2015 EU Insolvency Regulation (EIR): What‘s new ?

The recast EU Insolvency Regulation (REGULATION (EU) 2015/848 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 20 May 2015 on insolvency proceedings) entered into force on 26 June 2015 and will apply to proceedings that are commenced from 26 June 2017 onwards.

The significant steps in the legislative procedure and a document comparison between the 2002 EU Insolvency Regulation and the new 2015 version can be found at http://www.schubra.de/de/restrukturierung/EuInsVO_Reform_2015.php

We would now like to explain to you the significant new features of the 2015 EU Insolvency Regulation in the course of a series of newsletters running until June 2017; we are beginning today with the extension of the scope to hybrid and pre-insolvency proceedings.

Patrick Ehret
Attorney at Law in Germany and France
Certified Specialist in International and EU Law (France)
D.E.A. (European Community Law)

 

Patrick Ehret

Expansion of the scope to hybrid and pre-insolvency proceedings

In its draft for the recast of the EIR , the European Commission had proposed, making reference to the public consultation that was carried out in 2012 and the report prepared by the Universities of Heidelberg and Vienna, amending the current definition of “insolvency proceedings” such that the scope would be opened to proceedings which do not involve a liquidator but in which the assets and affairs of the debtor are subject to control or supervision by a court. In addition, it was proposed also to make reference to proceedings for the adjustment of debts and to the purpose of rescue and those proceedings which enable the debtor to find an arrangement with his creditors at a pre-insolvency stage.

The recast EIR now applies to “public collective proceedings, including interim proceedings, which are based on laws relating to insolvency and in which, for the purpose of rescue, adjustment of debt, reorganisation or liquidation:

 

  1. a debtor is totally or partially divested of its assets and an insolvency practitioner is appointed;

  2. the assets and affairs of a debtor are subject to control or supervision by a court; or

  3. a temporary stay of individual enforcement proceedings is granted by a court or by operation of law, in order to allow for negotiations between the debtor and its creditors, provided that the proceedings in which the stay is granted provide for suitable measures to protect the general body of creditors, and, where no agreement is reached, are preliminary to one of the proceedings referred to in point (a) or (b).

Where the proceedings referred to in this paragraph may be commenced in situations where there is only a likelihood of insolvency, their purpose shall be to avoid the debtor's insolvency or the cessation of the debtor's business activities.”

Both insolvency and divestment cease to be conditions of application. The appointment of an insolvency practitioner is now merely a procedural arrangement. Instead, it is considered sufficient to place the debtor under supervision or control by a court.

Only the criterion of collective proceedings remains as a condition of application, although it is subject to extensive interpretation. Collective proceedings are now considered to include proceedings that include all or a significant part of the creditors to whom a debtor furthermore owes all or a substantial proportion of the debtor's outstanding debts. The only precondition in this regard is that proceedings do not affect the claims of those creditors who are not involved.

Publicity for proceedings is likewise made a precondition for the applicability of the new EIR. Confidential proceedings, although they play an important role in some Member States, can only produce effects in the relevant Member States in the absence of publication and the provision of information to creditors in the Union.

For German practitioners, paramount importance should attach to the Europe-wide recognition of insolvency commencement proceedings as (interim) proceedings within the meaning of the revised version of the EIR. Previously, the appointment of a provisional insolvency administrator in German insolvency commencement proceedings was only acknowledged to constitute the opening of proceedings provided that the power of disposal passed to the IP, i.e. that a “powerful interim administrator (starker vorläufiger Insolvenzverwalter)” was appointed. It was only in these circumstances that the proceedings were recognised as main proceedings throughout the Union, with the result that further proceeding could only be opened in other Member States as secondary proceedings. It can now be seen from the definition of opening insolvency proceedings in Article 2 N° (7) and Annex B, which for Germany also makes reference to a “vorläufiger Verwalter” [“interim insolvency practitioner”], that insolvency commencement proceedings with the appointment of an interim insolvency practitioner are categorised as the commencement of main proceedings within the meaning of the EIR.

As before, the proceedings that fall within the scope of the Regulation are listed in Annex A, now in a conclusive manner. It therefore remains the case that a glance at Annex A assists the search for clarification with respect to the recognition of Member States’ insolvency proceedings. Unfortunately, the European Commission’s request to make the inclusion of Member States’ insolvency proceedings in Annex A conditional upon compliance with the defintion in Article 1 was not granted. Instead, the question of which proceedings are to be recognised throughout the Union remains at the discretion of the Member States.

In the case of pre-insolvency restructuring proceedings, the Commission is already one step ahead: the Directive that is now at the draft stage is intended to introduce so called preventive restructuring frameworks subject to minimum harmonisation across Europe. These tools – as far as being public proceedings - on the basis of the implementation of the directive in the Member States should all be eligible for inclusion in Annex A. Nevertheless, it remains to be seen whether Annex A will be amended accordingly. For the time being the proposed directive does not provide such amendment.

Patrick Ehret, Attorney at Law in Germany and France, Certified Specialist in International & EU Law in France, D.E.A. (European Community Law)

Our next 2015 EU Insolvency Regulation (EIR): What‘s new ? Newsletter will present the new features in respect to article 3 and COMI


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