Parallel Reorganizations under the Recast European Insolvency Regulation – Selected EU Law Issues

• Date: 01 December 2018
• Author: Tomáš Richter
• DOI: http://doi.org/10.1002/iir.1314
• Published date: 01 December 2018

Parallel Reorganizations under the Recast

European Insolvency Regulation –Selected

EU Law Issues

TomášRichter*

,†

Charles University Prague; Of Counsel, Clifford Chance, Prague, Czech Republic

Abstract

The Recast European Insolvency Regulation (EIR) (Regulation 2015/848)

repealed the rules in Articles 3(3) and 27 of the original EIR (Regulation 1346/

2000) that required that secondary insolvency proceedings take the form of a liq-

uidation (winding-up). As a result, European debtors may now attempt to resolve

their cross-border insolvencies via parallel reorganization proceedings conducted

both in the Member State of the debtor’s centre of main interest and in one or

more Member States in which the debtor possesses an establishment. This article

aims to take account of the principal rules of the Recast EIR which, in addition

to the national laws of the Member States involved, will regulate such attempts.

Upon the review of these selected rules, the article concludes that, in principle,

the Recast EIR provides EU debtors with a feasible cross-border platform to reor-

ganize in more than one Member State in parallel. However, the article finds that

a particular rule central to the system of cross-border insolvency under the EIR,

namely, Article 45, which allows the multiple filing of claims in all proceedings

conducted in respect of the debtor, has the potential to frustrate attempts at

parallel reorganizations. This is particularly so where the cross-filing rule combines

with Member State law that is rigid as regards plan approval by creditor classes or

minimum payouts to certain classes. Copyright © 2018 INSOL International and

John Wiley & Sons, Ltd.

*E-mail: tomas.richter@cliffordchance.com

†Of Counsel, Clifford Chance LLP, Prague; External

Lecturer, Institute of Economic Studies, The Faculty

of Social Sciences, Charles University, Prague. An ear-

lier version of this article was presented at the INSOL

Europe Academic Forum Annual Conference, Octo-

ber 2017, Warsaw. By way of disclosure, the author

served on the group of private experts with whom the

European Commission consulted on its proposal for

the Recast EIR. The author would like to thank Ulrik

Rammeskow Bang-Pedersen and the anonymous ref-

erees for their comments. However, responsibility for

any mistakes remains the author’s own.

© 2018 INSOL International and John Wiley & Sons, Ltd. Int. Insolv. Rev., Vol. 27: 340–373 (2018)

Published online 7 June 2018 in Wiley Online Library

(wileyonlinelibrary.com). DOI: 10.1002/iir.1314

I. Introduction

Afinancially distressed corporate debtor trading or investing across state borders

may find itself subject to more than one set of insolvency proceedings conducted

before the courts of different states pursuant to different insolvency laws.

1

Absent

uniformity of such laws and co-ordination among such proceedings, the ensuing

situation may destroy value of the debtor’s estate and thus diminish the overall sat-

isfaction of the debtor’s creditors.

2

Inside the European Union (and its institutional predecessors), the ‘asymmetry’

3

between the single, Union-wide market in which European corporate debtors

trade and invest on the one hand, and the multitude of national rules and proce-

dures addressing general corporate default on the other hand, has long been felt

particularly strongly. Accordingly, at least since the mid-1960s, various working

parties have attempted to propose an acceptable co-ordinated solution to the gen-

eral default by European debtors.

4

Those efforts culminated in 2000 in the adoption of the original European Insol-

vency Regulation (Regulation 1346/2000) (‘Original EIR’).

5

After approximately

10 years of practical application, the European Commission has, pursuant to the

reporting process envisaged in Article 46 of the Original EIR, reviewed the work-

ings of the Original EIR in practice and proposed amendments.

6

Following rather

extensive deliberations and revisions throughout the legislative process,

7

the pro-

posal has ultimately led to the adoption of the Recast European Insolvency Regu-

lation (Regulation 2015/848)

8

(‘Recast EIR’) that now applies to all proceedings

falling within its ambit and opened after 26 June 2017.

1. The literature charting the field today is extensive. A

review of it, and an interesting attempt at distilling gen-

eral principles applicable to the field, has recently been

presented in Reinhard Bork, Principles of Cross-Border In-

solvency Law (Intersentia, 2017).

2. This article does not intend to deny that goals other

than the maximization of overall returns to creditors

may be pursued by insolvency law. The article will,

however, follow the goal of the maximization of

returns to creditors as its methodological lodestar, be

it in its weaker form following Cooter’s proposition

that, whatever goals other than efficiency in the eco-

nomic sense the lawgivers decide to follow, it always

seems to be a good idea to do so with the least social

waste possible. See Robert Cooter, ‘The Best Right

Laws: Value Foundations of the Economic Analysis of

Law’(1989) 84 Notre Dame Law Review 817.

3. See Jay Westbrook, ‘A Global Solution to Multina-

tional Default’(2000) 98 Michigan Law Review 2276.

4. For a brief description of the various attempts, see,

for example, Klaus Pannen and Susanne Riedemann,

in Klaus Pannen (ed), European Insolvency Regulation (De

Gruyter Recht, 2007), 8–12.

5. Council Regulation (EC) No. 1346/2000 of 29 May

2000 on insolvency proceedings.

6. See the following European Commission documents

dated 12 December 2012: COM(2012) 742 final

(Communication on A New European Approach to

Business Failure and Insolvency); COM(2012) 743 fi-

nal (Report on the Application of Council Regulation

(EC) No 1346/2000 of 29 May 2000 on insolvency

proceedings); COM(2012) 744 final (Proposal for a

Regulation amending Council Regulation (EC) No

1346/2000 on insolvency proceedings); SWD(2012)

416 final (The Impact Assessment); SWD(2012) 417 fi-

nal (An Executive Summary of the Impact Assessment).

7. See, in particular, the draft report by the European

Parliament’s Committee on Legal Affairs 2012/

0360(COD) dated 20 December 2013; the ‘general ap-

proach’proposed to the Council (Justice and Home Af-

fairs) on 3 June 2014 (2012/0360(COD), JUSTCIV

134); the ‘political agreement’reached in the Council

of the European Union on 20 November 2014

(2012/0360(COD), JUSTCIV 285).

8. Regulation (EU) No. 2015/848 of 20 May 2015 on

insolvency proceedings (recast).

Parallel Reorganizations under the Recast EIR 341

© 2018 INSOL International and John Wiley & Sons, Ltd. Int. Insolv. Rev., Vol. 27: 340–373 (2018)

DOI: 10.1002/iir

Broadly speaking, a corporate debtor’s general default may be formally

9

dealt

with either via the liquidation of the debtor’s estate or via a ‘non-liquidation’pro-

cess, referred to variously as reorganization, composition, etc.

10

Unsurprisingly,

liquidation-type proceedings

11

tend to be really quite similar across the jurisdic-

tions

12

: the debtor’s estate is collected and sold, whether piecemeal or as a going

concern, by an insolvency office holder who will distribute the proceeds of the sale

according to a ranking prescribed by the law. Of course, there will be variations

among jurisdictions, often substantial, on the fringes. However, the basic common-

alities will be dictated by the fact that, at bottom, the process is little more than a

collectivized debt enforcement carried out using tools traditionally available in the

rulebooks on judicial collection of debts.

Naturally, when one allows for uncertainties and disputes as to the title to the

debtor’s assets, as well as to the enforceability and ranking of the debtor’s debts,

the model –and the real-life liquidation proceedings –may quickly become a lot

less neat and simple. But those problems originate not in the debt enforcement

process or in its forcedly collectivized nature upon the debtor’s general default

but rather –to borrow from the language of institutional economics –in imperfec-

tions in the definition and delineation of property rights in the real world, which

are quite independent of the debtor’sfinancial distress, although they of course

might be exacerbated by it.

Contrary-wise, ‘non-liquidation’-type insolvency proceedings may be expected

to show greater variety across jurisdictions.

13

It seems reasonable to suggest that

this is due to the fact that what they are trying to achieve is some sort of alternative

to the fairly standardized fallback to the tools of judicial debt collection. In essence,

what non-liquidation-type proceedings strive to achieve, in one way or another, is

to provide a procedural platform for collective bargaining about, and (usually) a

less-than-unanimous majority decision on, a resolution of the debtor’s general de-

fault otherwise than through the traditional tools of judicial debt enforcement.

9. That is, via the court system, as opposed to informal,

primarily contractual methods agreed and conducted

‘in the shadow’of formal insolvency law. See, for ex-

ample, José Garrido, Out-of-Court Debt Restructuring

(World Bank, 2012).

10. The literature is extensive and often biased towards

mainly a US provenance. A useful functionally and

comparatively oriented statement produced recently

is available in Jay Westbrook et al., A Global View of Busi-

ness Insolvency Systems (World Bank, 2010), 51 ff.

11. Outside the common law jurisdictions, these pro-

ceedings quite often bear a name involving a particular

language mutation of the Latin term concursus. In non-

English speaking jurisdictions, the term ‘liquidation’

will often invoke the concept of a solvent winding-up

of a corporation which would, of course, be seriously

misleading in our context. Unfortunately, there does

not seem to be much one can do other than learn

and accept the English language usage when writing

in English. Trying to circumvent the problem by using

the alternative term ‘winding-up’will certainly not

work for non-native speakers and readers, because it

too may denote the closure of both solvent and insol-

vent companies.

12. See, for example, United Nations Commission on

International Trade Law, Legislative Guide on Insolvency

Law (2004), 30–31 (‘UNCITRAL Legislative Guide’).

13. UNCITRAL Legislative Guide, 27.

International Insolvency Review342

© 2018 INSOL International and John Wiley & Sons, Ltd. Int. Insolv. Rev., Vol. 27: 340–373 (2018)

DOI: 10.1002/iir