Consultation on the future of European Insolvency Law

Liz PopeProperty Registration Authority (Ireland)

ELRA General AssemblyBrussels 1st June 2012

Why?

Commission have put the revision of the Insolvency Regulation in its work programme 2012

One of the measures in the field of “Justice for Growth” set out in Commission’s Action Plan implementing the Stockholm Programme

EU’s current political priorities: promote economic recovery, sustainable growth, higher investment rate, preservation of employment [Europe 2020 strategy]

Survival of business [Small Business Act]

Why?

50% enterprises do not survive first 5 years 220,000 businesses went into liquidation in

2010 in EU =600 companies went bust every day Trend continues, need modern laws and

efficient procedures to help good companies survive, entrepreneurs to take risk and have second chance. If cannot survive, need orderly manner for business to close down.

Applicable law: Insolvency Regulation

Regulation (EC) No 1346/2000 Applicable from 31st May 2002 Outcome of very lengthy negotiation

process Rules on jurisprudence, recognition and

applicable law Co-ordination of insolvency proceedings

opened in several MS Applies whenever the debtor has assets or

creditors in more than one MS

Application of the Directive

Improved legal certainty, facilitated judicial co-operation cross border cases

Importance developments in national insolvency laws and considerable changes in economic and political environment call for review

Most MS bankruptcy laws modernised Economic environment for companies have changed,

international groups/subsidiaries, corporate governance rules and access to capital in global financial market

Small companies operating increasingly cross border, continuously have to adapt financial crisis, globalisation and increase in risk of financial difficulty

Difficulties

Disparities in national insolvency law create competitive advantages/disadvantages lead to obstacles to successful restructuring and favour forum shopping

Even in creation or substantive insolvency law not possible, certain areas where harmonisation possible and achievable

Outdated on implementation, many sensitive issues not included

Report of European Parliament Oct 2011 Recommendations to the Commission for

revision A7-0355/2011; 4 parts Part (1) Harmonisation of specific aspects of

insolvency and company law:i. Certain aspects of the opening of insolvency

proceedingsii. Certain aspects of filing of claimsiii. Aspects of avoidance actionsiv. General aspects of the requirements for the

qualifications and work of liquidatorsv. Aspects of restructuring plans

Part 2: Recommendation revision of Regulation

i. Scope of Reg broadenedii. Definitions “centre of main interests”

and “establishment”iii. Co-operation between courtsiv. Recommendation on certain aspects of

avoidance actions

Part 3

Recommendations on insolvency of groups of companies:

i. Where functional ownership structure allows, proceedings should be opened in MS where operational HQ of group located, single insolvency practitioner appointed, committee established to defend interest local cr’s and ee’s

ii. Decentralised groups: rules for mandatory co-operation between courts and insolvency reps

iii. Rules on access to court by liquidators, crs’iv. Rules to facilitate co-operation, appointment of

common liquidatorv. Rules to promote cross border insolvency agreements

Part 4

Recommendation on the creation of an EU Insolvency Register

E-Justice Portal which should contain for every cross border insolvency opened:

i. Relevant court orders and judgementsii. Appointment of liquidator and person’s contact detailsiii. Deadlines for filing claims

Transmission of the data to the EU Registry should be compulsory expressed in official language of MS in which proceedings opened and in English

Consultation

Questionnaire available until 21st June 2012 http://ec.europa.eu/justice/newsroom/civi

l/opinion/120326_en.htm Should Reg be applicable to over

indebted private individuals and self-employed persons?

Has Reg created problems in practice in that it does not contain provisions for recognition of proceedings outside EU or for co-ordination of proceedings inside and outside EU

Consultation

Is it appropriate that jurisdiction for opening main insolvency proceedings be determined by location of debtor’s centre of its main interests?

Does it work efficiently and effectively for the insolvency of a group of multinational companies?

Applicable law-e.g. employment law determined by law applicable to the contract or example of opening of proceedings in one MS does not affect creditor with security interests in immovable property (rights in rem) located in another MS. Qn: Do you consider provisions on applicable law satisfactory

Consultation

Are you aware of cases where MS has refused to recognise insolvency proceedings or to enforce a decision on grounds of public policy?

Are there problems in general with lodging of claims in another MS or in the treatment of foreign creditors

Do differences in national law create obstacles to proper administration of cross-border proceedings?

Are there important inefficiencies in your national insolvency law?

Are cost of cross-border proceedings disproportionate with respect to the debt?

Should there be simplified procedures/reduced cost for certain debtors such as s/e and SME’s

ELRA response ELRA intends to submit a response to Part

V1 qns 16-19-Section on applicable law: Part VI: General rule, law of State where

proceedings conductedExceptions (e.g. employee contracts, law applicable to contract)Also, opening of proceedings in one MS does not affect creditors with security interests in immovable property (rights in rem) located in another MS. Rights in rem continue to be governed by law State property situate in.

NB: However rule has been criticised as creating an imbalanced situation between interests of secured cr’s and other cr’s as it protects secured creditors not only effects of foreign insolvency but also from domestic law.

Law of State of opening proceedings determines the conditions under which the insolvency practitioner can attack transactions at undervalue (“detrimental acts”). Person benefitting from act can oblige court to apply the law applicable to the transaction instead. Creates legal uncertainty.

Questions 16-1916.Do you consider that the Insolvency

Regulation’s provision on applicable law are in general satisfactory?

17.In particular, are the exceptions to the general rule justified by the need to protect legitimate expectations and the legal certainty of transactions?

18.Does the provision on rights in rem operate satisfactorily in practice?

19.Does the provision on detrimental acts operate satisfactorily in practice?

ELRA view

Rights in rem immoveable property, lex rei sitae Nature of interest and its enforceability governed

by the law of the place the land is situate Security affects both lender, borrower and third

parties who deal with them Would lead to uncertainty Potential for a security interest to affected [e.g.

borrower and lender in country A, land in country B, applicable law country A would have consequences for state guarantee (if applicable) of mortgage registered in the register of country B)

Summary

The End

Thank you