EU Insolvency Regulation – Group Insolvency Law

On 26 June 2017, the EU Insolvency Regulation (Recast) 848/2015 (“EIR”) becomes applicable for insolvency proceedings and similar proceedings in the EU member states (Art. 84). As of that date, the new rules in Chapter V of the EIR for insolvent company groups also apply. The new provisions regulate scenarios in which more than one member of a company group is in insolvency. Art. 56-60 deal with duties of the parties involved to cooperate and communicate in general and to coordinate the respective insolvency proceedings. For this purpose, group coordination proceedings pursuant to Art. 61-77 can be initiated.

Please note our website Group Insolvency Law 2017 for further information on group insolvency law in Germany, Europe and other jurisdictions.

This newsletter concludes our newsletter series on the European Insolvency Regulation (Recast) of 2015.

We hope you find it interesting reading.

Dr H. Philipp Esser
LL.M. (Chicago)
Attorney at Law in Germany
Attorney at Law (New York State)

 Lawyer Dr H. Philipp Esser

Dr H. Philipp Esser

1. History and Applicability

The EU group insolvency rules were developed at about the same time and for the same reasons that the German group insolvency rules were also proposed (but Germany only passed its new group insolvency law in 2017, it will become applicable on 21 April 2018). Therefore, the rules are in part similar. However, the EU rules are more detailed regarding group coordination proceedings and do not provide for a joint jurisdiction for the insolvency proceedings of insolvent group members.
The group insolvency rules apply as soon as insolvency proceedings are pending for two (or more) members of the same company group. A company group includes at least two “undertakings” (Art. 2 no. 13 and 14) of which one controls the other one.
In Germany (as of 21 April 2018) and presumably in other countries as well, German insolvent group members may be subject to the group insolvency rules of the EIR and of the national legislation – in Germany: the Insolvency Code (Insolvenzordnung, InsO). For Germany, Art. 102c § 22 of the Introductory Code (“Einführungsgesetz”) to the Insolvency Code (EGInsO) will provide that the German rules step back insofar as the EIR rules apply. Further, German group coordination proceedings cannot be initiated to the extent that they would negatively affect the effectiveness of group coordination proceedings pursuant to the EIR.

2. Communication, Cooperation, Coordination

Art. 56-58 generally oblige the parties of the insolvency proceedings – in particular, insolvency administrators and insolvency courts – for the group members to cooperate. In particular, the administrators shall exchange information and shall consider whether possibilities exist for a coordinated administration and potentially restructuring, for example through the proposal of a coordinated restructuring plan (Art. 56 para. 2). The cooperation of the insolvency courts may relate to, in particular, the appointment of the insolvency administrators, the coordination of the courts’ monitoring of the administration and court hearings (Art. 57 para. 3). However, these duties only apply to the extent that they are not incompatible with national insolvency law and that they do not entail conflicts of interest. This broad exception is likely to reduce much of the impact that the duty to communicate, cooperate and coordinate will have in practice.

3. Rights of the Individual Insolvency Administrator, Art. 60

Art. 60 grants important rights to each insolvency administrator of an insolvent group member: Not only can the administrator be heard within the insolvency proceedings of other insolvent group members and can he apply for group coordination proceedings. In particular, an insolvency administrator may request the stay of any measure related to the realization of assets of other group members’ insolvency proceedings (para. 1 lit. b). This requires that (i) a coordinated restructuring plan has been proposed and presents a reasonable chance of success, (ii) the implementation of the plan requires the stay of the realization measure and (iii) the plan would benefit the creditors affected by the stay. If necessary, the insolvency court may order measures to be taken to guarantee the interests of such creditors. The stay may last for up to three months and can be extended up to a maximum total of six months (para. 2).

4. Group Coordination Proceedings

By introducing group coordination proceedings (“GCP”), the EIR provides for a procedural instrument to improve the administration of insolvent company groups through coordination and through the appointment of a group coordinator. The strategy for a group-wide coordinated administration shall be set out in a group coordination plan. However, the group coordination plan is not directly binding for the individual group members’ insolvency administrators. Moreover, the group coordination plan may not provide for any consolidation of proceedings or of the assets and liabilities of the insolvency proceedings. Thus, the approach and effect of the GCP in a sense resembles a mediation procedure for a joint restructuring strategy and for the resolution of conflicts in a company group insolvency.

Any insolvency administrator of a group member may apply for a GCP. Each insolvency court of a group member has jurisdiction. Exclusive jurisdiction lies with the court that receives the first application, unless two-thirds or more of the insolvency administrators determine that a different court has exclusive jurisdiction. The court informs the insolvent group members of the application and each such insolvency proceeding has the right to opt-out from the future GCP without having to provide any reason.

The court commences the GCP if it is convinced that (i) the GCP is likely to facilitate the effective administration of the group members’ insolvency proceedings, (ii) the GCP does not cause any financial disadvantage to any group member’s creditors and (iii) the proposed coordinator fulfills the requirements for this position (Art. 63 para. 1). The court will then appoint the coordinator and decide on the outline of the coordination (plan) and on the sharing of the costs (Art. 68). Insolvent group members that do not participate in the GCP from the beginning, may opt-in at any later point, which requires the approval of the coordinator or of all insolvency administrators of the participating group members (Art. 69).

The coordinator must not be an administrator of one of the insolvent group members, but needs to be qualified to be appointed as insolvency administrator. In particular, he proposes the group coordination plan to the insolvent group members. The plan may set out the joint restructuring strategy, rules for the resolution of conflicts or protocols between insolvency administrators (Art. 72). The insolvency administrators of the group members do not need to follow the plan, if they inform the parties of their insolvency proceedings about their reasons to do so (Art. 70). The coordinator further has the right to be heard in any insolvency proceeding of a group member and to attend creditors’ meetings, e.g. to explain the group coordination plan. Furthermore, he may request the stay of the insolvency proceedings of any group member for up to six months if the stay is necessary for the implementation of the group coordination plan and benefits the creditors affected.

The group members bear the costs of the GCP in accordance with the commencement order. Each insolvency administrator may file an objection against the final statement of the coordinator. The court then decides on the costs (Art. 77).

Dr H. Philipp Esser, LL.M. (Chicago), Attorney at Law in Germany, Attorney at Law (New York State)


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