Law Institute

(OO&R), Faculty of Law, Radboud

University, Nijmegen, The Netherlands

2

Business Restructuring &

Reorganization, Jones Day, Amsterdam,

The Netherlands

Correspondence

Sid Pepels, Radboud Business Law

Institute (OO&R), Faculty of Law,

Radboud University, Nijmegen, The

Netherlands.

Email: spepels@jonesday.com

[Correction added on 28 December 2020,

The placement of charts were previously

incorrect and have been updated in this

version]

Abstract

This article examines the general scope of application of

the provisions on insolvency regarding members of a

“group of companies”,asincludedinChapterVofthe

European Insolvency Regulation (recast) (“Recast EIR”),

in order to review whether that scope is appropriate to

deal with the different group structures in which busi-

ness may be conducted. With the definition for a “group

of companies”playing a paramount role in determining

the scope of these provisions, the article includes a thor-

ough analysis of the current definition for a “group of

companies”as included in the Recast EIR. Based upon a

teleological approach, the article argues in favour of an

independent, broad and flexible interpretation of “group

of companies”, in order to include a large number of

groups within the scope of the Recast EIR's provisions

regarding group insolvencies.

1|GROUPS OF COMPANIES AND THEIR SPECIFICS

IN INSOLVENCY

Over the last century, business enterprises have increasingly organized themselves as multina-

tional groups of companies. Such groups have become “the prevailing form of European large-

sized enterprises”.

1

It has likewise become increasingly important that insolvency laws are able

to deal with the challenges specific to cross-border insolvencies involving groups of companies.

Received: 13 April 2020 Revised: 19 July 2020 Accepted: 11 August 2020

DOI: 10.1002/iir.1402

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and

reproduction in any medium, provided the original work is properly cited.

© 2020 The Author. International Insolvency Review published by INSOL International and John Wiley & Sons Ltd

96 Int Insolv Rev. 2021;30:96–123.wileyonlinelibrary.com/journal/iir

While groups of companies comprise legally separate entities, they will often economically

operate as an integrated enterprise. If that is the case, the value of that business enterprise in

case of financial difficulties may very well be higher if a solution is found for the group as a

whole, compared to a piecemeal liquidation.

Conserving such “synergy value”

2

is often difficult in a Europe an context. European insol-

vency laws have traditional ly been tailored towards individ ual debtors as the objects of insol -

vency proceedings. Each g roup company is generally deeme d to have its own separate estate ,

its own proceeding and its own insol vency practitioner.

3

This often breaks the chain of co m-

mand that was maintained withi n the group's management prior to the insolvency proceedings

and may result in fragmentation of the group and ineffi cient management of those procee d-

ings. The interdependency b etween the group companies will ofte n also result in a “domino

effect”: if one or several group compani es become(s) insolvent, the fi nancial difficulty will

often push other group compan ies into insolvency proceeding s as well. Within national con-

texts, insolvency practice s have regularly developed methods of d ealing with these challenges.

When multiple national insolve ncy laws come into play, however, these di fficulties increase

exponentially.

With these challenges in mind, the EU legislature set out to introduce instruments to deal

with cross-border group insolvency in revising the European Insolvency Regulation (“Original

EIR”).

4

The European Insolvency Regulation (Recast) (“Recast EIR”)

5

came into force on June

26, 2017 and is the first instrument of European law to provide rules on cross-border group

insolvencies. The provisions in Chapter V of the Recast EIR (“Chapter V") deal with coopera-

tion, communication and coordination between courts and insolvency practitioners appointed

in cross-border group insolvency proceedings.

As Chapter V's provisions impose obligations on insolvency practitioners, debtors-in-

possession and courts and grant them powers and access to instruments, it is essential to under-

stand to which companies and under which circumstances they apply. This article therefore sets

out to examine the scope of the Recast EIR's provisions on “groups of companies”and review

whether that scope is appropriate to deal with the different group structures in which business

may be conducted. It starts off with a short description of the forms that groups of companies

may take. The article then sets out to determine Chapter V's scope of application, which is

mainly centred around the definition of a “group of companies”as included in the Recast EIR.

Where relevant, the article compares the provisions of Chapter V with the German Insolvency

Act (the Insolvenzordnung), which has recently been updated to include provisions on groups of

companies, and the United Nations Commission on International Trade Law's (UNCITRAL)

Model Law on Enterprise Group Insolvency (“Model Law on Groups”).

As a preliminary matter, a short description of Chapter V's provisions is warranted.

Chapter V imposes a duty to cooperate on insolvency practitioners

6

appointed in insolvency

proceedings involving group members and on the courts that have opened such proceedings.

7

Within the boundaries set in those provisions, insolvency practitioners are, for instance,

required to communicate relevant information to other group members' insolvency practi-

tioners and to consider whether possibilities exist for coordinating the group members' insol-

vency proceedings.

8

Chapter V also grants insolvency practitioners standing to appear in

insolvency proceedings regarding other group companies and to request certain relief in favour

of a group restructuring.

9

With the “group coordination proceeding”(GCP), the Recast EIR also

introduces a novel “meta proceeding”separate from the already pending group members' indi-

vidual insolvency proceedings. In a GCP, a group coordinator is appointed who is tasked with

developing a solution for the group members' insolvency.

10

The introduction of the GCP should

allow for the development of centralized group solutions in cases where the centres of main

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