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The content of this document represents the views of the author only and is his/her sole responsibility.

The European Commission does not accept any responsibility for use that may be made of the information it contains.

This report is funded by the European Union’s Justice Programme (2014-2020). Project no. 800807.


Copyright © 2019




Judicial Cooperation Supporting

Economic Recovery in Europe

(JCOERE)

DG Justice Programme Project No. 800807

Report 1: Identifying substantive and procedural

rules in preventive restructuring frameworks

including the Preventive Restructuring Directive

which may be incompatible with judicial

cooperation obligations


Copyright © 2019




JCOERE Project Report 1: Table of Contents

Table of Contents 1

Acknowledgements 10

The JCOERE Project Team 11

Chapter 1: Introduction to JCOERE Report 1 12

1.1 Introduction 12

1.2 The Preventive Restructuring Directive (PRD): the Examinership Benchmark 13

1.3 JCOERE Project Summary 14

1.4 Methodology of the JCOERE Project 16

1.5 Chapter 2: Terminology 19

Chapter 2: Preventive Restructuring Terminology 20

2.1 Introduction to Chapter 20

2.2 Rescue (Corporate and Business), Rehabilitation, Reorganisation, and Preventive

Restructuring

20

2.2.1 Corporate Rescue 20

2.2.2 Business Rescue 20

2.2.3 Rehabilitation 20

2.2.4 Reorganisation 21

2.2.5 Restructuring 21

2.2.6 Preventive Restructuring 21

2.3 Pre-Insolvency 22

2.4 Homologation 22

2.5 Concordat, Composition, Arrangement, and Plan 22

2.5.1 Concordat 22

2.5.2 Composition 22

2

2.5.3 Arrangement 22

2.5.4 Restructuring Plan 23

2.6 Examiner, Receiver, Trustee, and Administrator (PIFOR) 24

2.61. Examiner 24

2.6.2 Judicial Commissioner 24

2.6.3 Receiver 24

2.6.4 Trustee 24

2.6.5 Administrator 25

2.6.6 Insolvency Practitioner 25

2.6.7 Plan Expert (The Netherlands) 26

2.6.8 PIFOR (Practitioner in the Field of Restructuring 26

2.6.9 The Observer (The Netherlands) 26

2.7 Pledge, Mortgage, Charge, and Floating Charge 26

2.7.1 Pledge 26

2.7.2 Charge (Fixed) 26

2.7.3 Mortgage 26

2.7.4 Floating Charge 27

2.8 Non-Performing Loans 27

2.9 Interim and New Financing 27

2.9.1 Interim Financing 27

2.9.2 New Financing 27

2.10 Supervising Judge, Syndic Judge, Notary 28

2.10.1 Supervising Judge 28

2.10.2 Syndic Judge 28

2.10.3 Notary 28

2.11 Patrimonial Liability 28

2.12 Retention of Title 28

2.13 Right in Rem 28

2.14 Extra-Judicial Payment 29

2.15 Secured, Unsecured, Preferential, and Subordinated Creditors 29

3

2.15.1 Secured Creditor 29

2.15.2 Unsecured Creditor 29

2.15.3 Preferential Creditor 29

2.15.4 Subordinated Creditors (Subordinated Debt) 30

2.16 Self-Administration or Debtor in Possession 30

2.16.1 Self-Administration 30

2.16.2 Debtor in Possession 31

2.17 Court Protection, Stay, Moratorium 31

2.17.1 Court Protection 31

2.17.2 Stay 31

2.17.3 Moratorium 31

2.18 Intra- and Cross-Class Cram-Down 31

2.18.1 Intra-Class Cram-Down 31

2.18.2 Cross-Class Cram-Down 31

2.19 Absolute Priority 32

2.20 Relative Priority 32

2.21 Unfair Prejudice 32

2.22 Best Interest of Creditors 32

2.23 Conclusion and Transition 33

Chapter 3: The Regulation of Cross-Border Insolvency and Restructuring in the EU 34

3.1 Introduction: Cross-Border Insolvency in the EU 34

3.2 History and Development of European Insolvency Coordination 34

3.3 The Key Features of the EIR Recast 36

3.4 The Harmonisation Debate over European Insolvency and Restructuring 37

3.5 Jurisdiction in Cross-Border Restructuring Cases: Forum Shopping 38

3.6 Recognition and Enforcement: Including Restructuring Frameworks in Annex A 40

3.7 Conclusion 41

3.8 Chapter 4: Context of Preventive Restructuring in the EU 41

Chapter 4: Context of Preventive Restructuring in the EU 42

4.1 The Evolution of Corporate Rescue and the Rescue Culture 42

4

4.2 Preventive Restructuring: Principles and Context 42

4.2.1 Insolvency theory 42

4.2.2 Shifting from Liquidation to Rehabilitation, Restructuring, and Rescue 44

4.2.3 Communitarianism in Insolvency and Restructuring 45

4.3 Rehabilitation of Companies in Financial Distress 46

4.4 Defining Preventive Restructuring 47

4.5 Preventive Restructuring in Europe 51

4.6 Specific Restructuring Provisions as Potential Causes of Conflict in Co-Operation 53

4.6.1 The Stay of Individual Enforcement Actions 53

4.6.2 The “Intra-Class” Cram-Down (or Majority Rule) 54

4.6.3 The Cross-Class Cram-Down 55

4.6.4 Protection and Priority of Rescue Financing 58

4.7 Summary and Conclusion: Implementation and Conflicts 60

4.8 Chapter 5: Exposition of the Preventive Restructuring Directive 61

Chapter 5: Exposition of the Preventive Restructuring Directive 62

5.1 Introduction 62

5.1.1 Context of Exposition within the JCOERE Project 62

5.1.2 Presentation of the Chapter 62

5.2 Historical Context 63

5.2.1 Committee on Legal Affairs Report (2011) 63

5.2.2 Commission Communication ‘A New Approach to Business Failure’ (2012) 64

5.2.3 Commission Recommendation and Impact Assessment (2014) 65

5.2.4 Conclusion 68

5.3 The Commission Proposal 69

5.3.1 The Stay 70

5.3.2 Protection for New Finance 71


5.3.4 Decreased Court Formality 71

5.4 The Consultation Process 71

5.4.1 European Economic and Social Committee 72

5

5.4.2 The European Central Bank 72

5.4.3 European Parliament Committees: Committee on Legal Affairs 73

5.4.4 European Parliament Committees: Employment and Social Affairs (“EMPL”) 74

5.4.5 European Parliament Committees: Economic and Monetary Affairs (“ECON”) 75

5.5 Council of the European Union 76

5.5.1 The Stay 77

5.5.2 Protection of New Finance 78


5.6 Conclusion 81

5.7 Transition to Chapter 6: 81

Chapter 6: Mapping the Preventive Restructuring Frameworks and the EU Directive:

Part 1 – Introduction and Methodology

83

6.1 Introduction: The JCOERE Context 83

6.2 Introducing the Irish Examinership Procedure 84

6.3 Methodology 84

6.4 JCOERE Approach to Comparative Legal Analysis 85

6.5 General Context of Preventive Restructuring: Questionnaire Part 1 86

6.5.1 Functions and Aims of Preventive Restructuring 86

6.5.2 Legislative Frameworks of the Contributing Jurisdictions in Context 86

a) Ireland 87

b) Italy 87

c) Romania 89

d) France 89

e) The Netherlands 91

f) Spain 92

g) Austria 92

h) Poland 93

i) Germany 94

j) Denmark 95

k) England and Wales 95

6

6.6 Conclusion 96

6.7 Chapter 7: Mapping of Preventive Restructuring Frameworks and the EU Directive Part II –

Substantive Aspects of Preventive Restructuring in Domestic Processes and in the Directive

97

Chapter 7: Mapping of Preventive Restructuring Frameworks and the EU Directive:

Part II – Substantive Aspects of Preventive Restructuring in Domestic Processes and in

the Directive

99

7.1 Introduction to Part II of the Questionnaire Mapping Preventive Restructuring Frameworks 99

7.2 The Stay of Individual Enforcement Actions (PRD Article 6) 99

7.2.1 The Purpose of Article 6 in the PRD (Question 3) 100

7.2.2 Jurisdictional Contributions: Existence of the Stay (Article 6(1-8)) 101

7.2.3 Summary of Implementation Requirements for Article 6(1) 104

7.2.4 Jurisdictional Contributions: Removal of Stay by Authority (Article 6(9)) 105

7.2.5 Summary of Implementation Requirements (Article 6(9) 106

7.3 The Adoption of Restructuring Plans (Article 9) 107


7.3.2 Jurisdictional Contributions: Voting Rights and Exclusions (Article 9(1)) 108

7.3.3 Summary of Implementation Requirements 111

7.3.4 Jurisdictional Contributions: Class Formation (Article 9(4)) 111


7.3.6 Jurisdictional Contributions: Examination of Voting Rights and Class Formation by

Authority (Article 9(5))

114


7.3.8 Jurisdictional Contributions: Intra-Class Cram-Down (Majority Voting) (Article 9(6&7)) 118


7.4 The Confirmation of Restructuring Plans (Article 10) 121


7.4.2 Jurisdictional Contributions: Conditions for Obligatory Court Confirmation of Restructuring

Plans (Article 10(1))

122


7.4.4 Jurisdictional Contributions: Conditions for Refusal to Confirm a Plan (Article 10(2)) 124


7.5 Cross-Class Cram-Down (Article 11) 129

7


7.5.2 Jurisdictional Contributions: Existence of a Cross-Class Cram-Down (Article 11(1)(a-b)) 130


7.5.4 Jurisdictional Contributions: Dissenting Creditors and Conditions for Approval (Article

11(1)(c) and 11(2))

132

7.5.5 Jurisdictional Contributions: Question 6.3 – Unfair Prejudice Test (Article 11(2) para 2) 135

7.5.6 Summary of Implementation Requirements for Questions 6.2 and 6.3 136

7.6 Protection of New and Interim Financing 137


7.6.2 Jurisdictional Contributions: Question 8 – Existence of Protection or Priority for Interim

Financing (Article 17(1)&(4))

138


7.7 Workers (Article 13) 141

7.8 Conclusion: Benchmarking the Directive 143

7.9 Chapter 8: Mapping of Preventive Restructuring Frameworks and the EU Directive Part II

Specific Procedural Aspects of Preventive Restructuring in Domestic Processes and in the

Directive

144

Chapter 8: Mapping of Preventive Restructuring Frameworks and the EU

Directive Part III Specific Procedural Aspects of Preventive Restructuring in

Domestic Processes and in the Directive

145

8.1 Introduction to Part III of the Questionnaire Mapping Preventive Restructuring Frameworks 145

8.2 The Threshold for Insolvency and Restructuring 146

8.2.1 Threshold of Insolvency and Restructuring in the Contributing Jurisdictions 147

8.3 Insolvency Practitioners in Preventive Restructuring (Article 5 – Debtor in Possession) 150

8.3.1 Purpose and Spirit of Article 5: Debtor in Possession (Qn 9) 150

8.3.2 Jurisdictional Contributions (Article 5 – Debtor in Possession) 152

8.4 Rights in Rem (Question 10) 156

8.4.1 Introduction to the Concept of a Right in Rem 156

8.4.2 Contributor Definitions of a Right in Rem 157

8.4.3 A Right in Rem under the EIR Recast 158

8.4.4 Rights in Rem under the PRD 159

8.4.5 Jurisdictions Allowing Potential Impairment of Rights in Rem 159

8.5 Conclusion and Transition 161

8

Chapter 9: Conclusion of the JCOERE Project Report 1 163

9.1 Introduction 163

9.2 Summary of Findings 164

9.2.1 Preventive Restructuring Terminology 164

9.2.2 The Regulation of Cross-Border Insolvency and Restructuring in the EI 164

9.2.3 The Context of Preventive Restructuring in the EU 164

9.2.4 Exposition of the Preventive Restructuring Directive 166

9.2.5 The JCOERE Questionnaire: Chapters 6-8 166

9.3 Conclusion and Introduction to JCOERE Report 2 168

Annex 1 – Additional Submissions Contributing to the Exposition of the Preventive

Restructuring Directive

10.1 The Experts Group on Restructuring and Insolvency Law (2016) 169

10.2 The National Parliament Submissions to the European Parliament 172

10.3 EMPL – Workers’ Rights 173

10.4 ECON – Article 7 174

10.5 Committee of the Regions 175

Annex 2 – Mapping the Preventive Restructuring Frameworks and the EU Directive

for the JCOERE Project: Jurisdiction Questionnaire

11.1 Introduction 176

11.2 The Questionnaire 179

Annex 3: Contributor Responses to Jurisdiction Questionnaire (Pending Publication)

12.1 Ireland

12.2 Italy

12.3 Romania

12.4 Austria

12.5 France

12.6 Denmark

12.7 Germany

12.8 The Netherlands

12.9 Poland

12.10 Spain

9

12.11 United Kingdom (England & Wales)

Annex 4 : Bibliography


Copyright © 2019


The European Commission does not accept any responsibility for use that may be made of the information it contains

Acknowledgements

The progress of the JCOERE Project (800807) from its commencement in December 2018 to the present

has been intense, challenging and inspiring. The first JCOERE Report is now presented here in 9

Chapters. This considers the existing preventive restructuring frameworks in a number of member states

in the European Union together with the reforms proposed in the Preventive Restructuring Directive

passed in June 2019 (1023/2019). The publication of the JCOERE 1 Report could not be more timely,

in that it sets out the context across Europe against which preventive restructuring frameworks will be

implemented in accordance with the Directive. It also captures the debate around core concepts in

restructuring, including the threshold of insolvency at which time restructuring processes are available,

the imposition of a stay against creditors and other claimants, cram-down and cross-class cram-down,

and the mechanism for approving restructuring schemes. There is much in this report that will be of

interest to all those practising and researching in this area. JCOERE will now continue on to consider

obligations regarding court to court co-operation in this context, which will form the subject matter for

JCOERE Report 2.

As Principal Investigator, I would like to formally acknowledge the splendid work of our core team here

at UCC. Dr Jennifer L. L. Gant, Aoife Finnerty and Molly O’Connor have all worked extremely well

together and in collaboration with me to produce an excellent piece of work. Their team-work is second

to none. In addition, I extend our thanks to all of our partner teams and their leaders, Dr Paul Omar and

Caroline Taylor at INSOL Europe; Professor Lorenzo Stanghellini, Professor Andrea Zorzi, Dr Iacopo

Donati, and Niccoló Usai at UNIFI; and Judge Nicoleta Nastasie, Dr Cristian Drăghici, Professor Ioana

Panc, Professor Smaranda Angheni and Ioana Duca at UTM for their help and support.

I am also grateful to our Advisory Board members, in particular the Honourable Judge Michael Quinn

and his judicial assistant Lorna Reid (and before that the Honourable Judge Caroline Costello), Adjunct

Professor Jane Marshall, Professor Gerry McCormack and Dr Emilie Ghio, all of whom have given

generously of their time at our project meetings in Cork, Florence and Copenhagen. We also extend our

thanks to the other members of our Board, Declan Walsh and The Honourable Judge Anthony Collins,

whose support will continue to be important into the next phase.

Finally, we are more than grateful to our national contributors Dr Emilie Ghio (France), Gert-Jan Boon

(The Netherlands), Dr Antonio Sotillo Marti and Javier Vercher, with additional input from Nuria

Bermejo and Professor Francisco Garcimartin (Spain). Dr Susanne Fruhstorfer (Austria), Sylwester

Zydowicz with additional input from Michał Barłowski (Poland), Professor Dr Stephan Madaus

(Germany), and Assistant Professor Line Langkjær (Denmark) who have responded so generously to

our questionnaire and our follow up queries. They have complied with our intense deadlines and work

programme and have done so with a great deal of intellectual interest, good humour, and enthusiasm,

which is reflected in this excellent piece of work. We can honestly say that co-operation amongst

European scholars and commentators is thriving and inspiring and points the way to an optimistic future

for the European Union.

Professor Dr Irene Lynch Fannon, 14 January 2020.

11

The JCOERE Project Team

Voluntary Contributors to the JCOERE Project to whom the JCOERE Project Team owes its sincere

thanks for excellent and detailed country reports given in response to the JCOERE Questionnaire:

• Dr Emilie Ghio, Birmingham City University and Dr Paul Omar, INSOL Europe (France)

• Gert-Jan Boon, University of Leiden (The Netherlands)

• Dr Antonio Sotillo Marti and Javier Vercher, Universitat de Valencia (Spain)

• Nuria Bermejo and Professor Francisco Garcimartin Universidad Autonoma de Madrid (Spain)

• Dr Susanne Fruhstorfer, Taylor Wessing (Austria)

• Sylwester Żydowicz, Taylor Wessing (Poland)

• Michał Barłowski, Wardynski & Partners, Warsaw (Poland)

• Professor Dr Stephan Madaus, Martin Luther University, Halle-Wittenberg (Germany)

• Assistant Professor Line Langkjær, Aarhaus University (Denmark)

JCOERE Consortium

University College Cork:

• Professor Irene Lynch Fannon – Principal Investigator

• Dr Jennifer L. L. Gant – Post Doctoral Researcher

• Aoife Finnerty – Research Assistant

• Molly O’Connor – Project Manager

Università degli Studi di Firenze:

• Professor Lorenzo Stanghellini

• Professor Andrea Zorzi

• Dr Iacopo Donati - Post Doctoral Researcher

• Niccoló Usai – Research Assistant

Universitatea Titu Maiorescu:

• Judge Nicoleta Mirela Nastasie

• Dr Cristian Drăghici – Post Doctoral Researcher

• Professor Ioana Panc

• Professor Samaranda Angheni

• Ioana Duca

INSOL Europe:

• Dr Paul Omar

• Caroline Taylor

JCOERE Advisory Board

• The Honourable Judge Michael Quinn – High Court, Ireland

• The Honourable Judge Anthony M. Collins – General Court of the European Union

• Mrs Jane Marshall – Solicitor, Adjunct Professor, UCC

• Dr Emilie Ghio – Birmingham City University

• Mr Declan Walsh – School of Law UCC

• Professor Gerry McCormack – University of Leeds

Documents

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